Contract
Exhibit 4.7
THIS NOTE
AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
APPLICABLE STATE SECURITIES LAWS, OR APPLICABLE LAWS OF ANY FOREIGN
JURISDICTION. THIS NOTE AND SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY
NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS AND IN THE ABSENCE OF COMPLIANCE WITH
APPLICABLE LAWS OF ANY FOREIGN JURISDICTION, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR SUCH
FOREIGN JURISDICTION LAWS HAVE BEEN SATISFIED.
PACIFIC
BEACH BIOSCIENCES, INC.
CONVERTIBLE
PROMISSORY NOTE
| $[ ] | San Diego, CA |
| December 14, 2007 |
1. Principal and
Interest
PACIFIC
BEACH BIOSCIENCES, INC. (the "Company"), a Delaware
corporation, for value
received, hereby promises to pay to the order of ____________________, or
his, her or its assigns ("Holder"), in lawful
money of the United States of America at the address for notices to Holder set
forth in the applicable Purchase Agreement (as defined below) (or such other
address as Holder shall provide
to the Company in writing pursuant hereto), the principal amount
of __________________________([$ ]),together
with interest as set forth below.
The Company
promises to pay interest on the unpaid principal amount from the date hereof
until such principal amount is paid in full at the following rates: from the date hereof to December 13, 2008, eight
percent (8%); and from December 14, 2008 to the Due Date, ten percent (10%) (in
each case, or such lesser rate as shall be the maximum rate allowable
under applicable law); provided, however,
that upon an Event of Default (as defined herein), the interest rate on this
Note shall be increased to twelve percent (12%) per annum during the term of the
default. Interest from the date hereof shall be computed on the basis
of a 360-day year of twelve 30-day months, shall compound annually and shall be
accrued and added to principal on an annual basis. Unless converted,
all unpaid principal and accrued but unpaid interest on this Note shall be due
and payable on September 30, 2010 (the “Due
Date”). For purposes of this Note, an “Event of Default”
shall occur if (i) the Company shall default in the payment on the Note, when
and as the same shall become due and payable and any such failure to make
payment continues for five (5) business days; or (ii) the Company shall default
in the due observance or performance of any material covenant, condition or
agreement on the part of the Company contained in this Note or the Purchase
Agreement (other than the failure to make payment when due) and any such default
shall continue for a period of thirty (30) days after the date on which the
Company receives written notice thereof from the Holder.
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This Note
is being issued pursuant to that certain Note Purchase Agreement between the
Company and the Holder, dated as of the date hereof (the "Purchase Agreement"),
and is subject to its terms. Capitalized terms used herein but not defined shall
have the meanings given to such terms in the Purchase Agreement. This Note is
being issued together with a series of convertible promissory notes issued by
the Company in connection with an offering described in the Company's
Confidential Offering Memorandum (together with all amendments, supplements,
exhibits, and appendices thereto, the "Memorandum") dated
September 28, 2007 (such notes shall be collectively referred to as the "Bridge Notes"). The
Bridge Notes rank pari passu with all other existing indebtedness of the Company
and, pursuant to Section 2.17 of the Purchase Agreement, no new indebtedness
which is secured or senior in right of payment to the Bridge Notes may be issued
by the Company without the consent of the Holders of Bridge Notes representing
at least sixty-six and two-thirds percent (66 2/3%) of the outstanding principal
amount of all Bridge Notes. No consent of the holders of Bridge Notes will be
required for issuances by the Company of unsecured indebtedness that ranks pari
passu with, or junior to, the Bridge Notes.
2. Conversion.
2.1
(a) All unpaid
principal and accrued but unpaid interest on this Note shall be automatically
converted into the Company’s equity securities (the “Securities”) issued
in the Company’s next equity financing (or series of related equity financings)
involving the sale of Securities in which the Company receives at least
$10,000,000 (minus the amount of aggregate gross cash proceeds to the Company
from the arm’s length sale of equity or debt securities of the Company, or the
incurrence of new loans, after December 14, 2009) in aggregate gross cash
proceeds (before brokers’ fees or other transaction related expenses, and
excluding any such proceeds resulting from any conversion of the Bridge Notes)
(a “Qualified
Financing”), at a conversion price equal to 70% of the lowest per unit
price paid for such Securities in cash by investors in such Qualified Financing,
and upon such other terms, conditions and agreements as may be applicable in
such Qualified Financing.
(b) In the
event that the Company consummates a merger, share exchange, or other
transaction (or series of related transactions), other than in connection with a
Qualified Financing, in which (i) the Company merges into or otherwise becomes a
wholly-owned subsidiary of a company that (A) is subject to the public company
reporting requirements of the Securities Exchange Act of 1934, as amended, or
the equivalent reporting requirements of the Ontario Securities Commission, or
that is listed on the London Stock Exchange main market, the Euronext markets,
or AIM (or their successor exchanges or markets), and (B) does not engage in any
active operations, and (ii) the aggregate consideration payable to the Company
or its stockholders in such transaction(s) (the “Reverse Merger
Consideration”) is greater than or equal to $10,000,000 (a “Reverse Merger”),
then immediately prior to such Reverse Merger, all unpaid principal and accrued
but unpaid interest on this Note shall be automatically converted into Common
Stock at a conversion price per share equal to 70% of the quotient obtained by
dividing (i) the Reverse Merger Consideration less the amount of unpaid
principal and accrued but unpaid interest on all Bridge Notes and the Existing
Notes (as defined below) immediately prior to the Reverse Merger by (ii) the
number of shares of Common Stock of the Company then outstanding, on a fully
diluted basis (the “Outstanding Shares”).
For this purpose, Outstanding Shares shall (i) exclude any shares of Common
Stock issuable upon conversion of the Bridge Notes or the Existing Notes or upon
exercise of the warrants issued to the Placement Agent in connection with the
sale of the Bridge Notes but (ii) include all shares of Common Stock issuable
upon the exercise of (A) options and other warrants outstanding (to the extent
that such options or warrants are exercised or assumed in connection with the
Reverse Merger) and (B) options that the Company is required by agreement to
issue to one or more employees, consultants, or licensors of the Company in
connection with such Reverse Merger to maintain a specified percentage interest
in the Company (but which have not yet been issued). For purposes hereof, “Existing Notes” shall
mean collectively, (1) that certain Future Advance Promissory Note dated
December 1, 2006, in favor of the Xxxxxxx Xxxxxxxxx 2000 Family Trusts dated
December 15, 2000 and (2) those certain Future Advance Promissory Notes dated
December 1, 2006 and dated June 12, 2007, both in favor of Paramount
Biosciences, LLC.
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The
shares of Common Stock issuable pursuant to clause 2.1(b) above shall be issued
effective prior to the consummation of the Reverse Merger and conditioned upon
the consummation of such Reverse Merger. As a holder of such shares of Common
Stock, the Holder will receive the consideration payable in connection with such
Reverse Merger on a share-for-share basis with all other stockholders of the
Company and in like kind, at the same time and upon the same conditions as all
other stockholders of the Company.
If any
Reverse Merger Consideration is other than cash, its value will be deemed to be
its fair market value as determined, in good faith, by the Board of Directors of
the Company. The value of any securities shall be determined by the Board of
Directors of the Company as set forth for a Sale of the Company in Section
2.1(c) below.
(c) The
Notes plus any unpaid accrued interest thereon shall automatically
convert into shares of Common Stock of the Company effective immediately prior
to the
consummation of a Sale of the Company. For purposes hereof, "Sale of the Company"
shall mean a
transaction (or series of related transactions) with one or more non-affiliates
of the Company, pursuant
to which such party or parties acquire (i) capital stock of the Company or the
surviving entity
possessing the voting power to elect a majority of the board of directors of the
Company or the surviving
entity (whether by merger, consolidation, sale or transfer of the Company's
capital stock or otherwise)
(a "Stock
Acquisition"); or (ii) all or substantially all of the Company's assets
determined on a
consolidated basis (an "Asset Sale");
provided, however, that notwithstanding anything to the contrary
contained herein, to the extent any transaction (or series of related
transactions) qualifies as a
Qualified Financing or a Reverse Merger, such transaction(s) shall not be deemed
to constitute a Sale of
the Company. For purposes hereof, "Sale Proceeds" shall
mean (i) in the event of a Stock Acquisition,
the cash or securities paid by the acquirer to the Company or the selling
stockholders to acquire
such shares; and (ii) in the event of an Asset Sale, the cash or securities
legally available for distribution
to the Company's stockholders, after creation of adequate reserves for
liabilities of the Company.
The price
per share at which the Notes will convert into Common Stock of the Company upon
a Sale of the Company will be equal to the lesser of (i) 70% of the quotient
obtained by dividing (x) the value of the Sale Proceeds received in such
transaction less the unpaid principal and accrued but unpaid interest on the
Notes and the Existing Notes immediately prior to the Sale of the Company by (y)
the number of Outstanding Shares, and (ii) the quotient obtained by dividing (x)
$50,000,000 less the unpaid principal and accrued but unpaid interest on the
Notes and the Existing Notes by (y) the number of Outstanding Shares. For
purposes of this Section 2.1(c), Outstanding Shares shall be determined as set
forth in Section 2.1(b) of this Note, except that it shall not include any
shares of Common Stock issuable upon the exercise of any options and warrants
outstanding immediately prior to such Sale of the Company if such options or
warrants have an exercise price in excess of the Note conversion price
determined under this Section 2.1(c).
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(d) In
the event the Company completes (in one or a series of related transactions)
a merger, consolidation, sale or transfer of more than fifty percent (50%) of
the Company's
capital stock, in each case, which does not constitute a Sale of the Company, a
Reverse Merger or a Qualified Financing (an "Other Transaction"),
then the term "Securities" as used herein shall thereafter refer to the equity
securities or securities convertible into or exchangeable for equity securities
of the surviving, resulting, combined or acquiring entity in such merger,
consolidation, sale or transfer.
2.2
Upon consummation of a Qualified Financing, Reverse Merger, Sale or Other
Transaction in accordance with the terms of Section 2.1, the outstanding unpaid
principal and accrued but unpaid interest of the Note shall be converted without
any further action by the Holder and whether or not the Note is surrendered to
the Company or its transfer agent, and the indebtedness evidenced by this Note
shall be satisfied in full and no interest shall continue to accrue on this Note
and all rights of the Holder hereunder shall terminate. The Company shall not be
obligated to issue certificates evidencing the shares of the securities issuable
upon such conversion unless the Note is either delivered to the Company or its
transfer agent, or the Holder notifies the Company or its transfer agent that
such Note has been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such Note. The Company shall, as soon as practicable after
such delivery, or such agreement and indemnification, issue and deliver to such
Holder of such Note, a certificate or certificates for the securities to which
the Holder shall be entitled. Such conversion shall be deemed to have been made
concurrently with the closing of the Qualified Financing, the Reverse Merger,
the Sale of the Company or the Other Transaction, as applicable. The person or
persons entitled to receive securities issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such securities on
such date. The Company shall not issue fractional shares but shall round down
the number of shares issued to the nearest whole number. Any conversion effected
in accordance with this Section 2 shall be binding upon the Holder
hereof.
3.
No Prepayment;
Repayment Premium.
(a) The
Notes may not be prepaid at any time, in whole or in part, prior to their
maturity.
(b) In
the event that this Note becomes due and payable (whether on the Due Date or
earlier pursuant to Section 7 hereof) prior to the consummation by the Company
of a Qualified Financing, Reverse Merger, Sale of the Company or Other
Transaction, then in connection with the repayment of this Note, in addition to
the payment of the unpaid principal amount and all accrued but unpaid interest
on this Note, the Company shall pay to Holder, as a repayment premium, an amount
in cash equal to 42.8571% of the aggregate principal amount plus all accrued and
unpaid interest on this Note.
4. Attorneys' Fees. If
the indebtedness represented by this Note or any part thereof is collected in
bankruptcy, receivership or other judicial proceedings or if this Note is placed
in the hands of attorneys for collection after default, the Company agrees to
pay, in addition to the principal and interest payable hereunder, reasonable
attorneys' fees and costs incurred by Xxxxxx.
5. Notices. Any notice,
other communication or payment required or permitted hereunder shall be in
writing and shall be deemed to have been given upon delivery to the address
provided pursuant to the Purchase Agreement. In the case of notice to either
party, copies should be sent to Xxxxxxxxx & Xxxxxxx LLP, The New York Times
Building, 000 Xxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000, Facsimile: (000)
000-0000, Attn: Xxxxx X. Xxxxxxxxx, Esq.
6. Notice of Proposed
Transfers. Prior to any proposed transfer of this Note or the Securities,
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the Holder shall give written notice to the
Company of such Xxxxxx's intention to effect such transfer. Each such notice
shall describe the manner and circumstances of the proposed transfer in
sufficient detail, and shall, if the Company so requests, be accompanied (except
in transactions in compliance with Rule 144) by an unqualified written opinion
of legal counsel, who shall be reasonably satisfactory to the Company, addressed
to the Company and reasonably satisfactory in form and substance to the
Company's counsel, to the effect that the proposed transfer of the Note or Securities
may be effected without registration under the Securities Act; provided, however, no
such opinion of counsel shall be necessary for a transfer without consideration
by a Holder to any affiliate of such Xxxxxx, or a transfer by a Holder which is
a partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner or the transfer by gift, will or intestate succession
of any partner to his spouse or lineal descendants or ancestors, if the
transferee agrees in writing to be subject to the terms hereof to the same
extent as if such transferee were the original Holder hereunder. Each
certificate evidencing Securities or the Note transferred as above provided
shall bear an appropriate restrictive legend, except that the Note or
certificate shall not bear such restrictive legend if, in the opinion of counsel
for the Company, such legend is not required in order to establish compliance
with any provisions of the Securities Act.
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7. Acceleration. This
Note shall become immediately due and payable if (i) the Company commences any
proceeding in bankruptcy or for dissolution, liquidation, winding-up,
composition or other relief under state or federal bankruptcy laws; or (ii)
there is any material breach of any material covenant, warranty, representation
or other term or condition of this Note or the Purchase Agreement at any time
which is not cured within the time periods permitted therein, or if no cure
period is provided therein, within thirty (30) days after the date on which the
Company receives written notice thereof from the Holder.
8. No Dilution or
Impairment. The Company will not, by amendment of its Certificate of
Incorporation or Bylaws or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of this Note, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder of this
Note against dilution or other impairment.
9. Waivers. The Company
hereby waives presentment, demand for performance, notice of non-performance,
protest, notice of protest and notice of dishonor. No delay on the part of the
Holder in exercising any right hereunder shall operate as a waiver of such right
or any other right. This Note is being delivered in and shall be construed in
accordance with the laws of the State of New York, without regard to the
conflicts of laws provisions thereof.
10. No Stockholder
Rights. Nothing contained in this Note shall be construed as conferring
upon the Holder or any other person the right to vote or to consent or to
receive notice as a stockholder of the Company.
11.
Amendment. Any term
of this Note may be amended with the written consent of the Company and the
holders of not less than sixty six and two-thirds percent (66 2/3%)
of the then outstanding principal amount of the Bridge Notes, even without the
consent of the Holder hereof. Any amendment effected in accordance with this
Section 11 shall be binding upon each holder of any Bridge Note, each future
holder of all such Bridge Notes, and the Company; provided, however,
that no special consideration or inducement may be given to any such Holder in
connection with such consent that is not given ratably to all such holders, and
that such amendment must apply to all such holders ratably in accordance with
the principal amount of their then outstanding Bridge Notes. The Company shall
promptly give notice to all holders of outstanding Bridge Notes of any amendment
effected in accordance with this Section 11.
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ISSUED
as of the date from above written.
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PACIFIC
BEACH BIOSCIENCES, INC.
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By:
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/s/ Xxxxxxx X. Xxxxxx, M.D. | |
| Name: Xxxxxxx X. Xxxxxx, M.D. | |||
| Title: President and Chief Executive Officer | |||
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