Exhibit 10.1
Term Sheet for an Investment
Of $4 to 6 million
In CepTor Corporation
Investment Margie Chassman and/or her designees (the
"Investor") will invest at least $4 million and
up to $6 million (the "Investment") in CepTor
Corporation (the "Company"). The first $400,000
will be funded by April 20; $600,000 by May 10
and; $500,000 by June 10th. Thereafter, an
additional $500,000 shall be funded by the 10th
of each succeeding calendar month until the
Investment has been fully funded to the
Company. Funds provided by the Investor shall
be held in escrow pending funding to the
Company in accordance with the foregoing
schedule. The Investment will be evidenced by
convertible notes (the "Notes") bearing
interest at 6% per annum and maturing 1 year
after each funding. The principal and interest
on the Notes will be convertible into common
stock of the Company (the "Common Stock") at a
conversion rate of $.15 per share, and, if the
Notes are not converted or repaid in full by
payment of 200% of the principal thereof by
September 30, 2006, the conversion price will
change to be equal to the lower of $.15 per
share (the "Fixed Conversion Price") or 90% of
the lowest closing sale price (or average of
closing bid and asked prices if no closing sale
price is available) for the 20 trading days
immediately preceding the date on which the
notice of conversion is sent to the Company
(the "Floating Conversion Price"). The Notes
shall have customary anti-dilution protection,
including a full ratchet on the Fixed
Conversion Price upon sales of Common Stock or
Common Stock equivalents by the Company for
less than the Fixed Conversion Price. The full
ratchet shall not apply to excepted issuances,
including issuances pursuant to any rights or
convertible securities existing on the date of
the first issuance of the Notes and issuances
pursuant to employee plans. The Notes shall
have customary default provisions, including an
event of default if the Company shall fail to
timely issue shares of Common Stock upon
conversion of the Notes or shall fail to timely
file or have declared effective a registration
statement covering the Common Stock underlying
the Notes. Upon the occurrence of an event of
default, the Notes shall bear interest at 12%
per annum. The Company will obtain shareholder
approval of an increase in the authorized
shares of Common Stock to a number that will
permit registering any Common Stock that may be
issued upon conversion of the Notes and upon
conversion or exercise of the securities being
issued or modified as set forth under
"Restructuring," below, which approval shall be
obtained no later than July 20, 2006 to permit
timely filing of and inclusion of all such
underlying shares in the registration statement
required to be filed as set forth under
"Registration Rights," below.
Additional Warrants The Company shall grant to the Investor for no
additional consideration, except in the case of
investors in prior rounds to the extent of
their participation in the Investment with
respect to which they are receiving adjustments
to existing securities of the Company or
warrants in lieu thereof as set forth under
"Restructuring," non-callable five-year
warrants (the "Warrants") to purchase Common
Stock at $.30 per share covering 100% of the
shares of Common Stock into which the Notes
purchased by them are initially convertible.
The Warrants shall have customary anti-dilution
protection, including a full ratchet upon sales
of Common Stock or Common Stock equivalents by
the Company for less than $.30 per share. The
full ratchet shall not apply to excepted
issuances, including issuances pursuant to any
rights or convertible securities existing on
the date of the first issuance of the Warrants
(including the Notes and any convertible
securities or rights issued or modified in
connection with the issuance of the Notes) and
issuances pursuant to employee plans.
Repurchase Right/Obligation The Company may repurchase the Notes for 200%
of the principal amount thereof on or before
September 30, 2006, provided, the Company shall
give at least 30 days' notice of its election
to repurchase the Notes, during which time the
Notes may be converted in accordance with their
terms. In the event the Company announces the
sale or merger of the Company or its assets on
or before September 30, 2006 and thereafter
completes such sale or merger within 6 months
after such announcement, the Company shall
repurchase any Notes not converted before the
consummation of such sale or merger for 200% of
the principal amount thereof upon the
consummation of the sale or merger.
Registration Rights The Company agrees to file a registration
statement under the Securities Act covering the
shares of Common Stock underlying the Notes
within 90 days following the first issuance of
the Notes ( April 20, 2006) and to cause such
registration statement to become effective
within 5 months following such issuance. The
registration statement shall also cover all
shares of Common Stock issued to or underlying
outstanding convertible securities or rights to
acquire Common Stock issued to the Investor.
Liquidated damages of 2% of the principal
amount of the Notes shall be due for each month
or portion thereof in which the Company fails
to meet this schedule, with such liquidated
damages capped at 18% of the principal amount
of the Notes.
Lock-ups The parties funding the Investment will agree
to be locked up on all securities of the
Company owned by them until August 31, 2006.
Restructuring The Company shall adjust the conversion price
on its outstanding convertible notes to $.15
per share. In the event the Notes have not been
repurchased on or before September 30, 2006,
the conversion price on such convertible notes
shall thereafter be the lower of the Fixed
Conversion Price or the Floating Conversion
Price, with the same anti-dilution protection
as in the Notes. Other Investors participating
in the Investment who invested in prior rounds
of convertible securities shall receive the
same adjustment to the conversion price on such
securities having a stated value equal to 100%
of their participation in the Investment (or,
to the extent they have converted such
securities but not sold the Common Stock
received upon conversion, they shall receive an
equivalent amount of additional shares of
Common Stock), together with an adjustment in
the warrant price on the warrants attached to
such securities being adjusted to $.30 per
share, subject to the Company's right to call
such warrants on 20 days' notice for a nominal
price in the event that, after the registration
statement covering such shares of Common Stock
is effective, the Common Stock closes over $.45
per share for 10 consecutive trading days, or,
in the event they have sold or otherwise
disposed of such convertible securities, they
shall receive warrants to purchase Common Stock
that will provide equivalent value.
Fees The Company shall pay Margie Chassman a yield
maintenance fee of 10% of the Investment,
together with 5-year warrants to purchase Notes
and Warrants equal to 10% of the Notes and
Warrants comprising the Investment for an
exercise price equal to the price paid by the
Investors, and for such fee Ms. Chassman will
pledge a convertible note of the Company in the
principal amount of $250,000 to secure her
non-recourse obligation to increase the return
to the Investor to the extent required to avoid
loss on the Investment, measured on the earlier
of April 20, 2007 or the date on which the
entire Investment is sold or otherwise disposed
of, including by conversion. The Company shall
pay legal fees of Greenberg & Kahr of $35,000,
payable upon the first funding of the Notes,
which fee shall be in addition to the fee of
Grushko & Mittman, P.C., as counsel for the
Investors, of $15,000, which will also be an
obligation of the Company.
This Term Sheet (the "Agreement") shall constitute a binding agreement
among the parties with respect to the subject matter hereof with the parties to
use good faith efforts to prepare definitive documentation as quickly as
practicable subject to the foregoing. This Agreement supersedes all other drafts
of the Agreement, whether or not such prior drafts were executed.
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AGREED TO: AGREED TO:
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CEPTOR CORPORATION
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/s/ Margie Chassman
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MARGIE CHASSMAN
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By: /s/ William Pursley
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William Pursley, CEO
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Date: 5/3/06 Date:
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