VISTAGEN THERAPEUTICS, INC. SENIOR CONVERTIBLE BRIDGE NOTE AND WARRANT PURCHASE AGREEMENT

 

 

This Senior Convertible Bridge Note and Warrant Purchase Agreement (the "Agreement") is made as of August 13, 2006, by and between VistaGen Therapeutics, Inc., a California corporation (the "Company"), and the purchasers listed on Exhibit A hereto (each a "Purchaser" and, collectively, the "Purchasers").

The parties hereby agree as follows:

 

AGREEMENT SECTION 1

 

AMOUNT AND TERMS OF THE LOAN; ISSUANCE OF WARRANTS

 

 

 

 

For Notes purchased on or before August 31, 2006: number of shares of Common Stock issuable      =      principal amount of the Note * 100% upon exercise of the  Conversion Price (as defined below) Warrant For Notes purchased on or before September 29, 2006: number of shares of Common Stock issuable upon exercise of theprincipal amount of the Note * 75% Conversion Price (as defined below) WarrantFor Notes purchased after September 29, 2006: number of shares of Common Stock issuable upon exercise of the principal amount of the Note* 50% Conversion Price (as defined below) Warrant

The Warrant shall be exercisable on the terms and conditions set forth therein.

 

 

 

 

 

SECTION 2

 

THE CLOSING

 

 

 

 

SECTION 3

REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS

 

Each Purchaser, severally and not jointly, hereby represents, warrants and covenants to the Company that:

 

 

 

conditions of the offering of the Securities and to obtain any additional information necessary to verify the accuracy of the information given to such Purchaser. Such Purchaser further represents that it has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risk of this investment.

 

 

 

 

(a) There is then in effect a registration statement under the Securities Act of 1933, as amended, covering such proposed disposition and such disposition is made in accordance with such registration statement; or

 

(b) (i) Such Purchaser shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and

 

(ii) if reasonably requested by the Company, such Purchaser shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act of 1933, as amended.

 

(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Purchaser to a shareholder or partner (or retired partner) of such Purchaser, or transfers by gift, will or intestate succession to any spouse or lineal descendants or ancestors, if all transferees agree in writing to be subject to the terms hereof to the same extent as if they were an original Purchaser hereunder.

 

 

of the Company held by it at any time during such period except common stock included in such registration; provided, however, that:

 

(a) such agreement shall be applicable only to the first two such registration statements of the Company which cover common stock (or other securities) to be sold on its behalf to the public in an underwritten offering;

 

(b) all officers and directors of the Company and all other persons with registration rights enter into similar agreements; and

 

(c) such market stand-off time period shall not exceed one hundred eighty (180) days.

 

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Securities of each Purchaser (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.

 

Notwithstanding the foregoing, the obligations described in this Section 3.6 shall not apply to a registration relating solely to employee benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-14 or Form S-15 or similar forms which may be promulgated in the future.

 

 

 

 

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company hereby represents and warrants to each Purchaser that:

 

 

 

SECTION 5

 

 MISCELLANEOUS

 

 

 

 

 

 

 

 

 

 

 

Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties with respect to the subject matter hereof 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 herein or therein.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

 

PURCHASER(S) (INDIVIDUAL)

 

Signature

 

Type/Print Name of Individual Purchaser (Specify "as joint tenant," as trustee," etc. if applicable)

PURCHASER (ENTITY)

 

(Name of Corporation or Other Entity)

 

By:                                                              

Signature of Authorized Officer, Trustee or Partner

Signature of Joint Purchaser

Title

Type/Print Name of Individual Purchaser (Specify "as joint tenant," as trustee," etc. if applicable)

Tax Identification or Social Security Number for Purchaser(s)

Tax Identification Number for Purchaser

 

 

 

 

$              .00                                                                                                                  , 2006

Burlingame, California

 

FOR VALUE RECEIVED, VistaGen Therapeutics, Inc., a California corporation (the

"Company"), promises to pay to the order of                                                                                             , or its permitted assigns (each

a "Holder"), the principal sum of                                                                            US Dollars ($                              ) with interest on the

outstanding principal amount at the simple rate of 10.0% per annum (computed on the basis of actual calendar days elapsed and a year of 360 days). Interest shall commence with the date hereof and shall accrue on the outstanding principal until converted or paid in accordance with the provisions hereof.

 

1. This note (the "Note") is issued pursuant to the terms of that certain Senior Convertible Bridge Note and Warrant Purchase Agreement (the "Agreement") dated as of

, 2006, by and among Company and the purchasers set forth in the Schedule

of Purchasers attached thereto as Exhibit A. This Note is one of a series of notes (the "Notes") having like tenor and effect (except for variations necessary to express the name of the holders, the principal amount of each of the Notes and the date on which each Note is issued) issued or to be issued by the Company in accordance with the terms of the Agreement. The Notes shall be senior in preference or priority of any kind over one another, and all payments on account of principal and interest with respect to any of the Notes shall be applied first on the outstanding Notes.

 

2. Unless sooner converted in accordance with Paragraph 3, the entire unpaid balance of principal and all unpaid accrued interest shall become fully due and payable on August 30, 2007. The principal and accrued interest under this Note may be prepaid at any time and from time to time, without penalty.

 

3. The outstanding principal balance and unpaid accrued interest under this Note shall be automatically converted into equity securities of the Company ("Securities") upon the earlier to occur of the (a) the closing of a Qualified Financing (as defined in the Agreement, or (b) the closing of a Sale of the Company, as defined in the Agreement. If conversion of this

 

 

Note is occasioned by a Qualified Financing, then the terms and conditions pursuant to which Holder will acquire the Securities will be the same terms and conditions for the Investors in the Qualifed Financing. The Holder acknowledges that the price, terms and conditions of the Financing and the terms, preferences and privileges of Securities have not, as of the date of this Note, been established and are subject to negotiation with the Investors. If the conversion of this Note is occasioned by the Sale of the Company, then such conversion shall be deemed to have occurred immediately prior to, and contingent upon the occurrence of, the closing of the Sale of the Company. In the case of Sale of the Company, the price per share at which the outstanding principal balance and unpaid accrued interest under this Note shall be converted into Securities shall be $0.60 per share, the price of the Company's Series C Senior Preferred issued in its most recent equity financing. In connection with its participation in the Qualified Financing, the Holder agrees to execute any documents reasonably requested by the Company which are to be executed by the Investors, including without limitation, a stock purchase agreement with customary representations and warranties of the Investors. This Note shall not otherwise be convertible into securities of the Company.

 

4. Upon conversion of this Note into the Securities, the Holder shall surrender this Note, duly endorsed, at the principal office of the Company. At its expense, the Company shall, as soon as practicable thereafter, issue and deliver to the Holder at such principal office a certificate or certificates for the Securities into which the Note is converted (bearing such legends as may be required or advisable in the opinion of counsel to the Company), together with a check payable to the Holder for any cash amounts payable as described in Section 5 below.

 

5. No fractional shares shall be issued upon conversion of this Note. In lieu of the Company issuing any fractional shares to the Holder upon the conversion of this Note, the Company shall pay to the Holder an amount in cash equal to the product obtained by multiplying the conversion price applied to effect such conversion by the fraction of a share not issued pursuant to the previous sentence. Upon conversion of this Note in full and the payment of the amounts specified in this Note, the Company shall be released from all its obligations and liabilities under this Note.

 

6. The terms of this Note shall be construed in accordance with and governed by the laws of the State of California, as applied to contracts entered into by California residents within the State of California, which contracts are to be performed entirely within the State of California.

 

7. Any term of this Note and all Notes issued pursuant to the Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of Company and the holders of Notes representing at least a majority of the aggregate amount of indebtedness incurred by the Company under all outstanding Notes issued pursuant to the Agreement. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Company, the Holder and the holders of all Notes issued pursuant to the Agreement.

 

8. If any provision of this Note, or the application of such provision to any person or circumstance, is held invalid or unenforceable, the remainder of this Note, or the application of

 

 

such provisions to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby.

 

9. Except as may be otherwise provided herein, all notices, requests, waivers and other communications made pursuant to this Note shall be made in accordance with Section 5.6 of the Agreement.

 

10. In case any Note shall be mutilated, lost, stolen or destroyed, the Company shall issue a new Note of like date, tenor and denomination and deliver the same in exchange and substitution for and upon surrender and cancellation of any mutilated Note, or in lieu of any Note lost, stolen or destroyed, upon receipt of evidence satisfactory to the Payor of the loss, theft or destruction of such Note.

 

11. Notwithstanding any other provision to the contrary herein, in no event shall the interest attributable to this Note exceed the maximum rate of interest then permitted under applicable law.

 

This Note is executed as of the day first above written.

 

 

 

By:                                                  

H. Ralph Snodgrass, President

 

[signature sheet Convertible Promissory Notes]

 

 

[Attach Form of Warrant]

 

 

 

 

Dated:                        ,2006

 

 

 

This certifies that                                                  , or its permitted assigns (each a "Holder"), for value

received, is entitled to purchase, at an exercise price per share equal to the Conversion Price (as defined below) (the "Exercise Price") from VISTAGEN THERAPEUTICS, Inc., a California corporation (the "Company"), up to that number of fully paid and nonassessable shares of the Company's Common Stock ("Common Stock"), equal to the quotient obtained in accordance with the following calculation:

 

For Notes purchased on or before August 31, 2006:

 

number of shares of

Common Stock issuable      =      principal amount of the Note * 100%

upon exercise of the                                                     Conversion Price

Warrant

 

For Notes purchased on or before September 29, 2006:

 

number of shares of

Common Stock issuable      =       principal amount of the Note * 75%

upon exercise of the                                                     Conversion Price

Warrant

 

 

For Notes purchased after September 29, 2006: number of shares of

Common Stock issuable      =       principal amount of the Note* 50%

upon exercise of the                                                     Conversion Price

Warrant

 

This Warrant shall be exercisable at any time from time to time from and after the closing of the Qualified Financing (shall have the meaning given such Term in the Agreement) (such date being referred to herein as the "Initial Exercise Date") up to and including 5:00 p.m. (Pacific Time) on the first to occur of (i) three (3) years from the date hereof, (ii) ten (10) days preceding the closing date of any of the following transactions: (A) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation but, excluding any merger effected exclusively for the purpose of changing the domicile of the Company); or (B) a sale of all or substantially all of the assets of the Company by means of a transaction or series of related transactions; unless the Company's shareholders of record as constituted immediately prior to such acquisition or sale will, immediately after such acquisition or sale (by virtue of securities issued as consideration for the Company's acquisition or sale or otherwise) hold at least 50% of the voting power of the surviving or acquiring entity (any such transaction, a "Change of Control"), or (ii) the date of closing of the Company's initial public offering of equity securities (such earlier date being referred to herein as the "Expiration Date"), upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with (a) the Form of Subscription attached hereto duly completed and executed, and (b) payment pursuant to Section 2 of the aggregate Exercise Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof. The Exercise Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 4 of this Warrant. For purposes of this Warrant, (a) the term "Note" shall mean the note issued to the original Holder of this Warrant pursuant to the terms of that certain Senior Convertible Note and Warrant Purchase

Agreement dated as of                                                   , 2006, by and between Company and the purchasers set

forth in the Schedule of Purchasers attached thereto as Exhibit A (the "Agreement"), and (b) the term "Conversion Price" have the meaning given such term in the Agreement.

 

1.      Exercise: Issuance of Certificates; Acknowledgement. This Warrant is exercisable at the option of the holder of record hereof, at any time from or after the Initial Exercise Date up to the Expiration Date for all or any part of the Warrant Shares (but not for a fraction of a share) which may be purchased hereunder. The Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of the Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company atthe Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. Each certificate so delivered shall be in such denominations of the Warrant Shares as may be requested by the Holder hereof and shall be registered in the name of such Holder. In case of a purchase of less than all the Warrant Shares, the Company shall execute and deliver to Holder within a reasonable time an acknowledgement in the form attached hereto indicating the number of Warrant Shares which remain subject to this Warrant, if any.

 

2. Payment for Shares. The aggregate purchase price for Warrant Shares being purchased hereunder may be paid either by cash or wire transfer of immediately available funds.

 

3. Shares to be Fully Paid; Reservation of Shares. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any shareholder and free of all taxes* liens and charges with respect to the issue thereof. The Company further covenants and agrees that during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued shares of Common Stock.

 

4. Adjustment of Exercise Price and Number of Shares. The Exercise Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 4. Upon each adjustment of the Exercise Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such adjustment, and dividing the product thereof by the Exercise Price resulting from such adjustment.

 

4.1 Subdivision or Combination of Stock. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of the Common Stock of the Company shall be combined into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased.

 

4.2 Reclassification. If any reclassification of the capital stock of the Company shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property, then, as a condition of such reclassification, lawful and adequate provisions shall be made whereby the Holder hereof shall thereafter have the right to purchase and receive (in lieu of the shares of the Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number ofshares of such Common Stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. In any reclassification described above, appropriate provision shall be made with respect to the rights and interests of the Holder of this Warrant to the end that the provisions hereof (including, without limitation, provisions for adjustments of the Exercise Price and of the number of shares purchasable and receivable upon the exercise of this Warrant) shall thereafter be applicable, as nearly as may be, in relation to any shares of stock, securities or assets thereafter deliverable upon the exercise hereof.

 

4.3 Notice of Adjustment. Upon any adjustment of the Exercise Price or any increase or decrease in the number of shares purchasable upon the exercise of this Warrant, the Company shall give written notice thereof, by first class mail postage prepaid, addressed to the registered Holder of this Warrant at the address of such Holder as shown on the books of the Company. The notice shall be signed by the Company's chief financial officer and shall state the Exercise Price resulting from such adjustment and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based.

 

4.4 Other Notices. If at any time:

 

(1) the Company shall declare any cash dividend upon its

Common Stock;

 

(2) there shall be a Change of Control;

 

(3) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; or

 

(4) there shall be an initial public offering of the Company's

equity securities;

 

then, in any one or more of said cases, the Company shall give, by first class mail, postage prepaid, addressed to the Holder of this Warrant at the address of such Holder as shown on the books of the Company, (a) at least twenty (20) days prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend or for determining rights to vote in respect of any such Change of Control or dissolution, liquidation or winding-up, and (b) in the case of any such Change of Control or dissolution, liquidation, winding-up or initial public offering, at least twenty (20) days prior written notice of the date when the same shall take place; provided, however, that the Holder shall make a best efforts attempt to respond to such notice as early as possible after the receipt thereof. Any notice given in accordance with the foregoing clause (a) shall also specify, in the case of any such dividend, the date on which the holders of Common Stock shall be entitled thereto. Any notice given 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 Change of Control, dissolution, liquidation, winding-up, conversion or initial public offering, as the case may be.

 

 

5. No Voting or Dividend Rights. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent to receive notice as a shareholder of the Company or any other matters or any rights whatsoever as a shareholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised.

 

6. Warrants Transferable. Subject to compliance with applicable federal and state securities laws, this Warrant and all rights hereunder may be transferred, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon the prior written consent of the Company and, thereafter, upon surrender of this Warrant properly endorsed and compliance with the provisions of the Agreement. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company and notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes.

 

7. Lost Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant.

 

8. Modification and Waiver. Any term of this Warrant may be amended and the observance of any term of this Warrant may be waived (either generally or in a particular instance and either retroactively or prospectively) only (a) with the written consent of the Company and the Holder hereof, or (b) as provided in Section 5.7 of the Agreement. Any amendment or waiver effected in accordance with this paragraph shall be binding upon the Company and the Holder.

 

9. Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid, at such address as may have been furnished to the Company or the Holder, as the case may be, in writing by the Company or such holder from time to time.

 

10. Titles and Subtitles; Governing Law; Venue. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Agreement. This Warrant is to be construed in accordance with and governed by the internal laws of the State of California without giving effect to any choice of law rule that would cause the application of the laws of any jurisdiction other than the internal laws of the

 

Exhibit C Warrant

 

State of California to the rights and duties of the Company and the Holder. All disputes and controversies arising out of or in connection with this Warrant shall be resolved exclusively by the state and federal courts located in San Mateo County in the State of California, and each of the Company and the Holder hereto agrees to submit to the jurisdiction of said courts and agrees that venue shall lie exclusively with such courts.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized as of the date first above written.

VistaGen Therapeutics, Inc.

 

By:                                        

H. Ralph Snodgrass, President

 

 

[signature sheet Warrant]

 

(To be signed only upon exercise of Warrant)

 

To:                                                    

 

The undersigned, the holder of a right to purchase shares of Common Stock of VISTAGEN THERAPEUTICS, INC. (the "Company") pursuant to that certain Warrant to Purchase Common Stock of VISTAGEN THERAPEUTICS, INC. (the "Warrant"), dated as of, 2006, hereby irrevocably elects to exercise the purchase right represented by

such Warrant for, and to purchase thereunder,                                                                                                              (                   )shares of Common Stock of the Company and herewith makes payment ofDollars ($                                 ) therefor in cash.

 

The undersigned represents that it is acquiring such securities for its own account for investment and not with a view to or for sale in connection with any distribution thereof and in order to induce the issuance of such securities makes to the Company, as of the date hereof, the representations and warranties set forth in Section 3 of the Convertible Note and WarrantPurchase Agreement, dated as of                                                                      , 2006, by and among the Company and thePurchasers listed on Exhibit A thereto.

 

DATED:                                           

[Name of Holder]

 

By:                                                   

Name:                                                   

Its:                                                   

 

 

To: [Name of Holder]

 

The undersigned hereby acknowledges that as of the date hereof,

(                     ) shares of Common Stock remain subject to the right of purchase in favor of

[Name of Holder] pursuant to that certain Warrant to Purchase Common Stock of VISTAGEN

THERAPEUTICS, INC., dated as of                                                                           , 2006.

 

DATED:                                           

 

 

By:                   :                               

 

Name:                                                  

 

Its: