<PAGE>
As filed with the Securities and Exchange Commission on February 8, 2000
Registration No. 333-29493
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------
POST-EFFECTIVE AMENDMENT NO. 3 TO
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
(949) 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
(949) 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
(949) 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 (1) Price(2) 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*
===================================================================================================================================
</TABLE>
(1) The number of shares of Common Stock registered hereunder represents the
Company's good faith estimate of the number of shares which may be issuable upon
conversion of the Company's Series A Preferred Stock, the additional purchase
rights or upon the exercise of warrants, as the case may be. Pursuant to Rule
416, the Registration Statement also covers an indeterminate number of
additional shares of Common Stock which may become issuable upon conversion of
the Series A Preferred Stock and the additional purchase rights by reason of
reductions of the conversion price in accordance with the terms of the
Certificate of Designation of Series A Preferred Stock.
(2) 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 SmallCap Market
on June 16, 1997, which was $2.937 per share.
* Previously paid.
================================================================================
<PAGE>
PROSPECTUS
[LOGO OF CORTEX APPEARS HERE]
CORTEX PHARMACEUTICALS, INC.
963,388 Shares of Common Stock
(Par Value $0.001 Per Share)
The stockholders listed in this Prospectus under the section entitled
"Selling Stockholders" may offer and sell a total of 963,388 shares of our
company's common stock, par value $0.001 per share (the "Common Stock"), which
they own or have the right to acquire from time to time. The shares of Common
Stock included in this offering consist of shares of Common Stock issuable upon
exercise of warrants.
--------------------
The Selling Stockholders may sell the shares of Common Stock described in
this Prospectus in public or private transactions, on or off the OTC Bulletin
Board, at prevailing market prices, or at privately negotiated prices. The
Selling Stockholders may sell shares directly to purchasers or through brokers
or dealers. Brokers or dealers may receive compensation in the form of
discounts, concessions or commissions from the Selling Stockholders. We will not
receive any proceeds from the Selling Stockholders' sale of the shares of Common
Stock. More information is provided in the section titled "Plan of
Distribution."
--------------------
Our Common Stock is currently traded on the OTC Bulletin Board under the
symbol "CORX."
---------------------
Investing in the Common Stock involves a high degree of risk. See "Risk
Factors" beginning on page 5 of this Prospectus.
---------------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this Prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
---------------------
The date of this Prospectus is ________ __, 2000.
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. Our SEC filings are available to the public over the
Internet at the SEC's web site at http://www.sec.gov. You may also read and
copy any document we file with the SEC at its public reference facilities at 450
Fifth Street, N.W., Washington, D.C. 20549, 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511. You can also obtain copies of the documents
at prescribed rates by writing to the Public Reference Section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-
0330 for further information on the operation of the public reference
facilities.
We "incorporate by reference" into this Prospectus the information we file
with the SEC, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
an important part of this Prospectus and information that we file subsequently
with the SEC will automatically update this Prospectus. We incorporate by
reference the documents listed below and any future filings we make with the SEC
under Sections 13(a), 13(c), 14, or 15(d) of the Securities Exchange Act of
1934:
- Annual Report on Form 10-K, as amended, for the year ended June 30,
1999; and
- Quarterly Report on Form 10-Q for the quarter ended September 30,
1999.
You may request a copy of these filings (other than an exhibit to a filing
unless that exhibit is specifically incorporated by reference into that filing)
at no cost, by writing to or telephoning us at the following address:
Investor Relations
Cortex Pharmaceuticals, Inc.
15241 Barranca Parkway
Irvine, California 92618
(949) 727-3157
This Prospectus constitutes part of a Registration Statement we filed with
the SEC. You should rely only on the information incorporated by reference or
provided in this Prospectus. We have not authorized anyone else to provide you
with different information. You should not assume that the information in this
Prospectus is accurate as of any date other than the date on the front of the
document.
FORWARD-LOOKING STATEMENTS
This Prospectus contains 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, including statements regarding the Company's capital
needs, drug development programs, clinical trials, receipt of regulatory
approval, intellectual property, expectations and intentions. Forward-looking
statements necessarily involve risks and uncertainties, and the Company's actual
results could differ materially from those anticipated in the forward-looking
statements due to a number of factors, including those set forth under the
section entitled "Risk Factors" and elsewhere in this Prospectus. You should
carefully read the factors set forth in the section entitled "Risk Factors" and
other cautionary statements made in this Prospectus and understand that those
factors and statements are applicable to all related forward-looking statements
wherever they appear in this Prospectus.
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This
summary is not complete and may not contain all of the information that you
should consider before investing in the Common Stock. You should read the entire
prospectus carefully.
Cortex Pharmaceuticals, Inc.
We are a biopharmaceutical company located in Irvine, California. Our goal
is to develop proprietary drugs designed to treat neurodegenerative diseases and
other neurological and psychiatric disorders. We were formed in Delaware in 1987
and since that date, we have devoted our resources to research and development
activities relating to several products that are at various developmental
stages. We have several license agreements with various research institutions,
which own approved and pending patents covering certain drugs and therapeutic
technologies.
Since 1993, we have focused our research and development on the AMPA
receptor, a complex of proteins that is involved in most "excitatory"
communication between nerve cells in the human brain. We are developing several
chemical compounds, known as Ampakines(R), to enhance the activity of the AMPA
receptor. We believe that Ampakines may effectively treat deficiencies brought
on by a variety of diseases and disorders. In October 1994, we initiated human
safety studies with CX516 (Ampalex(R)). CX516 is a drug that has shown potential
for treating deficits of memory and cognition. These studies have involved
healthy young adult and elderly volunteers and, more recently, patients with
Alzheimer's disease and with schizophrenia. We are also investigating the use of
Ampakines to treat other disorders, such as depression.
We believe that the quality of our science and technology provides us with
an advantage over our competitors in the discovery of innovative
pharmaceuticals. We do not, however, have the resources or expertise for later-
stage clinical development, manufacturing and worldwide marketing. Our
commercial development plans therefore involve partnering with larger
pharmaceutical companies for later-stage clinical testing, manufacturing and
global marketing of our proposed products. If we are successful in the pursuit
of this business strategy, we should be able to cover our costs over the next
few years, to maintain our focus on the research and development of innovative
pharmaceuticals and to eventually participate directly in the commercial
development of our products in the United States. Currently, we are seeking
collaborative or licensing arrangements with larger pharmaceutical companies
that will permit our proprietary products to complete clinical development and
that will provide access to the clinical trials management, manufacturing and
marketing expertise of those companies.
In January 1999, we entered an exclusive license agreement with NV Organon
("Organon") of the Netherlands. In return for an upfront payment, we issued
Organon a license to develop and commercialize our proprietary Ampakine
technology for the treatment of schizophrenia. We also issued Organon a license
to explore the use of our Ampakines as a treatment for depression. We are
entitled to receive up to $3,000,000 per year for two years from the agreement
date, as long as we provide the agreed-upon levels of research. Additionally, we
are entitled to receive milestone payments and royalty payments on any worldwide
sales by Organon.
Our offices and laboratories are located at 15241 Barranca Parkway, Irvine,
California, 92618 and our telephone number is (949) 727-3157.
We hold registered trademarks on the names Ampalex and Ampakine. This
Prospectus also includes registered trademarks of other companies.
Risk Factors
An investment in the shares of Common Stock being offered by the Selling
Stockholders is very risky. Information regarding the risks involved is provided
in the section titled "Risk Factors."
3
<PAGE>
Selected Financial Information
The following table depicts selected financial information concerning our
business and operations 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 Operations Data:
Period from Period from
inception inception
(February 10, (February 10,
Three months ended 1987) through 1987 through
September 30, September 30, Years ended June 30, June 30,
1999 1998 1999 1999 1998 1999
-------------------------- ------------ --------------------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Total revenues $ 834,556 $ - $ 7,810,680 $ 3,151,407 $ 130,000 $ 6,976,124
Total operating expenses 1,119,180 1,193,974 46,825,601 4,781,334 5,591,835 45,706,421
----------- ------------- ----------- ----------- ----------- ------------
Loss from operations (284,624) (1,193,974) (39,014,921) (1,629,927) (5,461,835) (38,730,297)
Interest income, net (6,559) 7,616 1,694,724 8,477 203,875 1,701,283
----------- ----------- ------------ ----------- ----------- ------------
Net loss $ (291,183) $(1,186,358) $(37,320,197) $(1,621,450) $(5,257,960) $(37,029,014)
=========== =========== ============ =========== =========== ============
Weighted average common
shares outstanding 15,522,252 10,237,126 13,407,945 9,575,663
=========== ========== =========== ===========
Net loss per share $ (0.02) $ (0.12) $ (0.12) $ (0.55)
=========== =========== =========== ===========
</TABLE>
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30,
-----------------------------
September 30, 1999 1999 1998
------------------- ------------- -------------
<S> <C> <C> <C>
Total current assets $ 320,772 $ 970,314 $ 2,195,574
Total assets 856,887 1,549,021 2,874,846
Total current liabilities 1,308,098 1,712,350 497,297
Deficit accumulated during the development stage (39,352,036) (39,060,853) (37,439,403)
Total stockholders' equity $ (451,211) $ (163,329) $ (1,031,154)
Common shares outstanding 15,528,182 15,519,382 10,237,126
</TABLE>
4
<PAGE>
RISK FACTORS
Investing in the Common Stock being offered by the Selling Stockholders is
very risky. You should be able to bear a complete loss of your investment. You
should carefully consider the following factors, in addition to the other
information contained in this Prospectus before making an investment decision.
Need for Additional Funds.
Without further injections of capital, we anticipate that we have
sufficient funds to maintain our operations into May 2000. We will require
additional funds to continue our operations beyond that time. We cannot say with
any amount of certainty that we will be able to obtain the additional needed
funds on reasonable terms, or at all. If we decide to raise additional funds by
issuing more of our securities, stockholders at the time of issuance will
experience a dilution to the value of their securities.
We anticipate receiving the first milestone from our agreement with Organon
during fiscal 2000. If we receive this milestone payment in or before May 2000,
we expect that we may sustain operations through December 2000. We cannot give
any assurance that the Company will receive the milestone during this timeframe,
or at all.
If we are unable to obtain additional funds, we could lose our key
employees and could be required to abandon one or more of our product
development programs. In addition, we may be unable to meet our research
spending obligations under existing licensing agreements and may be unable to
continue our business operations.
In addition to our agreement with Organon, we are presently seeking
collaborative or other arrangements with larger pharmaceutical companies to
provide for both our immediate and longer-term funding requirements. These
agreements would potentially provide us with additional funds in exchange for
exclusive or non-exclusive license or other rights to the technologies and
products that we are currently developing. Competition between biopharmaceutical
companies for these types of arrangements is intense. Although we have been
engaged in discussions with candidate companies for some time, we cannot give
any assurance that these discussions will result in an agreement or agreements
in a timely manner, or at all. Additionally, we cannot assure you that any
resulting agreement will generate sufficient revenues to offset our operating
expenses and longer-term funding requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Reliance on N.V. Organon
We are dependent on future payments from Organon to continue the
development and commercialization of our Ampakine technology. Under the
agreement with Organon that we entered into in January 1999, we share the
research efforts. Organon has primary responsibility for developing and
commercializing Ampakines for use in the treatment of schizophrenia, with an
option to extend the rights to the treatment of depression. The agreement
provides for an up-front payment by Organon of $2,000,000 and research support
payments of up to $3,000,000 per year for two years (subject to us providing
agreed-upon levels of research). The agreement also includes milestone payments,
plus royalty payments on a worldwide basis. Under the terms of the agreement,
Organon has the right at any time to terminate the agreement upon four months'
prior notice. In addition, Organon has the right to terminate the research and
development related to the agreement upon 30 days' prior notice in the event
that we materially breach the agreement and do not cure the breach within 60
days of receipt of a notice of breach from Organon. If Organon were to
discontinue its financial support, we might not be able to continue the
development of our Ampakine technology, and our financial condition would be
seriously impaired. See "Business;" "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
5
<PAGE>
Development Stage Company; History of Losses.
We are considered a "development stage" company because, since our
formation on February 10, 1987 through September 30, 1999, we have generated
only modest operating revenues and we have incurred net losses aggregating
$37,320,197. As of September 30, 1999, we had an accumulated deficit of
$39,352,036. We will require substantial additional funds to advance our
research and development programs, particularly if we decide to independently
conduct later-stage clinical testing and apply for regulatory approval of any of
our proposed products. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business."
Dependence on Strategic Alliances and Third Parties for Clinical Testing,
Manufacturing and Marketing.
We do not have the resources, and do not presently intend, to conduct
later-stage human clinical trials or to manufacture our proposed products. We
are therefore seeking larger pharmaceutical company partners to conduct such
activities for most or all of our proposed products. In connection with our
efforts to secure additional corporate partners, we will seek to retain certain
co-promotional rights to our proposed products. These co-promotional rights will
allow us to market our products to selected medical specialists while our
corporate partner markets our products to the general medical market. We cannot
assure you that we will be able to enter into any partnering arrangements on
this or any other basis. In addition, we cannot assure you that we, or our
prospective corporate partners, can successfully introduce our proposed
products. We also face the risks that our products will be rejected by patients,
health care providers or insurance companies, or that our products cannot be
manufactured and marketed at prices that would permit us to operate profitably.
See "Business."
Technological Uncertainty; Early Stage of Product Development; No Assurance of
Regulatory Approvals.
We cannot assure you that our research and development activities will
enable us to produce any products able to withstand competition. Our development
of each product is subject to the risks of failure commonly experienced in the
development of products based upon innovative technologies and the expense and
difficulty of obtaining approvals from regulatory agencies. All of our proposed
products are in the preclinical or early clinical stage of development and will
require significant additional funding for research, development and clinical
testing before we are able to submit them to any of the regulatory agencies for
clearances for commercial use. We cannot assure you that we will be able to
license any technologies or proposed products or to complete successfully any of
our research and development activities. Even if we do complete them, we cannot
assure you that we will be able to market successfully any of the products or
that we will be able to obtain the necessary regulatory approvals or that
customers will like our products. We also face the risk that any or all of our
products will not work as intended or that they will be toxic, or that, even if
they do work and are safe, that our products will be uneconomical to manufacture
and market on a large scale. We also face the risk that the rights of other
persons or entities will stop us from marketing any of our products or that
other persons or entities might develop and market a superior or equivalent
product. Due to the extended testing and regulatory review process required
before we can obtain marketing clearance, we do not expect to be able to
commercialize any therapeutic drug for at least five years, either directly or
through our corporate partners or licensees. See "Business."
Limited Proprietary Rights; Uncertainty Associated With Patent Protection.
Under our agreements with the Regents of the University of California, we
have exclusive rights to our Ampakine compounds for specified applications.
These rights are secured by patents or patent applications owned wholly by
others or by others as co-owners with us. Our existing agreements require us to
make certain minimum annual payments, meet certain milestones or diligently seek
to commercialize the underlying technology. Our failure to meet any of these
requirements could allow the other party to terminate that particular agreement.
6
<PAGE>
Our success will depend, in part, on our ability to get patent protection
for our products and processes in the United States and elsewhere. We have filed
and intend to continue to file patent applications as we need them. We cannot
assure you, however, that any additional patents will issue from any of these
applications or, if patents do issue, that the claims allowed will be
sufficiently broad to protect our technology. Also, we cannot assure you that
any patents issued to us or licensed by us can withstand challenges made by
others or that we will be able to protect our rights.
If we are unable to obtain sufficient protection of our proprietary rights
in our products or processes prior to or after obtaining regulatory clearances,
our competitors may be able to obtain regulatory clearance and market competing
products by demonstrating the equivalency of their products to our products. If
they are successful at demonstrating the equivalency between the products, our
competitors would not have to conduct the same lengthy clinical tests that we
have conducted.
We also rely on trade secrets and confidential information that we try to
protect by entering into confidentiality agreements with other parties. We
cannot assure you that any of the confidentiality agreements will be honored,
or, if breached, that we would have enough remedies to protect the confidential
information. Further, we cannot assure you that our competitors will not
independently learn our trade secrets or develop similar or superior
technologies. To the extent that our consultants, key employees or others apply
technological information independently developed by them or by others to our
projects, disputes may arise regarding the proprietary rights to such
information. We cannot assure you that such disputes will 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 2.5 million additional shares of Common Stock could
become freely tradable without restriction. An aggregate of 11,025 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. All shares of Common Stock issuable upon exercise of the outstanding
warrants will be freely tradable under the Registration Statement of which this
Prospectus is part. Sales of substantial amounts of Common Stock in the public
market could adversely affect the prevailing market price of the Common Stock.
See "Description of Securities."
Intense Competition.
Our business is characterized by intensive research efforts. Our
competitors include many companies, research institutes and universities that
are working in a number of pharmaceutical or biotechnology disciplines to
develop therapeutic products similar to those we are currently investigating.
Most of these competitors have substantially greater financial, technical,
manufacturing, marketing, distribution and/or other resources than us. In
addition, many of our competitors have experience in performing human clinical
trials of new or improved therapeutic products and obtaining approvals from the
FDA and other regulatory agencies. We have no experience in conducting and
managing later-stage clinical testing or in preparing applications necessary to
obtain regulatory approvals. Accordingly, it is possible that our competitors
may succeed in developing products that are safer or more effective than those
that we are developing and may obtain FDA approvals for their products faster
than we can. We expect that competition in this field will continue to
intensify. See "Business--Competition."
Dependence Upon Key Personnel.
We are highly dependent upon key management and technical personnel.
Competition for qualified employees among pharmaceutical and biotechnology
companies is intense. The loss of any of our key management or technical
personnel, or our inability to attract, retain and motivate the additional
highly-skilled employees and consultants that our business requires, could
substantially hurt our business and prospects. We cannot assure you that we will
be able to retain our existing personnel or attract additional qualified
employees when we need them. See "Business" and "Management."
7
<PAGE>
Dependence on Relationships with Consultants and the University of California,
Irvine.
We depend upon our relationships with a number of 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 our
internal research. In addition, we sponsor preclinical research in Dr Lynch's
laboratories at UCI that is part of our product development and corporate
partnering profile. If our relationships with Dr. Lynch or UCI are disrupted,
our AMPA receptor research program could be adversely affected. We cannot assure
you that we would be able to conduct the sponsored research internally at
reasonable cost, or at all. Our agreements with our consultants, including those
with Drs. Cotman and Lynch, are generally terminable by the consultant on short
notice. See "Management."
Government Regulation.
The FDA and other similar agencies in foreign countries have substantial
requirements for therapeutic products. Such requirements often involve lengthy
and detailed laboratory, clinical and post-clinical testing procedures. It often
takes companies many years to satisfy these requirements, depending on the
complexity and novelty of the product. The review process is also extensive
which may delay the approval process even more. As yet, we have not obtained any
approvals to market our products. Further, we cannot assure you that the FDA or
other regulatory agency will grant us approval for any of our products on a
timely basis, if at all. 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. See "Business--Government Regulation."
Lack of Listing on an Exchange or on the Nasdaq System; Restrictions on Our
Stock
Our Common Stock is not listed on any exchange or on the Nasdaq System.
Our Common Stock is reported on the OTC Bulletin Board. Because our shares are
not listed on any exchange or on the Nasdaq System, they are subject to the
regulations regarding trading in "penny stocks," which are those securities
trading for less than $5.00 per share. The following is a list of the
restrictions on the sale of penny stocks:
. Prior to the sale of penny stock by a broker-dealer to a new purchaser,
the broker-dealer must determine whether the purchaser is suitable to invest in
penny stocks. To make that determination, a broker-dealer must obtain, from a
prospective investor, information regarding the purchaser's financial condition
and investment experience and objectives. Subsequently, the broker-dealer must
deliver to the purchaser a written statement setting forth the basis of the
suitability finding.
. A broker-dealer must obtain from the purchaser a written agreement to
purchase the securities. This agreement must be obtained for every purchase
until the purchaser becomes an "established customer."
. The Exchange Act requires that prior to effecting any transaction in any
penny stock, a broker-dealer must provide the purchaser with a "risk disclosure
document" that contains, among other things, a description of the penny stock
market and how it functions and the risks associated with such investment. These
disclosure rules are applicable to both purchases and sales by investors.
. A dealer that sells penny stock must send to the purchaser, within ten
days after the end of each calendar month, a written account statement including
prescribed information relating to the security.
As a result of our securities not being listed on an exchange or the
Nasdaq System and the rules regarding penny stock transactions, your ability to
sell to a third party may be limited. We make no guarantee that our current
market-makers will continue to make a market in our securities, or that any
market for our securities will continue.
8
<PAGE>
Product Liability and Insurance.
Clinical testing, manufacturing and marketing of our products may expose us
to product liability claims. Although we have never been subject to a product
liability claim, we cannot assure you that there will not be any claims brought
against us in the future. Further, we cannot assure you that the coverage limits
of our insurance policies will be adequate or that one or more successful claims
brought against us would not have a material adverse effect upon our business,
financial condition and results of operations.
Volatility of Stock Price.
We are in the biopharmaceutical industry and the market price of securities
of life sciences companies in general has been very unpredictable. See "Price
Range of Common Stock." Announcements by us or our competitors concerning
technological innovations, new products, proposed governmental regulations or
actions, developments or disputes relating to patents or proprietary rights,
public concern over the safety of therapeutic products and other factors that
affect the market generally could significantly impact our business and the
market price of our securities.
Dividends.
Since our formation in 1987, we have not paid cash dividends on our Common
Stock. We do not anticipate paying any dividends on our Common Stock in the
future. Furthermore, the terms of the 9% Preferred Stock do not allow for the
payment of cash dividends unless we have paid the accrued and unpaid dividends
on the 9% Preferred Stock in full. As of September 30, 1999, accrued and unpaid
dividends on the 9% Preferred Stock were $23,513. See "Dividend Policy."
Anti-Takeover Provisions.
Certain provisions of our Certificate of Incorporation could make it more
difficult for a third party to acquire control of our business, even if such
change in control would be beneficial to our stockholders. Our Certificate of
Incorporation allows our Board of Directors to issue up to 549,100 shares of
preferred stock without stockholder approval. Any such issuance could make it
more difficult for a third party to acquire our business and may adversely
affect the rights of our stockholders. See "Description of Securities."
USE OF PROCEEDS
We will not receive any of the proceeds from the Selling Stockholder's sale of
their shares of Common Stock.
9
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock (OTC symbol: CORX) is not currently listed on
any exchange or on the Nasdaq System, but is reported on the OTC Bulletin Board.
Prior to March 17, 1999, the Company's Common Stock was listed on the Nasdaq
SmallCap Market. The following table presents quarterly information on the high
and low sale prices of the Common Stock for the fiscal years ended June 30, 1999
and 1998.
<TABLE>
<CAPTION>
High Low
------- ---
Fiscal Year ending June 30, 2000
<S> <C> <C>
Third Quarter (through January 31, 2000)... $3-21/32 $ 23/32
Second Quarter............................. 7/8 21/32
First Quarter.............................. 1-1/64 41/64
Fiscal Year ending June 30, 1999
Fourth Quarter............................. $1-27/32 $ 9/32
Third Quarter.............................. 15/16 1/4
Second Quarter............................. 1-3/8 9/32
First Quarter.............................. 2-1/8 1
Fiscal Year ended June 30, 1998
Fourth Quarter............................. $ 3-1/2 $1-11/16
Third Quarter.............................. 1-29/32 1-3/8
Second Quarter............................. 3-1/8 1-3/8
First Quarter.............................. 3-1/4 2-5/8
</TABLE>
Information for the periods referenced above has been furnished by Nasdaq
and the OTC Bulletin Board. The quotations furnished by the OTC Bulletin Board
reflect inter-dealer prices, without mark-up, mark-down or commission and may
not represent actual transactions.
As of September 30, 1999, there were 641 stockholders of record of the
Company's Common Stock, and approximately 9,500 beneficial owners. The high and
low bids for the Company's Common Stock on January 31, 2000, as reported by the
OTC Bulletin Board, were $2-5/8 and $2-1/2, respectively.
10
<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 September 30, 1999,
accrued and unpaid dividends on the 9% Preferred Stock were $23,513. 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
September 30, 1999. 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.
<TABLE>
<CAPTION>
September 30, 1999(1)
<S> <C>
Note payable to Alkermes, Inc. (current portion) $ 664,472
Stockholders' equity:
9% cumulative convertible preferred stock,
$0.001 par value; $1.00 per share liquidation
preference; authorized: 1,250,000 shares;
issued and outstanding: 27,500 shares 27,500
Series B convertible preferred stock, $0.001 par
value; $0.6667 per share liquidation preference;
authorized: 3,200,000 shares; issued and
outstanding: 75,000 shares 43,405
Common stock, $0.001 par value; authorized
30,000,000 shares; issued and outstanding:
15,528,182 shares 15,528
Additional paid-in capital 38,814,392
Deficit accumulated during the development stage (39,352,036)
------------
Total stockholders' equity (451,211)
------------
Total capitalization $ 213,261
============
</TABLE>
- ---------------------
(1) Excludes an aggregate of approximately 2.5 million shares of Common Stock
reserved for issuance upon possible exercise of outstanding warrants and
options and an aggregate of 11,025 shares of Common Stock reserved for
issuance upon conversion of outstanding 9% Cumulative Convertible Preferred
Stock and Series B Convertible Preferred Stock. See "Description of
Securities" and Notes 3, 4 and 6 of Notes to Financial Statements.
11
<PAGE>
SELECTED FINANCIAL DATA
The selected financial data presented below for the fiscal years ended and as of
June 30, 1999 and 1998 and for the period from inception (February 10, 1987)
through June 30, 1999 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,
1997, 1996 and 1995 are derived from audited financial statements that are not
included in this Prospectus. The selected financial data for the three-month
periods ended September 30, 1999 and 1998, for the period from inception
(February 10, 1987) through September 30, 1999 and at September 30, 1999 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 three-month period ended September 30, 1999
are not necessarily indicative of the results that may be expected for the
fiscal year ending June 30, 2000.
Statements of Operations Data:
<TABLE>
<CAPTION>
Period from
inception
(February 10,
Years ended June 30, 1987) through
------------------------------------------------------------------------------ June 30,
1999 1998 1997 1996 1995 1999
-----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues:
Research/license revenue (1) $ 3,051,406 $ 130,000 $ -- $ -- $ -- $ 6,781,406
Grant revenue 100,001 -- -- -- -- 194,718
----------- ----------- ------------ ------------ ------------ ------------
Total operating revenues 3,151,407 130,000 -- -- -- 6,976,124
----------- ----------- ------------ ------------ ------------ -----------
Operating expenses:
Research & development 3,379,732 4,007,466 3,376,284 2,677,577 4,138,731 29,732,594
General & administrative 1,401,602 1,584,369 1,709,320 1,643,732 1,665,134 14,745,850
Settlement with Alkermes, Inc. -- -- -- -- 1,227,977 1,227,977
----------- ------------ ------------ ----------- ------------ ------------
Total operating expenses 4,781,334 5,591,835 5,085,604 4,321,309 7,031,842 45,706,421
----------- ------------ ------------ ------------ ------------ ------------
Loss from operations (1,629,927) (5,461,835) (5,085,604) (4,321,309) (7,031,842) (38,730,297)
Interest income, net 8,477 203,875 155,624 163,062 196,310 1,701,283
----------- ------------ ------------ ------------ ------------ ------------
Net loss $(1,621,450) $ (5,257,960) $ (4,929,980) $(4,158,247) $ (6,835,532) $(37,029,014)
=========== ============ ============ =========== ============ ============
Weighted average common
shares outstanding 13,407,945) 9,575,663 8,252,047 6,532,884 6,075,454
=========== ============ ============ =========== ============
Net loss per share $ (0.12) $ (0.55) $ (0.83) $ (0.64) $ (1.13)
=========== ============ ============ =========== ============
</TABLE>
<TABLE>
<CAPTION>
Period from
inception
Three months ended (February 10,
September 30, 1987) through
--------------------------- September 30,
1999 1998 1999
---------------------------------------------
<S> <C> <C> <C>
Operating revenues:
Research/license revenue (1) $ 767,889 $ -- $ 7,549,295
Grant revenue 66,667 -- 261,385
----------- ------------ ------------
Total operating revenues 834,556 -- 7,810,680
----------- ------------ ------------
Operating expenses:
Research & development 751,800 839,281 30,484,394
General & administrative 367,380 354,693 15,113,230
Settlement with Alkermes, Inc. -- -- 1,227,977
------------ ------------ -----------
Total operating expenses 1,119,180 1,193,974 46,825,601
----------- ------------ ------------
Loss from operations (284,624) (1,193,974) (39,014,921)
Interest income, net (6,559) 7,616 1,694,724
----------- ------------ ------------
Net loss $ (291,183) $ (1,186,358) $(37,320,197)
=========== ============ ============
Weighted average common
shares outstanding 15,522,252 10,237,126
=========== ============
Net loss per share $ (0.02) $ (0.12)
=========== ============
</TABLE>
- --------------------
(1) Includes $3.6 million received under an agreement with Alkermes, Inc.
12
<PAGE>
Balance Sheet Data:
<TABLE>
<CAPTION>
June 30,
----------------------------------------------------------------------------
September 30, 1999 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Working capital $ (987,326) $ (742,036) $ 1,698,277 $ 7,004,298 $ 3,849,649 $ 3,327,788
Total assets 856,887 1,549,021 2,874,846 8,333,307 5,013,920 4,886,372
Total liabilities 1,308,098 1,712,350 1,445,550 1,728,300 1,369,157 1,613,676
Redeemable preferred stock -- -- 2,460,450 3,936,720 -- --
Deficit accumulated during
the development stage (39,352,036) (39,060,853) (37,439,403) (32,181,443) (25,359,298) (21,201,051)
Stockholders' equity $ (451,211) $ (163,329) $ (1,031,154) $ 2,668,287 $ 3,644,763 $ 3,272,696
Common shares outstanding 15,528,182 15,519,382 10,237,126 9,394,249 7,495,576 6,085,201
</TABLE>
13
<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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in the Company's 1999 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 is 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 September 30, 1999, the
Company's revenue has consisted of (i) $7,549,000 of license fees and research
and development funding, (ii) net interest income aggregating $1,695,000, and
(iii) $261,000 of grant revenue.
In January 1999, the Company entered into a research collaboration and
exclusive worldwide license agreement with NV Organon ("Organon"), a
pharmaceutical business unit of Akzo Nobel (The Netherlands). The agreement will
allow Organon to develop and commercialize the Company's proprietary Ampakine
technology for the treatment of schizophrenia and, upon Organon's election, for
the treatment of depression. In connection with the agreement, the Company
received a $2,000,000 upfront licensing payment. The agreement includes research
support payments of up to $3,000,000 per year for two years (subject to Cortex
providing agreed-upon levels of research) and milestone payments, plus royalty
payments on worldwide sales.
Subsequent to September 30, 1999, the Company received a quarterly research
support payment of $893,000. This amount exceeds the payments received for prior
quarters, reflecting the increase in the Company's staff dedicated to the
alliance. Future quarterly research support is expected to average
$750,000.
From inception (February 10, 1987) through September 30, 1999, the Company
has sustained losses aggregating $37,320,000. Continuing losses are anticipated
over the next several years, as the Company's ongoing operating expenses will
only be offset, if at all, by research support payments and possible milestone
payments from its research collaboration with Organon, or under planned
strategic alliances that the Company is seeking with other pharmaceutical
companies for the clinical development, manufacturing and marketing of its
products. The nature and timing of payments to Cortex under the Organon
agreement or other planned strategic alliances, if and when entered into, are
likely to significantly affect the Company's operations and financing activities
and to produce substantial
14
<PAGE>
period-to-period fluctuations in reported financial results. Over the longer
term, the Company will require successful commercial development of its products
by Organon or its other prospective partners to attain profitable operations
from royalties or other product-based revenues.
The Company believes that inflation and changing prices have not had a
material impact on its ongoing operations to date.
Fiscal Years ended June 30, 1999 and 1998
For the year ended June 30, 1999, the Company's loss from operations was
$1,630,000 compared to a loss from operations of $5,462,000 for the prior year,
with the improvement attributable to revenues from the license and research
collaboration with Organon.
Research and development expenses decreased to $3,380,000, or by 16%,
during the year ended June 30, 1999 compared to the prior year. Most of the
decrease related to the timing of Phase I/IIa human clinical testing of the
Company's lead compound, Ampalex, in patients with Alzheimer's disease and in
patients with schizophrenia.
General and administrative expenses were $1,401,000 for the year ended June
30, 1999, decreasing 12% from the prior year. Most of this decrease represents
reduced spending for office supplies, travel and the annual report. The decrease
also reflects the prior year expense for the estimated value of a warrant issued
to Alkermes in connection with the restructured note payable agreement.
Three-month periods ended September 30, 1999 and 1998
The net loss for the three-month period ended September 30, 1999 of
$291,000 compares with a net loss of $1,186,000 for the corresponding prior year
period. Revenues from the license and research collaboration with Organon were
responsible for the improvements in the current year period (See Note 5 of Notes
to Financial Statements).
Research and development expenses decreased from $839,000 to $752,000, or
by 10%, during the three-month period ended September 30, 1999 compared to the
corresponding prior year period. The decrease reflects lower spending for
sponsored research and the timing of both technology access payments and Phase
I/IIa human clinical testing of Ampalex(R). Future costs for the clinical
testing of Ampakines in patients with schizophrenia will be borne by
Organon.
For the three-month period ended September 30, 1999, general and
administrative expenses of $367,000 were materially consistent with expenses of
$355,000 for the corresponding prior year period.
Liquidity and Capital Resources; Plan of Operation
From inception (February 10, 1987) through September 30, 1999, Cortex has
funded its organizational and research and development activities primarily from
the issuance of equity securities, with net proceeds aggregating $35,749,000. An
additional $3,600,000 in research and license payments was received from
Alkermes, Inc. ("Alkermes") in 1992 and 1993 in connection with a development
and license agreement with that firm. Net interest income from inception through
September 30, 1999 was $1,695,000.
Research and licensing payments received in connection with the agreement
with Organon (See Note 5 of Notes to Financial Statements) totaled $3,819,000
through September 30, 1999. The agreement includes research support payments of
up to $3,000,000 per year for two years (subject to Cortex providing agreed-upon
levels of research), milestone payments based on clinical development of the
licensed technology and royalties on worldwide sales.
15
<PAGE>
As of September 30, 1999, the Company had cash and cash equivalents
totaling $289,000 and a working capital deficit of $987,000. In comparison, as
of June 30, 1999, the Company had cash and cash equivalents of $909,000 and a
working capital deficit of $742,000. The decreases represent amounts required to
fund operating losses. Subsequent to September 30, 1999, the Company received
quarterly research support of $893,000 related to its agreement with
Organon.
The Company leases approximately 30,000 square feet of research laboratory,
office and expansion space under an operating lease that expires May 31, 2004.
The commitments under the lease agreement for the years ending June 30, 2000,
2001, 2002, 2003 and 2004 total $255,000, $310,000, $353,000, $368,000 and
$356,000, respectively. From inception (February 10, 1987) through September 30,
1999, expenditures for furniture, equipment and leasehold improvements
aggregated $2,214,000.
In connection with the settlement in October 1995 of a license dispute with
Alkermes, the Company issued to Alkermes a $1,000,000 three-year promissory note
accruing interest semi-annually at the then federal funds rate. In February
1998, the terms of the note were restructured to include a principal payment of
$200,000 upon signing of the restructuring agreement. The balance of the note
and accrued interest were payable in October 1999 or upon the consummation of a
corporate partnership between Cortex and a larger pharmaceutical company,
whichever was earlier. With the signing of the license agreement with Organon,
the note and accrued interest became due and payable. In July 1999, the terms of
the note were restructured to include a principal and interest payment of
$250,000 and monthly payments of $50,000 from August 1999 through January 2000.
The balance of the note and accrued interest are payable on or before February
28, 2000.
The Company is currently in advanced discussions with potential corporate
partners. Based upon the anticipated timing of a resulting strategic alliance,
the Company may be able to pay Alkermes the balance of the note and accrued
interest due by the end of February, as agreed. Because there is no assurance
that a partnership will be completed prior to the note's due date, or at all,
the Company contacted Alkermes regarding a possible extension of the terms of
the note. In February 2000, Alkermes agreed to extend the note's payment terms,
if necessary. If the Company needs to extend the note, the Company has agreed
to continue to pay Alkermes $50,000 per month with the balance of the note and
accrued interest due on May 31, 2000. Additionally, if the terms are extended,
the Company has agreed to issue to Alkermes a five-year warrant to purchase
50,000 shares of Cortex common stock, at a price derived from the fair market
value of the stock as of February 28, 2000.
As of September 30, 1999, Cortex had 27,500 outstanding shares of 9%
cumulative convertible preferred stock, which accrue cumulative semi-annual
dividends at an annual rate of $0.09 per share. To conserve capital for
operations, the Company has elected not to distribute the dividends that have
accrued from June 1990. Accrued and unpaid dividends as of September 30, 1999
were $23,513.
Over the next twelve months the Company is committed to $603,000 of funding
for sponsored research in academic laboratories. Remaining commitments for
current Phase I/IIa clinical studies on the Company's Ampakine compounds are not
significant.
As of September 30, 1999, Cortex had a total of 22 full-time research and
administrative employees. Neither significant increases to staffing nor
significant investments in plant or equipment are planned for the upcoming
year.
Assuming that the Company extends the terms of the note payable to
Alkermes, Cortex anticipates that its existing cash and cash equivalents and the
expected research support payments from Organon will be sufficient to satisfy
its capital requirements into May 2000. Without any payments from additional
corporate partnerships or milestone payments from the
Organon agreement, additional funds will be required to continue op erations
beyond that time.
The Company is in advanced discussions with potential corporate partners
and anticipates that an alliance from these discussion may be completed before
May 2000. The Company anticipates receiving its first milestone payment from its
existing corporate partner, Organon, in before May 2000. With receipt of the
projected Organon quarterly research support and the milestone payment during
the estimated timeframe, the Company expects to have sufficient cash to fund
operations through calendar 2000. With the additional funds from an anticipated
upfront payment from a potential corporate partnership, the Company expects to
have sufficient cash to fund operations into early calendar 2001. Because there
is no assurance that the milestone will be received as estimated, or at all, or
that the Company will secure additional corporate partnerships, the Company may
raise additional capital through the sale of debt or equity securities. Given
the current adverse market conditions for biopharmaceutical companies, there is
no assurance that funds will be available on favorable terms, or at all. If
equity securities are issued to raise additional funds, dilution to existing
shareholders is likely to result.
The Company's Common Stock previously traded on the Nasdaq SmallCap Market
under the symbol "CORX." Because the Company did not meet certain of the
standards for continued listing, the Company's Common
16
<PAGE>
Stock was delisted from Nasdaq on March 17, 1999. As a result, effective March
18, 1999, the Company's Common Stock began trading in the over-the-counter
market on the OTC "Electronic Bulletin Board."
In order to provide for both its immediate and longer-term spending
requirements, the Company is presently seeking additional collaborative or other
arrangements with larger pharmaceutical companies. Under these agreements, it is
intended that such companies would provide capital to the Company in exchange
for exclusive or non-exclusive license or other rights to certain of the
technologies and products that the Company is developing. Competition for such
arrangements is intense, however, with a large number of biopharmaceutical
companies attempting to secure alliances with more established pharmaceutical
companies. Although the Company is in advanced discussions with candidate
companies, there is no assurance that an agreement or agreements will arise from
these discussions in a timely manner, or at all, or that revenues that may be
generated thereby will offset operating expenses sufficiently to reduce the
Company's short and longer-term funding requirements.
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 market superior or equivalent products. 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 current or prospective 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 "Risk Factors."
17
<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. Since 1993, the primary effort at Cortex has been 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, that 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.
The Ampakine program addresses large potential markets. Accordingly, the
Company's commercial development plan involves partnering with larger
pharmaceutical companies for research, development, clinical testing,
manufacturing and global marketing of its proposed products. The Company may
retain the right to eventually co-promote Ampakines for selected indications in
the United States. If the Company is successful in the pursuit of this
partnering strategy, it may 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. In January 1999, the Company entered a
research collaboration and exclusive worldwide license agreement with NV Organon
("Organon"), a subsidiary of Akzo Nobel (The Netherlands). The agreement will
enable Organon to develop and commercialize the Company's Ampakine technology
for the treatment of schizophrenia and, upon Organon's election, for the
treatment of depression. Cortex continues to seek collaborative or licensing
arrangements with other pharmaceutical companies. These arrangements may permit
other applications of the Ampakines to be advanced into later stages of clinical
development and may provide access to the extensive clinical trials management,
manufacturing and marketing expertise of such companies. The Company may not be
able to secure such arrangements on favorable terms, or at all, and its products
may not be successfully developed and approved for marketing by government
regulatory agencies.
In the fiscal years ended June 30, 1999 and 1998, the Company's
expenditures on research and development were $3,380,000 and $4,007,000,
respectively, with the decrease attributable to the timing of Phase I/IIa human
clinical testing of CX516 (Ampalex) in patients with schizophrenia and in
patients with Alzheimer's disease.
AMPA Receptor Program
- ---------------------
In June 1993, Cortex licensed a new class of compounds -- the Ampakines --
from the University of California. Ampakines facilitate the activity of the AMPA
receptor, which binds the neurotransmitter glutamate. The Ampakines interact in
a highly specific manner with the AMPA receptor in the brain, lowering the
amount of neurotransmitter required to generate a response, and increasing the
magnitude of the response to any given amount of glutamate. 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.
It is well known that synaptic connections, including those that utilize
glutamate, decline with age. Thus, disorders such as mild cognitive impairment
associated with aging may be amenable to treatment with Ampakines. Two prominent
diseases that may benefit from AMPA receptor-directed therapeutics are
schizophrenia and Alzheimer's disease. The Company and its collaborators have
also obtained encouraging preliminary results in animal models of depression,
sexual dysfunction and depressed endocrine function.
18
<PAGE>
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. One
of the most common side effects of conventional 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 initially studied in the 1970s, but clinical trials
were halted due to the risk of a fatal blood disorder known as agranulocytosis
and 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 treated
with typical neuroleptics, either because of lack of efficacy or side effects.
Risperidone and olanzapine are other recent clozapine-like anti-psychotics
without agranulocytosis side effects.
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 greatly improved by any available
agent. The persistence of cognitive symptoms prevents 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 an area of the brain known as
the striatum. More recently, a developing body of evidence suggests that
schizophrenia also involves an underactivity of glutamate pathways projecting
into the same area. 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 the discovery that an Ampakine reduced
stereotypic behavior (mechanical repetition of posture or movement) in rats that
had been injected with methamphetamine. Reduction of methamphetamine-induced
stereotypic behavior is widely used for initial screening of anti-psychotic
drugs. Scientists at both the University of California, Irvine and Cortex have
since extended this finding to include additional Ampakines. Further, Cortex
scientists have demonstrated that Ampakines in combination with either
conventional or atypical anti-psychotic drugs have additive or synergistic
effects in this model system.
In January 1999, the Company entered into an exclusive worldwide license
agreement with Organon. The agreement will enable Organon to develop and
commercialize Cortex's proprietary Ampakine technology for the treatment of
schizophrenia and to explore it in the area of depression. The agreement
includes an upfront payment of $2,000,000, research and development payments of
up to $3,000,000 per year for two years, and milestone payments, plus royalty
payments on worldwide sales. The Company hopes that the agreement with Organon
will provide an accelerated program to bring the Ampakines to market for
schizophrenia and possibly depression, if proven safe and effective in clinical
trials.
19
<PAGE>
Shortly thereafter, in April 1999 the Company reported preliminary results
from a study with CX516 in patients with schizophrenia being treated with
clozapine. This Phase I/IIa clinical trial, conducted at Massachusetts General
Hospital, was designed primarily as a safety study. Clinical and psychological
testing was also included in an attempt to obtain a preliminary indication that
CX516 may effect the psychological parameters that likely contribute to symptoms
of the disease, particularly the cognitive symptoms that have thus far been
resistant to treatment. Preliminary results indicate that CX516 is reasonably
safe in combination with clozapine and improves performance on several tests of
verbal learning, memory, problem solving and distractability. The improvements
noted in CX516-treated patients appeared to persist for a period of time after
cessation of treatment.
A second similar study to assess the affect of CX516 as a `mono' therapy in
patients with schizophrenia was initiated at the National Institutes of Health
in Bethesda, Maryland. Because of slow patient enrollment, the Company has since
elected to discontinue this study. The Company intends that further clinical
testing of the Ampakines in patients with schizophrenia will be conducted by its
corporate partner, Organon. Data obtained from the testing performed at
Massachusetts General Hospital should be very helpful in the design of such
trials. Cortex is pleased with the progress of the Organon research
collaboration and anticipates receiving its first milestone payment from the
agreement before the end of 1999.
Deficits of Memory and Cognition -- Alzheimer's Disease
Impairment of memory and cognition is a serious health care problem that is
growing as the elderly 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. Pharmaceuticals to alleviate
deficits in memory and cognition could potentially enable these elderly
individuals to remain independent longer.
Although disease and physiological malfunctions are thought to be the
fundamental cause of severe mental decline, age itself is a contributory factor,
with the human brain losing 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
known as the AMPA receptor. AMPA receptors and synapses decline in number with
aging, on average by 25-30% between the ages of 25 and 65, making it more
difficult for information to pass through and between areas of the cerebral
cortex. Therefore a potential corrective approach to alleviate age-related
cognitive deficits is to enhance the activity of the remaining functional AMPA
receptors.
Alzheimer's disease is the best known destroyer of memory, currently
afflicting some four million Americans. With the aging of our population, the
number of people in the U.S. with Alzheimer's disease is expected to double over
the next two decades unless a treatment is found. According to the Alzheimer's
Association, Alzheimer's disease is already 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.
It is in the early stages of Alzheimer's disease -- the first few years --
that Cortex believes Ampakines may play a valuable role, enhancing the
effectiveness of the brain cells that have not yet succumbed to the disease.
This may help to 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. Ampakines may slow the rate at which functional levels of input from
other neurons are lost. Research also suggests that Ampakines may increase the
production of neurotrophic factors that are known to be protective for nerve
cells.
One of the most compelling of the animal studies conducted to date with the
Ampakines involved an assessment of the effects on memory performance in middle-
aged rats. A number of researchers have demonstrated that
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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 a study published in Synapse, the authors
conducted research involving a maze task with middle-aged and young adult rats.
The middle-aged rats showed striking deficits in performance when compared with
the young adult animals. When given an Ampakine, the performance of the middle-
aged rats improved to levels equivalent to those found in young animals.
Three human clinical safety studies have been completed with CX516
("Ampalex") in healthy volunteers. 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 and at all dosage
levels, 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,
a statistically significant positive effect on memory performance was observed.
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. This 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 noted in the group
that received CX516.
After these encouraging results, Cortex initiated a Phase I/IIa study in
patients experiencing deficits of memory and cognition due to Alzheimer's
disease. The double-blind, placebo-controlled dose escalation study, which is
being conducted at the National Institutes of Health in Bethesda, Maryland,
involves administration of CX516 to an eventual total of 16 to 20 patients for
up to 28 consecutive days. To date, 15 patients have been enrolled in this
study, with enrollment of an additional five patients anticipated.
While preliminary indications of desired effects on memory and cognition
may be obtained from this study, psychological testing of patients with
Alzheimer's disease is subject to a high level of variability. Full-scale Phase
II studies designed to achieve significance on broad psychological scales will
require larger numbers of patients. Cortex is seeking a larger pharmaceutical
company partner for further development of Ampakines for the potential
treatment of Alzheimer's disease.
Calpain Inhibitor Program
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.
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,
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which is due to a blockage of blood flow, and hemorrhagic stroke, which involves
a blood vessel bursting in the brain. In either case, the insult to the brain is
often immediately life-threatening and initiates a cascade of molecular events
that may lead to permanent brain damage.
In 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, 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 of acute and chronic neurodegenerative diseases and
disorders of the nervous system.
Subsequently, Cortex shifted its emphasis to calpain inhibitor research
outside the nervous system. The Cortex 1993 annual report 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. In November 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.
In October 1995, the Company and Alkermes agreed to a settlement of the
dispute. Alkermes agreed to dismiss its action against Cortex and to relinquish
all rights previously granted them by the Company, as well as rights to related
technologies developed by Alkermes. 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. In February 1998, the
terms of the note were restructured to include a principal payment of $200,000
upon signing of the new agreement. The balance of the note and accrued interest
was payable in October 1999 or upon consummation of a corporate partnership
between Cortex and a larger pharmaceutical company, whichever was earlier. In
connection with the restructuring agreement, the Company issued to Alkermes a
five-year warrant to purchase 75,000 shares of Common Stock at an exercise price
of $1.55 per share. With the signing of the license agreement with Organon (see
Note 5 of Notes to Financial Statements), the note became due and payable. In
July 1999, the terms of the note were restructured to include a principal and
interest payment of $250,000 and monthly payments of $50,000 from August 1999 to
January 2000. The balance of the note and accrued interest is due and payable by
February 28, 2000. In connection with this restructuring agreement, the Company
agreed to issue to Alkermes a five-year warrant to purchase 100,000 shares of
Common Stock at an exercise price derived from the fair market value of the
Company's Common Stock. As part of the restructuring agreement, because the
balance was not paid by December 31, 1999, the Company agreed to issue to
Alkermes another five-year warrant to purchase 50,000 shares of the Common Stock
at $0.76 per share. The exercise price for this warrant represents the average
of the closing prices of the Company's Common Stock for the 30 trading days
preceding December 31, 1999.
If necessary, the Company may extend the due date of the note by issuing to
Alkermes another five-year warrant to purchase 50,000 shares of Cortex common
stock. The exercise price for this warrant will be derived from the fair market
value of the stock as of February 28, 2000. If the due date is extended, the
Company agrees to continue to pay Alkermes $50,000 per month, with the balance
of the note and accrued interest due May 31, 2000.
Cortex has subsequently shifted more of its resources from its calpain
inhibitor program to its Ampakine technology platform. As part of the Company's
emphasis on its Ampakine program, Cortex canceled its licensing agreement with
Georgia Tech Research Corporation related to the Company's calpain inhibitor
technology during the year ended June 30, 1999.
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
arrangements for manufacturing of its proposed products on favorable terms.
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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. In entering into such arrangements, the Company may seek to
retain the right to co-promote products for certain indications in North
America. The Company's worldwide licensing agreement with Organon (see Note 5 of
Notes to Financial Statements) does not provide Cortex with co-promotional
rights. There is no assurance that the Company will be able to enter into co-
promotional arrangements in connection with its other licensing activities, or
that co-promotional rights will lead to greater revenues for the Company.
Technology Rights and Collaborative Agreements
AMPA Receptor Modulating Compounds
In 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. The agreement was subsequently amended to include
additional indications. The Company paid an initial license fee and is obligated
to make additional payments, including license maintenance fees and patent
expense reimbursements 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 pay
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
approximately 15 issued or allowed U.S. patents and a number of additional U.S.
patent applications and their international counterparts.
In April 1999, Cortex received a patent that covers the Company's Ampakines
- -- as well as compounds made by others -- for the treatment of memory and
cognition. It allows Cortex and its licensees to exclude others in the United
States from making and selling AMPA-receptor modulating compounds for the
treatment of memory or dementia, including Alzheimer's disease. The coverage
also extends to psychiatric conditions including depression, obsessive
compulsive disorder, attention deficit disorder, and phobic disorders. In 1998,
Cortex received a United States patent that contained a similarly broad claim
for any AMPA-modulating compound to treat schizophrenia.
There is no assurance that 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 is also
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 is no assurance
that others will not obtain patents that the Company would then need to license
or design around in order to practice its patented technologies, or that Cortex
would be able to obtain licenses that might be required to practice these
technologies due to patents of others on reasonable terms. Additionally, any
unpatented manufacture, use or sale of the Company's technology, processes or
products may 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 is 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
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meaningfully protect its rights in such unpatented proprietary technology or
that others will not wrongfully obtain such technology.
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 is 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/IIa studies in the U.S. with
CX516 in Alzheimer's disease patients and in patients with schizophrenia under
INDs filed by its clinical collaborators. It is the Company's intent that
Organon, or other pharmaceutical company partner or partners that the Company is
seeking, will pursue the required regulatory approvals to conduct clinical tests
in the United States and elsewhere.
Clinical trials are normally conducted in three phases. Phase I trials are
concerned primarily with 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 up 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 can also be lengthy.
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 is no assurance that any required FDA or other governmental approval
will be granted or, if granted, will not be withdrawn. Governmental regulation
may substantially delay or prevent 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. Accordingly, the Company will be dependent upon entering into
partnerships or other collaborative arrangements with third parties with the
required resources to obtain the needed approvals. Along with its agreement with
Organon, Cortex intends to enter into license or other arrangements with other
pharmaceutical companies under which those companies would conduct the required
clinical trials and seek FDA approval for most or all of its proposed products.
There is 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 large number of drugs intended for the
treatment of Alzheimer's disease, schizophrenia, depression and other
neurological and psychiatric diseases and disorders are on the market or in the
later stages of clinical testing. For example, approximately 15 drugs are in
development in the U.S. for schizophrenia. In addition, 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 and psychiatric disorders, the Company does not have the resources,
and does not presently intend, to compete with major pharmaceutical companies in
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, against which the Company
maintains liability insurance. Although the Company has never been subject to a
product liability claim, there is no assurance that such claims will not be
brought in the future, 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.
Employees
As of December 31, 1999, Cortex had 23 full-time employees and had engaged
4 part-time Ph.D.-level scientific consultants. Of the 23 full-time employees,
19 are engaged in research and development and 4 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,
2004. 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:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert F. Allnutt (2) 64 Chairman of the Board, Director
Charles J. Casamento (2) 54 Director
Carl W. Cotman, Ph.D. (1) 59 Director, Scientific Director
Michael G. Grey (1) 46 Director
Gary S. Lynch, Ph.D. 56 Scientific Director
Maria S. Messinger 32 Chief Financial Officer
Vincent F. Simmon, Ph.D. 56 President and Chief Executive Officer, Director
Davis L. Temple Jr., Ph.D. (1) 56 Director
</TABLE>
(1) Member of the Compensation/Stock Option Committee.
(2) Member of the Audit Committee.
Robert F. Allnutt has been a director since December 1995 and Chairman of
the Board since February 1999. Since February 1995, Mr. Allnutt has been a
senior counselor for APCO Associates, Inc., a public affairs and strategic
communications company. 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 1985, 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 Cypros
Pharmaceuticals, Inc., a developer and marketer of prescription pharmaceuticals.
He also serves as a member of the Boards of Directors of the Partnership for
Caring and of the National Medals of Science and Technology. 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.
Charles J. Casamento was elected to the Board of Directors of the Company
in July 1997. Since June 1993, Mr. Casamento has been Chairman, President and
Chief Executive Officer of QuestCor Pharmaceuticals, a biopharmaceutical company
based in Hayward, California. Prior to that, he was President and Chief
Executive Officer of Interneuron Pharmaceuticals, a neuropharmaceutical company,
from its founding in March 1989 until May 1993. From January 1986 to March
1989, he was Senior Vice President and General Manager, Pharmaceuticals &
Biochemicals at Genzyme Corp., a biotechnology company. From 1970 through 1985,
Mr. Casamento held senior management positions in marketing, finance and
business development at Sandoz, Johnson & Johnson and American Hospital Supply
Corp., where he was Vice President, Business Development and Strategic Planning
for the Critical Care Division. He holds a B.S. in Pharmacy and an M.B.A. from
Fordham University and is a licensed pharmacist.
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
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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 January 1999, Mr. Grey has been President and Chief Executive Officer of
Trega Biosciences, Inc., a drug discovery company pursuing the identification
and early-stage development of novel, small-molecule drug therapies. From
November 1994 until August 1998, Mr. Grey served as President of BioChem
Therapeutic Inc., a wholly-owned subsidiary of BioChem Pharma, 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. Since July 1999, Mr. Grey has also served as a member of
the Board of Directors of Epimmune Inc., a developer of vaccines to treat and
prevent infectious diseases and cancer. Mr. Grey holds a B.Sc. in Chemistry
from the University of Notingham.
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.
Maria S. Messinger was appointed Vice President, Chief Financial Officer
and Secretary of the Company in December 1999. She has served as Controller of
the Company since September 1994. From August 1989 to September 1994, Ms.
Messinger served in a progression of positions at Ernst & Young LLP, including
her most recent position as an Audit Manager. She holds a B.A. from the School
of Business Administration and Economics at California State University,
Fullerton and is a Certified Public Accountant.
Vincent F. Simmon, Ph.D. was appointed President and Chief Executive
Officer and a director of the Company in May 1996. From October 1998 to December
6, 1999, he was the acting Chief Financial Officer and Secretary of the Company.
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 I 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 Technology 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. in Biology and Chemistry from Amherst College, a M.S. from the University
of Toledo in Plant Physiology and a Ph.D. in Molecular Biology from Brown
University. Dr. Simmon was a post-doctoral fellow from 1971 to 1973 at Stanford
University.
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Davis Temple, Jr., Ph.D. has been a director of and consultant to the
Company since March 1994 and served as co-member of the Office of Chief
Executive Officer of the Company from October 1995 to May 1996. In April 1997,
Dr. Temple was appointed as Chief Executive Officer of Cognetix, a privately
held biopharmaceutical drug discovery and development company. Dr. Temple has
served as the Chairman of Cognetix since January 1999. From November 1995 until
April 1998, he was a Senior Consultant for Kaufman Brothers, a New York
investment bank. Prior to that, from January 1994 to November 1995 he was
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. in
Pharmacy and a Ph.D. in Medicinal Chemistry and Pharmacology from the University
of Mississippi. Dr. Temple completed post-doctorate research at Louisiana State
University.
All directors hold office until the next annual meeting of stockholders and
until their successors have been duly elected and qualified. Officers are
elected by and serve at the discretion of the Company's Board of Directors.
There are no family relationships among any of the directors or officers of the
Company.
Other Officers
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.
Ursula V. Staubli, Ph.D. was named Vice President of Biological Research in
June 1999. From June 1993 to May 1999, Dr. Staubli was Associate Professor at
the Center for Neural Science at New York University ("NYU"). While at NYU, she
served as a consultant to the Company. Prior to June 1993, she held teaching and
research positions at McGill University and the University of California,
Irvine. A recipient of numerous pre- and post-doctoral fellowships and grants,
Dr. Staubli has published more than 60 scientific papers. She received her B.S.
in Behavioral Sciences and Ph.D. in Neurobiology from ETH-Zurich (Swiss Federal
Institute of Technology).
28
<PAGE>
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, 1999 to the Company's Chief Executive Officer.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------------------- --------------------------
Name and Other Annual All Other
Principal Position Year Salary Bonus(2) Compensation Options(#) Compensation
- ------------------ ---- ------ -------- ------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Vincent F. Simmon, Ph.D.(1) 1999 $211,370 $100,000 $ -- 330,000 (4) $ --
President, Chief 1998 203,178 -- -- -- --
Executive Officer 1997 200,000 53,138 35,307 (3) 180,000 --
and Acting Chief
Financial Officer
and Secretary
</TABLE>
- -------------------
(1) Dr. Simmon was appointed President and Chief Executive Officer on May 15,
1996 and served as the acting Chief Financial Officer and Secretary of the
Company from October 13, 1998 to December 6, 1999.
(2) According to Dr. Simmon's employment agreement, he is eligible to receive a
bonus of between 15% to 50% of his annual base salary. Dr. Simmon
voluntarily postponed any bonus for the year ended June 30, 1998. The bonus
for the year ended June 30, 1999 includes an amount to adjust for the bonus
not paid in fiscal 1998. Of the bonus amount indicated for the year ended
June 30, 1999, $20,000 was deferred and paid in fiscal 2000.
(3) Represents relocated reimbursements.
(4) Includes stock options to purchase 180,000 shares of the Company's Common
Stock that were repriced in December 1998 from an exercise price of $5.624
per share to $0.375 per share, which represented the fair market value of
the Company's Common Stock at the time of the repricing.
Option Matters
Option Grants. The following table sets forth certain information
concerning grants of stock options to the Company's executive officer named in
the Summary Compensation Table during the fiscal year ended June 30, 1999.
29
<PAGE>
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Number of % of Total
Securities Options
Underlying Granted to
Options Employees in Exercise Expiration
Name Granted(#) Fiscal Year (1) Price($/Sh) Date
---- ---------- --------------- ----------- ----------
<S> <C> <C> <C> <C>
Vincent F. Simmon, Ph.D. 150,000 21% $0.469 02/05/09
180,000(2) 25% $0.375 12/22/08
</TABLE>
- -------------------
(1) Includes options repriced on December 23, 1998.
(2) Represents options originally granted to Dr. Simmon in May 1996, in
connection with his employment. On December 23, 1998, these options were
repriced from an exercise price of $5.625 per share to $0.375 per share,
representing the fair market value of the Company's common stock at the time of
repricing.
Aggregated Option Exercises in Last Fiscal Year
and Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Value Realized Value of Unexercised
(market price Number of Unexercised In-the-Money
at exercise Options at FY-End Options at FY-End
Shares Acquired less exercise ---------------------------- ----------------------------
Name on Exercise price) Exercisable Unexercisable Exercisable Unexercisable
- --------- --------------- ------------- ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Vincent F. Simmon, Ph.D. 0 $0 60,000 270,000 $37,500 $154,650
</TABLE>
Employment and Consulting Agreements
Vincent F. Simmon joined the Company as President and Chief Executive
Officer in May 1996. His employment agreement provides for a base salary of
$220,000 per year with an annual bonus, at the discretion of the Board of
Directors of the Company, in cash and/or equity equal to between 15% and 50% of
his base salary, subject to annual review by the Compensation Committee. 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 date of grant. The options
vest monthly over a three-year period commencing one month from the date of
grant and have a ten-year term. In December 1998, the exercise price of these
options was restated to $0.375 per share.
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. Dr. Lynch receives a consulting fee of $30,000 per
year and Dr. Cotman receives a consulting fee of $23,000 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
addition to his consulting fee, Dr. Lynch will be entitled to option grants in
connection with the Company's success in corporate partnering its Ampakine
technology. See also "Director Compensation."
30
<PAGE>
Director Compensation
Each non-employee director (other than the Chairman of the Board or 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. The Chairman
of the Board receives $2,500 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.
31
<PAGE>
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 them as permitted by applicable law.
See "Employment and Consulting Agreements" for a description of certain
arrangements and transactions with executive officers and directors.
32
<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 December 31, 1999, 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.
<TABLE>
<CAPTION>
Directors, Nominees, Shares Percent of
Officers, and 5% Beneficially Common Stock
Stockholders Owned Beneficially Owned
- --------------------- ------------- ------------------
<S> <C> <C>
Robert F. Allnutt 45,500 (1) *
Charles J. Casamento 16,000 (2) *
Carl W. Cotman, Ph.D. 160,000 (3) 1.0
Michael G. Grey 32,000 (4) *
Maria S. Messinger 18,750 (5) *
Vincent F. Simmon, Ph.D. 229,500 (6) 1.5
Davis L. Temple, Jr., Ph.D. 54,500 (7) *
All officers, directors and nominees
as a group (7 persons) 556,250 3.5
___________________________________
</TABLE>
* Less than one percent
(1) Includes 29,500 shares that may be purchased upon exercise of options within
60 days of December 31, 1999.
(2) Includes 16,000 shares that may be purchased upon exercise of options within
60 days of December 31, 1999.
(3) Includes 62,000 shares that may be purchased upon exercise of options within
60 days of December 31, 1999.
(4) Includes 32,000 shares that may be purchased upon exercise of options within
60 days of December 31, 1999.
(5) Includes 18,750 shares that may be purchased upon exercise of options
within 60 days of December 31, 1999.
(6) Includes 160,000 shares that may be purchase upon exercise of options
within 60 days of December 31, 1999.
(7) Includes 54,500 shares that may be purchased upon exercise of options
within 60 days of December 31, 1999.
The Company is not aware of any arrangements that may at a subsequent date
result in a change of control of the Company.
33
<PAGE>
DESCRIPTION OF SECURITIES
General
The authorized capital stock of the Company consists of: 30,000,000 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 September 30, 1999, there were 15,528,182 shares of Common Stock,
27,500 shares of 9% Preferred Stock, 75,000 shares of Series B Preferred Stock,
no shares of Series D Preferred Stock and no shares of Series A Preferred Stock
outstanding. As of the same date, investors in the Series A Preferred Stock
private placement held warrants to purchase 800,000 shares of Common Stock (the
"Series A Warrants"), Vector Securities International, Inc. ("Vector") held
warrants to acquire 420,306 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"). Of the Vector
Warrants, 363,113 expired unexercised on January 15, 2000. As of September 30,
1999, there were 641 record holders of Common Stock, two record holders of 9%
Preferred Stock, two record holders of Series B Preferred Stock, twelve record
holders of the Series A Warrants, one record holder of the Vector Warrants and
ten record holders of the Swartz Warrants.
In addition, as of September 30, 1999 the Company had reserved an aggregate
of 1,439,497 shares of Common Stock for issuance upon exercise of outstanding
stock options held by employees and officers, directors and consultants to the
Company, 3,667 shares for issuance upon conversion of the 9% Preferred Stock,
7,359 shares for issuance upon conversion of the Series B Preferred Stock,
800,000 shares for issuance upon exercise of the Series A Warrants, 420,306
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 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
In December 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 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 363,113
shares of the Company's Common Stock at $3.47 per share, as adjusted and subject
to further adjustment, at any time through January 15, 2000. This warrant
expired unexercised on January 15, 2000.
34
<PAGE>
As consideration for its agreement to provide financial advisory services
related to corporate finance transactions and corporate partnering activities,
as amended and extended in November 1994, Vector was issued a six-year non-
redeemable warrant to purchase 57,193 shares of the Company's Common Stock at
$3.06 per share, subject to adjustment under certain circumstances. Warrants to
purchase 8,169 shares of the Company's Common Stock vested immediately, and
warrants to purchase 24,512 shares of the Company's Common Stock will vest upon
the consummation of each strategic alliance, as defined, when and as secured by
Vector.
In connection with the December 1995 private placement of 160 shares of
Series C Preferred Stock, the Company issued to 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.
In connection with the June 1997 private placement of 400 shares of Series
A Preferred Stock, the Company issued to the eleven participating institutional
investors four-year non-redeemable warrants to purchase an aggregate of 800,000
shares of Common Stock at a price of $3.08 per share, subject to adjustment
under certain circumstances.
In connection with the February 1998 restructuring of the note payable to
Alkermes, Inc., the Company issued to Alkermes a five-year warrant to purchase
75,000 shares of Common Stock at an exercise price of $1.55 per share,
representing the average of the high and low sale prices of Cortex Common Stock
as reported on the Nasdaq SmallCap Market on the date of the restructuring.
In connection with the July 1999 restructuring of the note payable to
Alkermes, Inc., the Company agreed to issue to Alkermes a five-year warrant to
purchase 100,000 shares of common stock at an exercise price derived from the
fair market value of the Company's common stock. In accordance with the
restructured terms, in December 1999 the Company agreed to issue to Alkermes a
five-year warrant to purchase 50,000 shares of the Company's common stock. The
exercise price for this warrant is $0.76 per share, representing the fair
market value of the Company common stock for the 30 trading days preceding the
issuance date.
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 as 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, at 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 as 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
35
<PAGE>
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.
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 and Series B
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.
36
<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(1) pursuant Owned After Offering
----------------------- to this --------------------
Selling Stockholder Shares Percent Prospectus Shares Percent
- ------------------- ------- ------- ---------- ------ -------
<S> <C> <C> <C> <C> <C>
Nelson Partners 150,000 1.0 150,000 0 0
Olympus Securities, Ltd. 150,000 1.0 150,000 0 0
Heracles Fund 100,000 * 100,000 0 0
Themis Partners L.P. 100,000 * 100,000 0 0
MichaelAngelo, L.P. 30,000 * 30,000 0 0
Raphael, L.P. 30,000 * 30,000 0 0
Angelo, Gordon & Co. L.P. 22,500 * 22,500 0 0
GAM Arbitrage Investments, Inc. 22,500 * 22,500 0 0
AG Super Fund, L.P. 15,000 * 15,000 0 0
AG Super Fund International
Partners, L.P. 15,000 * 15,000 0 0
AG Long Term Super Fund, L.P. 15,000 * 15,000 0 0
Bronnum, Dwight B. 1,500 * 1,500 0 0
Bury, Lance T. 5,000 * 5,000 0 0
Enigma Investments 3,451 * 3,451 0 0
Hale, Joseph H. 13,274 * 13,274 0 0
Hathorn, P. Bradford 5,000 * 5,000 0 0
Hopkins, Robert L. 1,500 * 1,500 0 0
Kendrick Family Partnership L.P. 32,987 * 32,987 0 0
Krusen, Charles 8,496 * 8,496 0 0
Peteler, David K. 2,000 * 2,000 0 0
Swartz Family Partnership, L.P. 32,987 * 32,987 0 0
Vector Securities International, Inc. 57,193 * 57,193 0 0
Promethean Investment Group, L.L.C. (2) 150,000(3) 1.0 150,000 0 0
____________________________
</TABLE>
* Less than one percent
(1) Represents shares of Common Stock that may be acquired upon exercise of
warrants.
(2) The Promethean Investment Group L.L.C. is the general partner of Themis
Partners L.P., the investment advisor for Heracles Fund and the investment
manager of HFTP Investments L.L.C. (collectively, the "Promethean
Entities") and consequently has voting control and investment discretion
over securities held by the Promethan Entities. Promethean Investment Group
L.L.C and each of the Promethean Entities disclaims beneficial ownership of
the Shares beneficially owned by Promethean Investment Group L.L.C. and the
Promethean Entities.
(3) Acquired upon transfer of warrants originally issued to holders of the
Series A Preferred Stock.
37
<PAGE>
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 the OTC
Bulletin Board 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 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. at June 30, 1999
and 1998, for each of the two years in the period ended June 30, 1999, and for
the period from inception (February 10, 1987) through June 30, 1999, appearing
in this Prospectus and Registration Statement have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon, which contains
an explanatory paragraph describing conditions that raise substantial doubt
about the Company's ability to continue as a going concern as described in Note
1 to the Financial Statements, appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
38
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Report of Independent Auditors................................................................. F-2
Balance Sheets - As of September 30, 1999 (unaudited), June 30, 1999 and
June 30, 1998............................................................................... F-3
Statements of Operations - For the three-month periods ended September 30, 1999 and
1998 (unaudited), the period from inception (February 10, 1987) through September 30,
1999 (unaudited), the years ended June 30, 1999 and 1998, and the period from inception
(February 10, 1987) through June 30, 1999................................................... F-4
Statements of Stockholders' Equity - For the period from
inception (February 10, 1987) through September 30, 1999 (unaudited as to the three-month
period ended September 30, 1999)............................................................ F-5
Statements of Cash Flows For the three-month periods ended September 30, 1999 and
1998 (unaudited), the period from inception (February 10, 1987) through September 30,
1999 (unaudited), the years ended June 30, 1999 and 1998, and the period from inception
(February 10, 1987) through June 30, 1999................................................... F-10
Notes to Financial Statements................................................................. F-11
</TABLE>
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, 1999 and 1998, and the related
statements of operations, stockholders' equity and cash flows for each of the
two years in the period ended June 30, 1999 and for the period from inception
(February 10, 1987) through June 30, 1999. 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, 1999 and 1998, and the results of its
operations and its cash flows for each of the two years in the period ended June
30, 1999 and for the period from inception (February 10, 1987) through June 30,
1999, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1, the Company is
in the development stage and realization of the Company's assets is dependent
upon future events, the outcome of which is indeterminable. Additionally,
successful completion of the Company's development program and its transition,
ultimately, to attaining profitable operations is dependent upon obtaining
additional financing adequate to support the Company's cost structure.
Accordingly, these conditions raise substantial doubt about the Company's
ability to continue as a going concern. The financial statements do not include
any adjustments to reflect the possible future effects on the recoverability and
classification of assets or the amounts and classification of liabilities that
may result from the outcome of this uncertainty.
/s/ Ernst & Young LLP
San Diego, California
July 22, 1999
F-2
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1999 June 30, 1999 June 30, 1998
__________________ _____________ _____________
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 289,271 $ 909,337 $ 2,124,008
Other current assets 31,501 60,977 71,566
------------ ------------ ------------
Total current assets 320,772 970,314 2,195,574
Furniture, equipment and leasehold improvements, net 489,378 531,970 655,419
Other 46,737 46,737 23,853
------------ ------------ ------------
$ 856,887 $ 1,549,021 $ 2,874,846
============ ============ ============
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 463,892 $ 523,474 $ 408,047
Accrued dividends 23,513 23,513 26,775
Accrued wages, salaries and related expenses 63,027 67,497 62,475
Unearned revenue 93,194 98,584 --
Current portion of note payable to Alkermes, Inc. 664,472 999,282 --
------------ ------------ ------------
Total current liabilities 1,308,098 1,712,350 497,297
Note payable to Alkermes, Inc. -- -- 948,253
Redeemable preferred stock:
Series A convertible preferred stock, $0.001
par value; $10,000 per share liquidation
preference; shares authorized: 400; shares
issued and outstanding: 250 (June 30, 1998) -- -- 2,460,450
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: 27,500 (September 30, 1999 and
June 30, 1999) and 35,000 (June 30, 1998) 27,500 27,500 35,000
Series B convertible preferred stock, $0.001 par
value; $0.6667 per share liquidation preference;
shares authorized: 3,200,000; shares issued and
outstanding: 75,000 (September 30, 1999 and
June 30, 1999) and 150,000 (June 30, 1998) 43,405 43,405 86,810
Common stock, $0.001 par value; shares authorized:
30,000,000; shares issued and outstanding: 15,528,182
(September 30, 1999); 15,519,382 (June 30, 1999) and
10,237,126 (June 30, 1998) 15,528 15,519 10,237
Additional paid-in capital 38,814,392 38,811,100 36,276,202
Deficit accumulated during the development stage (39,352,036) (39,060,853) (37,439,403)
------------ ------------ ------------
Total stockholders' equity (451,211) (163,329) (1,031,154)
------------ ------------ ------------
$ 856,887 $ 1,549,021 $ 2,874,846
=========== ============ ============
</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
Three months ended (February 10, (February 10,
September 30 1987) through Years ended June 30, 1987) through
----------------------------- September 30, --------------------------- June 30,
1999 1998 1999 1999 1998 1999
-------------- ----------- ------------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Research and license revenue $ 767,889 $ -- $ 7,549,295 $ 3,051,406 $ 130,000 $ 6,781,406
Grant revenue 66,667 -- 261,385 100,001 -- 194,718
----------- ----------- ------------ ----------- ----------- ------------
Total revenues 834,556 -- 7,810,680 3,151,407 130,000 6,976,124
----------- ----------- ------------ ----------- ----------- ------------
Operating expenses:
Research and development 751,800 839,281 30,484,394 3,379,732 4,007,466 29,732,594
General and administrative 367,380 354,693 15,113,230 1,401,602 1,584,369 14,745,850
Settlement with Alkermes, Inc. -- -- 1,227,977 -- -- 1,227,977
----------- ----------- ------------ ----------- ----------- ------------
Total operating expenses 1,119,180 1,193,974 46,825,601 4,781,334 5,591,835 45,706,421
----------- ----------- ------------ ----------- ----------- ------------
Loss from operations (284,624) (1,193,974) (39,014,921) (1,629,927) (5,461,835) (38,730,297)
Interest income, net (6,559) 7,616 1,694,724 8,477 203,875 1,701,283
------------ ----------- ------------ ----------- ----------- ------------
Net loss before preferred
stock accretion
and dividends $ (291,183) $(1,186,358) $(37,320,197) $(1,621,450) $(5,257,960) $(37,029,014)
----------- ----------- ------------ ----------- ----------- ------------
Preferred stock accretion
and dividends:
Accretion of and dividends
on 9% Cumulative
Convertible Preferred Stock -- -- 610,399 2,475 3,150 610,399
Imputed dividends for
Series D Convertible
Preferred Stock -- -- 879,672 -- -- 879,672
Imputed dividends for
Series A Convertible
Preferred Stock -- -- 1,012,493 -- -- 1,012,493
----------- ----------- ------------ ----------- ----------- ------------
Net loss applicable to common stock $ (291,183) $(1,186,358) $(39,822,761) $(1,623,925) $(5,261,110) $(39,531,578)
=========== =========== ============ =========== =========== ============
Weighted average common shares
outstanding 15,522,252 10,237,126 13,407,945 9,575,663
=========== =========== =========== ===========
Net loss per share $ (0.02) $ (0.12) $ (0.12) $ (0.55)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
F-4
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unrealized
loss on
available Deficit
9% Series B Series C Series D Addi- for accumulated
convertible convertible convertible convertible tional Deferred sale U.S. during the
preferred preferred preferred preferred Common paid-in compen- Government development
stock stock stock stock stock capital sation securities stage Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <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 5,680 -- -- -- 7,100
Sale of 500,000
shares of common
stock, $2.50 per
share, net of
expenses -- -- -- -- 500 1,076,089 -- -- -- 1,076,589
Issuance of 11,000
shares of common
stock for services,
$2.50 per share -- -- -- -- 11 27,489 -- -- -- 27,500
9% preferred stock
accretion -- -- -- -- -- -- -- -- (2,560) (2,560)
Net loss -- -- -- -- -- -- -- -- (400,193) (400,193)
---------- ----------- ----------- ----------- ------ ---------- --------- --------- ----------- -----------
Balance,
June 30, 1988 -- -- -- -- 1,931 1,109,258 -- -- (402,753) 708,436
Conversion of sub-
ordinated convert-
ible note and
interest payable
into 83,868 shares
of common stock,
$2.50 per share -- -- -- -- 84 209,586 -- -- -- 209,670
Issuance of 500
shares of common
stock for services,
$2.50 per share -- -- -- -- 1 1,249 -- -- -- 1,250
Conversion of 5,000
shares of 9% pre-
ferred stock into
3,333 shares of
common stock -- -- -- -- 3 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 -- -- -- -- 2,019 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 -- -- -- -- 660 5,244,230 -- -- -- 5,244,890
Redemption of 70,000
shares of common
stock, $0.005 per
share -- -- -- -- (70) (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 -- -- -- -- 2,609 6,421,571 -- -- (3,878,937) 2,545,243
Sale of 3,181,253
shares of Series B
convertible pre-
ferred stock,
$0.6667 per share,
net of expenses -- 1,841,108 -- -- -- -- -- -- -- 1,841,108
Conversion of
182,200 shares of
9% preferred stock
into 24,293 shares
of common stock -- -- -- -- 24 170,039 -- -- -- 170,063
Issuance of compens-
atory stock options -- -- -- -- -- 330,084 (291,938) -- -- 38,146
Amortization of de-
ferred 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 $ -- $ 1,841,108 $ -- $ -- $2,633 $6,836,041 (201,922) -- (6,504,980) 1,972,880
---------- ----------- ----------- ----------- ------ ---------- --------- --------- ----------- -----------
</TABLE>
Continued...
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 on Deficit
available for accumulated
Additional 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..............
<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 on Deficit
available for accumulated
Additional 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...
<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) -- 1,133
Adjustment of accrued dividends for
conversion of 9% preferred stock -- -- -- -- --
Issuance of 205,878 shares of common stock
upon exercise of stock options -- -- -- -- 206
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
Series A preferred stock imputed dividends -- -- -- -- --
Sale of 400 shares of Series D convertible
preferred stock, $10,000 per share, net
of expenses -- -- -- 3,719,636 --
Series D preferred stock imputed dividends -- -- -- -- --
Conversion of 35 shares of Series C
convertible preferred stock into
384,574 shares of common stock -- -- (752,476) -- 384
Conversion of 400 shares of Series D
convertible preferred stock into
1,433,437 shares of common stock -- -- -- (3,719,636) 1,433
Issuance of 50,000 shares of common stock
upon exercise of warrant -- -- -- -- 50
Issuance of 30,662 shares of common stock
upon exercise of stock options -- -- -- -- 31
9% preferred stock dividends -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ----------- -----------
Balance, June 30, 1997 $ 110,000 $ 86,810 $ -- $ -- $ 9,394
----------- ----------- ------------ ----------- -----------
<CAPTION>
Unrealized
loss on Deficit
available for accumulated
Additional 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 2,686,281 -- -- -- --
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 774,049 -- -- -- 774,255
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 -- -- 18,606 -- 18,606
Net loss -- -- -- (4,158,247) (4,158,247)
----------- ----------- ----------- ------------ -----------
Balance, June 30, 1996 28,047,279 -- -- (25,359,298) 3,644,763
Series A preferred stock imputed dividends 1,012,493 -- -- (1,012,493) --
Sale of 400 shares of Series D convertible
preferred stock, $10,000 per share, net
of expenses -- -- -- -- 3,719,636
Series D preferred stock imputed dividends 879,672 -- -- (879,672) --
Conversion of 35 shares of Series C
convertible preferred stock into
384,574 shares of common stock 752,092 -- -- -- --
Conversion of 400 shares of Series D
convertible preferred stock into
1,433,437 shares of common stock 3,718,203 -- -- -- --
Issuance of 50,000 shares of common stock
upon exercise of warrant 149,950 -- -- -- 150,000
Issuance of 30,662 shares of common stock
upon exercise of stock options 93,737 -- -- -- 93,768
9% preferred stock dividends (9,900) -- -- -- (9,900)
Net loss -- -- -- (4,929,980) (4,929,980)
----------- ----------- ----------- ------------ -----------
Balance, June 30, 1997 $34,643,526 $ -- $ -- $(32,181,443) $ 2,668,287
----------- ----------- ----------- ------------ -----------
</TABLE>
Continued..............
<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, 1997 $ 110,000 $ 86,810 $ -- $ -- $ 9,394
Issuance of warrants to purchase 75,000
shares of common stock -- -- -- -- --
Conversion of 75,000 shares of 9% preferred
stock into 9,999 shares of common stock (75,000) -- -- -- 10
Conversion of 150 shares of Series A
preferred stock into 832,878 shares of
common stock -- -- -- -- 833
Adjustment of accrued dividends for
conversion of 9% preferred stock -- -- -- -- --
9% preferred stock dividends -- -- -- -- --
Net loss -- -- -- -- --
----------- ----------- ------------ ----------- -----------
Balance, June 30, 1998 35,000 86,810 -- -- 10,237
Conversion of 7,500 shares
of 9% preferred stock into 999 shares of
common stock (7,500) -- -- -- --
Conversion of 75,000 shares of Series B
preferred stock into 7,359 shares of
common stock -- (43,405) -- -- 7
Conversion of 250 shares of Series A
preferred stock into 5,272,398 shares of
common stock -- -- -- -- 5,273
Adjustment of accrued dividends for
conversion of 9% preferred stock -- -- -- -- --
9% preferred stock dividends -- -- -- -- --
Issuance of compensatory stock options -- -- -- -- --
Issuance of 1,500 shares of common stock
upon exercise of stock options -- -- -- -- 2
Net loss -- -- -- -- --
----------- ----------- ------------ ----------- -----------
Balance, June 30, 1999 27,500 43,405 -- -- 15,519
----------- ----------- ------------ ----------- -----------
Issuance of 8,800 shares of common stock
upon exercise of stock options -- -- -- -- 9
Net loss -- -- -- -- --
----------- ----------- ------------ ----------- -----------
Balance, September 30, 1999 $ 27,500 $ 43,405 $ -- $ -- $ 15,528
=========== =========== ============ =========== ===========
<CAPTION>
Unrealized
gain on Deficit
available for accumulated
Additional sale U.S. during the
paid-in Deferred Government development
capital compensation securities stage Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1997 $34,643,526 $ -- $ -- $(32,181,443) $ 2,668,287
Issuance of warrants to purchase 75,000
shares of common stock 34,774 -- -- -- 34,774
Conversion of 75,000 shares of 9% preferred
stock into 9,999 shares of common stock 74,990 -- -- -- --
Conversion of 150 shares of Series A
preferred stock into 832,878 shares of
common stock 1,475,437 -- -- -- 1,476,270
Adjustment of accrued dividends for
conversion of 9% preferred stock 50,625 -- -- -- 50,625
9% preferred stock dividends (3,150) -- -- -- (3,150)
Net loss -- -- -- (5,257,960) (5,257,960)
----------- ----------- ----------- ------------ -----------
Balance, June 30, 1998 36,276,202 -- -- (37,439,403) (1,031,154)
Conversion of 7,500 shares
of 9% preferred stock into 999 shares of
common stock 7,500 -- -- -- --
Conversion of 75,000 shares of Series B
preferred stock into 7,359 shares of
common stock 43,398 -- -- -- --
Conversion of 250 shares of Series A
preferred stock into 5,272,398 shares of
common stock 2,455,177 -- -- -- 2,460,450
Adjustment of accrued dividends for
conversion of 9% preferred stock 5,737 -- -- -- 5,737
9% preferred stock dividends (2,475) -- -- -- (2,475)
Issuance of compensatory stock options 25,000 -- -- -- 25,000
Issuance of 1,500 shares of common stock
upon exercise of stock options 561 -- -- -- 563
Net loss -- -- -- (1,621,450) (1,621,450)
----------- ----------- ----------- ------------ -----------
Balance, June 30, 1999 38,811,100 -- -- (39,060,853) (163,329)
----------- ----------- ----------- ------------ -----------
Issuance of 8,800 shares of common stock
upon exercise of stock options 3,292 -- -- -- 3,301
Net loss -- -- -- (291,183) (291,183)
----------- ----------- ----------- ------------ -----------
Balance, September 30, 1999 $38,814,392 $ -- $ -- $(39,352,036) $ (451,211)
=========== =========== =========== ============ ===========
</TABLE>
See accompanying notes.
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Period from Period from
(Unaudited) inception inception
Three months ended (February 10, (February 10,
September 30, 1987) through Years ended June 30, 1987) through
------------------------ September 30, -------------------------- June 30,
1999 1998 1999 1999 1998 1999
----------- ----------- ------------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss $(291,183) $(1,186,358) $(37,320,197) $ (1,621,450) $ (5,257,960) $(37,029,014)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 46,835 52,607 1,753,238 197,662 201,660 1,706,403
Settlement with Alkermes, Inc. -- -- 1,227,977 -- -- 1,227,977
Changes in operating assets/liabilities:
Accounts payable and accrued expenses (69,442) 56,273 620,113 219,033 (89,764) 689,555
Accrued interest on U.S. Govt
securities -- -- (171,238) -- (8,709) (171,238)
Other current assets 29,476 42,564 (31,501) 10,589 (36) (60,977)
Interest receivable from former
officer -- -- (19,274) -- -- (19,274)
Realized loss on sale of U.S. Govt
securities -- -- 54,317 -- -- 54,317
Stock option compensation expense -- -- 555,809 -- -- 555,809
Stock issued for services -- -- 28,750 -- -- 28,750
Reduction in note receivable from
former officer- compensation expense -- -- 22,600 -- -- 22,600
Other (196,922) 12,906 45,220 53,145 88,743 242,142
------------ ------------ ------------ ------------ ------------ ------------
Net cash used in operating activities (481,236) (1,022,008) (33,234,186) (1,141,021) (5,066,066) (32,752,950)
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from investing activities:
U.S. Government securities-available for sale
Purchases -- -- (38,823,738) -- (1,739,995) (38,823,738)
Sales -- -- 38,940,820 -- 1,750,000 38,940,820
Purchase of fixed assets (4,243) (2,580) (2,214,092) (74,213) (187,235) (2,209,849)
Sale of fixed assets -- -- 10,988 -- -- 10,988
Decrease (increase) in -
Other assets -- -- (39,870) -- -- (39,870)
Note receivable from former officer -- -- (100,000) -- -- (100,000)
------------ ------------ ------------ ------------ ------------ ------------
Net cash used in investing activities (4,243) (2,580) (2,225,892) (74,213) (177,230) (2,221,649)
------------ ------------ ------------ ------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of 9% preferred
stock -- -- 1,076,588 -- -- 1,076,588
Redemption of 9% preferred stock -- -- (63,750) -- -- (63,750)
Payment of 9% preferred stock dividends -- -- (110,250) -- -- (110,250)
Proceeds from issuance of convertible
preferred stock -- -- 13,074,007 -- -- 13,074,007
Proceeds from issuance of common stock 3,301 -- 21,926,282 563 -- 21,922,981
Proceeds from subordinated convertible note -- -- 208,333 -- -- 208,333
Principal payments on note payable to
Alkermes, Inc. (137,888) -- (337,888) -- (200,000) (200,000)
Principal payments on capitalized leases -- -- (23,973) -- (1,499) (23,973)
------------ ------------ ------------ ------------ ------------ ------------
Net cash provided by (used in)
financing activities (134,587) -- 35,749,349 563 (201,499) 35,883,936
------------ ------------ ------------ ------------ ------------ ------------
Increase (decrease) in cash and cash
equivalents (620,066) (1,024,588) 289,271 (1,214,671) (5,444,795) 909,337
Cash and cash equivalents, beginning of
period 909,337 2,124,008 -- 2,124,008 7,568,803 --
------------ ------------ ------------ ------------ ------------ ------------
Cash and cash equivalents, end of period $ 289,271 $ 1,099,420 $ 289,271 $ 909,337 $ 2,124,008 $ 909,337
============ ============ ============ ============ ============ ============
See accompanying notes.
</TABLE>
F-10
<PAGE>
Cortex Pharmaceuticals, Inc.
(A development stage enterprise)
NOTES TO FINANCIAL STATEMENTS
Period from inception (February 10, 1987) through September 30, 1999
All information as of September 30, 1999, for the three-month periods ended
September 30, 1999 and 1998, and for the period from inception (February 10,
1987) through September 30, 1999 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 three-
month period ended September 30, 1999 are not necessarily indicative of the
results that may be expected for the fiscal year ending June 30, 2000.
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 -- The accompanying
financial statements have been prepared assuming that the Company will continue
as a going concern. This basis of accounting contemplates the recovery of the
Company's assets and the satisfaction of its liabilities in the normal course of
business. As of September 30, 1999, the Company had an accumulated deficit of
$39,352,036, net capital deficiency of $451,211 and negative working capital of
$987,326. Due to the Company's recurring losses and net capital deficiency,
there can be no assurance that the Company will be able to obtain additional
operating capital, which may impact the Company's ability to continue as a going
concern. The accompanying financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets of the amounts and classification of liabilities that may result from the
possible inability of the Company to continue as a going concern.
From inception through September 30, 1999, the Company has generated only modest
operating revenues and has incurred losses aggregating $37,320,197. 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 is no assurance that the Company will be successful in these areas.
In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon ("Organon"), a subsidiary of Akzo
Nobel (Note 5). The agreement will enable Organon to develop or commercialize
the Company's Ampakine(R) technology for the treatment of schizophrenia and, at
Organon's election, for the treatment of depression. The Company is seeking
collaborative arrangements with other pharmaceutical companies for other
applications of the Ampakine compounds, 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 that 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 in discussions with candidate companies,
there is 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 or longer-term funding
requirements.
To supplement its existing resources, the Company may need to raise additional
capital through the sale of debt or equity. There is 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.
F-11
<PAGE>
Cash Equivalents -- The Company considers all highly liquid short-term
investments with maturities of less than three months when acquired to be cash
equivalents.
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 and includes preferred stock
dividends. 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. For purposes of computing net loss per share, preferred
stock dividends include dividends that actually accrued and `imputed dividends'
for preferred stock issued with a nondetachable beneficial conversion feature
near the date of issuance. Imputed dividend represents the aggregate difference
between the conversion price and the fair market value of the common stock as of
the date of issuance of the preferred stock, without regard to the actual date
upon which the preferred stock may be converted.
New Accounting Standard -- In June 1997, the Financial Accounting Standards
Board issued SFAS No. 130, "Reporting Comprehensive Income," effective for
fiscal years beginning after December 15, 1997. SFAS No. 130 requires the
reporting of all components of comprehensive income, including net income, in
the financial statements in the period in which the components are recognized.
Comprehensive income is defined as the change in equity during a period from
transactions and other events and circumstances from non-owner sources. Net
income and other comprehensive income, including foreign currency translation
adjustments and unrealized gains and losses on investments, shall be reported
net of their related tax effect to arrive at comprehensive income. Because
comprehensive loss was not different than net loss, adoption of SFAS No. 130 did
not have an impact on the Company's financial statements.
Employee Stock Options -- The Company has elected to follow Accounting
Principles Opinion No. 25, "Accounting for Stock Issued to Employees" (APB 25),
in accounting for its employee stock options because the alternative fair value
accounting provided under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock -Based Compensation" (SFAS 123), requires use of option
valuation models that were not developed for use in valuing employee stock
options. According to APB 25, no compensation expense is recognized since the
exercise price of the Company's stock options equals the market price of the
underlying stock on the date of grant.
Research and Development Costs -- All costs related to research and development
activities are treated as expenses in the period incurred.
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.
Reclassifications -- Certain previously reported amounts have been reclassified
to conform with the June 30, 1999 presentation.
F-12
<PAGE>
Note 2 -- Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements consist of the following:
<TABLE>
<CAPTION>
(Unaudited)
September 30, 1999 June 30, 1999 June 30, 1998
------------------------------------------------
<S> <C> <C> <C>
Laboratory equipment $ 1,217,994 $ 1,216,266 $ 1,168,958
Leasehold improvements 622,036 622,036 622,036
Furniture and equipment 112,129 112,129 112,129
Computers and software 265,428 262,913 236,008
----------- ----------- -----------
2,217,587 2,213,344 2,139,131
Accumulated depreciation (1,728,209) (1,681,374) (1,483,712)
----------- ----------- -----------
$ 489,378 $ 531,970 $ 665,419
=========== =========== ===========
</TABLE>
Note 3 -- Redeemable Preferred Stock
Series A Convertible Preferred Stock ("Series A Preferred") at June 30, 1998
consisted of 250 shares of 400 shares originally issued in a two-tranche private
placement in June 1997. The Series A Preferred was convertible at an effective
conversion price derived from 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 ("Average Stock Price"). The effective
conversion price was equal to 80% of the Average Stock Price if the Average
Stock Price was greater than $2.50 per share at the time of conversion; $2.00
per share if the Average Stock Price was less than $2.50 but greater than $2.10
per share; or 95% of the Average Stock Price if the Average Stock Price was less
than or equal to $2.10 per share. The conversion rate was 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 its conversion. As of June 30, 1999,
all outstanding shares of Series A Preferred had been converted into an
aggregate of 6,105,276 shares of the Company's common stock at effective
conversion prices ranging from $0.30 to $2.17 per share of common stock. Imputed
dividends of $1,012,493 related to the private placement were recorded for the
year ended June 30, 1997.
Note 4 -- Stockholders' Equity
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"); 500 shares have been designated as Series D Convertible
Preferred Stock (non-voting, "Series D Preferred"); 400 shares have been
designated as Series A Convertible Preferred Stock (non-voting, "Series A
Preferred"); and 549,100 shares are presently 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 September 30, 1999, June 30,
1999 and June 30, 1998 consisted of 27,500, 27,500 and 35,000 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 September 30,
1999, June 30, 1999 and June 30, 1998 were $23,513, $23,513, and
F-13
<PAGE>
$26,775, 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 September 30, 1999, June 30, 1999 and
June 30, 1998 consisted of 75,000, 75,000 and 150,000 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 originally consisted of 160 shares issued
in a private placement in December 1995. As of June 30, 1997, all outstanding
shares of Series C Preferred had been converted into 1,517,611 shares of common
stock. The relative effective conversion prices ranged from $2.33 to $2.83, as
computed in accordance with a formula that was indexed to the average bid price
of the Company's common shares.
Series D Convertible Preferred Stock originally consisted of 400 shares issued
in a three-tranche private placement initiated in October 1996 and completed in
February 1997. As of June 30, 1997, all outstanding shares of Series D Preferred
had been converted into an aggregate of 1,433,437 shares of the Company's common
stock. The effective conversion prices ranged from $2.06 to $3.35 per share, as
computed in accordance with a formula that was indexed to the average bid price
of the Company's common shares. During the year ended June 30, 1997, imputed
dividends aggregating $879,672 were recorded in connection with the three
tranches.
Common Stock and Common Stock Purchase Warrants
In connection with the December 1995 private placement of 160 shares of Series C
Preferred Stock, the Company issued 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.
In connection with the June 1997 private placement of 400 shares of Series A
Preferred Stock, the Company issued to the eleven participating institutional
investors four-year non-redeemable warrants to purchase an aggregate of 800,000
shares of common stock at a price of $3.08 per share, subject to adjustment
under certain circumstances.
In connection with the restructuring of the note payable to Alkermes, Inc. (Note
6) in February 1998, the Company issued to Alkermes a five-year warrant to
purchase 75,000 share of common stock at an exercise price of $1.547 per share,
representing the average of the high and low sale prices of Cortex common stock
as of the date of the restructuring.
In connection with the restructuring of the note payable to Alkermes, Inc. (Note
6) in July 1999, the Company agreed to issued to Alkermes a five-year warrant to
purchase 100,000 shares of common stock at an exercise price derived from the
fair market value of the Company's common stock. In accordance with the
restructuring agreement, because the balance of the note and accrued interest
were not paid by December 31, 1999, the Company agreed to issue to Alkermes an
additional five-year warrant to purchase 50,000 shares of common stock at an
exercise price of $0.76 per share. The exercise price for this warrant
represents the average of the closing prices reported for the Company's common
stock for the 30 trading days preceding December 31, 1999.
As of September 30, 1999, the Company had reserved an aggregate of 3,667 shares
of common stock for issuance upon conversion of the outstanding 9% Preferred
Stock; 7,359 shares for issuance upon conversion of the Series B Preferred
Stock; 1,401,501 shares for issuance upon exercise of warrants; and 1,439,497
shares for issuance upon exercise of outstanding stock options.
F-14
<PAGE>
Stock Option and Stock Purchase Plans
Employee/Director Option Plan -- The Company's 1989 Incentive Stock Option,
Nonqualified Stock Option and Stock Purchase Plan provided 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 terminated February 2, 1999, was at least 85% of
the fair market value of the common stock on the date of grant. The exercise
price of incentive stock options was at least equal to the fair market value of
the common stock on the date of grant. As of September 30, 1999 and June 30,
1999, there were no options outstanding under this plan.
Consultant Plan -- The Company's 1989 Special Nonqualified Stock Option and
Stock Purchase Plan provided 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 terminated February
2, 1999, was at least 50% of the fair market value of the common stock on the
date of grant. As of September 30, 1999 and June 30, 1999, options to purchase
an aggregate of 2,000 shares of common stock were outstanding under this plan.
1996 Stock Incentive Plan -- The Company's 1996 Stock Incentive Plan ("1996
Plan") provides for the granting of options and rights to purchase up to an
aggregate of 3,298,058 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 earlier stock option and stock purchase plans. The
exercise price of nonqualified stock options and the purchase price of stock
offered under the 1996 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 September 30, 1999 and June 30,
1999, options to purchase an aggregate of 1,437,497 and 1,440,796 shares of
common stock, respectively, were outstanding under the 1996 Plan, and an
additional 1,858,561 and 807,611 shares of common stock, respectively, were
reserved for future option grants.
During the year ended June 30, 1999, the Company restated the exercise price of
stock options previously granted to employees, directors and some consultants to
the Company. Options to purchase a total of 892,456 shares of the Company's
common stock were repriced from a weighted average of $3.88 per share to $0.375
per share, representing the fair market value of the Company's common stock as
of the date of the repricing. In accordance with APB 25, no expense was recorded
as a result of this repricing. The Financial Accounting Standards Board is
currently deliberating the accounting for stock option repricings, and is
expected to issue new guidance for such transactions. If new guidance is issued,
it may require the Company to record additional expense related to the repricing
in prospective financial statements.
As of September 30, 1999 and June 30, 1999, options to purchase an aggregate of
791,117 and 797,417 shares of common stock, respectively, were exercisable under
the Company's stock option plans. During the years ended June 30, 1999 and 1998
and the period from inception (February 10, 1987) through June 30, 1999, options
to
F-15
<PAGE>
purchase 0, 0, and 261,289 shares of common stock, respectively, were issued to
certain directors and officers 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. Stock option compensation expense related to
these transactions, aggregating $0, $0, $555,809, $0, $0 and $555,809 for the
three-month periods ended September 30, 1999 and 1998, and the period from
inception (February 10, 1987) through September 30, 1999, the years ended June
30, 1999 and 1998 and the period from inception (February 10, 1987) through June
30, 1999, respectively, has been recorded in the accompanying statements of
operations.
Stock option transactions under the Company's stock option plans for each of the
two years in the period ended June 30, 1999 are summarized below:
<TABLE>
<CAPTION>
Weighted average
Number exercise price
of shares per share
-----------------------------
<S> <C> <C>
Outstanding as of June 30, 1997 969,179 $ 4.25
Granted 142,029 2.42
Exercised 0 --
Forfeited (116,562) 5.00
---------- ------------
Outstanding as of June 30, 1998 994,646 $ 3.90
Granted 1,545,896 0.45
Exercised (1,500) 0.38
Forfeited (1,096,246) 3.63
---------- ------------
Outstanding as of June 30, 1999 1,442,796 $ 0.42
========== ============
Available for future grant 807,611
==========
</TABLE>
Pro-Forma Information -- The Company has elected to continue accounting for its
employee stock options in accordance with Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APB 25"). Under APB 25,
because the exercise price of the Company's employee stock options is equal to
the market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net loss and net loss per share is required by
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), and has been determined as if the Company had
accounted for its employee stock plans under the fair value method. The fair
value was estimated at the date of grant using the Black-Scholes option pricing
model and the following assumptions for the years ended June 30, 1999 and 1998,
respectively: weighted average risk-free interest rates of 5.5% and 5.4%;
dividend yields of 0%; volatility factors of the expected market price of the
Company's common stock of 186% and 90%; and a weighted average life of 3.0 years
and 3.3 years. The estimated weighted average fair value of options granted
during the years ended June 30, 1999 and 1998 was $0.40 and $1.48, respectively.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options that have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Because
the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
F-16
<PAGE>
For purposes of pro forma disclosures, the estimated fair value of the options
is amortized as expense over the vesting period of the options, resulting in the
following pro forma information for the years ended June 30, 1999 and 1998:
<TABLE>
<CAPTION>
June 30,
1999 1998
------------------------
<S> <C> <C>
Pro forma net loss before preferred
stock accretion and dividends $1,945,558 $5,567,617
Pro forma net loss applicable to
common stock 1,948,033 5,570,767
Pro forma net loss per share $ (0.15) $ (0.58)
</TABLE>
The results above are not necessarily indicative of the effects of SFAS 123 on
reported net income or loss for future periods as these amounts reflect the
related expense for only two years of stock option vesting.
Information regarding stock options outstanding at June 30, 1999 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- ---------------------------------
Weighted
Number average Weighted Number Weighted
Range of outstanding remaining average exercisable average
exercise prices at June 30, 1999 contractual life exercise price at June 30, 1999 exercise price
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$0.34 - 0.38 984,600 7.3 years $0.37 640,417 $0.38
0.47 - 4.50 458,196 9.6 years 0.58 157,000 0.58
---------------- ----------------
1,442,796 797,417
================ ================
</TABLE>
Note 5 -- Research and License Agreement with NV Organon
In January 1999, the Company entered into a research collaboration and exclusive
worldwide license agreement with NV Organon, a pharmaceutical business unit of
Akzo Nobel (The Netherlands). The agreement will enable Organon to develop and
commercialize the Company's proprietary Ampakine technology for the treatment of
schizophrenia and, upon Organon's election, for the treatment of depression.
In connection with the agreement with Organon, during the year ended June 30,
1999, the Company received an up-front payment of $2,000,000 and research
support payments of $1,150,000. In July 1999, the Company received further
research support of $762,500. The agreement includes research support payments
of up to $3,000,000 per year for two years (subject to Cortex providing agreed-
upon levels of research), milestone payments, plus royalty payments on worldwide
sales.
Note 6 -- Note Payable to Alkermes, Inc.
In January 1992, the Company entered into an agreement with Alkermes, Inc.
("Alkermes") for the development, clinical testing and commercialization of the
Company's calpain inhibitor products (the "Alkermes Agreement"). In connection
with the Alkermes Agreement, the Company granted 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. The Company received an aggregate of
$3,600,000 in research payments under the Alkermes Agreement during the fiscal
years ended June 30, 1992 and 1993.
F-17
<PAGE>
In November 1993, Alkermes filed an action alleging that the Company had
breached the Alkermes Agreement by developing calpain inhibitors for cerebral
vasospasm. In October 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. 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.
In February 1998, the terms of the note were restructured to include a principal
payment of $200,000 upon signing of the new agreement. The balance of the note
and accrued interest was payable in October 1999 or upon the consummation of a
corporate partnership between Cortex and a larger pharmaceutical company,
whichever was earlier. In connection with the restructuring agreement, the
Company issued to Alkermes a five-year warrant to purchase 75,000 shares of
common stock at an exercise price of $1.55 per share, representing the average
of the high and low sale prices of Cortex common stock as of the date of the
restructuring. With the signing of the license agreement with NV Organon (Note
5), the note and accrued interest became due and payable.
In July 1999, Alkermes agreed to restructure the terms of the note to include a
principal and interest payment of $250,000 and monthly payments of $50,000 from
August 1999 through January 2000. The balance of the note and accrued interest
are due and payable on or before February 28, 2000. Interest on the unpaid
balance accrues at a 1% to 3% premium to the prime lending rate, based upon the
date of payment. In connection with this restructuring agreement, the Company
agreed to issue to Alkermes a five-year warrant to purchase 100,000 shares of
common stock at an exercise price derived from the fair market value of the
Company's common stock. In accordance with the restructuring agreement, because
the balance of principal and accrued interest was not paid by December 31, 1999,
Cortex has agreed to issue to Alkermes another five-year warrant to purchase
50,000 shares of common stock at a price per share of $0.76. This exercise
price is derived from the average of the closing sale prices reported for the
Company's common stock for the 30 trading days preceding December 31, 1999.
If the Company needs to extend the due date of the note, it has agreed to issue
to Alkermes another five-year warrant to purchase 50,000 shares of Cortex common
stock. The exercise price for this warrant will be derived from the fair market
value of the stock as of February 28, 2000. If the due date is extended, the
Company agrees to continue to pay Alkermes $50,000 per month, with the balance
of the note and accrued interest due May 31, 2000.
Note 7 -- Commitments
The Company leases its offices and research laboratories under an operating
lease that expires May 31, 2004. Rent expense under this lease for the three-
month periods ended September 30, 1999 and 1998, the period from inception
(February 10, 1987) through September 30, 1999, the years ended June 30, 1999
and 1998 and the period from inception (February 10, 1987) through June 30, 1999
was $58,000, $55,000, $2,191,000, $260,000, $234,000 and $2,133,000,
respectively. Commitments under the lease for the years ending June 30, 2000,
2001, 2002, 2003 and 2004 are $255,000, $310,000, $353,000, $368,000 and
$356,000, respectively.
As of June 30, 1999, the Company was obligated to an executive officer under an
employment agreement expiring in May 2000. The agreement involves annual salary
payments aggregating $220,000 and provides for bonuses under certain
circumstances. Additionally, in the event that the Company commercializes a
compound developed by or under the supervision of one of its senior scientific
employees, the Company may be obligated to pay the employee a royalty based on
net sales, as defined and subject to adjustment, of products containing the
compound. As of June 30, 1999, the Company was committed under scientific
consulting and external research agreements to annual payments aggregating
approximately $672,000.
The Company has entered agreements with an academic institution that provide the
Company exclusive rights to certain of the technologies that the Company is
developing. Under the terms of the agreements, the Company is committed to
royalty payments. These payments include minimum annual royalties of $90,000 for
the year ending June 30, 2000 and for each year thereafter for the remaining
life of the patents covering the subject technologies. The agreements also
commit 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.
F-18
<PAGE>
Note 8 -- Related Party Transactions
During the years ended June 30, 1999 and 1998, and the period from inception
(February 10, 1987) through June 30, 1999, the Company paid or accrued
scientific and other consulting fees to stockholders aggregating $78,417,
$88,000 and $1,184,974, respectively. Under certain circumstances, the Company
is obligated 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 connection with its services as placement agent in the 1993 private placement
of 2,750,000 shares of common stock, 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 363,113 shares of the
Company's common stock at $3.47 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. This warrant expired unexercised.
As consideration for its agreement to provide financial advisory services, as
amended and extended in November 1994, Vector was paid a retainer of $50,000 and
was issued a six-year non-redeemable warrant to purchase 57,193 shares of the
Company's common stock at $3.06 per share, subject to adjustment under certain
circumstances. Warrants to purchase 8,169 shares of the Company's common stock
vested immediately, and warrants to purchase 24,512 shares of the Company's
common stock vest upon the consummation of each strategic alliance when and as
secured by Vector.
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, 1999, the Company had
federal and California tax net operating loss carryforwards of approximately
$34,459,000 and $4,131,000, 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
California tax loss carryforwards will continue to expire in 1999 (approximately
$701,000 expired in 1998), while the federal carryforwards begin expiring in
2004. The Company also has federal and California research and development tax
credit carryforwards totaling $1,154,000 and $440,000, respectively, which will
begin to expire in 2004.
Utilization of the net operating loss 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 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, 1999
and June 30, 1998 are shown below. The valuation allowance related to deferred
tax assets is $15,629,000 and $15,413,000 for the years ended June 30, 1999 and
1998, respectively. The increase in the valuation allowance for the year ended
June 30, 1999 of $216,000 is primarily due to additional reserves required for
new deferred tax assets.
F-19
<PAGE>
Deferred tax assets:
<TABLE>
<CAPTION>
June 30,
1999 1998
----------------------------
<S> <C> <C>
Net operating loss carryforwards $ 12,299,000 $ 11,727,000
Capital loss carryforwards 22,000 23,000
Research and development credits 1,436,000 1,336,000
Capitalized research and development costs 1,309,000 1,801,000
Settlement with Alkermes, Inc. 407,000 406,000
Depreciation 88,000 83,000
Other-net 68,000 37,000
------------ ------------
Net deferred tax assets 15,629,000 15,413,000
------------ ------------
Valuation allowance for deferred tax assets (15,629,000) (15,413,000)
------------ ------------
Total deferred tax assets $ -- $ --
============ ============
</TABLE>
F-20
<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................................................ 9
Price Range of Common Stock.................................... 10
Dividend Policy................................................ 11
Capitalization................................................. 11
Selected Financial Data........................................ 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 14
Business....................................................... 18
Management..................................................... 26
Certain Transactions........................................... 32
Principal Stockholders......................................... 33
Description of Securities...................................... 34
Selling Stockholders........................................... 37
Plan of Distribution........................................... 38
Legal Matters.................................................. 38
Experts........................................................ 38
Index to Financial Statements.................................. F-1
Report of Independent Auditors................................. F-2
Financial Statements........................................... F-3
===============
____ SHARES
CORTEX PHARMACEUTICALS, INC.
COMMON STOCK
===============
PROSPECTUS
===============
__________, 2000
<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 its officers, which provide for the indemnification of directors
and the 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.
<TABLE>
<CAPTION>
Amount
-------
<S> <C>
SEC Registration Fee $ 4,095
Accounting Fees and Expenses 20,000
Legal Fees and Expenses 25,000
Miscellaneous 25,000
-------
$74,095
=======
</TABLE>
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.
1. 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.
2. 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.
II-1
<PAGE>
3. On June 30, 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.
4. In February 1998, the Company issued a warrant to purchase 75,000 shares
of Common Stock to Alkermes, Inc. in connection with the restructuring
of a promissory note.
5. In July 1999, the Company issued a warrant to purchase 100,000 shares of
Common Stock to Alkermes, Inc. in connection with the restructuring of a
promissory note.
6. In December 1999, the Company issued a warrant to purchase 50,000 shares
of Common Stock to Alkermes, Inc. in connection with the restructuring
of a promissory note.
The foregoing sales of securities described 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.
Item 27. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------------------------------------------------------------------------
<S> <C>
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, and by Certificate of Amendment filed December 21,
1998.
3.2 By-Laws of the Company, as adopted March 4, 1987, and amended through
October 8, 1996, incorporated by reference to Exhibit 3.2 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, incorporated by reference to
the same numbered Exhibit to the Company's Registration Statement on
Form SB-2, Number 333-29493, filed June 18, 1997.
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.*
10.9 1989 Special Nonqualified Stock Option and Stock Purchase Plan.*
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).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------------------------------------------------------------------------
<S> <C>
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).
10.42 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.
10.44 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.
10.46 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.
10.48 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).
10.51 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.
10.55 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.
10.58 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.
10.60 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, incorporated by reference to the same numbered
Exhibit to the Company's Registration Statement on Form SB-2, No. 333-
29493, filed June 18, 1997.
10.62 Form of Warrant issued to each purchaser of Series A Preferred Stock,
incorporated by reference to the same numbered Exhibit to the
Company's Registration Statement on Form SB-2, No. 333-29493, filed
June 18, 1997.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------------------------------------------------------------------------
<S> <C>
10.63 Registration Rights Agreement with holders of Series A Preferred
Stock, incorporated by reference to the same numbered Exhibit to the
Company's Registration Statement on Form SB-2, No. 333-29493, filed
June 18, 1997.
10.64 Research and Collaboration and License Agreement between the Company
and N.V. Organon, dated January 13, 1999, incorporated by reference to
Exhibit 10.64 of the Company's quarterly report on Form 10-QSB as
filed on February 16, 1999. (Portions of this Exhibit were omitted and
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.)
10.65 Amendment No. 1 to the Lease Agreement for the Company's facilities in
Irvine, California, dated February 1, 1999.**
21 Subsidiaries of the Registrant, incorporated by reference to the same
numbered Exhibit to the Company's Registration Statement on Form SB-2,
No. 333-29493, filed June 18, 1997.
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.
</TABLE>
- -------------
* 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.
** Previously filed.
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 8th day of
February, 2000.
CORTEX PHARMACEUTICALS, INC.
By: /s/ Vincent F. Simmon, Ph.D.
--------------------------------------------
Vincent F. Simmon, Ph.D.
President and Chief Executive Officer
We, the undersigned directors officers of Cortex Pharmaceuticals, Inc., do
hereby constitute and appoint Vincent F. Simmon, Ph.D. as our true and lawful
attorney and agent, to do any and all acts and things in our name and behalf in
our capacities as directors and to execute any and all instruments for us and in
our names in the capacities indicated below, which said attorney and agent 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 attorney and agent 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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chairman of the Board February 8, 2000
- -------------------------------- and Director
Robert F. Allnutt
* Director February 8, 2000
- --------------------------------
Charles J. Casamento
* Director February 8, 2000
- --------------------------------
Carl W. Cotman, Ph.D.
</TABLE>
S-1
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Director February 8, 2000
- -------------------------------
Michael G. Grey
/s/ Maria S. Messinger Chief Financial Officer February 8, 2000
- -------------------------------
Maria S. Messinger
/s/ Vincent F. Simmon, Ph.D. President and Chief February 8, 2000
- ------------------------------- Executive Officer, Director
Vincent F. Simmon, Ph.D.
(Principal Executive Officer)
* Director February 8, 2000
- -------------------------------
Davis L. Temple, Jr., Ph.D.
/s/ Vincent F. Simmon, Ph.D.
- -------------------------------
* Vincent F. Simmon, Ph.D.,
Attorney-in-fact
</TABLE>
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, by
Certificate of Designation filed June 4, 1997 and by Certificate of
Amendment filed December 21, 1998.
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 Registrant, incorporated by reference to the
same numbered Exhibit to the Company's Registration Statement on
Form SB-2, No. 333-29493, filed June 18, 1997.
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. *
10.9 1989 Special Nonqualified Stock Option and Stock Purchase Plan. *
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).
10.31 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).
10.42 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.
10.44 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.
10.46 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.
10.48 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 *
EXH-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- -------------------------------------------------------------------------------
<S> <C>
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).
10.51 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.
10.55 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.
10.58 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.
10.60 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, incorporated by reference to the same numbered
Exhibit to the Company's Registration Statement on Form SB-2, No.
333-29492, filed June 18, 1997.
10.62 Form of Warrant issued to each purchaser of Series A Preferred
Stock, incorporated by reference to the same numbered Exhibit to the
Company's Registration Statement on Form SB-2, No. 333-29492, filed
June 18, 1997.
10.63 Registration Rights Agreement with holders of Series A Preferred
Stock, incorporated by reference to the same numbered Exhibit to the
Company's Registration Statement on Form SB-2, No. 333-29492, filed
June 18, 1997.
10.64 Research and Collaboration and License Agreement between the Company
and N.V. Organon, dated January 13, 1999, incorporated by reference
to Exhibit 10.64 of the Company's quarterly report on Form 10-QSB as
filed on February 16, 1999. (Portions of this Exhibit were omitted
and 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.)
10.65 Amendment No. 1 to the Lease Agreement for the Company's facilities
in Irvine, California, dated February 1, 1999.**
21 Subsidiaries of the Registrant, incorporated by reference to the
same numbered Exhibit to the Company's Registration Statement on
Form SB-2, No. 333-29493, filed June 18, 1997.
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.
</TABLE>
EXH-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
- --------------------------------------------------------------------------------
<S> <C>
24 Power of Attorney (included on signature page).
27 Financial Data Schedule.
</TABLE>
____________________
* 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.
** Previously filed.
EXH-3
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
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, $0.001 par value per share
(the "Preferred Stock").' "
SECOND: That thereafter, pursuant to resolution of its Board of
Directors, the Annual Meeting of the Stockholders of the Corporation was duly
called and held, upon notice in accordance with Section 222 of the General
Corporation Law of the State of Delaware, at which meeting the necessary number
of shares as required by statute were voted in favor of the amendment.
THIRD: Said amendments were duly adopted in accordance with the
provisions of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, CORTEX PHARMACEUTICALS, INC. has caused this
Certificate of Amendment to be signed by D. Scott Hagen, its duly authorized
Vice President and Chief Financial Officer, this 5th day of January, 1995.
CORTEX PHARMACEUTICALS, INC.,
a Delaware corporation
By: /s/ D. SCOTT HAGEN
-------------------------------------
D. Scott Hagen,
Vice President and Chief Financial
Officer
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<PAGE>
CERTIFICATE OF DESIGNATION, NUMBER, POWERS, PREFERENCES
AND RELATIVE, PARTICIPATING, OPTIONAL, AND OTHER SPECIAL
RIGHTS AND THE QUALIFICATIONS, LIMITATIONS, RESTRICTIONS, AND OTHER
DISTINGUISHING CHARACTERISTICS OF SERIES C PREFERRED STOCK
OF
CORTEX PHARMACEUTICALS, INC.
It is hereby certified that:
1. The name of the Corporation (hereinafter called the "Corporation") is
Cortex Pharmaceuticals, Inc., a Delaware corporation.
2. The articles of incorporation of the Corporation authorizes the issuance
of Five Million (5,000,000) shares of Preferred Stock of a par value of one
one-hundredths of one cent ($.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.
3
<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
<PAGE>
(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
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Agent as provided in Section 5(b), or the Holder notifies the Transfer Agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. Notwithstanding the
foregoing, in the event that the certificates evidencing the Series C Preferred
Stock redeemed are not delivered to the Transfer Agent as provided in Section
5(b), the redemption of the Series C Preferred Stock pursuant to this Section
6(a) shall still be deemed effective as of the Date of Redemption Upon Receipt
of Notice of Conversion.
(b) CORPORATION'S RIGHT TO REDEEM AT ITS ELECTION. Commencing 45 days
after the Last Closing Date, the Corporation shall have the right in its sole
discretion, to redeem from time to time, any or all of the Series C Preferred
Stock; provided that, the Corporation shall only be entitled to redeem shares of
Series C Preferred Stock with an aggregate Stated Value (as defined below) of at
least One Million Dollars ($1,000,000) on the first such redemption. If the
Corporation elects to redeem some, but not all, of the Series C Preferred Stock,
the Corporation shall redeem a pro-rata amount from each Holder of Series C
Preferred Stock. The Corporation shall effect each such redemption by giving at
least 30 days prior written notice ("Notice of Redemption At Corporation's
Election") to (A) the Holders of Series C Preferred Stock selected for
redemption, at the address and facsimile number of such Holder appearing in the
Corporation's register for the Series C Preferred Stock and (B) the Transfer
Agent, which Notice of Redemption At Corporation's Election shall be deemed to
have been delivered three (3) business days after the Corporation's mailing (by
overnight courier, with a copy by facsimile) of such Notice of Redemption At
Corporation's Election. Such Notice of Redemption At Corporation's Election
shall indicate the number of shares of Holder's Series C Preferred Stock that
have been selected for redemption, the date which such redemption is to become
effective (the "Date of Redemption At Corporation's Election") and the
applicable Redemption Price At Corporation's Election, as defined below. The
Corporation shall not be entitled to send any Notice of Redemption At
Corporation's Election and begin the redemption procedure unless it has (x) the
full amount of the Redemption Price At Corporation's Election, in cash,
available in a demand or other immediately available account in a bank or
similar financial institution or (y) immediately available credit facilities, in
the full amount of Redemption At Corporation's Election, with a bank or similar
financial institution on the date the Notice of Redemption At Corporation's
Election is delivered to the applicable Holder. Notwithstanding the above, the
Holder may convert any or all of its Series C Preferred Stock that is eligible
for conversion, which would otherwise be subject to redemption under this
Section 6(b), by submitting a Notice of Conversion prior to the Date of
Redemption At Corporation's Election.
For purposes of this Section 6(b), "Stated Value" shall mean the Original
Series C Issue Price of the shares of Series C Preferred Stock redeemed pursuant
to this Section 6(b), as defined in Section 4(a), together with the accrued but
unpaid Premium (as defined in Section 4(a)), on such shares of Series C
Preferred Stock, as of the Date of Redemption At Corporation's Election.
The Redemption Price At Corporation's Election shall be calculated as a
percentage of Stated Value of the shares of Series C Preferred Stock redeemed
pursuant to this Section 6(b), which percentage shall vary depending on the date
of Delivery of the Notice of Redemption at Corporation's Election, and shall be
determined as follows:
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Date of Delivery of Notice of
Redemption at Corporation's Election % of Stated Value
------------------------------------ -----------------
45 days to 6 months following Last Closing Date 130%
6 months and 1 day to 12 months following Last Closing Date 125%
12 months and 1 day to 18 months following Last Closing Date 120%
18 months and 1 day to 24 months following Last Closing Date 115%
The Redemption Price At Corporation's Election shall be paid to the Holder of
Series C Preferred Stock redeemed within 10 business days of the Date of
Redemption At Corporation's Election; provided, however, that the Corporation
shall not be obligated to deliver any portion of the Redemption Price At
Corporation's Election unless either the certificates evidencing the Series C
Preferred Stock redeemed are delivered to the Transfer Agent prior to the 10th
business day following the Date of Redemption At Corporation's Election, or the
Holder notifies the Transfer Agent that such certificates have been lost, stolen
or destroyed and executed an agreement satisfactory to the Corporation to
indemnify the Corporation from any loss incurred by it in connection with such
certificates. Notwithstanding the foregoing, in the event that the certificates
evidencing the Series C Preferred Stock redeemed are not delivered to the
Transfer Agent prior to the 10th business day following the Date of Redemption
At Corporation's Election, the redemption of the Series C Preferred Stock
pursuant to this Section 6(b) shall still be deemed effective as of the Date of
Redemption At Corporation's Election and the Redemption Price At Corporation's
Election shall be paid to the Holder of Series C Preferred Stock redeemed within
5 business days of the date the certificates evidencing the Series C Preferred
Stock redeemed are actually delivered to the Transfer Agent.
Section 7. ADVANCE NOTICE OF REDEMPTION
(a) HOLDER'S RIGHT TO ELECT TO RECEIVE NOTICE OF CASH REDEMPTION BY
CORPORATION. Holder shall have the right to require Corporation to provide
advance notice stating whether Corporation will elect to redeem Holder's shares
in cash, pursuant to Corporation's redemption rights discussed in Section 6.
(b) MECHANICS OF HOLDER'S ELECTION NOTICE. Holder shall send notice
("Election Notice") to Corporation and such other person(s) as the Corporation
may designate, by facsimile, stating Holder's intention to require Corporation
to disclose that if Holder were to exercise his, her or its right of conversion
(pursuant to section 5) whether Corporation would elect to redeem Holder's
convertible Security for cash in lieu of issuing Common Stock. Corporation is
required to disclose to Holder what action Corporation would take over the
subsequent five ten day period, including the date Corporation receives such
Election Notice.
(c) CORPORATION'S RESPONSE. Corporation must respond within one business
day of receipt of Holder's Election Notice (1) via facsimile and (2) via
overnight courier. If Corporation does not respond to Holder within one
business day via facsimile and overnight courier, Corporation shall be required
to issue to Holder Common Stock upon Holder's conversion within the subsequent
five day period.
Section 8. VOTING RIGHTS. Except as otherwise provided by the Delaware
Business Corporation Act ("Delaware Law"), the holders of the Series C Preferred
Stock shall have no voting
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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
9
<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:
<TABLE>
<CAPTION>
DATE OF CONVERSION APPLICABLE APPLICABLE
(NUMBER OF DAYS AFTER X Y
FIRST DATE OF ISSUANCE) PERCENTAGE PERCENTAGE
- ----------------------- ---------- -----------
<S> <C> <C>
1 to 75 100% 100%
76 to maturity 80% 95%
</TABLE>
(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>
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
the Delaware General Corporation Law (the "Corporation"), does hereby certify:
FIRST: That the Restated Certificate of Incorporation of the Corporation
was filed with the Secretary of State of the State of Delaware on April 11, 1989
and was amended by Certificate of Amendment filed 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.
SECOND: That at a meeting of the Board of Directors of the Corporation
resolutions were duly adopted setting forth a proposed amendment of the Restated
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 Corporation's
Restated Certificate of Incorporation be amended to read in its entirety:
"FOURTH: (A)(1) - AUTHORIZED CAPITAL. (a) The total number of shares
of capital stock which the Company has the authority to issue is
35,000,000 consisting of 30,000,000 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')."
THIRD: 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.
FOURTH: Said amendment was duly adopted in accordance with the provisions
of Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be executed by Vincent F. Simmon, Ph.D., its President, and
attested to by Vincent F. Simmon, Ph.D., its Secretary, this 15th day of
December, 1998.
CORTEX PHARMACEUTICALS, INC.
[SEAL] By: /s/ Vincent F. Simmon, Ph.D.
--------------------------------
Vincent F. Simmon, Ph.D., President
ATTEST:
By: /s/ Vincent F. Simmon, Ph.D.
--------------------------------
Vincent F. Simmon, Ph.D., Secretary
<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 22, 1999 in the Post
Effective Amendment No. 3 to the Registration Statement on Form SB-2 and related
Prospectus of Cortex Pharmaceuticals, Inc. for the Registration of shares of its
common stock
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
February 4, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF SEPTEMBER 30, 1999, AND THE RELATED STATEMENTS OF OPERATIONS AND
CASH FLOWS FOR THE THREE MONTHS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 289,271
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 320,772
<PP&E> 2,217,587
<DEPRECIATION> (1,728,209)
<TOTAL-ASSETS> 856,887
<CURRENT-LIABILITIES> 1,308,098
<BONDS> 664,472<F1>
0
70,905
<COMMON> 15,528
<OTHER-SE> (537,644)
<TOTAL-LIABILITY-AND-EQUITY> 856,887
<SALES> 0
<TOTAL-REVENUES> 834,556
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,119,180
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,190
<INCOME-PRETAX> (291,183)
<INCOME-TAX> 0
<INCOME-CONTINUING> (291,183)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (291,183)
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
<FN>
<F1>PROMISSORY NOTE PAYABLE TO ALKERMES, INC. THIS AMOUNT IS INCLUDED IN CURRENT
LIABILITIES.
</FN>
</TABLE>
