<PAGE>
As filed with the Securities and Exchange Commission on June 18, 1997
Registration No. 333-_____
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM SB-2
REGISTRATION STATEMENT
under the Securities Act of 1933
------------------------
CORTEX PHARMACEUTICALS, INC.
(Name of small business issuer in its charter)
DELAWARE 2834 33-0303583
(State or jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Classification Identification No.)
organization) Code Number)
15241 Barranca Parkway, Irvine, California 92618
(714) 727-3157
(Address and telephone number of principal executive offices
and principal place of business)
Vincent F. Simmon, Ph.D., President and Chief Executive Officer
15241 Barranca Parkway, Irvine, California 92618
(714) 727-3157
(Name, address and telephone number of agent for service)
Copies to:
Nick E. Yocca, Esq.
Lawrence B. Cohn, Esq.
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
(714) 725-4000
-------------------------------
Approximate date of proposed sale to the public: From time to time after this
Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering: .
-------
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration for the same
offering: .
-----
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: .
------
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: X .
-------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE AGGREGATE OFFERING AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PRICE(1) PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value $.001
per share 4,600,537 shares $2.937 $13,511,777 $4,095
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</TABLE>
(1) The offering price is estimated solely for the purpose of calculating the
registration fee in accordance with Rule 457(c), using the average of the high
and low bid price for the Common Stock as reported on the Nasdaq Small-Cap
Market on June 16, 1997, which was $2.937 per share.
* Previously paid.
-------------------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PROSPECTUS
[LOGO] CORTEX PHARMACEUTICALS, INC.
4,600,537 Shares of Common Stock
(Par Value $0.001 Per Share)
This Prospectus relates to the sale of up to 4,600,537 shares (the "Shares") of
the common stock, par value $0.001 per share (the "Common Stock"), of Cortex
Pharmaceuticals, Inc. ("Cortex" or the "Company") by certain stockholders of the
Company (the "Selling Stockholders"). The Shares include 1,191,291 shares of
Common Stock issuable upon exercise of warrants (the "Warrant Shares") and up to
3,409,246 shares of Common Stock that may be issuable upon conversion of Series
A Preferred Stock (including up to 1,704,623 shares of Common Stock that may be
issued upon exercise of purchase rights triggered by conversion of Series A
Preferred Stock). The Selling Stockholders may sell the Shares from time to time
in transactions in the over-the-counter market, in negotiated transactions, by
writing options on the Shares or by a combination of these methods, at fixed
prices that may be changed, at market prices prevailing at the time of the sale,
at prices related to such market prices or at negotiated prices. The Selling
Stockholders may effect these transactions by selling the Shares to or through
broker-dealers, who may receive compensation in the form of discounts or
commissions from the Selling Stockholders or from the purchasers of the Shares
for whom the broker-dealers may act as an agent or to whom they may sell as a
principal, or both. The Selling Stockholders and such brokers-dealers may be
deemed to be "underwriters" within the meaning of the Securities Act of 1933, in
connection with such sales. See "Selling Stockholders" and "Plan of
Distribution."
The Company will not receive any part of the proceeds from the sale of the
Shares. The Company has agreed to bear all of the expenses in connection with
the registration and sale of the Shares (other than underwriting discounts and
selling commissions and the fees and expenses of counsel or other advisors to
the Selling Stockholders).
The Common Stock of the Company trades on the Nasdaq Small-Cap Market under the
symbol CORX. On June 16, 1997, the high and low sale prices of a share of Common
Stock of the Company, as reported by Nasdaq, were $3.125 and $2.875,
respectively. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING AT PAGE 5 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF
THE COMMON STOCK OFFERED HEREBY.
-------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS ________ __, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street N.W., Washington, D.C. 20549, and at the following Regional Offices of
the Commission: 7 World Trade Center, 13th Floor, New York, New York 10048; 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Reports and other
information on the Company may be obtained from the Public Reference Section of
the Commission at Judiciary Plaza, 450 Fifth Street N.W., Washington, D.C.
20549, at prescribed rates. The Commission maintains a Web site at
http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants, such as the Company, that file
electronically with the Commission.
This Prospectus constitutes part of a Registration Statement (the "Registration
Statement") on Form SB-2 under the Securities Act of 1933, as amended (the
"Securities Act"), with respect to the securities offered hereby. For further
information about the Company and the securities offered hereby, reference is
made to the Registration Statement and to the financial statements and exhibits
filed as a part thereof. The statements contained in this Prospectus as to the
contents of any contract or any other document are not necessarily complete, and
in each instance reference is made to the copy of such contract or document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. The Registration Statement,
including exhibits thereto, may be inspected without charge at the public
reference facilities maintained by the Commission as provided in the preceding
paragraph, and copies of all or any part thereof may be obtained from the
Commission's Public Reference Section at prescribed rates.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING IS A SUMMARY QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING
ELSEWHERE IN THIS PROSPECTUS. ALL SHARE AND PER SHARE DATA HAVE BEEN RESTATED TO
REFLECT A ONE-FOR-FIVE REVERSE STOCK SPLIT THAT WAS EFFECTED JANUARY 11, 1995.
AN INVESTMENT IN THE SHARES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE
"RISK FACTORS."
This Prospectus 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 is subject to the safe harbors created thereby. The
forward looking statements are based on current expectations that involve a
number of risks and uncertainties. These forward-looking statements are based on
assumptions that the Company will be able to obtain sufficient financing to
continue operations, that the Company's technology will continue to be developed
and will not be replaced by new technology, that the Company will retain key
technical and management personnel, and that there will be no material adverse
change in the Company's operations or business. Assumptions relating to the
foregoing involve judgments with respect to, among other things, future
technology, economic, competitive and market 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 the forward-looking
statements will be realized. In addition, the business and operations of the
Company are subject to substantial risks that increase the uncertainty inherent
in such forward-looking statements. 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 of the Company or
any other person that the objectives or plans of the Company will be achieved.
The following summary is qualified in its entirety by the more detailed
information and the Financial Statements and the Notes thereto appearing
elsewhere in this Prospectus.
THE COMPANY
Cortex Pharmaceuticals, Inc. ("Cortex" or the "Company") is a development stage
enterprise that was organized in 1987 to engage in the discovery, development
and commercialization of innovative pharmaceuticals for the treatment of
neurodegenerative diseases and other neurological and psychiatric disorders. The
primary product development effort at Cortex is centered on the AMPA receptor, a
complex of proteins that is involved in most "excitatory" communication between
nerve cells in the human brain. Cortex is developing a family of chemical
compounds, known as AMPAKINEs-TM-, to enhance the activity of this receptor.
Cortex believes that AMPAKINEs hold promise for correcting deficits brought on
by a variety of diseases and disorders that are known, or thought, to involve
depressed functioning of pathways in the brain that use glutamate as a
neurotransmitter. In October 1994, the Company initiated human safety studies
with CX516 (AMPALEX-TM-) for the potential treatment of deficits of memory and
cognition due to Alzheimer's disease. To date, these studies have been primarily
directed toward establishing the safety and tolerability of CX516. Cortex is
also investigating the potential utility of its AMPAKINEs in the treatment of
schizophrenia. The Company's primary research focus is on the AMPA receptor
program but, with the reacquisition of rights to calpain inhibitor compounds
from Alkermes in October 1995, a research effort in this area has been
reinstituted.
Cortex believes that its competitive advantage is the quality of its science and
technology, and that it can compete effectively with larger, more established,
better capitalized entities in the area of discovery of innovative
pharmaceuticals. The Company does not, however, have the resources or expertise
for later-stage clinical development, manufacturing and worldwide marketing. The
Company's commercial development plans therefore involve partnering with larger
pharmaceutical companies for Phase II and later clinical testing, manufacturing
and global marketing of its proposed products, while attempting to retain the
right to eventually co-promote in the United States. If the Company is
successful in the pursuit of this business strategy, it is intended that it will
be in a position to cover its costs over the next few years, to maintain its
focus on the research and early development of innovative pharmaceuticals, and
to eventually participate more fully in the commercial development of its
proposed products in the United States. Cortex is actively seeking collaborative
or licensing arrangements with larger pharmaceutical companies that will permit
its product candidates to be advanced into the later stages of clinical
development and that will provide access to the clinical trials management,
manufacturing and marketing expertise of such companies. There can be no
assurance, however, that the Company will secure such arrangements on favorable
terms, or at all, or that its products will be successfully developed, approved
for marketing by government regulatory agencies, or accepted by patients, health
care providers and insurers.
3
<PAGE>
Cortex was incorporated in Delaware on February 10, 1987. The Company's offices
and laboratories are located at 15241 Barranca Parkway, Irvine, California,
92618, and its telephone number is (714) 727-3157.
AMPALEX-TM- and AMPAKINE-TM- are trademarks of Cortex Pharmaceuticals, Inc. This
Prospectus also includes registered trademarks of other companies.
RISK FACTORS
An investment in the Shares offered hereby involves a high degree of risk. See
"Risk Factors."
SELECTED FINANCIAL INFORMATION
The selected financial information set forth below is derived from and should be
read in conjunction with the more detailed financial statements (including the
notes thereto) appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
STATEMENTS OF OOPERATIONS DATA:
(Unaudited)
(Unaudited) Period from Period from
Nine months ended inception Inception
March 31, (February 10, Years ended June 30, (February 10,
1987) through 1987) through
------------------------ March 31, --------------------------- June 30,
1997 1996 1997 1996 1995 1996
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ - $ - $ 3,694,717 $ - $ - $ 3,694,717
Total operating
expenses 3,760,324 3,286,257 34,007,972 4,321,309 7,031,842 30,247,648
------------ ------------ -------------- ------------ ------------ --------------
Loss from
operations (3,760,324) (3,286,257) (30,313,255) (4,321,309) (7,031,842) (26,552,931)
Interest income,
net 106,204 116,716 1,439,511 163,062 196,310 1,333,307
------------ ------------ -------------- ------------ ------------ --------------
Net loss $ (3,654,120) $ (3,169,541) $ (28,873,744)$ (4,158,247) $ (6,835,532) $ (25,219,624)
------------ ------------ -------------- ------------ ------------ --------------
------------ ------------ -------------- ------------ ------------ --------------
Weighted
average common
shares
outstanding 7,899,585 6,260,152 6,532,884 6,075,454
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net loss per
share $ (0.57) $ (0.51) $ (0.64) $ (1.13)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
</TABLE>
BALANCE SHEET DATA:
June 30,
(Unaudited) --------------------------
March 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Total current assets (1) $ 4,742,833 $ 4,179,977 $ 3,931,448
Total assets (1) 5,446,539 5,013,920 4,886,372
Total current liabilities 418,406 330,328 603,660
Deficit accumulated during
the development stage (29,893,090) (25,359,298) (21,201,051)
Total stockholders'
equity (1) $ 3,950,109 $ 3,644,763 $ 3,272,696
Common shares outstanding 9,148,727 7,495,576 6,085,201
-------------------------
(1) Excludes net proceeds of approximately $2,000,000 received in June
1997 in connection with a private placement of Series A Preferred
Stock. See "Capitalization," "Description of Securities -- Preferred
Stock" and Note 11 of Notes to Financial Statements.
4
<PAGE>
RISK FACTORS
AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE IN NATURE,
INVOLVES A HIGH DEGREE OF RISK, AND SHOULD NOT BE MADE BY ANY INVESTOR WHO
CANNOT AFFORD THE LOSS OF HIS ENTIRE INVESTMENT. EACH PROSPECTIVE INVESTOR
SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS AND SPECULATIVE FACTORS, AS WELL
AS OTHERS DESCRIBED ELSEWHERE IN THIS PROSPECTUS, ASSOCIATED WITH THIS OFFERING
BEFORE MAKING AN INVESTMENT.
NEED FOR ADDITIONAL FUNDS. Cortex anticipates that its existing capital
resources (including approximately $2,000,000 in net proceeds received in June
1997 from the first closing of a two-part private placement of Series A
Preferred Stock) will enable it to maintain its current and planned operations
through June 1998. The second closing of the private placement, if and when
received, is expected to provide an additional $2,000,000 of total gross
proceeds, which amount is expected to fund operations into fall 1998. The
Company will require additional funds to continue its operations beyond fall of
1998. There can be no assurance that the Company will be able to obtain the
additional needed funds on reasonable terms, or at all. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEVELOPMENT STAGE COMPANY; HISTORY OF LOSSES. Cortex is a development stage
enterprise. From inception on February 10, 1987 through March 31, 1997, the
Company has generated only modest operating revenues and has incurred net losses
aggregating $28,873,744. As of March 31, 1997, the Company had an accumulated
deficit of $29,893,090. The Company will require substantial additional funds to
advance its research and development programs, particularly should the Company
decide to independently conduct later-stage clinical testing and apply for
regulatory approval of any of its proposed products. There can be no assurance
that such additional financing will be available on acceptable terms, or at all.
If additional funds are raised by issuing equity securities, further dilution to
existing stockholders may result. If the Company is unable to obtain additional
funds when and as needed, the Company may be required to significantly curtail
one or more of its product development programs. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Business."
TECHNOLOGICAL UNCERTAINTY; EARLY STAGE OF PRODUCT DEVELOPMENT; NO ASSURANCE OF
REGULATORY APPROVALS. The Company's proposed products are in the preclinical or
early clinical stage of development and will require significant further
research, development, clinical testing and regulatory clearances. They are
subject to the risks of failure inherent in the development of products based on
innovative technologies. These risks include the possibilities that any or all
of the proposed products will be found to be ineffective or toxic, or otherwise
fail to receive necessary regulatory clearances, that the proposed products,
although effective, will be uneconomical to market, that third parties may now
or in the future hold proprietary rights that preclude the Company from
marketing them, or that third parties will develop and market a superior or
equivalent product. Accordingly, the Company is unable to predict whether its
research and development activities will result in any commercially viable
products or applications. Further, due to the extended testing and regulatory
review process required before marketing clearance can be obtained, the Company
does not expect to be able to commercialize any therapeutic drug for at least
five years, either directly or through its corporate partners or licensees.
There can be no assurance that the Company's proposed products will prove to be
safe or effective or receive regulatory approvals that are required for
commercial sale. See "Business."
DEPENDENCE ON STRATEGIC ALLIANCES AND THIRD PARTIES FOR CLINICAL TESTING,
MANUFACTURING AND MARKETING. The Company does not have the resources, and does
not presently intend, to conduct later-stage human clinical trials or to
manufacture any of its proposed products. The Company is therefore seeking
larger pharmaceutical company partners to conduct such activities for most or
all of its proposed products. In connection with its efforts to secure corporate
partners, the Company will seek to retain certain co-promotional rights to its
proposed products, so that it may promote such products to selected medical
specialists while its corporate partner promotes to the general medical market.
There can be no assurance that the Company will be able to enter into any such
partnering arrangements on this or any other basis. In addition, there can be no
assurance that either the Company or its prospective corporate partners can
successfully introduce its proposed products, that they will achieve acceptance
by patients, health care providers and insurance companies, or that they can be
manufactured and marketed at prices that would permit the Company to operate
profitably. See "Business."
LIMITED PROPRIETARY RIGHTS; LACK OF PATENT PROTECTION. The Company has
negotiated technology rights agreements giving it exclusive rights to its
proposed cognition enhancement products and calpain inhibitor products under
patents or patent applications owned wholly by other parties or by other parties
as co-owners with the Company. The Company also holds options or other rights to
obtain exclusive licenses under patent applications relating to certain of its
potential products. Certain of the Company's licenses and other agreements are
terminable if the Company does not make certain minimum
5
<PAGE>
annual payments, meet certain milestones or diligently seek to commercialize the
underlying technology. In addition, the Company's related collaborative and
consulting agreements are generally terminable upon 30 to 60 days' written
notice.
There can be no assurance that current or future patent applications in which
Cortex has an interest, either as sole owner or as a current or prospective
licensee, will result in patents being issued. There can also be no assurance
that patents issuing in the future in connection with current or future patent
applications will afford effective protection against competitors with similar
technology, or that any patents issued or licensed to Cortex will not be
infringed upon or designed around by others.
If Cortex is unable to obtain protection of its proprietary rights in its
products or processes prior to or after obtaining regulatory clearances, whether
through patents, trade secrets or otherwise, competitors may be able to market
competing products by obtaining regulatory clearance through demonstration of
equivalency to the Company's products, without being required to conduct the
same lengthy clinical tests conducted by the Company.
In some cases, Cortex may rely on trade secrets to protect its innovations.
There can be no assurance that secrecy obligations will be honored or that
others will not independently develop similar or superior technologies. To the
extent that consultants, key employees or other third parties apply
technological information independently developed by them or by others to the
Company's projects, disputes may arise as to the proprietary rights to such
information that may not be resolved in favor of the Company. See
"Business--Patents and Proprietary Rights."
SHARES ELIGIBLE FOR FUTURE SALE; DILUTION. If all outstanding warrants and
options are exercised prior to their expiration, approximately 800,000
additional shares of Common Stock could become freely tradable without
restriction under the Securities Act. An aggregate of 29,384 shares of Common
Stock are issuable upon conversion of currently outstanding 9% Preferred Stock
and Series B Preferred Stock. On issuance such shares will be freely tradable.
As of June 5, 1997, 649,730 shares of Common Stock are issuable upon conversion
of 200 currently outstanding shares of Series A Convertible Preferred Stock (the
"Series A Preferred"). If conversions of Series A Preferred occur at an
effective conversion price of $2.75 or higher, the holder of the shares of
Series A Preferred being converted may exercise, at the time of conversion,
rights to purchase additional shares of Common Stock. The number of additional
shares of Common Stock subject to this additional purchase right will equal the
number of shares of Common Stock issuable upon conversion of the shares of
Series A Preferred then being converted. Depending on the date of conversion,
the then current sales price of the Common Stock and whether any additional
purchase rights are exercised, the exact number of shares of Common Stock issued
upon conversion of the Series A Preferred may increase or decrease substantially
from the number of shares of Common Stock issuable as of June 5, 1997 set forth
above. See "Description of Securities."
The Company plans to issue, within three business days of the effective date of
the Registration Statement of which this Prospectus forms a part, an additional
200 shares of Series A Preferred and warrants to purchase up to 400,000 shares
of Common Stock with an exercise price of $3.08 per share and an expiration date
of June 5, 2001. If the market price of the Common Stock is equal to or higher
than $2.75 per share at the time(s) of conversion, the holder of the Series A
Preferred may purchase up to the same number of common shares as the holder is
acquiring upon such conversion of Series A Preferred, at the same applicable
conversion price per share. Any election to exercise the foregoing right to
purchase any additional shares shall be exercised with respect to any given
Series A Preferred at the time of conversion of such shares and is forfeited to
the extent it is not fully exercised at the time of such conversion. All shares
of Common Stock issuable upon conversion of Series A Preferred, the exercise of
the related rights of additional purchase and the exercise of related warrants,
may be freely tradable under the Registration Statement of which this Prospectus
is a part. Sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market price of the Common Stock and,
dependent upon the then current market price of the Common Stock, increase the
number of shares of Common Stock that are issuable upon conversion of Series A
Preferred. See "Description of Securities -- Preferred Stock" and Note 11 of
Notes to Financial Statements.
INTENSE COMPETITION. The Company's business is characterized by intensive
research efforts. Many companies, research institutes and universities are
working in a number of pharmaceutical or biotechnology disciplines to develop
therapeutic products similar to those under investigation by the Company. Most
of these companies, research institutes and universities have substantially
greater financial, technical, manufacturing, marketing, distribution and/or
other resources than Cortex. In addition, many of such companies have experience
in undertaking human clinical trials of new or improved therapeutic products and
obtaining FDA and other regulatory clearances of products for use in human
health care. The Company has no experience in conducting and managing clinical
testing or in preparing applications necessary to gain regulatory clearances.
Accordingly, other companies may succeed in developing products that are safer
or more effective than those proposed to be developed by the Company and in
obtaining FDA clearances for such products more rapidly than the Company.
Further, it is expected that competition in this field will continue to
intensify. See "Business--Competition."
6
<PAGE>
DEPENDENCE UPON KEY PERSONNEL. Cortex is highly dependent upon key management
and technical personnel. Competition for qualified employees among
pharmaceutical and biotechnology companies is intense, and the loss of any of
such persons, or an inability to attract, retain and motivate the additional
highly-skilled employees and consultants required for the Company's activities,
could materially adversely affect its business and prospects. There can be no
assurance that Cortex will be able to retain its existing personnel or attract
additional qualified employees when they are needed. See "Business" and
"Management."
DEPENDENCE ON RELATIONSHIPS WITH KEY CONSULTANTS AND THE UNIVERSITY OF
CALIFORNIA, IRVINE. The Company is dependent upon its relationships with a
number of key academic consultants, particularly Drs. Carl W. Cotman and Gary S.
Lynch of the University of California, Irvine ("UCI"). Drs. Cotman and Lynch
play a role in guiding the internal research of the Company. In addition, Cortex
sponsors early preclinical research in the laboratories of Dr. Lynch at UCI that
is a component of the Company's product development and corporate partnering
profile. Were Cortex's relationships with Dr. Lynch or UCI to be disrupted, it
is possible that the Company's AMPA receptor research program would be adversely
affected, and there is no assurance that the Company would be able to conduct
the sponsored research internally at reasonable cost, or at all. The Company's
agreements with its consultants, including those with Drs. Cotman and Lynch, are
generally terminable by the consultant on short notice. See "Management."
GOVERNMENT REGULATION. Therapeutic products such as those Cortex is attempting
to develop are subject to an extensive and lengthy regulatory review and
approval process by the FDA and comparable agencies in other countries. Prior to
commercialization, the Company's products will require governmental approvals
that have not yet been obtained and that are not expected to be obtained for at
least several years, if at all. The testing and regulatory approval process,
which includes preclinical, clinical and post-clinical testing of the Company's
products to establish their safety and efficacy, will take many years and
require the expenditure of substantial resources. There can also be no assurance
that, even after such time and expenditures, regulatory clearances will be
obtained for any of the Company's products. Even if regulatory clearances are
obtained, a marketed product is subject to continual review, and later discovery
of previously unknown problems may result in restrictions on marketing or
withdrawal of the product from the market. In addition, the current
administration in the U.S. is proposing changes in federal regulation and
reimbursement policies intended to facilitate the delivery of cost-effective
health care. The implementation of such proposed changes may affect the
regulation and availability of, and the pricing and reimbursement for, health
care products. The Company is unable to predict the effect, if any, that these
proposed changes will have on the Company. See "Business--Government
Regulation."
PRODUCT LIABILITY AND INSURANCE. The clinical testing, manufacturing and
marketing of the Company's products may expose the Company to product liability
claims. Cortex maintains liability insurance with coverage limits of $5 million
per occurrence and $5 million in the annual aggregate. Although the Company has
never been subject to a product liability claim, there can be no assurance that
the coverage limits of the Company's insurance policies will be adequate or that
one or more successful claims brought against the Company would not have a
material adverse effect upon the Company's business, financial condition and
results of operations.
LIMITED PUBLIC MARKET; CHANGE IN LISTING STANDARDS; POSSIBLE VOLATILITY OF STOCK
PRICE. The Company's Common Stock has been traded on the Nasdaq Small Cap
Market since 1989. Although approximately 20 firms make a market in Cortex
Common Stock, there can be no assurance that an active or established trading
market will be maintained or that the Company's Common Stock will continue to be
traded on the Nasdaq Small Cap Market.
The NASD has proposed modifying the listing standards for the Nasdaq Small Cap
Market, to institute a net tangible asset, market capitalization, or net income
test in place of the current total asset and total equity tests. In the event
the Company does not meet such requirements, the Company's Common Stock may be
removed from the Nasdaq Small Cap Market. In such event, the liquidity of the
Company's Common Stock may be impaired and the trading price reduced. In
addition, in such event, the holders of the Company's Series A Preferred Stock
may request the Company to redeem such shares for cash.
There is significant volatility in the market price of securities of life
sciences companies generally, and the trading price of the Company's Common
Stock has been subject to wide fluctuations. See "Price Range of Common Stock."
Various factors and events, including announcements by the Company or its
competitors concerning technological innovations, new products, proposed
governmental regulations or actions, developments or disputes relating to
patents or proprietary rights and public concern over the safety of therapeutic
products or other factors that affect the market generally, may have a
significant impact on the Company's business and on the market price of the
Company's securities.
7
<PAGE>
DIVIDENDS. The Company has not paid cash dividends on its Common Stock and does
not anticipate doing so in the foreseeable future. The Company may not pay any
dividends on its Common Stock until accrued and unpaid dividends on the
9% Preferred Stock have been paid in full. As of March 31, 1997, accrued and
unpaid dividends on the 9% Preferred Stock were $69,300. See "Dividend Policy."
ANTI-TAKEOVER PROVISIONS. The Board of Directors has the authority, without
further approval of the Company's stockholders, to issue up to 549,100 shares of
Preferred Stock having such rights, preferences and privileges as the Board of
Directors may determine. Any such issuance of additional shares of Preferred
Stock could, under certain circumstances, have the effect of delaying or
preventing a change in control of the Company and may adversely affect the
rights of holders of Common Stock. See "Description of Securities."
USE OF PROCEEDS
The proceeds from the sale of each Selling Stockholder's Shares will belong to
the Selling Stockholders. The Company will not receive any of the proceeds from
such sales of the Shares.
PRICE RANGE OF COMMON STOCK
The Company's Common Stock (Nasdaq symbol: "CORX") began trading publicly in the
over-the-counter market on July 18, 1989. The following table presents quarterly
information on the high and low sale prices of the Common Stock since July 1,
1994 as reported by Nasdaq. These quotations reflect inter-dealer prices,
without retail mark-up, mark-down or commission, may not represent actual
transactions and have been adjusted for a one-for-five reverse stock split that
became effective January 11, 1995.
High Low
---- ---
FISCAL YEAR ENDING JUNE 30, 1997
Fourth Quarter (through June 16, 1997)....... $ 3-5/8 $ 2-7/16
Third Quarter ............................... 5-1/4 2-11/16
Second Quarter .............................. 7-1/4 2-7/16
First Quarter ............................... 4-1/2 2-5/8
FISCAL YEAR ENDED JUNE 30, 1996
Fourth Quarter .............................. 7-1/4 4
Third Quarter ............................... 8-3/4 3-1/2
Second Quarter .............................. 5-17/32 2-3/8
First Quarter ............................... 6-3/8 2-7/8
FISCAL YEAR ENDED JUNE 30, 1995
Fourth Quarter .............................. 3-3/4 2-1/2
Third Quarter ............................... 3-3/4 1-5/8
Second Quarter .............................. 5-5/32 3-1/8
First Quarter ............................... 5-5/16 3-3/4
As of May 31, 1997, there were 717 stockholders of record of the Company's
Common Stock, and approximately 7,400 beneficial owners. The last sale price
of the Company's Common Stock on June 16, 1997, as reported by Nasdaq, was
$2.953.
8
<PAGE>
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock and does not
anticipate paying such dividends in the foreseeable future. The Company
currently intends to retain any future earnings for use in the Company's
business. The outstanding shares of 9% Preferred Stock bear a fixed dividend of
$0.09 per share per annum, which accrues in equal semi-annual installments on
June 15th and December 15th of each year, which dividends must be paid in full
before any dividends can be paid on the Common Stock. As of March 31, 1997,
accrued and unpaid dividends on the 9% Preferred Stock were $69,300. The payment
of future dividends, if any, will be determined by the Board of Directors in
light of conditions then existing, including the Company's financial condition
and requirements, future prospects, restrictions in financing agreements,
business conditions and other factors deemed relevant by the Board of Directors.
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March 31,
1997. The figures are unaudited, and this table should be read in conjunction
with the financial statements (including the notes thereto) appearing elsewhere
in this Prospectus.
March 31, 1997(1)(3)
--------------
Note payable to Alkermes, Inc. $ 1,078,024
Stockholders' equity (2):
9% cumulative convertible preferred stock,
$0.001 par value; $1.00 per share liquidation
preference; authorized: 1,250,000 shares;
issued and outstanding: 110,000 shares 110,000
Series B convertible preferred stock, $0.001 par
value; $0.6667 per share liquidation preference;
authorized: 3,200,000 shares; issued and
outstanding: 150,000 shares 86,810
Series D convertible preferred stock, $0.001 par
value; $10,000 per share liquidation preference;
authorized: 500 shares; issued and outstanding:
50 shares (2) 467,221
Common stock, $0.001 par value; authorized
20,000,000 shares; issued and outstanding:
9,148,727 shares 9,149
Additional paid-in capital 33,170,303
Unrealized loss on available for sale
U.S. Government securities (284)
Deficit accumulated during the development stage (29,893,090)
-------------
Total stockholders' equity 3,950,109
-------------
Total capitalization $ 5,028,133
------------
------------
(1) Excludes an aggregate of 1,319,719 shares of Common Stock reserved for
issuance upon possible exercise of outstanding warrants and options
and an aggregate of 226,804 shares of Common Stock reserved for
issuance upon conversion of outstanding 9% Cumulative Convertible
Preferred Stock, Series B Convertible Preferred Stock and Series D
Convertible Preferred Stock. See "Description of Securities" and
Notes 3, 4 and 5 of Notes to Financial Statements.
(2) On February 12, 1997, pursuant to irrevocable commitments entered into
on October 15, 1996, the Company completed a private placement of 400
shares of Series D Preferred Stock ("Series D Preferred") for gross
proceeds of $4,000,000. The Series D Preferred was convertible at an
9
<PAGE>
effective per share conversion price that was the lower of (i) 110% of
the average closing bid price for the five trading days immediately
preceding the closing date or (ii) that price that was 18% below the
average closing bid price for the five trading days immediately
preceding the conversion date, in each case subject 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. As of
March 31, 1997, the Series D Preferred shares from the first and
second tranches and 100 of the Series D Preferred shares from the
third tranche had been converted into 1,817,915 shares of the
Company's Common Stock at effective conversion prices ranging from
$2.87 to $3.35 per share of Common Stock. Subsequent to March 31,
1997, the balance of the Series D Preferred shares was converted into
an aggregate of 245,522 shares of Common Stock.
(3) On June 5, 1997, the Company issued 200 shares of newly created Series
A Preferred Stock ("Series A Preferred") and warrants to purchase up
to 400,000 shares of the Company's Common Stock for gross proceeds of
$2,000,000 in the first of a two-part Regulation D private placement.
The Company intends to sell an additional 200 shares of Series A
Preferred (and warrants to purchase another 400,000 shares of the
Company's Common Stock) three business days following the
effectiveness of the Registration Statement of which this Prospectus
is a part, which covers resales of shares of Common Stock issuable
upon conversion of the Series A Preferred and upon exercise of the
warrants. Gross proceeds of $2,000,000 are anticipated from the second
closing. For the 75 days following the first closing date, the Series
A Preferred is convertible at an effective per share conversion price
of 100% of the lowest of the dollar volume weighted average
trading prices of the Company's Common Stock during the five trading
days immediately preceding the conversion date (the "Average Stock
Price"). Thereafter, if the Average Stock Price is greater than $2.50
per share, the effective conversion price shall equal 80% of the
Average Stock Price. If the Average Stock Price is greater than $2.10
and less than or equal to $2.50 per share, then the effective
conversion price per share shall be $2.00. If the Average Stock Price
is less than $2.10 per share, the effective conversion price shall be
95% of the Average Stock Price. If the Average Stock Price on the date
of conversion is equal to or greater than $2.75, the holder may
purchase up to the same number of shares of Common Stock as the holder
is acquiring on conversion, at a price per share equal to such Average
Stock Price. The effective conversion rate is subject to adjustment at
the rate of six percent per annum based on the length of the period
from original issuance of the Series A Preferred until its conversion.
The second closing of the private placement is subject to certain
conditions, which conditions are outside the control of the investor,
including but not limited to a minimum trading volume for the
Company's Common Stock. See "Description of Securities" and Note 11 of
Notes to Financial Statements.
10
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data with respect to the Company presented
below for the fiscal years ended and as of June 30, 1996 and 1995 and
for the period from inception (February 10, 1987) through June 30,
1996 are derived from and should be read in conjunction with the more
detailed financial statements (including the notes thereto) of the
Company, which have been audited by Ernst & Young LLP, independent
auditors, whose report thereon is included elsewhere herein and in the
Registration Statement. The selected financial data for the years
ended and as of June 30, 1994, 1993 and 1992 is derived from audited
financial statements that are not included in this Prospectus. The
selected financial data for the nine-month periods ended March 31,
1997 and 1996 and the period from inception (February 10, 1987)
through March 31, 1997 and at March 31, 1997 are derived from
unaudited interim financial statements. The unaudited interim
financial statements include all adjustments (consisting only of
normally recurring accruals) that management considers necessary for a
fair presentation of the Company's financial position and results of
operations for the periods presented. Operating results for the
nine-month period ended March 31, 1997 are not necessarily indicative
of the results that may be expected for the fiscal year ending
June 30, 1997.
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
Period from
inception
(February 10,
Years ended June 30, 1987) through
---------------------------------------------------------------------------- June 30,
1996 1995 1994 1993 1992 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Research/license revenue (1) $ -- $ -- $ -- $ 2,600,000 $ 1,000,000 $ 3,600,000
Grant revenue -- -- 39,665 10,103 -- 94,717
----------- ----------- ----------- ----------- ----------- ------------
Total operating revenues -- -- 39,665 2,610,103 1,000,000 3,694,717
----------- ----------- ----------- ----------- ----------- ------------
Operating expenses:
Research & development 2,677,577 4,138,731 3,226,858 2,316,622 2,284,283 18,969,112
General & administrative 1,643,732 1,665,134 1,780,792 1,101,134 1,164,148 10,050,559
Settlement with Alkermes, Inc. -- 1,227,977 -- -- -- 1,227,977
----------- ----------- ----------- ----------- ----------- ------------
Total operating expenses 4,321,309 7,031,842 5,007,650 3,417,756 3,448,431 30,247,648
----------- ----------- ----------- ----------- ----------- ------------
Loss from operations (4,321,309) (7,031,842) (4,967,985) (807,653) (2,448,431) (26,552,931)
Interest income, net 163,062 196,310 262,994 46,117 93,661 1,333,307
----------- ----------- ----------- ----------- ----------- ------------
Net loss $(4,158,247) $(6,835,532) $(4,704,991) $ (761,536) $(2,354,770) $(25,219,624)
----------- ----------- ----------- ----------- ----------- ------------
----------- ----------- ----------- ----------- ----------- ------------
Weighted average common
shares outstanding 6,532,884 6,075,454 4,880,338 3,147,204 2,753,754
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net loss per share $ (0.64) $ (1.13) $ (0.97) $ (0.26) $ (0.88)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
<CAPTION>
Period from
inception
Nine months ended (February 10,
March 31, 1987) through
-------------------------- March 31,
1997 1996 1997
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues:
Research/license revenue (1) $ -- $ -- $ 3,600,000
Grant revenue -- -- 94,717
----------- ----------- ------------
Total operating revenues -- -- 3,694,717
----------- ----------- ------------
Operating expenses:
Research & development 2,489,584 2,033,806 21,458,696
General & administrative 1,270,740 1,252,451 11,321,299
Settlement with Alkermes, Inc. -- -- 1,227,977
----------- ----------- ------------
Total operating expenses 3,760,324 3,286,257 34,007,972
----------- ----------- ------------
Loss from operations (3,760,324) (3,286,257) (30,313,255)
Interest income, net 106,204 116,716 1,439,511
----------- ----------- ------------
Net loss $(3,654,120) $(3,169,541) $(28,873,744)
----------- ----------- ------------
----------- ----------- ------------
Weighted average common
shares outstanding 7,899,585 6,260,152
----------- -----------
----------- -----------
Net loss per share $ (0.57) $ (0.51)
----------- -----------
----------- -----------
</TABLE>
- --------------------------
(1) Received under an agreement with Alkermes, Inc.
11
<PAGE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------
March 31, 1997 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Working capital (1) $ 4,324,427 $ 3,849,649 $ 3,327,788 $ 8,982,571 $ 888,199 $ 1,245,987
Total assets (1) 5,446,539 5,013,920 4,886,372 10,441,998 1,924,856 3,095,641
Total liabilities and
redeemable preferred stock 1,496,430 1,369,157 1,613,676 1,154,117 788,392 1,560,218
Deficit accumulated during
the development stage (29,893,090) (25,359,298) (21,201,051) (14,365,519) (9,660,528) (8,882,992)
Stockholders' equity (1) $ 3,950,109 $ 3,644,763 $ 3,272,696 $ 9,287,881 $ 1,136,464 $ 1,535,423
Common shares outstanding 9,148,727 7,495,576 6,085,201 6,073,942 3,209,975 3,047,438
</TABLE>
(1) Excludes net proceeds of approximately $2,000,000 received in June 1997 in
connection with a private placement of Series A Preferred Stock. See
"Capitalization," "Description of Securities" and Note 11 of Notes to
Financial Statements.
12
<PAGE>
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 IN THE COMPANY'S 1996 ANNUAL REPORT ON FORM 10-KSB.
INTRODUCTORY NOTE
This discussion and analysis 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 and
actual results may differ materially. 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 March 31, 1997, 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 an earlier agreement with
Alkermes, Inc., (ii) net interest income aggregating $1,439,511, and (iii)
$94,717 of grant revenue.
From inception (February 10, 1987) through March 31, 1997, the Company has
sustained losses aggregating $28,873,744. 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 license fees, milestone payments, research support payments and/or other
revenues under planned strategic alliances that the Company is seeking with
larger pharmaceutical companies 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 fluctuations 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.
FISCAL YEARS ENDED JUNE 30, 1996 AND 1995
For the year ended June 30, 1996, the Company's net loss of $4,158,000 compares
with a net loss of $6,836,000 for the prior year. The net loss for the prior
year includes $1,228,000 of expenses related to the settlement of the dispute
with Alkermes (see Note 3 of Notes to Financial Statements), and higher research
and development expenditures in connection with the initiation of human clinical
studies.
General and administrative expenses of $1,644,000 for the year ended June 30,
1996 were essentially unchanged from the prior year. The very slight decrease
was the result of lower outlays for consulting expenses, partially offset by
increased recruiting fees incurred with the hiring of the new Chief Executive
Officer.
13
<PAGE>
Research and development expenses decreased to $2,678,000 or by 35%, in the year
ended June 30, 1996. Most of the decrease from the prior year was attributable
to the commencement of Phase I clinical testing of AMPALEX (for the potential
treatment of memory deficits due to Alzheimer's disease) in the prior year, as
well as lower salary and related expenses due to a temporary reduction in
scientific personnel that was effected as of June 30, 1995. Lower outlays for
scientific consulting contributed most of the remaining decrease.
NINE-MONTH PERIODS ENDED MARCH 31, 1997 AND 1996
The loss for the nine-month period ended March 31, 1997 was $3,654,000, compared
to a loss of $3,170,000 for the corresponding prior year period, with higher
levels of research and development spending responsible for the increase.
General and administrative expenses for the nine months ended March 31, 1997 of
$1,271,000 were materially consistent with the $1,252,000 recorded for the prior
year period.
Research and development expenses increased from $2,034,000 to $2,490,000, or by
$456,000 (22%), during the nine-month period ended March 31, 1997 compared to
the prior year period, due mostly to additions to the complement of scientific
employees, a resultant increase in spending for laboratory supplies and costs
related to the commencement of Phase I/IIa human clinical testing.
The Company believes that inflation and changing prices have not had a material
impact on its ongoing operations to date.
PLAN OF OPERATION; 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 such
issuances from inception (February 10, 1987) through March 31, 1997 aggregating
$32 million. An additional $3.6 million in research and license payments was
received from Alkermes, Inc. in 1992 and 1993 in connection with a development
and license agreement with that firm. Interest income from inception through
March 31, 1997, which approximates funds received, was $1.4 million.
As of March 31, 1997, the Company had cash, cash equivalents and short-term
investments totaling $4.7 million and working capital of $4.3 million. In
comparison, as of June 30, 1996, the Company had cash, cash equivalents and
short-term investments totaling $4.1 million and working capital of $3.8
million. The increases were attributable to net proceeds of $3.7 million
received from a private placement of Series D Preferred Stock (see Note 10 of
Notes to Financial Statements), partially offset by amounts required to fund
operating losses and to purchase capital equipment. From inception (February 10,
1987) through March 31, 1997, net expenditures for furniture, equipment and
leasehold improvements aggregated $1.9 million.
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% 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.
As of March 31, 1997, Cortex had outstanding 110,000 shares of 9% cumulative
convertible preferred stock, which shares accrue cumulative dividends
semi-annually 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 March 31, 1997
were $69,300.
In connection with the settlement in October 1995 of a license dispute with
Alkermes, Inc. the Company issued to Alkermes a $1,000,000 three-year promissory
note accruing interest semi-annually at the current 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.
14
<PAGE>
Over the next twelve months, the Company plans to conduct additional preclinical
and Phase I/II clinical studies on its AMPAKINE-TM- compounds. These planned
research and development activities involve a twelve-month expenditure of
approximately $4 million. 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 March 31, 1997, Cortex had 20
full-time employees and one part-time employee.
Cortex anticipates that its existing cash, cash equivalents and short-term
investments, combined with a modest amount of anticipated interest income, will
be sufficient to satisfy its capital requirements through June 1998 under
current spending plans. The second closing of the private placement, if and when
received, is expected to provide an additional $2,000,000 of gross proceeds,
which amount is expected to fund operations into fall 1998. Additional funds
will be required to continue operations beyond that time.
To provide resources for both its short and longer-term requirements, the
Company is presently seeking collaborative or other arrangements with larger
pharmaceutical companies, under which it is intended that 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, competition for such arrangements
is intense, with a large number of biopharmaceutical companies attempting to
secure alliances with more established pharmaceutical companies. Although the
Company is engaged in discussions with candidate companies, there can be no
assurance that an agreement or agreements will arise from these discussions in a
timely manner, or at all. Accordingly, the Company is likely to raise additional
capital through the sale of debt or equity securities. If the Company proceeds
with a debt or equity financing, there can be no assurance that the funds will
be available on favorable terms, or at all. If additional funds are raised by
issuing equity securities, dilution to existing stockholders is likely to
result.
The Company's proposed products are in the preclinical or early clinical stage
of development and will require significant further research, development,
clinical testing and regulatory clearances. They are subject to the risks of
failure inherent in the development of products based on innovative
technologies. These risks include the possibilities that any or all of the
proposed products will be found to be ineffective or toxic, or otherwise fail to
receive necessary regulatory clearances, that the proposed products, although
effective, will be uneconomical to market, that third parties may now or in the
future hold proprietary rights that preclude the Company from marketing them, or
that third parties will develop and market a superior or equivalent product.
Accordingly, the Company is unable to predict whether its research and
development activities will result in any commercially viable products or
applications. Further, due to the extended testing and regulatory review process
required before marketing clearance can be obtained, the Company does not expect
to be able to commercialize any therapeutic drug for at least five years, either
directly or through prospective corporate partners or licensees.
15
<PAGE>
BUSINESS
OVERVIEW
Cortex Pharmaceuticals, Inc. ("Cortex" or the "Company") is a development stage
enterprise that was organized in 1987 to engage in the discovery, development
and commercialization of innovative pharmaceuticals for the treatment of
neurodegenerative diseases and other neurological and psychiatric disorders. The
primary effort at Cortex is centered on developing products that affect the
AMPA-type glutamate receptor, a complex of proteins that is involved in most
"excitatory" communication between nerve cells in the human brain. Cortex is
developing a family of chemical compounds, known as AMPAKINEs, to enhance the
activity of this receptor. Cortex believes that AMPAKINEs hold promise for
correcting deficits brought on by a variety of diseases and disorders that are
known, or thought, to involve depressed functioning of pathways in the brain
that use glutamate as a neurotransmitter. In October 1994, the Company initiated
human safety studies with CX516 (AMPALEX) for the potential treatment of
deficits of memory and cognition due to Alzheimer's disease. To date, these
studies have involved healthy young adult and healthy elderly volunteers as well
as patients with Alzheimer's disease. Cortex is also investigating the safety
and potential utility of its AMPAKINEs in the treatment of schizophrenia. In
fiscal 1996, the Company maintained a strong focus on the AMPA receptor program
but, with the reacquisition of rights to calpain inhibitor compounds from
Alkermes in October 1995, reinstituted a research effort in this area. In the
fiscal years ended June 30, 1996 and 1995, the Company's expenditures on
research and development were $2,677,577 and $4,138,731, respectively, with the
decrease attributable to higher costs of human clinical testing of AMPALEX in
fiscal 1995.
Each of Cortex's programs addresses a large potential market. The Company's
current commercial development plans involve partnering with larger
pharmaceutical companies for Phase II and later clinical testing, manufacturing
and global marketing of its proposed products, while attempting to retain the
right to eventually co-promote in the United States. If the Company is
successful in the pursuit of this strategy, it is intended that it will be in a
position to contain its costs over the next few years, to maintain its focus on
the research and early development of novel pharmaceuticals (where it believes
that it has the ability to compete), and eventually to participate more fully in
the commercial development of its proposed products in the United States. Cortex
continues to seek collaborative or licensing arrangements with larger
pharmaceutical companies that will permit AMPALEX to be advanced into later
stages of clinical development and provide access to the extensive clinical
trials management, manufacturing and marketing expertise of such companies.
There can be no assurance, however, that the Company will secure such
arrangements on favorable terms, or at all, or that its products will be
successfully developed and approved for marketing by government regulatory
agencies.
AMPA RECEPTOR PROGRAM
In June 1993, Cortex licensed from the University of California a new class of
compounds--the AMPAKINEs--that facilitate the functioning of the AMPA receptor
for the neurotransmitter glutamate. These AMPAKINE compounds interact in a
highly specific manner with the AMPA receptor in the brain, lowering the amount
of neuronal stimulation required to generate a response. It is hoped that this
selective amplification of the normal glutamate signal will eventually find
utility in the treatment of neurological diseases and disorders characterized by
depressed functioning of brain pathways that utilize glutamate as a
neurotransmitter. Two prominent diseases that may benefit from AMPA
receptor-directed therapeutics are Alzheimer's disease and schizophrenia, both
of which represent large unmet medical needs.
DEFICITS OF MEMORY AND COGNITION -- ALZHEIMER'S DISEASE
Impairment of memory and cognition is a very serious problem that is growing as
the elderly proportion of the population continues to increase. While not fatal
(except when associated with diseases such as Alzheimer's disease), the
incidence and prevalence of cognitive deficits increase inexorably with age.
Many elderly individuals are confined to nursing homes because of psychological
disorientation and functional difficulties. According to a 1985 survey of
nursing homes conducted by the National Center for Health Statistics, over half
of the individuals in nursing homes have some degree of cognitive impairment.
Pharmaceuticals to alleviate deficits in memory and cognition could potentially
enable many of the elderly to remain independent longer.
16
<PAGE>
Memory is not located in a specific area of the brain, but rather becomes
established in multiple areas of the brain that are involved with different
types of sensory information. The prevailing scientific theory is that the brain
deals with new information by constructing electrochemical and structural
frameworks to put the information into some sort of context. Most of this
processing appears to be handled in the cerebral cortex, where the brain
generates thoughts, language and plans, controls sensations and voluntary
movements, evokes imagination, and stores certain types of permanent memory.
Substantial scientific evidence points to a long-lasting change--known as
"long-term potentiation," or LTP--in synapses (junctions between neurons) as the
basis of many types of memory. Long-term potentiation involves a series of
chemical reactions that creates a more stable information transfer point between
neurons. Experimental disruption of these chemical reactions in lower animals
has been shown to cause a disruption of memory formation.
Although disease and physiological malfunctions are thought to be the
fundamental cause of severe mental decline, age itself is a contributory factor.
The human brain loses about 10% of its weight over a normal life span. In the
cerebral cortex, a great deal of the communication between neurons is mediated
by receptors for the neurotransmitter glutamate, including a subtype usually
designated as the AMPA receptor (which is involved in long-term potentiation).
AMPA receptors and synapses decline in number with aging, making it more
difficult for information to pass through and between areas of the cerebral
cortex. A potential corrective approach to alleviate age-related cognitive
deficits is therefore to develop novel compounds to enhance the activity of the
AMPA receptors that are still functioning.
Alzheimer's disease is the best known destroyer of memory, afflicting some four
million Americans. With the aging of our population, unless a treatment is found
the number of Americans with Alzheimer's disease is expected to double over the
next two decades. According to the Alzheimer's Association, Alzheimer's disease
is the third most expensive disease in the U.S. (after heart disease and
cancer), with an estimated annual cost to society of $100 billion and a lifetime
cost per patient of $174,000. The impact of an effective treatment, even a
symptomatic one, would be enormous.
Alzheimer's disease is a progressive, degenerative and ultimately fatal disease
that slowly destroys the brain. The early symptoms are problems with memory of
recent events and difficulty performing familiar tasks. As the disease
progresses, other symptoms appear. These include confusion, personality change,
behavioral change, impaired judgment, and difficulty finding words, finishing
thoughts, or following directions. While the disease progresses at different
rates in different individuals, eventually the victims are unable to care for
themselves. Ultimately, they become less resistant to infections and other
illnesses, which are often the actual cause of death.
It is in the early stages of Alzheimer's disease--the first few years--that
Cortex believes AMPAKINEs may someday play a valuable role, enhancing the
effectiveness of the brain cells that have not yet succumbed to the disease.
This may alleviate the memory and cognitive deficits that make up the early
symptoms. There is also a possibility that treatment with AMPAKINEs may slow the
progression of Alzheimer's disease. The reason for this is that brain cells, or
neurons, require continued input from other brain cells to remain alive. As
neurons die, other neurons begin to lose their inputs, hastening their own
death.
The first major results of AMPAKINE testing in animal behavioral models of
learning and memory were reported in early 1994 in the prestigious journal
PROCEEDINGS OF THE NATIONAL ACADEMY OF SCIENCES. In these studies, which
involved tests of both short- and long-term memory, AMPAKINE-treated rats
performed significantly better than untreated control animals.
Perhaps the most compelling of the animal studies conducted to date involved an
assessment of the effects of an AMPAKINE on memory performance in middle-aged
rats. A number of researchers have demonstrated that healthy middle-aged rats
have significant deficits in memory performance when compared to younger
animals. This provides an animal model for age-associated memory impairment in
humans. In the study, which was published in SYNAPSE, the authors found that
middle-aged rats showed striking deficits in performance on a maze task when
compared with young adult animals, but when they were administered an AMPAKINE
their performance was improved to levels equivalent to those found in young
animals.
In these and other preclinical studies, the experimental compounds demonstrated
pharmaceutically attractive qualities, including apparent low toxicity, rapid
onset of action and an ability to freely cross the blood-brain barrier (a
barrier that prevents many drugs from getting into the brain).
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Three human clinical studies have now been completed with CX516 ("AMPALEX"). The
results of the two most recent studies were announced in the year ended June 30,
1996. In all three studies, CX516 was safe and well-tolerated on acute oral
administration and, importantly, statistically-significant positive effects on
memory performance were seen in healthy volunteers.
The initial study, conducted by AFB Parexel in Berlin, involved single
administrations of drug or placebo to a total of 48 healthy young adult
volunteers, ranging in age from 18 to 35. The trial was double-blinded and
placebo controlled, and involved administering a single dose of drug, in capsule
form, to each volunteer. Several dosages of drug were tested, including levels
that exceeded the expected therapeutic range. At all dosages, the drug was safe
and well-tolerated. In addition, analysis of psychological data that was
collected revealed a highly statistically significant positive effect on a test
of memory performance that involved recall of a list of nonsense syllables.
The second trial, at the same clinical site in Berlin, involved 30 healthy
elderly volunteers, aged 65 to 76, each of whom was administered a single oral
dose of drug or placebo. In this double-blinded trial, AMPALEX was again found
to be safe and well-tolerated. The elderly volunteers were also given the same
nonsense syllable memory test that had been given to the young volunteers in the
first study. In the absence of drug, the elderly volunteers' memory was
substantially worse than that of the young volunteers. In the presence of drug,
the positive effect on memory performance that was seen in the earlier study was
replicated. In fact, several of the elderly volunteers receiving the highest
dosage of AMPALEX scored at or above the average score achieved by the young
volunteers in the earlier study.
The third study, at the Karolinska Hospital in Stockholm, Sweden, involved
administration of CX516 to healthy young adults under double-blind,
placebo-controlled conditions. The five-day study involved administration of
placebo on days 1, 4 and 5 and drug on days 2 and 3, with psychological testing
conducted on each day. AMPALEX was safe and well-tolerated by all volunteers
receiving drug, with no adverse events reported. Statistically significant
improvements in performance on several measures of learning and memory were
again noted in the group that received CX516.
On the basis of the very encouraging results that were obtained in these three
studies, Cortex has initiated a Phase I/IIa study in patients experiencing
deficits of memory and cognition due to Alzheimer's disease. The study will be
conducted at the National Institutes of Health located in Bethesda, Maryland.
The double-blind, placebo-controlled dose escalation study involves
administration of CX516 to 16 to 20 patients for up to 28 consecutive days.
While preliminary indications of the desired effects on memory and cognition may
be obtained from this study, psychological testing of patients with Alzheimer's
disease is characterized by a high level of variability. Full-scale Phase II
studies designed to achieve significance on broad psychological scales will
require larger numbers of patients. The Company is hopeful that the results from
this preliminary study will encourage prospective pharmaceutical company
partners to commit the financial and other resources to undertake additional
clinical studies.
SCHIZOPHRENIA
Schizophrenia is a major health care problem. The worldwide incidence of the
disease is approximately one percent, regardless of ethnic, cultural or
socioeconomic status. On any given day, approximately 100,000 of the estimated
two million U.S. patients with schizophrenia are in public mental hospitals.
Schizophrenia typically develops in late adolescence or early adulthood, and is
best understood as a syndrome, or collection of symptoms. These are generally
characterized as POSITIVE SYMPTOMS (delusions and hallucinations), NEGATIVE
SYMPTOMS (social withdrawal and loss of emotional responsiveness) and COGNITIVE
SYMPTOMS (disordered thought and attention deficits).
The first "wonder drugs" for schizophrenia, the so-called neuroleptics or
conventional anti-psychotics, were developed in the 1950s and 1960s. These
drugs, such as chlorpromazine and haloperidol, helped to reduce the positive
symptoms of the disease, and greatly reduced the need for chronic
hospitalization. However, these drugs, which are still in use today, are
characterized by troublesome and occasionally life-threatening side effects. The
most common side effect of conventional
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anti-psychotics is EPS or "extrapyramidal signs," which include restlessness and
tremors. EPS side effects have a strongly negative impact on quality of life and
tend to lead to poor patient compliance with medication.
More recently, a new type of anti-psychotic agent, referred to as ATYPICAL due
to the virtual lack of EPS side effects, has been developed. Clozapine was the
first such drug. It was first studied in the 1970s, but clinical trials were
halted due to the risk of a fatal blood disorder known as agranulocytosis, and
also a dose-dependent risk of seizures. Clozapine was reintroduced in the 1980s,
with approval by the FDA for use in patients who cannot be adequately controlled
on typical neuroleptics, either because of lack of efficacy or side effects.
Risperidone is another recent clozapine-like anti-psychotic.
The newer atypical agents achieve good control of positive symptoms, partial
control of negative symptoms and better patient compliance with medication due
to lower levels of EPS side effects. However, schizophrenia clinicians agree
that there are still substantial side effects and that the cognitive symptoms of
schizophrenia are not addressed by any available agents. It is the persistence
of these cognitive symptoms that keeps all but a few patients with schizophrenia
from successfully reintegrating into society.
Schizophrenia has long been thought to have its biochemical basis in an
overactivity of dopamine pathways projecting into certain regions of the brain.
More recently, a developing body of evidence in the scientific literature
suggests that schizophrenia also involves an underactivity of glutamate pathways
projecting into the same areas. Cortex is therefore studying whether AMPAKINEs,
which increase current flow through the AMPA subtype of glutamate receptor,
might have relevance to the treatment of schizophrenia.
In late 1995, Cortex announced that Professor John Larson, a University of
California, Irvine neuroscientist and Cortex consultant, found that an AMPAKINE
reduced stereotypic behavior (mechanical repetition of posture or movement) in
rats injected with methamphetamine. Reduction of methamphetamine-induced
stereotypic behavior is widely used for initial screening of anti-psychotic
drugs. The results have now been extended by scientists at both UCI and Cortex
to include several additional AMPAKINEs. More recently, Cortex scientists have
demonstrated that AMPAKINEs in combination with either conventional or atypical
anti-psychotic drugs have additive effects in this model system.
The Company has initiated a study with CX516 in patients with schizophrenia
being treated with clozapine at Massachusetts General Hospital. This study is
designed as a safety study, but psychological testing will be conducted in an
attempt to obtain a preliminary indication that CX516 has a beneficial effect on
the symptoms of the disease, particularly the cognitive symptoms that have thus
far been resistant to treatment.
CALPAIN INHIBITOR PROGRAM
Since 1989, the Company has been involved in research and early product
development of inhibitors of the enzyme calpain. Calpain is a protease, a
protein that digests other proteins. It is involved in a variety of biological
processes throughout the body, and has been implicated in the pathology of
several diseases and disorders. These include brain damage following stroke or
head injury and spasming of blood vessels (vasospasm).
The Company's first target for calpain inhibitor therapeutics was brain damage
following stroke. A stroke is a vascular event causing localized damage to the
brain. There are two general categories of stroke: ischemic stroke, which is due
to a blockage of blood flow, and hemorrhagic stroke, in which a blood vessel
bursts in the brain. In either case, the insult to the brain is often
immediately life-threatening and initiates a cascade of molecular events that
ultimately leads to permanent brain damage. Each year more than 500,000
Americans experience a stroke. Approximately 150,000 die, and most survivors are
left with some degree of permanent residual disability due to damage to brain
tissue. Although stroke is the third leading cause of death in the U.S., no
satisfactory therapy yet exists to limit or reverse the brain damage brought on
by this condition.
Interruption of the supply of oxygen and nutrients to the brain following a
stroke is not in and of itself responsible for the widespread destruction of
neurons that often follows. Rather, it is believed that these disruptions
trigger biochemical changes that lead over a period of hours or days to death of
the affected neurons. It is now fairly well accepted that this
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crucial period of time between a stroke and the actual death of brain cells
provides a "window of opportunity" during which a therapy might be administered,
to limit or prevent damage to nerve cells and thereby maintain their viability
until homeostasis is re-established following an ischemic episode.
Ischemia-induced release of expressive glutamate appears to initiate the
cascade. Glutamate builds up in the extra-cellular space following a stroke,
allowing an excessive amount of calcium to enter nerve cells. This causes
excessive activation of certain calcium-dependent enzymes, including calpain. At
higher levels, calpain can degrade the neuron's cytoskeleton and cause
progressively greater damage. Eventually the cell is no longer able to recover.
In calendar 1990 and 1991, Cortex established laboratory models of ischemia and
used them to identify a range of calpain inhibitor compounds that appeared to
have the potential to block brain damage due to stroke and other ischemic
events. In January 1992, Cortex entered into a Development and License
Agreement, which was amended in October 1992, (the "Alkermes Agreement") with
Alkermes, Inc. ("Alkermes"), a larger neuroscience company. Cortex granted to
Alkermes an exclusive worldwide license, with a right to sublicense, to
commercialize products using the Company's calpain inhibitor technology for
products for the prevention or treatment of acute and chronic neurodegenerative
diseases and disorders of the nervous system.
Subsequently, Cortex shifted its own emphasis into calpain inhibitor research
outside the nervous system. The Company was particularly active in investigating
the potential role of calpain inhibitors as therapeutics for the treatment of
vasospasm and restenosis, two serious vascular disorders. The Company
established research collaborations and began screening compounds for these
purposes, and reported on its progress in its 1993 annual report. This report of
progress included a discussion of the Company's research in cerebral vasospasm,
which involved reversal of an existing spasm of blood vessels in the brain. In
October 1993, Alkermes notified the Company that Alkermes believed that it had
rights to this indication under the Alkermes Agreement. On November 19, 1993,
Alkermes filed an action in U.S. District Court in Massachusetts alleging that
the Company had breached the Alkermes Agreement by developing calpain inhibitors
for cerebral vasospasm.
On October 5, 1995, the Company and Alkermes agreed to a settlement of the
dispute. Alkermes agreed to dismiss its action against the Company and to
relinquish all rights previously granted them by the Company, as well as rights
to related technologies developed by Alkermes subsequent to October 6, 1992. In
connection with the settlement, the Company issued to Alkermes a $1,000,000
non-transferable, three-year promissory note accruing interest semi-annually at
the federal funds rate. The Company also committed to pay Alkermes a graduated
royalty on calpain inhibitor development proceeds, as defined and subject to
certain limitations. The Company has reinstituted an active research program on
calpain inhibitors, and recently confirmed in an animal model the earlier
finding that calpain inhibitors are capable of blocking vasospasm. Cortex
presently intends to seek, with the assistance of its advisor, Vector Securities
International, Inc., a larger pharmaceutical company partner for the further
development of the calpain inhibitor technology.
MANUFACTURING
Cortex has no experience in manufacturing pharmaceutical products and relies,
and presently intends to rely, on the manufacturing and quality control
expertise of contract manufacturing organizations or prospective corporate
partners. There is no assurance that the Company will be able to enter into
arrangements for manufacturing of its proposed products on favorable terms.
MARKETING
The Company has no experience in the marketing of pharmaceutical products and
does not anticipate having the resources to distribute and broadly market any
products that it may develop. The Company will therefore continue to seek
commercial development arrangements with other pharmaceutical companies for its
proposed products. However, in entering into such arrangements, the Company will
seek to retain the right to co-promote certain products in the United States to
selected medical specialties (such as geriatric physicians, neurologists and
psychiatrists). The Company believes that these specialties can be effectively
addressed with a relatively small sales force. There is no assurance that the
Company will be able to enter into co-promotional arrangements in connection
with its licensing activities, or that any retention of co-promotional rights
will lead to greater revenues for the Company.
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TECHNOLOGY RIGHTS AND COLLABORATIVE AGREEMENTS
AMPA RECEPTOR MODULATING COMPOUNDS
Effective June 25, 1993, Cortex entered into an agreement with the Regents of
the University of California, under which Cortex secured exclusive commercial
rights to AMPA receptor modulating compounds (AMPAKINEs) for the treatment of
deficits of memory and cognition. Under the agreement, the Company paid an
initial license fee and is obligated to make additional payments, including
license maintenance fees creditable against future royalties, over the course of
initiating and conducting human clinical testing and obtaining regulatory
approvals. When and if sales of licensed products commence, the Company will
begin paying royalties on net sales.
CALPAIN INHIBITORS
Effective February 11, 1991, Cortex entered into a series of agreements with
Georgia Tech Research Corporation, the licensing arm of the Georgia Institute of
Technology ("Georgia Tech"), under which Cortex secured exclusive commercial
rights, for selected disorders, to several novel classes of chemical compounds
that the Company has demonstrated are effective as calpain inhibitors. Under the
agreement, the Company paid an initial license fee and is obligated to make
additional payments, including license maintenance fees creditable against
future royalties, over the course of initiating and conducting human clinical
testing and obtaining regulatory approvals. When and if sales of licensed
products commence, the Company will begin paying royalties on net sales.
PATENTS AND PROPRIETARY RIGHTS
The Company is aggressively pursuing patent protection of its technologies.
Cortex owns, or has exclusive rights (within its areas of product development)
to, a number of issued U.S. patents and a range of U.S. patent applications and
their international counterparts.
There can be no assurance that issued patents, whether already issued or issuing
in the future in connection with current or future patent applications, will
afford effective protection against competitors with similar technology. There
can also be no assurance that any patents issued or licensed to Cortex will not
be infringed upon or designed around by others. Further, since issuance of a
patent does not guarantee the right to practice the claimed invention, there can
be no assurance that others will not obtain patents that the Company would need
to license or design around in order to practice its patented technologies, or
that licenses that might be required to practice these technologies due to
patents of others would be available on reasonable terms. Additionally, there
can be no assurance that any unpatented manufacture, use or sale of the
Company's technology, processes or products will not infringe on patents or
proprietary rights of others, and the Company may be unable to obtain licenses
or other rights to these other technologies that may be required for
commercialization of the Company's proposed products or processes.
Cortex relies to a certain extent upon unpatented proprietary technology, and
may determine in some cases that its interests would be better served by
reliance on trade secrets or confidentiality agreements rather than patents. No
assurance can be made that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to or
disclose such technology. In addition, there is no assurance that Cortex can
meaningfully protect its rights in such unpatented proprietary technology or
that others will not wrongfully obtain such technology.
On December 8, 1994, the United States adopted the Uruguay Round Agreements Act
("URAA") to implement the General Agreement on Tariffs and Trade ("GATT"). The
URAA significantly alters many United States intellectual property laws. One of
the most significant changes is to patent term length. Any patent issued on an
application filed on or after June 8, 1995 will have a term that begins on the
date the patent issues and ends 20 years from the earliest United States filing
date claimed in the patent. This is in contrast to the 17-year term measured
from the patent issue date, which has been the law in the United States for
nearly two centuries. Given the significance of this change, the new law has a
transition provision that applies to patents issuing on applications filed
before June 8, 1995 and to all patents still in force on June 8, 1995. The
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term for these patents is the longer of either 17 years from the date of
issuance or 20 years from the earliest United States filing date. These changes
are not presently expected to have a material impact on the Company's business.
If Cortex is unable to obtain strong protection of its proprietary rights in its
products or processes prior to or after obtaining regulatory clearance, whether
through patents, trade secrets or otherwise, competitors may be able to market
competing products by obtaining regulatory clearance through demonstration of
equivalency to the Company's products, without being required to conduct the
same lengthy clinical tests conducted by the Company.
GOVERNMENT REGULATION
In order to test, produce and market human therapeutic products in the United
States, mandatory procedures and safety standards established by the Food and
Drug Administration ("FDA") must be satisfied. Obtaining FDA approval has
historically been a costly and time-consuming process. Although Cortex has
initiated Phase I (safety) testing in Europe, it has not yet filed a Notice
of Claimed Investigational Exemption for a New Drug ("IND") with the FDA for
testing in the United States. The Company is conducting Phase I/II studies in
the U.S. with CX516 in Alzheimer's disease patients and in patients with
schizophenia under INDs filed by its clinical collaborators. It is the
Company's intent that a larger pharmaceutical company partner or partners,
which the Company is seeking, will pursue the required regulatory approvals
to conduct larger-scale clinical tests in the United States and elsewhere.
Clinical trials are normally conducted in three phases. Phase I trials are
concerned primarily with the safety of the drug, involve fewer than 100
subjects, and may take from six months to over a year. Phase II trials normally
involve a few hundred patients and are designed primarily to demonstrate
effectiveness in treating or diagnosing the disease or condition for which the
drug is intended, although short-term side effects and risks in people whose
health is impaired may also be examined. Phase III trials may involve up to
several thousand patients who have the disease or condition for which the drug
is intended, to approximate more closely the conditions of ordinary medical
practice. Phase III trials are also designed to clarify the drug's benefit-risk
relationship, to uncover less common side effects and adverse reactions, and to
generate information for proper labeling of the drug. The FDA receives reports
on the progress of each phase of clinical testing, and may require the
modification, suspension, or termination of clinical trials if an unwarranted
risk is presented to patients. The FDA estimates that the clinical trial period
of drug development can take from two to ten years, and averages five years.
With certain exceptions, once clinical testing is completed, the sponsor can
submit a New Drug Application ("NDA") for approval to market a drug. The FDA's
review of an NDA is also lengthy and on average takes approximately two and
one-half years.
Therapeutic products that may be developed and sold by the Company outside the
United States will be subject to regulation by the various countries in which
they are to be distributed. In addition, products manufactured in the United
States that have not yet been cleared for domestic distribution will require FDA
approval in order to be exported to foreign countries for distribution there.
There can be no assurance that any required FDA or other governmental approval
will be granted or, if granted, will not be withdrawn. Governmental regulation
may prevent or substantially delay the marketing of the Company's proposed
products, or cause the Company to undertake additional procedures, which may be
both costly and lengthy, and thereby furnish a competitive advantage to the
competitors of the Company or its licensees.
Cortex does not have the financial and other resources to conduct the clinical
testing and other procedures required to obtain approval to market its products
and, accordingly, will be dependent on entering into joint ventures or other
collaborative arrangements with third parties with the required resources in
order to obtain the needed approvals. Cortex intends to enter into license or
other arrangements with larger pharmaceutical companies under which those
companies would conduct the required clinical trials and bear the expenses of
obtaining FDA approval for most or all of its proposed products. There can be no
assurance that Cortex will be able to enter into such arrangements on favorable
terms, or at all, or that such arrangements will ultimately result in obtaining
the necessary governmental approvals.
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COMPETITION
The pharmaceutical industry is characterized by rapidly evolving technology and
intense competition. Many companies of all sizes, including both major
pharmaceutical companies and specialized biotechnology companies, are engaged in
activities similar to those of Cortex. A number of drugs intended for the
treatment of Alzheimer's disease, age-related cognitive deficits, stroke and
other neurodegenerative diseases and disorders are on the market or in the later
stages of clinical testing. For example, over 25 drugs are under clinical
investigation in the U.S. for the treatment of Alzheimer's disease. The
Company's competitors have substantially greater financial and other resources
and larger research and development staffs. Larger pharmaceutical company
competitors also have significant experience in preclinical testing, human
clinical trials and regulatory approval procedures.
In addition, colleges, universities, governmental agencies and other public and
private research organizations will continue to conduct research and are
becoming more active in seeking patent protection and licensing arrangements to
collect license fees, milestone payments and royalties in exchange for license
rights to technology that they have developed, some of which may be directly
competitive with that of the Company. These institutions also compete with
companies such as Cortex in recruiting highly qualified scientific personnel.
The Company expects technological developments in the neuropharmacology field to
continue to occur at a rapid rate and expects that competition will remain
intense as advances continue to be made. Although the Company believes, based on
the technical qualifications, expertise and reputations of its Scientific
Directors, consultants and other key scientists, that it will be able to compete
in the discovery and early clinical development of therapeutics for neurological
disorders, the Company does not have the resources, and does not presently
intend, to compete with major pharmaceutical companies in the areas of later
stage clinical testing, manufacturing and marketing.
PRODUCT LIABILITY INSURANCE
The clinical testing, manufacturing and marketing of the Company's products may
expose the Company to product liability claims. The Company maintains liability
insurance with coverage limits of $5 million per occurrence and $5 million in
the annual aggregate. Although the Company has never been subject to a product
liability claim, there can be no assurance that the coverage limits of the
Company's insurance policies will be adequate or that one or more successful
claims brought against the Company would not have a material adverse effect upon
the Company's business, financial condition and results of operations. Further,
if AMPALEX or any other compound is approved by the FDA for marketing, there can
be no assurance that adequate product liability insurance will be available, or
if available, that it will be available at a reasonable cost. Any adverse
outcome resulting from a product liability claim could have a material adverse
effect on the Company's business, financial condition and results of operations.
EMPLOYEES
As of May 31, 1997, Cortex had 22 full-time employees and one part-time
employee and had engaged ten part-time Ph.D.-level scientific consultants. Of
the 22 full-time employees, 15 are engaged in research and development and seven
are engaged in management and administrative support. The Company also sponsors
a substantial amount of research in academic laboratories.
FACILITIES
The Company leases approximately 30,000 square feet of office, research
laboratory and expansion space under an operating lease that expires May 31,
1999, with an additional five-year option at 95% of the then fair market rental
rate. Current monthly rent on these facilities is approximately $20,000. The
Company believes that this facility will be adequate for its research and
development activities for at least the next three years.
LEGAL PROCEEDINGS
The Company is not a party to any material legal proceedings.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND SCIENTIFIC DIRECTORS
The directors, executive officers and scientific directors of the Company are as
follows:
Name Age Position
--------------------------------------------------------------------------
Robert F. Allnutt (2) 62 Director
Carl W. Cotman, Ph.D. (1) 57 Director, Scientific Director
Michael G. Grey (1) 44 Director
D. Scott Hagen 41 Vice President and Chief Financial
Officer, Corporate Secretary
Gary S. Lynch, Ph.D. 53 Scientific Director
Harvey S. Sadow, Ph.D. (2) 74 Chairman of the Board, Director
Vincent F. Simmon, Ph.D. 53 President and Chief Executive
Officer, Director
Davis L. Temple Jr., Ph.D. (1) 53 Director
(1) Member of the Compensation/Stock Option Committee.
(2) Member of the Audit Committee.
ROBERT F. ALLNUTT was elected as a director in December 1995. Mr. Allnutt was
Executive Vice President of the Pharmaceutical Manufacturers Association from
May 1985 until February 1995 and was Vice President for Governmental Relations
of Communications Satellite Corporation from May 1984 until May 1985. Prior to
1984, Mr. Allnutt held numerous positions in the Federal Government for 25
years, including 15 years at NASA, where his positions included Associate Deputy
Administrator, the third ranking position in the agency. Mr. Allnutt is a
director of Penederm, Inc., a developer and marketer of specialized dermatology
products. He also serves as a member of the Board of Directors of the National
Health Council and the National Council on the Aging. Mr. Allnutt holds a B.S.
in Industrial Engineering from the Virginia Polytechnic Institute and J.D. and
L.L.M. degrees from George Washington University.
CARL W. COTMAN, PH.D. has been a Scientific Director of and consultant to the
Company since October 1987, served as a director of the Company from March 1989
to October 1990, and was reelected as a director in November 1991. Dr. Cotman
has been a Professor of Psychobiology, Neurology, and Psychiatry at the
University of California, Irvine since 1985. He was a Professor of Psychobiology
and Neurology at that University from 1983 to 1985, and has held various other
teaching and research positions at that University since 1968. He chaired the
Scientific Advisory Council of the American Paralysis Association and is a
member of numerous professional associations and committees, including the
Council of the American Society for Neurochemistry, the National Institute of
Aging Task Force, the American Association for the Advancement of Science and
the International Society for Neurochemistry. Dr. Cotman has served on the
editorial boards of numerous scientific journals and has authored or co-authored
seven books and over 400 articles in the fields of neurobiology, memory and
cognition, and the recovery of function after brain injury. Dr. Cotman holds a
B.A. in Chemistry from Wooster College, an M.A. in Analytical Chemistry from
Wesleyan University, and a Ph.D. in Biochemistry from Indiana University.
MICHAEL G. GREY has been a director of the Company since September 1994. Since
November 1994, Mr. Grey has been President of BioChem Therapeutic Inc., a
wholly-owned subsidiary of BioChem Pharma Inc., an international
biopharmaceutical company. From January 1994 to October 1994, Mr. Grey was
Senior Vice President, Corporate Development of Titan Pharmaceuticals, Inc. a
biopharmaceutical holding company and President and Chief Operating Officer at
Ansan, Inc., an early stage biopharmaceutical company. From 1991 until 1993, Mr.
Grey served as Vice President, Corporate Development of Glaxo, Inc., and from
1989 until 1991, Mr. Grey served as Director of International Licensing of Glaxo
Holdings p.l.c., and was responsible for the worldwide licensing activities of
Glaxo, Inc. Mr. Grey holds a B.Sc. degree in Chemistry from the University of
Notingham.
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D. SCOTT HAGEN has been Vice President and Chief Financial Officer of the
Company since January 1992, and was Vice President-Finance and Administration
from September 1988 through December 1991. He served as Acting President and
Chief Operating Officer from October 1995 to May 1996. Mr. Hagen has been
Corporate Secretary since August 1991. From 1981 to August 1988, he was employed
by Chembiomed Ltd., a Canadian biopharmaceutical company, where he served in a
progression of scientific and administrative positions. Mr. Hagen holds a B.Sc.
in Biochemistry and an M.B.A. from the University of Alberta in Edmonton,
Canada.
GARY S. LYNCH, PH.D. has been a Scientific Director of and consultant to the
Company since October 1987, and served as a director of the Company from March
1988 to March 1989 and again from December 1994 to December 1995. Dr. Lynch has
been a Professor in the Department of Psychobiology at the University of
California, Irvine since 1981, and has held various other teaching and research
positions at that University since 1969. He is a Professor at the University's
Center for the Neurobiology of Learning and Memory. Dr. Lynch is a member of the
Neuroscience Society and the International Brain Research Organization. He also
serves on the Advisory Board of the Cognitive Neuroscience Institute. Dr. Lynch
has authored and co-authored over 400 articles and a number of books in the
areas of neurobiology, cognition, and memory. Dr. Lynch holds a B.A. in
Psychology from the University of Delaware and a Ph.D. in Psychology from
Princeton University.
HARVEY S. SADOW, PH.D. has been a director of the Company since March 1988 and
Chairman of the Board of Directors since January 1991. Dr. Sadow was President
and Chief Executive Officer of Boehringer Ingelheim Corporation, a major health
care company, from 1971 until his retirement in January 1988 and was Chairman of
the Board of that company from 1988 through December 1990. Dr. Sadow was
Chairman of the University of Connecticut Foundation, the President's Council of
the American Lung Association, and the Connecticut Law Enforcement Foundation
and was a member of the Board of Directors of the Pharmaceutical Manufacturers
Association ("PMA") and Chairman of the Board of the PMA Foundation. Dr. Sadow
is also a member of several other professional committees and societies,
including the American Society for Clinical Pharmacology and Therapeutics. He
has published extensively in the field of treatment of diabetes mellitus.
Dr. Sadow is Chairman of Cholestech Corporation, a developer, manufacturer and
seller of lipid measuring diagnostic products; a director of Penederm, Inc., a
developer and marketer of specialized products in the dermatology area; and a
director of several privately-held companies in the health care field. Dr. Sadow
holds a B.S. from the Virginia Military Institute, an M.S. from the University
of Kansas, and a Ph.D. from the University of Connecticut.
VINCENT F. SIMMON, PH.D. was appointed President and Chief Executive Officer and
a director of the Company in May 1996. From November 1994 to December 1995, Dr.
Simmon served as Chairman, President and Chief Executive Officer of Prototek,
Inc., a privately-held biopharmaceutical company focusing on the development of
protease inhibitors. From March 1990 to November 1994, Dr. Simmon served as
President, Chief Executive Officer and a director at Alpha 1 Biomedicals, Inc.,
a biotechnology company. From February 1985 to March 1990, Dr. Simmon served as
Vice President for Biomedical and Biotechnology Research at W.R. Grace and Co.
From 1979 to 1985, Dr. Simmon served in varying capacities including Senior Vice
President of Research and Development for Genex Corporation, a genetic
engineering company, and from 1973 to 1979 in varying capacities including
Assistant Director, Department of Toxicology for SRI International, a consulting
company. Dr. Simmon has served as a governor of the Emerging Companies Section
of BIO (Biotechnology Industrial Organization) and a director of the Chemical
Industries Institute for Toxicology (Research Triangle Park). Dr. Simmon holds a
B.A. degree in Biology and Chemistry from Amherst College, a M.S. degree from
the University of Toledo in Plant Physiology and a Ph.D. degree in Molecular
Biology from Brown University. Dr. Simmon was a post-doctoral fellow from 1971
to 1973 at Stanford University.
DAVIS L. TEMPLE, JR., PH.D. has been a director of and consultant to the Company
since March 1994. He served as comember of the Office of the Chief Executive
of the Company from October 1995 to May 1996. In April 1997, Dr. Temple was
appointed as Chairman and Chief Executive Officer of Cognetix, a privately held
biopharmaceutical drug discovery and development company. From November 1995
until his appointment, he was a Senior Consultant for Kaufman Brothers, a New
York Investment Bank. Prior to that, from January 1994 to November 1995 he was a
Managing Director at Stover Haley Burns, Inc., a life science advisory group.
From 1990 until 1993, Dr. Temple served as Vice President, CNS Drug Discovery,
of Bristol-Myers Squibb and from 1984 to 1990 he served as Senior Vice
President, CNS Research at Bristol-Myers Company. Dr. Temple holds a B.S. degree
in Pharmacy from Louisiana State University and a Ph.D. degree in Medicinal
Chemistry and Pharmacology from the University of Mississippi.
25
<PAGE>
OTHER OFFICERS
PHILIP N. HAMILTON has been Vice President, Business Development since October
1995. From January 1995 to October 1995 he was an independent consultant to a
number of early stage biopharmaceutical companies. From 1987 to January 1995 he
was with Cambridge NeuroScience, Inc., where he served in a progression of
scientific and administrative positions, most recently as Director, Licensing
and Strategic Alliances, with responsibility for corporate partnering, new
business opportunities and licensing. Prior to joining Cambridge NeuroScience,
Mr. Hamilton was engaged in research at Harvard Medical School and St. George's
Medical School, London, U.K. Mr. Hamilton holds a B.Sc.(Hons) in Pharmacology
from the University of Edinburgh in Scotland, where he also completed four years
of graduate level research in Neurobiology. He holds an M.B.A. from Suffolk
University, Boston.
GARY A. ROGERS, PH.D. has been Vice President, Pharmaceutical Discovery since
June 1995. In February 1994, he founded Ligand Design, a private contract design
and synthesis firm located in Santa Barbara. From 1987 to 1994, Dr. Rogers
served as an associate research biochemist at the University of California,
Santa Barbara. Prior to that, he held a succession of research and faculty
positions at universities in the United States and abroad, including three years
as an assistant adjunct professor of bio-organic chemistry under Dr. Paul Boyer
at the University of California, Los Angeles and four years as an assistant
professor at the University of Texas. Dr. Rogers is a co-inventor of the
AMPAKINE family of AMPA receptor modulating compounds. He holds a B.S. degree in
organic chemistry from the University of California, Los Angeles and a Ph.D. in
bio-organic chemistry from the University of California, Santa Barbara.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation paid
or accrued by the Company for services rendered during the three fiscal years
ended June 30, 1996 to the Company's Chief Executive Officer and to the other
executive officer employed by the Company as of June 30, 1996.
26
<PAGE>
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Annual Compensation Compensation Awards
------------------------------ -----------------------
Name and Other Annual All Other
Principal Position Year Salary Bonus Compensation (3) Options(#) Compensation
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vincent F. Simmon, Ph.D. (1) 1996 $ 25,000 $20,410 $ 3,613 180,000 $ --
President and Chief
Executive Officer
D. Scott Hagen 1996 $128,751 $18,750 $14,636 11,000 $ --
Vice President, 1995 124,583 15,000 9,346 15,000 --
Chief Financial Officer 1994 114,035 25,000 9,577 -- --
and Secretary
Alan A. Steigrod (2) 1996 $ 66,667 $31,500 $53,077 -- $ --
President and Chief 1995 207,400 -- 12,559 195,600 (4) --
Executive Officer 1994 196,602 74,000 17,483 119,500 --
</TABLE>
- -------------------------
(1) Dr. Simmon was appointed President and Chief Executive Officer on May 15,
1996.
(2) Mr. Steigrod resigned as President and Chief Executive Officer on October
31, 1995.
(3) Accrued or paid-out vacation pay, sick pay and/or relocation
reimbursements, and in the case of Mr. Steigrod,
includes $50,000 in severance pay.
(4) Represents options issued to replace 195,600 canceled options.
OPTION MATTERS
OPTION GRANTS. The following table sets forth certain information concerning
grants of stock options to each of the Company's executive officers named in the
Summary Compensation Table during the fiscal year ended June 30, 1996.
OPTION GRANTS IN LAST FISCAL YEAR
% of Total
Options
Granted to
Options Employees in Exercise Expiration
Name Granted Fiscal Year Price($/Sh) Date
---------------------------------------------------------------------------
Vincent F. Simmon, Ph.D. 180,000 74% $5.63 05/15/06
D. Scott Hagen 11,000 5% $7.25 02/19/06
Alan A. Steigrod -- 0% -- --
----------------------
OPTION EXERCISES. The following table sets forth certain information concerning
the exercise of options by each of the Company's executive officers named in the
Summary Compensation Table during the fiscal year ended June 30, 1996, including
the aggregate value of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of June 30, 1996. Also reported are the values for "in the
money"
27
<PAGE>
options which represent the positive spread between the exercise prices of any
such existing stock options and $4-3/8, the last sale price of Common Stock on
June 30, 1996 as reported by Nasdaq.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Value Realized
(market price Value of Unexercised
at exercise Number of Unexercised In-the-Money
Shares Acquired less exercise Options at FY-End Options at FY-End
Name on Exercise price) Exercisable Unexercisable Exercisable Unexercisable
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Vincent F. Simmon, Ph.D. 0 $0 4,999 175,001 $0 $0
D. Scott Hagen 0 0 26,950 23,050 30,938 14,062
Alan A. Steigrod 194,300 173,077 0 0 0 0
</TABLE>
EMPLOYMENT AND CONSULTING AGREEMENTS
Vincent F. Simmon joined the Company as President and Chief Executive Officer in
May 1996. His employment agreement entitles Dr. Simmon to a base salary of
$200,000 per year as well as an annual bonus of from 15% to 50% of his base
salary, at the discretion of the Board of Directors of the Company. In addition,
Dr. Simmon received a one-time signing bonus of $23,500. In connection with his
employment, Dr. Simmon was granted options to purchase 180,000 shares of Common
Stock at an exercise price of $5.625 per share, representing 100% of the fair
market value as of the grant date. The options vest evenly each month over a
three-year period commencing one month from the date of grant and have a
ten-year term.
Mr. Hagen entered into an employment agreement with the Company commencing
September 1, 1988. The employment agreement has been extended and renewed for
additional terms, most recently as of January 1, 1997 for a term ending
December 31, 1997. The agreement provides for a base salary of $141,113 with an
annual bonus of between $10,000 and $30,000. In December 1993, options to
purchase a total of 14,000 shares of Common Stock at an exercise price of $2.50
per share, which were originally granted in 1989, were extended by the Stock
Option Committee for an additional three-year period, or until February 1997.
The aggregate difference between exercise price and fair market value of the
Common Stock on the date of the extension was recorded as compensation expense.
In the event that Mr. Hagen's employment is terminated other than for cause or
as a result of his voluntary resignation, death or disability, he will receive a
severance payment equal to six months' salary.
Drs. Carl W. Cotman and Gary S. Lynch (both of whom are co-founders and
Scientific Directors of the Company) have each entered into a consulting
agreement with the Company that provides for the payment of an annual
consulting fee of $30,000. In September 1994, and again in July 1995, Dr.
Lynch's consulting fee was increased to $50,000 and $75,000 per year,
respectively. Also in September 1994, Dr. Cotman's consulting fee was
increased to $33,000 per year. The term of each consulting agreement
commenced in November 1987 and will continue until terminated by the
respective parties thereto. The consulting agreements obligate the respective
consultants to make themselves available to the Company for consulting and
advisory services for an average of three days per month. In June 1995, each
of the consultants voluntarily reduced their annual consulting fees by
$10,000. On March 24, 1994, the Committee granted options to purchase 5,000
shares of Common Stock, with an exercise price equal to 100% of fair market
value of the Common Stock on the date of grant and vesting over a three-year
period, to each of Drs. Cotman and Lynch. On December 15, 1994, the Committee
granted options to purchase 20,000 shares of Common Stock with an exercise
price of $3.125 per share, the then fair market value, and vesting over a
four-year period to Dr. Cotman. On the same date, Dr. Lynch was granted
options to purchase 70,000 shares of Common Stock at the same exercise price,
and with the same vesting period. On January 4, 1996, the Stock Option
Committee granted options to Dr. Lynch to purchase 100,000 shares of Common
Stock with an exercise price of $3.50 per share, the then fair market value,
and immediate vesting. See also "Director Compensation."
28
<PAGE>
Dr. Davis L. Temple, a director of the Company, entered into a consulting
agreement with the Company that included the payment of consulting fees of
$10,000 for each six months of service over the period from July 1, 1994 to
December 31, 1996. This agreement has since expired. In February 1995, the
Stock Option Committee, in recognition of his contributions to the Company,
granted Dr. Temple an option to purchase 20,000 shares of the Company's
common stock at an exercise price of $2.125 per share, representing the fair
market value of the common stock on that date. See also "Director
Compensation."
DIRECTOR COMPENSATION
Each non-employee director (other than those who join the Board of Directors to
oversee an investment in the Company) receives $1,500 at each Board of Directors
meeting attended, and an additional $750 annual retainer for each committee on
which he or she serves.
Under the Company's 1996 Stock Incentive Plan, each non-employee director (other
than those who serve on the Board of Directors to oversee an investment in the
Company) is automatically granted options to purchase 15,000 shares of Common
Stock upon commencement of service as a director and additional options to
purchase 6,000 shares of Common Stock on the date of each Annual Meeting of
Stockholders. Non-employee directors who serve on the Board of Directors to
oversee an investment in the Company receive options to purchase 7,500 shares of
Common Stock upon commencement of service as a director and additional options
to purchase 3,000 shares of Common Stock on the date of each Annual Meeting of
Stockholders. These nonqualified options have an exercise price equal to 100% of
the fair market value of the Common Stock on the date of grant, have a ten-year
term and vest in equal increments of 33-1/3% on each anniversary date of the
dates of grant, and are otherwise subject to the terms and provisions of the
1996 Stock Incentive Plan.
CERTAIN TRANSACTIONS
The Company's Restated Certificate of Incorporation provides that, pursuant to
Delaware law, directors of the Company shall not be liable for monetary damages
for breach of the directors' fiduciary duty of care to the Company and its
stockholders. This provision does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctions or other forms
of non-monetary relief remain available under Delaware law. In addition, each
director continues to be subject to liability for breach of the director's duty
of loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for actions leading to
improper personal benefit to the director and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision also does not affect a director's responsibility under any
other law, such as the Federal securities laws. The Company has entered into
Indemnification Agreements with each of the officers and directors that obligate
the Company to indemnify such officers and directors as permitted by applicable
law.
As consideration for its agreement to provide financial advisory services
related to corporate finance transactions and corporate partnering activities,
as amended and extended November 29, 1994, Vector Securities International, Inc.
("Vector") was paid an additional cash retainer of $50,000 and was issued a
six-year non-redeemable warrant to purchase 38,293 shares of the Company's
common stock at $4.57 per share, as adjusted and subject to adjustment under
certain circumstances. Warrants to purchase 5,471 shares of the Company's common
stock vested immediately, and warrants to purchase 16,411 shares of the
Company's common stock shall vest upon the consummation of each strategic
alliance when and as secured by Vector. Such strategic alliance may include, but
is not limited to, a joint venture, partnership, license or other contract for
the research, development, manufacture, distribution, sale or other activity
relating to the Company's present or future products, the sale of any of the
Company's assets or any rights to its products or technology, or a commitment to
provide funding for all or part of the Company's research and development
activities. For its financial advisory assistance related to the licensing of
the Company's calpain inhibitor technology, in January 1995 the Company paid a
$20,000 cash retainer and issued to Vector a five-year non-redeemable warrant to
acquire 50,000 shares of the Company's common stock at $3.00 per share, subject
to adjustment under certain circumstances. This warrant was exercised in
February 1997. The Company may be required to make substantial additional
payments for each strategic alliance secured by Vector. If a sale of the Company
as presented by Vector is consummated, Vector may be entitled to receive a fee
based on the aggregate consideration to be received by the Company. See
"Description of Securities--Vector Warrants."
29
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth, to the knowledge of the Company, certain
information regarding the beneficial ownership of the Company's Common Stock as
of May 31, 1997, by (i) each person known by the Company to be the beneficial
owner of more than 5% of the outstanding Common Stock, (ii) each of the
Company's directors, (iii) each of the named executive officers in the Summary
Compensation Table and (iv) all of the Company's executive officers and
directors as a group. Except as indicated in the footnotes to this table, the
Company believes that the persons named in this table have sole voting and
investment power with respect to the shares of Common Stock indicated.
DIRECTORS, NOMINEES, SHARES PERCENT OF
OFFICERS, AND 5% BENEFICIALLY COMMON STOCK
STOCKHOLDERS OWNED BENEFICIALLY OWNED
---------------------------------------------------------------
Robert F. Allnutt 5,375 (1) *
Carl W. Cotman, Ph.D. 129,625 (2) 1.4
Michael G. Grey 9,375 (3) *
D. Scott Hagen 21,167 (4) *
Harvey S. Sadow, Ph.D. 40,959 (5) *
Vincent F. Simmon, Ph.D. 94,599 (6) *
Alan A. Steigrod 0 *
Davis L. Temple, Jr., Ph.D. 24,375 (7) *
Quantum Partners LDC (8) 657,400 7.0
Soros Fund Management
888 Seventh Avenue, 33rd Floor
New York, NY 10106
All officers, directors and nominees
as a group (7 persons) 325,475 3.4
- --------------------
* Less than one percent
(1) Includes 4,375 shares that may be purchased upon exercise of options
within 60 days of May 31, 1997.
(2) Includes 31,625 shares that may be purchased upon exercise of options
within 60 days of May 31, 1997.
(3) Includes 9,375 shares that may be purchased upon exercise of options
within 60 days of May 31, 1997.
(4) Includes 20,767 shares that may be purchased upon exercise of options
within 60 days of May 31, 1997.
(5) Includes 30,959 shares that may be purchased upon exercise of options
within 60 days of May 31, 1997.
(6) Includes 69,999 shares that may be purchased upon exercise of options
within 60 days of May 31, 1997.
(7) Includes 24,375 shares that may be purchased upon exercise of options
within 60 days of May 31, 1997.
(8) According to a Schedule 13D filed by George Soros (in his capacity as
sole proprietor of Soros Fund Management), these shares are held for
the account of Quantum Partners LDC, which has granted investment
discretion to Soros Fund Management. Mr. Soros may be deemed to be
beneficial owner of such shares.
The Company is not aware of any arrangements that may at a subsequent date
result in a change of control of the Company.
30
<PAGE>
DESCRIPTION OF SECURITIES
GENERAL
The authorized capital stock of the Company consists of: 20,000,000 shares of
Common Stock, par value $0.001 per share, and 5,000,000 shares of Preferred
Stock, par value $0.001 per share, of which 1,250,000 shares have been
designated as 9% Cumulative Convertible Preferred Stock (the "9% Preferred
Stock"), 3,200,000 shares have been designated as Series B Convertible Preferred
Stock (the "Series B Preferred Stock"), 500 shares have been designated as
Series D Convertible Preferred Stock (the "Series D Preferred Stock") and 400
shares have been designated as Series A Convertible Preferred Stock (the "Series
A Preferred Stock").
As of May 31, 1997, there were 9,394,249 shares of Common Stock, 110,000
shares of 9% Preferred Stock, 150,000 shares of Series B Preferred Stock, no
shares of Series D Preferred Stock and no shares of Series A Preferred Stock
outstanding (See Note 11 of Notes to Financial Statements). As of the same date,
Vector Securities International, Inc. ("Vector") held warrants to acquire
285,096 shares of Common Stock (the "Vector Warrants") and Swartz Investments,
Inc. ("Swartz") and its transferees held warrants to purchase 106,195 shares of
Common Stock (the "Swartz Warrants"). Also as of May 31, 1997, there were 717
record holders of Common Stock, 4 record holders of 9% Preferred Stock, 3 record
holders of Series B Preferred Stock, one record holder of the Vector Warrants
and ten record holders of the Swartz Warrants.
In addition, as of May 31, 1997 the Company had reserved an aggregate of
919,103 shares of Common Stock for issuance upon exercise of outstanding stock
options held by employees and officers, directors and consultants to the
Company, 14,667 shares for issuance upon conversion of the 9% Preferred Stock,
14,717 shares for issuance upon conversion of the Series B Preferred Stock,
285,096 shares for issuance upon exercise of the Vector Warrants and 106,195
shares for issuance upon exercise of the Swartz Warrants.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote per share held of
record on all matters submitted to a vote of stockholders, including the
election of directors. The holders are entitled to receive dividends when, as
and if declared by the Board of Directors, in its discretion, out of funds
legally available therefor, subject to preferences that may be applicable to any
outstanding shares of Preferred Stock. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of the Company, the holders of Common
Stock are entitled to share ratably in all of the assets of the Company
remaining after payment of liabilities and after payment of any preferential
amounts to which holders of shares of the 9% Preferred Stock, the Series B
Preferred Stock, the Series A Preferred Stock and any other series of Preferred
Stock that may be outstanding in the future, may be entitled. Holders of Common
Stock have no preemptive or other subscription rights, and there are no
conversion rights or redemption or sinking fund provisions with respect to such
shares. All of the outstanding shares of Common Stock are, and the Shares of
Common Stock when issued will be, fully paid and nonassessable.
WARRANTS
On July 23, 1993, in connection with the appointment of Vector Securities
International, Inc. as exclusive financial advisor to the Company, Cortex issued
to Vector a non-redeemable warrant to purchase 12,166 shares of Common Stock at
a price of $6.37 per share, as adjusted and subject to further adjustment under
certain circumstances such as stock splits or stock dividends, at any time
through July 22, 1998.
On December 1, 1993, in connection with the closing of a private placement of
2,750,000 shares of Common Stock, for which Vector acted as placement agent, the
Company issued to Vector a similar warrant to purchase 274,200 shares of Common
Stock at a price of $9.375 per share at any time through November 30, 1998. As
consideration for Vector's assistance in reaching the settlement with Alkermes,
this warrant was canceled and reissued as a new warrant to purchase 234,637
shares of the Company's common stock at $5.37 per share, as adjusted and subject
to further adjustment, at any time through January 15, 2000.
31
<PAGE>
As consideration for its agreement to provide financial advisory services
related to corporate finance transactions and corporate partnering activities,
as amended and extended November 29, 1994, Vector was issued a six-year
non-redeemable warrant to purchase 38,293 shares of the Company's common stock
at $4.57 per share, subject to adjustment under certain circumstances. Warrants
to purchase 5,471 shares of the Company's common stock vested immediately, and
warrants to purchase 16,411 shares of the Company's common stock shall vest upon
the consummation of each strategic alliance, as defined, when and as secured by
Vector.
For its financial advisory assistance related to the licensing of the Company's
calpain inhibitor technology, in January 1995 the Company issued Vector a
five-year non-redeemable warrant to acquire 50,000 shares of the Company's
common stock at $3.00 per share, subject to adjustment under certain
circumstances, such as stock splits or stock dividends. This warrant was
exercised in February 1997.
On December 8, 1995, in connection with a private placement of Series C
Preferred Stock, the Company issued to Swartz Investments, Inc. a five-year
non-redeemable warrant to purchase 106,195 shares of the Company's common stock
at an exercise price of $2.825. Swartz Investments, Inc. subsequently
transferred all of such warrants.
In connection with the issuance of 200 shares of Series A Preferred Stock, on
June 5, 1997 the Company issued four-year warrants to purchase an aggregate of
400,000 shares of the Company's common stock at an exercise price of $3.08 per
share. The Company is committed to issue additional four-year warrants to
purchase 400,000 shares of the Company's common stock in the second closing of
the private placement. The exercise price for these warrants will also be $3.08
per share, subject to adjustment under certain circumstances.
PREFERRED STOCK
The holders of the 9% Preferred Stock are not entitled to vote for the election
of directors or upon any other matter presented to the stockholders, except and
to the extent provided by applicable law. The holders of the 9% Preferred Stock
are entitled to receive cumulative dividends, from and after June 15, 1989, at
the rate of $.09 per share per annum, out of funds legally available therefor,
when and as declared by the Board of Directors. Upon any liquidation,
dissolution or winding up of the Company, or any merger or consolidation of the
Company or other transaction in which more than 50% of the Company's voting
power is transferred (except for an issuance of the Company's securities), the
holders of the 9% Preferred Stock are entitled to receive an amount equal to
$1.00 per share plus accrued and unpaid dividends. The holders of the
9% Preferred Stock are not entitled to share in assets remaining after such
preference is satisfied. The Company has the right at any time to redeem the
9% Preferred Stock, in whole or in part, upon not less than 30 days' nor more
than 60 days' written notice, at a price of $1.00 per share.
Each share of 9% Preferred Stock is convertible at any time at the option of the
holder thereof into approximately 0.1333 shares of Common Stock, for an
effective conversion price of $7.50 per share, subject to adjustment under
certain circumstances. Upon conversion of 9% Preferred Stock, accrued and unpaid
dividends pertaining thereto do not convert to Common Stock, but rather are
credited to additional paid-in capital.
The holders of Series B Preferred Stock are not entitled to vote for the
election of directors or upon any other matter presented to the stockholders,
except and to the extent provided by applicable law. In the event of any
liquidation, dissolution, winding-up or other distribution of the assets of the
Company, holders of Series B Preferred Stock are entitled to receive, after
payment of the full liquidation preference to holders of 9% Preferred Stock, an
amount equal to $0.6667 per share of Series B Preferred Stock. The Company has
the right to redeem the Series B Preferred Stock for $0.6667 per share. Each
share of Series B Preferred Stock is convertible at any time at the option of
the holder thereof into approximately 0.09812 shares of Common Stock at an
effective conversion price of $6.795 per share, subject to adjustment under
certain circumstances.
Holders of the Series A Preferred Stock are not entitled to vote for the
election of directors or upon any other matter presented to the stockholders,
except to the extent provided by law. Prior to August 20, 1997, each share of
Series A Preferred is convertible into common stock at an effective conversion
price equal to the lowest of the dollar volume weighted average sales
prices of the common stock during the five trading days immediately preceding
the date of
32
<PAGE>
conversion (the "Average Stock Price"). On or after August 20, 1997, the
effective conversion price will be equal to 80% of the Average Stock Price if
the Average Stock Price is greater than $2.50 per share; $2.00 per share if the
Average Stock Price is less than $2.50 but greater than $2.10 per share; or 95%
of the Average Stock Price if the Average Stock Price is less than or equal to
$2.10 per share. The applicable conversion rate is subject to adjustment at the
rate of six percent per annum based on the length of the period from issuance of
the Series A Preferred Stock until the applicable conversion. The Company
intends to sell an additional 200 shares of Series A Preferred Stock three
business days following the effectiveness of the registration statement of which
this Prospectus is a part, which covers resales of common stock issuable upon
conversion of the Series A Preferred Stock. Provided the effective conversion
price for a given conversion is equal to or greater than $2.75 per share, the
holder of the Series A Preferred Stock may purchase up to the same number of
common shares as such holder is acquiring upon such conversion of Series A
Preferred Stock, at such effective price. Any election to exercise this right to
purchase additional shares must be made at the time of conversion of the related
Series A Preferred Stock, and is forfeited to the extent that it is not fully
exercised at such time. Holders of the Series A Preferred Stock have a
liquidation preference, after payment of full liquidation preference to holders
of the 9% and Series B Preferred Stock, of an amount equal to $10,000 per share,
plus 6% per year or portion thereof that such share is outstanding. The holder
may elect to redeem the Series A Preferred Stock under certain circumstances,
such as the delisting of the Company's Common Stock from Nasdaq, at prices up to
125% of the liquidation preference. Any shares of Series A Preferred Stock that
remain outstanding three years from the date of issuance of such shares
automatically convert into Common Stock at the then applicable rate of
conversion.
The Restated Certificate of Incorporation of the Company authorizes the issuance
of 5,000,000 shares of Preferred Stock, of which 549,100 shares remain
undesignated. The Board of Directors, within the limitations and restrictions
contained in the Restated Certificate of Incorporation and without further
action by the Company's stockholders, has the authority to issue this
undesignated Preferred Stock from time to time in one or more series and to fix
the number of shares and the relative rights, conversion rights, voting rights,
rights and terms of redemption, liquidation preferences and any other
preferences, special rights and qualifications of any such series. If shares of
Preferred Stock with voting rights are issued, such issuance could affect the
voting rights of the holders of the Company's Common Stock by increasing the
number of outstanding shares entitled to vote and by the creation of class or
series voting rights. In addition, any further issuance of Preferred Stock
could, under certain circumstances, have the effect of delaying or preventing a
change in control of the Company and may adversely affect the rights of holders
of Common Stock. Other than the shares of 9% Preferred Stock, Series B Preferred
Stock and Series A Preferred Stock, there are no shares of Preferred Stock
currently issued and outstanding and the Company has no present plans to issue
any additional shares of Preferred Stock or to establish or designate any new
series of Preferred Stock.
TRANSFER AGENT AND WARRANT AGENT
American Stock Transfer and Trust Company, 40 Wall Street, New York, New York,
10005 serves as Transfer Agent for the Common Stock, 9% Preferred Stock and
Series B Preferred Stock of the Company.
33
<PAGE>
SELLING STOCKHOLDERS
The Shares are to be offered by and for the respective accounts of the Selling
Stockholders. The number of Shares which each Selling Stockholder may offer is
as follows:
<TABLE>
<CAPTION>
Shares offered
Owned Before Offering pursuant Owned After Offering
--------------------- to this --------------------
Selling Stockholder Shares Percent Prospectus Shares Percent
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nelson Partners -- (1) -- (1) 1,052,312 (1) 0 0
Olympus Securities, Ltd. -- (1) -- (1) 1,052,311 (1) 0 0
Heracles Fund -- (1) -- (1) 526,156 (1) 0 0
Themis Partners L.P. -- (1) -- (1) 526,156 (1) 0 0
MichaelAngelo, L.P. -- (1) -- (1) 210,462 (1) 0 0
Raphael, L.P. -- (1) -- (1) 210,462 (1) 0 0
Angelo, Gordon & Co. L.P. -- (1) -- (1) 157,847 (1) 0 0
GAM Arbitrage Investments, Inc. -- (1) -- (1) 157,847 (1) 0 0
AG Super Fund, L.P. -- (1) -- (1) 105,231 (1) 0 0
AG Super Fund International
Partners, L.P. -- (1) -- (1) 105,231 (1) 0 0
AG Long Term Super Fund, L.P. -- (1) -- (1) 105,231 (1) 0 0
Bronnum, Dwight B. 1,500 (2) * 1,500 0 0
Bury, Lance T. 5,000 (2) * 5,000 0 0
Enigma Investments 3,451 (2) * 3,451 0 0
Hale, Joseph H. 13,274 (2) * 13,274 0 0
Hathorn, P. Bradford 5,000 (2) * 5,000 0 0
Hopkins, Robert L. 1,500 (2) * 1,500 0 0
Kendrick Family Partnership L.P. 32,987 (2) * 32,987 0 0
Krusen, Charles 8,496 (2) * 8,496 0 0
Peteler, David K. 2,000 (2) * 2,000 0 0
Swartz Family Partnership, L.P. 32,987 (2) * 32,987 0 0
Vector Securities International, Inc. 285,096 (3) 2.9 285,096 0 0
</TABLE>
- ----------------------------
* Less than one percent
(1) Together these investors purchased, in the aggregate, 200 shares of Series
A Preferred Stock and warrants to purchase 400,000 shares of Common Stock
in June 1997 and, subject to certain conditions outside the control of the
investors, are obligated to purchase an additional 200 shares of Series A
Preferred Stock and warrants to purchase a further 400,000 shares of Common
Stock. The Series A Preferred Stock is convertible into Common Stock at
conversion prices that may vary and, at conversion prices greater than or
equal to $2.75 per share of Common Stock, gives rise to a right to purchase
additional shares of Common Stock at the effective conversion price. See
"Description of Securities -- Preferred Stock" and Note 11 of Notes to
Financial Statements. As a result, in order to provide for the effects of
possible future declines in the market value of the Company's Common Stock,
the number of shares owned before the offering is presently indeterminable
and the number of shares offered pursuant to the Prospectus in the table
above has been adjusted upward by 25% from the number of shares that would
apply were all of the shares of Series A Preferred Stock converted into
shares of Common Stock, and the additional purchase right associated with
such conversion fully exercised, as of the date of filing of the
Registration Statement of which this Prospectus is a part. The amounts
listed above therefore include shares issuable upon (i) conversion of
Series A Preferred Stock, (ii) exercise of the right to purchase additional
shares and (iii) exercise of the warrants. See "Risk Factors -- Shares
Eligible for Future Sale; Dilution; Control" and "Description of Securities
-- Preferred Stock."
(2) Represents shares of Common Stock that may be acquired upon exercise of
warrants.
34
<PAGE>
(3) Represents shares of Common Stock that may be acquired upon exercise of
warrants. Vector Securities International, Inc. acts as an advisor to the
Company on corporate partnering matters. See "Certain Transactions."
PLAN OF DISTRIBUTION
The Company has been advised by each Selling Stockholder that the Selling
Stockholder may sell its Shares from time to time in transactions on Nasdaq in
negotiated transactions, by writing options on the Shares or by a combination of
these methods, at fixed prices which may be changed, at market prices at the
time of sale, at prices related to market prices or at negotiated prices. The
Selling Stockholders may effect these transactions by selling the Shares to or
through broker-dealers, who may receive compensation in the form of discounts,
concessions or commissions from the Selling Stockholders or the purchasers of
the Shares for whom the broker-dealer may act as an agent or to whom they may
sell the Shares as a principal, or both. The compensation to a particular
broker-dealer may be in excess of customary commissions.
The Selling Stockholders and broker-dealers who act in connection with the sale
of the Shares may be deemed to be "underwriters" within the meaning of the
Securities Act, and any commissions received by such broker-dealers and profits
on any resale of the Shares as a principal may be deemed to be underwriting
discounts and commissions under the Securities Act.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Stradling, Yocca, Carlson & Rauth, a Professional Corporation,
Newport Beach, California.
EXPERTS
The financial statements of Cortex Pharmaceuticals, Inc. as of June 30, 1996 and
1995, for each of the two years in the period ended June 30, 1996, and for the
period from inception (February 10, 1987) through June 30, 1996, appearing in
this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
35
<PAGE>
[This page intentionally left blank]
36
<PAGE>
INDEX TO FINANCIAL STATEMENTS
PAGE
----
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets -- As of March 31, 1997 (unaudited), June 30, 1996
and June 30, 1995. . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Operations -- For the nine-month periods ended
March 31, 1997 and 1996 (unaudited), the period from inception
(February 10, 1987) through March 31, 1997 (unaudited), the years
ended June 30, 1996 and 1995, and the period from inception
(February 10, 1987) through June 30, 1996. . . . . . . . . . . . . F-4
Statements of Stockholders' Equity -- For the period from
inception (February 10, 1987) through March 31, 1997 . . . . . . . F-5
Statements of Cash Flows -- For the nine-month periods ended
March 31, 1997 and 1996 (unaudited), the period from inception
(February 10, 1987) through March 31, 1997 (unaudited), the
years ended June 30, 1996 and 1995, and the period from inception
(February 10, 1987) through June 30, 1996 . . . . . . . . . . . . F-9
Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . F-10
F-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
THE STOCKHOLDERS AND BOARD OF DIRECTORS
CORTEX PHARMACEUTICALS, INC.
We have audited the accompanying balance sheets of Cortex Pharmaceuticals, Inc.
(a development stage enterprise) as of June 30, 1996 and 1995, and the related
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended June 30, 1996 and for the period from inception
(February 10, 1987) through June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cortex Pharmaceuticals, Inc. (a
development stage enterprise) at June 30, 1996 and 1995, and the results of its
operations and its cash flows for each of the two years in the period ended
June 30, 1996 and for the period from inception (February 10, 1987) through June
30, 1996, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
San Diego, California
July 26, 1996,
except for Note 10, as to which the date is
October 15, 1996
F-2
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
March 31, 1997 June 30, 1996 June 30, 1995
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,670,303 $ 4,091,550 $ 149,880
U.S. Government securities -- available for sale -- -- 3,689,356
Other current assets 72,530 88,427 92,212
------------ ------------ ------------
Total current assets 4,742,833 4,179,977 3,931,448
Furniture, equipment and leasehold improvements, net 680,576 807,601 931,794
Other 23,130 26,342 23,130
------------ ------------ ------------
$ 5,446,539 $ 5,013,920 $ 4,886,372
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $289,488 $217,332 $377,589
Accrued dividends 69,300 64,350 183,150
Accrued wages, salaries and related expenses 55,916 40,145 35,223
Current obligations under capital lease 3,702 8,501 7,698
------------ ------------ ------------
Total current liabilities 418,406 330,328 603,660
Obligations under capital leases -- 1,499 10,016
Note payable to Alkermes, Inc. 1,078,024 1,037,330 1,000,000
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 (March 31, 1997 and
June 30, 1996) and 370,000 (June 30, 1995) 110,000 110,000 370,000
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 (March 31, 1997 and
June 30, 1996) and 525,000 (June 30, 1995) 86,810 86,810 303,837
Series C convertible preferred stock, $0.001 par
value; $25,000 per share liquidation preference;
shares authorized: 160; shares issued and outstanding:
35 (June 30, 1996) -- 752,476 --
Series D convertible preferred stock, $0.001 par
value; $10,000 per share liquidation preference;
shares authorized: 500; shares issued and outstanding:
50 (March 31, 1997) 467,221 -- --
Common stock, $0.001 par value; shares authorized:
20,000,000; shares issued and outstanding: 9,148,727
(March 31, 1997), 7,495,576 (June 30, 1996)
and 6,085,201 (June 30, 1995) 9,149 7,496 6,085
Additional paid-in capital 33,170,303 28,048,414 23,957,790
Deferred compensation -- -- (145,359)
Unrealized (loss) on available for sale
U.S. Government securities (284) (1,135) (18,606)
Deficit accumulated during the development stage (29,893,090) (25,359,298) (21,201,051)
------------ ------------ ------------
Total stockholders' equity 3,950,109 3,644,763 3,272,696
------------ ------------ ------------
$ 5,446,539 $ 5,013,920 $ 4,886,372
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-3
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Period from Period from
(Unaudited) inception inception
Nine months ended (February 10, (February 10,
March 31, 1987) through Years ended June 30, 1987) through
-------------------------- March 31, -------------------------- June 30,
1997 1996 1997 1996 1995 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Research and license revenue under an
agreement with Alkermes, Inc. $ -- $ -- $ 3,600,000 $ -- $ -- $ 3,600,000
Grant revenue -- -- 94,717 -- -- 94,717
----------- ----------- ------------ ----------- ----------- ------------
Total revenues -- -- 3,694,717 -- -- 3,694,717
----------- ----------- ------------ ----------- ----------- ------------
Operating expenses:
Research and development 2,489,584 2,033,806 21,458,696 2,677,577 4,138,731 18,969,112
General and administrative 1,270,740 1,252,451 11,321,299 1,643,732 1,665,134 10,050,559
Settlement with Alkermes, Inc. -- -- 1,227,977 -- 1,227,977 1,227,977
----------- ----------- ------------ ----------- ----------- ------------
Total operating expenses 3,760,324 3,286,257 34,007,972 4,321,309 7,031,842 30,247,648
----------- ----------- ------------ ----------- ----------- ------------
Loss from operations (3,760,324) (3,286,257) (30,313,255) (4,321,309) (7,031,842) (26,552,931)
Interest income, net 106,204 116,716 1,439,511 163,062 196,310 1,333,307
----------- ----------- ------------ ----------- ----------- ------------
Net loss $(3,654,120) $(3,169,541) $(28,873,744) $(4,158,247) $(6,835,532) $(25,219,624)
----------- ----------- ------------ ----------- ----------- ------------
----------- ----------- ------------ ----------- ----------- ------------
Weighted average common shares outstanding 7,899,585 6,260,152 6,532,884 6,075,454
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net loss per share $ (0.57) $ (0.51) $ (0.64) $ (1.13)
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
SEE ACCOMPANYING NOTES.
F-4
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
9% Series B Series C Series D
convertible convertible convertible convertible
preferred preferred preferred preferred Common
stock stock stock stock stock
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 10, 1987
(date of inception) $ -- $ -- $ -- $ -- $ --
Sale of 1,420,000 shares of common stock,
$0.005 per share -- -- -- -- 1,420
Sale of 500,000 shares of common stock,
$2.50 per share, net of expenses -- -- -- -- 500
Issuance of 11,000 shares of common stock
for services, $2.50 per share -- -- -- -- 11
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, JUNE 30, 1988 -- -- -- -- 1,931
Conversion of subordinated convertible note
and interest payable into 83,868 shares of
common stock, $2.50 per share -- -- -- -- 84
Issuance of 500 shares of common stock for
services, $2.50 per share -- -- -- -- 1
Conversion of 5,000 shares of 9% preferred
stock into 3,333 shares of common stock -- -- -- -- 3
9% preferred stock dividends -- -- -- -- --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, JUNE 30, 1989 -- -- -- -- 2,019
Initial public offering of 660,000 shares of
common stock, $10.00 per share,
net of expenses -- -- -- -- 660
Redemption of 70,000 shares of common
stock, $0.005 per share -- -- -- -- (70)
9% preferred stock dividends -- -- -- -- --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, JUNE 30, 1990 -- -- -- -- 2,609
Sale of 3,181,253 shares of Series B
convertible preferred stock, $0.6667
per share, net of expenses -- 1,841,108 -- -- --
Conversion of 182,200 shares of 9% preferred
stock into 24,293 shares of common stock -- -- -- -- 24
Issuance of compensatory stock options -- -- -- -- --
Amortization of deferred compensation -- -- -- -- --
9% preferred stock dividends -- -- -- -- --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, JUNE 30, 1991 $ -- $ 1,841,108 $ -- $ -- $ 2,633
----------- ----------- ------------ ------------ ------------
<CAPTION>
Unrealized loss Deficit
on available accumulated
Additional for sale U.S. during the
paid-in Deferred Government development
capital compensation securities stage Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, FEBRUARY 10, 1987
(date of inception) $ -- $ -- $ -- $ -- $ --
Sale of 1,420,000 shares of common stock,
$0.005 per share 5,680 -- -- -- 7,100
Sale of 500,000 shares of common stock,
$2.50 per share, net of expenses 1,076,089 -- -- -- 1,076,589
Issuance of 11,000 shares of common stock
for services, $2.50 per share 27,489 -- -- -- 27,500
9% preferred stock accretion -- -- -- (2,560) (2,560)
Net loss -- -- -- (400,193) (400,193)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1988 1,109,258 -- -- (402,753) 708,436
Conversion of subordinated convertible note
and interest payable into 83,868 shares of
common stock, $2.50 per share 209,586 -- -- -- 209,670
Issuance of 500 shares of common stock for
services, $2.50 per share 1,249 -- -- -- 1,250
Conversion of 5,000 shares of 9% preferred
stock into 3,333 shares of common stock 22,903 -- -- -- 22,906
9% preferred stock dividends (55,125) -- -- -- (55,125)
9% preferred stock accretion -- -- -- (32,733) (32,733)
Net loss -- -- -- (1,222,517) (1,222,517)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1989 1,287,871 -- -- (1,658,003) (368,113)
Initial public offering of 660,000 shares of
common stock, $10.00 per share,
net of expenses 5,244,230 -- -- -- 5,244,890
Redemption of 70,000 shares of common
stock, $0.005 per share (280) -- -- -- (350)
9% preferred stock dividends (110,250) -- -- -- (110,250)
9% preferred stock accretion -- -- -- (33,064) (33,064)
Net loss -- -- -- (2,187,870) (2,187,870)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1990 6,421,571 -- -- (3,878,937) 2,545,243
Sale of 3,181,253 shares of Series B
convertible preferred stock, $0.6667
per share, net of expenses -- -- -- -- 1,841,108
Conversion of 182,200 shares of 9% preferred
stock into 24,293 shares of common stock 170,039 -- -- -- 170,063
Issuance of compensatory stock options 330,084 (291,938) -- -- 38,146
Amortization of deferred compensation -- 90,016 -- -- 90,016
9% preferred stock dividends (85,653) -- -- -- (85,653)
9% preferred stock accretion -- -- -- (32,075) (32,075)
Net loss -- -- -- (2,593,968) (2,593,968)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1991 $ 6,836,041 $ (201,922) $ -- $ (6,504,980) $ 1,972,880
------------ ------------ ------------ ------------ ------------
</TABLE>
CONTINUED . . .
F-5
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
9% Series B Series C Series D
convertible convertible convertible convertible
preferred preferred preferred preferred Common
stock stock stock stock stock
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1991 $ -- $ 1,841,108 $ -- $ -- $ 2,633
Sale of 150,000 shares of common stock to
Alkermes, Inc., $10.00 per share -- -- -- -- 150
Conversion of 306,275 shares of 9% preferred
stock into 40,835 shares of common stock -- -- -- -- 40
Conversion of 1,525,003 shares of Series B
preferred stock into 149,629 shares of
common stock -- (882,576) -- -- 150
Issuance of 73,979 shares of common stock
upon exercise of stock options -- -- -- -- 74
Issuance of two shares of common stock upon
exercise of warrants -- -- -- -- --
Issuance of compensatory stock options -- -- -- -- --
Forfeiture of compensatory stock options -- -- -- -- --
Amortization of deferred compensation -- -- -- -- --
9% preferred stock dividends -- -- -- -- --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, JUNE 30, 1992 -- 958,532 -- -- 3,047
Conversion of 287,150 shares of 9% preferred
stock into 38,287 shares of common stock -- -- -- -- 38
Conversion of 1,081,250 shares of Series B
preferred stock into 106,088 shares of
common stock -- (625,758) -- -- 106
Redemption of 12,627 shares of common
stock, $7.65 per share -- -- -- -- (12)
Issuance of 30,789 shares of common stock
upon exercise of stock options -- -- -- -- 31
Issuance of compensatory stock options -- -- -- -- --
Amortization of deferred compensation -- -- -- -- --
9% preferred stock dividends -- -- -- -- --
9% preferred stock accretion -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, JUNE 30, 1993 $ -- $ 332,774 $ -- $ -- $ 3,210
----------- ----------- ------------ ------------ ------------
<CAPTION>
Unrealized loss Deficit
on available accumulated
Additional for sale U.S. during the
paid-in Deferred Government development
capital compensation securities stage Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1991 $ 6,836,041 $ (201,922) $ -- $ (6,504,980) $ 1,972,880
Sale of 150,000 shares of common stock to
Alkermes, Inc., $10.00 per share 1,499,850 -- -- -- 1,500,000
Conversion of 306,275 shares of 9% preferred
stock into 40,835 shares of common stock 335,283 -- -- -- 335,323
Conversion of 1,525,003 shares of Series B
preferred stock into 149,629 shares of
common stock 882,426 -- -- -- --
Issuance of 73,979 shares of common stock
upon exercise of stock options 110,313 -- -- -- 110,387
Issuance of two shares of common stock upon
exercise of warrants 27 -- -- -- 27
Issuance of compensatory stock options 24,532 (19,375) -- -- 5,157
Forfeiture of compensatory stock options (146,182) 146,182 -- -- --
Amortization of deferred compensation -- 58,567 -- -- 58,567
9% preferred stock dividends (68,906) -- -- -- (68,906)
9% preferred stock accretion -- -- -- (23,242) (23,242)
Net loss -- -- -- (2,354,770) (2,354,770)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1992 9,473,384 (16,548) -- (8,882,992) 1,535,423
Conversion of 287,150 shares of 9% preferred
stock into 38,287 shares of common stock 360,398 -- -- -- 360,436
Conversion of 1,081,250 shares of Series B
preferred stock into 106,088 shares of
common stock 625,652 -- -- -- --
Redemption of 12,627 shares of common
stock, $7.65 per share (96,662) -- -- -- (96,674)
Issuance of 30,789 shares of common stock
upon exercise of stock options 60,915 -- -- -- 60,946
Issuance of compensatory stock options 350,000 (280,000) -- -- 70,000
Amortization of deferred compensation -- 36,897 -- -- 36,897
9% preferred stock dividends (53,028) -- -- -- (53,028)
9% preferred stock accretion -- -- -- (16,000) (16,000)
Net loss -- -- -- (761,536) (761,536)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1993 $ 10,720,659 $ (259,651) $ -- $ (9,660,528) $ 1,136,464
------------ ------------ ------------ ------------ ------------
</TABLE>
CONTINUED . . .
F-6
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
9% Series B Series C Series D
convertible convertible convertible convertible
preferred preferred preferred preferred Common
stock stock stock stock stock
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 $ -- $ 332,774 $ -- $ -- $ 3,210
Sale of 2,750,000 shares of common stock,
$5.00 per share, net of expenses -- -- -- -- 2,750
Sale of 103,577 shares of common stock,
$6.40 per share, net of expenses -- -- -- -- 104
Conversion of 15,625 shares of 9% preferred stock
into 2,083 shares of common stock -- -- -- -- 2
Conversion of 50,000 shares of Series B preferred
stock into 4,906 shares of common stock -- (28,937) -- -- 5
Issuance of compensatory stock options -- -- -- -- --
Amortization of deferred compensation -- -- -- -- --
Issuance of 3,401 shares of common stock upon
exercise of stock options -- -- -- -- 3
9% preferred stock dividends -- -- -- -- --
Unrealized loss on available for sale
U.S. Government securities -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, JUNE 30, 1994 -- 303,837 -- -- 6,074
Reclassification of unredeemed 9%
preferred stock 370,000 -- -- -- --
Issuance of warrants to purchase
265,000 shares of common stock -- -- -- -- --
Adjustment of accrued dividends for
redemption of 9% preferred stock -- -- -- -- --
Issuance of 11,272 shares of common stock
upon exercise of stock options -- -- -- -- 11
Amortization of deferred compensation -- -- -- -- --
9% preferred stock dividends -- -- -- -- --
Decrease in unrealized loss on available for
sale U.S. Government securities -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, JUNE 30, 1995 $ 370,000 $ 303,837 $ -- $ -- $ 6,085
----------- ----------- ------------ ------------ ------------
<CAPTION>
Unrealized loss Deficit
on available accumulated
Additional for sale U.S. during the
paid-in Deferred Government development
capital compensation securities stage Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1993 $10,720,659 $ (259,651) $ -- $ (9,660,528) $ 1,136,464
Sale of 2,750,000 shares of common stock,
$5.00 per share, net of expenses 12,359,611 -- -- -- 12,362,361
Sale of 103,577 shares of common stock,
$6.40 per share, net of expenses 510,707 -- -- -- 510,811
Conversion of 15,625 shares of 9% preferred stock
into 2,083 shares of common stock 20,545 -- -- -- 20,547
Conversion of 50,000 shares of Series B preferred
stock into 4,906 shares of common stock 28,932 -- -- -- --
Issuance of compensatory stock options 100,625 -- -- -- 100,625
Amortization of deferred compensation -- 58,200 -- -- 58,200
Issuance of 3,401 shares of common stock upon
exercise of stock options 6,461 -- -- -- 6,464
9% preferred stock dividends (39,038) -- -- -- (39,038)
Unrealized loss on available for sale
U.S. Government securities -- -- (163,562) -- (163,562)
Net loss -- -- -- (4,704,991) (4,704,991)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1994 23,708,502 (201,451) (163,562) (14,365,519) 9,287,881
Reclassification of unredeemed 9%
preferred stock -- -- -- -- 370,000
Issuance of warrants to purchase
265,000 shares of common stock 232,746 -- -- -- 232,746
Adjustment of accrued dividends for
redemption of 9% preferred stock 25,819 -- -- -- 25,819
Issuance of 11,272 shares of common stock
upon exercise of stock options 24,023 -- -- -- 24,034
Amortization of deferred compensation -- 56,092 -- -- 56,092
9% preferred stock dividends (33,300) -- -- -- (33,300)
Decrease in unrealized loss on available for
sale U.S. Government securities -- -- 144,956 -- 144,956
Net loss -- -- -- (6,835,532) (6,835,532)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1995 $ 23,957,790 $ (145,359) $ (18,606) $(21,201,051) $ 3,272,696
------------ ------------ ------------ ------------ ------------
</TABLE>
CONTINUED . . .
F-7
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
(CONTINUED)
<TABLE>
<CAPTION>
9% Series B Series C Series D
convertible convertible convertible convertible
preferred preferred preferred preferred Common
stock stock stock stock stock
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1995 $ 370,000 $ 303,837 $ -- $ -- $ 6,085
Sale of 160 shares of Series C convertible
preferred stock, $25,000 per share, net of
expenses -- -- 3,576,544 -- --
Issuance of warrants to purchase 106,195 shares
of common stock -- -- (136,654) -- --
Conversion of 260,000 shares of 9% preferred
stock into 34,667 shares of common stock (260,000) -- -- -- 35
Conversion of 375,000 shares of Series B preferred
stock into 36,793 shares of common stock -- (217,027) -- -- 37
Conversion of 125 shares of Series C preferred stock
into 1,133,037 shares of common stock -- -- (2,687,414) -- 1,134
Adjustment of accrued dividends for conversion of
9% preferred stock -- -- -- -- --
Issuance of 205,878 shares of common stock upon
exercise of stock options -- -- -- -- 205
Amortization of deferred compensation -- -- -- -- --
Reversal of unamortized deferred compensation upon
resignation of Chief Executive Officer -- -- -- -- --
9% preferred stock dividends -- -- -- -- --
Decrease in unrealized loss on available for sale U.S.
Government securities -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, JUNE 30, 1996 110,000 86,810 752,476 -- 7,496
Sale of 400 shares of Series D convertible
preferred stock, $10,000 per share, net of
expenses (unaudited) -- -- -- 3,719,636 --
Conversion of 35 shares of Series C convertible
preferred stock into 384,574 shares of common
stock (unaudited) -- -- (752,476) -- 384
Conversion of 350 shares of Series D convertible
preferred stock into 1,187,915 shares of
common stock (unaudited) -- -- -- (3,252,415) 1,188
Issuance of 50,000 shares of common stock upon
exercise of warrant (unaudited) -- -- -- -- 50
Issuance of 30,652 shares of common stock upon
exercise of stock options (unaudited) -- -- -- -- 31
9% preferred stock dividends (unaudited) -- -- -- -- --
Series D preferred stock imputed dividends (unaudited) -- -- -- -- --
Decrease in unrealized loss on available for sale U.S.
Government securities (unaudited) -- -- -- -- --
Net loss (unaudited) -- -- -- -- --
----------- ----------- ------------ ------------ ------------
BALANCE, MARCH 31, 1997 (UNAUDITED) $ 110,000 $ 86,810 $ -- $ 467,221 $ 9,149
----------- ----------- ------------ ------------ ------------
----------- ----------- ------------ ------------ ------------
<CAPTION>
Unrealized loss Deficit
on available accumulated
Additional for sale U.S. during the
paid-in Deferred Government development
capital compensation securities stage Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1995 $23,957,790 $ (145,359) $ (18,606) $(21,201,051) $ 3,272,696
Sale of 160 shares of Series C convertible
preferred stock, $25,000 per share, net of
expenses -- -- -- -- 3,576,544
Issuance of warrants to purchase 106,195 shares
of common stock 136,654 -- -- -- --
Conversion of 260,000 shares of 9% preferred
stock into 34,667 shares of common stock 259,965 -- -- -- --
Conversion of 375,000 shares of Series B preferred
stock into 36,793 shares of common stock 216,990 -- -- -- --
Conversion of 125 shares of Series C preferred stock
into 1,133,037 shares of common stock 2,686,280 -- -- -- --
Adjustment of accrued dividends for conversion of
9% preferred stock 128,700 -- -- -- 128,700
Issuance of 205,878 shares of common stock upon
exercise of stock options 775,185 -- -- -- 775,390
Amortization of deferred compensation -- 42,109 -- -- 42,109
Reversal of unamortized deferred compensation upon
resignation of Chief Executive Officer (103,250) 103,250 -- -- --
9% preferred stock dividends (9,900) -- -- -- (9,900)
Decrease in unrealized loss on available for sale U.S.
Government securities -- -- 17,471 -- 17,471
Net loss -- -- -- (4,158,247) (4,158,247)
------------ ------------ ------------ ------------ ------------
BALANCE, JUNE 30, 1996 28,048,414 -- (1,135) (25,359,298) 3,644,763
Sale of 400 shares of Series D convertible
preferred stock, $10,000 per share, net of
expenses (unaudited) -- -- -- -- 3,719,636
Conversion of 35 shares of Series C convertible
preferred stock into 384,574 shares of common
stock (unaudited) 752,092 -- -- -- --
Conversion of 350 shares of Series D convertible
preferred stock into 1,187,915 shares of
common stock (unaudited) 3,251,227 -- -- -- --
Issuance of 50,000 shares of common stock upon
exercise of warrant (unaudited) 149,950 -- -- -- 150,000
Issuance of 30,652 shares of common stock upon
exercise of stock options (unaudited) 93,898 -- -- -- 93,929
9% preferred stock dividends (unaudited) (4,950) -- -- -- (4,950)
Series D preferred stock imputed dividends (unaudited) 879,672 -- -- (879,672) --
Decrease in unrealized loss on available for sale U.S.
Government securities (unaudited) -- -- 851 -- 851
Net loss (unaudited) -- -- -- (3,654,120) (3,654,120)
------------ ------------ ------------ ------------ ------------
BALANCE, MARCH 31, 1997 (UNAUDITED) $ 33,170,303 $ -- $ (284) $(29,893,090) $ 3,950,109
------------ ------------ ------------ ------------ ------------
------------ ------------ ------------ ------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-8
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Period from
(Unaudited) inception
Nine months ended (February 10,
March 31, 1987) through
--------------------------------- March 31,
1997 1996 1997
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
NET LOSS $ (3,654,120) $ (3,169,541) $ (28,873,744)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 150,090 173,055 1,259,112
Settlement with Alkermes, Inc. -- -- 1,227,977
Changes in operating assets/liabilities:
Accounts payable and accrued expenses 87,927 (175,276) 345,404
Accrued interest on U.S. Govt. securities (11,822) (64,012) (161,678)
Other current assets 15,897 (35,147) (91,804)
Realized loss on sale of U.S. Govt. securities -- 969 54,317
Stock option compensation expense -- 42,109 555,809
Stock issued for services -- -- 28,750
Reduction in note receivable from former
officer -- compensation expense -- -- 22,600
Other 40,694 25,747 86,013
------------ ------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (3,371,334) (3,202,096) (25,547,244)
------------ ------------ -------------
Cash flows from investing activities:
U.S. Government securities --
available for sale
Purchases (937,327) (13,102,660) (37,083,743)
Sales 950,000 14,887,736 37,190,820
Purchase of fixed assets (23,065) (28,038) (1,910,412)
Sale of fixed assets -- 2,777 10,236
Decrease (increase) in --
Other assets 3,212 (529) (39,870)
Note receivable from former officer -- -- (100,000)
------------ ------------ -------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (7,180) 1,759,286 (1,932,969)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 243,929 428,436 21,922,579
Proceeds from issuance of Series D
convertible preferred stock 3,719,636 -- 3,719,636
Proceeds from issuance of Series C
convertible preferred stock -- 3,576,543 3,576,543
Proceeds from issuance of Series B
convertible preferred stock -- -- 1,841,108
Proceeds from issuance of 9% preferred stock -- -- 1,076,588
Redemption of 9% preferred stock -- -- (63,750)
Principal payments on capitalized leases (6,298) (5,715) (20,271)
Proceeds from subordinated convertible note -- -- 208,333
Payment of 9% preferred stock dividends -- -- (110,250)
------------ ------------ -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 3,957,267 3,999,264 32,150,516
------------ ------------ -------------
Increase (decrease) in cash and cash equivalents 578,753 2,556,454 4,670,303
Cash and cash equivalents, beginning of period 4,091,550 149,880 --
------------ ------------ -------------
Cash and cash equivalents, end of period $ 4,670,303 $ 2,706,334 $ 4,670,303
------------ ------------ -------------
------------ ------------ -------------
Period from
inception
(February 10,
Years ended June 30, 1987) through
-------------------------------- June 30,
1996 1995 1996
- ---------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
NET LOSS $ (4,158,247) $ (6,835,532) $ (25,219,624)
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation and amortization 230,224 208,928 1,109,022
Settlement with Alkermes, Inc. -- 1,227,977 1,227,977
Changes in operating assets/liabilities:
Accounts payable and accrued expenses (155,335) (131,886) 257,477
Accrued interest on U.S. Govt. securities (131,895) 52,014 (149,856)
Other current assets 3,785 26,677 (107,701)
Realized loss on sale of U.S. Govt. securities 1,270 53,047 54,317
Stock option compensation expense 42,109 56,092 555,809
Stock issued for services -- -- 28,750
Reduction in note receivable from former
officer -- compensation expense -- -- 22,600
Other 37,330 4,769 45,319
------------ ------------ -------------
NET CASH USED IN OPERATING ACTIVITIES (4,130,759) (5,337,914) (22,175,910)
------------ ------------ -------------
Cash flows from investing activities:
U.S. Government securities -- available for sale
Purchases (19,298,746) (3,868,775) (36,146,416)
Sales 23,136,197 9,642,408 36,240,820
Purchase of fixed assets (108,807) (401,912) (1,887,347)
Sale of fixed assets 2,777 -- 10,236
Decrease (increase) in --
Other assets (3,212) 1,092 (43,082)
Note receivable from former -- -- (100,000)
------------ ------------ -------------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES 3,728,209 5,372,813 (1,925,789)
------------ ------------ -------------
Cash flows from financing activities:
Proceeds from issuance of common stock 775,391 24,034 21,678,650
Proceeds from issuance of Series D
convertible preferred stock -- -- --
Proceeds from issuance of Series C
convertible preferred stock 3,576,543 -- 3,576,543
Proceeds from issuance of Series B
convertible preferred stock -- -- 1,841,108
Proceeds from issuance of 9% preferred stock -- -- 1,076,588
Redemption of 9% preferred stock -- (63,750) (63,750)
Principal payments on capitalized leases (7,714) (6,259) (13,973)
Proceeds from subordinated convertible note -- -- 208,333
Payment of 9% preferred stock dividends -- -- (110,250)
------------ ------------ -------------
NET CASH PROVIDED BY (USED IN)
FINANCING ACTIVITIES 4,344,220 (45,975) 28,193,249
------------ ------------ -------------
Increase (decrease) in cash and cash equivalents 3,941,670 (11,076) 4,091,550
Cash and cash equivalents, beginning of period 149,880 160,956 --
------------ ------------ -------------
Cash and cash equivalents, end of period $ 4,091,550 $ 149,880 $ 4,091,550
------------ ------------ -------------
------------ ------------ -------------
</TABLE>
SEE ACCOMPANYING NOTES.
F-9
<PAGE>
CORTEX PHARMACEUTICALS, INC.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Period from inception (February 10, 1987) through March 31, 1997
ALL INFORMATION AS OF MARCH 31, 1997, FOR THE NINE-MONTH PERIODS ENDED MARCH 31,
1997 AND 1996, AND FOR THE PERIOD FROM INCEPTION (FEBRUARY 10, 1987) THROUGH
MARCH 31, 1997 IS UNAUDITED. 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 NINE-MONTH PERIOD
ENDED MARCH 31, 1997 ARE NOT NECESSARILY INDICATIVE OF THE RESULTS THAT MAY BE
EXPECTED FOR THE FISCAL YEAR ENDING JUNE 30, 1997.
NOTE 1 -- BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BUSINESS -- Cortex Pharmaceuticals, Inc. (the "Company") was formed to engage in
the discovery, development and commercialization of innovative pharmaceuticals
for the treatment of neurodegenerative diseases and other neurological and
psychiatric disorders. Since its formation in 1987, the Company has been engaged
in research and early clinical development activities.
BASIS OF PRESENTATION; DEVELOPMENT STAGE ENTERPRISE -- From inception through
March 31, 1997, the Company has generated only modest operating revenues and has
incurred losses aggregating $28,873,744. 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 revenue
adequate to support the Company's cost structure. There can be no assurance that
the Company will be successful in these areas. To supplement its existing
resources, the Company is exploring several near-term alternatives for raising
additional capital, including corporate partnership arrangements and the
issuance of additional securities. The Company is likely to raise additional
capital through the sale of debt or equity. There can be no assurance that such
funds will be available on favorable terms, or at all and if additional funds
are raised by issuing equity securities, dilution to existing stockholders is
likely to result. See Notes 10 and 11.
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. Competition for corporate partnering arrangements with major
pharmaceutical companies is intense, with a large number of biopharmaceutical
companies attempting to arrive at such arrangements. Accordingly, although the
Company is presently engaged in discussions with a number of candidate
companies, there can be no assurance that an agreement will arise from these
discussions in a timely manner, or at all, or that any agreement that may arise
from these discussions will successfully reduce the Company's short-term or
long-term funding requirements.
REVERSE STOCK SPLIT; AUTHORIZED SHARES -- On January 11, 1995, the Company
effected a one-for-five reverse stock split of its common stock and revised the
authorized number of shares of common stock from 50,000,000 to 20,000,000, with
no change in the par value of $0.001 per share. The accompanying financial
statements and all references to the number of shares and per share amounts have
been adjusted to reflect the reverse split.
CASH EQUIVALENTS -- The Company considers all highly liquid short-term
investments with maturities of less than three months when acquired to be cash
equivalents.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
STOCK-BASED COMPENSATION -- In November 1995, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("FAS 123"). The Company has elected to continue
accounting for stock options under APB No. 25 "Accounting for Stock Issued to
F-10
<PAGE>
Employees." The adoption of FAS 123 is not expected to have a material effect on
the Company's financial position or results of operations for the year ended
June 30, 1997.
LONG-LIVED ASSETS -- In March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 121 "Accounting for
Impairment of Long-Lived Assets to be Disposed Of" ("FAS 121") which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows estimated
to be generated by those assets are less than the carrying amount of the assets.
FAS 121 also addresses the accounting for long-lived assets that are expected to
be disposed of. The Company's adoption of FAS 121 in the first quarter of fiscal
1996 did not have a material effect on the Company's financial position or
results of operations.
FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS -- Furniture, equipment and
leasehold improvements are recorded at cost and are being depreciated on a
straight-line basis over the lesser of their estimated useful lives, ranging
from five to ten years, or the life of the lease, as appropriate.
NET LOSS PER SHARE -- Net loss per share is computed based on the weighted
average number of common shares outstanding during the period, and incorporates
preferred stock dividends that accrued during the period. Shares issuable upon
conversion of preferred stock and upon exercise of outstanding stock options and
warrants are not included since the effects would be anti-dilutive.
The computation of net loss per share includes imputed dividends for preferred
stock issued in the period with a nondetachable beneficial conversion feature at
or near the date of issuance. The imputed dividend represents the aggregate
difference between the conversion price and the fair value, as of the date of
issuance of the preferred stock, of the common stock issuable upon conversion.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, EARNINGS PER SHARE, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute net loss per share and to restate all prior periods. Under the new
requirements for calculating primary earnings per share, the dilutive effect of
stock options will be excluded. The impact of Statement 128 on the calculation
of net loss per share is not expected to be material.
RESEARCH AND DEVELOPMENT COSTS -- All costs related to research and development
activities are treated as expenses in the period incurred.
NOTE 2 -- FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Furniture, equipment and leasehold improvements consist of the following:
March 31, 1997 June 30, 1996 June 30, 1995
-------------- ------------- -------------
Laboratory equipment $ 996,108 $ 990,329 $ 963,169
Leasehold improvements 620,716 619,566 575,367
Furniture and equipment 90,689 89,773 89,773
Computers and software 208,592 193,372 158,700
----------- ----------- -----------
1,916,105 1,893,040 1,787,009
Accumulated depreciation (1,235,529) (1,085,439) (855,215)
----------- ----------- -----------
$ 680,576 $ 807,601 $ 931,794
----------- ----------- -----------
----------- ----------- -----------
NOTE 3 -- PREFERRED STOCK
The Company has authorized a total of 5,000,000 shares of preferred stock, par
value $0.001 per share, of which 1,250,000 shares have been designated as
9% Cumulative Convertible Preferred Stock (non-voting, "9% Preferred");
3,200,000 shares have been designated as Series B Convertible Preferred Stock
(non-voting, "Series B Preferred"); 160 shares have been designated as Series C
Convertible Preferred Stock (non-voting,
F-11
<PAGE>
"Series C Preferred"); 500 shares have been designated as Series D Convertible
Preferred Stock (non-voting, "Series D Preferred"); and 549,340 shares are
undesignated and may be issued with such rights and powers as the Board of
Directors may designate.
The 9% Cumulative Convertible Preferred Stock as of March 31, 1997, June 30,
1996 and June 30, 1995 consisted of 110,000, 110,000 and 370,000 shares,
respectively, of an original 1,250,000 shares of 9% Preferred issued in a 1988
private placement. Each share of 9% Preferred is convertible into approximately
0.1333 shares of common stock at an effective conversion price of $7.50 per
share of common stock, subject to adjustment under certain circumstances, such
as stock splits or stock dividends. Cash dividends on the 9% Preferred accrue
semi-annually on June 15th and December 15th at the rate of $0.09 per share per
annum. In order to conserve capital for operations, the Company has elected not
to distribute the dividends that have accrued from June 15, 1990. Upon
conversion of 9% Preferred, accrued and unpaid dividends are credited to
additional paid-in capital. Accrued and unpaid dividends as of March 31, 1997,
June 30, 1996 and June 30, 1995 were $69,300, $64,350 and $183,150,
respectively. The Company may redeem the 9% Preferred at any time at a price of
$1.00 per share, an amount equal to its liquidation preference, upon not less
than 30 nor more than 60 days' notice.
Series B Convertible Preferred Stock as of March 31, 1997, June 30, 1996 and
June 30, 1995 consisted of 150,000, 150,000 and 525,000 shares, respectively, of
Series B Preferred issued in a May 1991 private placement. Each share of
Series B Preferred is convertible into approximately 0.09812 shares of common
stock at an effective conversion price of $6.795 per share of common stock,
subject to adjustment under certain circumstances such as stock splits or stock
dividends. The Series B Preferred may be redeemed by the Company at a price of
$0.6667 per share, an amount equal to its liquidation preference, at any time
upon 30 days' notice. The liquidation preference of the Series B Preferred is
subordinate to that of the 9% Preferred.
Series C Convertible Preferred Stock at June 30, 1996 consisted of 35 shares of
an original 160 shares of Series C Preferred issued in a private placement
completed in December 1995. Shares of Series C Preferred were converted into
common stock in accordance with a formula that was indexed to the average bid
price of the Company's common shares.
Series D Convertible Preferred Stock at March 31, 1997 consisted of 50 shares of
an original 400 shares of Series D Preferred issued in a three-tranche private
placement that was initiated in October 1996 and completed in February 1997. The
Series D Preferred may be converted into common stock at an effective per share
conversion price that is indexed to the average bid price of the Company's
common shares. Holders of the Series D Preferred have a liquidation preference,
after payment of full liquidation preference to holders of the 9% Preferred and
Series B Preferred, of an amount equal to $10,000 per share, plus $600 per share
for each year that such share is outstanding. Shares of Series D Preferred
automatically convert into common stock two years from the date of issuance of
such shares.
NOTE 4 -- COMMON STOCK AND COMMON STOCK PURCHASE WARRANTS
In July 1989, the Company completed an initial public offering of 1,100,000
Units, with each Unit consisting of 0.6 shares of common stock and two
redeemable Class A warrants, for an aggregate of 660,000 shares of common stock
and 2,200,000 Class A warrants. Each Class A warrant entitled the holder to
purchase 0.26 shares of common stock and one redeemable Class B warrant at a
price of $10.62 per share of common stock, as adjusted. During the year ended
June 30, 1992, ten Class A warrants were exercised. The balance of the Class A
warrants, and the Class B warrants issuable upon exercise of the Class A
warrants, expired on December 31, 1995.
In 1991, the Company issued 1,060,417 Class C warrants in a private placement
transaction. Each Class C warrant entitled the holder to purchase 0.26 shares of
common stock at a price of $9.185 per share, as adjusted. None of the Class C
warrants were exercised prior to their expiration on December 31, 1995.
In connection with its agreement with Alkermes, Inc. ("Alkermes"; Note 6), the
Company sold Alkermes 150,000 shares of common stock and issued non-redeemable
warrants to Alkermes to purchase an additional 400,000 shares of common stock,
for aggregate consideration of $1,500,000. The warrants have since expired.
F-12
<PAGE>
In October 1993, the Company sold 103,577 shares of common stock at a price of
$6.40 per share. The shares were acquired by four non-U.S. purchasers in a
private placement transaction pursuant to Regulation S of the Securities and
Exchange Commission.
In December 1993, the Company completed a private placement of 2,750,000 shares
of common stock at a price of $5.00 per share. The shares were acquired by 39
institutional and accredited individual purchasers in a private placement
transaction pursuant to Regulation D of the Securities and Exchange Commission.
Vector Securities International, Inc. acted as placement agent for the
transaction and was issued warrants in connection therewith (Note 8).
In connection with the December 1995 private placement of 160 shares of Series C
Preferred Stock (Note 3), the Company issued to Swartz Investments, Inc., the
placement agent for the transaction, a five-year non-redeemable warrant to
purchase 106,195 shares of common stock at a price of $2.825 per share, subject
to adjustment under certain circumstances. The warrants contain cashless
exercise provisions and include piggyback registration rights.
As of March 31, 1997, 226,804 shares of common stock were reserved for issuance
upon conversion of outstanding 9% Preferred, Series B Preferred and Series D
Preferred Stock; 391,291 shares were reserved for issuance upon exercise of
warrants; and 928,428 shares were reserved for issuance upon exercise of
outstanding stock options (Note 5).
NOTE 5 -- STOCK OPTION AND STOCK PURCHASE PLANS
EMPLOYEE/DIRECTOR OPTION PLAN -- The Company's 1989 Incentive Stock Option,
Nonqualified Stock Option and Stock Purchase Plan provides for the granting by
the Company of options and rights to purchase up to an aggregate of 700,000
shares of the Company's authorized but unissued common stock (subject to
adjustment under certain circumstances, such as stock splits, recapitalizations
and reorganizations) to directors, officers and other employees of the Company.
The exercise price of nonqualified stock options and the purchase price of stock
offered under this plan, which terminates February 2, 1999, must be at least 85%
of the fair market value of the common stock on the date of grant. The exercise
price of incentive stock options must be at least equal to the fair market value
of the common stock on the date of grant. On March 23, 1995, options to purchase
100,000 shares of common stock at an exercise price of $8.75 per share
previously granted to the Company's former President and Chief Executive Officer
were canceled and reissued as options to purchase 100,000 shares of common stock
at $3.50 per share, the then fair market value of the common stock. As of March
31, 1997 and June 30, 1996, options to purchase an aggregate of 545,171 and
542,524 shares of common stock, respectively, were outstanding under this plan,
and an additional 33,545 and 53,854 shares of common stock, respectively, were
reserved for future option grants.
CONSULTANT PLAN -- The Company's 1989 Special Nonqualified Stock Option and
Stock Purchase Plan provides for the granting by the Company of options and
rights to purchase up to an aggregate of 400,000 shares of the Company's
authorized but unissued common stock (subject to adjustment under certain
circumstances, such as stock splits, recapitalizations and reorganizations) to
consultants to the Company. The exercise price of nonqualified stock options and
the purchase price of stock offered under this plan, which terminates February
2, 1999, must be at least 50% of the fair market value of the common stock on
the date of grant. On May 24, 1995, options to purchase an aggregate of 51,000
shares of common stock previously granted to several consultants to the Company
were repriced from a weighted average exercise price of $7.19 per share to
$3.125 per share, the then fair market of the common stock. As of March 31, 1997
and June 30, 1996, options to purchase an aggregate of 337,407 and 343,407
shares of common stock, respectively, were outstanding under this plan, and an
additional 9,026 and 16,026 shares of common stock, respectively, were reserved
for future option grants.
EXECUTIVE STOCK PLAN -- In 1991, in connection with his election as Chairman of
the Board, Harvey S. Sadow, Ph.D. was granted an option to purchase 10,000
shares of common stock at an exercise price of $2.19 per share, representing 50%
of the fair market value of the common stock on the date of grant. In 1993, a
former President and Chief Executive Officer was granted an option to purchase
80,000 shares of common stock at an exercise price of $4.375 per share,
representing 50% of the then fair market value of the common stock. On March 23,
1995 options held by the former officer to purchase 95,600 shares of common
stock at an exercise price of $9.375 per
F-13
<PAGE>
share were canceled and reissued as options to purchase 65,560 shares of common
stock at $3.50 per share, the then fair market value of the common stock, and
options to purchase 30,040 shares of common stock at an exercise price of $4.50
per share. As of March 31, 1997 and June 30, 1996, options to purchase an
aggregate of 10,000 shares of common stock were outstanding under the Executive
Stock Plan, and an additional 208,871 shares of common stock were reserved for
future option grants.
1996 STOCK INCENTIVE PLAN -- The Company's 1996 Stock Incentive Plan ("1996
Plan") was adopted by the Board of Directors on October 25, 1996 and approved by
the Company's stockholders on December 12, 1996. The 1996 Plan provides for the
granting by the Company of options and rights to purchase up to an initial
aggregate of 613,132 shares of the Company's authorized but unissued common
stock (subject to adjustment under certain circumstances, such as stock splits,
recapitalizations and reorganizations) to qualified employees, officers,
directors, consultants and other service providers. No further options will be
granted under the Company's 1989 Incentive Stock Option, Nonqualified Stock
Option and Stock Purchase Plan, the 1989 Special Nonqualified Stock Option and
Stock Purchase Plan or the Executive Stock Plan. The exercise price of
nonqualified stock options and the purchase price of stock offered under this
plan, which terminates October 25, 2006, must be at least 85% of the fair market
value of the common stock of the date of grant. The exercise price of incentive
stock options must be at least equal to the fair market value of the common
stock on the date of grant. Each non-employee director (other than those who
serve on the Board of Directors to oversee an investment in the Company) is
automatically granted options to purchase 15,000 shares of Common Stock upon
commencement of service as a director and additional options to purchase 6,000
shares of Common Stock on the date of each Annual Meeting of Stockholders. Non-
employee directors who serve on the Board of Directors to oversee an investment
in the Company receive options to purchase 7,500 shares of common stock upon
commencement of service as a director and additional options to purchase 3,000
shares of common stock on the date of each Annual Meeting of Stockholders. These
nonqualified options have an exercise price equal to 100% of the fair market
value of the common stock on the date of grant, have a ten-year term and vest in
equal increments of 33 1/3% on the anniversary dates of the dates of grant. As
of March 31, 1997, options to purchase an aggregate of 35,850 shares of common
stock were outstanding under the 1996 Plan, and an additional 577,282 shares of
common stock were reserved for future option grants.
As of March 31, 1997 and June 30, 1996, options to purchase an aggregate of
489,519 and 361,552 shares of common stock, respectively, were exercisable under
the Company's stock option plans. During the years ended June 30, 1996 and 1995
and the period from inception (February 10, 1987) through June 30, 1996, options
to purchase 0, 0, and 261,289 shares of common stock, respectively, were issued
to certain directors, officers and consultants of the Company with exercise
prices below the fair market value of the common stock on the dates of grant.
The aggregate difference between the fair market value on the date of grant and
the exercise price of the options granted has been recorded as compensation
expense over the vesting period of the options. In February 1994, an option to
purchase 14,000 shares of common stock that was previously issued to an officer
was extended for three years. The aggregate difference between fair market value
at the time of the extension and the exercise price of the options was recorded
as compensation expense at the time of the extension. Stock option compensation
expense related to these transactions, aggregating $0, $42,109, $555,809,
$42,109, $56,092 and $555,809 for the nine-month periods ended March 31, 1997
and 1996, and the period from inception (February 10, 1987) through March 31,
1997, the years ended June 30, 1996 and 1995 and the period from inception
(February 10, 1987) through June 30, 1996, respectively, has been recorded in
the accompanying statements of operations.
F-14
<PAGE>
Stock option transactions under the Company's stock option plans for each of the
two years ended June 30, 1996 and the nine-month period ended March 31, 1997 are
summarized below:
Number Exercise price
of shares per share
-------------------------------------
Outstanding as of June 30, 1994 549,667 $ 0.94 - 10.94
Granted 556,970 1.75 - 5.00
Exercised (11,272) 1.56 - 3.13
Forfeited (266,497) 1.88 - 9.38
-------- -------------------
Outstanding as of June 30, 1995 828,868 0.94 - 10.94
Granted 409,101 2.63 - 7.25
Exercised (205,878) 0.94 - 4.53
Forfeited (136,160) 1.88 - 9.06
-------- -------------------
Outstanding as of June 30, 1996 895,931 1.56 - 10.94
Granted 85,857 2.63 - 5.06
Exercised (30,662) 2.13 - 4.53
Forfeited (22,698) 1.88 - 9.06
-------- -------------------
Outstanding as of March 31, 1997 928,428 $ 1.56 - 10.94
-------- -------------------
-------- -------------------
Available for future grant 828,724
--------
--------
NOTE 6 -- AGREEMENT WITH ALKERMES, INC.; LEGAL PROCEEDINGS
In January 1992, the Company entered into a development and license agreement
with Alkermes, Inc. ("Alkermes") for the development, clinical testing and
commercialization of the Company's calpain inhibitor products, which was
subsequently amended in October 1992 (the "Alkermes Agreement"). Under the
Alkermes Agreement, the Company granted to Alkermes an exclusive worldwide
license to commercialize calpain inhibitor products for the prevention and
treatment of acute and chronic neurodegenerative diseases and disorders of the
central and peripheral nervous systems. Under the Alkermes Agreement, the
Company received an aggregate of $3,100,000 in research payments over the 18-
month period ended June 30, 1993, and a $500,000 payment in October 1992 in
connection with a limited expansion of Alkermes' commercial rights. In
November 1993, Alkermes filed an action alleging that the Company had breached
the Alkermes Agreement by developing calpain inhibitors for cerebral vasospasm.
On October 5, 1995, the Company and Alkermes agreed to a settlement of the
dispute. Alkermes agreed to dismiss its action against the Company and to
relinquish all rights previously granted them by the Company, as well as rights
to related technologies developed by Alkermes subsequent to October 6, 1992. In
connection with the settlement, the Company issued to Alkermes a $1,000,000
three-year promissory note accruing interest semi-annually at the federal funds
rate. The Company also committed to pay Alkermes a graduated royalty on calpain
inhibitor development proceeds, as defined and subject to certain limitations.
NOTE 7 -- COMMITMENTS
The Company leases its offices and research laboratories under an operating
lease that expires May 31, 1999, with an additional five-year option at 95% of
the then fair market rental rate. Rent expense under this lease for the nine-
month periods ended March 31, 1997 and 1996, the period from inception
(February 10, 1989) through March 31, 1997, the years ended June 30, 1996 and
1995 and the period from inception (February 10, 1987) through June 30, 1996 was
$169,000, $148,000, $1,593,000, $193,000, $232,000 and $1,424,000, respectively.
Commitments under the lease for the years ending June 30, 1997, 1998 and 1999
are $229,000, $235,000 and $220,000, respectively.
As of June 30, 1996, the Company was obligated to two executive officers under
employment agreements expiring through May 1997 that involve annual salary
payments aggregating $332,500 and that provide for bonuses under certain
circumstances. Additionally, in the event that a compound developed by or under
the supervision of a senior scientific employee of the Company is commercialized
by the Company, the Company will be obligated under certain circumstances to pay
the employee a royalty based on net sales, as defined and subject to adjustment,
of products containing the compound. Also as of June 30, 1996, the Company was
committed under scientific consulting and external research agreements to annual
payments aggregating approximately $1,253,000.
F-15
<PAGE>
The Company has entered agreements with two academic institutions that provide
the Company exclusive rights to certain of the technologies that it is
developing. Under the terms of the agreements, the Company is committed to
royalty payments, including minimum annual royalties of $95,000 for each of the
years ending June 30, 1997 and 1998. Thereafter, minimum annual royalties are
$105,000 for the remaining life of the patents covering the subject
technologies. One of the agreements commits the Company to pay up to an
additional $875,000 upon achieving certain clinical testing and regulatory
approval milestones, as well as a portion of certain remuneration received by
the Company in connection with sublicensing agreements that the Company may
enter into.
NOTE 8 -- RELATED PARTY TRANSACTIONS
From inception (February 10, 1987) through June 30, 1991, the Company made
payments aggregating $1,319,112 to a founding stockholder for commissions and
underwriting fees for private and public offerings and for interest payments on
a note formerly held by such stockholder. No such payments have been made since
June 30, 1991.
From inception (February 10, 1987) through June 30, 1993, the Company paid or
accrued scientific and other consulting fees to stockholders aggregating
$606,993. In the years ended June 30, 1996 and 1995, such consulting fees
aggregated $87,160 and $106,583, respectively. In addition, the Company is
obligated under certain circumstances to make royalty payments to certain of its
scientific consultants, some of whom are stockholders, and to one employee, upon
successful commercialization of certain of its products by the Company or its
licensees.
In 1988, the Company provided to a former officer a relocation loan in the
amount of $100,000, bearing interest at 5% per annum, originally due in June
1991 and subsequently extended to December 1992. The Board of Directors reduced
the principal amount of the loan to $90,000 as of January 1, 1990 and to $77,400
as of July 1, 1991, with the reductions recorded as salary expense. The
outstanding principal and accrued interest on this loan aggregating $96,674 was
paid off by the former officer in September 1992 by surrender of 12,627 shares
of common stock at the then fair market value.
In connection with its initial public offering in July 1989, the Company entered
into an agreement granting a then related party entity a five-year right of
first refusal to act as underwriter or agent for public and private offerings.
In July 1993, the formerly related party entity agreed to surrender its right of
first refusal to act as underwriter or agent in future private and public
offerings of securities by the Company, in exchange for a cash payment of
$66,000.
On July 23, 1993, the Company entered into an agreement with Vector Securities
International, Inc. ("Vector"), under which Vector agreed to serve as financial
advisor to the Company in connection with corporate finance transactions and
corporate partnering of the Company's cognition enhancement and Alzheimer's
disease programs. In connection with the agreement, the Company paid a $50,000
retainer and issued to Vector a five-year non-redeemable warrant to acquire
12,166 shares of common stock at an exercise price of $6.37 per share, as
adjusted and subject to further adjustment under certain circumstances.
In connection with its services as placement agent in the 1993 private placement
(Note 4), Vector was paid a fee of $1,096,800 and was issued a five-year non-
redeemable warrant to purchase 274,200 shares of the Company's common stock at
$9.375 per share. In connection with Vector's assistance in reaching the
settlement with Alkermes (Note 6), this warrant was canceled and reissued as a
new warrant to purchase 234,637 shares of the Company's common stock at $5.37
per share, as adjusted and subject to further adjustment, at any time through
January 15, 2000. The value of this new warrant was computed utilizing the
Black-Scholes option pricing model, and was recorded with the expense of the
settlement with Alkermes in the accompanying statement of operations.
As consideration for its agreement to provide financial advisory services, as
amended and extended November 29, 1994, Vector was paid a retainer of $50,000
and was issued a six-year non-redeemable warrant to purchase 38,293 shares of
the Company's common stock at $4.57 per share, subject to adjustment under
certain circumstances. Warrants to purchase 5,471 shares of the Company's common
stock vested immediately, and warrants to purchase 16,411 shares of the
Company's common stock vest upon the consummation of each strategic alliance
when and as secured by Vector. For an expansion in January 1995 of its financial
advisory assistance to include the
F-16
<PAGE>
Company's calpain inhibitor technology, the Company paid a $20,000 retainer and
issued to Vector a five-year non-redeemable warrant to acquire 50,000 shares of
the Company's common stock at $3.00 per share, subject to adjustment under
certain circumstances. This warrant was exercised in February 1997. The Company
may be required to make substantial additional payments for each strategic
alliance secured by Vector. If a sale of the Company as presented by Vector is
consummated, Vector may be entitled to receive a fee based on the aggregate
consideration received by the Company.
NOTE 9 -- INCOME TAXES
The Company uses the liability method of accounting for income taxes as set
forth in Statement of Financial Accounting Standards No. 109 "Accounting for
Income Taxes". Under the liability method, deferred taxes are determined based
on differences between the financial statement and tax bases of assets and
liabilities using enacted tax rates.
As of June 30, 1996, the Company had federal and California tax net operating
loss carryforwards of approximately $23,263,000 and $4,040,000, respectively.
The difference between the federal and California tax loss carryforwards is
primarily attributable to the capitalization of research and development
expenses for California franchise tax purposes and the fifty percent limitation
on California loss carryforwards. The federal and California tax loss
carryforwards began expiring in 2003 and 1996, respectively. The Company also
has federal and California research and development tax credit carryforwards
totaling $665,000 and $152,000, respectively, which will begin expiring in 2003.
Utilization of the net operating losses and tax credit carryforwards from the
tax years ended on or before June 30, 1992 is subject to an annual limitation of
approximately $1,500,000, due to ownership change limitations provided by the
Internal Revenue Code of 1986 and similar state provisions. If there should be
future changes of ownership, these annual limitations for utilization of net
operating loss carryforwards and tax credit carryforwards may become more
restrictive. Pursuant to Internal Revenue Code Sections 382 and 383, use of the
Company's net operating loss carryforwards may be limited if a cumulative change
in ownership of more than 50% occurs within any three-year period since the last
ownership change.
Significant components of the Company's deferred tax assets as of June 30, 1996
and June 30, 1995 are shown below. The valuation allowance related to deferred
tax assets is $10,847,000 and $9,079,000 for the years ended June 30, 1996 and
1995, respectively. The increase in the valuation allowance for the year ended
June 30, 1996 of $1,768,000 is primarily due to additional reserves required for
new deferred tax assets.
Deferred tax assets:
June 30,
1996 1995
-----------------------------
Net operating loss carryforwards $ 8,285,000 $ 6,836,000
Capital loss carryforwards 23,000 --
Research and development credits 817,000 817,000
Capitalized research and development costs 1,244,000 980,000
Settlement with Alkermes, Inc. 433,000 430,000
Other-net 45,000 16,000
------------ -----------
Net deferred tax assets 10,847,000 9,079,000
------------ -----------
Valuation allowance for deferred tax assets (10,847,000) (9,079,000)
------------ -----------
Total deferred tax assets $ -- $ --
------------ -----------
------------ -----------
NOTE 10 -- SERIES D CONVERTIBLE PREFERRED STOCK
In October 1996, the Board of Directors designated 500 shares of a new series of
preferred stock, the Series D Convertible Preferred Stock ("Series D
Preferred"). Each share of Series D Preferred was convertible into common stock
in accordance with a formula that was indexed to the average bid price of the
Company's common shares. Holders of the Series D Preferred had a liquidation
preference, after payment of full liquidation preference to
F-17
<PAGE>
holders of the 9% Preferred, Series B Preferred and Series C Preferred, of an
amount equal to $10,000 per share, plus $600 per share for each year that such
share was outstanding. Shares of Series D Preferred automatically convert into
common stock on that date which is two years from the date of issuance of such
shares.
On October 15, 1996, the Company completed the first tranche of a three-tranche
Regulation D private placement of 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 Company sold a second tranche of 150 shares of Series D Preferred on January
9, 1997 and a third tranche of 150 shares on February 12, 1997. Gross proceeds
of $1,500,000 were received in each of the second and third tranches. The Series
D Preferred issued was convertible at an effective per share conversion price
that was the lower of (i) 110% of the average closing bid price for the five
trading days immediately preceding the closing date ($2.9425, $4.52375 and
$4.63375 for the first, second and third tranches, respectively) or (ii) that
price that was 18% below the average closing bid price for the five trading days
immediately preceding the conversion date, in each case subject 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. As of April 24, 1997,
the Series D Preferred had all been converted into an aggregate of 2,063,437
shares of the Company's Common Stock at effective conversion prices ranging from
$2.06 to $3.35 per share of Common Stock. Imputed dividends aggregating $879,672
have been recorded in connection with the three tranches, and have been included
in the computation of net loss per share. See Note 1.
NOTE 11 -- SUBSEQUENT EVENT
In May 1997, the Board of Directors designated 400 shares of a newly created
series of preferred stock, the Series A Convertible Preferred Stock ("Series A
Preferred"). The shares of Series A Preferred may be converted into common stock
at an effective conversion price that is indexed to the sales price of the
Company's common shares, subject to adjustment based on the length of the period
from issuance of the Series A Preferred until its conversion. Holders of the
Series A Preferred are entitled to a liquidation preference, after payment of
full liquidation preference to holders of the 9% Preferred and Series B
Preferred, of an amount equal to $10,000 per share, plus $600 per share for each
year that such share is outstanding. Holders of the Series A Preferred may elect
to redeem their shares under certain circumstances, such as the delisting of the
Company's Common Stock from Nasdaq, at prices up to 125% of the liquidation
preference. The Series A Preferred automatically converts into common stock on
the third anniversary from the date of issuance of such shares.
On June 5, 1997, the Company completed the first of a two-part Regulation D
private placement of Series A Preferred. The Company sold 200 shares of Series A
Preferred at a price of $10,000 per share, for gross proceeds of $2,000,000. The
price included four-year warrants to purchase 400,000 common shares at an
exercise price of $3.08 per share. The Series A Preferred is convertible, prior
to August 20, 1997, at an effective conversion price equal to the lowest of the
dollar volume weighted average trading prices of the Company's common stock
for each of the five trading days immediately preceding the conversion date (the
"Average Stock Price"). Thereafter, the effective conversion price will be equal
to 80% of the Average Stock Price if the Average Stock Price is greater than
$2.50 per share; $2.00 per share if the Average Stock Price is less than $2.50
but greater than $2.10 per share; or 95% of the Average Stock Price if the
Average Stock Price is less than or equal to $2.10 per share. The applicable
conversion rate is subject to adjustment at the rate of six percent per annum
based on the length of the period from issuance of the Series A Preferred until
the applicable conversion. Provided the effective conversion price for a given
conversion is equal to or greater than $2.75 per share, the holder of the Series
A Preferred may purchase up to the same number of common shares as such holder
is acquiring upon such conversion at such effective conversion price. Any
election to exercise this right to purchase additional shares must be made at
the time of conversion of the related Series A Preferred, and is forfeited to
the extent that it is not fully exercised at such time. The Company is preparing
a registration statement covering resales of common stock issuable upon
conversion of the Series A Preferred, and intends to sell 200 additional shares
of Series A Preferred three days following the effectiveness of such
registration statement. Warrants similar to those included in the first closing
will also be issued. The second closing is subject to certain conditions, which
conditions are outside the control of the investor, including but not limited to
a minimum trading volume for the Company's Common Stock.
F-18
<PAGE>
[This page intentionally left blank]
<PAGE>
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE SELLING
STOCKHOLDERS. THIS PROSPECTUS DOES NOT CONSTITUTE ANY OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
---------------------
TABLE OF CONTENTS
PAGE
Prospectus Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Price Range of Common Stock. . . . . . . . . . . . . . . . . . . . . . . 8
Dividend Policy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Selected Financial Data. . . . . . . . . . . . . . . . . . . . . . . . . 11
Management's Discussion and Analysis
of Financial Condition and Results
of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Certain Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . 30
Description of Securities. . . . . . . . . . . . . . . . . . . . . . . . 31
Selling Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Plan of Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Index to Financial Statements. . . . . . . . . . . . . . . . . . . . . . F-1
Report of Independent Auditors . . . . . . . . . . . . . . . . . . . . . F-2
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
---------------------
4,600,537 SHARES
CORTEX PHARMACEUTICALS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
June __, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law makes provision for the
indemnification of officers and directors in terms sufficiently broad as to
include indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Act"). The Restated Certificate of Incorporation of the Company
provides that the Company shall indemnify officers and directors to the fullest
extent permitted by statute.
In addition, as permitted by Section 102(b)(7) of the Delaware Corporation Law,
the Restated Certificate of Incorporation of the Company provides that a
director of the Company shall not be liable to the Company or its stockholders
for monetary damages for breach of the director's fiduciary duty of care.
However, as provided by Delaware law, such limitation of liability will not act
to limit liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for any acts or omissions not in good faith or
that involve intentional misconduct or a knowing violation of law, (iii) arising
under the provision of the Delaware General Corporation Law relating to unlawful
distributions, or (iv) for any transaction from which the director derived an
improper benefit.
The Company has entered into indemnification agreements with each of its
directors and officers, which provide for the indemnification of directors and
officers of the Company against any and all expenses, judgements, fines,
penalties and amounts paid in settlement, to the fullest extent permitted by
law.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses of this offering
(excluding commissions), none of which expenses are being paid by the security
holders. All of the amounts shown are estimates except the Securities and
Exchange Commission registration fee.
Amount
----------
SEC Registration Fee $ 4,095
Accounting Fees and Expenses 7,500
Legal Fees and Expenses 10,000
Miscellaneous 25,000
----------
$ 46,595
----------
----------
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES
The following consists of information relating to unregistered securities sold
by the Company during the past three years. Numbers of shares have been revised
to reflect a one-for-five reverse stock split that was effected January 11,
1995.
1. On November 29, 1994, the Company issued a warrant to purchase 38,293
shares of Common Stock to Vector, in connection with Vector's
assistance with corporate partnering activities.
2. On January 20, 1995, the Company issued a warrant to purchase 50,000
shares of Common Stock to Vector, in connection with their assistance
in negotiating a resolution to the dispute with Alkermes, Inc.
3. On December 8, 1995, the Company sold an aggregate of 160 shares of
Series C Preferred Stock to 12 overseas investors for gross proceeds
of $4,000,000.
II-1
<PAGE>
4. On December 8, 1995, the Company issued a warrant to purchase 106,195
shares of Common Stock to Swartz Investments, Inc. in connection with
their assistance with the foregoing placement.
5. On October 15, 1996, the Company sold 100 shares of Series D Preferred
Stock to one accredited investor for gross proceeds of $1,000,000.
6. On January 9, 1997, the Company sold 150 shares of Series D Preferred
Stock to one accredited investor for gross proceeds of $1,500,000.
7. On February 12, 1997, the Company sold 150 shares of Series D
Preferred Stock to one accredited investor for gross proceeds of
$1,500,000.
8. On June 5, 1997, the Company sold 200 shares of Series A Preferred
Stock and issued warrants to purchase 400,000 shares of Common Stock
to eleven accredited investors for gross proceeds of $2,000,000.
The foregoing sales of securities described in paragraphs 1,2,4,5,6,7 and 8
above were made in reliance upon the exemption from the registration provisions
of the Securities Act of 1933 set forth in Section 4(2) thereof as transactions
by an issuer not involving any public offering. The Company has reason to
believe that all of the foregoing purchasers were familiar with or had access to
information concerning the operations and financial condition of the Company,
and each of the purchasers acquiring securities in exchange for cash
consideration represented that it was acquiring the shares for investment and
not with a view to the distribution thereof. At the time of issuance, all of the
foregoing shares of Common Stock were deemed to be restricted securities for
purposes of the Securities Act of 1933 and the certificates representing such
securities bear legends to that effect. The foregoing sale of securities
described in paragraph 3 above was made pursuant to Regulation S under the
Securities Act of 1933.
ITEM 27. 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 Certificate 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, by Certificate of
Designation filed October 15, 1996, and by Certificate of Designation
filed June 4, 1997.
3.2 By-Laws of the Company, as adopted March 4, 1987, and amended through
October 8, 1996, incorporated by reference to the Company's Annual
Report on Form 10-KSB filed October 15, 1996.
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Counsel to the Registrant.
10.2 Consulting Agreement, dated October 30, 1987, between the Company and
Carl W. Cotman, Ph.D. *
10.3 Consulting Agreement, dated as October 30, 1987, between the Company
and Gary S. Lynch, Ph.D. *
10.8 1989 Incentive Stock Option, Nonqualified Stock Option and Stock
Purchase Plan. *
10.9 1989 Special Nonqualified Stock Option and Stock Purchase Plan. *
10.18 License Agreement, dated February 11, 1991 between the Company and
Georgia Tech Research Corporation, incorporated by reference to
Exhibit 10.18 of the Company's Amendment on Form 8 filed November 27,
1991 to the Company's Annual Report on Form 10-K filed September 30,
1991. (Portions of this Exhibit are omitted and were filed separately
with the Secretary of the Commission pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under
the Securities Exchange Act of 1934).
10.19 License Agreement dated March 27, 1991 between the Company and the
Regents of the University of California, incorporated by reference to
Exhibit 10.19 of the Company's Amendment on Form 8 filed November 27,
1991 to the Company's Annual Report on Form 10-K filed September 30,
1991. (Portions
II-2
<PAGE>
of this Exhibit are omitted and were filed separately with the
Secretary of the Commission pursuant to the Company's application
requesting confidential treatment under Rule 24b-2 under the
Securities Exchange Act of 1934).
10.28 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted October 22, 1992, incorporated by
reference to Exhibit 10.28 of the Company's Annual Report on Form 10-K
filed September 16, 1992.
10.30 Employment Agreement dated February 4, 1993 between the Company and
Alan A. Steigrod, incorporated by reference to Exhibit 10.30 of the
Company's Quarterly Report on Form 10-QSB filed May 14, 1992.
10.31 License Agreement dated June 25, 1993 between the Company and the
Regents of the University of California, incorporated by reference to
the Company's Amendment of Annual Report on Form 10-KSB/A filed
November 26, 1993. (Portions of this Exhibit are omitted and were
filed separately with the Secretary of the Commission pursuant to the
Company's application requesting confidential treatment under
Rule 24b-2 of the Securities Exchange Act of 1934).
10.34 Warrant for the Purchase of shares of common stock dated July 23, 1993
issued to Vector Securities International, Inc., incorporated by
reference to Exhibit 10.34 of the Company's Annual Report on Form
10-KSB filed October 13, 1993.
10.36 Amended and Restated Employment Agreement between the Company and D.
Scott Hagen, dated September 1, 1993, incorporated by reference to
Exhibit 10.36 of the Company's Annual Report on Form 10-KSB filed
October 13, 1993.
10.36.1 Amendment No. 1, dated January 1, 1995, to the Amended and Restated
Employment Agreement between the Company and D. Scott Hagen, dated
September 1, 1993, incorporated by reference to the same numbered
Exhibit to the Company's Quarterly Report on Form 10-QSB filed April
28, 1995.
10.41 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted December 13, 1993, incorporated by
reference to Exhibit 4.9 of the Company's Registration Statement on
Form S-8 filed January 28, 1994.
10.42 Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
Plan adopted December 13, 1993, incorporated by reference to Exhibit
4.8 of the Company's Registration Statement on Form S-8 filed
January 28, 1994.
10.43 Amendment to Executive Stock Plan adopted December 13, 1993,
incorporated by reference to Exhibit 4.7 of the Company's Registration
Statement on Form S-8 filed January 28, 1994.
10.44 Lease Agreement, dated January 31, 1994, for the Company's facilities
in Irvine, California, incorporated by reference to Exhibit 10.44 of
the Company's Quarterly Report on Form 10-QSB filed May 16, 1994.
10.45 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted December 15, 1994, incorporated by
reference to Exhibit 4.10 of the Company's Registration Statement on
Form S-8 filed February 8, 1995.
10.46 Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
Plan adopted December 1994, incorporated by reference to Exhibit 4.9
of the Company's Registration Statement on Form S-8 filed February 8,
1995.
10.47 Amendment to Executive Stock Plan adopted September 9, 1994,
incorporated by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-KSB filed October 13, 1995.
10.48 Amendment to the Non-Employee Director Formula Grant Plan, adopted
December 15, 1994, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed
October 13, 1995.*
10.49 Settlement Agreement between the Company and Alkermes, Inc., dated
October 5, 1995, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed
October 13, 1995. (Portions of this Exhibit are omitted and were filed
separately with the Secretary of the Commission pursuant to the
Company's Application requesting confidential treatment under Rule 406
of the Securities Act of 1933).
10.50 Form of Subscription Agreement entered into with each purchaser of
Series C Preferred Stock, incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K filed December 22, 1995.
10.51 Warrant dated December 8, 1995, to purchase 106,195 shares issued to
Swartz Investments, Inc., incorporated by reference to Exhibit 4.3 of
the Company's Current Report on Form 8-K filed December 22, 1995.
II-3
<PAGE>
10.52 Registration Rights Agreement dated December 8, 1995, entered into
with purchasers of Series C Preferred Stock and Swartz Investments,
Inc., incorporated by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K filed December 22, 1995.
10.53 Warrant dated November 29, 1994, to purchase 35,000 shares issued to
Vector Securities International, Inc., incorporated by reference to
the same numbered Exhibit to the Company's Pre-Effective Amendment No.
1 to Post Effective Amendment No. 2 to Registration Statement on
Form SB-2, No. 33-71894, filed January 26, 1996.
10.54 Warrant dated January 20, 1995, to purchase 50,000 shares issued to
Vector Securities International, Inc., incorporated by reference to
the same numbered Exhibit to the Company's Pre-Effective Amendment No.
1 to Post Effective Amendment No. 2 to Registration Statement on
Form SB-2, No. 33-71894, filed January 26, 1996.
10.55 Warrant dated November 30, 1995, to purchase 210,000 shares issued to
Vector Securities International, Inc., incorporated by reference to
the same numbered Exhibit to the Company's Pre-Effective Amendment
No. 1 to Post Effective Amendment No. 2 to Registration Statement on
Form SB-2, No. 33-71894, filed January 26, 1996.
10.56 Employment Agreement dated May 15, 1996, between the Company and
Vincent F. Simmon, Ph.D., incorporated by reference to the same
numbered Exhibit to the Company's Current Report on Form 8-K filed
June 4, 1996.
10.57 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted December 12, 1995, incorporated by
reference to Exhibit 4.11 of the Company's Registration Statement on
Form S-8 filed September 13, 1996.
10.58 Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
Plan adopted December 12, 1995, incorporated by reference to Exhibit
4.10 of the Company's Registration Statement on Form S-8 filed
September 13, 1996.
10.59 Securities Subscription Agreement for Series D Preferred Stock dated
October 15, 1996, between the Company and Ashline Ltd., incorporated
by reference to the same numbered Exhibit to the Company's Quarterly
Report on Form 10-QSB filed November 12, 1996.
10.60 1996 Stock Incentive Plan, incorporated by reference to the same
numbered Exhibit to the Company's Quarterly Report on Form 10-QSB
filed November 12, 1996.
10.61 Form of Subscription Agreement with each purchaser of Series A
Preferred Stock.
10.62 Form of Warrant issued to each purchaser of Series A Preferred Stock.
10.63 Registration Rights Agreement with holders of Series A Preferred Stock
dated June 5, 1997.
21 Subsidiaries of the Registrant.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (included in the Opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, independent auditors.
24 Power of Attorney (included on Signature page).
27 Financial Data Schedule.
- --------------------
* Incorporated by reference to the same numbered exhibit of the
Company's Registration Statement on Form S-1, No. 33-28284, effective
on July 18, 1989.
II-4
<PAGE>
ITEM 28. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) to reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
For purposes of determining any liability under the Securities Act, the
Registrant will treat the information omitted from the form of prospectus filed
as part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the Registrant under Rule 424(b)(1), or (4) or
497(h) under the Securities Act as part of this registration statement as of the
time the Commission declared it effective; and will treat each post-effective
amendment that contains a form of prospectus as a new registration statement for
the securities offered in the registration statement, and that offering of the
securities at that time as the initial bona fide offering of those securities.
II-5
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorizes this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Irvine, State of California, on the 18th day of
June, 1997.
CORTEX PHARMACEUTICALS, INC.
By: /s/ Vincent F. Simmon, Ph.D.
-----------------------------------
Vincent F. Simmon, Ph.D.
President and Chief Executive Officer
We, the undersigned directors and officers of Cortex Pharmaceuticals, Inc., do
hereby constitute and appoint Vincent F. Simmon, Ph.D. and D. Scott Hagen, or
either of them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and behalf in our capacities as directors and officers
and to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and attorney to
sign for us or any of us in our names and in the capacities indicated below, any
and all amendments (including post-effective amendments) hereto or any related
registration statement that is to be effective upon filing pursuant to Rule
462(b) under the Securities Act of 1933, as amended; and we do hereby ratify and
confirm all that the said attorneys and agents, or either of them, shall do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert F. Allnutt Director June 18, 1997
- ------------------------------
Robert F. Allnutt
/s/ Carl W. Cotman, Ph.D. Director June 18, 1997
- ------------------------------
Carl W. Cotman, Ph.D.
/s/ Michael G. Grey Director June 18, 1997
- ------------------------------
Michael G. Grey
/s/ D. Scott Hagen Vice President, Chief June 18, 1997
- ------------------------------ Financial Officer
D. Scott Hagen and Secretary
(Principal Financial and
Accounting Officer)
S-1
<PAGE>
/s/ Harvey S. Sadow, Ph.D. Chairman of the Board June 18, 1997
- ------------------------------ and Director
Harvey S. Sadow, Ph.D.
/s/ Vincent F. Simmon, PH.D. President and Chief June 18, 1997
- ------------------------------ Executive Officer,
Vincent F. Simmon, Ph.D. Director
(Principal Executive Officer)
/s/ Davis L. Temple, Jr., Ph.D. Director June 18, 1997
- -------------------------------
Davis L. Temple, Jr., Ph.D.
S-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
3.1 Restated Certificate of Incorporation dated April 11, 1989, as amended
by Certificate of Amendment of June 27, 1989, by Certificate of
Designation filed April 29, 1991, by Certificate 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, by Certificate of
Designation filed October 15, 1996, and by Certificate of Designation
filed June 4, 1997.
3.2 By-Laws of the Company, as adopted March 4, 1987, and amended through
October 8, 1996, incorporated by reference to the Company's Annual
Report on Form 10-KSB filed October 15, 1996.
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Counsel to the Registrant.
10.2 Consulting Agreement, dated October 30, 1987, between the Company and
Carl W. Cotman, Ph.D.*
10.3 Consulting Agreement, dated as October 30, 1987, between the Company
and Gary S. Lynch, Ph.D.*
10.8 1989 Incentive Stock Option, Nonqualified Stock Option and Stock
Purchase Plan.*
10.9 1989 Special Nonqualified Stock Option and Stock Purchase Plan. *
10.18 License Agreement, dated February 11, 1991 between the Company and
Georgia Tech Research Corporation, incorporated by reference to
Exhibit 10.18 of the Company's Amendment on Form 8 filed November 27,
1991 to the Company's Annual Report on Form 10-K filed September 30,
1991. (Portions of this Exhibit are omitted and were filed separately
with the Secretary of the Commission pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under
the Securities Exchange Act of 1934).
10.19 License Agreement dated March 27, 1991 between the Company and the
Regents of the University of California, incorporated by reference to
Exhibit 10.19 of the Company's Amendment on Form 8 filed November 27,
1991 to the Company's Annual Report on Form 10-K filed September 30,
1991. (Portions of this Exhibit are omitted and were filed separately
with the Secretary of the Commission pursuant to the Company's
application requesting confidential treatment under Rule 24b-2 under
the Securities Exchange Act of 1934).
10.28 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted October 22, 1992, incorporated by
reference to Exhibit 10.28 of the Company's Annual Report on Form 10-K
filed September 16, 1992.
10.30 Employment Agreement dated February 4, 1993 between the Company and
Alan A. Steigrod, incorporated by reference to Exhibit 10.30 of the
Company's Quarterly Report on Form 10-Q filed May 14, 1992.
10.31 License Agreement dated June 25, 1993 between the Company and the
Regents of the University of California, incorporated by reference to
the Company's Amendment of Annual Report on Form 10-KSB/A filed
November 26, 1993. (Portions of this Exhibit are omitted and were
filed separately with the Secretary of the Commission pursuant to the
Company's application requesting confidential treatment under
Rule 24b-2 of the Securities Exchange Act of 1934).
EXH-1
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
10.34 Warrant for the Purchase of shares of common stock dated July 23,
1993 issued to Vector Securities International, Inc., incorporated by
reference to Exhibit 10.34 of the Company's Annual Report on Form
10-KSB filed October 13, 1993.
10.36 Amended and Restated Employment Agreement between the Company and D.
Scott Hagen, dated September 1, 1993, incorporated by reference to
Exhibit 10.36 of the Company's Annual Report on Form 10-KSB filed
October 13, 1993.
10.36.1 Amendment No. 1, dated January 1, 1995, to the Amended and Restated
Employment Agreement between the Company and D. Scott Hagen, dated
September 1, 1993, incorporated by reference to the same numbered
Exhibit to the Company's Quarterly Report on Form 10-QSB filed
April 28, 1995.
10.41 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted December 13, 1993, incorporated by
reference to Exhibit 4.9 of the Company's Registration Statement on
Form S-8 filed January 28, 1994.
10.42 Amendment to 1989 Special Nonqualified Stock Option and Stock
Purchase Plan adopted December 13, 1993, incorporated by reference to
Exhibit 4.8 of the Company's Registration Statement on Form S-8 filed
January 28, 1994.
10.43 Amendment to Executive Stock Plan adopted December 13, 1993,
incorporated by reference to Exhibit 4.7 of the Company's Registration
Statement on Form S-8 filed January 28, 1994.
10.44 Lease Agreement, dated January 31, 1994, for the Company's facilities
in Irvine, California, incorporated by reference to Exhibit 10.44 of
the Company's Quarterly Report on Form 10-QSB filed May 16, 1994.
10.45 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted December 15, 1994, incorporated by
reference to Exhibit 4.10 of the Company's Registration Statement on
Form S-8 filed February 8, 1995.
10.46 Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
Plan adopted December 1994, incorporated by reference to Exhibit 4.9
of the Company's Registration Statement on Form S-8 filed February 8,
1995.
10.47 Amendment to Executive Stock Plan adopted September 9, 1994,
incorporated by reference to the same numbered Exhibit to the
Company's Annual Report on Form 10-KSB filed October 13, 1995.
10.48 Amendment to the Non-Employee Director Formula Grant Plan, adopted
December 15, 1994, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed
October 13, 1995 *
10.49 Settlement Agreement between the Company and Alkermes, Inc., dated
October 5, 1995, incorporated by reference to the same numbered
Exhibit to the Company's Annual Report on Form 10-KSB filed
October 13, 1995. (Portions of this Exhibit are omitted and were filed
separately with the Secretary of the Commission pursuant to the
Company's Application requesting confidential treatment under Rule 406
of the Securities Act of 1933).
10.50 Form of Subscription Agreement entered into with each purchaser of
Series C Preferred Stock, incorporated by reference to Exhibit 4.1 of
the Company's Current Report on Form 8-K filed December 22, 1995.
EXH-2
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- --------------------------------------------------------------------------------
10.51 Warrant dated December 8, 1995, to purchase 106,195 shares issued to
Swartz Investments, Inc., incorporated by reference to Exhibit 4.3 of
the Company's Current Report on Form 8-K filed December 22, 1995.
10.52 Registration Rights Agreement dated December 8, 1995, entered into
with purchasers of Series C Preferred Stock and Swartz Investments,
Inc., incorporated by reference to Exhibit 4.2 of the Company's
Current Report on Form 8-K filed December 22, 1995.
10.53 Warrant dated November 29, 1994, to purchase 35,000 shares issued to
Vector Securities International, Inc., incorporated by reference to
the same numbered Exhibit to the Company's Pre-Effective Amendment No.
1 to Post Effective Amendment No. 2 to Registration Statement on Form
SB-2, No. 33-71894, filed January 26, 1996.
10.54 Warrant dated January 20, 1995, to purchase 50,000 shares issued to
Vector Securities International, Inc., incorporated by reference to
the same numbered Exhibit to the Company's Pre-Effective Amendment No.
1 to Post Effective Amendment No. 2 to Registration Statement on Form
SB-2, No. 33-71894, filed January 26, 1996.
10.55 Warrant dated November 30, 1995, to purchase 210,000 shares issued to
Vector Securities International, Inc., incorporated by reference to
the same numbered Exhibit to the Company's Pre-Effective Amendment No.
1 to Post Effective Amendment No. 2 to Registration Statement on Form
SB-2, No. 33-71894, filed January 26, 1996.
10.56 Employment Agreement dated May 15, 1996, between the Company and
Vincent F. Simmon, Ph.D., incorporated by reference to the same
numbered Exhibit to the Company's Current Report on Form 8-K filed
June 4, 1996.
10.57 Amendment to 1989 Incentive Stock Option, Nonqualified Stock Option
and Stock Purchase Plan adopted December 12, 1995, incorporated by
reference to Exhibit 4.11 of the Company's Registration Statement on
Form S-8 filed September 13, 1996.
10.58 Amendment to 1989 Special Nonqualified Stock Option and Stock Purchase
Plan adopted December 12, 1995, incorporated by reference to Exhibit
4.10 of the Company's Registration Statement on Form S-8 filed
September 13, 1996.
10.59 Securities Subscription Agreement for Series D Preferred Stock dated
October 15, 1996, between the Company and Ashline Ltd., incorporated
by reference to the same numbered Exhibit to the Company's Quarterly
Report on Form 10-QSB filed November 12, 1996.
10.60 1996 Stock Incentive Plan, incorporated by reference to the same
numbered Exhibit to the Company's Quarterly Report on Form 10-QSB
filed November 12, 1996.
10.61 Form of Subscription Agreement with each purchaser of Series A
Preferred Stock.
10.62 Form of Warrant issued to each purchaser of Series A Preferred Stock.
10.63 Registration Rights Agreement with holder of Series A Preferred Stock
dated June 5, 1997.
21 Subsidiaries of the Registrant.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (included in the Opinion filed as Exhibit 5.1).
23.2 Consent of Ernst & Young LLP, independent auditors.
24 Power of Attorney (included on signature page).
27 Financial Data Schedule.
- --------------------
* Incorporated by reference to the same numbered exhibit of the
Company's Registration Statement on Form S-1, No. 33-28284, effective
on July 18, 1989.
EXH-3
<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.
2
<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
2
<PAGE>
"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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<PAGE>
(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.
4
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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
5
<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:
7
<PAGE>
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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<PAGE>
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>
CERTIFICATE OF DESIGNATION OF RIGHTS,
PREFERENCES AND PRIVILEGES OF
SERIES A CONVERTIBLE PREFERRED STOCK
CORTEX PHARMACEUTICALS, INC.
We, Vincent F. Simmon and D. Scott Hagen, being the President and
Secretary, respectively, of Cortex Pharmaceuticals, Inc., a corporation
organized and existing under the laws of the State of Delaware (the
"Corporation"), being duly authorized to execute and file this Certificate,
do hereby certify and attest that pursuant to authority conferred upon the
Board of Directors by the Certificate of Incorporation of the Corporation and
Section 151 of the General Corporation Law of the State of Delaware, the
Board of Directors of the Corporation duly adopted the following resolutions
providing for the establishment and designation of a series of preferred
stock:
RESOLVED: That, pursuant to authority vested in the Board of Directors by
the Fourth Article of the Certificate of Incorporation of the
Corporation, as amended, a new series of preferred stock, $.001
par value, be and hereby is established and designated as Series
A Convertible Preferred Stock, consisting of 400 shares, the
powers, preferences and relative, participating, optional or
other special rights of which, and the qualifications,
limitations or restrictions of which, in addition to any set
forth in the Corporation's Certificate of Incorporation, shall be
as set forth in EXHIBIT A attached hereto.
IN WITNESS WHEREOF, we have hereunto set our hands and seals as President
and Secretary, respectively, of this Corporation on this 4th day of June
1997, and we hereby affirm that the foregoing Certificate is our act and deed
and the act and deed of the Corporation and that the facts stated therein are
true.
________________________________________________
Vincent F. Simmon, Ph.D., President and Chief
Executive Officer
Attest:
__________________________
D. Scott Hagen, Secretary
<PAGE>
CORTEX PHARMACEUTICALS, INC.
TERMS, RIGHTS, PREFERENCES AND PRIVILEGES
OF
SERIES A CONVERTIBLE PREFERRED STOCK, $.001 PAR VALUE
SECTION 1. VOTING. The holders of the Series A Convertible Preferred
Stock shall have such voting rights only as are set forth below except as
otherwise required by law from time to time.
The affirmative approval (by vote or written consent as permitted by
applicable law) of the holders of at least 66-2/3% of the outstanding shares of
the Series A Convertible Preferred Stock, par value $.001 per share (the "Series
A Convertible Preferred Stock") consenting or voting (as the case may be)
separately as a class, will be required for (i) any amendment, alteration or
repeal of the Corporation's Certificate of Incorporation, as amended from time
to time, (including any Certificate of Designation of Rights, Preferences and
Privileges) if such amendment, alteration or repeal adversely affects the
powers, rights, preferences or privileges of the Series A Convertible Preferred
Stock (including, without limitation, by creating any class or series of equity
securities or issuing any equity securities not outstanding as of June 4, 1997
out of any already existing class or series of equity securities, having a
preference over the Series A Convertible Preferred Stock with respect to
dividends, redemption, distribution upon liquidation or in any other respect),
or (ii) any amendment to or waiver of the terms of the Series A Convertible
Preferred Stock or this Certificate.
To the extent that under applicable law or under the Corporation's
Certificate of Incorporation or By-Laws, each as amended from time to time, the
approval of the holders of the Series A Convertible Preferred Stock, voting
separately as a class, is required to authorize a given action of the
Corporation, the affirmative approval (by vote or written consent as permitted
by applicable law) of the holders of a majority of the outstanding shares of the
Series A Convertible Preferred Stock shall constitute the approval of such
action by the class. To the extent that under applicable law or under the
Corporation's Certificate of Incorporation or By-Laws, each as amended from time
to time, the holders of the Series A Convertible Preferred Stock are entitled to
vote on a matter with holders of any shares of any other series or class of
Preferred Stock and/or holders of the Common Stock, voting together as one
class, each share of Series A Convertible Preferred Stock shall be entitled to
that number of votes as shall be equal to the number of shares of the
Corporation's Common Stock, par value $.001 per share (the "COMMON STOCK") into
which each share of Series A Convertible Preferred Stock is convertible on the
record date for any meeting of stockholders or on the date of any written
consent of stockholders, as applicable. Holders of the Series A Convertible
Preferred Stock shall be entitled to notice of all stockholder meetings or
written consents (whether or not they are entitled to vote thereat), which
notice will be provided pursuant to the Corporation's By Laws, as amended from
time to time, and applicable statutes.
<PAGE>
-2-
SECTION 2. DIVIDENDS. No dividends will accrue with respect to the Series
A Convertible Preferred Stock.
SECTION 3. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding-up of the affairs of the Corporation, voluntarily or
involuntarily (each such date a "LIQUIDATION"), the holders of each share of
Series A Convertible Preferred Stock shall be entitled to be paid pro-rata out
of the assets of the Corporation available for distribution to its stockholders,
whether such assets are capital, surplus, or earnings, after any payment or
declaration and setting apart for payment of any preferential amounts owing in
respect of the 9% Cumulative Convertible Preferred Stock, par value $.001 per
share (the "9% Preferred Stock") and the Series B Preferred Stock, par value
$.001 per share (the "Series B Preferred Stock," and together with the 9%
Preferred Stock, the "Senior Stock") but before any payment or declaration and
setting apart for payment of any amount shall be made in respect of any shares
of the Corporation's Common Stock or shares of any other capital stock of the
Corporation ranking on liquidation junior to the Series A Convertible Preferred
Stock (collectively, "JUNIOR STOCK"), a preferential amount equal to Ten
Thousand Dollars ($10,000.00) plus (0.06)(N/365)($10,000), where N is the number
of calendar days since the issuance of such share of Series A Preferred Stock,
per share (adjusted to reflect any stock split, stock dividend, combination,
recapitalization or reorganization affecting the Series A Convertible Preferred
Stock) (as so adjusted, the "DESIGNATED VALUE") of Series A Convertible
Preferred Stock held by them (such preferential amount being hereinafter
referred to as the "SERIES A PREFERRED STOCK LIQUIDATION PREFERENCE"). If upon
such liquidation, dissolution or winding-up, the assets of the Corporation are
insufficient (after payment of the liquidation preference of any class of
preferred stock ranking senior on liquidation to the Series A Convertible
Preferred Stock) to provide for the payment in full of the Series A Preferred
Stock Liquidation Preference for each share of Series A Convertible Preferred
Stock outstanding, such assets as are available shall be paid out pro-rata
(determined in accordance with the Series A Preferred Stock Liquidation
Preference) to the outstanding shares of Series A Convertible Preferred Stock.
For purposes of this paragraph, (i) a sale or other disposition of all or
substantially all of the assets of the Corporation, (ii) a consolidation or
merger of the Corporation with or into any other corporation or other entity or
person (whether or not the Corporation is the surviving corporation) in which in
excess of 50% of the Corporation's voting power is transferred and (iii) any
other corporate reorganization or transaction or series of related transactions
in which in excess of 50% of the Corporation's voting power is transferred,
shall be deemed to be a Liquidation. After payment or declaration and setting
apart for payment to holders of shares of the Senior Stock and holders of shares
of the Series A Convertible Preferred Stock, holders of the Series A Convertible
Preferred Stock shall be entitled to no further distribution.
SECTION 4. CONVERSION.
The holders of the Series A Convertible Preferred Stock shall have
conversion rights in accordance with the following provisions:
(a) VOLUNTARY CONVERSION. Each holder of one or more shares of Series A
Convertible Preferred Stock shall be entitled, at any time and from time to time
and at such holder's option, to convert such share or shares into fully paid and
nonassessable shares of Common Stock (as such shares of Common Stock may be
constituted on the Conversion Date, as defined in Section 4(d)
<PAGE>
-3-
hereof) at the rate specified in Section 4(c) hereof, subject to adjustment
in accordance with Section 5 hereof.
(b) MANDATORY CONVERSION. On the third anniversary of the first date on
which the Corporation issues any shares of Series A Convertible Preferred Stock
(the "FIRST DATE OF ISSUANCE"), each outstanding share of Series A Convertible
Preferred Stock shall be converted automatically and without further action into
fully paid and nonassessable shares of Common Stock (as such shares of Common
Stock may be constituted on the Conversion Date) at the rate specified in
Section 4(c) hereof, subject to adjustment in accordance with Section 6 hereof,
and a Conversion Notice shall be deemed to have been given by the holder of each
such outstanding share of Series A Convertible Preferred Stock on such date.
(c) CONVERSION RATE.
(i) VOLUNTARY CONVERSION. Each share of Series A Convertible
Preferred Stock that is converted into shares of Common Stock in accordance with
Section 4(a) or Section 4(b) hereof shall convert into such number of whole
shares of Common Stock as may be purchased with the Designated Value of each
such share of Series A Convertible Preferred Stock at a price (the "EFFECTIVE
PRICE") equal to (A) in the event the lowest of the dollar volume weighted
average reported sales prices of the Common Stock (as calculated by Bloomberg
Financial Markets through its "Volume At Price" function, individually the
"Daily Prices") during the five (5) consecutive trading days (the "AVERAGE STOCK
PRICE") immediately preceding the Conversion Date (as defined in Section 4(d)
hereof) is greater than $2.50 per share, the Applicable X Percentage (as
determined in accordance with the following table) of the Average Stock Price
(B) in the event the Average Stock Price immediately preceding the Conversion
Date (as defined in Section 4(d) hereof) is less than or equal to $2.10 per
share, the Applicable Y Percentage (as determined in accordance with the
following table) of the Average Stock Price and (C) in the event the Average
Stock Price immediately preceding the Conversion Date (as defined in Section
4(d) hereof) is greater than $2.10 but less than or equal to $2.50, $2.00:
DATE OF CONVERSION APPLICABLE APPLICABLE
(NUMBER OF DAYS AFTER X Y
FIRST DATE OF ISSUANCE) PERCENTAGE PERCENTAGE
- ----------------------- ------------ ------------
1 to 75 100% 100%
76 to maturity 80% 95%
(ii) Upon the occurrence of any of the events described in Section 6
hereof or any dividend on shares of Common Stock payable in shares of Common
Stock, the $2.00, $2.10 and $2.50 dollar amounts shall be proportionately
increased or decreased, as appropriate.
(iii) The number of shares of Common Stock into which each share
of Series A Convertible Preferred Stock may be converted pursuant to this
Section 4(c), as such may be
<PAGE>
-4-
adjusted from time to time in accordance with Sections 4(c)(ii) and 6 hereof,
is hereafter referred to as the "CONVERSION RATE."
(d) MECHANICS OF CONVERSION. Unless conversion is mandatory in
accordance with Section 4(b) hereof, any or all shares of Series A
Convertible Preferred Stock may be converted by the holder thereof by giving
written notice (the "CONVERSION NOTICE") to the Corporation, which notice
incorporates the holder's calculation of the Effective Price and the number
of shares of Common Stock issuable upon conversion, that the holder elects to
convert the number of shares specified therein and specifying the number of
Additional Shares (as defined in Section 5 hereof) such holder elects to
purchase, if any, and by delivering the certificate or certificates
representing the Series A Convertible Preferred Stock to be converted, duly
endorsed or assigned in blank, to the Corporation or any transfer agent for
the Series A Convertible Preferred Stock together with a check or wire
transfer in the amount of the total purchase price for the Additional Shares.
In the event that such certificate or certificates have been lost, stolen or
destroyed, in lieu of delivering such certificate or certificates, the holder
may notify the Corporation of such loss, theft or destruction and deliver to
the Corporation an instrument reasonably satisfactory to the Corporation
indemnifying the Corporation from any loss incurred by the Corporation in
connection with such lost, stolen or destroyed certificate or certificates.
On the date of receipt by the Corporation of the Conversion Notice
(which Notice shall include holder's covenant to use holder's best efforts to
promptly deliver the certificate or certificates representing the shares to be
converted or a notice of loss, theft or destruction and an indemnification
instrument in lieu thereof) the Corporation shall verify the holder's
calculation of the Conversion Rate as calculated by the holder and if the
Corporation disagrees with the holder's calculation of the Conversion Rate, the
Corporation shall deliver to the holder the Corporation's calculation of the
Conversion Rate. The Corporation shall use its best efforts to issue and
deliver as soon as possible, and in any event within three (3) business days
after delivery to the Corporation of any certificate representing one or more
shares of Series A Convertible Preferred Stock to be converted (or a notice of
loss, theft or destruction and an indemnification instrument in lieu thereof),
to such holder of Series A Convertible Preferred Stock, or to its designee, one
or more certificates representing that number of shares of Common Stock to which
such holder shall be entitled, together with one or more certificates
representing any shares of Series A Convertible Preferred Stock represented by
the certificate or certificates delivered by such holder but not submitted for
conversion. The Corporation shall be deemed to have received the Conversion
Notice on the date of its delivery to the Corporation by the holder (the
"CONVERSION DATE") and the person or persons entitled to receive the shares of
Common Stock issuable upon the conversion specified therein shall be treated for
all purposes as the record holder or holders of such shares of Common Stock as
of such date, PROVIDED THAT the certificate or certificates representing the
shares of Series A Convertible Preferred Stock to be converted (or a notice of
loss, theft or destruction and an indemnification instrument in lieu thereof),
are received by the Corporation or any transfer agent for the Series A
Convertible Preferred Stock within five (5) business days thereafter.
SECTION 5. ADDITIONAL SHARES. If the Effective Price on a Conversion Date
is greater than or equal to $2.75 (the "ADDITIONAL SHARE TRIGGER PRICE"), then,
at the holder's option, and in addition to and not in lieu of the shares of
Common Stock issuable upon conversion of the shares of Series A Convertible
Preferred Stock specified in the applicable Conversion Notice, the
<PAGE>
-5-
Corporation shall issue and sell to such holder, at such Effective Price, one
(1) share of Common Stock (each an "ADDITIONAL SHARE" and collectively, the
"ADDITIONAL SHARES") for each share of Common Stock issuable upon conversion
of such specified shares of Series A Convertible Preferred Stock. Any
election to exercise the foregoing right to purchase Additional Shares shall
be exercised with respect to any given Series A Convertible Preferred Shares
at the time of conversion of such shares and is forfeited to the extent it is
not fully exercised at such time, as indicated in the Conversion Notice
applicable to such shares of Series A Convertible Preferred Stock.
SECTION 6. ADJUSTMENTS; REORGANIZATIONS.
(a) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If, at any time or
times during the relevant calculation period for determining the Average Stock
Price in connection with any conversion or redemption, the Corporation effects a
subdivision or combination of the outstanding Common Stock into a smaller number
of shares (e.g., by reverse stock split or otherwise), the Daily Prices in
effect immediately before such subdivision shall be proportionately increased or
decreased, as appropriate.
(b) [intentionally deleted]
(c) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In the event that
the Corporation, at any time or from time to time after the First Date of
Issuance, makes or fixes a record date for the determination of holders of
Common Stock entitled to receive a dividend or other distribution payable other
than in shares of Common Stock (including, without limitation, any buy-back by
the Corporation of shares of Common Stock) then, and in each such event,
provision shall be made so that the holders of Series A Convertible Preferred
Stock shall receive the amount of such dividend or other distribution, payable
in the form and on the date such dividend or other distribution is to be paid to
holders of Common Stock, to which such holders would be entitled to receive had
such holders converted each share of Series A Convertible Preferred Stock then
outstanding into Common Stock immediately prior to the record date for the
determination of holders of Common Stock entitled to receive such dividend or
other distribution.
(d) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. In the
event that at any time or from time to time after the First Date of Issuance,
the Common Stock issuable upon the conversion of the Series A Convertible
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
or reorganization provided for elsewhere in this Section 6), then, and in each
such event, each holder of shares of Series A Convertible Preferred Stock shall,
as of the effectiveness of such change, be entitled to convert each share of
Series A Convertible Preferred Stock into the same kind of stock receivable by
holders of shares of Common Stock upon such recapitalization, reclassification
or other change, all subject to further adjustment as provided herein. In such
event, the formula set forth herein for conversion shall be equitably adjusted
in a manner reasonably satisfactory to the holders of shares of Series A
Convertible Preferred Stock to reflect such change in number of shares or, if
shares of a new class of stock are issued, to reflect the market price of the
class of classes of stock (applying
<PAGE>
-6-
the same factors used in determining the Conversion Rate) issued in
connection with the above described transaction.
(e) REORGANIZATION. In the event that at any time or from time to time
after the First Date of Issuance, there is a capital reorganization of the
Common Stock (other than a recapitalization, subdivision, combination,
reclassification, or exchange of shares provided for elsewhere in this
Section 6), then, and in each such event, as a part of such reorganization,
provision shall be made so that the holders of the Series A Convertible
Preferred Stock shall, as of the effectiveness of such capital reorganization,
be entitled to receive upon conversion of any shares of Series A Convertible
Preferred Stock the number of shares of stock or other securities or property to
which a holder of the number of shares of Common Stock deliverable upon such
conversion would have been entitled to receive upon effectiveness of such
capital reorganization. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 6 with respect to the
rights of the holders of the Series A Convertible Preferred Stock after the
reorganization to the end that the provisions of this Section 6 (including
adjustment of the Conversion Rate then in effect and the number of shares
issuable upon conversion of shares of the Series A Convertible Preferred Stock)
shall be applicable after that event and be as nearly equivalent as may be
practicable, including, by way of illustration and not limitation, by equitably
adjusting the formula set forth herein for conversion to reflect the market
price of the securities or property issued in connection with the above
described transaction.
SECTION 7. FRACTIONAL SHARES. No fractional shares of Common Stock or
scrip representing fractional shares of Common Stock shall be issuable
hereunder. The number of shares of Common Stock that are issuable upon any
conversion of one or more shares of Series A Convertible Preferred Stock shall
be rounded up to the nearest whole share.
SECTION 8. RESERVATION OF STOCK ISSUABLE UPON CONVERSION.
(a) RESERVATION REQUIREMENT. The Corporation has reserved and the
Corporation shall continue to reserve and keep available at all times, free of
preemptive rights, shares of Common Stock for the purpose of enabling the
Corporation to satisfy any obligation to issue shares of its Common Stock upon
conversion of the authorized shares of Series A Convertible Preferred Stock.
The number of shares so reserved may be reduced by the number of shares actually
delivered pursuant to conversion of shares of Series A Convertible Preferred
Stock; PROVIDED THAT in no event shall the number of shares so reserved be less
than 125% of the maximum number required to satisfy remaining conversion rights
on the unconverted shares of Series A Convertible Preferred Stock. The number
of shares so reserved shall be proportionately increased and may be
proportionately decreased, to reflect stock splits, subdivisions, combinations
and stock dividends and distributions.
(b) DEFAULT. If the Corporation does not have a sufficient number of
shares of Common Stock available to satisfy the Corporation's obligations to a
holder of one or more shares of Series A Convertible Preferred Stock upon
receipt of a Conversion Notice, or if the Corporation is otherwise prohibited by
applicable law from issuing shares of Common Stock upon receipt of a Conversion
Notice (each, a "CONVERSION DEFAULT"), the holder of one or more shares of
Series A Convertible Preferred Stock requesting conversion shall have the right
to require the Corporation to redeem such shares of Series A Convertible
Preferred Stock at a price per share which shall be
<PAGE>
-7-
the greater of (i) 125% of the Designated Value or (ii) the product of the
Conversion Rate and the last reported sales price of the Common Stock as of
the Conversion Date such redemption amount to be payable in cash.
SECTION 9. NO REISSUANCE OF SHARES OF SERIES A PREFERRED STOCK. No share
or shares of Series A Convertible Preferred Stock acquired by the Corporation by
reason of redemption, purchase, conversion or otherwise shall be reissued as
Series A Convertible Preferred Stock, and all such shares shall be retired and
shall return to the status of authorized, unissued and retired and undesignated
shares of preferred stock of the Corporation. No additional shares of Series A
Convertible Preferred Stock shall be authorized or issued without the consent of
at least 66-2/3% in interest of the holders of shares of Series A Convertible
Preferred Stock outstanding immediately prior thereto.
SECTION 10. NO IMPAIRMENT. The Corporation shall not intentionally take
any action which would impair the rights and privileges of the shares of
Series A Convertible Preferred Stock set forth herein.
SECTION 11. HOLDER'S RIGHTS IF SHARES ARE DELISTED OR IF TRADING IN
COMMON STOCK IS SUSPENDED. In the event that at any time on or after the
date hereof and prior to the third anniversary of the First Date of Issuance,
trading in the shares of the Common Stock is suspended on the principal
quotation system, market or exchange for such shares, for a period of five
(5) consecutive trading days, other than as a result of the suspension of
trading in securities in general, or if the Common Stock is delisted, then,
at the option of any holder of one or more shares of Series A Convertible
Preferred Stock, the Corporation shall redeem that number of such holder's
shares of Series A Convertible Preferred Stock as such holder shall
designate, on such date as such holder shall designate, and at the price per
share which is the greater of (i) 110% of the Designated Value or (ii) the
product of the Conversion Rate and the reported closing sales price of the
Common Stock on the most recent trading date immediately preceding the
designated date of redemption, such redemption amount to be payable in cash.
SECTION 12. REDEMPTION. The Corporation shall have no right, at any
time, to require redemption of any of the Series A Convertible Preferred
Stock and the Corporation shall have no right, at any time, to require
redemption of any of the Common Stock into which such Series A Convertible
Preferred Stock may be converted. The Corporation may grant redemption
rights to the holders of Series A Convertible Preferred Stock either by
amendment to this Certificate of Designation, Rights, Preferences and
Privileges or by other agreement.
SECTION 13. MECHANICS OF REDEMPTION.
Any redemption pursuant to Section 8 and 11 hereof of Series A
Convertible Preferred Stock shall be in accordance with the following
procedure:
(a) NOTICE. Any or all shares of Series A Convertible Preferred Stock
may be redeemed by the holder thereof by giving written notice (the
"REDEMPTION NOTICE") to the Corporation, together with the holder's
calculation of the redemption price and specifying wire transfer instructions
for receipt of the redemption price, that the holder elects to redeem the
<PAGE>
-8-
number of shares specified therein, and by delivering the certificate or
certificates representing the Series A Convertible Preferred Stock to be
redeemed, duly endorsed or assigned in blank, to the Corporation, PROVIDED,
HOWEVER, in the event that such certificate or certificates have been lost,
stolen or destroyed, in lieu of delivering such certificate or certificates,
the holder may notify the Corporation of such loss, theft or destruction and
deliver to the Corporation an instrument reasonably satisfactory to the
Corporation indemnifying the Corporation from any loss incurred by the
Corporation in connection with such lost, stolen or destroyed certificate or
certificates.
(b) RESPONSIBILITY OF CORPORATION. On the date of receipt by the
Corporation of the Redemption Notice, the Corporation shall verify the
holder's calculation of the total redemption price as calculated by the
holder and if the Corporation disagrees with the holder's calculation of the
redemption price, the Corporation shall deliver to the holder the
Corporation's calculation of the redemption price. The Corporation shall be
deemed to have received the Redemption Notice on the date of its delivery to
the Corporation by the holder and upon delivery of the certificate or
certificates representing the shares of Series A Convertible Preferred Stock
to be redeemed (or a notice of loss, theft or destruction and an
indemnification instrument in lieu thereof), the redeeming holder shall be
entitled to receive payment of the redemption price per share of Series A
Convertible Preferred Stock being redeemed. Subject to applicable legal
restrictions, the Corporation shall use its best efforts to pay (by wire
transfer of immediately available funds) as soon as possible, and in any
event within twenty (20) calendar days after delivery to the Corporation of a
Redemption Notice, to such holder of Series A Convertible Preferred Stock, or
to its designee, the total redemption price to which such holder shall be
entitled, and to issue and deliver one or more certificates representing any
shares of Series A Convertible Preferred Stock represented by the certificate
or certificates delivered by such holder but not submitted for redemption.
On the date of initiation of the wire transfer paying the Redemption Price,
the Corporation shall give notice to any holder of the shares of Series A
Convertible Preferred Stock being so redeemed that such wire has been
initiated. If the certificate or certificates (or such notice and
indemnification instrument) representing the shares to be redeemed are not
received by the Corporation or any transfer agent for the Series A
Convertible Preferred Stock within five (5) business days after receipt by
the Corporation of the Redemption Notice, the Redemption Notice shall become
null and void.
(c) EFFECT OF REDEMPTION. From and after receipt by the Corporation of a
Redemption Notice, the shares of Series A Convertible Preferred Stock so
redeemed shall no longer be outstanding, and the holders thereof shall cease to
be shareholders with respect to such shares, and shall have no rights with
respect thereto except the right to receive the redemption price.
(d) FAILURE TO TIMELY REDEEM. If any share of Series A Convertible
Preferred Stock is not redeemed within twenty (20) calendar days after delivery
to the Corporation of a Redemption Notice with respect to such share pursuant to
this Section 11 then (other than with the consent of the holders of a majority
of the outstanding shares of Series A Convertible Preferred Stock) at the
holder's election either (i) the numeral "0.06" appearing in the formula for the
calculation of Designated Value (as set forth in Section 3 hereof) shall be
changed to the numeral "0.15" effective as of the twentieth calendar day after
delivery to the Corporation of a Redemption Notice and shall remain so changed
until the date on which such shares actually shall be redeemed or (ii) the
holder may withdraw the Redemption Notice and upon such withdrawal the
Conversion Rate shall be the
<PAGE>
-9-
lesser of (A) that Conversion Rate associated with an Effective Price equal
to the Average Stock Price on the twentieth calendar date after delivery of
the Redemption Notice and (B) the Conversion Rate (as otherwise determined in
accordance with the provisions of Section 4).
(e) INSUFFICIENT FUNDS. If the funds of the Corporation legally available
for redemption of shares of Series A Convertible Preferred Stock are
insufficient to redeem the total number of shares of Series A Convertible
Preferred Stock specified to be redeemed in any Redemption Notice within twenty
(20) calendar days after delivery to the Corporation of the applicable
Redemption Notice, those funds which are legally available will be used to
redeem the maximum possible number of shares of Series A Convertible Preferred
Stock ratably among the holders of such shares to be redeemed based upon the
aggregate Designated Value of such shares held by each such holder. At any time
thereafter when additional funds of the Corporation are legally available for
the redemption of Series A Convertible Preferred Stock, such funds will
immediately be used to redeem the balance of the shares that the Corporation has
become obligated to redeem with respect to any Redemption Notice, but which it
has not redeemed. In case fewer than the total number of shares of Series A
Convertible Preferred Stock represented by any certificate are redeemed, a new
certificate representing the number of unredeemed shares will be issued to the
holder thereof without cost to such holder within thirty (30) days of the date
of delivery of the applicable Redemption Notice.
SECTION 14. OTHER NOTICES. In case at any time:
(i) the Corporation shall declare any dividend upon its Common Stock
payable in cash, stock or convertible securities or make any other
distribution to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription PRO RATA to the
holders of its Common Stock any additional shares of stock of any class,
any convertible securities, or other rights;
(iii) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into, or a sale of all
or substantially all its assets to, another entity or entities; or
(iv) there shall be commenced a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give notice to
each holder of any shares of Series A Convertible Preferred Stock (a) at
least twenty (20) days' prior written notice of the date on which the books
of the Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in
respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least twenty (20) calendar days' prior written
notice of the date when the same shall take place. Such notice in accordance
with the foregoing clause (a) shall also specify, in the case of any such
dividend, distribution or subscription rights, the date
<PAGE>
-10-
on which the holders of Common Stock shall be entitled thereto and such
notice in accordance with the foregoing clause (b) shall also specify the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, as the case may be.
SECTION 15. NOTICES REQUIREMENTS. Unless otherwise provided herein,
notices and other deliveries to be made hereunder shall be made by hand or by
registered or certified mail (return receipt requested and postage and
charges prepaid), by a nationally recognized overnight courier (charges
prepaid), or by telecopier (in which case a copy shall also be sent by
nationally recognized overnight courier). Such notices and other deliveries
shall be addressed, in the case of the Corporation, to the Corporation at its
principal place of business, at 15241 Barranca Parkway, Irvine, California
92618, telecopier (714-727-3657), Attention: President and in the case of
any holder of one or more shares of Series A Convertible Preferred Stock, to
such holder at the address or telecopier number of such holder appearing on
the books of the Corporation or given by such holder to the Corporation for
the purpose of notice, or, if no such address or telecopier number appears or
is so given, at the last known address of such holder, or at such other
address as the recipient shall have provided for notices in writing. Such
notices and other deliveries shall be deemed delivered and received, if made
by hand or telecopier on the date given, if made by overnight courier, on the
next business day after the date deposited with such courier with
instructions and prepayment for next day delivery, and if sent by registered
or certified mail, on the third business day following the mailing thereof.
SECTION 16. INDEMNIFICATION. The Corporation shall indemnify the
holders of Series A Convertible Preferred Stock against any and all loss,
cost, expenses, liabilities, or damages (including reasonable attorneys fees)
incurred as a result of the Corporation's breach of any of its obligations
set forth in this Certificate of Designation.
<PAGE>
[LETTERHEAD]
June 18, 1997
Cortec Pharmaceuticals, Inc.
15241 Barranca Parkway
Irvine, California 92618
RE: REGISTRATION STATEMENT ON FORM SB-2
Ladies and Gentlemen:
At your request, we have examined the form of Registration Statement on
Form SB-2, (the "Registration Statement"), being filed by Cortex
Pharmaceuticals, Inc., a Delaware corporation (the "Company"), with the
Securities and Exchange Commission (the "Commission") on June 18, 1997, in
connection with the registration under the Securities Act of 1933, as
amended, of 4,600,537 shares of Common Stock, $.001 par value per share, of
the Company (the "Common Stock"), to be sold by certain stockholders of the
Company. The Registration Statement relates to (i) 1,191,291 shares of the
Company's Common Stock which are to be offered for resale by certain holders,
such shares to be issued to the holders of currently outstanding warrants
(the "Warrants") upon exercise of such Warrants, (ii) 1,704,623 shares of the
Company's Common Stock which are to be offered for resale by certain holders
following the issuance of such shares upon conversion of shares of the
Company's Series A Preferred Stock held by such holders, and (iii) 1,704,623
shares of the Company's Common Stock that may be offered for resale by
certain holders, such shares may be issued upon exercise of special purchase
rights triggered by conversion of the Company's Series A Preferred Stock.
We have reviewed the corporate actions of the Company in connection with
this matter and have examined such documents, corporate records and other
instruments as we have deemed necessary for the purpose of this opinion.
Based upon the foregoing and upon such issues of law as we deem relevant, it
is our opinion that: (i) the 1,191,291 shares of Common Stock underlying the
Warrants have been duly and validly authorized and, when issued upon exercise
of the Warrants, will be validly issued, fully paid and nonassessable; (ii)
the 1,704,623 shares of Common Stock underlying the Series A Preferred Stock
have been duly and validly authorized and, when issued upon conversion of the
Series A Preferred Stock, will be validly issued, fully paid and
nonassessable; and (iii) the 1,704,623 shares of Common Stock underlying the
special purchase
<PAGE>
June 17, 1997
Page Two
rights have been duly and validly authorized and, when issued upon exercise
of such rights, will be validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to the use of our name under the caption "Legal Matters" in the
Registration Statement, including the Prospectus constituting a part thereof
and any amendment thereto.
Very truly yours,
STRADLING, YOCCA, CARLSON & RAUTH
/s/ Stradling, Yocca, Carlson & Rauth
<PAGE>
-1-
CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT
This Convertible Securities Subscription Agreement (this
"AGREEMENT"), dated as of June 5, 1997, has been executed by the
undersigned (the "SUBSCRIBER") in connection with (a) the sale of
certain shares of Series A Convertible Preferred Stock, 0.001 par
value (the "PREFERRED STOCK") of Cortex Pharmaceuticals, Inc., a
Delaware corporation, having an address at 15241 Barranca Parkway,
Irvine CA 92618 (the "COMPANY"), convertible into shares of Common
Stock, par value $0.001 per share (the "COMMON STOCK"), of the
Company, and (b) the issuance by the Company of its warrants to
purchase up to 800,000 shares of Common Stock (the "WARRANTS"). For
each share of Preferred Stock purchased hereunder, the Subscriber
shall receive a Warrant to purchase 2,000 shares of Common Stock. The
Company is offering an aggregate amount of up to $4,000,000 of
Preferred Stock, together with the Warrants, at a price of $10,000 per
share (the "INITIAL ISSUANCE"). The rights and preferences of the
Preferred Stock, including the terms on which the Preferred Stock may
be converted into Common Stock, are set forth in the Certificate of
Designation, Rights, Preferences and Privileges of Series A
Convertible Preferred Stock, attached hereto as EXHIBIT A (the
"CERTIFICATE OF DESIGNATION"), which shall have been executed,
acknowledged, filed, recorded and become effective in accordance with
the General Corporation Law of the State of Delaware prior to the
acceptance by the Company of this Agreement. Under certain
circumstances the Subscribers may be entitled to purchase additional
shares of Common Stock at a price per share equal to the Effective
Price (as defined in the Certificate of Designation). The shares of
Common Stock issuable upon exercise of the rights set forth in Section
5 of the Certificate of Designation are referred to herein as the
"ADDITIONAL COMMON STOCK". The sale of the Additional Common Stock,
if any, together with the Initial Issuance is referred to herein as
the "OFFERING". The solicitation of this Agreement and, if accepted
by the Company, the offer and sale of the Preferred Stock and the
Warrants, are being made in reliance upon the provisions of Regulation
D ("REGULATION D") promulgated by the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or under the exemption from registration set forth
in Section 4(2) of the Securities Act. The Preferred Stock, the
Warrants, the Common Stock issuable upon conversion or exercise
thereof, and the Additional Common Stock are sometimes collectively
referred to in this Agreement as the "SECURITIES." The shares of
Common Stock issuable upon conversion of the Preferred Stock are
referred to herein as the "UNDERLYING STOCK", and the Common Stock
issuable upon the exercise of the Warrants are referred to as the
"WARRANT STOCK." As used herein "MATERIAL ADVERSE EFFECT" means any
effect on the business, operations, properties, prospects, or
financial
<PAGE>
-2-
condition of the entity with respect to which such term is used and which
is material and adverse to such entity or to other entities controlling or
controlled by such entity, or any condition or situation which would
prohibit or otherwise interfere with the ability of the entity with
respect to which said term is used to enter into and perform its
obligations under this Agreement.
The Subscriber wishes to subscribe for, and the Company wishes to
issue, the number of shares of Preferred Stock and the number of
Warrants at the aggregate purchase price set forth in Section 14 and
in accordance with the other terms and conditions of this Agreement.
In consideration of the mutual promises, representations, warranties
and conditions set forth herein, and intending to be legally bound
hereby, the Company and the Subscriber agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS.
1.1. PURCHASE AND SALE OF SECURITIES.
(a) INITIAL ISSUANCE. The Company shall issue and sell to the
Subscriber and the Subscriber shall purchase from the Company such
number of Preferred Stock and Warrants as is set forth in Section 14
hereof for an aggregate purchase price equal to $___________ (the
"PURCHASE PRICE"). The Initial Issuance shall take place in two (2)
separate closings (each a "CLOSING"), the first of which is
hereinafter referred to as the "FIRST CLOSING", and the second of
which is hereinafter referred to as the "SECOND CLOSING". Subject to
the satisfaction (or waiver) of the conditions thereto set forth in
Sections 1.2 and 1.3 below: (i) at the First Closing, the Company
shall issue and sell to the Subscriber, and the Subscriber shall
purchase from the Company, fifty percent (50%) of the Preferred Stock
and the Warrants which the Subscriber is purchasing hereunder for
consideration equal to 50% of the Purchase Price, and (ii) at the
Second Closing, the Company shall issue and sell to the Subscriber and
the Subscriber shall purchase from the Company the remainder of the
Preferred Stock and the Warrants which the Subscriber is purchasing
hereunder for a price equal to the remainder of the Purchase Price.
(b) FORM OF PAYMENT. On each Closing Date (as defined below),
(i) the Subscriber shall pay the portion of the Purchase Price for the
Preferred Stock and the Warrants to be issued and sold at the
applicable Closing by wire transfer to the Company, in accordance with
the Company's written wiring instructions, against delivery of the
duly executed share certificates representing the Preferred Stock and
the Warrants which the Subscriber is then purchasing, and (ii) the
Company shall deliver to Subscriber such Preferred Stock certificates
and Warrants against delivery of such Purchase Price.
<PAGE>
-3-
(c) CLOSING DATES. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Sections 1.2 and 1.3 below, the
date and time of the issuance and sale of the Preferred Stock and
Warrants pursuant to this Agreement shall be (i) in the case of the
First Closing, 12:00 noon Eastern Standard Time on June 5, 1997
("FIRST CLOSING DATE") and (ii) in the case of the Second Closing,
12:00 noon Eastern Standard Time, within three business days of the
earlier of (i) the date of effectiveness of the Registration Statement
and (ii) the date specified by the Subscribers in a written notice to
the Company ("SECOND CLOSING DATE"). The Closings shall occur on the
applicable Closing Dates at such locations as the parties shall
determine.
1.2. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL THE PREFERRED STOCK AND WARRANTS. The obligation of
the Company to issue and sell the Preferred Stock, Warrants and
Additional Common Stock to the Subscriber at each Closing is subject
to the satisfaction, at or before such Closing, of each of the
conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) PAYMENT OF PURCHASE PRICE. The Subscriber shall have
delivered to the Company that portion of the Purchase Price payable by
the Subscriber at the applicable Closing.
(b) ACCURACY OF THE SUBSCRIBER'S REPRESENTATION AND WARRANTIES.
The representations and warranties of the Subscriber shall be true and
correct as of the date when made and as of the applicable Closing Date
as though made at each such time.
(c) PERFORMANCE BY THE SUBSCRIBER. The Subscriber shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Subscriber at or prior to the
applicable Closing.
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
1.3. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SUBSCRIBER TO
ACQUIRE THE PREFERRED STOCK AND WARRANTS. The obligation of
Subscriber to acquire and pay for the
<PAGE>
-4-
Preferred Stock and Warrants at each Closing, is subject to the
satisfaction, at or before such date, of the conditions hereinafter
specified in this Section 1.3. Each of these conditions is for
Subscriber's sole benefit and may be waived by Subscriber at any
time in its sole discretion.
(a) As to the First Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company
contained herein shall be true and correct as of the date when
made and as of the First Closing Date as though made as of each
such date.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Company at or
prior to the First Closing.
(iii) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits
or adversely effects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced which may
have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(iv) ADVERSE CHANGES. No event shall have occurred which
has had or is likely to have a Material Adverse Effect on the
financial condition, earnings, operations or business of the
Company.
(v) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON
STOCK. As of the First Closing Date, the trading of the Common
Stock shall not have been suspended by the SEC, The Nasdaq Stock
Market's Small Cap Market (the "NASDAQ") or the National
Association of Securities Dealers, Inc. (the "NASD"), and the
Common Stock shall not have been delisted from Nasdaq.
(vi) THE LEGAL OPINION. The Company shall have delivered to
the Subscriber the opinion of Stadling, Yocca, Carlson & Rauth,
independent counsel to the Company, dated as of the First Closing
Date, in form and substance reasonably satisfactory to the
Subscriber.
<PAGE>
-5-
(vii) OFFICER'S CERTIFICATE. The Company shall have
delivered to the Subscriber a certificate in form and substance
reasonably satisfactory to the Subscriber, executed by an
executive officer of the Company dated as of the First Closing
Date, to the effect that all the conditions to the First Closing
set forth in this Section 1.3(a) shall have been satisfied or
waived.
(viii) REGISTRATION RIGHTS AGREEMENT. The Company and
the Subscriber shall have entered into the Registration Rights
Agreement, in the form of EXHIBIT C annexed hereto (the
"REGISTRATION RIGHTS AGREEMENT").
(ix) FILING OF THE CERTIFICATE OF DESIGNATION. The
Certificate of Designation, conforming to the terms of this
Agreement, shall have been duly filed with the Secretary of State
of the State of Delaware and a certified copy thereof shall have
been returned to the Company.
(x) TRANSFER AGENT IRREVOCABLE INSTRUCTION. The Company
shall have delivered to the transfer agent for its Common Stock
the Transfer Agent Irrevocable Instruction, in the form of
EXHIBIT D annexed hereto (the "TRANSFER AGENT IRREVOCABLE
INSTRUCTION").
(b) As to the Second Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
Second Closing Date as though made as of each such date.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Company at or
prior to the Second Closing.
(iii) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits
or adversely effects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced which may
have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
<PAGE>
-6-
(iv) VOLUME. The average daily trading volume (as reported
on Bloomberg) during the thirty (30) trading days preceding the
Second Closing Date is more than 25,000 shares per day.
(v) DEFAULTS. The Company is not in material default of
its obligations under this Agreement.
(vi) REPRESENTATIONS AND WARRANTIES. No representation or
warranty made by the Company in this Agreement is false in any
material respect.
(vii) LITIGATION. The Company is not involved in any
material litigation as of the Second Closing Date which has or is
likely to have a Material Adverse Effect on the Company.
(viii) LIABILITIES. The Company has not incurred
substantial liabilities as of the Second Closing Date which have
or are likely to have a Material Adverse Effect on the Company.
(ix) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON
STOCK. As of the Second Closing Date, the trading of the Common
Stock shall not have been suspended by the SEC, Nasdaq or the
NASD and the Common Stock shall not have been delisted from
Nasdaq.
(x) THE LEGAL OPINION. The Company shall have delivered to
the Subscriber the opinion of Stadling, Yocca, Carlson & Rauth,
independent counsel to the Company, dated as of the Second
Closing Date, in form and substance reasonably satisfactory to
the Subscriber.
(xi) OFFICER'S CERTIFICATE. The Company shall have
delivered to the Subscriber a certificate in form and substance
reasonably satisfactory to the Subscriber, executed by an
executive officer of the Company dated as of the Second Closing
Date, to the effect that all the conditions to the Second Closing
set forth in this Section 1.3(b) shall have been satisfied.
(xii) REGISTRATION STATEMENT. The registration
statement (the "REGISTRATION STATEMENT") filed by the Company
pursuant to Section 2 of the Registration Rights Agreement
covering the resale of the Registrable Securities (as defined in
the Registration Rights Agreement) underlying (i) the Preferred
Stock issued at the First Closing and to be issued at the Second
Closing, (ii) the Warrants
<PAGE>
-7-
issued at the First Closing and to be issued at the Second Closing
and (iii) the Additional Common Stock shall be effective, and no stop
order shall have been issued in respect thereof.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER.
The Subscriber represents and warrants to the Company that:
2.1. NO GOVERNMENT RECOMMENDATION OR APPROVAL. The 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 or the offering of the Securities.
2.2. INTENT. The Subscriber is purchasing the Securities for its
own account and not with a view towards distribution thereof and the
Subscriber has no present arrangement (whether or not legally binding)
at any time to sell the Securities to or through any person or entity;
PROVIDED, HOWEVER, that by making the representations herein, the
Subscriber does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the
Securities at any time in accordance with federal and state securities
laws applicable to such disposition. The Subscriber understands that
the Securities must be held indefinitely unless such Securities are
subsequently registered under the Securities Act or an exemption from
registration is available. The Subscriber has been advised or is
aware of the provisions of Rule 144.
2.3. SOPHISTICATED INVESTOR. The Subscriber is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D
promulgated under the Securities Act ("REGULATION D")) and an
accredited investor (as defined in Rule 501 of Regulation D), and
Subscriber has such experience in business and financial matters that
it is capable of evaluating the merits and risks of an investment in
the Securities. The Subscriber acknowledges that the Securities are
speculative and involve a high degree of risk.
2.4. INDEPENDENT INVESTIGATION. The Subscriber, in making its
decision to purchase the Securities subscribed for hereunder, has
relied upon an independent investigation made by it or its
representatives and has not relied on any information or
representations made by third parties or on any oral or written
representations or assurances from the Company or any representative
or agent of the Company, other than as set forth in this Agreement, in
the public filings of the Company and in the documents described
below. Prior to the date hereof, the Subscriber has been furnished
with and has reviewed the Company's latest proxy statement and Annual
Report on Form 10-KSB sent to the Company's shareholders and all
<PAGE>
-8-
documents filed by the Company with the SEC since September 30, 1996
pursuant to sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") (excluding
preliminary proxy statement filings) (such documents are collectively
referred to in this Agreement as the "EXCHANGE ACT REPORTS"). The
Subscriber has had reasonable opportunity to ask questions of and
receive answers from the Company concerning the Company and the
Offering. The Subscriber acknowledges that the price and terms of the
Securities offered hereby have been determined by negotiation based,
in part, on the market price for the Common Stock, and do not
necessarily bear any relationship to the assets, book value or
potential performance of the Company or any other recognized criteria
of value.
2.5. AUTHORITY. This Agreement has been duly authorized and
validly executed and delivered by the Subscriber and is a valid and
binding agreement of the Subscriber enforceable against the Subscriber
in accordance with its terms, subject to general principles of equity
and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally.
2.6. NO LEGAL ADVICE FROM COMPANY. The Subscriber acknowledges
that it has had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal counsel
and tax advisors. Except for any statements or representations of the
Company made in this Agreement and in the Exchange Act Reports, the
Subscriber is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this
Agreement, the Certificate of Designation, the Registration Rights
Agreement, the Warrants or the securities laws of any jurisdiction.
2.7. NO BROKERS. The Subscriber has taken no action which would
give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments by the Company relating to this
Agreement or the transactions contemplated hereby or thereby.
2.8 NOT AN AFFILIATE. The Subscriber is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the
Securities Act) of the Company.
2.9. RELIANCE ON REPRESENTATIONS AND WARRANTIES. The Subscriber
understands that the Securities are being offered and sold to it in
reliance on specific provisions of United States federal and state
securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements,
acknowledgments and
<PAGE>
-9-
understandings of the Subscriber set forth in this Agreement in order
to determine the applicability of such provisions.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Subscriber that:
3.1. COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act, is in full
compliance with all reporting requirements of the Exchange Act, and
the Company has maintained all requirements for the continued listing
of its Common Stock, and such Common Stock is currently listed on
Nasdaq.
3.2. CURRENT PUBLIC INFORMATION. The Exchange Act Reports listed
on SCHEDULE 1 hereto are the only filings made by the Company since
September 30, 1996 pursuant to Sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act.
3.3. NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN
REGARD TO THIS TRANSACTION. Neither the Company nor any of its
affiliates nor any distributor or any person acting on its or their
behalf has conducted any "directed selling efforts" with respect to
the Securities nor has the Company conducted any general solicitation
(as that term is used in Regulation D) with respect to any of the
Securities, nor has any such person made any offers or sales of any
security or solicited any offers to buy any security, under
circumstances that would require registration of the Securities under
the Act.
3.4. CAPITALIZATION; VALID ISSUANCE OF PREFERRED STOCK AND COMMON
STOCK. The Company has an authorized capitalization consisting of
20,000,000 shares of Common Stock, par value $.001 per share, and
5,000,000 shares of Preferred Stock, par value $.001 per share.
Except as set forth on Schedule 3.4 hereto, the Exchange Act Reports
filed with the SEC accurately describe all outstanding stock options,
warrants and other right to purchase any equity securities of the
Company. As of June 5, 1997, the Company has 9,394,249 shares of
Common Stock issued, of which all of such shares are outstanding. As
of June 5, 1997, the Company has 110,000 shares of 9% Cumulative
Convertible Preferred Stock issued, and 150,000 shares of Series B
Convertible Preferred Stock issued of which 110,000 and 150,000, of
such shares, respectively, are outstanding. No shares of Series C
Preferred Stock or Series D Convertible Preferred Stock are
outstanding. All of the issued shares of Common Stock and Preferred
Stock of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable; upon issuance of the
Securities, the Securities will be duly and validly issued, fully paid
and non-assessable; the shares of
<PAGE>
-10-
Common Stock issuable upon conversion of the Preferred Stock, exercise of
the Warrants, or exercise of the additional purchase rights set forth
Section 5 of the Certificate of Designation, when issued and delivered in
accordance with the terms of the Warrants or the Certificate of
Designation, as the case may be, will be duly and validly issued, fully
paid and non-assessable; and the holders of outstanding capital stock of
the Company are not and shall not be entitled to preemptive or other
rights afforded by the Company to subscribe for the capital stock or
other securities of the Company as a result of the sale of the Securities
or the issuance of any Common Stock upon the conversion or exercise
thereof.
3.5. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly incorporated and validly existing in good standing
under the laws of the State of Delaware and has the requisite
corporate power to own its properties and to carry on its business as
now being conducted. The Company does not have any subsidiaries. The
Company is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary other than those in which the failure so to qualify would
not have a Material Adverse Effect on the Company.
3.6. AUTHORIZATION; ENFORCEMENT. (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Certificate of Designation, the Registration Rights
Agreement and the Warrants and to issue the Securities in accordance
with the terms hereof and thereof; (ii) the execution, delivery and
performance of this Agreement, the Certificate of Designation, the
Registration Rights Agreement and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and
thereby, including without limitation the sale of the Securities and
the issuance of any shares of Common Stock issuable upon conversion of
any of the Securities have been duly authorized by all necessary
corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required; (iii)
this Agreement, the Certificate of Designation, the Registration
Rights Agreement and the Warrants have been duly executed and
delivered by the Company, and (iv) this Agreement, the Certificate of
Designation, the Registration Rights Agreement and the Warrants
constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of
general application.
3.7. CORPORATE DOCUMENTS. The Company has furnished or made
available to the Subscriber true and correct copies of the Company's
Certificate of Incorporation as amended
<PAGE>
-11-
and in effect on the date hereof (the "CERTIFICATE"), and the Company's
By-Laws as amended and in effect on the date hereof (the "BY-LAWS").
3.8. NO CONFLICTS. The execution, delivery and performance by
the Company of this Agreement, the Certificate of Designation, the
Registration Rights Agreement, and the Warrants and the consummation
by the Company of the transactions contemplated hereby and thereby,
and the sale by the Company of the Securities hereunder, do not and
will not (i) result in a violation of the Certificate or By-Laws or
(ii) conflict with or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to
which the Company is a party, or result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the
Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material
Adverse Effect); PROVIDED, THAT, for purposes of such representation
as to federal, state, local or foreign law, rule or regulation, no
representation is made herein with respect to any of the same
applicable solely to the Subscriber and not to the Company. The
business of the Company is not being conducted in violation of any
law, ordinance or regulation of any governmental entity, in any manner
that is inconsistent with or in violation of the Certificate or
By-laws, or in violation of any material contract or agreement to
which the Company is a party, except for possible violations which
either singly or in the aggregate do not and will not have a Material
Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement, the
Certificate of Designation, the Registration Rights Agreement, the
Warrants or any of the Securities or to issue and sell the Securities
in accordance with the terms hereof and thereof (other than any SEC,
NASD, Nasdaq or state securities filings which may be required to be
made by the Company from time to time, and any registration statement
which may be filed pursuant hereto); PROVIDED, THAT, for purposes of
the representation made in this sentence, the Company is assuming and
relying upon the accuracy of the relevant representations and
agreements of the Subscriber herein.
3.9. EXCHANGE ACT REPORTS. The Company has delivered or made
available to the Subscriber true and complete copies of the Exchange
Act Reports (including, without limitation, proxy information and
solicitation materials). The Company has not provided to the
Subscriber any information which, according to applicable law, rule or
regulation, should
<PAGE>
-12-
have been disclosed publicly prior to the date hereof by the Company but
which has not been so disclosed. As of their respective dates, the
Exchange Act Reports complied in all material respects with the
requirements of the Exchange Act and rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such Exchange Act Reports, and none of the
Exchange Act Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Exchange Act Reports comply as
to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC or other applicable
rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or
the notes thereto or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). As
of the First Closing Date, the Company has filed all reports required to
be filed by it pursuant to the Exchange Act and is otherwise eligible to
effect registration of its Common Stock on Form S-B2.
3.10. NO MATERIAL ADVERSE CHANGE. Since June 30, 1996 and
except as set forth in the Exchange Act Reports, no event or
circumstance has occurred or arisen which has had or is reasonably
likely to have a Material Adverse Effect on the Company or its
subsidiaries. The Company has not (i) incurred or become subject to
any material liabilities (absolute or contingent) except liabilities
incurred in the ordinary course of business consistent with past
practices; (ii) discharged or satisfied any material lien or
encumbrance or paid any material obligation or liability (absolute or
contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or
made any payment or distribution of cash or other property to
stockholders with respect to its capital stock, or purchased or
redeemed, or made agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course
of business consistent with past practices; (v) suffered any
substantial losses disproportionate with past losses or waived any
rights of material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of existing
business; (vi) made any changes in employee compensation except in the
ordinary course of business consistent with past practices; or (vii)
experienced any material
<PAGE>
-13-
problems with labor or management in connection with the terms and
conditions of their employment.
3.11. NO UNDISCLOSED LIABILITIES. The Company has no
liabilities or obligations which are material, individually or in the
aggregate, and are not disclosed in the Exchange Act Reports, other
than those incurred in the ordinary course of the Company's business
since June 30, 1996, and which, individually or in the aggregate, do
not or would not have a Material Adverse Effect on the Company.
3.12. NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or
circumstance has occurred or exists with respect to the Company its
businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed.
3.13. NO INTEGRATED OFFERING. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, at any time since August 1, 1995, made any
offers or sales of any security or solicited any offers to buy any
security under circumstances that would eliminate the availability of
the exemption from registration under Regulation D promulgated under
the Securities Act in connection with the offer and sale of the
Securities as contemplated hereby.
3.14. NO BROKERS. The Company has taken no action which
would give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments by the Subscriber relating to this
Agreement for the transactions contemplated hereby or thereby.
3.15 DISCLOSURE. No representation, warranty or statement made
by the Company in this Agreement, the Certificate of Designation, the
Registration Rights Agreement, the Warrants or any agreement,
certificate, statement or document furnished by or on behalf of the
Company in connection herewith or therewith contains any untrue
statement of material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein, in light
of the circumstances in which they were made, not misleading.
3.16 ACCRUED AND UNPAID DIVIDENDS. As of June 5, 1997 the
aggregate amount of accrued and unpaid dividends owing to the holders
of the Company's 9% Cumulative Convertible Preferred Stock was
$69,300.
4. COVENANTS OF THE COMPANY.
<PAGE>
-14-
4.1. REGISTRATION RIGHTS. The Company agrees that, at the First
Closing, it will enter into a Registration Rights Agreement with the
Subscriber, in the form of EXHIBIT C annexed hereto ("REGISTRATION
RIGHTS AGREEMENT").
4.2. RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and
keep available at all times, free of preemptive rights, a sufficient
number of authorized but unissued shares of Common Stock for the
purpose of enabling the Company to satisfy any obligation to issue
shares of its Common Stock upon conversion of the Preferred Stock,
exercise of the right to purchase additional shares of Common Stock of
the Company set forth in Section 5 of the Certificate of Designation
or exercise of the Warrants. The number of shares so reserved may be
reduced by the number of shares actually delivered pursuant to
conversion of Preferred Stock, or exercise of the Warrants (provided
that in no event shall the number of shares so reserved be less than
125% of the maximum number required to satisfy the remaining
conversion rights on the unconverted Preferred Stock and the remaining
exercise rights under (i) Section 5 of the Certificate of Designation
and (ii) unexercised Warrants) and the number of shares so reserved
shall be increased to reflect stock splits, stock dividends and other
distributions.
4.3 SHAREHOLDER APPROVAL. In the event such approval is
required by the rules of Nasdaq or any exchange on which the Common
Stock is listed or admitted for trading, the Company shall use its
best efforts to obtain shareholder approval for the issuance of the
Additional Common Stock, the Underlying Stock and Warrant Stock,
regardless of whether or not the aggregate amount of such Additional
Common Stock, Underlying Stock and Warrant Stock exceeds 20% of the
outstanding shares of Common Stock on the First Closing Date.
4.4. LISTING OF UNDERLYING SHARES. The Company hereby agrees,
promptly following the First Closing, to take such action to cause the
Additional Common Stock, the Underlying Stock and the Warrant Stock to
be listed on Nasdaq as promptly as possible but no later than 75 days
following the First Closing. The Company further agrees, if the
Company applies to have the Common Stock traded on any other principal
stock exchange or market, it will include in such application the
Additional Common Stock, the Underlying Stock and the Warrant Stock
and will take such other action as is necessary or desirable to cause
the Additional Common Stock, the Underlying Stock and the Warrant
Stock to be listed on such other exchange or market as promptly as
possible.
4.5. EXCHANGE ACT REGISTRATION. So long as any Securities are
outstanding, the Company will cause its Common Stock to continue to be
registered under Section 12(g) or
<PAGE>
-15-
12(b) of the Exchange Act, will comply in all respects with its reporting
and filing obligations under said Act, and will not take any action or
file any document (whether or not permitted by said Act or the rules
thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act. The Company
will take all action under its control to continue the listing and trading
of its Common Stock on Nasdaq and will comply in all respects with the
Company's reporting, filing and other obligations under the by-laws or
rules of the NASD and Nasdaq.
4.6. LEGENDS. The shares of Underlying Stock and Warrant Stock
and certificates evidencing the same shall, upon the effectiveness of
the Registration Statement and delivery by the Subscriber of
Conversion Notice or Warrant Exercise Notice, as the case may be
substantially in the form of Exhibit 4.6 hereto, be free of legends,
"stop transfers," "stock transfer restrictions," or other
restrictions, PROVIDED, that customary stock transfer restriction
legends may appear on any certificate evidencing any of such shares if
the SEC or other governmental authority with appropriate jurisdiction
has issued an active stop order, injunction or other order or
requirement suspending the effectiveness of the Registration
Statement.
4.7. CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue its corporate existence PROVIDED
HOWEVER that nothing in this Section 4.7 or in Section 4.5 above shall
be construed or interpreted as prohibiting the Company from merging or
consolidating with another entity or transferring all or substantially
all of its assets to another entity PROVIDED the Company complies with
all of its obligations owing to holders of Preferred Stock as a result
of such merger, consolidation or transfer, including, without
limitation, the obligations set forth in Section 5 of the Warrant
Agreement, of even date herewith, by and between the Company and the
Subscriber.
4.8. BUY-BACK OF COMMON SHARES. The Company will not use any of
the proceeds from the sale of the Preferred Stock to buy-back
outstanding shares of Common Stock.
5. LEGENDS.
5.1. LEGENDS. The Company will issue one or more shares of
Preferred Stock and Warrants in the name of the Subscriber and in such
denominations (but not less than one share of Preferred Stock or
Warrants for less than 2,000 shares of Common Stock) to be specified
by the Subscriber prior to (or from time to time subsequent to) the
Closings. The Preferred Stock, the Warrants and certificates
evidencing any shares of Common Stock issued upon conversion or
exercise thereof prior to the effectiveness of the Registration
Statement will bear the following legend (the "LEGEND"):
<PAGE>
-16-
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Prior to Closing, the Company will issue to the transfer
agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock concurrently with the Company's
appointment of any such substitute or replacement transfer agent)
instructions in substantially the form and substance of the Transfer
Agent Irrevocable Instruction attached hereto as Exhibit 5 hereto.
Such instructions shall be irrevocable by the Company from and after
the First Closing Date or from and after the issuance thereof to any
such substitute or replacement transfer agent, as the case may be. It
is the intent and purpose of such instructions, as provided therein,
to require the transfer agent for the Common Stock from time to time
to issue certificates evidencing Underlying Stock or Warrant Stock
free of the Legend during the following periods and under the
following circumstances and without consultation by the transfer agent
with Company or its counsel and without the need for any further
advice or instruction to the transfer agent by or from the Company or
its counsel:
(a) At any time from and after the effectiveness of the
Registration Statement and delivery by the Subscriber of a
Conversion Notice or Warrant Exercise Notice, as the case may be,
substantially in the form of Exhibit 4.6 hereto, and so long as
no stop order, injunction or other order of the SEC or other
applicable governmental authority with appropriate jurisdiction
is then in effect suspending effectiveness of the Registration
Statement:
(i) upon any surrender of one or more Warrants or
certificates representing the Preferred Stock for conversion or
exercise into Underlying Stock or Warrant Stock, as the case may
be; and
(ii) upon any surrender of one or more certificates
evidencing Additional Common Stock, Underlying Stock or Warrant
Stock and which bear the Legend; and
(b) At any time from and after the First Closing Date, upon
any surrender of one or more certificates evidencing Additional
Common Stock, Underlying Stock or Warrant Stock and which bear
the Legend, to the extent
<PAGE>
-17-
accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered and containing or
also accompanied by representations that (i) the holder thereof is
permitted to dispose thereof pursuant to Rule 144(k) under the
Securities Act or (ii) the holder intends to effect the sale or
other disposition of such Stock, whether or not pursuant to the
Registration Statement, to a purchaser or purchasers who will not
be subject to the registration requirements of the Securities Act,
or (iii) such holder is not then subject to such requirements.
In addition, and if applicable, the Company shall reissue the
certificates representing the shares of Additional Common Stock,
Preferred Stock, Underlying Stock, Warrant Stock or Warrants without
the Legend set forth above at such time as (i) the holder thereof is
permitted to dispose thereof pursuant to Rule 144(k) under the Act or
(ii) the holder intends to effect a sale thereof to a purchaser or
purchasers who will not be subject to the registration requirements of
the Act, or (iii) the holder is not then subject to such requirements.
5.2. NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No Legend
has been or shall be placed on the share certificates representing the
Securities and no instructions or "stop transfers," "stock transfer
restrictions," or other restrictions have been or shall be given to
the Company's transfer agent with respect thereto other than as set
forth in this Section 5.
5.3. SUBSCRIBER'S COMPLIANCE. Nothing in this section shall
affect in any way the Subscriber's obligations under and agreement to
comply with all applicable securities laws upon resale of the
Securities, including prospectus delivery requirements if applicable.
6. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL.
6.1 CHOICE OF LAW AND VENUE. THIS AGREEMENT SHALL BE CONSTRUED
UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW OR CHOICE OF LAW PRINCIPLES. The parties hereby
(i) irrevocably submit to the non-exclusive jurisdiction of the United
States District Court for the Southern District of New York for the
purposes of any suit, action or proceeding arising out of or relating
to this Agreement and (ii) waive, and agree not to assert in any such
suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the parties
consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party via certified mail
to the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and
<PAGE>
-18-
sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other
manner permitted by law.
6.2 WAIVER OF JURY TRIAL. THE COMPANY HEREBY EXPRESSLY WAIVES
ANY RIGHT IT MAY HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR
PROCEEDING EXISTING UNDER OR RELATING TO THIS AGREEMENT, THE
SECURITIES OR ANY OF THE OTHER RELATED AGREEMENTS.
7.ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT.
7.1. ASSIGNMENT. Neither this Agreement nor any rights of the
Subscriber hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any
transferee of any of the Securities purchased or acquired by the
Subscriber hereunder provided that such transferee is an institution
which is a corporation, limited liability company, partnership or
other commercial business entity and provided further such rights
shall cease with respect to any shares transferred pursuant to a
registration statement, Rule 144 or other transaction that results in
unrestricted securities.
7.2. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the
Certificate of Designation, the Warrants, the Registration Rights
Agreement, and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement
between the parties with regard to the subject matter hereof and
thereof, and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein.
Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the
party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
<PAGE>
-19-
8. PUBLICITY.
The Company agrees that it will not disclose, and will not
include in any public announcement, the name of the Subscriber without
its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement
and with the prior approval of the Subscriber which the Subscriber
agrees will not be unreasonably withheld or delayed. The Subscriber
acknowledges and agrees the Subscriber may be listed as a selling
stockholder in the Registration Statement.
9. NOTICES, ETC.; EXPENSES; INDEMNITY.
9.1. NOTICES. Unless otherwise provided herein, notices and
other deliveries to be made hereunder shall be made by hand or by
registered or certified mail (return receipt requested and postage and
charges prepaid), by a nationally recognized overnight courier
(charges prepaid), or by telecopier (in which case a copy shall also
be sent by nationally recognized overnight courier). Such notices and
other deliveries shall be addressed, in the case of the Company, to
the Company at its principal place of business, at 15241 Barranca
Parkway, Irvine, California 92618, telecopier (714-727-3657),
Attention: President and in the case of the Subscriber, at the
address set forth below or given by the Subscriber to the Company for
the purpose of notice, or, if no such address appears or is so given,
at the last known address of the Subscriber, or at such other address
as the recipient shall have provided for notices in writing. Such
notices and other deliveries shall be deemed delivered and received,
if made by hand or telecopier on the date given, if made by overnight
courier, on the next business day after the date deposited with such
courier with instructions and prepayment for next day delivery, and if
sent by registered or certified mail, on the third business day
following the mailing thereof.
9.2. COST AND EXPENSES. The Company shall be responsible for the
costs and expenses (including legal fees) incurred by the Subscribers
in connection with the Offering, subject to the limitation that the
Company's total responsibility for costs incurred by the Subscriber
together with all other Subscribers to the Preferred Stock shall not
exceed $20,000 in the aggregate. All such amounts shall be paid to
Promethean Investment Group, L.L.C. ("PROMETHEAN") for the account of
the Subscribers, to be allocated among the Subscribers in such manner
as Promethean may determine in its sole discretion. The first $10,000
of such costs and expenses shall be non-accountable.
9.3. INDEMNIFICATION. Each party shall indemnify and hold the
other harmless against any loss, cost, expenses, liabilities, or
damages (including reasonable attorney's fees)
<PAGE>
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incurred as a result of such parties' breach of any representation,
warranty, covenant or agreement in this Agreement.
10. COUNTERPARTS.
This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall
constitute one instrument.
11. SURVIVAL; SEVERABILITY.
The representations, warranties, covenants and agreements of the
parties hereto shall survive the First Closing and the Second Closing,
PROVIDED that the representations and warranties shall survive only
until the third anniversary of the First Closing. In the event that
any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision.
12. TITLE AND SUBTITLES.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or
interpreting this Agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
<PAGE>
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14. AMOUNT.
The undersigned Subscriber hereby subscribes for
[_______________] shares of Preferred Stock and Warrants to purchase
[_______________] shares of Common Stock and agrees to pay therefor
funds in the amount of [____________________] Dollars (U.S.
$_____________________).
The undersigned acknowledges that this subscription shall
not be effective unless accepted by the Company as indicated
below.
Subscriber's Representative: Name of Subscriber:
____________________________ _______________________________
Attn:
By_____________________________
Name:
Title:
Date of Subscription: _________
Address:
Place of Execution: ___________
Telephone: Place of Organization or Citizenship:
______________________________
Fax: Place of Residency and/or Principal
Place of Business:
Registration Instructions:
______________________________ _____________________________________
(Name)
(Please Print) _______________
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 5th DAY OF
JUNE, 1997.
CORTEX PHARMACEUTICALS, INC.
<PAGE>
-22-
By:_________________________
Name:_______________________
Title:
<PAGE>
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM SUCH
REGISTRATION REQUIREMENTS.
Right to Purchase ___________ Shares of Common Stock
of Cortex Pharmaceuticals Inc.
_________________________
Common Stock Purchase Warrant
Cortex Pharmaceuticals Inc., a Delaware corporation having an address at
15241 Barranca Parkway, Irvine, CA 92618 (the "COMPANY"), hereby certifies
that for Ten United States Dollars ($10.00) and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
[______________________________________], having an address at
_______________________________ ("PURCHASER") or any other Warrant Holder is
entitled, on the terms and conditions set forth below, to purchase from the
Company at any time after the date hereof and ending forty-eight (48) months
from June 5, 1997 _____________________ shares of fully paid and
nonassessable shares of Common Stock, [________] par value, of the Company
(the "COMMON STOCK"), at the Exercise Price (hereinafter defined), as the
same may be adjusted pursuant to Section 5 herein.
1. DEFINITIONS.
(a) the term "ACT" shall mean the Securities Act of 1933, as amended.
(b) the term "ADJUSTMENT DATE" shall mean January 1, 1998 and each
January 1st thereafter during the term of this Warrant
(c) the term "ADJUSTMENT FACTOR" shall mean, with respect to any
Adjustment Date, the number determined by reference to the following table:
ADJUSTMENT DATE ADJUSTMENT FACTOR
<PAGE>
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JANUARY 1, 1998 1.2
JANUARY 1, 1999 1.3
JANUARY 1, 2000 1.4
JANUARY 1, 2001 1.5
(d) the term "ADJUSTED EXERCISE PRICE" shall mean the Initial
Exercise Price MULTIPLIED BY the Adjustment Factor.
(e) the term "AVERAGE STOCK PRICE" shall have the meaning set forth
in the Certificate of Designation, Rights, Preferences and Privileges of the
Company's Series A Convertible Preferred Shares, as amended and in effect
from time to time.
(f) the term "EXCHANGE ACT" shall mean the Securities and Exchange
Act of 1934, as amended.
(g) the term "FIRST CLOSING DATE" shall have the meaning set forth
in the Subscription Agreement.
(h) the term "INITIAL EXERCISE PRICE" shall mean the Average Stock
Price immediately preceding the First Closing Date.
(i) the term "RULE 144" shall mean Rule 144 promulgated under the
Act, as amended, and any successor rules promulgated under the Act.
(j) the term "SEC" or "COMMISSION" shall mean the Securities and
Exchange Commission or any successor agency.
(k) the term "SUBSCRIPTION AGREEMENT" shall mean the Convertible
Securities Subscription Agreement by and between the Purchaser and the
Company, dated of June 5, 1997, as the same may be amended and in effect from
time to time.
(l) the term "WARRANT HOLDER" shall mean the Purchaser or any
assignee of all or any portion of this Warrant at any given time who, at the
time of assignment, acquired the right to purchase at least 2000 Warrant
Shares (such number being subject to adjustment after the date hereof
pursuant to Section 5 herein).
<PAGE>
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(m) the term "WARRANT SHARES" shall mean the shares of Common Stock
or other securities issuable upon exercise of this Warrant.
(n) other terms used herein without definition which are defined in
the Subscription Agreement shall have the same meanings herein as therein.
2. EXERCISE OF WARRANT.
(a) EXERCISE. This Warrant may be exercised by the Warrant Holder,
in whole or in part, at any time and from time to time by surrender of this
Warrant, together with the form of subscription at the end hereof duly
executed by the Warrant Holder, and delivery of the Exercise Price (as
determined by reference to Section 2(c) below) for such Warrant Shares to the
Company, at the Company's principal office. In the event the Registration
Statement (as defined in the Registration Rights Agreement, of even date
herewith, by and between the Purchaser and the Company) is not declared
effective by the SEC by the seventy-fifth (75th) calendar day after the First
Closing Date, then as an alternative to the method of exercise described in
the first sentence of this Section 2(a), at any time thereafter when the
Registration Statement shall not be effective or be subject to a stop order
or other prohibition on sale of Common Stock thereunder, the Holder hereof
may exercise its right to purchase some or all of the shares of Common Stock
pursuant to this Warrant, on a net basis, such that, without the exchange of
any funds, the Holder hereof receives that number of shares of Common Stock
subscribed to pursuant to this Warrant less that number of shares of Common
Stock having an aggregate Average Stock Price at the time of exercise equal
to the aggregate Exercise Price that would otherwise have been paid by the
Holder for the number of shares of Common Stock subscribed to under this
Warrant.
(b) PARTIAL EXERCISES. In the event that the Warrant is not
exercised in full, the number of Warrant Shares shall be reduced by the
number of such Warrant Shares for which this Warrant is exercised, and the
Company, after receipt by it of a form of Warrant reflecting such adjusted
Warrant Shares, at its expense, shall forthwith issue and deliver to or upon
the order of the Warrant Holder a new Warrant of like tenor in the name of
the Warrant Holder or as the Warrant Holder (upon payment by the Warrant
Holder of any applicable transfer taxes) may request, reflecting such
adjusted Warrant Shares.
(c) DETERMINATION OF EXERCISE PRICE. For the period from the date
hereof until the first Adjustment Date, the Exercise Price shall be the
Initial Exercise Price. Thereafter on each Adjustment Date, if during the
most recent full calendar year immediately preceding such Adjustment Date (or
in the case of the January 1, 1998 Adjustment Date,
<PAGE>
-4-
during the period from the First Closing Date to December 31, 1997), the
Average Stock Price of the Common Stock was greater than or equal to the
Adjusted Exercise Price for any period of five (5) consecutive trading days,
then as of such Adjustment Date, the Exercise Price shall be the Adjusted
Exercise Price.
3. DELIVERY OF STOCK CERTIFICATES.
(a) Subject to the terms and conditions of this Warrant, as soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within three (3) business days thereafter, the Company at its expense
(including, without limitation, the payment by it of any applicable issue
taxes) will cause to be issued in the name of and delivered to the Warrant
Holder, or as the Warrant Holder (upon payment by the Warrant Holder of any
applicable transfer taxes) may lawfully direct, a certificate or certificates
for the number of fully paid and non- assessable shares of Common Stock to
which the Warrant Holder shall be entitled on such exercise, together with
any other stock or other securities or property (including cash, where
applicable) to which the Warrant Holder is entitled upon such exercise.
(b) This Warrant may not be exercised as to fractional shares of
Common Stock. In the event that the exercise of this Warrant, in full or in
part, would result in the issuance of any fractional share of Common Stock,
then the number of Warrant Shares for which this Warrant shall have been
exercised shall be rounded up or down to the nearest whole number of Warrant
Shares.
4. COVENANTS OF THE COMPANY.
(a) The Company shall use its best efforts to insure that a
Registration Statement under the Act covering the issuance of the Warrant
Shares and the resale or other disposition thereof by the Warrant Holder is
effective as provided in the Registration Rights Agreement.
(b) The Company shall take all necessary action and proceedings as
may be required and permitted by applicable law, rule and regulation,
including, without limitation the notification of the National Association of
Securities Dealer, Inc., for the legal and valid issuance of this Warrant and
the Warrant Shares to the Warrant Holder under this Warrant.
(c) From the date hereof through the last date on which this
Warrant is exercisable, the Company shall take all steps necessary and within
its control to insure that
<PAGE>
-5-
the Common Stock remains listed on Nasdaq and shall not amend its Certificate
of Incorporation or By-laws so as to adversely affect in any material way any
rights of the Warrant Holder under this Warrant.
(d) The Company shall at all times reserve and keep available,
solely for issuance and delivery as Warrant Shares hereunder, such shares of
Common Stock as shall from time to time be issuable as Warrant Shares.
(e) The Warrant Shares, when issued in accordance with the terms
hereof, will be duly authorized and, when issued in accordance with the terms
hereof, shall be validly issued, fully paid and non-assessable. The Company
has authorized and reserved for issuance to the Warrant Holder the requisite
number of shares of Common Stock to be issued pursuant to this Warrant.
(f) With a view to making available to the Warrant Holder the
benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit the Warrant Holder to sell
securities of the Company to the public without registration, the Company
agrees to use its best efforts to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the Exchange Act;
and
(iii) furnish to any Warrant Holder forthwith upon request a
written statement by the Company that it has complied with the
reporting requirements of Rule 144 and of the Act and the Exchange
Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company
as may be requested to permit any such Warrant Holder to take
advantage of any rule or regulation of the SEC permitting the selling
of any such securities without registration.
5. ADJUSTMENT OF EXERCISE PRICE AND NUMBER OF SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as follows:
(a) SUBDIVISIONS, COMBINATIONS AND OTHER ISSUANCES. If the Company
shall at any time after the date hereof but prior to the expiration of this
Warrant subdivide
<PAGE>
-6-
its outstanding securities as to which purchase rights under this Warrant
exist, by split-up, spin-off, or otherwise, or combine its outstanding
securities as to which purchase rights under this Warrant exist, the number
of Warrant Shares as to which this Warrant is exercisable as of the date of
such subdivision, split-up, spin-off or combination shall forthwith be
proportionately increased in the case of a subdivision, or proportionately
decreased in the case of a combination. Appropriate adjustments shall also be
made to the purchase price payable per share, but the aggregate purchase
price payable for the total number of Warrant Shares purchasable under this
Warrant as of such date shall remain the same.
(b) STOCK DIVIDEND. If at any time after the date hereof the
Company declares a dividend or other distribution on Common Stock payable in
Common Stock or other securities or rights convertible into or exchangeable
or exercisable for Common Stock ("COMMON STOCK EQUIVALENTS") without payment
of any consideration by holders of Common Stock for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares
of Common Stock issuable upon exercise or conversion thereof), then the
number of shares of Common Stock for which this Warrant may be exercised
shall be increased as of the record date (or the date of such dividend
distribution if no record date is set) for determining which holders of
Common Stock shall be entitled to receive such dividends, in proportion to
the increase in the number of outstanding shares (and shares of Common Stock
issuable upon conversion of all such securities convertible into Common
Stock) of Common Stock as a result of such dividend, and the Exercise Price
shall be adjusted so that the aggregate amount payable for the purchase of
all the Warrant Shares issuable hereunder immediately after the record date
(or on the date of such distribution, if applicable) for such dividend shall
equal the aggregate amount so payable immediately before such record date (or
on the date of such distribution, if applicable).
(c) OTHER DISTRIBUTIONS. If at any time after the date hereof the
Company distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of its
capital stock, any evidence of indebtedness or any of its assets (other than
cash, Common Stock or securities convertible into Common Stock), then the
Company shall decrease the per share Exercise Price of this Warrant by an
appropriate amount based upon the value distributed on each share of Common
Stock as determined in good faith by the Company's Board of Directors.
(d) MERGER, ETC. The Company shall give written notice to the
Warrant Holder of any proposed merger or consolidation of the Company with or
into another entity or transfer of all or substantially all of the assets of
the Company to another entity at least
<PAGE>
-7-
two weeks prior to the planned effective date of such transaction. The
Warrant Holder shall be entitled just prior to such transfer, merger or
consolidation becoming effective, and upon payment of the aggregate Exercise
Price then in effect, to exercise this Warrant. If the notice described in
this Section 5(d) is given and Warrant Holder elects not to exercise this
Warrant prior to such transfer, merger or consolidation becoming effective,
then this Warrant shall expire upon the effective date of such transfer,
merger or consolidation. In the event the Company fails to give the notice
described in this Section 5(d) then the Warrant Holder shall be entitled to
receive upon such transfer, merger or consolidation becoming effective, and
upon payment of the aggregate Exercise Price in effect as of such effective
date, the number of shares or other securities or property of the Company or
of the successor corporation resulting from such merger or consolidation,
which would have been received by the Warrant Holder for the shares of stock
subject to this Warrant had this Warrant been exercised just prior to such
transfer, merger or consolidation becoming effective.
(e) RECLASSIFICATION, ETC. If at any time after the date hereof
there shall be a reorganization or reclassification of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, then the Warrant Holder
shall thereafter be entitled to receive upon exercise of this Warrant, during
the period specified herein and upon payment of the Exercise Price then in
effect, the number of shares or other securities or property resulting from
such reorganization or reclassification, which would have been received by
the Warrant Holder for the shares of stock subject to this Warrant had this
Warrant at such time been exercised.
(f) EXERCISE PRICE ADJUSTMENT. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock, or any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of, its Common
Stock or any such convertible or exchangeable securities (other than shares
or options issued or which may be issued pursuant to the Company's employee,
consultant or director option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Subscription
Agreement and listed in the Exchange Act Reports) at an effective purchase
price per share which is less than product of (.75) multiplied by the Average
Stock Price of the Common Stock immediately preceding such issue or sale,
then in each such case, the Exercise Price in effect immediately prior to
such issue or sale shall be reduced effective concurrently with such issue or
sale to an amount determined by multiplying the Exercise Price then in effect
by a fraction, (x) the numerator of which shall be the sum of (1) the number
of shares of Common Stock outstanding immediately prior to such issue or
sale, including, without duplication, those deemed to have been issued under
any provision of the Certificate of Designation and the Warrants, PLUS (2)
the number of shares of Common Stock which the aggregate consideration
<PAGE>
-8-
received by the Company for such additional shares would purchase at such
Average Stock Price or Exercise Price, as the case may be, then in effect;
and (y) the denominator of which shall be the number of shares of Common
Stock of the Company outstanding immediately after such issue or sale
including, without duplication, those deemed to have been issued under any
provision of the Certificate of Designation and Warrants. For purposes of the
foregoing fraction, Common Stock outstanding shall include, without
limitation, any then outstanding warrants and options for Common Stock or
securities of the Company convertible into shares of Common Stock, whether or
not they are exercisable or convertible when such fraction is to be
determined.
The number of shares which may be purchased hereunder shall be increased
proportionately to any reduction in Exercise Price pursuant to this paragraph
5(f), so that after such adjustments the aggregate Exercise Price payable
hereunder for the increased number of shares shall be the same as the
aggregate Exercise Price in effect just prior to such adjustments.
Upon the expiration or termination, prior to exercise, conversion or
exchange thereof, of (i) any securities which are convertible into or
exchangeable for Common Stock, (ii) any warrants or other rights to subscribe
for or to purchase Common Stock, or (iii) any options for the purchase of
Common Stock, which the issuance or sale thereof by the Company gave rise to
any adjustment to the Exercise Price pursuant to this Section 5(f),
appropriate re-adjustments shall be made to the Exercise Price so that the
Exercise Price is that same as it would have been had such unexercised,
unconverted or unexchanged securities, warrants or options had never been
issued or sold.
6. NO IMPAIRMENT. The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Warrant Holder against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par value
of any Warrant Shares above the amount payable therefor on such exercise, and
(b) will take all such action as may be necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares on the exercise of this Warrant.
7. NOTICE OF ADJUSTMENTS; NOTICES. Whenever the Exercise Price or
number of Shares purchasable hereunder shall be adjusted pursuant to Section
5 hereof, the Company
<PAGE>
-9-
shall execute and deliver to the Warrant Holder a certificate setting forth,
in reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the
Exercise Price and number of shares purchasable hereunder after giving effect
to such adjustment, and shall cause a copy of such certificate to be mailed
(by first class mail, postage prepaid) to the Warrant Holder.
8. RIGHTS AS STOCKHOLDER. Prior to exercise of this Warrant, the
Warrant Holder shall not be entitled to any rights as a stockholder of the
Company with respect to the Warrant Shares, including (without limitation)
the right to vote such shares, receive dividends or other distributions
thereon or be notified of stockholder meetings. However, in the event of any
taking by the Company of a record of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend (other than a cash dividend) or other distribution, any
right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each Warrant Holder, at least 10 days prior to the
date specified therein, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend, distribution or right, and
the amount and character of such dividend, distribution or right.
9. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
the Warrant and, in the case of any such loss, theft or destruction of the
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of such Warrant, the Company, upon
receipt by it of a form of Warrant reflecting the terms of the new Warrant,
at its expense will execute and deliver, in lieu thereof, a new Warrant of
like tenor.
10. SPECIFIC ENFORCEMENT; CONSENT TO JURISDICTION.
(a) The Company and the Warrant Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Warrant were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which either
of them may be entitled by law or equity.
(b) Each of the Company and the Warrant Holder (i) hereby
irrevocably submits to the exclusive jurisdiction of the United States
District Court for the
<PAGE>
-10-
Southern District of New York for the purposes of any suit, action or
proceeding arising out of or relating to this Warrant and (ii) hereby waives,
and agrees not to assert in any such suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of such court, that the
suit, action or proceeding is brought in an inconvenient forum or that the
venue of the suit, action or proceeding is improper. Each of the Company and
the Warrant Holder consents to process being served in any such suit, action
or proceeding by mailing via certified mail a copy thereof to such party at
the address in effect for notices to it under this Warrant and agrees that
such service shall constitute good and sufficient service of process and
notice thereof. Nothing in this paragraph shall affect or limit any right to
serve process in any other manner permitted by law.
11. ENTIRE AGREEMENT; AMENDMENTS. This Warrant, the Exhibits hereto and
the provisions contained in the Subscription Agreement, the Certificate of
Designation or the Registration Rights Agreement and incorporated into this
Warrant and the Warrant Shares contain the entire understanding of the
parties with respect to the matters covered hereby and thereby and, except as
specifically set forth herein and therein, neither the Company nor the
Warrant Holder makes any representation, warranty, covenant or undertaking
with respect to such matters. No provision of this Agreement may be waived
or amended other than by a written instrument signed by the party against
whom enforcement of any such amendment or waiver is sought.
12. RESTRICTED SECURITIES. Sections 4.5, 5.1, 5.2 and 5.3 of the
Subscription Agreement are incorporated herein by reference and hereby made a
part hereof.
13. NOTICES. Unless otherwise provided herein, notices and other
deliveries to be made hereunder shall be made by hand or by registered or
certified mail (return receipt requested and postage and charges prepaid), by
a nationally recognized overnight courier (charges prepaid), or by telecopier
(in which case a copy shall also be sent by nationally recognized overnight
courier).
to the Company:
Cortex Pharmaceuticals Inc.
15241 Barranca Parkway
Irvine, CA 92618
Attn: President
Fax: 714-727-3657
<PAGE>
-11-
with copies to:
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite
1600
P.O. Box 7680
Newport Beach, CA 92660-6441
Attn: Lawrence B. Cohn, Esq.
Fax: 714-725-4100
to the Warrant Holder:
Attn:
Fax:
with copies to:
Attn:
Fax:
Such notices and other deliveries shall be deemed delivered and received, if
made by hand or telecopier on the date given, if made by overnight courier,
on the next business day after the date deposited with such courier with
instructions and prepayment for next day delivery, and if sent by registered
or certified mail, on the third business day following the mailing thereof.
Either party hereto may from time to time change its address for notices
under this Section 13 by giving at least 10 days prior written notice of such
changed address to the other party hereto.
14. MISCELLANEOUS. This Warrant and any term hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of such change, waiver,
discharge or termination is sought. This Warrant shall be construed and
enforced in accordance with and governed by the laws of the State of New
York. The headings in this Warrant are for purposes of reference only, and
shall not limit or otherwise affect any of the terms hereof. The invalidity
or unenforceability of any provision hereof shall in no way affect the
validity or enforceability of any other provision.
15. EXPIRATION. The right to exercise this Warrant shall expire
forty-eight (48) months after June 5, 1997.
[Signatures on next page.]
<PAGE>
-1-
Dated: June 5, 1997 CORTEX PHARMACEUTICALS INC.
By:________________________
Title:_____________________
[CORPORATE SEAL]
Attest:
By:_______________________
Its:
NAME OF INVESTOR:
[ ]
By:
Title:
<PAGE>
-1-
FORM OF WARRANT EXERCISE
(TO BE SIGNED ONLY ON EXERCISE OF WARRANT)
TO _________________________
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise this Warrant for, and to purchase thereunder, _________
shares of Common Stock of Cortex Pharmaceuticals Inc., a Delaware corporation
(the "COMPANY"), and herewith makes payment of $__________ therefor, and
requests that the certificates for such shares be issued in the name of, and
delivered to _________________, whose address is __________________.
Dated: ___________________________
(Signature must conform to
name of holder as specified
on the face of the Warrant)
___________________________
(Address)
Tax Identification
Number:____________________
<PAGE>
-2-
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY ON TRANSFER OF WARRANT)
For value received, the undersigned hereby sells, assigns, and transfers unto
_________________ the right represented by the within Warrant to purchase
_____________ shares of Common Stock of Cortex Pharmaceuticals Inc., a
Delaware corporation, to which the within Warrant relates, and appoints
_________________ Attorney to transfer such right on the books of Cortex
Pharmaceuticals Inc., with full power of substitution the premises.
Dated: ___________________________
(Signature must conform to
name of holder as specified
on the face of the Warrant)
___________________________
(Address)
Signed in the presence of:
____________________________
<PAGE>
-1-
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("REGISTRATION RIGHTS AGREEMENT"),
entered into as of June 5, 1997, between ___________________ with an address
at ________________ (the "PURCHASER"), and Cortex Pharmaceuticals, Inc., a
Delaware corporation, with its principal office at 15241 Barranca Parkway,
Irvine, California 92618 (the "COMPANY").
W I T N E S S E T H:
WHEREAS, pursuant to a Convertible Securities Subscription Agreement,
dated as of June 5, 1997 (the "SUBSCRIPTION AGREEMENT"), by and between the
Company and the Purchaser, the Company has agreed to sell and the Purchaser
has agreed to purchase (a) ______________ shares of Series A Convertible
Preferred Stock, 0.001 par value (the "PREFERRED STOCK") of the Company,
convertible into shares of Common Stock, par value $0.001 per share (the
"COMMON STOCK") and conferring upon the holder the right, under certain
circumstances, to purchase additional shares of Common Stock (the "ADDITIONAL
COMMON STOCK") and (b) warrants to purchase _______________ shares of Common
Stock (the "WARRANTS"). The shares of Common Stock issuable upon conversion
of the Preferred Stock are referred to herein as the "UNDERLYING STOCK", and
the Common Stock issuable upon the exercise of the Warrants are referred to
as the "WARRANT STOCK." The Additional Common Stock, the Underlying Stock
and the Warrant Stock are referred to herein as the "SHARES".
WHEREAS, pursuant to the terms of, and in partial consideration for, the
Purchaser s agreement to enter into the Subscription Agreement, the Company
has agreed to provide the Purchaser with certain registration rights with
respect to the Shares;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth herein, the
Company and the Purchaser agree as follows:
1. CERTAIN DEFINITIONS. As used in this Registration Rights
Agreement, the following terms shall have the following respective meanings.
Other terms used herein which are defined in the Subscription Agreement shall
have the same meanings herein as are set forth for such terms in the
Subscription Agreement.
<PAGE>
-2-
"CERTIFICATE OF DESIGNATION" shall mean the Certificate of Designation
of Rights, Preferences and Privileges of Series A Convertible Preferred Stock
which sets forth the rights and preferences of the Preferred Stock, including
the terms on which the Preferred Stock may be converted in shares of Common
Stock.
"COMMISSION" or "SEC" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"HOLDER" shall include the Purchaser and any transferee of Preferred
Stock, Warrants, Shares or Registrable Securities which have not been sold to
the public to whom the registration rights conferred by this Registration
Rights Agreement have been transferred in compliance with Section 14 of this
Registration Rights Agreement.
The terms "REGISTER", "REGISTERED" and "REGISTRATION" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"REGISTRABLE SECURITIES" shall mean: (i) Shares; (ii) any securities
into which or for which any such Shares shall have been converted or
exchanged pursuant to any recapitalization, reorganization or merger; and
(iii) any securities issued with respect to any of the foregoing pursuant to
a stock split or stock dividend.
"REGISTRATION EXPENSES" shall mean all expenses to be incurred by the
Company in connection with the Purchaser's exercise of its registration
rights under this Registration Rights Agreement, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and the
expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"REGISTRATION STATEMENT" shall have the meaning set forth in Section
2(a) herein.
"REGULATION D" shall mean Regulation D promulgated under the Securities
Act, as amended from time to time.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended from
time to time.
<PAGE>
-3-
"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions, if any, applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for Holder not described within
"Registration Expenses."
2. REGISTRATION REQUIREMENTS. The Company shall file, as promptly as
possible and in any event by the twenty-fifth (25th) calendar day after the
First Closing Date, and use its best efforts to cause to become effective, as
promptly as possible and in any event by the seventy-fifth (75th) calendar
day after the First Closing Date, a registration statement on Form SB-2 under
the Securities Act or, if Form SB-2 is not then available, on another
appropriate form covering the resale of the Registrable Securities, and shall
take all action necessary to qualify the Registrable Securities under state
"blue sky" laws as hereinafter provided. The Company shall use its diligent
best efforts to effect the registrations contemplated by the foregoing
(including, without limitation, the execution of an undertaking to file
amendments and post-effective amendments, appropriate qualification under and
compliance with applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the
Securities Act) and as would permit or facilitate the sale and distribution
of all the Registrable Securities in all states reasonably requested by the
Holder for purposes of maximizing the proceeds realizable by the Holder,
except that the Company shall not be required in connection therewith or as a
condition thereof to qualify as a foreign corporation in any jurisdiction in
which it is not otherwise required to be so qualified, except the State of
New York (if required in order to satisfy New York blue sky laws), from such
sale and distribution. Such best efforts by the Company shall include,
without limitation, the following:
(a) The Company shall file (i) registration statements with the
Commission pursuant to Rule 415 under the Securities Act on Form SB-2 under
the Securities Act and the Company shall use its best efforts to qualify for
the use of such Form (or in the event that the Company is ineligible to use
such form, such other form as the Company is eligible to use under the
Securities Act) covering all of the Registrable Securities so to be
registered (each, a "REGISTRATION STATEMENT"); (ii) such blue sky filings as
shall be reasonably requested to permit such sales, PROVIDED, HOWEVER, that
the Company shall not be required to register the Registrable Securities in
any jurisdiction that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to
any tax in any such jurisdiction where it is not then so subject or require
the Company to qualify to do business in any jurisdiction where it is not
then so qualified; and (iii) required filings with the National Association
of Securities Dealers, Inc. ("NASD") or exchange where the Shares are traded;
all as soon as practicable after the date hereof. The Company shall use its
best efforts to have the Registration Statement and other filings declared
effective as soon thereafter as may be practicable.
<PAGE>
-4-
(b) At least two (2) business days prior to the anticipated filing
thereof with the SEC, the Company shall make available for inspection and
review by the Holder, a representative or representatives of the Holder, any
underwriter participating in any disposition pursuant to a Registration
Statement, and any attorney or accountant retained by such Holder or
underwriter, any such registration statement or amendment or supplement or
any blue sky, NASD or other filing, all financial and other records,
pertinent corporate documents and properties of the Company as they may
reasonably request for the purpose, and cause the Company s officers,
directors and employees to supply all information reasonably requested by
any such representative, underwriter, attorney or accountant in connection
with such Registration Statement; PROVIDED, HOWEVER, that the Holder shall
first agree in writing with the Company that any information that is
reasonably and in good faith designated by the Company in writing as
confidential at the time of delivery of such information shall be kept
confidential by the Holder and that the Holder will use reasonable efforts
to cause its representatives and such other persons so to keep such
information confidential, unless (i) disclosure of such information is
required by court or administrative order or is necessary to respond to
inquiries of regulatory authorities, (ii) disclosure of such information is
required by law (including any disclosure requirements pursuant to Federal
securities laws in connection with the filing of any Registration Statement
or the use of any prospectus referred to in this Registration Rights
Agreement), (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard by any
such person, (iv) such information becomes available to any such person from
a source other than the Company and such source, to the knowledge of such
persons, is not bound by a confidentiality agreement with the Company, or
(v) such information was known to or is developed by such persons without
reference to such confidential information of the Company.
3. MULTIPLE HOLDERS. If there is more than one Holder, such Holders
shall act with respect to their rights under this Registration Rights
Agreement according to the vote of a majority-in-interest based on the
number of Registrable Securities held.
4. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
this Registration Rights Agreement shall be borne by the Company, and all
Selling Expenses shall be borne by the Holder.
5. REGISTRATION DELAY OR FAILURE. The Company acknowledges that its
failure to register the Registrable Securities in accordance with the
Subscription Agreement and this Registration Rights Agreement will cause
the Holder to suffer damages and undertake risks in amounts that will be
difficult to ascertain and were not anticipated in negotiating the terms
<PAGE>
-5-
hereof or of the Subscription Agreement, the Certificate of Designation, the
Preferred Shares or the Warrants. Accordingly, the parties agree that it is
appropriate to include herein a provision for liquidated damages and to
compensate the Holder fairly for the additional risk undertaken by the Holder
resulting from the Company s delay or failure to effect such registrations.
The parties acknowledge and agree that the provisions hereinafter set forth
in this Section 5 represent the parties good faith effort to quantify such
damages and to compensate for such additional risk and, as such, agree that
the form and amount of damages and risk compensation are reasonable and will
not constitute a penalty.
(a) If the Registration Statement covering the resale of the Shares
is not declared effective by the SEC by the seventy-fifth (75th) calendar
day after the First Closing Date, then the Applicable X Conversion Rate and
the Applicable Y Conversion Rate (each as defined in the Certificate of
Designation) used in determining the Conversion Rate (as defined in the
Certificate of Designation) shall be reduced, commencing on the
seventy-sixth calendar day after the First Closing Date, by two (2)
percentage points (up to a maximum of five (5) percentage points) for each
month or partial month that elapses from such date until such Registration
Statement is declared effective, and the Conversion Rate as so reduced
shall then and thereafter be applicable to and upon the conversion of any
shares of such Preferred Stock, in lieu and in place of the Conversion Rate
provided in the Certificate of Designation
(b) If such Registration Statement still has not become effective by
the 180th calendar day following the First Closing Date, then, at the
Holder's option exercised at any time thereafter, the Company shall redeem
all or any portion of the Holder's shares of Preferred Stock in accordance
with the procedures set forth in Section 13 of the Certificate of
Designation, at a price per share equal to 125% of the Designated Value (as
defined in the Certificate of Designation).
6. REGISTRATION PROCEDURES. In the case of each registration effected
by the Company pursuant to this Registration Rights Agreement, the Company
will keep the Holder advised in writing as to initiation of each registration
and as to the completion thereof. At the Company's expense, the Company will
use its best efforts to:
(a) Keep such registration effective for the period ending (i) on
the third anniversary of the First Closing Date, (ii) when the Holder has
completed the distribution of the Registrable Securities described in the
registration statement relating thereto, or (iii) the date on which the
Registrable Securities are salable pursuant to Rule 144(k) promulgated
under the Securities Act, whichever first occurs.
<PAGE>
-6-
(b) Promptly notify the Holder in writing by telecopier of any
stop order, injunction or other order or requirement of the SEC or any other
governmental agency is issued which suspends the effectiveness of any such
registration.
(c) Promptly furnish such number of prospectuses and other
documents incident thereto as the Holder from time to time may reasonably
request.
(d) Promptly notify the Holder in writing by telecopier if any
registration statement with respect to any Registrable Securities is no
longer current or includes an untrue statement of material fact required to
be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing.
7. INDEMNIFICATION.
(a) COMPANY INDEMNITY. The Company will indemnify the Holder, each
of its officers, directors and partners, and each person controlling the
Holder within the meaning of Section 15 of the Securities Act and the rules
and regulations thereunder, and each underwriter, if any, and each person who
controls, within the meaning of Section 15 of the Securities Act and the
rules and regulations thereunder, any underwriter, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out
of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document (including any related registration statement, notification or the
like) incident to any registration effected pursuant to this Registration
Rights Agreement, or based on any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were
made, not misleading, or any violation by the Company of the Securities Act
or any state securities law or in either case, any rule or regulation
thereunder applicable to the Company and relating to action or inaction
required of the Company in connection with any such registration, and will
reimburse the Holder, each of its officers, directors and partners, and each
person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action; PROVIDED that the Company will not
be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission (or alleged untrue statement or omission) based upon written
information furnished to the Company by the Holder and stated to be
specifically for use therein. The indemnity agreement contained in this
Section 7(a) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if
<PAGE>
-7-
such settlement is effected without the consent of the Company (which
consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. The Holder severally and not jointly with any
other Holders will, if Registrable Securities held by it are included in a
registration statement effected pursuant to this Registration Rights
Agreement, indemnify the Company, each of its directors, officers, partners,
each person who controls the Company within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder, each other Holder
(if any), and each of their officers, directors and partners, and each person
controlling such other Holder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in any registration statement, prospectus, offering circular or other
document incident to any registration of Registrable Securities pursuant to
this Registration Rights Agreement, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse the Company
and such other Holders and their directors, officers and partners or control
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information
furnished to the Company by the Holder and stated to be specifically for use
therein; PROVIDED, HOWEVER, that the obligations of the Holder shall not
apply to amounts paid in settlement of any such claims, losses, damages or
liabilities if such settlement is effected without the consent of the Holder
(which consent shall not be unreasonably withheld). Notwithstanding anything
to the contrary in this Section 7, the Holder's liability under this Section
7(b) with respect to any particular registration shall be limited to an
amount equal to the proceeds received by the Holder from the Registrable
Securities sold by the Holder in such registration.
(c) PROCEDURE. Each party entitled to indemnification under this
Section 7 (the "INDEMNIFIED PARTY") shall give notice to the party required
to provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim in any litigation resulting therefrom, PROVIDED that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
any litigation resulting therefrom, shall be approved by the Indemnified
Parties (whose approval shall not be unreasonably withheld), and the
Indemnified Party may participate in such defense at its own expense, and
PROVIDED, FURTHER, that the failure of any Indemnified Party
<PAGE>
-8-
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section except to the extent that the Indemnifying
Party is actually prejudiced by such failure to provide notice. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of the Indemnified Parties, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to all
Indemnified Parties of a release from all liability in respect of such claim
or litigation. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as any Indemnifying Party may
reasonably request in writing.
8. CONTRIBUTION. If the indemnification provided for in Section 7
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein, then each Indemnifying
Party, in lieu of indemnifying the Indemnified Parties, shall contribute to
the amount paid or payable by such Indemnified Parties as a result of such
losses, claims, damages or liabilities (i) as between the Company on the one
hand and the Indemnified Parties on the other, in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Indemnified Parties on the other hand from the registration
of the Registrable Securities, or (ii) if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand
and of the Indemnified Parties, on the other hand in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations.
The relative benefits received by the Company on the one hand and the
Indemnified Parties, on the other hand shall be deemed to be in the same
proportion as the proceeds from the offering (net of underwriting discounts
and commissions but before deducting expenses) received by the Company from
the initial sale of the shares of Preferred Stock, the Warrants and the
Additional Common Stock by the Company pursuant to the Subscription
Agreement bear to the gain realized by the Holder in connection with the
sale of Registrable Securities by the Holder pursuant to the registration.
The relative fault of the Company on the one hand and of the Holder, on the
other hand shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission to
state a material fact relates to information supplied by the Company by the
Holder.
In no event shall the obligation of any Indemnifying Party to contribute
under this Section 8 exceed the amount that such Indemnifying Party would
have been obligated to pay by way of indemnification if the indemnification
provided for under Section 7(a) or 7(b) hereof had been available under the
circumstances.
<PAGE>
-9-
The Company and the Holder agree that it would not be just and equitable
if contribution pursuant to this Section 8 were determined by pro rata
allocation (even if the Indemnified Parties were treated as one entity for
such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as
a result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred
by such Indemnified Party in connection with investigating or defending any
such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation.
9. SURVIVAL. The indemnity and contribution agreements contained in
Sections 7 and 8 shall remain operative and in full force and effect
regardless of (i) any termination of the Subscription Agreement, (ii) any
investigation made by or on behalf of any Indemnified Party or by or on
behalf of the Company or (iii) the consummation of the sale or successive
resales of the Registrable Securities.
10. INFORMATION BY HOLDER AND ANY UNDERWRITERS. The Holder shall
furnish to the Company, within five (5) business days of the Company s
request therefor, such information regarding the Holder or underwriters, as
the case may be, and the distribution proposed by such Holder or underwriters
as the Company may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this Registration Rights Agreement.
11. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights granted
to the Purchaser by the Company under this Registration Rights Agreement, to
cause the Company to register Registrable Securities, may be transferred or
assigned, as the case may be, to a transferee or assignee of any of the
shares of Preferred Stock, any Warrants, or the Additional Common Stock
PROVIDED that the Company is given written notice by the Holder at the time
of or within a reasonable time after said transfer or assignment, stating the
name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being
transferred or assigned, and PROVIDED, FURTHER, that the transferee or
assignee of such rights is not deemed by the Board of Directors of the
Company, in its reasonable judgment, to be a competitor of the Company and
PROVIDED, FURTHER, that the transferee or assignee of such rights agrees to
be bound by this Registration Rights Agreement.
<PAGE>
-10-
12. RULE 144 REQUIREMENTS. The Company shall make publicly available
and available to the Holders of Registrable Securities, pursuant to Rule 144
of the Commission under the Securities Act, such information as shall be
necessary to enable the Holders of Registrable Securities to make sales of
Registrable Securities pursuant to that Rule. The Company will furnish to
any Holder of Registrable Securities, upon request made by such Holder at any
time after the undertaking of the Company in the preceding sentence shall
have first become effective, a written statement signed by the Company,
addressed to such Holder, describing briefly the action the Company has taken
or proposes to take to comply with the current public information
requirements of Rule 144. The Company will, at the request of any Holder of
Registrable Securities, upon receipt from such Holder of a certificate
certifying (i) that such Holder has held such Registrable Securities for a
period of not less than two (2) consecutive years, (ii) that such Holder has
not been an affiliate (as defined in Rule 144) of the Company for more than
the ninety (90) preceding days, and (iii) as to such other matters as may be
appropriate in accordance with such Rule, remove from the stock certificates
representing such Registrable Securities that portion of any restrictive
legend which relates to the registration provisions of the Securities Act.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT; COUNTERPARTS. This Registration Rights
Agreement contains the entire understanding and agreement of the parties with
respect to the subject matter hereof, and may not be modified or terminated
except by a written agreement signed by the Company and the Holders of at
least a majority of the Registrable Securities. This Registration Rights
Agreement may be executed in any number of counterparts, each of which when
so executed shall be deemed to be an original and all of which taken together
shall constitute one and the same instrument.
(b) NOTICES. Unless otherwise provided herein, notices and other
deliveries to be made hereunder shall be made by hand or by registered or
certified mail (return receipt requested and postage and charges prepaid), by
a nationally recognized overnight courier (charges prepaid), or by telecopier
(in which case a copy shall also be sent by nationally recognized overnight
courier). Such notices and other deliveries shall be addressed, in the case
of the Company, to the Company at its principal place of business, at 15241
Barranca Parkway, Irvine, California 92618, telecopier (714-727-3657),
Attention: President, and in the case of any Holder, at the address of such
Holder appearing on the signature page hereto or, if no such address appears
or is so given, at the last known address of such Holder, or at such other
address as the recipient shall have provided for notices in writing. Such
notices and other deliveries shall be deemed delivered and received, if made
by hand or telecopier on the date given, if made by overnight courier, on the
next business
<PAGE>
-11-
day after the date deposited with such courier with instructions and
prepayment for next day delivery, and if sent by registered or certified
mail, on the third business day following the mailing thereof.
(c) GOVERNING LAW; CONSENT OF JURISDICTION. This Registration
Rights Agreement shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to principles of
conflicts of laws. Each of the Company and the Purchaser (i) hereby
irrevocably submits to the non-exclusive jurisdiction of the United States
District Court for the Southern District of New York for the purposes of any
suit, action or proceeding arising out of or relating to this Registration
Rights Agreement and (ii) hereby waives, and agrees not to assert in any such
suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such court, that the suit, action or proceeding is
brought in an inconvenient forum or that the venue of the suit, action or
proceeding is improper. Each of the Company and the Purchaser consents to
process being served in any such suit, action or proceeding by mailing a copy
thereof to such party via certified mail to the address in effect for notices
to it under this Registration Rights Agreement and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing in this paragraph shall affect or limit any right to serve process in
any other manner permitted by law.
(d) HEADINGS. The headings used in this Registration Rights
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Registration Rights Agreement.
(e) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance,
is held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the
remaining provisions contained herein shall not be affected or impaired
thereby.
(f) REMEDIES. In the event of a breach by the Company of its
obligations under this Agreement, each Holder, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its rights under this Registration Rights
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy at law would be adequate.
<PAGE>
-12-
(g) REGISTRABLE SECURITIES HELD BY THE Company. Whenever the
consent or approval of Holders of Registrable Securities is required pursuant
to this Agreement, Registrable Securities held by the Company shall not be
counted in determining whether such consent or approval was duly and properly
given by such Holders.
(h) TERM. The agreements of the Company contained in this Agreement
shall continue in full force and effect so long as any Holder holds any
Registrable Securities.
(i) NO INCONSISTENT AGREEMENTS. The Company has not previously
entered into any agreement with respect to its Common Stock granting any
registration rights to any Person inconsistent with this Agreement, and will
not on or after the date of this Agreement enter into any agreement with
respect to its securities which grants demand registration rights
inconsistent with this Agreement to anyone or which is inconsistent with the
rights granted to the Holders of Registrable Securities in this Registration
Rights Agreement or otherwise conflicts with the provisions hereof.
<PAGE>
-13-
IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be duly executed as of the date first above written.
PURCHASER:
[_______________________________]
By:______________________________
Name:
Title:
COMPANY:
Notice Address:
Telephone:_________________________
Telecopier:________________________
Attn.:
CORTEX PHARMACEUTICALS, INC.,
a Delaware corporation
By:________________________________
Name:______________________________
Title:
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
None.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected Financial
Data" and "Experts" and to the use of our report dated July 26, 1996 (except
Note 10, as to which the date is October 15, 1996) in the Registration Statement
on Form SB-2 and related Prospectus of Cortex Pharmaceuticals, Inc. for the
Registration of 4,600,537 shares of its common stock.
ERNST & YOUNG LLP
San Diego, California
June 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1997 AND THE RELATED STATEMENTS OF OPERATIONS AND CASH
FLOWS FOR THE NINE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 4,670,303
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,742,833
<PP&E> 1,916,105
<DEPRECIATION> 1,235,529
<TOTAL-ASSETS> 5,446,539
<CURRENT-LIABILITIES> 418,406
<BONDS> 1,078,024<F1>
0
664,031
<COMMON> 9,149
<OTHER-SE> 3,276,929
<TOTAL-LIABILITY-AND-EQUITY> 5,446,539
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,760,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 41,223
<INCOME-PRETAX> (3,654,120)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,654,120)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,654,120)
<EPS-PRIMARY> (0.57)
<EPS-DILUTED> (0.57)
<FN>
<F1>PROMISSORY NOTE PAYABLE TO ALKERMES, INC.
</FN>
</TABLE>
