|
|
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 CERAGENIX PHARMACEUTICALS, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED.
|
Principal
$_______________
Issue Date: November ___, 2005
SECURED
CONVERTIBLE NOTE
FOR
VALUE RECEIVED, CERAGENIX PHARMACEUTICALS, INC., a Delaware
corporation (hereinafter called "Borrower"), hereby promises to pay
to ____________________________,
____________________________________________________________ (the
"Holder") or order, without demand, the sum of
________________________________________ Dollars ($_________), with
unpaid accrued interest, on November ___, 2007 (the "Maturity
Date"), or sooner as described herein.
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 . Subject to Section 5.6 hereof, interest
payable on this Note shall accrue at a rate per annum (the
"Interest Rate") equal to ten percent (10%) per year on the
outstanding principal balance, compounded annually. Interest on the
Principal Amount shall first be payable on the sooner of 120 days
after the Issue Date, or five Business Days after the Actual
Effective Date and on the same day of the month each three months
thereafter and on the Maturity Date, whether by acceleration or
otherwise. Provided an Event of Default has not occurred and
interest is paid timely, the Borrower may pay one-half the interest
payable on this Note with registered free-trading shares of Common
Stock with an attributed value per share equal to 85% of the volume
weighted average price of the Common Stock as reported by Bloomberg
L.P. for the Principal Market for the five consecutive trading days
ending on the trading day preceding the date interest is due to be
paid hereunder. Interest shall compound annually. This Note may be
pre-paid at any time without penalty in accordance with the terms
of Section 2.5 hereof.
1.2
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, the Holder may extend the
Maturity Date for up to a time period equal to the duration of the
Event of Default.
1.3
Default Interest Rate . A default interest rate of fifteen
percent (15%) per annum shall apply to amounts owed hereunder which
are not paid on their respective due dates.
ARTICLE II
CONVERSION
RIGHTS
The
Holder shall have the right to convert the outstanding principal
and interest due under this Note into Shares of the Borrower's
Common Stock, no par value per share ("Common Stock") as set forth
below.
2.1.
Conversion into the Borrower's Common Stock .
(a) Subject
to the terms of this Note, the Holder shall have the right from and
after the 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, 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 three (3) business days from the Conversion
Date (such third 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
through the Conversion Date directly to the Holder on or before the
Delivery Date. 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 this Section 2.1(b) and Section 2.1(c)
hereof, the Conversion Price per share shall be $____ [the
lesser of $2.05, or the average of the Volume Weighted Average
Prices of the Common Stock as reported by Bloomberg L.P. for the
OTC Bulletin board for the twenty trading days ending on the last
trading day before the Closing Date] per share of Common Stock,
subject to adjustment as described herein. From and after (i) the
occurrence of an Event of Default, or (ii) the occurrence of a
Milestone Default (as defined below), the Conversion Price shall be
reduced (but not increased) to the lesser of the Conversion Price
in effect prior to the occurrence of the Milestone Default or the
average of the volume weighted average prices of the Common Stock
as reported by Bloomberg L.P. for the Principal Market for the five
trading days preceding the Reporting Date (as defined below). A
Milestone Default shall occur if the Borrower does not report as of
a Reporting Date on a Form 10-Q, 10-QSB, 10-K or 10-KSB (or
successor forms, each a "Form") Revenues and EBITDA equal or
greater than the amounts set forth on Schedule A hereto, for any
one or more of the periods as set forth on Schedule A hereto. The
Reporting Date shall be the last date the Form is required to be
filed after permitted extensions or, if sooner, the date the Form
is actually filed.
(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:
A. Merger,
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 as if the Holder had
converted this Note immediately prior to such event. 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 as if
the Holder had converted this Note immediately prior to such
event.
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 before such event
bears to the total number of shares of Common Stock outstanding
immediately after 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 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) During
the period the conversion right exists, Borrower will reserve from
its authorized and unissued Common Stock not less than 175% of the
number of shares of Common Stock issuable upon the full conversion
of this Note. Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable.
Borrower 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
this Section 2.3, beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13d-3 t
