THIS NOTE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE
STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED, OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE MAKER OF AN OPINION OF COUNSEL IN THE FORM,
SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO THE MAKER THAT
THIS NOTE MAY BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED
OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH
STATE SECURITIES LAWS.
AXM PHARMA, INC.
Secured Convertible Promissory Note
due April ___ , 2007
No. CN-05-__
$____________
Dated: April __, 2005
For value received, AXM PHARMA, INC., a Nevada
corporation (the " Maker "), hereby promises to pay to
the order of _______________________ (together with its
successors, representatives, and permitted assigns, the "
Holder "), in accordance with the terms hereinafter
provided, the principal amount of ________________________
($______________), together with interest thereon.
Concurrently with the issuance of this Note, the Maker is
issuing separate secured convertible promissory notes (the
“ Other Notes ”) to separate purchasers (the
“ Other Holders ”) pursuant to the Purchase
Agreement (as defined in Section 1.1 hereof).
All payments under or pursuant to this Note
shall be made in United States Dollars in immediately available
funds to the Holder at the address of the Holder first set forth
above or at such other place as the Holder may designate from
time to time in writing to the Maker or by wire transfer of
funds to the Holder's account, instructions for which are
attached hereto as Exhibit A . The outstanding
principal balance of this Note shall be due and payable on April
__, 2007 (the " Maturity Date ") or at such earlier time
as provided herein.
ARTICLE I
Section 1.1
Purchase Agreement . This Note has
been executed and delivered pursuant to the Note and Warrant
Purchase Agreement dated as of April 19 , 2005 (the "
Purchase Agreement ”) by and among the Maker and
the purchasers listed therein. Capitalized terms used and
not otherwise defined herein shall have the meanings set forth
for such terms in the Purchase Agreement.
Section 1.2
Interest . Beginning on the
issuance date of this Note (the “ Issuance Date
”), the outstanding principal balance of this Note shall
bear interest, in arrears, at a rate per annum equal to nine
percent (9%), payable monthly commencing on the fifth (5
th ) month following the Issuance Date at the option
of the Maker in cash or in shares of the Maker’s common
stock, par value $0.001 per share (the “ Common
Stock ”) in accordance with terms of
Section 1.3 below. Interest shall be
computed on the basis of a 360-day year of twelve (12) 30-day
months and shall accrue commencing on the Issuance Date.
Furthermore, upon the occurrence of an Event of Default
(as defined in Section 2.1 hereof), then to the extent permitted
by law, the Maker will pay interest to the Holder, payable on
demand, on the outstanding principal balance of the Note from
the date of the Event of Default until such Event of Default is
cured at the rate of the lesser of fifteen percent (15%) and the
maximum applicable legal rate per annum.
Section 1.3
Payment of Principal and Interest.
(a)
Commencing on the fifth (5 th ) month
following the Issuance Date and continuing thereafter on the
first (1 st ) business day of each month until the
Maturity Date (each, a “ Principal Payment Date
”), the Maker shall pay an amount to the Holder equal to
one-twentieth (1/20 th ) of the original principal
amount of this Note plus any accrued but unpaid interest (the
“ Principal Installment Amount ”);
provided , however , if on any Principal Payment
Date, the outstanding principal amount of this Note plus any
accrued but unpaid interest is less than the Principal
Installment Amount, then the Maker shall pay to the Holder such
lesser amount. The Maker may pay such Principal
Installment Amount in cash or registered shares of Common Stock.
If the Maker elects to pay the Principal Installment
Amount in cash such amount shall be wired in immediately
available funds on the Principal Payment Date; provided ,
however , that if the Holder has delivered a Conversion
Notice to the Maker or delivers a Conversion Notice prior to the
Principal Payment Date, the portion of the principal amount of
this Note designated to be repaid in cash shall be converted
into registered shares of Common Stock. The Maker shall
provide irrevocable written notice to the Holder of the form of
payment of the Principal Installment Amount on the tenth (10
th ) business day prior to each Principal Payment
Date for which a Principal Installment Amount is made by the
Maker (the “ Announcement Date ”).
(b)
If the Maker elects to pay the Principal
Installment Amount in registered shares of Common Stock, the
number of registered shares of Common Stock to be issued to the
Holder shall be an amount equal to the Principal Installment
Amount divided by eighty-five percent (85%) of the average of
the VWAP (as defined in Section 1.3(c) hereof) for the five (5)
Trading Days immediately preceding the Principal Payment Date;
provided , that , in no event shall the number of
registered shares of Common Stock to be issued to the Holder be
greater than an amount equal to the Principal Installment Amount
divided by eighty percent (80%) of the VWAP on the Announcement
Date. Notwithstanding the foregoing to the contrary, the
Maker may elect to pay the Principal Installment Amount in
registered shares of Common Stock on any Principal Payment Date
only if (A) the VWAP for each of the ten (10) Trading Days
immediately preceding the Principal Payment Date is equal to or
greater than $1.50 (as may be adjusted for any stock splits,
combinations or recapitalizations of the Common Stock), (B) the
registration statement providing for the resale of the shares of
Common Stock issuable upon conversion of this Note is effective
and has been effective, without lapse or suspension of any kind,
for a period ten (10) consecutive calendar days, or the shares
of Common Stock into which this Note can be converted may be
offered for sale to the public pursuant to Rule 144(k) under the
Securities Act, (C) trading in the Common Stock shall not have
been suspended by the Securities and Exchange Commission or the
American Stock Exchange (or other exchange or market on which
the Common Stock is trading), (D) the Maker is in material
compliance with the terms and conditions of this Note and the
other Transaction Documents, and (E) the issuance
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of shares of Common Stock on the Principal
Payment Date does not violate the provisions of Section 3.4
hereof.
(c)
For purposes hereof, “ VWAP ”
means, for any date, (i) the daily volume weighted average price
of the Common Stock for such date on the American Stock Exchange
as reported by Bloomberg Financial L.P. (based on a Trading Day
from 9:30 a.m. Eastern Time to 4:02 p.m. Eastern Time);
(ii) if the Common Stock is not then listed or quoted on
the American Stock Exchange and if prices for the Common Stock
are then quoted on the OTC Bulletin Board, the volume weighted
average price of the Common Stock for such date on the OTC
Bulletin Board; (iii) if the Common Stock is not then
listed or quoted on the OTC Bulletin Board and if prices for the
Common Stock are then reported in the “Pink Sheets”
published by the Pink Sheets, LLC (or a similar organization or
agency succeeding to its functions of reporting prices), the
most recent bid price per share of the Common Stock so reported;
or (iv) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable
to the Maker.
Section 1.4
Security Agreement and Mortgage Agreement
. The obligations of the Maker hereunder are secured by a
continuing security interest in certain assets and real property
of the Maker pursuant to the terms of a security agreement dated
as of April 19, 2005 and a mortgage agreement dated as of April
19, 2005. All payments due under this Note shall rank
senior to all other indebtedness of the Maker except that all
payments due under this Note shall be subordinated and made
junior, in all respects to the payment in full of all principal,
all interest accrued thereon and all other amounts due on any
indebtedness outstanding under the mortgage agreement and
related loan agreements between AXM Pharma (Shenyang) Inc., the
Maker’s wholly owned subsidiary, and Shanghai Pudong
Development Bank.
Section 1.5
Payment on Non-Business Days .
Whenever any payment to be made shall be due on a
Saturday, Sunday or a public holiday under the laws of the State
of New York, such payment may be due on the next succeeding
business day and such next succeeding day shall be included in
the calculation of the amount of accrued interest payable on
such date.
Section 1.6
Transfer . This Note may be
transferred or sold, subject to the provisions of Section 4.8 of
this Note, or pledged, hypothecated or otherwise granted as
security by the Holder.
Section 1.7
Replacement . Upon receipt of
a duly executed, notarized and unsecured written statement from
the Holder with respect to the loss, theft or destruction of
this Note (or any replacement hereof), and without requiring an
indemnity bond or other security, or, in the case of a
mutilation of this Note, upon surrender and cancellation of such
Note, the Maker shall issue a new Note, of like tenor and
amount, in lieu of such lost, stolen, destroyed or mutilated
Note.
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ARTICLE II
EVENTS OF DEFAULT; REMEDIES
Section 2.1
Events of Default . The
occurrence of any of the following events shall be an " Event
of Default " under this Note:
(a)
the Maker shall fail to make the Principal
Installment Amount on a Principal Payment Date and such default
is not fully cured within one (1) business day after the
occurrence thereof; or
(b)
the failure of the Registration Statement to be
declared effective by the Securities and Exchange Commission on
or prior to the date which is one hundred eighty (180) days
after the Issuance Date; or
(c)
the suspension from listing, without subsequent
listing on any one of, or the failure of the Common Stock to be
listed on at least one of the American Stock Exchange, Nasdaq
National Market, Nasdaq SmallCap Market, The New York Stock
Exchange, Inc. or OTC Bulletin Board for a period of five (5)
consecutive Trading Days; or
(d)
the Maker's notice to the Holder, including by
way of public announcement, at any time, of its inability to
comply (including for any of the reasons described in Section
3.8(a) hereof) or its intention not to comply with proper
requests for conversion of this Note into shares of Common
Stock; or
(e)
the Maker shall fail to (i) timely deliver the
shares of Common Stock upon conversion of the Note or any
interest accrued and unpaid, (ii) timely file the Registration
Statement or (iii) make the payment of any fees and/or
liquidated damages under this Note, the Purchase Agreement or
the Registration Rights Agreement, which failure in the case of
items (i) and (iii) of this Section 2.1(e) is not remedied
within three (3) business days after the incurrence thereof;
or
(f)
while the Registration Statement is required to
be maintained effective pursuant to the terms of the
Registration Rights Agreement, the effectiveness of the
Registration Statement lapses for any reason (including, without
limitation, the issuance of a stop order) or is unavailable to
the Holder for sale of the Registrable Securities (as defined in
the Registration Rights Agreement) in accordance with the terms
of the Registration Rights Agreement, and such lapse or
unavailability continues for a period of ten (10) consecutive
Trading Days, provided that the Maker has not exercised
its rights pursuant to Section 3(n) of the Registration Rights
Agreement and the cause of such lapse or unavailability is not
due to factors primarily within the control of Holder; or
(g)
default shall be made in the performance or
observance of (i) any material covenant, condition or agreement
contained in this Note (other than as set forth in clause (f) of
this Section 2.1) and such default is not fully cured within
five (5) business days after the occurrence thereof or (ii) any
material covenant, condition or agreement contained in the
Purchase Agreement, the Other Notes, the Registration Rights
Agreement or any other
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Transaction Document which is not covered by any
other provisions of this Section 2.1 and such default is not
fully cured within five (5) business days after the occurrence
thereof; or
(h)
any material representation or warranty made by
the Maker herein or in the Purchase Agreement, the Registration
Rights Agreement, the Other Notes or any other Transaction
Document shall prove to have been false or incorrect or breached
in a material respect on the date as of which made; or
(i)
the Maker shall (A) default in any payment of
any amount or amounts of principal of or interest on any
Indebtedness (other than the Indebtedness hereunder) the
aggregate principal amount of which Indebtedness is in excess of
$100,000 or (B) default in the observance or performance of any
other agreement or condition relating to any Indebtedness or
contained in any instrument or agreement evidencing, securing or
relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition
is to cause, or to permit the holder or holders or beneficiary
or beneficiaries of such Indebtedness to cause with the giving
of notice if required, such Indebtedness to become due prior to
its stated maturity; or
(j)
the Maker shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver,
custodian, trustee or liquidator of itself or of all or a
substantial part of its property or assets, (ii) make a general
assignment for the benefit of its creditors, (iii) commence a
voluntary case under the United States Bankruptcy Code (as now
or hereafter in effect) or under the comparable laws of any
jurisdiction (foreign or domestic), (iv) file a petition seeking
to take advantage of any bankruptcy, insolvency, moratorium,
reorganization or other similar law affecting the enforcement of
creditors' rights generally, (v) acquiesce in writing to any
petition filed against it in an involuntary case under United
States Bankruptcy Code (as now or hereafter in effect) or under
the comparable laws of any jurisdiction (foreign or domestic),
(vi) issue a notice of bankruptcy or winding down of its
operations or issue a press release regarding same, or (vii)
take any action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing; or
(k)
a proceeding or case shall be commenced in
respect of the Maker, without its application or consent, in any
court of competent jurisdiction, seeking (i) the liquidation,
reorganization, moratorium, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment
of a trustee, receiver, custodian, liquidator or the like of it
or of all or any substantial part of its assets in connection
with the liquidation or dissolution of the Maker or (iii)
similar relief in respect of it under any law providing for the
relief of debtors, and such proceeding or case described in
clause (i), (ii) or (iii) shall continue undismissed, or
unstayed and in effect, for a period of sixty (60) days or any
order for relief shall be entered in an involuntary case under
United States Bankruptcy Code (as now or hereafter in effect) or
under the comparable laws of any jurisdiction (foreign or
domestic) against the Maker or action under the laws of any
jurisdiction (foreign or domestic) analogous to any of the
foregoing shall be taken with respect to the Maker and shall
continue undismissed, or unstayed and in effect for a period of
sixty (60) days; or
(l)
the failure of the Maker to instruct its
transfer agent to remove any legends from shares of Common Stock
eligible to be sold under Rule 144 of the Securities Act and
issue
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such unlegended certificates to the Holder
within three (3) business days of the Holder’s request so
long as the Holder has provided reasonable assurances to the
Maker that such shares of Common Stock can be resold pursuant to
Rule 144; or
(m)
the failure of the Maker to pay any amounts due
to the Holder herein or in the Purchase Agreement or the
Registration Rights Agreement within three (3) business days of
receipt of notice to the Maker; or
(n)
the occurrence of an Event of Default under the
Other Notes.
Section 2.2
Remedies Upon An Event of Default .
If an Event of Default shall have occurred and shall be
continuing, the Holder of this Note may at any time at its
option, (a) declare the entire unpaid principal balance of this
Note, together with all interest accrued hereon, due and
payable, and thereupon, the same shall be accelerated and so due
and payable, without presentment, demand, protest, or notice,
all of which are hereby expressly unconditionally and
irrevocably waived by the Maker; provided ,
however , that upon the occurrence of an Event of Default
described in (i) Sections 2.1 (j) or (k), the outstanding
principal balance and accrued interest hereunder shall be
automatically due and payable and (ii) Sections 2.1 (b)-(i),
demand the prepayment of this Note pursuant to Section 3.7
hereof, (b) demand that the principal amount of this Note then
outstanding and all accrued and unpaid interest thereon shall be
converted into shares of Common Stock at a Conversion Price per
share calculated pursuant to Section 3.1 hereof assuming that
the date that the Event of Default occurs is the Conversion Date
(as defined in Section 3.1 hereof), or (c) exercise or otherwise
enforce any one or more of the Holder's rights, powers,
privileges, remedies and interests under this Note, the Purchase
Agreement, the Registration Rights Agreement or applicable law.
No course of delay on the part of the Holder shall operate
as a waiver thereof or otherwise prejudice the right of the
Holder. No remedy conferred hereby shall be exclusive of
any other remedy referred to herein or now or hereafter
available at law, in equity, by statute or otherwise.
ARTICLE III
CONVERSION; ANTIDILUTION; PREPAYMENT
Section 3.1
Conversion Option .
(a)
At any time on or after the Issuance Date, this
Note shall be convertible (in whole or in part), at the option
of the Holder (the " Conversion Option "), into such
number of fully paid and non-assessable shares of Common Stock
(the " Conversion Rate ") as is determined by dividing
(x) that portion of the outstanding principal balance plus any
accrued but unpaid interest under this Note as of such date that
the Holder elects to convert by (y) the Conversion Price (as
defined in Section 3.2(a) hereof) then in effect on the date on
which the Holder faxes a notice of conversion (the "
Conversion Notice "), duly executed, to the Maker
(facsimile number (702) 562-4157, Attn.: Chief Financial
Officer) (the “ Voluntary Conversion Date ”),
provided , however , that the Conversion Price
shall be subject to adjustment as described in Section 3.6
below. The Holder shall deliver this Note to the Maker at
the address designated in the Purchase Agreement at such time
that this Note is fully converted. With respect to
partial
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conversions of this Note, the Maker shall keep
written records of the amount of this Note converted as of each
Conversion Date.
(b)
On the Mandatory Conversion Date (as defined
below), the Maker may cause the principal amount of this Note
plus all accrued and unpaid interest to convert into a number of
fully paid and nonassessable shares of Common Stock equal to the
quotient of (i) the principal amount of this Note plus all
accrued and unpaid interest outstanding on the Mandatory
Conversion Date divided by (ii) the Conversion Price in effect
on the Mandatory Conversion Date by providing five (5) days
prior written notice of such Mandatory Conversion Date. As
used herein, a " Mandatory Conversion Date " shall be the
date in which the Closing Bid Price (as defined below) exceeds
$5.00 (as may be adjusted for any stock splits, combinations or
recapitalizations of the Common Stock) for a period of twenty
(20) consecutive Trading Days; provided , that (A)
the registration statement providing for the resale of the
shares of Common Stock issuable upon conversion of this Note is
effective and has been effective, without lapse or suspension of
any kind, for a period ten (10) consecutive calendar days
immediately preceding the Mandatory Conversion Date, (B) trading
in the Common Stock shall not have been suspended by the
Securities and Exchange Commission or the American Stock
Exchange (or other exchange or market on which the Common Stock
is trading), (C) the Maker is in material compliance with the
terms and conditions of this Note and the other Transaction
Documents, and (D) the issuance of shares of Common Stock on the
Mandatory Conversion Date pursuant to such mandatory conversion
does not violate the provisions of Section 3.4 hereof.
Notwithstanding the foregoing to the contrary, the
Mandatory Conversion Date shall be extended for as long as a
Triggering Event (as defined in Section 3.7(f) hereof) shall
have occurred and be continuing. The Mandatory Conversion
Date and the Voluntary Conversion Date collectively are referred
to in this Note as the " Conversion Date ."
(c)
The term " Closing Bid Price " shall
mean, means on any particular date (i) the closing bid price per
share of the Common Stock on such date on the American Stock
Exchange or another registered national stock exchange on which
the Common Stock is then listed, or if there is no such price on
such date, then the average of the closing bid price on such
exchange or quotation system on the date nearest preceding such
date, or (ii) if the Common Stock is not listed then on the
American Stock Exchange or any registered national stock
exchange, the closing bid price for a share of Common Stock in
the over-the-counter market, as reported by the OTC Bulletin
Board or in the National Quotation Bureau Incorporated or
similar organization or agency succeeding to its functions of
reporting prices) at the close of business on such date, or
(iii) if the Common Stock is not then reported by the OTC
Bulletin Board or the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes
for the relevant conversion period, as determined in good faith
by the holder, or (iv) if the Common Stock is not then publicly
traded the fair market value of a share of Common Stock as
determined by the Holder and reasonably acceptable to the
Maker.
Section 3.2
Conversion Price .
(a)
The term " Conversion Price " shall mean
$2.10, subject to adjustment under Section 3.6 hereof.
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(b)
Notwithstanding any of the foregoing to the
contrary, if during any period (a " Black-out Period "),
a Holder is unable to trade any Common Stock issued or issuable
upon conversion of this Note immediately due to the postponement
of filing or delay or suspension of effectiveness of a
registration statement or because the Maker has otherwise
informed such Holder that an existing prospectus cannot be used
at that time in the sale or transfer of such Common Stock
(provided that such postponement, delay, suspension or fact that
the prospectus cannot be used is not due to factors solely
within the control of the Holder of this Note or due to the
Maker exercising its rights under Section 3(n) of the
Registration Rights Agreement), such Holder shall have the
option but not the obligation on any Conversion Date within ten
(10) Trading Days following the expiration of the Black-out
Period of using the Conversion Price applicable on such
Conversion Date or any Conversion Price selected by such Holder
that would have been applicable had such Conversion Date been at
any earlier time during the Black-out Period or within the ten
(10) Trading Days thereafter. In no event shall the
Black-out Period have any effect on the Maturity Date of this
Note.
Section 3.3
Mechanics of Conversion.
(a)
Not later than three (3) Trading Days after any
Conversion Date, the Maker or its designated transfer agent, as
applicable, shall issue and deliver to the Depository Trust
Company (“ DTC ”) account on the
Holder’s behalf via the Deposit Withdrawal Agent
Commission System (“ DWAC ”) as specified in
the Conversion Notice, registered in the name of the Holder or
its designee, for the number of shares of Common Stock to which
the Holder shall be entitled. In the alternative, not
later than three (3) Trading Days after any Conversion Date, the
Maker shall deliver to the applicable Holder by express courier
a certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required by
Section 5.1 of the Purchase Agreement) representing the number
of shares of Common Stock being acquired upon the conversion of
this Note (the “ Delivery Date ”).
Notwithstanding the foregoing to the contrary, the Maker
or its transfer agent shall only be obligated to issue and
deliver the shares to the DTC on the Holder’s behalf via
DWAC (or certificates free of restrictive legends) if such
conversion is in connection with a sale and the Holder has
complied with the applicable prospectus delivery requirements.
If in the case of any Conversion Notice such certificate
or certificates are not delivered to or as directed by the
applicable Holder by the Delivery Date, the Holder shall be
entitled by written notice to the Maker at any time on or before
its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Maker shall
immediately return this Note tendered for conversion, whereupon
the Maker and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such
notice of revocation, except that any amounts described in
Sections 3.3(b) and (c) shall be payable through the date notice
of rescission is given to the Maker.
(b)
The Maker understands that a delay in the
delivery of the shares of Common Stock upon conversion of this
Note beyond the Delivery Date could result in economic loss to
the Holder. If the Maker fails to deliver to the Holder
such shares via DWAC or a certificate or certificates pursuant
to this Section hereunder by the Delivery Date, the Maker shall
pay to such Holder, in cash, an amount per Trading Day for each
Trading Day until such shares are delivered via DWAC or
certificates are delivered, together with interest on such
amount at a rate of 10% per annum, accruing until such amount
and any accrued interest thereon is paid in full, equal to the
greater of (A) (i) 1% of the aggregate principal amount of the
Notes requested to be
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converted for the first five (5) Trading Days
after the Delivery Date and (ii) 2% of the aggregate principal
amount of the Notes requested to be converted for each Trading
Day thereafter and (B) $2,000 per day (which amount shall be
paid as liquidated damages and not as a penalty). Nothing
herein shall limit a Holder's right to pursue actual damages for
the Maker's failure to deliver certificates representing shares
of Common Stock upon conversion within the period specified
herein and such Holder shall have the right to pursue all
remedies available to it at law or in equity (including, without
limitation, a decree of specific performance and/or injunctive
relief). Notwithstanding anything to the contrary
contained herein, the Holder shall be entitled to withdraw a
Conversion Notice, and upon such withdrawal the Maker shall only
be obligated to pay the liquidated damages accrued in accordance
with this Section 3.3(b) through the date the Conversion Notice
is withdrawn.
(c)
In addition to any other rights available to the
Holder, if the Maker fails to cause its transfer agent to
transmit to the Holder a certificate or certificates
representing the shares of Common Stock issuable upon conversion
of this Note on or before the Delivery Date, and if after such
date the Holder is required by its broker to purchase (in an
open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of the shares of
Common Stock issuable upon conversion of this Note which the
Holder anticipated receiving upon such exercise (a “
Buy-In” ), then the Maker shall (1) pay in cash to
the Holder the amount by which (x) the Holder’s total
purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the amount
obtained by multiplying (A) the number of shares of Common Stock
issuable upon conversion of this Note that the Maker was
required to deliver to the Holder in connection with the
conversion at issue times (B) the price at which the sell order
giving rise to such purchase obligation was executed, and (2) at
the option of the Holder, either reinstate the portion of the
Note and equivalent number of shares of Common Stock for which
such conversion was not honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had
the Maker timely complied with its conversion and delivery
obligations hereunder. For example, if the Holder
purchases Common Stock having a total purchase price of $11,000
to cover a Buy-In with respect to an attempted conversion of
shares of Common Stock with an aggregate sale price giving rise
to such purchase obligation of $10,000, under clause (1) of the
immediately preceding sentence the Maker shall be required to
pay the Holder $1,000. The Holder shall provide the Maker
written notice indicating the amounts payable to the Holder in
respect of the Buy-In, together with applicable confirmations
and other evidence reasonably requested by the Maker.
Nothing herein shall limit a Holder’s right to
pursue any other remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific
performance and/or injunctive relief with respect to the
Maker’s failure to timely deliver certificates
representing shares of Common Stock upon conversion of this Note
as required pursuant to the terms hereof.
Section 3.4
Ownership Cap and Certain Conversion
Restrictions .
(a)
Notwithstanding anything to the contrary set
forth in Section 3 of this Note, at no time may the Holder
convert all or a portion of this Note if the number of shares of
Common Stock to be issued pursuant to such conversion would
exceed, when aggregated with all other shares of Common Stock
owned by the Holder at such time, the number of shares of Common
Stock which would result in the Holder beneficially owning (as
determined in accordance with Section 13(d) of the Exchange Act
and the rules thereunder) more than 4.9% of
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all of the Common Stock outstanding at such
time; provided , however , that upon the Holder
providing the Maker with sixty-one (61) days notice (pursuant to
Section 4.1 hereof) (the " Waiver Notice ") that the
Holder would like to waive this Section 3.4(a) with regard to
any or all shares of Common Stock issuable upon conversion of
this Note, this Section 3.4(a) will be of no force or effect
with regard to all or a portion of the Note referenced in the
Waiver Notice; provided , further , that this
provision shall be of no further force or effect during the
sixty-one (61) days immediately preceding the Maturity Date.
(b)
Notwithstanding anything to the contrary set
forth in Section 3 of this Note, at no time may the Holder
convert all or a portion of this Note if the number of shares of
Common Stock to be issued pursuant to such conversion would
exceed, when aggregated with all other shares of Common Stock
owned by the Holder at such time, would result in the Holder
beneficially owning (as determined in accordance with Section
13(d) of the Exchange Act and the rules thereunder) in excess of
9.9% of the then issued and outstanding shares of Common Stock
outstanding at such time; provided , however ,
that upon the Holder providing the Maker with a Waiver Notice
that the Holder would like to waive Section 3.4(b) of this Note
with regard to any or all shares of Common Stock issuable upon
conversion of this Note, this Section 3.4(b) shall be of no
force or effect with regard to all or a portion of the Note
referenced in the Waiver Notice; provided ,
further , that this provision shall be of no further
force or effect during the sixty-one (61) days immediately
preceding the Maturity Date.
(c)
Notwithstanding anything to the contrary set
forth herein, the Maker shall not be obligated to issue in
excess of an aggregate of 3,611,301 shares of Common Stock upon
conversion of the Notes and exercise of the Warrants and any
shares of Common Stock issuable in connection with the Purchase
Agreement, which number of shares shall be subject to adjustment
pursuant to Section 3.6, and such number of shares, the “
Issuable Maximum ”. The Issuable Maximum
equals 19.99% of the number of shares of Common Stock
outstanding immediately prior to the Issuance Date. If on
any Conversion Date (A) the Common Stock is listed for trading
on the American Stock Exchange, (B) the Conversion Price then in
effect is such that the aggregate number of shares of Common
Stock previously issued at a discount upon conversion of Notes
or exercise of the Warrants or otherwise issued in connection
with the Purchase Agreement, would equal or exceed the Issuable
Maximum, and (C) the Maker shall not have previously obtained
the vote of stockholders (the “ Stockholder
Approval ”), if any, as may be required by the
applicable rules and regulations of the American Stock Exchange
(or any successor entity) applicable to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum
pursuant to the terms hereof, then the Maker shall issue to the
Holder so requesting such number of shares of Common Stock equal
to such Holder’s pro rata portion of the Issuable Maximum
as of the initial purchase date and, with respect to the
remainder of shares of Common Stock which would result in an
issuance of shares of Common Stock in excess of the Issuable
Maximum (the “ Excess Shares ”), the Maker
shall use its best efforts to obtain the Stockholder Approval
applicable to such issuance as soon as is possible, but in any
event not later than the 60 th day after such
request. The Maker acknowledges that such request has been
made by the Holder as of the Issuance Date. The Maker and
the Holder understand and agree that shares of Common Stock
issued to and then held by the Holder as a result of conversion
of the Notes or as a result of exercise of the Warrants shall
not be entitled to cast votes on any resolution to obtain
Stockholder Approval. In the event that Stockholder
Approval is not obtained by the 60 th day following
the Issuance Date, the Holder shall have the right to have
the
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Maker prepay in cash such portion of the
outstanding principal amount of this Note plus all accrued but
unpaid interest that would result in the issuance of shares of
Common Stock upon conversion in excess of the Holder’s pro
rata portion of the Issuable Maximum. In the event that
the Holder exercises this prepayment right, the Holder shall
provide written notice to the Maker and the Maker shall pay in
cash the prepayment price within five (5) business days
following receipt of such written request by the Holder.
Section 3.5
Intentionally Omitted.
Section 3.6
Adjustment of Conversion Price.
(a)
The Conversion Price shall be subject to
adjustment from time to time as follows:
(i)
Adjustments for Stock Splits and
Combinations . If the Maker shall at any time or from
time to time after the Issuance Date, effect a stock split of
the outstanding Common Stock, the applicable Conversion Price in
effect immediately prior to the stock split shall be
proportionately decreased. If the Maker shall at any time
or from time to time after the Issuance Date, combine the
outstanding shares of Common Stock, the applicable Conversion
Price in effect immediately prior to the combination shall be
proportionately increased. Any adjustments under this
Section 3.6(a)(i) shall be effective at the close of business on
the date the stock split or combination occurs.
(ii)
Adjustments for Certain Dividends and
Distributions . If the Maker shall at any time or
from
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