INTELLECT NEUROSCIENCES, INC. Convertible Promissory Note
Exhibit
4.1
THIS
NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“SECURITIES ACT”), OR ANY APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE SOLD
OR OTHERWISE TRANSFERRED BY ANY PERSON, INCLUDING A PLEDGEE, UNLESS (1) EITHER
(A) A REGISTRATION WITH RESPECT THERETO SHALL BE EFFECTIVE UNDER THE SECURITIES
ACT, OR (B) THE COMPANY SHALL HAVE RECEIVED AN OPINION OF COUNSEL SATISFACTORY
TO THE COMPANY THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
IS
AVAILABLE, AND (2) THERE SHALL HAVE BEEN COMPLIANCE WITH ALL APPLICABLE STATE
SECURITIES OR “BLUE SKY” LAWS.
INTELLECT
NEUROSCIENCES, INC.
a
Delaware corporation (the “Company”), for value received, hereby promises to pay
to [
] or
its
assigns (the “Holder”), the principal sum of $[XXX] together with interest,
which interest shall accrue on the then outstanding principal balance of this
Note at an interest rate per annum of ten percent (10%), provided, that, if
at
any time the principal balance of this Note shall be prepaid in whole or in
part, or shall otherwise be paid in full, then all accrued interest on the
principal being paid shall be payable at the time of such principal payment.
Unless this Note has been prepaid or converted in accordance with the terms
hereof, all principal and interest under this Note shall be due and payable
on
the earlier of (i) May [ ] 2008, (ii) the closing of an equity financing of
the
Company (the “Next
Financing”)
with a
third party or parties with gross proceeds to the Company of not less than
$5,000,000 or (iii) the closing of a licensing transaction with a collaborative
partner which results in an upfront payment to the Company of not less than
$4,000,000 (the “Maturity
Date”).
This
Note
is executed and delivered in connection with that certain ‘Subscription
Agreement dated as of May [ ], 2007 by and between the Company and the payee
(as
the same may from time to time be amended, modified or supplemented, the
“Purchase
Agreement”).
All
terms defined in the Purchase Agreement shall have the same definitions when
used herein, unless otherwise defined herein.
1. Conversion.
(a) Conversion.
Unless
previously paid in full, at the Holder’s option, all or some of the outstanding
principal amount and accrued interest of this Note shall be convertible into
common stock of the Company. The number of shares of Company common stock to
be
issued pursuant to this Section 1(a) shall be equal to the quotient obtained
by
dividing the outstanding principal amount of this Note and accrued interest
to
be converted on the date of conversion by 1.75 (the “Conversion
Price”).
In
the event that the Holder elects to convert this Note as aforesaid, it shall
deliver to the Company written notice of such election (a “Conversion
Notice”).
The
conversion of all of the outstanding principal amount and accrued interest
of
this Note into Company common stock shall take place upon the Company’s receipt
of the Conversion Notice (such date hereinafter referred to as the “Conversion
Date”).
(b) Procedural
and Other Matters.
(i) Upon
conversion of this Note, the Holder shall be deemed to be the holder of record
of the Company common stock, notwithstanding that the transfer books of the
Company shall then be closed or any instruments representing such Company common
stock shall not then have been actually delivered to the Holder.
(ii) As
soon
as practicable after the Conversion Date, the Company shall issue and deliver
to
the Holder any instruments evidencing the Company common stock registered in
the
name of the Holder or its designee(s); provided, that the Company, by notice
given to the Holder, may require the Holder, as a condition to the delivery
of
such instruments, to present this Note to the Company.
(iii) The
issuance of any Company common stock, and the delivery of any instruments
representing such shares, if applicable, shall be made without charge to the
Holder for any tax or other charge in respect of such issuance. The Company
shall not, however, be required to pay any tax which may be payable in respect
of any transfer involved in the issue and delivery of any instrument in a name
other than that of the Holder, and the Company shall not be required to issue
or
deliver any such instrument unless and until the person or persons requesting
the issue thereof shall have paid to the Company the amount of such tax or
shall
have established to the satisfaction of the Company that such tax has been
paid.
2. Requirements
for Transfer.
This
Note shall not be assigned, sold, pledged, transferred or otherwise disposed
of
except in compliance with the Securities Act of 1933, as amended (the
“Securities
Act’),
and
applicable state securities laws.
3. Default.
This
Note and all amounts due hereunder shall become immediately due and payable
in
cash without notice or demand upon the occurrence at any time of any of the
following events of default (individually, an “Event
of Default”
and
collectively, “Events
of Default”):
(a) Default
in the payment when due of any principal or interest under this
Note;
(b) The
liquidation, termination of existence, dissolution or the appointment of a
receiver or custodian for the Company or any part of its property if such
appointment is not terminated or dismissed within thirty (30) days;
(c) The
institution against the Company or any endorser or guarantor of this Note of
any
proceedings under the United States Bankruptcy Code or any other federal or
state bankruptcy, reorganization, receivership, insolvency or other similar
law
affecting the rights of creditors generally, which proceeding is not dismissed
within thirty (30) days of filing; or
(d) the
institution by the Company or any endorser or guarantor of this Note of any
proceedings under the United States Bankruptcy Code or any other federal or
state bankruptcy, reorganization, receivership, insolvency or other similar
law
affecting the rights of creditors generally or the making by the Company or
any
endorser or guarantor of this Note of a composition or an assignment or trust
mortgage for the benefit of creditors.
Upon
the
occurrence of an Event of Default, the holder shall have then, or at any time
thereafter, all of the rights and remedies afforded by the Uniform Commercial
Code as from time to time in effect in the State of New York or afforded by
other applicable law.
4. No
Rights as Stockholder.
Nothing
contained in this Note shall be construed as conferring upon the holder hereof
or its transferees the right to vote or to receive dividends or to consent
or to
receive notice as a stockholder in respect of any meeting of stockholders for
the election of directors of the Company or of any other matter, or any rights
whatsoever as a stockholder of the Company.
5. Certain
Adjustments.
(a)
Changes
in Common Stock.
If the
Company shall (i) combine the outstanding shares of Company common stock into
a
lesser number of shares, (ii) subdivide the outstanding shares of Company common
stock into a greater number of shares, or (iii) issue additional shares of
Company common stock as a dividend or other distribution with respect to the
Company common stock, the number of shares of Company common stock to be issued
pursuant to Section 1(a) shall be equal to the number of shares which the Holder
would have been entitled to receive after the happening of any of the events
described above if such shares had been issued immediately prior to the
happening of such event, such adjustment to become effective concurrently with
the effectiveness of such event. The Conversion Price in effect immediately
prior to any such combination of Company common stock shall, upon the
effectiveness of such combination, be proportionately increased. The Conversion
Price in effect immediately prior to any such subdivision of Company common
stock or at the record date of such dividend shall upon the effectiveness of
such subdivision or immediately after the record date of such dividend be
proportionately reduced.
(b) Reorganizations
and Reclassifications.
If
there shall occur any capital reorganization or reclassification of the Company
common stock (other than a change in par value or a subdivision or combination
as provided for in Section 5(a) above), then, as part of any such reorganization
or reclassification, lawful provision shall be made so that the Holder shall
have the right thereafter to receive upon the exercise hereof the kind and
amount of shares of stock or other securities or property which such Holder
would have been entitled to receive if, immediately prior to any such
reorganization or reclassification, such Holder had held the number of shares
of
Company common stock which were then purchasable upon conversion of this Note.
In any such case, appropriate adjustment (as reasonably determined by the Board
of Directors of the Company) shall be made in the application of the provisions
set forth herein with respect to the rights and interests thereafter of the
Holder such that the provisions set forth in this Section 5 (including
provisions with respect to adjustment of the Conversion Price) shall thereafter
be applicable, as nearly as is reasonably practicable, in relation to any shares
of stock or other securities or property thereafter deliverable upon the
conversion of this Note.
(c) Merger,
Consolidation or Sale of Assets.
If
there shall be a merger or consolidation of the Company with or into another
corporation (other than a merger or reorganization involving only a change
in
the state of incorporation of the Company or the acquisition by the Company
of
other businesses where the Company survives as a going concern), or the sale
of
all or substantially all of the Company’s capital stock or assets to any other
person, then as a part of such transaction, provision shall be made so that
the
Holder shall thereafter be entitled to receive the number of shares of stock
or
other securities or property of the Company, or of the successor corporation
resulting from the merger, consolidation or sale to which the Holder would
have
been entitled if the Holder had converted the Note immediately prior thereto.
In
any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 to the end that the provisions of this Section
5
shall be applicable after that event in as nearly equivalent a manner as may
be
practicable.
(d)
Certain
Anti-Dilution Adjustments.
If
during the time while any portion of this Note remains outstanding, the Company
shall issue shares of Company common stock (or rights, warrants, notes or other
securities convertible into or exchangeable for shares of Company common stock),
other than issuances covered by Sections 5(a), 5(b) or 5(c) above, at a price
per share (or having an exercise, conversion, or exchange price per share)
less
than the Conversion Price in effect as of the date of issuance of such shares
or
of such rights, warrants, notes, or other convertible or exchangeable
securities, then, and in each such case, the Conversion Price shall be reduced
to a price equal to the issuance, conversion, exchange or exercise price, as
applicable, of any such securities so issued. Notwithstanding anything contrary
in this Section, there shall be no reduction to the Conversion Price pursuant
to
this Section with respect to (i) the issuance or sale of options to purchase
shares of Company common stock to employees, consultants and directors, (ii)
the
issuance of securities pursuant to the conversion or exercise of convertible
or
exercisable securities as of the date of this Note, (as adjusted for
recapitalizations, stock splits, and the like) which are currently outstanding
as of the date of this Note or (iii) the issuance of securities as consideration
for a bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, which
involves a third party which is not affiliated with the Company or its current
stockholders or in a strategic allowance.
(e) No
Impairment.
The
Company will not, by amendment of its Articles of Incorporation or any other
organizational or shareholder rights documents of the Company, or through any
reorganization, recapitalization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, seek
to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Company, but will at all times in good faith assist
in the carrying out of all the provisions of this Section 5 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 impairment.
(f) Certificate
of Adjustment.
When
any adjustment is required to be made in the Conversion Price, the Company
shall
promptly mail to the Holder a certificate setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment. Delivery of such certificate shall be deemed to be a final
and
binding determination with respect to such adjustment unless challenged by
the
Holder
within
ten (10) days of receipt thereof. Such certificate shall also set forth the
kind
and amount of stock or other securities or property into which this Note shall
be convertible following the occurrence of any of the events specified in this
Section 5.
6. General.
(a) Merger.
The
Holder agrees that in the event that the Company engages in any merger, the
Convertible Promissory Note shall be convertible into securities of the
surviving corporation or such other corporation as shall be specified in the
merger agreement.
(b) Successors
and Assigns.
This
Note, and the obligations and rights of the Company hereunder, shall be binding
upon and inure to the benefit of the Company, the holder of this Note, and
their
respective heirs, successors and assigns.
(c) Recourse.
Recourse
under this Note shall be to the general unsecured assets of the Company only,
and in no event to the officers, directors or stockholders of the Company.
(d) Changes.
Changes
in or additions to this Note may be made or compliance with any term, covenant,
agreement, condition or provision set forth herein may be omitted or waived
(either generally or in a particular instance and either retroactively or
prospectively), only upon written consent of the Company and the holder of
this
Note.
(e) Governing
Law.
This
Note shall be governed by and construed in accordance with the law of the State
of New York, excluding the body of law relating to conflict of
laws.
(f) Notices.
All
notices, requests, consents and demands shall be made in writing and shall
be
mailed postage prepaid, or delivered by hand, to the Company or to the holder
thereof at their respective addresses set forth below or to such other address
as may be furnished in writing to the other party hereto:
If
to a payee:
at the
address set forth for such payee on the signature page to the related
Subscription Agreement or at such other address as to which such payee may
inform the Company in writing.-
If
to the Company:
Intellect Neurosciences, Inc., 0 Xxxx 00xx Xxxxxx, 0xx xxxxx, Xxx Xxxx, Xxx
Xxxx
00000, or at such other address as shall be designated by the Company in a
written notice to the other parties.
All
notices, requests, consents and other communications hereunder shall be deemed
to have been given either (i) if by hand, at the time of the delivery thereof
to
the receiving party at the address of such party set forth above, (ii) if sent
by overnight courier, on the next business day following the day such notice
is
delivered to the courier service, or (iii) if sent by registered or certified
mail, on the 3rd business day following the day such mailing is
made.
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remainder of this page is intentionally left blank.]
IN
W1TNESS WHEREOF,
this
Note has been executed and delivered as a sealed instrument on the date first
above written by the duly authorized representative of the Company.
By:
_____________________________
Name:
Xxxxxx
Xxxx
Title: President
and Chief Financial Officer
