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Convertible Loan Agreement - Modex Therapeutiques SA and CytoTherapeutics Inc.

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                           CONVERTIBLE LOAN AGREEMENT

         This Agreement dated as of July 10, 1996, is among Modex Therapeutiques
SA, a Swiss corporation ("Modex") and CytoTherapeutics, Inc. ("CTI"), a Delaware
corporation.

         CTI currently owns 6'500 shares of Modex common stock.

         Modex wishes to borrow from CTI, and CTI wishes to lend to Modex, a
total amount of SFr. 3'600'000.--in the form of a convertible subordinated loan.

         Parties refer to Section 7 of the Statutes of Modex which provides for
a conditional capital stock increase, in order to enable Modex to issue the
necessary number of shares required in case of conversion of the hereunder
defined loan, and of the loan agreed today with Societe Financiere Valoria SA,
another shareholder of Modex.

         Parties agree as follows:

1.       Total Amount of Loan

         The total amount of the loan is of SFr. 3'600,000.--

2.       Delivery of the Funds by CTI

         2.1.     CTI will immediately provide for a transfer to the bank
                  account of Modex at Banque Cantonale Vaudoise no.-911.58 12
                  the amount of SFr. 1'200'000.--. Modex will acknowledge
                  receipt of that amount and acknowledge owing SFr.
                  1'200'000.--to CTI, with reference to the present Agreement.

         2.2.     On the second anniversary of the present Agreement, a similar
                  transfer of the amount of SFr. 1'400'000.-- will be made by
                  CTI, provided that on or before such second anniversary Modex
                  has achieved one of the following milestones (1) anemia: the
                  earlier of (a) delivery for at least 90 days of 300 units per
                  day of EPO in a large animal model or functional evidence of a
                  therapeutic benefit of EPO in large animal model or (b)
                  commencement of a Phase I clinical trial in humans or (2)
                  diabetes: large animal off insulin for 90 days or (3) obesity:
                  the earlier of (a) FaFa rat returned to normal body weight or
                  (b) demonstrated weight loss in large animal model or in
                  humans. Modex will acknowledge receipt of that amount
                  similarly.



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3.       Repayment of Loan by Modex

         All unpaid principal shall be due and payable on the earlier to occur
         of the tenth anniversary of the CTI/LOC Option Agreement or the closing
         of an underwritten public offering of Modex common stock (such date is
         referred to as "Due Date").

         Reservation is made for provisions of Section 6.2 hereunder.

4.       Prepayment

         Modex may not prepay any portion of the principal sum prior to the Due
         Date, unless authorized to do so in writing by CTI.

5.       Interest

         No interest shall be due on the principal.

6.       Subordination

         6.1.     Principle

                  In the event of any receivership, insolvency or bankruptcy
                  proceedings instituted by or against Modex, or execution sale
                  of any of the assets of Modex, or proceedings, whether or not
                  judicial, for dissolution or liquidation of Modex, or any
                  distribution or division, partial ro complete, of all or any
                  part of the assets of Modex, the claim derived from this loan
                  agreement and that of other loans similarly subordinated will
                  be subordinated to the payment in full of all third party
                  claims (classes 1 - 5 according to Article 219 of Swiss
                  Bankruptcy Law).

         6.2.     Possibility of Conditional Waiver

                  Furthermore, before any receivership, insolvency or bankruptcy
                  proceedings, in the event that excessive debt of Modex would
                  require steps to be taken according to Article 725 of the
                  Swiss Code of Obligations, CTI will accept, unless it
                  exercises its conversion option according to Section 7
                  hereunder, to draft an agreement, together with the holders of
                  other subordinated loans, according to which its claim against
                  Modex would be conditionally waived, i.e. until the balance
                  sheet of Modex would show again that the assets cover all
                  loans.

7.       Conversion

         7.1.     Conversion at the Option of CTI

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                  At the option of CTI, all or part (corresponding to the
                  conversion of any possible number of shares) of the unpaid
                  principal then outstanding may be converted into shares of
                  common stock of Modex, at any time starting from the day after
                  the first payment according to Section 2.1 until Due Date,
                  providing that CTI gives a thirty day notice in writing

         7.2.     Conversion Price

                  Subject to adjustment as provided in Sections 7.3 and 7.7
                  below, the price per share of common stock into which the part
                  of outstanding loan shall be converted is SFr. 1'400.--.
                  However, in the event that Modex has failed to complete one at
                  least of the milestones set forth in Section 2.2 here above by
                  midnight, on the second anniversary of this Agreement, then
                  the initial conversion price, still subject to adjustments as
                  set forth below, shall be deemed to be SFr. 480.- per share.
                  Upon such conversion, the amount of outstanding principal so
                  converted shall be deemed paid and no longer outstanding
                  hereunder.

         7.3.     Adjustments to Conversion Price

                  In the event the outstanding shares of common stock shall be
                  combined or consolidated (by reclassification or otherwise)
                  into a lesser number of shares of common stock, the conversion
                  price in effect immediately prior to such combination or
                  consolidation shall, concurrently with the effectiveness of
                  such combination or consolidation, be proportionately
                  increased. In the event the outstanding shares of common stock
                  shall be subdivided (by stock split, by stock dividend or
                  otherwise) into a greater number of shares of common stock,
                  the conversion price in effect immediately prior to such
                  subdivision shall, concurrently with the effectiveness of such
                  subdivision, be proportionately decreased.

         7.4.     Conversion Modalities

                  CTI will notify Modex in writing, with the thirty day notice
                  mentioned at Section 7.1, its will to exercise the option to
                  convert, specifying the number of shares converted and the
                  amount of the loan paid, and the day of the conversion. Such
                  notice will refer to Section 7 of the Statutes of Modex
                  related to the conditional increase of capital.

                  No later than the day of conversion, CTI will serve a formal
                  declaration of compensation to Banque Cantonale Vaudoise
                  (Article 653 e) al.2 of the Swiss Code of Obligations).

                                       -3-


<PAGE>   4
         7.5.     Dividend

                  Modex shares obtained through conversion will give the right
                  to receive all dividends payable with respect to such shares
                  by Modex following such conversion.

         7.6.     Stamp duty

                  The stamp duty levied by the capital increase will be paid by
                  Modex.

         7.7.     Conversion at the Option Market

                  At the option of Modex, all or part (corresponding to the
                  conversion of any possible number of shares) of the unpaid
                  principal then outstanding may be converted into shares of
                  common stock of Modex on (i) the closing of an underwritten
                  public offering of the common stock of Modex or (ii) the Due
                  Date. The conversion price shall be as provided in Section 7.2
                  above, and shall be subject to the adjustments provided in
                  Section 7.3. Conversion at the closing of a such public
                  offering shall be automatic. Conversion on the Due Date shall
                  occur if Modex shall have so notified CTI at least 30 days
                  prior to Due Date. Such notice shall refer to Article 7 of the
                  Statutes of Modex related to the conditional increase of
                  capital. No later than one day of any conversion under this
                  Section 7.8, CTI will serve a formal declaration of
                  compensation to Banque Cantonale Vaudoise (Art. 653 e) lit. b
                  of Swiss Code of Obligations).

8.       Attorney's Fees

         If the principle is not paid in full when due, Modex hereby agrees to
         pay to CTI, in addition to such amount owed to pursuant to the loan,
         all costs and expenses of collection, including a reasonable sum for
         attorneys fees.

9.       Course of Dealing

         No course of dealing between Modex and CTI shall operate as a waiver of
         any of CTI's rights according to the loan. No delay or omission on the
         part of CTI, in exercising any right according to the loan, shall
         operate as a waiver of such right. No amendment or waiver hereof shall
         be binding unless it is in writing and signed by CTI.

10.      Governing Law

         This Agreement shall be governed by and construed in accordance with
         the internal laws of Switzerland.

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<PAGE>   5
11.      Dispute Resolution

         All disputes, differences, controversies or claims arising in
         connection with, or questions occurring under, this Agreement shall be
         settled as provided in Exhibit A.

Modex Therapeutiques S.A.                       CytoTherapeutics, Inc.

By /s/ Patrick Aebischer                        By /s/ John S. Swen
   ---------------------                           ------------------------
Title:   President                              Title:  Vice President

By: /s/ Max Wilhelm                             By /s/ Seth A. Rudnick
    --------------------                           ------------------------
Title:                                          Title:  CEO




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