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EX-4.1 - EXHIBIT 4.1 - PROTALEX INCv330852_ex4-1.htm
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v2.4.0.6
SENIOR SECURED NOTES - RELATED PARTY
6 Months Ended
Nov. 30, 2012
Senior Secured Convertible Notes
 
SENIOR SECURED NOTES - RELATED PARTY

NOTE 8. SENIOR SECURED CONVERTIBLE NOTES - RELATED PARTY

 

On the Effective Date, the Company issued the $1 Million Secured Note to Niobe, its majority stockholder which is controlled by Arnold P. Kling, our president and director.  The $1 Million Secured Note bore interest at a rate of 3% per annum and had a scheduled maturity on November 13, 2012.  Our obligations under the $1 Million Secured Note were secured by a Security Agreement dated the Effective Date (the “Security Agreement”) which granted Niobe a security interest in substantially all of our personal property and assets, including our intellectual property. On February 11, 2011, Niobe converted the $1 Million Secured Note, including $37,500 of accrued interest thereon, into 4,510,870 shares of our Common Stock.

 

On December 2, 2009, the Company entered into the Facility with Niobe pursuant to which Niobe agreed to provide up to $2,000,000 of additional capital in the form of secured loans at any time prior to June 30, 2012 subject to the achievement of certain predetermined benchmarks. In connection with the Facility, on December 2, 2009, the Security Agreement securing our obligations under the $1 Million Secured Note was amended and restated to also secure any incremental obligations under the Facility (the “Amended Security Agreement”). Pursuant to the Amended Security Agreement, Niobe has a security interest in substantially all of our personal property and assets, including its intellectual property to collateralize all amounts due to it under the $1 Million Secured Note and the Facility.

  

Pursuant to the Facility, on February 11, 2011, we received $2,000,000 of additional working capital from Niobe and issued the $2 Million Secured Note to Niobe. The $2 Million Secured Note bears interest at a rate of 3% per annum and was originally scheduled to mature on December 31, 2012. Subsequent to November 30, 2012, the Company and Niobe agreed, without consideration, to extend the maturity date of the $2 Million Secured Note until December 31, 2013.

 

Our obligations under the $2 Million Secured Note are secured by anAmended Security Agreement. The $2 Million Secured Note is convertible at any time, by the holder, subject only to the requirement that we have sufficient authorized shares of Common Stock after taking into account all outstanding shares of Common Stock and the maximum number of shares issuable under all issued and outstanding convertible securities.  In addition, the $2 Million Secured Note will automatically be converted if we undertake certain Fundamental Transactions, as defined in the $2 Million Secured Note, (such as a merger, sale of all of our assets, exchange or tender offer, or reclassification of our stock or compulsory exchange).  The $2 Million Secured Note also provides for the adjustment of the conversion price in the event of stock dividends and stock splits, and provides for acceleration of maturity, at the holder’s option, upon an event of default, as defined in the $2 Million Secured Note.

 

The Company evaluated the conversion feature of the $2 Million Secured Note and determined that under the accounting guidance for “Accounting for Convertible Securities with Beneficial Conversion Features” that a value should be attributed to the embedded conversion feature. On February 11, 2011, the date of issuance of the $2 Million Secured Note, the fair market value of the Company’s Common Stock was $1.20 per share. The Company determined the allocation to the conversion feature to be $1,616,667 which reduced the face amount of the convertible debt carried on our balance sheet. This discount will be amortized over 22 months and will serve to increase the interest expense of the $2 Million Secured Note during its term.

Senior Secured Notes
 
SENIOR SECURED NOTES - RELATED PARTY

NOTE 9. SENIOR SECURED NOTES - RELATED PARTY

 

On February 1, 2012, the Company raised $1,000,000 of working capital pursuant to a loan from Niobe. The Company issued to Niobe a secured promissory note in the principal amount of $1,000,000 (the “February Secured Note”). The February Secured Note bears interest at a rate of 3% per annum and matures on February 1, 2014.

 

On June 5, 2012, the Company raised an additional $1,000,000 of working capital pursuant to a loan from Niobe and issued to Niobe a secured promissory note in the principal amount of $1,000,000, which bears interest at a rate of 3% per annum and matures on May 31, 2014 (the “June Secured Note”).

 

On October 1, 2012, the Company raised $800,000 of additional working capital pursuant to loans from Niobe and issued to Niobe secured promissory notes in the principal amount of $800,000, which bears interest at a rate of 3% per annum and matures on October 1, 2014 (the “October Secured Note”). 

 

Collectively, the February Secured Note, the June Secured Note, and the October Secured Note are hereinafter referred to as the “2012 Secured Notes.”

 

The Company’s obligations under the 2012 Secured Notes are secured by a security agreement granting Niobe a security interest in substantially all of the Company’s personal property and assets, including its intellectual property, to collateralize all amounts due under the 2012 Secured Notes. In addition, payment of the principal and accrued interest on the 2012 Secured Notes will, at Niobe’s election, automatically become immediately due and payable if the Company undertakes certain Fundamental Transactions or upon an Event of Default, both as defined in the 2012 Secured Notes