THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR UNDER THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD OR
TRANSFERRED UNLESS REGISTERED UNDER THAT ACT
AND ANY APPLICABLE STATE SECURITIES LAWS
OR AN EXEMPTION FROM REGISTRATION IS AVAILABLE.
CHEUNG LABORATORIES, INC.
8% SENIOR SECURED CONVERTIBLE NOTE
Baltimore, Maryland
July ___, 1996
FOR VALUE RECEIVED, CHEUNG LABORATORIES, INC., a Maryland corporation
(the "Corporation") promises to pay to __________________, or registered
assigns, (the "Holder") the principal amount of ________________________ Dollars
($________) (the "Principal Amount") on or before December 31, 1997, with
accrued interest as provided below, all subject to the following terms and
conditions.
Interest (computed on the basis of a 360-day year of twelve 30-day
months) on the unpaid Principal Amount shall accrue at the rate of 8% per annum
from the date hereof.
All payments of principal of and interest on this 8% Senior Secured
Convertible Note (the "Note") are secured pursuant to a Loan Agreement, and a
Pledge Agreement, both dated July 1, 1996 which apply to this series of bridge
financing notes (the "Notes"), and shall be made in currency of the United
States of America as at the time of payment shall be legal tender for payment of
public and private debts. Should an Event of Default occur under the Loan
Agreement, this Note shall be accelerated and be immediately due and payable
This Note and the Notes shall be senior indebtedness of CLI and have a
priority over payment of any other indebtedness of CLI, such other indebtedness
of CLI to be repaid only after the full repayment of the Principal Amount, and
accrued interest, due hereunder and under the other Notes. This Note shall
mature and the entire Principal Amount thereof and all accrued interest thereon
shall become due and payable on December 31, 1997; provided that, at the option
of the Holder this Note may be paid by the Holder electing:
A. To be repaid from the proceeds of a private offering by the
Corporation, or a series of private offerings, which aggregate $8,000,000.00
(U.S.) or more prior to December 31, 1997, and involve the sale of the
Corporation's common stock, preferred stock, long-term debt, convertible debt
(other than this Note), or other similar security or financial instrument (the
"Private Offering"); or
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B. On the date of maturity to convert the Principal Amount and any
unpaid accrued interest into common stock of the Corporation. If the Holder
shall elect to so convert the Note, the number of shares of common stock to be
received by the Holder shall be the greater of:
(i) the number of shares determined by pricing the common
stock of the Corporation at $.41 per share
(representing the closing price of the common stock
of the Corporation as quoted on NASDAQ (Bulletin
Board) on May 31, 1996); or
(ii) the lowest price per share in the Corporation's
Private Offering on the same terms as other
participants in such Private Offering (on a common
stock equivalency basis if the Private Offering is
other than common stock).
If any payment of interest is not made on the date when due for any
reason, or the Principal Amount shall not be paid when payable, whether at
maturity or by acceleration or otherwise, interest shall accrue on any amount
overdue more than 30 days at a rate equal to 18% per annum (computed based on a
360-day year applied to twelve 30-day months) until such overdue amount is paid
in full.
This Note shall be governed by and construed in accordance with the
internal laws of the State of Maryland.
IN WITNESS WHEREOF, Cheung Laboratories, Inc. has executed this Note
under seal as of the date and year first above written.
CHEUNG LABORATORIES, INC.
By: ___________________________
Dr. Augustine Y. Cheung, President
[CORPORATE SEAL]
Attest
_____________________________
Secretary:
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