Exhibit 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN
EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN COMPLIANCE WITH
APPLICABLE STATE
SECURITIES LAWS OR BLUE SKY LAWS. NOTWITHSTANDING THE FOREGOING,
THESE
SECURITIES AND THE SECURITIES ISSUABLE UPON CONVERSION OF THESE
SECURITIES MAY
BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN OR
FINANCING ARRANGEMENT SECURED BY SUCH SECURITIES.
No. [ ]
$[ ]
Date: October 12, 2006
BIOPHAN TECHNOLOGIES, INC.
SENIOR SECURED CONVERTIBLE NOTE DUE
October 12, 2009
THIS NOTE is one of a series of duly authorized and issued Notes
of
Biophan Technologies, Inc., a Nevada corporation (the "Company"),
designated as
its Senior Secured Convertible Notes due October 11, 2009, in the
aggregate
principal amount of $7,250,000 (the "Notes").
FOR VALUE RECEIVED, the Company promises to pay to the order of
[Holder] or its registered assigns (the "Holder"), the principal
sum of
[__________] $(__________) on October 11, 2009 (the "Maturity
Date"), or such
earlier date as the Notes are required or permitted to be repaid as
provided
hereunder, and to pay interest to the Holder on the aggregate
unconverted and
then outstanding principal amount of this Note in accordance with
the provisions
hereof. The principal amount of this Note may be increased as set
forth in
Section 2(e) below. Notwithstanding the foregoing, the Company
hereby
unconditionally promises to pay to the order of the Holder interest
on any
principal or interest payable hereunder that shall not be paid in
full when due,
whether at the time of any stated interest payment date or
principal payment
date or maturity or by prepayment, acceleration or declaration or
otherwise, for
the period from and including the due date of such payment to but
excluding the
date the same is paid in full, at a rate of 18% per annum (but in
no event in
excess of the maximum rate permitted under applicable law).
Interest payable under this Note shall be computed on the basis of
a
year of 365 days and actual days elapsed (including the first day
but excluding
the last day) occurring in the period for which interest is
payable.
Payments of principal and interest shall be made in lawful money of
the
United States of America to the Holder at its address as provided
in Section 12
or by wire transfer to such account specified from time to time by
the Holder
hereof for such purpose as provided in Section 12.
1.
Definitions. In addition to the terms defined elsewhere in this
Note,
(a) capitalized terms that are not otherwise defined herein have
the meanings
given to such terms in the Securities Purchase Agreement, dated as
of October
11, 2006, among the Company and the Purchasers identified therein
(the "Purchase
Agreement"), and (b) the following terms have the meanings
indicated:
<PAGE>
"Conversion
Date" means either (i) the date a Conversion
Notice is delivered to the Company together with the Conversion
Schedule pursuant to Section 6(a) or (ii) the date a conversion
takes
place pursuant to Section 6(b).
"Conversion Notice" means a written notice in the form
attached hereto as Schedule 1.
"Conversion Price" means $0.67, subject to adjustment from
time to time pursuant to Section 10.
"Equity Conditions" means, with respect to a specified
issuance of Common Stock, that each of the following conditions
is
satisfied: (i) the number of authorized but unissued and
otherwise
unreserved shares of Common Stock is sufficient for such issuance;
(ii)
such shares of Common Stock are registered for resale by the Holder
and
may be sold by the Holder pursuant to an effective Registration
Statement covering the Underlying Shares or all such shares may be
sold
without volume restrictions pursuant to Rule 144(k) under the
Securities Act; (iii) the Common Stock is listed or quoted (and is
not
suspended from trading) on an Eligible Market and such shares of
Common
Stock are approved for listing upon issuance; (iv) such issuance
would
be permitted in full without violating Section 6(b) hereof or the
rules
or regulations of any Trading Market; (v) no Bankruptcy Event
has
occurred; (vi) no Event of Default has occurred; (vii) the
daily
trading volume as reported on Bloomberg L.P. is greater than
250,000
shares for each of the preceding 10 Trading Days; and (viii) no
public
announcement of a pending or proposed Change of Control transaction
has
occurred that has not been consummated.
"Event Equity Value" means 110% of the arithmetic average of
the VWAP for each of the five Trading Days preceding the date
of
delivery of the notice requiring payment of the Event Equity
Value;
provided that if the Company does not make such required
payment
(together with any other payments, expenses and liquidated damages
then
due and payable under the Transaction Documents) when due or, in
the
event the Company disputes in good faith the occurrence of the
Triggering Event pursuant to which such notice relates, does
not
instead deposit such required payment (together with such other
payments, expenses and liquidated damages then due) in escrow with
an
independent third-party escrow agent within five Trading Days of
the
date such required payment is due, then the Event Equity Value
shall be
110% of the greater of (a) the arithmetic average of the VWAP for
each
of the five Trading Days preceding the date of delivery of the
notice
requiring payment of the Event Equity Value and (b) the
arithmetic
average of the VWAP for each of the five Trading Days preceding
the
date on which such required payment (together with such other
payments,
expenses and liquidated damages) is paid in full.
"Initial Interest Period" means the period beginning on the
Closing Date and ending on December 31, 2006.
2
<PAGE>
"Interest Period" means a period of six months for the
calculation of the interest on the Note; provided that any such
period
(i) shall start on the last day of the preceding period (other than
the
Initial Interest Period); (ii) which would otherwise end on a day
which
is not a Trading Day shall be extended to the next succeeding day
which
is a Trading Day and the following interest period shall then end
on
the day on which it would have ended if the preceding interest
period
had not been so extended; and (iii) which would otherwise overrun
the
Maturity Date shall be shortened to end on the Maturity Date.
"Interest Rate" has the meaning set forth in Section 2(a)
herein.
"LIBOR" means, in respect of a six-month Interest Period (i)
the rate of interest per annum (expressed with a maximum of 4
decimals)
offered for deposits in the relevant currency and amount which
appears
on Telerate page 3750 or on any other relevant Telerate, Bloomberg
or
Reuter page as of 11:00 a.m. London time two (2) Business Days
prior to
the commencement of the relevant Interest Period; or (ii) should
such
quotation not be published on the relevant day and time such
interest
rate per annum according to such other widely published LIBOR
quotation
as the
Company may select for the relevant Interest Period as of 11:00
a.m. London time two (2) Business Days prior to the commencement of
the
Interest Period.
"Original Issue Date" means the date of the first issuance of
any Notes, regardless of the number of transfers of any
particular
Note.
"Principal Payment Date" means any date on which payment of a
principal amount of this Note shall be due and payable by the
Company
in accordance with Section 2(b).
"Triggering Event" means any of the following events: (a) the
Company fails for any reason to deliver a certificate evidencing
any
Securities to a Holder within five Trading Days after delivery of
such
certificate is required pursuant to any Transaction Document or
the
exercise or conversion rights of the Holders pursuant to any
Transaction Document are otherwise suspended for any reason; (b)
the
Company fails to have available a sufficient number of authorized
but
unissued and otherwise unreserved shares of Common Stock available
to
issue Underlying Shares upon any exercise of the Note; (c) at any
time
after the Closing Date, any Common Stock issuable pursuant to
the
Transaction Documents is not listed on an Eligible Market; (d)
the
Company effects or publicly announces its intention to effect
any
exchange, recapitalization or other transaction that
effectively
requires or rewards physical delivery of certificates evidencing
the
Common Stock; (e) the effectiveness of the Registration
Statement
lapses for any reason or the Holder shall not be permitted to
resell
any
Underlying Shares under the Registration Statement, in either
case,
for five or more Trading Days (which need not be consecutive
Trading
Days); (f) the Company fails to make any cash payment required
under
the Transaction Documents and such failure is not cured within
five
days after notice of such default is first given to the Company by
a
Holder; (g) a breach of any covenant contained herein or in any
other
Transaction Document, (h) the failure of the Company to deliver
the
executed agreements required under Section 2.3(a) of the
Purchase
Agreement within 10 Trading Days following the Closing Date, or (i)
the
Company breaches any representation or warranty or defaults in
the
timely performance of any other obligation under the
Transaction
Documents and such breach or default continues uncured for a period
of
20 days after the date on which notice of such breach or default
is
first given to the Company by a Holder (it being understood that
no
prior notice need be given in the case of a breach or default
that
cannot reasonably be cured within 20 days).
3
<PAGE>
2.
Principal and Interest.
(a) The
Company shall pay interest to the Holder on the aggregate
unconverted and then outstanding principal amount of this Note for
each Interest
Period at a rate (the "Interest Rate") which is the lesser of (i)
12% per annum
and (ii) the greater of (a) 10% per annum, and (b) LIBOR plus 500
basis points
per annum. Each Interest Period, other than the Initial Interest
Period shall
begin on March 31, June 30, September 30 and December 31 of each
year occurring
prior to the Maturity Date. Interest shall be payable quarterly in
arrears on
each March 31, June 30, September 30 and December 31 and on the
Maturity Date,
except if such date is not a Trading Day, in which case such
interest shall be
payable on the next succeeding Trading Day (each, an "Interest
Payment Date").
The first Interest Payment Date shall be December 31, 2006. The
amount of
interest paid on each Interest Payment Date shall be referred to as
the
"Interest Payment Amount").
(b)
Beginning on February 1, 2007, and on the first Trading Day for
each
of the next 32 months thereafter (each, a "Principal Payment
Date"), the Company
shall pay 3.0303% of the original principal amount of this Note to
the Holder
(each, a "Monthly Installment") or until the principal amount has
been reduced
to zero.
(c)
Subject to the conditions and limitations set forth below, the
Company
may pay interest or principal on this Note in (i) cash (ii) shares
of Common
Stock or (iii) a combination of cash or shares of Common Stock. The
Company must
deliver written notice to the Holder indicating the manner in which
it intends
to pay interest and principal at least 20 Trading Days prior to
each Interest
Payment Date (a "Interest Payment Notice") or Principal Payment
Date (a
"Principal Payment Notice", and together with the Interest Payment
Notice, each
a "Payment Notice"), as applicable, but the Company may indicate in
any such
notice that the election contained therein shall continue for
subsequent
Interest Payment Dates or Principal Payment Dates until revised.
Failure to
timely provide such written notice shall be deemed an election by
the Company to
pay the amount of any interest or principal in cash.
(d)
Notwithstanding the foregoing, the Company may not pay interest
or
principal by issuing shares of Common Stock unless (i) all of the
Equity
Conditions are then satisfied with respect to all shares of Common
Stock then
issuable upon conversion of all outstanding Notes, and (ii) as to
such Interest
Payment Date and Principal Payment Date, prior to or on the date of
the
applicable Payment Notice or if any Payment Notice indicates that
such election
contained therein shall continue for subsequent Interest Payment
Dates or
Principal Payment Dates, prior to or on the 20th Trading Day prior
to such
Interest Payment Date or Principal Date (in each case, a "Share
Delivery Date"),
as the case may be, the Company shall have delivered to the
Holder's account
with The Depository Trust Company ("DTC") (or by physical
certificate if the
Holder does not have an account with the DTC) a number of shares of
Common Stock
(the "Conversion Shares") to be applied against such Interest
Payment Amount or
Monthly Installment, as applicable, equal to:
4
<PAGE>
(i)
with respect to an Interest Payment Amount, the quotient
of (x) the applicable Interest Payment Amount divided by (y) the
lesser
of (I) the then Conversion Price (as adjusted in accordance
herewith)
and (II) 90% of the arithmetic average of the VWAP for each of the
20
Trading Days ending immediately prior to the 23rd Trading Day that
is
immediately prior to the applicable Interest Payment Date (subject
to
adjustment for any stock dividend, stock split, stock combination
or
other similar event affecting the Common Stock during such 20
Trading
Day period); and
(ii) with respect to a Monthly Installment, the quotient of
(x) the applicable Monthly Installment divided by (y) the lesser of
(I)
the then Conversion Price (as adjusted in accordance herewith) and
(II)
90% of the arithmetic average of the VWAP for each of the 20
Trading
Days ending immediately prior to the 23rd Trading Day that is
immediately prior to the applicable Principal Payment Date (subject
to
adjustment for any stock dividend, stock split, stock combination
or
other similar event affecting the Common Stock during such 20
Trading
Day
period).
(e) Within
3 Trading Days of each Interest Payment Date or Principal
Payment Date, as applicable, the Company shall pay to the Holder
additional
shares of Common Stock required to meet its obligations under
Section 2(f) below
(to the extent the previously delivered Conversion Shares were not
sufficient),
or credit against future interest or principal payments to be made
on subsequent
Interest Payment Dates or Principal Payment Dates or Share Delivery
Dates, as
the case may be, the excess of the Conversion Shares delivered to
the Holders
pursuant to this Section 2(e) over the amount of shares of Common
Stock due
under Section 2(f). If the Company is required to pay interest in
cash on any
Interest Payment Date but fails to do so, the Holder may (but shall
not be
required to) treat such interest as if it had been added to the
principal amount
of this Note as of such Interest Payment Date or accept any number
of shares of
Common Stock in lieu of such interest payment.
(f) In the
event that the Company elects to pay interest or principal on
any Interest Payment Date or Principal Payment Date, as applicable,
in shares of
Common Stock, the number of shares of Common Stock to be issued to
each Holder
as such interest or principal shall be (i) with respect to
interest, determined
by dividing the aggregate amount of interest then payable to such
Holder at the
Market Price (as defined below) as of the applicable Interest
Payment Date, and
rounding up to the nearest whole share, (ii) with respect to
principal,
determined by dividing the total principal then payable to such
Holder by the
lesser of (x) the then Conversion Price (as adjusted in accordance
herewith) and
(y) at the Market Price as of the applicable Principal Payment
Date, and
rounding up to the nearest whole share, and (iii) paid to such
Holder in
accordance with Section 2(g) below, taking into account the
Conversion Shares
delivered pursuant to Section 2(d). The term "Market Price" shall
mean the
lesser of (I) the then Conversion Price (as adjusted in accordance
herewith) and
(II) 90% of the arithmetic average of the VWAP for each of the 20
Trading Days
ending immediately prior to the applicable Interest Payment Date or
Principal
Payment Date, as the case may be (not including such date).
5
<PAGE>
(g) In the
event that any interest or principal is paid in Common Stock,
the Company shall within two Trading Days of such Interest Payment
Date or
Principal Payment Date or on the Share Delivery Date (i) issue and
deliver to
such Holder a certificate, free of restrictive legends, registered
in the name
of the Holder or its designee, for the number of shares of Common
Stock to which
the Holder shall be entitled, or (ii) at all times after the Holder
has notified
the Company that this clause (ii) shall apply, credit the number of
shares of
Common Stock to which the Holder shall be entitled to the Holder's
or its
designee's balance account with The DTC through its Deposit
Withdrawal Agent
Commission System.
(h) Except
as otherwise set forth herein, the Notes may not be prepaid in
whole or part absent written consent from the Holder.
3. Ranking
and Covenants.
(a) Except
for those amounts of indebtedness set forth in Schedule 3.1(dd)
of the Purchase Agreement as being senior to, or pari passu with,
the Notes (the
"Existing Indebtedness"), no indebtedness of the Company is senior
to, or pari
passu with, this Note in right of payment, whether with respect to
interest,
damages or upon liquidation or dissolution or otherwise. Other than
the Existing
Indebtedness and any renewal, refinancing or replacement thereof
that does not
exceed the aggregate amount of the Existing Indebtedness and the
borrowing
availability under the related credit or loan agreements on the
date hereof, the
Company will not, and will not permit any Subsidiary to, directly
or indirectly,
enter into, create, incur, assume or suffer to exist any
indebtedness of any
kind, that is senior or pari passu in any respect to the Company's
obligations
under the Notes, other than indebtedness secured by purchase money
security
interests (which will be senior only as to the underlying assets
covered
thereby) and indebtedness under capital lease obligations (which
will be senior
only as to the assets covered thereby); and the Company will not,
and will not
permit any subsidiary to, directly or indirectly, incur any Lien on
or with
respect to any of its property or assets now owned or hereafter
acquired or any
interest therein or any income or profits therefrom.
(b) So
long as any Notes are outstanding, neither the Company nor any
Subsidiary shall, directly or indirectly, (i) redeem, purchase or
otherwise
acquire any capital stock or set aside any monies for such a
redemption,
purchase or other acquisition or (ii) issue any Common Stock
Equivalents with an
effective price or a number of underlying shares that floats or
resets or
otherwise varies or is subject to adjustment based (directly or
indirectly) on
market prices of the Common Stock (a "Floating Price
Security").
(c) The
Company covenants that it will at all times reserve and keep
available out of its authorized but unissued and otherwise
unreserved Common
Stock, solely for the purpose of enabling it to issue Underlying
Shares as
required hereunder, the number of Underlying Shares which are then
issuable and
deliverable upon the conversion of (and otherwise in respect of)
this entire
Note (taking into account the adjustments set forth in Section 10
and
disregarding any limitations set forth in Section 6(b)), free from
preemptive
rights or any other contingent purchase rights of Persons other
than the Holder.
The Company covenants that all Underlying Shares so issuable and
deliverable
shall, upon issuance in accordance with the terms hereof, be duly
and validly
authorized and issued and fully paid and nonassessable.
6
<PAGE>
4.
Registration of Notes. The Company shall register the Notes
upon
records to be maintained by the Company for that purpose (the "Note
Register")
in the name of each record holder thereof from time to time. The
Company may
deem and treat the registered Holder of this Note as the absolute
owner hereof
for the purpose of any conversion hereof or any payment of interest
or principal
hereon, and for all other purposes, absent actual notice to the
contrary.
5.
Registration of Transfers and Exchanges. The Company shall register
the
transfer of any portion of this Note in the Note Register upon
surrender of this
Note to the Company at its address for notice set forth herein.
Upon any such
registration or transfer, a new Note, in substantially the form of
this Note
(any such new Note, a "New Note"), evidencing the portion of this
Note so
transferred shall be issued to the transferee and a New Note
evidencing the
remaining portion of this Note not so transferred, if any, shall be
issued to
the transferring Holder. The acceptance of the New Note by the
transferee
thereof shall be deemed the acceptance by such transferee of all of
the rights
and obligations of a holder of a Note. This Note is exchangeable
for an equal
aggregate principal amount of Notes of different authorized
denominations, as
requested by the Holder surrendering the same. No service charge or
other fee
will be imposed in connection with any such registration of
transfer or
exchange.
6.
Conversion.
(a) At the
Option of the Holder. All or any portion of this Note shall be
convertible into shares of Common Stock (subject to the limitations
set forth in
Section 6(b)), at the option of the Holder, at any time and from
time to time
from and after the Original Issue Date. The number of Underlying
Shares issuable
upon any conversion hereunder shall equal the outstanding principal
amount of
this Note to be converted, plus the amount of any accrued but
unpaid interest on
this Note through the Conversion Date, divided by the Conversion
Price on the
Conversion Date. The Holder shall effect conversions under this
Section 6(a) by
delivering to the Company a Conversion Notice together with a
schedule in the
form of Schedule 2 attached hereto (the "Conversion Schedule"). If
the Holder is
converting less than all of the principal amount of this Note, or
if a
conversion hereunder may not be effected in full due to the
