Exhibit 4.1
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER
SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO STEM CELL
INNOVATIONS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
Principal Amount: $1,000,000.00 Issue Date: November ___, 2006
SECURED CONVERTIBLE NOTE
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FOR VALUE RECEIVED, STEM CELL INNOVATIONS, INC., a Delaware corporation
(hereinafter called "Borrower"), hereby promises to pay to ALPHA CAPITAL
ANSTALT, Pradafant 7, 9490 Furstentums, Vaduz, Lichtenstein, Fax:
000-00-00000000 (the "Holder") or order, without demand, the sum of One Million
Dollars ($1,000,000.00), with simple interest accruing on November ___, 2007
(the "Maturity Date"), if not paid sooner.
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1 Interest Rate. Simple interest payable on this Note shall
accrue at the annual rate of ten percent (10%). Interest will be payable on
March 31, 2007 and on the last day of each calendar quarter thereafter and on
the Maturity Date, accelerated or otherwise, when the principal and remaining
accrued but unpaid interest shall be due and payable.
1.2. Payment Grace Period. The Borrower shall have a ten (10)
business day grace period to pay any monetary amounts due under this Note, after
which grace period and during the pendency of an Event of Default (as defined in
Article III) a default interest rate of eighteen percent (18%) per annum shall
apply to the amounts owed hereunder.
1.3. Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the occurrence of an
Event of Default. The Note shall be payable in full on the Maturity Date, unless
previously converted into Common Stock in accordance with Article II hereof;
provided, that if an Event of Default has occurred that has not been timely
cured, the Borrower may not pay this Note, without the consent of the Holder,
until one year after the later of the date the Event of Default has been cured
or one year after the Maturity Date.
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ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal due under this
Note into Shares of the Borrower's Common Stock, $.01 par value per share
("Common Stock") as set forth below.
2.1. Conversion into the Borrower's Common Stock.
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(a) The Holder shall have the right from and after the
Issue Date of the issuance of this Note and then at any time until this Note is
fully paid, to convert any outstanding and unpaid principal portion of this
Note, and accrued interest if any, at the election of the Holder (the date of
giving of such notice of conversion being a "Conversion Date") into fully paid
and nonassessable shares of Common Stock as such stock exists on the date of
issuance of this Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified, at the conversion
price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined
as provided herein. Upon delivery to the Borrower of a completed Notice of
Conversion, a form of which is annexed hereto, Borrower shall issue and deliver
to the Holder within five (5) business days after the Conversion Date (such
fifth day being the "Delivery Date") that number of shares of Common Stock for
the portion of the Note converted in accordance with the foregoing. At the
election of the Holder, the Borrower will deliver accrued but unpaid interest on
the Note in the manner provided in Section 1.3 through the Conversion Date
directly to the Holder on or before the Delivery Date (as defined in the
Subscription Agreement). The number of shares of Common Stock to be issued upon
each conversion of this Note shall be determined by dividing that portion of the
principal of the Note and interest to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c)
hereof, the Conversion Price per share shall be $0.10.
(c) The Conversion Price and number and kind of shares or
other securities to be issued upon conversion determined pursuant to Section
2.1(a), shall be subject to adjustment from time to time upon the happening of
certain events while this conversion right remains outstanding, as follows:
X. Xxxxxx, Sale of Assets, etc. If the Borrower
at any time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing provision shall
similarly apply to successive transactions of a similar nature by any such
successor or purchaser. Without limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall apply to such securities of such
successor or purchaser after any such consolidation, merger, sale or conveyance.
B. Reclassification, etc. If the Borrower at
any time shall, by reclassification or otherwise, change the Common Stock into
the same or a different number of securities of any class or classes that may be
issued or outstanding, this Note, as to the unpaid principal portion thereof and
accrued interest thereon, shall thereafter be deemed to evidence the right to
purchase an adjusted number of such securities and kind of securities as would
have been issuable as the result of such change with respect to the Common Stock
immediately prior to such reclassification or other change.
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C. Stock Splits, Combinations and Dividends. If
the shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Conversion Price shall be proportionately reduced
in case of subdivision of shares or stock dividend or proportionately increased
in the case of combination of shares, in each such case by the ratio which the
total number of shares of Common Stock outstanding immediately after such event
bears to the total number of shares of Common Stock outstanding immediately
prior to such event..
D. Share Issuance. So long as this Note is
outstanding, if the Borrower shall issue or agree to issue any shares of Common
Stock except for the Excepted Issuances (as defined in the Subscription
Agreement) for a consideration less than the Conversion Price in effect at the
time of such issue, then, and thereafter successively upon each such issue, the
Conversion Price shall be reduced to such other lower issue price. For purposes
of this adjustment, the issuance of any security carrying the right to convert
such security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price upon
the issuance of the above-described security and again upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights if
such issuance is at a price lower than the then applicable Conversion Price. The
reduction of the Conversion Price described in this paragraph is in addition to
other rights of the Holder described in this Note and the Subscription
Agreement.
(d) Whenever the Conversion Price is adjusted pursuant to
Section 2.1(c) above, the Borrower shall promptly mail to the Holder a notice
setting forth the Conversion Price after such adjustment and setting forth a
statement of the facts requiring such adjustment.
(e) Borrower will reserve from its authorized and
unissued Common Stock the number of shares of Common Stock during the time
periods and in the amounts described in the Subscription Agreement. Borrower
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable. Xxxxxxxx agrees that its issuance of this Note
shall constitute full authority to its officers, agents, and transfer agents who
are charged with the duty of executing and issuing stock certificates to execute
and issue the necessary certificates for shares of Common Stock upon the
conversion of this Note.
2.2 Method of Conversion. This Note may be converted by
the Holder in whole or in part as described in Section 2.1(a) hereof and the
Subscription Agreement. Upon partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Borrower to the Holder for the principal balance of
this Note and interest which shall not have been converted or paid.
2.3 Maximum Conversion. The Holder shall not be entitled
to convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates on a Conversion Date, (ii) any Common Stock issuable in connection
with the unconverted portion of the Note, and (iii) the number of shares of
Common Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date, which would
result in beneficial ownership by the Holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Borrower on such
Conversion Date. For the purposes of the provision to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate conversions of only 4.99% and aggregate conversion by the Holder may
exceed 4.99%. The Holder shall have the authority and obligation to determine
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whether the restriction contained in this Section 2.3 will limit any conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
Notes are convertible shall be the responsibility and obligation of the Holder.
The Subscriber may increase the permitted beneficial ownership amount up to
9.99% upon and effective after 61 days prior written notice to the Company. The
Holder may allocate which of the equity of the Borrower deemed beneficially
owned by the Holder shall be included in the 4.99% amount described above and
which shall be allocated to the excess above 4.99%.
2.4. Optional Redemption of Principal Amount. Provided an
Event of Default or an event which with the passage of time on the giving of
notice could become an Event of Default has not occurred, whether or not such
Event of Default has been cured, the Borrower will have the option of prepaying
the outstanding initial principal amount of this Note ("Optional Redemption"),
in whole or in part, by paying to the Holder a sum of money equal to one hundred
and thirty percent (130%) of the Principal Amount to be redeemed, together with
accrued but unpaid interest thereon and any and all other sums due, accrued or
payable to the Holder arising under this Note or any Transaction Document
through the Redemption Payment Date as defined below (the "Redemption Amount").
Xxxxxxxx's election to exercise its right to prepay must be by notice in writing
("Notice of Redemption"). The Notice of Redemption shall specify the date for
such Optional Redemption (the "Redemption Payment Date"), which date shall be
sixty (60) days after the date of the Notice of Redemption (the "Redemption
Period"). A Notice of Redemption shall not be effective with respect to any
portion of the Principal Amount for which the Holder has a pending election to
convert pursuant to Section 2.1, or for conversions initiated or made by the
Holder pursuant to Section 2.1 during the Redemption Period. A Redemption Notice
may be given not more frequently than one time each sixty days. A Redemption
Notice may be given for an amount of principal which is not greater than an
amount of Note Principal which when converted into Common stock would not exceed
the limitation described in Section 2.3 above. On the Redemption Payment Date,
the Redemption Amount, less any portion of the Redemption Amount against which
the Holder has exercised its rights pursuant to Section 2.1, shall be paid in
good funds to the Holder. In the event the Borrower fails to pay the Redemption
Amount on the Redemption Payment Date as set forth herein, then (i) such Notice
of Redemption will be null and void, (ii) Borrower will have no right to deliver
another Notice of Redemption, and (iii) Borrower's failure may be deemed by
Holder to be a non-curable Event of Default. A Notice of Redemption may be
cancelled at the option of the Holder, if at any time during the Redemption
Period an Event of Default, or an event which with the passage of time or giving
of notice could become an Event of Default (whether or not such Event of Default
has been cured), has occurred.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default
("Event of Default") shall, at the option of the Holder hereof, make all sums of
principal and interest then remaining unpaid hereon and all other amounts
payable hereunder immediately due and payable, upon demand, without presentment,
or grace period, all of which hereby are expressly waived, except as set forth
below:
3.1 Failure to Pay Principal or Interest. The Borrower
fails to pay any installment of principal, interest or other sum due under this
Note when due and such failure continues for a period of ten (10) business days
after the due date. The ten (10) day period described in this Section 3.1 is the
same ten (10) business day period described in Section 1.1 hereof.
3.2 Breach of Covenant. The Borrower breaches any
material covenant or other material term or condition of the Subscription
Agreement or this Note in any material respect and such breach, if subject to
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cure, continues for a period of ten (10) business days after written notice to
the Borrower from the Holder.
3.3 Breach of Representations and Warranties. Any
material representation or warranty of the Borrower made herein, in the
Subscription Agreement, or in any agreement, statement or certificate given in
writing pursuant hereto or in connection therewith shall be false or misleading
in any material respect as of the date made and the Closing Date.
3.4 Receiver or Trustee. The Borrower shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be appointed
without the consent of the Borrower is not dismissed within sixty (60) days of
appointment.
3.5 Judgments. Any money judgment, writ or similar final
process shall be entered or filed against Borrower or any of its property or
other assets for more than $75,000, and shall remain unpaid, unvacated, unbonded
or unstayed for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law, or the issuance of any notice in relation to such event, for the
relief of debtors shall be instituted by or against the Borrower and if
instituted against Borrower are not dismissed within forty-five (45) days of
initiation.
3.7 Delisting. Failure of the Common Stock to be listed
for trading or quotation on a Principal Market.
3.8 Non-Payment. A default by the Borrower under any one
or more obligations in an aggregate monetary amount in excess of $100,000 for
more than twenty days after the due date, unless the Borrower is contesting the
validity of such obligation in good faith.
3.9 Stop Trade. An SEC or judicial stop trade order or
Principal Market trading suspension that lasts for ten or more consecutive
trading days.
3.10 Failure to Deliver Common Stock or Replacement Note.
Xxxxxxxx's failure to deliver Common Stock to the Holder pursuant to and in the
form required by this Note and Sections 7 and 11 of the Subscription Agreement,
or, if required, a replacement Note more than three Business Days after the
required delivery date of such Common Stock or Note.
3.11 Non-Registration Event. The occurrence of a
Non-Registration Event as described in Section 11.4 of the Subscription
Agreement.
3.12 Reservation Default. Failure by the Borrower to have
reserved for issuance upon conversion of the Note the amount of Common stock as
set forth in this Note and the Subscription Agreement.
3.13 Cross Default. A default by the Borrower of a
material term, covenant, warranty or undertaking of any other agreement to which
the Borrower and Holder are parties, or the occurrence of a material event of
default under any such other agreement which is not cured after any required
notice and/or cure period.
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ARTICLE IV
SECURITY INTEREST
4. Security Interest/Waiver of Automatic Stay. This Note
is secured by a security interest granted to the Collateral Agent for the
benefit of the Holder pursuant to a Security Agreement, as delivered by Borrower
to Holder. The Borrower acknowledges and agrees that should a proceeding under
any bankruptcy or insolvency law be commenced by or against the Borrower, or if
any of the Collateral (as defined in the Security Agreement) should become the
subject of any bankruptcy or insolvency proceeding, then the Holder should be
entitled to, among other relief to which the Holder may be entitled under the
Transaction Documents and any other agreement to which the Borrower and Holder
are parties (collectively, "Loan Documents") and/or applicable law, an order
from the court granting immediate relief from the automatic stay pursuant to 11
U.S.C. Section 362 to permit the Holder to exercise all of its rights and
remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER
EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11
U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE
OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO
ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay
that may be filed by the Holder in any bankruptcy or insolvency proceeding
initiated by or against the Borrower and, further, agrees not to file any
opposition to any motion for relief from stay filed by the Holder. The Borrower
represents, acknowledges and agrees that this provision is a specific and
material aspect of the Loan Documents, and that the Holder would not agree to
the terms of the Loan Documents if this waiver were not a part of this Note. The
Borrower further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Holder nor any
person acting on behalf of the Holder has made any representations to induce
this waiver, that the Borrower has been represented (or has had the opportunity
to he represented) in the signing of this Note and the Loan Documents and in the
making of this waiver by independent legal counsel selected by the Borrower and
that the Borrower has discussed this waiver with counsel.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay
on the part of Holder hereof in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
5.2 Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder shall be in
writing and, unless otherwise specified herein, shall be (i) personally served,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) delivered by reputable air courier service with charges
prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed
as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand delivery
or delivery by facsimile, with accurate confirmation generated by the
transmitting facsimile machine, at the address or number designated below (if
delivered on a business day during normal business hours where such notice is to
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be received), or the first business day following such delivery (if delivered
other than on a business day during normal business hours where such notice is
to be received) or (b) on the second business day following the date of mailing
by express courier service, fully prepaid, addressed to such address, or upon
actual receipt of such mailing, whichever shall first occur. The addresses for
such communications shall be: (i) if to the Borrower to: Stem Cell Innovations,
Inc., 0000 Xxxxx Xxxxxx, Xxxxxx Xxxxxx, Xxx Xxxxxx 00000, Attn: Xx. Xxxxx X.
Xxxxx, CEO, telecopier number: (000) 000-0000, with an additional copy by
telecopier only to: Xxxxxxxxx & Kahr, 000 Xxxx Xxxxxx, Xxxxx 000, Xxx Xxxx, XX
00000, Attn: Xxxxxx X. Xxxxxxxx, Esq., telecopier number: (000) 000-0000, and
(ii) if to the Holder, to the name, address and telecopy number set forth on the
front page of this Note, with a copy by telecopier only to Grushko & Xxxxxxx,
P.C., 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number:
(000) 000-0000.
5.3 Amendment Provision. The term "Note" and all
reference thereto, as used throughout this instrument, shall mean this
instrument as originally executed, or if later amended or supplemented, then as
so amended or supplemented.
5.4 Assignability. This Note shall be binding upon the
Borrower and its successors and assigns, and shall inure to the benefit of the
Holder and its successors and assigns.
5.5 Cost of Collection. If default is made in the payment
of this Note, Borrower shall pay the Holder hereof reasonable costs of
collection, including reasonable attorneys' fees.
5.6 Governing Law. This Note shall be governed by and
construed in accordance with the laws of the State of New York. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the civil or state
courts of New York or in the federal courts located in the State and county of
New York. Both parties and the individual signing this Agreement on behalf of
the Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs.
5.7 Maximum Payments. Nothing contained herein shall be
deemed to establish or require the payment of a rate of interest or other
charges in excess of the maximum permitted by applicable law. In the event that
the rate of interest required to be paid or other charges hereunder exceed the
maximum permitted by such law, any payments in excess of such maximum shall be
credited against amounts owed by the Borrower to the Holder and thus refunded to
the Borrower.
5.8 Shareholder Status. The Holder shall not have rights
as a shareholder of the Borrower with respect to unconverted portions of this
Note. However, the Holder will have all the rights of a shareholder of the
Borrower with respect to the shares of Common Stock to be received by Holder
after delivery by the Holder of a Conversion Notice to the Borrower.
[THIS SPACE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Xxxxxxxx has caused this Note to be signed in its
name by an authorized officer as of the ____ day of November, 2006.
STEM CELL INNOVATIONS, INC.
By:
--------------------------------
Name:
Title:
WITNESS:
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NOTICE OF CONVERSION
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(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal
and $_________ of the interest due on the Note issued by Stem Cell Innovations,
Inc. on November ___, 2006 into Shares of Common Stock of Stem Cell Innovations,
Inc. (the "Borrower") according to the conditions set forth in such Note, as of
the date written below.
Date of Conversion:_____________________________________________________________
Conversion Price:_______________________________________________________________
Shares To Be Delivered:_________________________________________________________
Signature:______________________________________________________________________
Print Name:_____________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________
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