Exhibit 4.3
NEITHER THIS NOTE NOR ANY SECURITIES THAT MAY BE ISSUED UPON CONVERSION HEREOF
HAVE BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR APPLICABLE STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS THEY HAVE BEEN SO REGISTERED AND QUALIFIED OR
EVIDENCE IS FURNISHED TO THE COMPANY TO THE EFFECT THAT REGISTRATION AND
QUALIFICATION IS NOT REQUIRED.
THIRD AMENDED AND RESTATED CONVERTIBLE TERM NOTE
DUE APRIL 30, 2005
Englewood Cliffs, New Jersey
$[ ] As of November 4, 2002
For value received, EpiCept Corporation, a Delaware corporation (the
"Company"), hereby promises to pay to the order of [NAME OF HOLDER] (hereinafter
referred to as the "Payee") the principal sum of $ (the "Maximum
Principal Amount"), or so much thereof as shall have been advanced by Payee to
the Company, with interest from the date hereof on the unpaid balance at the
rate of 8% per annum, such interest to accrue on a daily basis from time to time
from the date hereof until the date on which this Third Amended and Restated
Convertible Term Note (this "Note") is paid in full. This Note is one of a
series of notes being issued on the date hereof or that hereafter may be issued
to certain investors in the aggregate maximum principal amount of $5,000,000
(this Note, together with such other notes shall be collectively referenced to
as the "Convertible Notes"). As additional consideration for the Payee's loan to
the Company of up to the Maximum Principal Amount, the Company issued to the
Payee a certain Preferred Stock Purchase Warrant of even date herewith (as
amended and/or restated, the "Stock Purchase Warrant," and collectively with all
other Stock Purchase Warrants issued to other holders of Convertible Notes, the
"Stock Purchase Warrants"). Subject to the conversion provisions set forth in
Section 5 and Section 6, all outstanding principal and accrued interest under
this Note shall become due and payable on April 30, 2005.
1. Further Advances. On the date hereof, the Payee has advanced to the
Company only a portion of the Maximum Principal Amount. The Company may from
time to time request additional advances under the Convertible Notes. Such
requests shall be made in writing by the Chief Executive Officer of the Company
and shall be directed to TVM IV GmbH & Co. KG ("TVM"), Merlin General Partner II
Limited as general partner of the Merlin Biosciences Fund L.P. and as managing
partner of the Merlin Biosciences Fund GbR ("Merlin") and Private Equity US
Direct Finance ("Private Equity Holding"). Each such request for an additional
advance shall also contain a detailed explanation of the reasons the additional
advance is required and a certification by the Company's Chief Executive Officer
that no Event of Default (as defined below) has occurred. Each such request
shall be made no later than 5 business days prior to the
date on which the Company requires the requested amount. Should TVM and Merlin
each agree that an additional advance should be made, TVM and Merlin shall
together send a notice to each holder of a Convertible Note indicating that
portion of the Maximum Principal Amount of their Convertible Notes that TVM and
Merlin have agreed shall be advanced to the Company, which, for the avoidance of
doubt, may be for a lesser amount than that originally requested by the Company
(it being understood that each holder will thereby become obligated to advance
an equal proportion of the maximum principal amount of his Convertible Note).
Upon such notices from time to time transmitted by TVM and Merlin in accordance
with the terms of this Note, the Payee agrees to make additional advances to the
Company, provided, that the aggregate amount of all advances by the Payee shall
not exceed the Maximum Principal Amount. Notwithstanding the foregoing, the
Payee, at any time and from time to time, upon 5 business days notice (delivered
in the manner prescribed in the Subscription Agreement pursuant to which the
Note was purchased) to the Company and each other person or entity that holds
one or more of the Convertible Notes, may advance to the Company any amount up
to that amount that, together with all amounts previously advanced to the
Company by the Payee, equals the Maximum Principal Amount. Each such advance
shall be made by wire transfer to the Company's account within three business
days after receipt by the Payee of the notice from TVM and Merlin specified
above. Notwithstanding anything in the foregoing to the contrary, no additional
advances shall be made under the Convertible Notes unless on or before November
30, 2002, the date of maturity of that certain loan from IKB Venture Capital
GmbH to EpiCept GmbH (formerly known as Pharmed Labs GmbH) dated on or about
April 13, 1998 has been extended to April 30, 2004, unless TVM, Merlin and
Private Equity Holding shall unanimously waive or extend the period for
compliance with this provision.
2. Payments. Principal and interest shall be payable in lawful money of
the United States of America, by wire transfer to a bank account designated by
the Payee or by bank check delivered to the principal office of the Payee or at
such other place as the Payee may designate from time to time in writing to the
Company.
3. Prepayment.
(a) The Company shall have the right at its option at any time to
prepay this Note without premium or penalty, provided, that the Company notifies
the Payee of the date that it intends to make payment on this Note not less than
twenty (20) days prior to such date so as to provide the Payee the opportunity
to convert this Note into capital stock of the Company and, provided, further,
that the Company may not prepay this Note in anticipation of an Extraordinary
Event (as defined below). Any prepayment of this Note shall be accompanied by
the interest accrued on the prepaid principal amount.
(b) Notwithstanding anything in this Note to the contrary, if not
sooner prepaid or converted in accordance with the terms hereof, upon the
consummation of a Qualified Public Offering (as such term is defined in the
Current Charter (defined in Section 6 below)), the entire principal amount of
this Note and all accrued and unpaid interest thereon shall be prepaid by the
Company, without notice to or the consent of the Payee, with proceeds from such
offering.
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4. Principal Amount; Grid Notation. The unpaid principal balance of this
Note at any time shall be the total amount advanced by the Payee to the Company,
less the total amount of principal payments made hereon by the Company. The date
and amount of each such advance and each payment on account of the principal of
this Note may be endorsed by the Payee on the grid attached to and made part of
this Note, and when so stated shall represent evidence thereof in the absence of
manifest error. Any failure by the Payee to so endorse shall in no way mitigate
or discharge the obligation of the Company to repay any advances actually made.
5. Next Round Conversion. If the Company consummates a convertible
preferred stock financing with gross proceeds to the Company of at least
$10,000,000 (including the principal and accrued interest under the Convertible
Notes) and pursuant to which investors in such financing receive securities
representing a percentage of the Company's capital stock on a fully-diluted
basis immediately after the consummation of such financing equal to no more than
the Maximum Percentage of the Company (as defined below) (assuming for the
purpose of such calculation the exercise and/or conversion of all options,
warrants, preferred stock and other convertible securities) (a "Qualifying
Financing"), then, simultaneously with the closing of such Qualifying Financing,
the outstanding principal and accrued interest on this Note shall be converted
into shares of the new series of convertible preferred stock of the Company (the
"Next Round Preferred Stock") which is authorized by the Company in connection
with the Qualifying Financing. The terms of the Next Round Preferred Stock shall
be subject to negotiation by the Company and the purchasers of Next Round
Preferred Stock in the Qualifying Financing, including the Payee, and shall be
subject to the unanimous approval of each of TVM, Merlin and Private Equity
Holding. Such conversion shall occur at the lower of (i) the lowest price per
share paid by any purchaser in the Qualifying Financing and (ii) the price per
share calculated so as to assure that, immediately following such conversion of
each such Convertible Note, the shares of the Company's common stock, $0.0001
par value per share (the "Common Stock"), issuable upon conversion of the Next
Round Preferred Stock bears a proportion to the total number of shares of the
Common Stock outstanding or issuable upon exercise and/or conversion of all
options, warrants, preferred stock (including the Next Round Preferred Stock)
and other convertible securities then outstanding equal to the outstanding
principal and accrued interest on all of the Convertible Notes divided by the
sum of the outstanding principal and accrued interest on all of the Convertible
Notes and $20,000,000.00. To effect such conversion, the Payee shall on or
before the closing of the Qualifying Financing become a party to all agreements
between the Company and the purchasers of the Next Round Preferred Stock which
set forth the terms and conditions of such purchase and the Payee shall be
entitled to all the rights granted to the purchasers thereunder and subject to
any restrictions or obligations imposed generally on such purchasers. As used in
this Note, the term "Maximum Percentage of the Company" shall mean the quotient
(expressed as a percentage) obtained by dividing the aggregate consideration
paid for Next Round Preferred Stock (including the aggregate outstanding
principal and accrued interest of the Convertible Notes (the "Next Round
Consideration"), by the sum of (a) the Next Round Consideration and (b)
$15,000,000.00.
6. Optional Conversion. So long as the Company does not consummate a
Qualifying Financing prior thereto, at any time hereinafter upon the unanimous
written election (the "Optional Conversion Election") of TVM, Merlin and Private
Equity Holding to effect the conversion of all of the Convertible Notes, the
outstanding principal and accrued interest on this
3
Note shall be converted into shares of a new series of the convertible preferred
stock of the Company (the "Optional Conversion Preferred Stock"), at a price per
share calculated so as to assure that, immediately following such conversion of
the Convertible Notes, the shares of the Common Stock issuable upon conversion
of the Optional Conversion Preferred Stock bears a proportion to the total
number of shares of the Company's Common Stock outstanding or issuable upon
exercise and/or conversion of all options, warrants (excluding all Stock
Purchase Warrants), preferred stock (including the Optional Conversion Preferred
Stock) and other convertible securities then outstanding equal to the
outstanding principal and accrued interest on all of the Convertible Notes
divided by the sum of the outstanding principal and accrued interest on all of
the Convertible Notes and $20,000,000.00. Such conversion shall occur as soon as
reasonably practicable after the delivery of the Optional Conversion Election.
The terms of the Optional Conversion Preferred Stock shall be subject to
negotiation by the Company and the holders of the Convertible Notes, including
the Payee, but in any event shall (a) provide that (1)upon any liquidation or
deemed liquidation event (as described in Section 1 of Article FOURTH of the
Company's Certificate of Incorporation as amended and/or restated from time to
time (the "Current Charter")) holders of Optional Convertible Preferred Stock
shall be entitled to receive on account of each of their shares of Optional
Convertible Preferred Stock first out of the assets of the Company available to
holders of the Company's capital stock, an amount not less than three (3) times
the amount per share at which the Convertible Notes are converted into Optional
Conversion Preferred Stock and (2) provide the Optional Convertible Preferred
Stock with so-called "full ratchet anti-dilution protection," and (b) be subject
to the unanimous approval of each of TVM, Merlin and Private Equity Holding. To
effect such conversion, the Company and the Payee shall become parties to all
ordinary and customary agreements necessary to fully set forth the terms and
conditions of such purchase and to provide the Payee with all the rights, and
subject the Payee to all of the restrictions or obligations, granted to or
imposed on the holders of the Optional Conversion Preferred Stock in connection
with their purchase thereof, as such rights, restrictions and obligations may
have been amended from time to time. Promptly after the delivery by TVM, Merlin
and Private Equity Holding of the Optional Conversion Election, the Company
shall use its best efforts to cause to be taken all corporate action necessary
to amend its Certificate of Incorporation to authorize the shares of Optional
Conversion Preferred Stock issuable upon conversion of the Convertible Notes and
the exercise of all Stock Purchase Warrants and the shares of Common Stock
issuable upon conversion of such shares of Optional Conversion Preferred Stock
and to effect all other changes to the Company's Certificate of Incorporation as
may be required.
7. Payment Upon Liquidation. At the unanimous election of TVM, Merlin and
Private Equity Holding, upon the occurrence of an Extraordinary Event, the
holder hereof shall be entitled to receive an amount in full satisfaction of
this Note, such amount to be paid out of the assets of the Company before any
payments are made on account of any capital stock of the Company, equal to three
(3) times the principal amount of this Note, plus all interest accrued on this
Note. The Company shall not incur any obligation (except with respect to its
issuance of Convertible Notes) outside of its ordinary course of business after
the date hereof that would be have priority over the obligation described
herein, except with the unanimous consent of TVM, Merlin and Private Equity
Holding. The Company shall not participate in an Extraordinary Event without
notifying the Payee of its intention to so participate in such Extraordinary
Event at least 10 business days prior to such Extraordinary Event. As used in
this Note, the term
4
"Extraordinary Event" means (a) a merger, consolidation, share exchange or other
form of corporate reorganization involving the Company in which the stockholders
of the Company immediately before such merger, consolidation, share exchange or
other corporate reorganization dispose of in excess of fifty percent (50%) of
the issued and outstanding capital stock of the Company; (b) any transaction or
series of related transactions in which (i) all or substantially all of the
assets of the Company are sold, or (ii) in excess of fifty percent (50%) of the
shares of Common Stock (assuming conversion of all convertible securities) is
issued transferred to any person (other than in a Qualifying Financing); or (c)
any event that would trigger payments to the holders of any series of the
Preferred Stock under Section 1(c) of Article FOURTH of the Current Charter in
the absence of the prescribed vote of the holders of such series to the
contrary.
8. Cancellation of Note. Upon conversion of this Note, in accordance with
Sections 5 or 6 hereunder, all rights with respect to this Note shall terminate,
whether or not the Note has been surrendered for cancellation, and the Company
will be forever released from its obligation under this Note, except its
obligation under Sections 5 or 6 herein.
9. Events of Default.
If any of the following events ("Events of Default") shall occur:
(a) A final judgment or settlement shall be rendered against or
agreed to by the Company or any of its subsidiaries for the payment of money
that, after deducting the amount of any insurance proceeds paid or payable to or
on behalf of the Company or such subsidiary in connection with such judgment or
settlement, as the case may be, is in excess of $50,000, and such judgment shall
remain undischarged for a period of thirty (30) days, during which period
execution shall not effectively be stayed, or such settlement shall remain
unpaid for a period of thirty (30) days after the agreed payment date unless
such delay has been agreed to by the other party. If a dispute exists with
respect to the liability of any insurance underwriter under any insurance policy
of the Company or such subsidiary, no deduction under this subsection shall be
made for any portion of the insurance proceeds that are the subject of such
dispute;
(b) The Company or any of its subsidiaries shall (i) voluntarily
terminate operations or apply for or consent to the appointment of, or the
taking of possession by, a receiver, custodian, trustee or liquidator of it or
of all or a substantial part of its assets, (ii) admit in writing its inability,
or be generally unable, to pay its debts as the debts become due, (iii) make, or
enter into negotiations to make, a general assignment for the benefit of its
creditors, (iv) commence a voluntary case under the Federal Bankruptcy Code of
the United States (as now or hereafter in effect), (v) file a petition (relating
to itself) seeking to take advantage of any other law relating to bankruptcy,
insolvency, reorganization, winding-up, or composition or adjustment of debts,
(vi) fail to controvert in a timely and appropriate manner, or acquiesce in
writing to, any petition filed against it in an involuntary case under the
Federal Bankruptcy Code of the United States or other applicable bankruptcy law
or (vii) take any corporate action for the purpose of effecting any of the
foregoing;
(c) Without its application, approval or consent, a proceeding shall
be commenced, in any court of competent jurisdiction, seeking in respect of the
Company or any of
5
its subsidiaries the liquidation, reorganization, dissolution, winding-up, or
composition or readjustment of debt, the appointment of a trustee, receiver,
liquidator or the like of such entity or of all or any substantial part of its
assets, or other like relief in respect of such entity under any law relating to
bankruptcy, insolvency, reorganization, winding-up, or composition or adjustment
of debts; and, if the proceeding is being contested in good faith by such
entity, the same shall continue undismissed, or unstayed and in effect for any
period of forty-five (45) consecutive days, or an order for relief against such
entity shall be entered in any case under the Federal Bankruptcy Code of the
United States or other applicable bankruptcy law;
(d) Any foreclosure or other proceedings shall be commenced to
enforce, execute or realize upon any lien, encumbrance, attachment, trustee
process, mortgage or security interest for payment of an amount in excess of
$50,000 against the Company or any of its subsidiaries;
(e) There shall occur any default not cured within the applicable
grace period under any instrument or agreement evidencing any indebtedness in
excess of $50,000 for money borrowed by the Company or any of its subsidiaries;
(f) There shall occur any acceleration or any default not cured
within the applicable grace period under any of the agreements relating to the
loans to the Company or EpiCept GmbH from IKB Venture Capital GmbH or
Technologie-Beteiligungs-Gesellschaft mbH der Deutschen Ausgleichsbank;
(g) There shall occur, in the reasonable opinion TVM, Merlin and
Private Equity Holding, any material adverse change in the financial condition
of the Company or any of its subsidiaries as compared to the Company's condition
on the date hereof;
(h) There shall occur any merger, consolidation, share exchange or
other form of corporate reorganization involving the Company in which the
stockholders of the Company immediately before such merger, consolidation, share
exchange or other corporate reorganization dispose of in excess of fifty percent
(50%) of the issued and outstanding capital stock of the Company;
(i) There shall occur any transaction or series of related
transactions in which (i) all or substantially all of the assets of the Company
are sold, or (ii) in excess of fifty percent (50%) of the shares of Common Stock
(assuming conversion of all convertible securities) is issued transferred to any
person (other than in a Qualifying Financing or a Qualified Public Offering); or
(j) There shall occur any event that will trigger payments to the
holders of any series of the Preferred Stock under Section 1(c) of Article
FOURTH of the Current Charter in the absence of the prescribed vote of the
holders of such series to the contrary;
then, upon the written consent of the holders of at least a majority in
aggregate principal amount of the Convertible Notes then outstanding (the
"Majority Holders") at any time thereafter when such Event of Default is
continuing, if such Event of Default or any other Event of Default shall have
not been waived by the Majority Holders, the Payee may by notice to the Company
declare
6
this Note due and payable, upon which an amount equal to three (3) times the
principal amount of this Note, plus all interest accrued on this Note any other
amounts owing hereunder immediately shall be due and payable, and the same shall
forthwith become immediately due and payable without presentment, demand,
protest, notice or other formality of any kind, all of which are hereby
expressly waived; provided, however, that notwithstanding the above, if there
shall occur an Event of Default under clause (b) or (c) above, then an amount
equal to three (3) times the principal amount of this Note, plus all interest
accrued on this Note any other amounts owing hereunder, shall be immediately due
and payable without the necessity of any action by the Majority Holders or the
Payee, or notice to the Company. The Company shall notify Payee forthwith and in
any event within one (1) business day of the occurrence of any Event of Default.
10. Transfer and Exchange of Note.
(a) Transfer. Subject to evidence of compliance with the Securities
Act of 1933, as amended, (the "Securities Act"), and applicable state securities
laws, this Note may be transferred or succeeded to by any person; provided,
however, that the Company is given written notice at the time of such transfer
stating the name and address of the transferee.
(b) Exchange. Upon surrender of this Note for transfer or exchange,
a new note or new notes of the same tenor dated the date to which interest has
been paid on the surrendered Note and in an aggregate principal amount equal to
the unpaid principal amount of the Note so surrendered will be issued to, and
registered in the name of, the transferee or transferees. The Company may treat
the person in whose name this Note is registered, as the owner hereof and the
Payee hereunder for the purpose of receiving payment and for all other purposes.
11. Compliance with Securities Act. The Payee, by acceptance hereof,
agrees that this Note is being acquired for investment for its own account and
not with a view towards its distribution and that the Payee will not offer, sell
or otherwise dispose of this Note or shares of capital stock of the Company
issued upon conversion of this Note except under circumstances which will not
result in a violation of the Securities Act and applicable state securities
laws. The Payee represents that he/she/it is an "accredited investor" within the
meaning of Rule 501 promulgated under the Securities Act, and shall promptly
notify the Company if at any time prior to June 30, 2003 such Payee is no longer
an "accredited investor."
12. Miscellaneous.
(a) Expenses. The Company agrees to reimburse and indemnify the
Payee for all costs and expenses (including reasonable attorney's fees) incurred
by the Payee (i) in connection with the preparation of the Convertible Notes,
the Stock Purchase Warrants and the transactions contemplated by such notes and
warrants and (ii) in collecting payment hereof and in otherwise enforcing
compliance herewith.
(b) Binding Benefit. This Note, and the obligations and rights of
the parties hereunder, shall be binding upon and inure to the benefit of the
parties hereto and their respective
7
successors and assigns. Each of the holders of the Convertible Notes is an
intended third party beneficiary of the obligations of the Payee hereunder.
(c) No Waiver. No delay or omission on the part of the Payee in
exercising any right hereunder shall operate as a waiver of such right or of any
other right of the Payee, nor shall any delay, omission or waiver on any
occasion be deemed a bar to, or waiver of, the same or any other right on any
future occasion.
(d) Waivers by the Company. The undersigned and every indorser or
guarantor of this Note, regardless of the time, order or place of signing,
waives presentment, demand, protest and notice of every kind and assents to any
one or more extensions or postponements of the time of payment or any other
indulgences, to any substitutions, exchanges or releases of collateral available
to the Payee, if any, and to the additions or releases of any other parties or
persons primarily or secondarily liable.
(e) Rights of Action; Remedies. All rights of action with respect to
this Note are vested in the Payee, and the Payee may enforce against the Company
its right to convert this Note into shares of capital stock of the Company in
the manner provided in this Note. The Company stipulates that the remedies at
law of the Payee in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this Note
are not and will not be adequate, and that such terms may be specifically
enforced by a decree for the specific performance of any agreement contained
herein or by an injunction against a violation of any of the terms hereof or
otherwise.
(f) Loss or Mutilation. Upon receipt of evidence satisfactory to the
Company of the loss, theft, destruction or mutilation of this Note and, if
requested in the case of any such loss, theft or destruction, upon delivery of
an indemnity agreement or security reasonably satisfactory to the Company, or,
in the case of any such mutilation, upon surrender and cancellation of this
Note, the Company at its expense will execute and deliver, in lieu hereof, a new
note of like tenor.
(g) Amendments and Waivers; Supercedes Prior Notes. No provision of
this Note may be amended or waived except with the unanimous written consent of
TVM, Merlin, Private Equity Holding and the Company, and any amendment or waiver
of this Note and the other Convertible Notes made with such consent shall be
binding on all holders of the Convertible Notes (including this Note); provided,
however, that (i) no amendment or waiver respecting the amount of payment of
principal or interest on this Note shall be made without the written consent of
the holder of this Note, and (ii) the holder of this Note may waive any right or
benefit hereunder, but only as to itself, by its written consent. By
countersigning this Note on the signature page hereof, the undersigned consents
and agrees to all amendments to the Second Amended Note (defined below), the
First Amended Note (defined below) and the Original Note (defined below)
contained in this Note. This Note supercedes and replaces a certain (i) Second
Amended and Restated Convertible Term Note of even date herewith (the "Second
Amended Note"), (ii) Amended and Restated Convertible Term Note of even date
herewith (the "First Amended Note") and (ii) Convertible Term Note of even date
herewith (the "Original Note"), each issued by the Company to the Payee and
Payee acknowledges that the Second Amended
8
Note, the First Amended Note and the Original Note are no longer outstanding or
obligations of the Company.
(h) Governing Law. All rights and obligations under this Note shall
be governed by, and construed and enforced in accordance with, the substantive
laws of the State of Delaware, without regard to its principles of conflicts of
laws.
(i) Pari Passu. The Convertible Notes rank equally and ratably
without priority over one another. No payment, including prepayment, shall be
made hereunder unless payment, including any prepayment, is made with respect to
the other Convertible Notes in an amount which bears the same ratio to the then
outstanding unpaid principal amount of such other Convertible Notes as the
payment made hereon bears to the then outstanding unpaid principal amount of
this Note.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned has executed this Note as of the date
first above written.
EPICEPT CORPORATION
By:
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(signature)
Name: Robert W. Cook
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(printed)
Its: Chief Financial Officer
-----------------------------------
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(title)
ACCEPTED AND AGREED:
[NAME OF HOLDER]
By:
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(signature)
Name:
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(printed)
Title:
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(title)