Exhibit 10.2
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
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 AND ANY APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO BIODELIVERY SCIENCES
INTERNATIONAL, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECURED CONVERTIBLE TERM
NOTE
FOR VALUE RECEIVED, BIODELIVERY
SCIENCES INTERNATIONAL, INC., a Delaware corporation (the “
Company ”), promises to pay to LAURUS MASTER FUND,
LTD., c/o M&C Corporate Services Limited, P.O. Box 309 GT,
Ugland House, South Church Street, George Town, Grand Cayman,
Cayman Islands, Fax: 345-949-8080 (the “ Holder
”) or its registered assigns or successors in interest, on
order, the sum of Two Million Five Hundred Thousand Dollars
($2,500,000), together with any accrued and unpaid interest hereon,
on the Maturity Date (as defined in Section 1.1), if not sooner
paid.
Capitalized terms used herein
without definition shall have the meanings ascribed to such terms
in that certain Securities Purchase Agreement dated as of the date
hereof by and between the Company and the Holder (as amended,
modified and supplemented from time to time, the “
Purchase Agreement ”).
The following terms shall apply to
this Secured Convertible Term Note (this “ Note
”):
ARTICLE I
MATURITY DATE, CONTRACT RATE AND
AMORTIZATION
1.1 Maturity Date . All
principal and accrued interest under this Note shall mature and
become due and owing on August 31, 2005; provided ,
however , that such maturity date shall, without any further
action required of the Holder or the Company, be automatically
extended to May 31, 2008 in the event that, prior to August 31,
2005, the Company’s stockholders have approved, in accordance
with Nasdaq Marketplace Rule 4350(i)(1)(D)(ii), the issuance of all
shares of Common Stock which may be issued upon conversion of : (i)
this Note, (ii) a similar Secured Promissory Note, in the principal
amount of $2.5 million, dated February 22, 2005, issued to the
Holder by the Company (the “ February Note ”),
(iii) a warrant to purchase 483,871 shares of Common Stock, dated
the date hereof, issued to the Holder by the Company (the “
Warrant ”) and (iv) a warrant to purchase 350,000
shares of Common Stock, dated February 22, 2005, issued to the
Holder by the Company (the “ February Warrant
”). The date that this Note matures as provided for in this
Section 1.1 is referred to herein as the “ Maturity
Date .”
1.2 Contract Rate . Subject
to Sections 4.2 and 5.10, interest payable on the outstanding
principal amount of this Note (the “ Principal Amount
”) shall accrue at a rate per
annum equal to the “prime rate”
published in The Wall Street Journal from time to time (the
“ Prime Rate ”), plus two percent (2%) (the
“ Contract Rate ”). The Contract Rate shall be
increased or decreased as the case may be for each increase or
decrease in the Prime Rate in an amount equal to such increase or
decrease in the Prime Rate; each change to be effective as of the
day of the change in the Prime Rate. Subject to Section 1.3, the
Contract Rate shall not be less than eight percent
(8.0%).
1.3 Contract Rate Adjustments and
Payments . The Contract Rate shall be calculated on the last
business day of each calendar month hereafter (other than for
increases or decreases in the Prime Rate which shall be calculated
and become effective in accordance with the terms of Section 1.2)
until the Maturity Date (each a “ Determination Date
”) and shall be subject to adjustment as set forth herein.
If: (i) the Company shall have registered the shares of the Common
Stock underlying the conversion of this Note and each Warrant on a
registration statement declared effective by the Securities and
Exchange Commission (the “ SEC ”), and (ii) the
market price (the “ Market Price ”) of the
Common Stock as reported by Bloomberg, L.P. on the Principal Market
for the average of the ten (10) trading days immediately preceding
a Determination Date exceeds the then applicable Fixed Conversion
Price by at least twenty-five percent (25%), the Contract Rate for
the succeeding calendar month shall automatically be reduced by 100
basis points (100 b.p.) (1%) for each incremental twenty-five
percent (25%) increase, pro rata, in the Market Price of the Common
Stock above the then applicable Fixed Conversion Price.
Notwithstanding the foregoing (and anything to the contrary
contained herein), in no event shall the Contract Rate be less than
zero percent (0%). Interest shall be (i) calculated on the basis of
a 360 day year, and (ii) payable monthly, in arrears, commencing on
June 1, 2005 and on the first business day of each consecutive
calendar month thereafter until the Maturity Date (and on the
Maturity Date), whether by acceleration or otherwise.
1.4 Principal Payments .
Except to the extent this Note matures on August 31, 2005 as
contemplated by Section 1.1, amortizing payments of the aggregate
principal amount outstanding under this Note at any time (the
“ Principal Amount ”) shall be made by the
Company on September 1 , 2005 and on the first business day
of each succeeding month thereafter until the Maturity Date,
assuming extension thereof as provided in Section 1.1 (each, an
“ Amortization Date ”). Subject to Article III
below, commencing on the first Amortization Date, the Company shall
make monthly payments to the Holder on each Repayment Date, each
such payment in the amount of $75,758 (the “ Monthly
Principal Amount ”) together with any accrued and unpaid
interest on such portion of the Principal Amount plus any and all
other unpaid amounts which are then owing under this Note, the
Purchase Agreement and/or any other Related Agreement
(collectively, the “ Monthly Amount ”). Any
outstanding Principal Amount together with any accrued and unpaid
interest and any and all other unpaid amounts which are then owing
by the Company to the Holder under this Note, the Purchase
Agreement and/or any other Related Agreement shall be due and
payable on the Maturity Date.
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ARTICLE II
CONVERSION, REDEMPTION AND DEMAND
PAYMENT
2.1 Payment of Monthly Amount
.
(a) Payment in Cash or Common
Stock . If the Monthly Principal Amount due (or a portion of
such Monthly Principal Amount if not all of the Monthly Principal
Amount may be converted into shares of Common Stock pursuant to
this Section 2.1 and Section 3.2) is required to be paid in cash
pursuant to Section 2.1(b), then the Company shall pay the Holder
an amount in cash equal to the sum of (i) 103% of the Monthly
Principal Amount plus (ii) 100% of the portion of the Monthly
Amount in excess of the Monthly Principal Amount, in each case, due
and owing to the Holder on the Amortization Date. If the Monthly
Amount may be paid in shares of Common Stock pursuant to Section
2.1(b), the number of such shares to be issued by the Company to
the Holder on such Amortization Date (in respect of such portion of
the Monthly Amount converted into shares of Common Stock pursuant
to Section 2.1(b)), shall be the number determined by dividing (i)
the portion of the Monthly Amount converted into shares of Common
Stock, by (ii) the then applicable Fixed Conversion Price. For
purposes hereof, subject to Section 3.6 hereof, the initial “
Fixed Conversion Price ” means $3.10.
(b) Monthly Amount Conversion
Conditions . Subject to Sections 2.1(a), 2.2, and 3.2 hereof,
the Holder shall convert into shares of Common Stock all or a
portion of the Monthly Amount due on each Amortization Date if the
following conditions (the “ Conversion Criteria
”) are satisfied: (i) the average closing price of the Common
Stock as reported by Bloomberg, L.P. on the Principal Market for
the ten (10) trading days immediately preceding such Amortization
Date shall be greater than or equal to 115% of the Fixed Conversion
Price and (ii) the amount of such conversion does not exceed
twenty-five percent (25%) of the aggregate dollar trading volume of
the Common Stock for the period of twenty-two (22) trading days
immediately preceding such Amortization Date. If subsection (i) of
the Conversion Criteria is met but subsection (ii) of the
Conversion Criteria is not met as to the entire Monthly Amount, the
Holder shall convert only such part of the Monthly Amount that
meets subsection (ii) of the Conversion Criteria. Any portion of
the Monthly Amount due on an Amortization Date that the Holder has
not been able to convert into shares of Common Stock due to the
failure to meet the Conversion Criteria shall be paid in cash by
the Company at the rate of (x) 103% of the Monthly Principal Amount
otherwise due on such Amortization Date and (y) 100% of the Monthly
Amount in excess of the Monthly Principal Amount otherwise due on
such Amortization Date, in each case, within three (3) business
days of such Amortization Date.
2.2 No Effective Registration
. Notwithstanding anything to the contrary herein, none of the
Company’s obligations to the Holder may be converted into
Common Stock unless (a) either (i) an effective current
Registration Statement (as defined in the Registration Rights
Agreement) covering the shares of Common Stock to be issued in
connection with satisfaction of such obligations exists or (ii) an
exemption from registration for resale of all of the Common Stock
issued and issuable is available pursuant to Rule 144 of the
Securities Act and (b) no Event of Default (as hereinafter defined)
exists and is continuing, unless such Event of Default is cured
within any applicable cure period or otherwise waived in writing by
the Holder.
2.3 Optional Redemption in
Cash . The Company may prepay this Note (“ Optional
Redemption ”) by paying to the Holder a sum of money
equal to one hundred thirty percent (130%) of the Principal Amount
outstanding at such time together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the
Holder arising under this Note, the Purchase Agreement or any other
Related Agreement (the “ Redemption
3
Amount ”) outstanding on the Redemption Payment
Date (as defined below). The Company shall deliver to the Holder a
written notice of redemption (the “ Notice of
Redemption ”) specifying the date for such Optional
Redemption (the “ Redemption Payment Date ”),
which date shall be seven (7) business 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 this Note for which the Holder has
previously delivered a Notice of Conversion (as hereinafter
defined) or for conversions elected to be made by the Holder
pursuant to Section 3.3 during the Redemption Period. The
Redemption Amount shall be determined as if the Holder’s
conversion elections had been completed immediately prior to the
date of the Notice of Redemption. On the Redemption Payment Date,
the Redemption Amount must be paid in good funds to the Holder. In
the event the Company fails to pay the Redemption Amount on the
Redemption Payment Date as set forth herein, then such Redemption
Notice will be null and void.
2.4 Demand Payment . During
the period beginning on date this Note is executed by the Company
and ending on the third (3rd) anniversary of such date, but solely
in the event that the Company effects a Qualified Financing (as
defined below), the Holder shall have the right, for a period of
ninety (90) days following the closing of a Qualified Financing and
upon five (5) business days prior written notice to the Company, to
demand payment of any or all of the outstanding Principal Amount
outstanding at such time, together with accrued but unpaid interest
thereon and any and all other sums due, accrued or payable to the
Holder arising under this Note, from the proceeds of such Qualified
Financing (such payment right, a “ Demand Payment
”). As used in this Section 2.4, the term “
Qualified Financing ” means any firm commitment public
underwriting or any private investment in public equity (i.e,
“PIPE”) transaction in which the Company raises an
amount (net of brokerage fees and commissions and legal, accounting
and other expenses, in each case reasonably related to the
Qualified Financing) equal to or greater than $5 million. It is
expressly understood and agreed that the provisions of Section 2.3
of this Note shall not apply to such a Demand Payment.
ARTICLE III
HOLDER’S CONVERSION
RIGHTS
3.1 Optional Conversion .
Subject to the terms set forth in this Article III, the Holder
shall have the right, but not the obligation, to convert all or any
portion of the outstanding Principal Amount and/or accrued interest
and fees due and payable into fully paid and nonassessable shares
of Common Stock at the Fixed Conversion Price. The shares of Common
Stock to be issued upon such conversion are herein referred to as,
the “ Conversion Shares. ”
3.2 Conversion Limitation
.
Notwithstanding anything contained
herein to the contrary, the Holder shall not be entitled to convert
pursuant to the terms of this Note an amount that would be
convertible into that number of Conversion Shares which would
exceed the difference between (i) 4.99% of the outstanding shares
of Common Stock and (ii) the number of shares of Common Stock
beneficially owned by the Holder. For purposes of the immediately
preceding sentence, beneficial ownership shall be determined in
accordance with Section 13(d) of the Exchange Act and Regulation
13d-3 thereunder. The Conversion Shares limitation described in
this Section 3.2
4
shall automatically become null and void without
any notice to the Company upon the occurrence and during the
continuance of an Event of Default, or upon 75 days prior notice to
the Company, except that at no time, shall the number of shares of
Common Stock beneficially owned by the Holder upon conversion of
all or any portion of this Note, aggregated with (i) the shares of
Common Stock issuable upon conversion of all or a portion of the
February Note plus (ii) the shares of Common Stock issuable
upon exercise of all or a portion of the Warrant plus (iii)
the shares of Common Stock issuable upon exercise of all or a
portion of the February Warrant, exceed 19.99% of the outstanding
shares of Common Stock as of February 22, 2005. Notwithstanding
anything contained herein to the contrary, the aggregate number of
shares of Common Stock issuable by the Company and acquirable by
the Holder at an average price below $3.10 per share pursuant to
the terms of this Note, the Purchase Agreement, any other Related
Agreement, the Warrant, the February Note and the February Warrant,
shall not exceed an aggregate of 1,428,458 shares of Common Stock
(subject to appropriate adjustment for stock splits, stock
dividends, or other similar recapitalizations affecting the Common
Stock) (the “ Maximum Common Stock Issuance ”),
unless the issuance of Common Stock hereunder in excess of the
Maximum Common Stock Issuance shall first be approved by the
Company’s stockholders. If at any point in time and from time
to time the number of shares of Common Stock issued pursuant to the
terms of this Note, the Purchase Agreement, any other Related
Agreement, the Warrant, the February Note and the February Warrant,
together with the number of shares of Common Stock that would then
be issuable by the Company to the Holder in the event of a
conversion or exercise pursuant to the terms of this Note, the
Purchase Agreement, any other Related Agreement, the Warrant, the
February Note and the February Warrant, would exceed the Maximum
Common Stock Issuance but for this Section 3.2, the Company shall
promptly call a stockholders meeting and use its best efforts to
solicit stockholder approval for the issuance of the shares of
Common Stock hereunder in excess of the Maximum Common Stock
Issuance; provided , however , that this sentence
shall not require the Company to promptly call a stockholders
meeting and solicit stockholder approval to the extent that the
Company provides for a stockholder vote on such approval in the
proxy statement and related materials for the Company’s 2005
annual meeting of stockholders. Notwithstanding anything contained
herein to the contrary, the provisions of this Section 3.2 are
irrevocable and may not be waived by the Holder or the
Company.
3.3 Mechanics of Holder’s
Conversion . In the event that the Holder elects to convert
this Note into Common Stock, the Holder shall gi
