SENIOR CONVERTIBLE PROMISSORY NOTE

Exhibit 10.9

 

THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ SECURITIES ACT ”) OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE OFFERED, SOLD OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT, AND OTHER APPLICABLE SECURITIES LAWS.

 

CORAUTUS GENETICS INC.

 

and

 

VASCULAR GENETICS INC.

 

SENIOR CONVERTIBLE PROMISSORY NOTE

 

 

No. 004

 

FOR VALUE RECEIVED, each of the undersigned, Corautus Genetics Inc., a Delaware corporation (the “ Parent ”), and Vascular Genetics Inc., a Delaware corporation (“ VGI ” and, together with Parent, the “ Issuers ”), HEREBY JOINTLY AND SEVERALLY PROMISES TO PAY to the order of BOSTON SCIENTIFIC CORPORATION (“ BSC ”) or its assigns (the “ Holder ”) the principal sum of U.S. $5,000,000, payable as provided herein, with the final payment of principal and accrued interest being due on the seventh anniversary of the date hereof (the “ Final Maturity Date ”). The Issuers may not prepay this Senior Convertible Promissory Note (this “ Note ”).

 

This Note is one of the Notes referred to in the Loan Agreement among the Issuers and BSC, dated July 30, 2003, as amended by the First Amendment to Loan Agreement dated December 29, 2003, and as further amended by the Second Amendment to Loan Agreement dated as of July 22, 2004, and the Third Amendment to Loan Agreement dated as of June 27, 2005 (collectively, the “ Loan Agreement ”).

 

Reference is made to, and this Note is subject to the further provisions set forth under, “ Terms and Conditions of the Senior Convertible Promissory Note ” attached hereto, with the same effect as though such further provisions were fully set forth at this place.

 

 

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IN WITNESS WHEREOF, the Issuers have caused this Note to be executed by their respective officers thereunto duly authorized, as of the date first above written.

 

 

 

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TERMS AND CONDITIONS OF THE SENIOR CONVERTIBLE PROMISSORY NOTE

 

ARTICLE I

 

DEFINITIONS AND ACCOUNTING TERMS

 

SECTION 1.01 Certain Defined Terms . As used in this Note, the following terms shall have the following meanings:

 

“ Affiliate ” means, as to any Person, any other Person that, directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such Person. For purposes of this definition, the term “control” (including the terms “controlling”, “controlled by” and “under common control with”) of a Person means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of capital stock, by contract or otherwise.

 

“ Barnes Canyon Lease ” shall mean Building Lease dated January 22, 2001 by and between PMSI Barnes Canyon, LLC and GenStar Therapeutics Corporation, as modified by Agreement for Surrender of Leasehold Interest, Termination of Tenancy and Reservation of Rights under Lease dated May 27, 2003 by and between PMSI Barnes Canyon, LLC and Parent.

 

“ beneficial owner ” has the meaning assigned to such term under Rule 13d-3 promulgated under the Exchange Act.

 

“ Business Day ” means any day that is not a Saturday, a Sunday or any other day on which banks are required or authorized by Law to be closed in the City of New York.

 

“ Change of Control Event ” means (in one transaction or a series of transactions) (i) any Person or “group” of Persons (determined based on Rule 13d-5(b) under the Exchange Act, as amended), other than one of the Issuers, becomes the beneficial owner of more than 50% of the equity securities of either Issuer, (ii) individuals who on the date of the Loan Agreement constituted the board of directors of Parent (together with any new directors whose election by Parent’s board of directors or whose nomination by Parent’s board of directors for election by Parent’s stockholders was approved by a vote of at least a majority of the members of Parent’s board of directors then in office who either were members of Parent’s board of directors on the date of the Loan Agreement or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the members of Parent’s board of directors then in office, (iii) Parent conveys, transfers or leases all or substantially all of its assets to any Person, (iv) a tender offer or exchange offer by any Person is commenced within the meaning of Rule 14d-2 under the Exchange Act (or any successor rule) if upon consummation thereof such Person would be the beneficial owner of more than 50% of Parent’s equity securities, (v) after giving effect to any merger, consolidation or reorganization of Parent, the stockholders of Parent immediately prior to such merger, consolidation or reorganization do not hold more than 50% of the equity securities of the

 

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surviving corporation or any other Person or “group” (as defined above) holds 30% or more of the equity securities of the surviving corporation, or (vi) the board of directors of Parent approves any of the foregoing or Parent enters into a definitive agreement with any Person (including, without limitation, BSC or an Affiliate thereof) with respect to any of the foregoing.

 

“ Common Stock ” means the common stock of the Parent, par value $0.001 per share.

 

“ Controlled Group ” means all members of a controlled group of corporations and all members of a controlled group of trades or businesses (whether or not incorporated) under common control which, together with each Issuer, are treated as a single employer under Section 414 of the Internal Revenue Code or Section 4001 of ERISA.

 

“ Default ” means any event or condition that constitutes an Event of Default or that, with the giving of any notice, the passage of time, or both, would be an Event of Default.

 

“ Development Agreement ” means the Development Agreement, dated July 30, 2003, between the Parent and BSC (as amended from time to time).

 

“ Distribution Agreement ” means the Distribution Agreement, dated July 30, 2003, between the Parent and BSC (as amended from time to time).

 

“ ERISA ” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

 

“ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

 

“ Excluded Income Taxes ” means Taxes imposed on or measured by the Holder’s overall net income.

 

“ Fully Diluted Common Stock ” shall mean Parent’s outstanding Common Stock and shares of Common Stock issuable upon conversion of Parent’s outstanding preferred stock or upon exercise of outstanding rights, options and warrants to acquire Common Stock or preferred stock, excluding, however, Common Stock issuable (but not yet issued) upon conversion of the Series C Preferred Stock and Common Stock issuable (but not yet issued) pursuant to Section 7.3 of the Agreement and Plan of Reorganization by and among GenStar Therapeutics Corporation, Genesis Acquisition Corporation and Vascular Genetics Inc., dated as of September 12, 2002, as amended.

 

“ Governmental Authority ” means any United States or non-United States federal, national, supranational, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body.

 

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“ Governmental Order ” means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority.

 

“ Indebtedness ” means, as to any Person at a particular time, without duplication, all of the following, whether or not included as indebtedness or liabilities in accordance with GAAP: (a) all obligations of such Person for borrowed money and all obligations of such Person evidenced by bonds, debentures, notes, loan agreements or other similar instruments; (b) all direct or contingent obligations of such Person arising under letters of credit (including standby and commercial), bankers’ acceptances, bank guaranties, surety bonds and similar instruments; (c) all obligations of such Person to pay the deferred purchase price of property or services (other than trade accounts payable in the ordinary course of business and not past due for more than 60 days after the date on which each such trade payable or account payable was created); (d) indebtedness (excluding prepaid interest thereon) secured by a Lien on property owned or being purchased by such Person (including indebtedness arising under conditional sales or other title retention agreements), whether or not such indebtedness shall have been assumed by such Person or is limited in recourse; (e) capital leases; (f) as and when declared, fixed or exercised, as the case may be, all obligations of such Person to purchase, redeem, retire, defease or otherwise make any payment (other than ordinary course dividends) in respect of any equity interests in such Person or any other Person or any warrants, rights or options to acquire such equity interests, valued, in the case of redeemable preferred interests, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends; and (g) all guarantees of such Person in respect of any of the foregoing. For all purposes hereof, the Indebtedness of any Person shall include the Indebtedness of any partnership or joint venture (other than a joint venture that is itself a corporation or limited liability company) in which such Person is a general partner or a joint venturer, unless such Indebtedness is expressly made non-recourse to such Person.

 

“ Investment Agreement ” means the Investment Agreement entered into as of July 30, 2003, between the Parent and BSC.

 

“ Law ” means any applicable United States or non-United States federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law.

 

“ Lien ” means any security interest, mortgage, pledge, hypothecation, assignment, encumbrance, lien (statutory or otherwise), charge against or interest in property to secure payment or performance of an obligation, interest of any vendor or lessor under any conditional sale agreement, capital lease or other title retention agreement or other priority or preferential arrangement of any kind or nature whatsoever.

 

“ Material Adverse Effect ” means any circumstance, change or effect that, individually or in the aggregate with all other circumstances, changes or effects: (a) is or is reasonable likely to be materially adverse to the business, assets, operations, results of operations, prospects, liabilities (including, without limitation, contingent liabilities) or the financial condition of the Issuers and their respective Subsidiaries, taken as a whole, or (b) is reasonably likely to materially adversely affect the ability of the Issuers to perform their obligations under this Note and the other Transaction Documents.

 

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“ Pension Plan ” means a “pension plan”, as such term is defined in Section 3(2) of ERISA, which is subject to Title IV of ERISA, and to which either Issuer or any other member of the Controlled Group, may have liability, including any liability by reason of having been a substantial employer within the meaning of Section 4063 of ERISA at any time during the preceding five (5) years, or by reason of being deemed to be a contributing sponsor under Section 4069 of ERISA.

 

“ Permitted Lien ” means any: (a) Lien securing purchase money Indebtedness under any lease of property that is capitalized on an Issuer’s balance sheet in accordance with GAAP, provided such Lien does not extend to any property other than the property being purchased; (b) Lien with respect to the payment of Taxes that are not yet due or that are being contested in good faith and for which adequate reserves are being maintained; (c) statutory Lien of a landlord or Lien of a supplier, mechanic, carrier, materialman, warehouseman or workman and any similar Lien imposed by Law created in the ordinary course of business for amounts that are not yet due or that are being contested in good faith; (d) Lien incurred or deposit made in the ordinary course of business in connection with worker’s compensation, unemployment insurance or other types of social security benefits; (e) Lien arising with respect to zoning restrictions, easements, licenses, reservations, covenants, rights-of-way, utility easements, building restrictions and other similar charges or encumbrances on the use of real property that do not render title to such property unmarketable or materially adversely affect the use of such property; (f) any interest or title of a lessor in the property subject to any operating lease entered into by each Issuer in the ordinary course of business; (g) security deposits with landlords, retainers with service providers and deposits with vendors; and (h) security interests to secure letters of credit posted in the ordinary course of business; provided that with respect to clauses (b), (c), (d), (g) and (h), no enforcement, collection, execution, levy or foreclosure proceeding shall have been commenced.

 

“ Person ” means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization, Governmental Authority or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act.

 

“ Series C Preferred Stock ” shall mean Series C Preferred Stock of Parent, $.0.001 par value of which 2,000 shares were issued and outstanding as of the date of the Loan Agreement.

 

“ Subsidiary ” of any Person means any corporation, partnership, joint venture, limited liability company, trust or estate of which (or in which) more than 50% of (a) the issued and outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether at the time capital stock of any other class or classes of such corporation shall or might have voting power upon the occurrence of any contingency), (b) the interest in the capital or profits of such limited liability company, partnership, or joint venture or (c) the beneficial interest in

 

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such trust or estate is at the time directly or indirectly owned or controlled by such Person, by such Person and one or more of its other Subsidiaries or by one or more of such Person’s other Subsidiaries.

 

“ Tax ” or “ Taxes ” means all income, gross receipts, gains, sales, use, employment, franchise, profits, excise, property, value added and other taxes, fees, stamp taxes and duties, assessments or charges of any kind, together with any interest and penalties, additions to tax or additional amounts imposed by any taxing authority with respect thereto.

 

“ Transaction Documents ” means the Investment Agreement, the Patent Sublicense Agreement, the Loan Agreement, the Distribution Agreement, the Development Agreement and the Investor Rights Agreement between Parent and BSC, dated July 30, 2003.

 

SECTION 1.02 Additional Definitions . The following terms have the meanings assigned to such terms in the corresponding Sections set forth below:

 

 

SECTION 1.03 Interpretation and Rules of Construction . In this Note, except to the extent that the context otherwise requires:

 

(i)	when a reference is made in this Note to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or a Schedule to, this Note unless otherwise indicated;

 

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(ii)	the Section headings are for reference purposes only and do not affect in any way the meaning or interpretation of this Note;

 

(iii)

whenever the words “include”, “includes” or “including” are used in this Note, they are deemed to be followed by the words “without limitation”;

 

(iv)	the words “hereof”, “herein” and “hereunder” and words of similar import, when used in this Note, refer to this Note as a whole and not to any particular provision of this Note;

 

(v)	all terms defined in this Note have such defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein;

 

(vi)	the definitions contained in this Note are applicable to the singular as well as the plural forms of such terms;

 

(vii)

any Law defined or referred to herein or in any agreement or instrument that is referred to herein means such Law or statute as from time to time amended, modified or supplemented, including by succession of comparable successor Laws; and

 

(viii)

all references in this Note to currency, monetary values and dollars shall mean United States (U.S.) dollars and all payments hereunder shall be made in United States dollars.

 

SECTION 1.04 Accounting Terms . All accounting terms not specifically defined herein shall be construed in accordance with United States generally accepted accounting principles (“ GAAP ”).

 

ARTICLE II

 

REPAYMENT, INTEREST AND CONVERSION

 

SECTION 2.01 Repayment . (a) If this Note shall remain unconverted on the fifth anniversary of the issuance of this Note, this Note shall be repaid in three annual payments of interest and principal beginning on the fifth anniversary of issuance, with the final payment of principal and interest due on the Final Maturity Date. All three such payments shall be of equal amount and shall be self-amortizing of principal and interest.

 

(b) The Issuers shall pay the principal, accrued interest and all other amounts payable hereunder free and clear of, and without deduction for, any and all present and future Taxes (with the exception of Excluded Income Taxes), imposts, levies, deductions, charges, withholdings, expenses or other costs whatsoever to be incurred by the Issuers, except those required to be made by the Issuer under any Law applicable to it. If the Issuers are required to so deduct or withhold, then the Issuers shall (i) promptly notify the Holder of such requirement, (ii) pay to the Holder, in addition to the amount to which the Holder is otherwise entitled, such additional amount as is necessary to ensure that the net amount actually received by the Holder (free and clear of Taxes (other than Excluded Income Taxes), whether assessed against the Issuers or the Holder) will equal the full amount the Holder would have received had no such deduction or withholding been required and (iii) timely pay to the relevant authorities the full

 

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amount required to be deducted or withheld (including the full amount required to be deducted or withheld from any additional amount paid to the Holder pursuant to foregoing clause (ii)), with copies of the applicable returns or receipts being promptly furnished to the Holder.

 

SECTION 2.02 Interest . This Note shall bear interest on the unpaid principal amount of this Note owing to the Holder from the date of the issuance of such Note until such principal amount shall be paid in full, at the fixed rate of 6% per annum, compounded monthly and added to the principal on the last day of every month (each date that interest is added to principal being a “ Deemed Payment Date ”).

 

SECTION 2.03 Payments and Computations . The Issuers shall make each payment, without set-off or counterclaim, not later than 11:00 A.M. (New York City time) on the date when due in U.S. dollars in same day funds to an account notified to the Issuers at least two Business Days in advance of such payment. Interest shall accrue on the Note based on the actual number of days since the last Deemed Payment Date divided by 360. Whenever any payment hereunder shall be due on a date other than a Business Day, such payment shall be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest due.

 

SECTION 2.04 Prepayment . The Issuers shall not have the right to prepay all or any part of this Note.

 

SECTION 2.05 Conversion . (a) The outstanding principal amount of this Note shall, at the option of the Holder at any time following a Change of Control Event, be convertible into a number of fully paid and non-assessable shares of Common Stock equal to the outstanding principal amount, divided by the Conversion Price. Upon such conversion of the outstanding principal amount of this Note, all accrued and unpaid interest shall become due and payable. Such conversion of the principal and the payment in cash of accrued interest on this Note shall constitute payment in full of this Note. The “ Conversion Price ” shall be $5.35383, as initially determined according to the formula set forth below, and shall be adjustable as provided in this Section 2.05:

 

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Thus, for example, as of the date hereof, this Note would be convertible (assuming a Change of Control Event had occurred) into 933,911 shares of Common Stock:

 

 

This Note is not convertible in the absence of a Change of Control Event. The Conversion Price is not adjustable as a result of issuances of Common Stock or rights, options or warrants for Common Stock or issuances of securities convertible into Common Stock except as provided in this Section 2.05.

 

(b) Conversion Procedure . At any time after a Change of Control Event and prior to the Final Maturity Date, the Holder may elect to convert the Note as provided in this Section 2.05 by surrender of this Note at the office of Parent or of Parent’s transfer agent. Parent shall, as soon as practicable thereafter, issue and deliver at such office to the Holder, or on the holder’s written order, a certificate or certificates for the number of duly authorized, validly issued, fully paid and non-assessable shares of Common Stock to which he shall be entitled, and any fractional interest in respect of a share of Common Stock arising on such conversion shall be settled as provided in Section 2.05(k). Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the Note, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date.

 

(c) Adjustments to Conversion for Stock Dividends and for Combinations or Subdivisions of Common Stock . In the event that the Parent at any time, from time to time after the date of issuance of this Note and before the conversion hereof shall (i) declare or pay any dividend or make a distribution on its Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, (ii) effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise), (iii) combine or consolidate its outstanding Common Stock into a lesser number of shares of Common Stock, or (iv) effect any other reclassification of its Common Stock, then the Conversion Price shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate, so that the Holder of this Note

 

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thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock that such holder would have owned or have been entitled to receive after the happening of any of the events described above had this Note been converted immediately prior to the record date, in the case of a dividend or distribution, or the effective date in the case of a subdivision, combination or reclassification. An adjustment made pursuant to this Section 2.05(c) shall become effective immediately after the opening of business on the Business Day next following the record date in the case of a dividend or distribution and shall become effective immediately after the opening of business on the Business Day next following the effective date in the case of a subdivision, combination or reclassification. Adjustments in accordance with this Section 2.05(c) shall be made whenever any event listed above shall occur. In the event that Parent shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then Parent shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock.

 

(d) Adjustments for Reclassification and Reorganization . If the Common Stock issuable upon conversion of this Note shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section 2.05(c)), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that this Note shall be convertible into, in lieu of the number of shares of Common Stock which the Holder would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares that would have been subject to receipt by the Holder upon conversion of this Note immediately before that change.

 

(e) Adjustments to the Conversion Price for Spin-Offs . If Parent shall fix a record date for the making of a distribution to all holders of its Common Stock of evidences of its indebtedness, shares of its capital stock or assets (excluding regular cash dividends or distributions declared in the ordinary course by Parent’s board of directors and dividends payable in Common Stock for which an adjustment is made pursuant to Section 2.05(c)) (any of the foregoing being hereinafter in this Section 2.05(e) called the “ Securities ”), then in each such case the Conversion Price shall be adjusted so that the Holder shall be entitled to receive, upon the conversion thereof, the number of shares of Common Stock determined by multiplying (I) the Conversion Price in effect immediately prior to the close of business on such record date by (II) a fraction, the numerator of which shall be the average market price per share of Common Stock for the 20 trading days preceding such record date (the “ 20-Day Average Market Price ”) less the then-fair market value (as determined by Parent’s board of directors in good faith) of the portion of the assets, shares of its capital stock or evidences of indebtedness so distributed or of such rights or warrants applicable to one share of Common Stock, and the denominator of which shall be the 20-Day Average Market Price. Such adjustment shall be made successively whenever such a record date is fixed; and in the event that after fixing a record date such distribution is not so made, the Conversion Price shall be readjusted to the Conversion Price which would then be in effect if such record date had not been fixed. Such adjustment shall become effective immediately at the opening of business on the Business Day next following the record date for the determination of stockholders entitled to receive such distribution. For the purposes of this Section 2.05(e), the distribution of a Security, which is distributed not only to the holders of the

 

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Common Stock on the date fixed for the determination of stockholders entitled to such distribution of such Security, but also is distributed with each share of Common Stock delivered to the Holder converting the Note after such determination date, shall not require an adjustment of the Conversion Price pursuant to this Section 2.05(e); provided , however , that on the date, if any, on which the Holder converts the Note would no longer be entitled to receive such Security with a share of Common Stock (other than as a result of the termination of all such Securities), a distribution of such Securities shall be deemed to have occurred and the Conversion Price shall be adjusted as provided in this Section 2.05(e) (and such day shall be deemed to be “the date fixed for the determination of stockholders entitled to receive such distribution” and “the record date” within the meaning of the three preceding sentences). If any rights or warrants referred to in this Section 2.05(e) shall expire unexercised after the same shall have been distributed or issued by Parent, the Conversion Price shall be readjusted at the time of such expiration to the Conversion Price that would have been in effect if no adjustment had been made on account of the distribution or issuance of such expired rights or warrants.

 

(f) Adjustment of the Conversion Price for Certain Dividends . In case Parent shall, by dividend or otherwise, distribute to all holders of its Common Stock cash in the amount per share that, together with the aggregate of the per share amounts of any other cash distributions to all holders of its Common Stock made within the 12 months preceding the date of payment of such distribution and in respect of which no adjustment pursuant to this Section 2.05(f) has been made, exceeds 5.0% of the Conversion Price immediately prior to the date of declaration of such dividend or distribution, then, in such case, the Conversion Price shall be adjusted so that