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CONVERTIBLE SECURITIES
SUBSCRIPTION AGREEMENT
This Convertible Securities Subscription Agreement (this
"AGREEMENT"), dated as of June 5, 1997, has been executed by the
undersigned (the "SUBSCRIBER") in connection with (a) the sale of
certain shares of Series A Convertible Preferred Stock, 0.001 par
value (the "PREFERRED STOCK") of Cortex Pharmaceuticals, Inc., a
Delaware corporation, having an address at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇ (the "COMPANY"), convertible into shares of Common
Stock, par value $0.001 per share (the "COMMON STOCK"), of the
Company, and (b) the issuance by the Company of its warrants to
purchase up to 800,000 shares of Common Stock (the "WARRANTS"). For
each share of Preferred Stock purchased hereunder, the Subscriber
shall receive a Warrant to purchase 2,000 shares of Common Stock. The
Company is offering an aggregate amount of up to $4,000,000 of
Preferred Stock, together with the Warrants, at a price of $10,000 per
share (the "INITIAL ISSUANCE"). The rights and preferences of the
Preferred Stock, including the terms on which the Preferred Stock may
be converted into Common Stock, are set forth in the Certificate of
Designation, Rights, Preferences and Privileges of Series A
Convertible Preferred Stock, attached hereto as EXHIBIT A (the
"CERTIFICATE OF DESIGNATION"), which shall have been executed,
acknowledged, filed, recorded and become effective in accordance with
the General Corporation Law of the State of Delaware prior to the
acceptance by the Company of this Agreement. Under certain
circumstances the Subscribers may be entitled to purchase additional
shares of Common Stock at a price per share equal to the Effective
Price (as defined in the Certificate of Designation). The shares of
Common Stock issuable upon exercise of the rights set forth in Section
5 of the Certificate of Designation are referred to herein as the
"ADDITIONAL COMMON STOCK". The sale of the Additional Common Stock,
if any, together with the Initial Issuance is referred to herein as
the "OFFERING". The solicitation of this Agreement and, if accepted
by the Company, the offer and sale of the Preferred Stock and the
Warrants, are being made in reliance upon the provisions of Regulation
D ("REGULATION D") promulgated by the Securities and Exchange
Commission ("SEC") under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or under the exemption from registration set forth
in Section 4(2) of the Securities Act. The Preferred Stock, the
Warrants, the Common Stock issuable upon conversion or exercise
thereof, and the Additional Common Stock are sometimes collectively
referred to in this Agreement as the "SECURITIES." The shares of
Common Stock issuable upon conversion of the Preferred Stock are
referred to herein as the "UNDERLYING STOCK", and the Common Stock
issuable upon the exercise of the Warrants are referred to as the
"WARRANT STOCK." As used herein "MATERIAL ADVERSE EFFECT" means any
effect on the business, operations, properties, prospects, or
financial
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condition of the entity with respect to which such term is used and which
is material and adverse to such entity or to other entities controlling or
controlled by such entity, or any condition or situation which would
prohibit or otherwise interfere with the ability of the entity with
respect to which said term is used to enter into and perform its
obligations under this Agreement.
The Subscriber wishes to subscribe for, and the Company wishes to
issue, the number of shares of Preferred Stock and the number of
Warrants at the aggregate purchase price set forth in Section 14 and
in accordance with the other terms and conditions of this Agreement.
In consideration of the mutual promises, representations, warranties
and conditions set forth herein, and intending to be legally bound
hereby, the Company and the Subscriber agree as follows:
1. PURCHASE AND SALE OF SECURITIES; CLOSING CONDITIONS.
1.1. PURCHASE AND SALE OF SECURITIES.
(a) INITIAL ISSUANCE. The Company shall issue and sell to the
Subscriber and the Subscriber shall purchase from the Company such
number of Preferred Stock and Warrants as is set forth in Section 14
hereof for an aggregate purchase price equal to $___________ (the
"PURCHASE PRICE"). The Initial Issuance shall take place in two (2)
separate closings (each a "CLOSING"), the first of which is
hereinafter referred to as the "FIRST CLOSING", and the second of
which is hereinafter referred to as the "SECOND CLOSING". Subject to
the satisfaction (or waiver) of the conditions thereto set forth in
Sections 1.2 and 1.3 below: (i) at the First Closing, the Company
shall issue and sell to the Subscriber, and the Subscriber shall
purchase from the Company, fifty percent (50%) of the Preferred Stock
and the Warrants which the Subscriber is purchasing hereunder for
consideration equal to 50% of the Purchase Price, and (ii) at the
Second Closing, the Company shall issue and sell to the Subscriber and
the Subscriber shall purchase from the Company the remainder of the
Preferred Stock and the Warrants which the Subscriber is purchasing
hereunder for a price equal to the remainder of the Purchase Price.
(b) FORM OF PAYMENT. On each Closing Date (as defined below),
(i) the Subscriber shall pay the portion of the Purchase Price for the
Preferred Stock and the Warrants to be issued and sold at the
applicable Closing by wire transfer to the Company, in accordance with
the Company's written wiring instructions, against delivery of the
duly executed share certificates representing the Preferred Stock and
the Warrants which the Subscriber is then purchasing, and (ii) the
Company shall deliver to Subscriber such Preferred Stock certificates
and Warrants against delivery of such Purchase Price.
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(c) CLOSING DATES. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Sections 1.2 and 1.3 below, the
date and time of the issuance and sale of the Preferred Stock and
Warrants pursuant to this Agreement shall be (i) in the case of the
First Closing, 12:00 noon Eastern Standard Time on June 5, 1997
("FIRST CLOSING DATE") and (ii) in the case of the Second Closing,
12:00 noon Eastern Standard Time, within three business days of the
earlier of (i) the date of effectiveness of the Registration Statement
and (ii) the date specified by the Subscribers in a written notice to
the Company ("SECOND CLOSING DATE"). The Closings shall occur on the
applicable Closing Dates at such locations as the parties shall
determine.
1.2. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY TO
ISSUE AND SELL THE PREFERRED STOCK AND WARRANTS. The obligation of
the Company to issue and sell the Preferred Stock, Warrants and
Additional Common Stock to the Subscriber at each Closing is subject
to the satisfaction, at or before such Closing, of each of the
conditions set forth below. These conditions are for the Company's
sole benefit and may be waived by the Company at any time in its sole
discretion.
(a) PAYMENT OF PURCHASE PRICE. The Subscriber shall have
delivered to the Company that portion of the Purchase Price payable by
the Subscriber at the applicable Closing.
(b) ACCURACY OF THE SUBSCRIBER'S REPRESENTATION AND WARRANTIES.
The representations and warranties of the Subscriber shall be true and
correct as of the date when made and as of the applicable Closing Date
as though made at each such time.
(c) PERFORMANCE BY THE SUBSCRIBER. The Subscriber shall have
performed, satisfied and complied in all respects with all covenants,
agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the Subscriber at or prior to the
applicable Closing.
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of
competent jurisdiction which prohibits or adversely affects any of the
transactions contemplated by this Agreement, and no proceeding shall
have been commenced which may have the effect of prohibiting or
adversely affecting any of the transactions contemplated by this
Agreement.
1.3. CONDITIONS PRECEDENT TO THE OBLIGATION OF THE SUBSCRIBER TO
ACQUIRE THE PREFERRED STOCK AND WARRANTS. The obligation of
Subscriber to acquire and pay for the
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Preferred Stock and Warrants at each Closing, is subject to the
satisfaction, at or before such date, of the conditions hereinafter
specified in this Section 1.3. Each of these conditions is for
Subscriber's sole benefit and may be waived by Subscriber at any
time in its sole discretion.
(a) As to the First Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company
contained herein shall be true and correct as of the date when
made and as of the First Closing Date as though made as of each
such date.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Company at or
prior to the First Closing.
(iii) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits
or adversely effects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced which may
have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
(iv) ADVERSE CHANGES. No event shall have occurred which
has had or is likely to have a Material Adverse Effect on the
financial condition, earnings, operations or business of the
Company.
(v) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON
STOCK. As of the First Closing Date, the trading of the Common
Stock shall not have been suspended by the SEC, The Nasdaq Stock
Market's Small Cap Market (the "NASDAQ") or the National
Association of Securities Dealers, Inc. (the "NASD"), and the
Common Stock shall not have been delisted from Nasdaq.
(vi) THE LEGAL OPINION. The Company shall have delivered to
the Subscriber the opinion of Stadling, ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇,
independent counsel to the Company, dated as of the First Closing
Date, in form and substance reasonably satisfactory to the
Subscriber.
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(vii) OFFICER'S CERTIFICATE. The Company shall have
delivered to the Subscriber a certificate in form and substance
reasonably satisfactory to the Subscriber, executed by an
executive officer of the Company dated as of the First Closing
Date, to the effect that all the conditions to the First Closing
set forth in this Section 1.3(a) shall have been satisfied or
waived.
(viii) REGISTRATION RIGHTS AGREEMENT. The Company and
the Subscriber shall have entered into the Registration Rights
Agreement, in the form of EXHIBIT C annexed hereto (the
"REGISTRATION RIGHTS AGREEMENT").
(ix) FILING OF THE CERTIFICATE OF DESIGNATION. The
Certificate of Designation, conforming to the terms of this
Agreement, shall have been duly filed with the Secretary of State
of the State of Delaware and a certified copy thereof shall have
been returned to the Company.
(x) TRANSFER AGENT IRREVOCABLE INSTRUCTION. The Company
shall have delivered to the transfer agent for its Common Stock
the Transfer Agent Irrevocable Instruction, in the form of
EXHIBIT D annexed hereto (the "TRANSFER AGENT IRREVOCABLE
INSTRUCTION").
(b) As to the Second Closing:
(i) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company
shall be true and correct as of the date when made and as of the
Second Closing Date as though made as of each such date.
(ii) PERFORMANCE BY THE COMPANY. The Company shall have
performed, satisfied and complied in all respects with all
covenants, agreements and conditions required by this Agreement
to be performed, satisfied or complied with by the Company at or
prior to the Second Closing.
(iii) NO INJUNCTION. No statute, rule, regulation,
executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court or
governmental authority of competent jurisdiction which prohibits
or adversely effects any of the transactions contemplated by this
Agreement, and no proceeding shall have been commenced which may
have the effect of prohibiting or adversely affecting any of the
transactions contemplated by this Agreement.
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(iv) VOLUME. The average daily trading volume (as reported
on Bloomberg) during the thirty (30) trading days preceding the
Second Closing Date is more than 25,000 shares per day.
(v) DEFAULTS. The Company is not in material default of
its obligations under this Agreement.
(vi) REPRESENTATIONS AND WARRANTIES. No representation or
warranty made by the Company in this Agreement is false in any
material respect.
(vii) LITIGATION. The Company is not involved in any
material litigation as of the Second Closing Date which has or is
likely to have a Material Adverse Effect on the Company.
(viii) LIABILITIES. The Company has not incurred
substantial liabilities as of the Second Closing Date which have
or are likely to have a Material Adverse Effect on the Company.
(ix) NO SUSPENSION OF TRADING IN OR DELISTING OF COMMON
STOCK. As of the Second Closing Date, the trading of the Common
Stock shall not have been suspended by the SEC, Nasdaq or the
NASD and the Common Stock shall not have been delisted from
Nasdaq.
(x) THE LEGAL OPINION. The Company shall have delivered to
the Subscriber the opinion of Stadling, ▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇,
independent counsel to the Company, dated as of the Second
Closing Date, in form and substance reasonably satisfactory to
the Subscriber.
(xi) OFFICER'S CERTIFICATE. The Company shall have
delivered to the Subscriber a certificate in form and substance
reasonably satisfactory to the Subscriber, executed by an
executive officer of the Company dated as of the Second Closing
Date, to the effect that all the conditions to the Second Closing
set forth in this Section 1.3(b) shall have been satisfied.
(xii) REGISTRATION STATEMENT. The registration
statement (the "REGISTRATION STATEMENT") filed by the Company
pursuant to Section 2 of the Registration Rights Agreement
covering the resale of the Registrable Securities (as defined in
the Registration Rights Agreement) underlying (i) the Preferred
Stock issued at the First Closing and to be issued at the Second
Closing, (ii) the Warrants
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issued at the First Closing and to be issued at the Second Closing
and (iii) the Additional Common Stock shall be effective, and no stop
order shall have been issued in respect thereof.
2. REPRESENTATIONS AND WARRANTIES OF SUBSCRIBER.
The Subscriber represents and warrants to the Company that:
2.1. NO GOVERNMENT RECOMMENDATION OR APPROVAL. The Subscriber
understands that no United States federal or state agency or similar
agency of any other country has passed upon or made any recommendation
or endorsement of the Company or the offering of the Securities.
2.2. INTENT. The Subscriber is purchasing the Securities for its
own account and not with a view towards distribution thereof and the
Subscriber has no present arrangement (whether or not legally binding)
at any time to sell the Securities to or through any person or entity;
PROVIDED, HOWEVER, that by making the representations herein, the
Subscriber does not agree to hold the Securities for any minimum or
other specific term and reserves the right to dispose of the
Securities at any time in accordance with federal and state securities
laws applicable to such disposition. The Subscriber understands that
the Securities must be held indefinitely unless such Securities are
subsequently registered under the Securities Act or an exemption from
registration is available. The Subscriber has been advised or is
aware of the provisions of Rule 144.
2.3. SOPHISTICATED INVESTOR. The Subscriber is a sophisticated
investor (as described in Rule 506(b)(2)(ii) of Regulation D
promulgated under the Securities Act ("REGULATION D")) and an
accredited investor (as defined in Rule 501 of Regulation D), and
Subscriber has such experience in business and financial matters that
it is capable of evaluating the merits and risks of an investment in
the Securities. The Subscriber acknowledges that the Securities are
speculative and involve a high degree of risk.
2.4. INDEPENDENT INVESTIGATION. The Subscriber, in making its
decision to purchase the Securities subscribed for hereunder, has
relied upon an independent investigation made by it or its
representatives and has not relied on any information or
representations made by third parties or on any oral or written
representations or assurances from the Company or any representative
or agent of the Company, other than as set forth in this Agreement, in
the public filings of the Company and in the documents described
below. Prior to the date hereof, the Subscriber has been furnished
with and has reviewed the Company's latest proxy statement and Annual
Report on Form 10-KSB sent to the Company's shareholders and all
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documents filed by the Company with the SEC since September 30, 1996
pursuant to sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT") (excluding
preliminary proxy statement filings) (such documents are collectively
referred to in this Agreement as the "EXCHANGE ACT REPORTS"). The
Subscriber has had reasonable opportunity to ask questions of and
receive answers from the Company concerning the Company and the
Offering. The Subscriber acknowledges that the price and terms of the
Securities offered hereby have been determined by negotiation based,
in part, on the market price for the Common Stock, and do not
necessarily bear any relationship to the assets, book value or
potential performance of the Company or any other recognized criteria
of value.
2.5. AUTHORITY. This Agreement has been duly authorized and
validly executed and delivered by the Subscriber and is a valid and
binding agreement of the Subscriber enforceable against the Subscriber
in accordance with its terms, subject to general principles of equity
and to bankruptcy or other laws affecting the enforcement of
creditors' rights generally.
2.6. NO LEGAL ADVICE FROM COMPANY. The Subscriber acknowledges
that it has had the opportunity to review this Agreement and the
transactions contemplated by this Agreement with its own legal counsel
and tax advisors. Except for any statements or representations of the
Company made in this Agreement and in the Exchange Act Reports, the
Subscriber is relying solely on such counsel and advisors and not on
any statements or representations of the Company or any of its
representatives or agents for legal, tax or investment advice with
respect to this investment, the transactions contemplated by this
Agreement, the Certificate of Designation, the Registration Rights
Agreement, the Warrants or the securities laws of any jurisdiction.
2.7. NO BROKERS. The Subscriber has taken no action which would
give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments by the Company relating to this
Agreement or the transactions contemplated hereby or thereby.
2.8 NOT AN AFFILIATE. The Subscriber is not an officer,
director or "affiliate" (as that term is defined in Rule 405 of the
Securities Act) of the Company.
2.9. RELIANCE ON REPRESENTATIONS AND WARRANTIES. The Subscriber
understands that the Securities are being offered and sold to it in
reliance on specific provisions of United States federal and state
securities laws and that the Company is relying upon the truth and
accuracy of the representations, warranties, agreements,
acknowledgments and
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understandings of the Subscriber set forth in this Agreement in order
to determine the applicability of such provisions.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Subscriber that:
3.1. COMPANY STATUS. The Company has registered its Common Stock
pursuant to Section 12(b) or 12(g) of the Exchange Act, is in full
compliance with all reporting requirements of the Exchange Act, and
the Company has maintained all requirements for the continued listing
of its Common Stock, and such Common Stock is currently listed on
Nasdaq.
3.2. CURRENT PUBLIC INFORMATION. The Exchange Act Reports listed
on SCHEDULE 1 hereto are the only filings made by the Company since
September 30, 1996 pursuant to Sections 13(a), 13(c), 14 and 15(d) of
the Exchange Act.
3.3. NO DIRECTED SELLING EFFORTS OR GENERAL SOLICITATION IN
REGARD TO THIS TRANSACTION. Neither the Company nor any of its
affiliates nor any distributor or any person acting on its or their
behalf has conducted any "directed selling efforts" with respect to
the Securities nor has the Company conducted any general solicitation
(as that term is used in Regulation D) with respect to any of the
Securities, nor has any such person made any offers or sales of any
security or solicited any offers to buy any security, under
circumstances that would require registration of the Securities under
the Act.
3.4. CAPITALIZATION; VALID ISSUANCE OF PREFERRED STOCK AND COMMON
STOCK. The Company has an authorized capitalization consisting of
20,000,000 shares of Common Stock, par value $.001 per share, and
5,000,000 shares of Preferred Stock, par value $.001 per share.
Except as set forth on Schedule 3.4 hereto, the Exchange Act Reports
filed with the SEC accurately describe all outstanding stock options,
warrants and other right to purchase any equity securities of the
Company. As of June 5, 1997, the Company has 9,394,249 shares of
Common Stock issued, of which all of such shares are outstanding. As
of June 5, 1997, the Company has 110,000 shares of 9% Cumulative
Convertible Preferred Stock issued, and 150,000 shares of Series B
Convertible Preferred Stock issued of which 110,000 and 150,000, of
such shares, respectively, are outstanding. No shares of Series C
Preferred Stock or Series D Convertible Preferred Stock are
outstanding. All of the issued shares of Common Stock and Preferred
Stock of the Company have been duly and validly authorized and issued
and are fully paid and non-assessable; upon issuance of the
Securities, the Securities will be duly and validly issued, fully paid
and non-assessable; the shares of
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Common Stock issuable upon conversion of the Preferred Stock, exercise of
the Warrants, or exercise of the additional purchase rights set forth
Section 5 of the Certificate of Designation, when issued and delivered in
accordance with the terms of the Warrants or the Certificate of
Designation, as the case may be, will be duly and validly issued, fully
paid and non-assessable; and the holders of outstanding capital stock of
the Company are not and shall not be entitled to preemptive or other
rights afforded by the Company to subscribe for the capital stock or
other securities of the Company as a result of the sale of the Securities
or the issuance of any Common Stock upon the conversion or exercise
thereof.
3.5. ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly incorporated and validly existing in good standing
under the laws of the State of Delaware and has the requisite
corporate power to own its properties and to carry on its business as
now being conducted. The Company does not have any subsidiaries. The
Company is duly qualified as a foreign corporation to do business and
is in good standing in every jurisdiction in which the nature of the
business conducted or property owned by it makes such qualification
necessary other than those in which the failure so to qualify would
not have a Material Adverse Effect on the Company.
3.6. AUTHORIZATION; ENFORCEMENT. (i) The Company has the
requisite corporate power and authority to enter into and perform this
Agreement, the Certificate of Designation, the Registration Rights
Agreement and the Warrants and to issue the Securities in accordance
with the terms hereof and thereof; (ii) the execution, delivery and
performance of this Agreement, the Certificate of Designation, the
Registration Rights Agreement and the Warrants by the Company and the
consummation by it of the transactions contemplated hereby and
thereby, including without limitation the sale of the Securities and
the issuance of any shares of Common Stock issuable upon conversion of
any of the Securities have been duly authorized by all necessary
corporate action, and no further consent or authorization of the
Company or its Board of Directors or stockholders is required; (iii)
this Agreement, the Certificate of Designation, the Registration
Rights Agreement and the Warrants have been duly executed and
delivered by the Company, and (iv) this Agreement, the Certificate of
Designation, the Registration Rights Agreement and the Warrants
constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or
similar laws relating to, or affecting generally the enforcement of,
creditors' rights and remedies or by other equitable principles of
general application.
3.7. CORPORATE DOCUMENTS. The Company has furnished or made
available to the Subscriber true and correct copies of the Company's
Certificate of Incorporation as amended
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and in effect on the date hereof (the "CERTIFICATE"), and the Company's
By-Laws as amended and in effect on the date hereof (the "BY-LAWS").
3.8. NO CONFLICTS. The execution, delivery and performance by
the Company of this Agreement, the Certificate of Designation, the
Registration Rights Agreement, and the Warrants and the consummation
by the Company of the transactions contemplated hereby and thereby,
and the sale by the Company of the Securities hereunder, do not and
will not (i) result in a violation of the Certificate or By-Laws or
(ii) conflict with or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give
to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to
which the Company is a party, or result in a violation of any federal,
state, local or foreign law, rule, regulation, order, judgment or
decree (including federal and state securities laws and regulations)
applicable to the Company or by which any property or asset of the
Company is bound or affected (except for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material
Adverse Effect); PROVIDED, THAT, for purposes of such representation
as to federal, state, local or foreign law, rule or regulation, no
representation is made herein with respect to any of the same
applicable solely to the Subscriber and not to the Company. The
business of the Company is not being conducted in violation of any
law, ordinance or regulation of any governmental entity, in any manner
that is inconsistent with or in violation of the Certificate or
By-laws, or in violation of any material contract or agreement to
which the Company is a party, except for possible violations which
either singly or in the aggregate do not and will not have a Material
Adverse Effect. The Company is not required under federal, state or
local law, rule or regulation in the United States to obtain any
consent, authorization or order of, or make any filing or registration
with, any court or governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement, the
Certificate of Designation, the Registration Rights Agreement, the
Warrants or any of the Securities or to issue and sell the Securities
in accordance with the terms hereof and thereof (other than any SEC,
NASD, Nasdaq or state securities filings which may be required to be
made by the Company from time to time, and any registration statement
which may be filed pursuant hereto); PROVIDED, THAT, for purposes of
the representation made in this sentence, the Company is assuming and
relying upon the accuracy of the relevant representations and
agreements of the Subscriber herein.
3.9. EXCHANGE ACT REPORTS. The Company has delivered or made
available to the Subscriber true and complete copies of the Exchange
Act Reports (including, without limitation, proxy information and
solicitation materials). The Company has not provided to the
Subscriber any information which, according to applicable law, rule or
regulation, should
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have been disclosed publicly prior to the date hereof by the Company but
which has not been so disclosed. As of their respective dates, the
Exchange Act Reports complied in all material respects with the
requirements of the Exchange Act and rules and regulations of the SEC
promulgated thereunder and other federal, state and local laws, rules and
regulations applicable to such Exchange Act Reports, and none of the
Exchange Act Reports contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of the Company included in the Exchange Act Reports comply as
to form in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC or other applicable
rules and regulations with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved
(except (i) as may be otherwise indicated in such financial statements or
the notes thereto or (ii) in the case of unaudited interim statements, to
the extent they may not include footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of
operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). As
of the First Closing Date, the Company has filed all reports required to
be filed by it pursuant to the Exchange Act and is otherwise eligible to
effect registration of its Common Stock on Form S-B2.
3.10. NO MATERIAL ADVERSE CHANGE. Since June 30, 1996 and
except as set forth in the Exchange Act Reports, no event or
circumstance has occurred or arisen which has had or is reasonably
likely to have a Material Adverse Effect on the Company or its
subsidiaries. The Company has not (i) incurred or become subject to
any material liabilities (absolute or contingent) except liabilities
incurred in the ordinary course of business consistent with past
practices; (ii) discharged or satisfied any material lien or
encumbrance or paid any material obligation or liability (absolute or
contingent), other than current liabilities paid in the ordinary
course of business consistent with past practices; (iii) declared or
made any payment or distribution of cash or other property to
stockholders with respect to its capital stock, or purchased or
redeemed, or made agreements to purchase or redeem, any shares of its
capital stock; (iv) sold, assigned or transferred any other tangible
assets, or canceled any debts or claims, except in the ordinary course
of business consistent with past practices; (v) suffered any
substantial losses disproportionate with past losses or waived any
rights of material value, whether or not in the ordinary course of
business, or suffered the loss of any material amount of existing
business; (vi) made any changes in employee compensation except in the
ordinary course of business consistent with past practices; or (vii)
experienced any material
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problems with labor or management in connection with the terms and
conditions of their employment.
3.11. NO UNDISCLOSED LIABILITIES. The Company has no
liabilities or obligations which are material, individually or in the
aggregate, and are not disclosed in the Exchange Act Reports, other
than those incurred in the ordinary course of the Company's business
since June 30, 1996, and which, individually or in the aggregate, do
not or would not have a Material Adverse Effect on the Company.
3.12. NO UNDISCLOSED EVENTS OR CIRCUMSTANCES. No event or
circumstance has occurred or exists with respect to the Company its
businesses, properties, prospects, operations or financial condition,
which, under applicable law, rule or regulation, requires public
disclosure or announcement prior to the date hereof by the Company but
which has not been so publicly announced or disclosed.
3.13. NO INTEGRATED OFFERING. Neither the Company, nor any
of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, at any time since August 1, 1995, made any
offers or sales of any security or solicited any offers to buy any
security under circumstances that would eliminate the availability of
the exemption from registration under Regulation D promulgated under
the Securities Act in connection with the offer and sale of the
Securities as contemplated hereby.
3.14. NO BROKERS. The Company has taken no action which
would give rise to any claim by any person for brokerage commissions,
finder's fees or similar payments by the Subscriber relating to this
Agreement for the transactions contemplated hereby or thereby.
3.15 DISCLOSURE. No representation, warranty or statement made
by the Company in this Agreement, the Certificate of Designation, the
Registration Rights Agreement, the Warrants or any agreement,
certificate, statement or document furnished by or on behalf of the
Company in connection herewith or therewith contains any untrue
statement of material fact or omits to state a material fact necessary
in order to make the statements contained herein or therein, in light
of the circumstances in which they were made, not misleading.
3.16 ACCRUED AND UNPAID DIVIDENDS. As of June 5, 1997 the
aggregate amount of accrued and unpaid dividends owing to the holders
of the Company's 9% Cumulative Convertible Preferred Stock was
$69,300.
4. COVENANTS OF THE COMPANY.
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4.1. REGISTRATION RIGHTS. The Company agrees that, at the First
Closing, it will enter into a Registration Rights Agreement with the
Subscriber, in the form of EXHIBIT C annexed hereto ("REGISTRATION
RIGHTS AGREEMENT").
4.2. RESERVATION OF COMMON STOCK. As of the date hereof, the
Company has reserved and the Company shall continue to reserve and
keep available at all times, free of preemptive rights, a sufficient
number of authorized but unissued shares of Common Stock for the
purpose of enabling the Company to satisfy any obligation to issue
shares of its Common Stock upon conversion of the Preferred Stock,
exercise of the right to purchase additional shares of Common Stock of
the Company set forth in Section 5 of the Certificate of Designation
or exercise of the Warrants. The number of shares so reserved may be
reduced by the number of shares actually delivered pursuant to
conversion of Preferred Stock, or exercise of the Warrants (provided
that in no event shall the number of shares so reserved be less than
125% of the maximum number required to satisfy the remaining
conversion rights on the unconverted Preferred Stock and the remaining
exercise rights under (i) Section 5 of the Certificate of Designation
and (ii) unexercised Warrants) and the number of shares so reserved
shall be increased to reflect stock splits, stock dividends and other
distributions.
4.3 SHAREHOLDER APPROVAL. In the event such approval is
required by the rules of Nasdaq or any exchange on which the Common
Stock is listed or admitted for trading, the Company shall use its
best efforts to obtain shareholder approval for the issuance of the
Additional Common Stock, the Underlying Stock and Warrant Stock,
regardless of whether or not the aggregate amount of such Additional
Common Stock, Underlying Stock and Warrant Stock exceeds 20% of the
outstanding shares of Common Stock on the First Closing Date.
4.4. LISTING OF UNDERLYING SHARES. The Company hereby agrees,
promptly following the First Closing, to take such action to cause the
Additional Common Stock, the Underlying Stock and the Warrant Stock to
be listed on Nasdaq as promptly as possible but no later than 75 days
following the First Closing. The Company further agrees, if the
Company applies to have the Common Stock traded on any other principal
stock exchange or market, it will include in such application the
Additional Common Stock, the Underlying Stock and the Warrant Stock
and will take such other action as is necessary or desirable to cause
the Additional Common Stock, the Underlying Stock and the Warrant
Stock to be listed on such other exchange or market as promptly as
possible.
4.5. EXCHANGE ACT REGISTRATION. So long as any Securities are
outstanding, the Company will cause its Common Stock to continue to be
registered under Section 12(g) or
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12(b) of the Exchange Act, will comply in all respects with its reporting
and filing obligations under said Act, and will not take any action or
file any document (whether or not permitted by said Act or the rules
thereunder) to terminate or suspend such registration or to terminate or
suspend its reporting and filing obligations under said Act. The Company
will take all action under its control to continue the listing and trading
of its Common Stock on Nasdaq and will comply in all respects with the
Company's reporting, filing and other obligations under the by-laws or
rules of the NASD and Nasdaq.
4.6. LEGENDS. The shares of Underlying Stock and Warrant Stock
and certificates evidencing the same shall, upon the effectiveness of
the Registration Statement and delivery by the Subscriber of
Conversion Notice or Warrant Exercise Notice, as the case may be
substantially in the form of Exhibit 4.6 hereto, be free of legends,
"stop transfers," "stock transfer restrictions," or other
restrictions, PROVIDED, that customary stock transfer restriction
legends may appear on any certificate evidencing any of such shares if
the SEC or other governmental authority with appropriate jurisdiction
has issued an active stop order, injunction or other order or
requirement suspending the effectiveness of the Registration
Statement.
4.7. CORPORATE EXISTENCE. The Company will take all steps
necessary to preserve and continue its corporate existence PROVIDED
HOWEVER that nothing in this Section 4.7 or in Section 4.5 above shall
be construed or interpreted as prohibiting the Company from merging or
consolidating with another entity or transferring all or substantially
all of its assets to another entity PROVIDED the Company complies with
all of its obligations owing to holders of Preferred Stock as a result
of such merger, consolidation or transfer, including, without
limitation, the obligations set forth in Section 5 of the Warrant
Agreement, of even date herewith, by and between the Company and the
Subscriber.
4.8. BUY-BACK OF COMMON SHARES. The Company will not use any of
the proceeds from the sale of the Preferred Stock to buy-back
outstanding shares of Common Stock.
5. LEGENDS.
5.1. LEGENDS. The Company will issue one or more shares of
Preferred Stock and Warrants in the name of the Subscriber and in such
denominations (but not less than one share of Preferred Stock or
Warrants for less than 2,000 shares of Common Stock) to be specified
by the Subscriber prior to (or from time to time subsequent to) the
Closings. The Preferred Stock, the Warrants and certificates
evidencing any shares of Common Stock issued upon conversion or
exercise thereof prior to the effectiveness of the Registration
Statement will bear the following legend (the "LEGEND"):
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THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN APPLICABLE EXEMPTION FROM SUCH REGISTRATION REQUIREMENTS.
Prior to Closing, the Company will issue to the transfer
agent for its Common Stock (and to any substitute or replacement
transfer agent for its Common Stock concurrently with the Company's
appointment of any such substitute or replacement transfer agent)
instructions in substantially the form and substance of the Transfer
Agent Irrevocable Instruction attached hereto as Exhibit 5 hereto.
Such instructions shall be irrevocable by the Company from and after
the First Closing Date or from and after the issuance thereof to any
such substitute or replacement transfer agent, as the case may be. It
is the intent and purpose of such instructions, as provided therein,
to require the transfer agent for the Common Stock from time to time
to issue certificates evidencing Underlying Stock or Warrant Stock
free of the Legend during the following periods and under the
following circumstances and without consultation by the transfer agent
with Company or its counsel and without the need for any further
advice or instruction to the transfer agent by or from the Company or
its counsel:
(a) At any time from and after the effectiveness of the
Registration Statement and delivery by the Subscriber of a
Conversion Notice or Warrant Exercise Notice, as the case may be,
substantially in the form of Exhibit 4.6 hereto, and so long as
no stop order, injunction or other order of the SEC or other
applicable governmental authority with appropriate jurisdiction
is then in effect suspending effectiveness of the Registration
Statement:
(i) upon any surrender of one or more Warrants or
certificates representing the Preferred Stock for conversion or
exercise into Underlying Stock or Warrant Stock, as the case may
be; and
(ii) upon any surrender of one or more certificates
evidencing Additional Common Stock, Underlying Stock or Warrant
Stock and which bear the Legend; and
(b) At any time from and after the First Closing Date, upon
any surrender of one or more certificates evidencing Additional
Common Stock, Underlying Stock or Warrant Stock and which bear
the Legend, to the extent
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accompanied by a notice requesting the issuance of new certificates
free of the Legend to replace those surrendered and containing or
also accompanied by representations that (i) the holder thereof is
permitted to dispose thereof pursuant to Rule 144(k) under the
Securities Act or (ii) the holder intends to effect the sale or
other disposition of such Stock, whether or not pursuant to the
Registration Statement, to a purchaser or purchasers who will not
be subject to the registration requirements of the Securities Act,
or (iii) such holder is not then subject to such requirements.
In addition, and if applicable, the Company shall reissue the
certificates representing the shares of Additional Common Stock,
Preferred Stock, Underlying Stock, Warrant Stock or Warrants without
the Legend set forth above at such time as (i) the holder thereof is
permitted to dispose thereof pursuant to Rule 144(k) under the Act or
(ii) the holder intends to effect a sale thereof to a purchaser or
purchasers who will not be subject to the registration requirements of
the Act, or (iii) the holder is not then subject to such requirements.
5.2. NO OTHER LEGEND OR STOCK TRANSFER RESTRICTIONS. No Legend
has been or shall be placed on the share certificates representing the
Securities and no instructions or "stop transfers," "stock transfer
restrictions," or other restrictions have been or shall be given to
the Company's transfer agent with respect thereto other than as set
forth in this Section 5.
5.3. SUBSCRIBER'S COMPLIANCE. Nothing in this section shall
affect in any way the Subscriber's obligations under and agreement to
comply with all applicable securities laws upon resale of the
Securities, including prospectus delivery requirements if applicable.
6. CHOICE OF LAW AND VENUE; WAIVER OF JURY TRIAL.
6.1 CHOICE OF LAW AND VENUE. THIS AGREEMENT SHALL BE CONSTRUED
UNDER THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW OR CHOICE OF LAW PRINCIPLES. The parties hereby
(i) irrevocably submit to the non-exclusive jurisdiction of the United
States District Court for the Southern District of New York for the
purposes of any suit, action or proceeding arising out of or relating
to this Agreement and (ii) waive, and agree not to assert in any such
suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of such court, that the suit, action or
proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. Each of the parties
consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party via certified mail
to the address in effect for notices to it under this Agreement and
agrees that such service shall constitute good and
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sufficient service of process and notice thereof. Nothing in this
paragraph shall affect or limit any right to serve process in any other
manner permitted by law.
6.2 WAIVER OF JURY TRIAL. THE COMPANY HEREBY EXPRESSLY WAIVES
ANY RIGHT IT MAY HAVE TO A JURY TRIAL IN ANY SUIT, ACTION OR
PROCEEDING EXISTING UNDER OR RELATING TO THIS AGREEMENT, THE
SECURITIES OR ANY OF THE OTHER RELATED AGREEMENTS.
7.ASSIGNMENT; ENTIRE AGREEMENT; AMENDMENT.
7.1. ASSIGNMENT. Neither this Agreement nor any rights of the
Subscriber hereunder may be assigned by either party to any other
person. Notwithstanding the foregoing, the provisions of this
Agreement shall inure to the benefit of, and be enforceable by, any
transferee of any of the Securities purchased or acquired by the
Subscriber hereunder provided that such transferee is an institution
which is a corporation, limited liability company, partnership or
other commercial business entity and provided further such rights
shall cease with respect to any shares transferred pursuant to a
registration statement, Rule 144 or other transaction that results in
unrestricted securities.
7.2. ENTIRE AGREEMENT; AMENDMENT. This Agreement, the
Certificate of Designation, the Warrants, the Registration Rights
Agreement, and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement
between the parties with regard to the subject matter hereof and
thereof, and no party shall be liable or bound to any other party
in any manner by any warranties, representations or covenants
except as specifically set forth in this Agreement or therein.
Except as expressly provided in this Agreement, neither this
Agreement nor any term hereof may be amended, waived, discharged
or terminated other than by a written instrument signed by the
party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
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8. PUBLICITY.
The Company agrees that it will not disclose, and will not
include in any public announcement, the name of the Subscriber without
its consent, unless and until such disclosure is required by law or
applicable regulation, and then only to the extent of such requirement
and with the prior approval of the Subscriber which the Subscriber
agrees will not be unreasonably withheld or delayed. The Subscriber
acknowledges and agrees the Subscriber may be listed as a selling
stockholder in the Registration Statement.
9. NOTICES, ETC.; EXPENSES; INDEMNITY.
9.1. NOTICES. Unless otherwise provided herein, notices and
other deliveries to be made hereunder shall be made by hand or by
registered or certified mail (return receipt requested and postage and
charges prepaid), by a nationally recognized overnight courier
(charges prepaid), or by telecopier (in which case a copy shall also
be sent by nationally recognized overnight courier). Such notices and
other deliveries shall be addressed, in the case of the Company, to
the Company at its principal place of business, at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, telecopier (714-727-3657),
Attention: President and in the case of the Subscriber, at the
address set forth below or given by the Subscriber to the Company for
the purpose of notice, or, if no such address appears or is so given,
at the last known address of the Subscriber, or at such other address
as the recipient shall have provided for notices in writing. Such
notices and other deliveries shall be deemed delivered and received,
if made by hand or telecopier on the date given, if made by overnight
courier, on the next business day after the date deposited with such
courier with instructions and prepayment for next day delivery, and if
sent by registered or certified mail, on the third business day
following the mailing thereof.
9.2. COST AND EXPENSES. The Company shall be responsible for the
costs and expenses (including legal fees) incurred by the Subscribers
in connection with the Offering, subject to the limitation that the
Company's total responsibility for costs incurred by the Subscriber
together with all other Subscribers to the Preferred Stock shall not
exceed $20,000 in the aggregate. All such amounts shall be paid to
Promethean Investment Group, L.L.C. ("PROMETHEAN") for the account of
the Subscribers, to be allocated among the Subscribers in such manner
as Promethean may determine in its sole discretion. The first $10,000
of such costs and expenses shall be non-accountable.
9.3. INDEMNIFICATION. Each party shall indemnify and hold the
other harmless against any loss, cost, expenses, liabilities, or
damages (including reasonable attorney's fees)
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incurred as a result of such parties' breach of any representation,
warranty, covenant or agreement in this Agreement.
10. COUNTERPARTS.
This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties
actually executing such counterparts, and all of which together shall
constitute one instrument.
11. SURVIVAL; SEVERABILITY.
The representations, warranties, covenants and agreements of the
parties hereto shall survive the First Closing and the Second Closing,
PROVIDED that the representations and warranties shall survive only
until the third anniversary of the First Closing. In the event that
any provision of this Agreement becomes or is declared by a court of
competent jurisdiction to be illegal, unenforceable or void, this
Agreement shall continue in full force and effect without said
provision.
12. TITLE AND SUBTITLES.
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or
interpreting this Agreement.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK.]
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14. AMOUNT.
The undersigned Subscriber hereby subscribes for
[_______________] shares of Preferred Stock and Warrants to purchase
[_______________] shares of Common Stock and agrees to pay therefor
funds in the amount of [____________________] Dollars (U.S.
$_____________________).
The undersigned acknowledges that this subscription shall
not be effective unless accepted by the Company as indicated
below.
Subscriber's Representative: Name of Subscriber:
____________________________ _______________________________
Attn:
By_____________________________
Name:
Title:
Date of Subscription: _________
Address:
Place of Execution: ___________
Telephone: Place of Organization or Citizenship:
______________________________
Fax: Place of Residency and/or Principal
Place of Business:
Registration Instructions:
______________________________ _____________________________________
(Name)
(Please Print) _______________
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE 5th DAY OF
JUNE, 1997.
CORTEX PHARMACEUTICALS, INC.
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By:_________________________
Name:_______________________
Title: