Exhibit 10.1
NEITHER THIS NOTE NOR ANY SECURITIES
WHICH MAY BE ISSUED UPON CONVERSION HEREOF HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR
OTHERWISE QUALIFIED UNDER ANY STATE OR OTHER SECURITIES LAW.
NEITHER THIS NOTE NOR ANY SUCH SECURITIES MAY BE SOLD OR OFFERED
FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER SAID ACT AND REGISTRATION OR OTHER QUALIFICATION UNDER ANY
APPLICABLE STATE OR OTHER SECURITIES LAWS, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION OR OTHER
QUALIFICATION IS NOT REQUIRED.
March 20, 2007
CONVERTIBLE NOTE
FOR VALUE RECEIVED, Avicena Group,
Inc., a Delaware corporation (the “COMPANY”), hereby
unconditionally promises to pay to the order of THE BIOTECHNOLOGY
VENTURES (III) CAPITAL TRUST, a trust organized under the laws of
the British West Indies (“LENDER”), at c/o Behring
International, P.O. Box 747, Nassau, Bahamas or such other address
given to the Company by Lender, the principal sum of Three Million
Five Hundred Thousand ($3,500,000) Dollars, or so much thereof as
may be advanced in accordance with the terms of this Note, in
lawful money of the United States of America, together with
interest (calculated on the basis of a 360-day year) on the unpaid
principal balance from day-to-day remaining, computed until
maturity at the rate per annum which shall from day-to-day be equal
to the lesser of (a) the Applicable Rate (defined below), and
(b) the Maximum Rate (defined below).
1. DEFINITIONS. When used in this
Note, the following terms shall have the respective meanings
specified herein or in the section referred to:
“ADJUSTMENT EVENT” is
defined in SECTION 8(d)(i) hereof.
“APPLICABLE RATE” means
eight percent (8%) per annum.
“BUSINESS DAY” means any
day other than a Saturday, Sunday, or other day on which a bank is
authorized to be closed under the laws of California.
“CHANGE OF CONTROL”
means the consummation of any transaction or series of any related
transactions (including without limitation, by way of merger) the
result of which is that any “person” (as defined in
Section 13(d) of the Exchange Act) or “group” (as
defined in Sections 13(d)(3) and 14(d)(2) of the Exchange Act)
becomes the “beneficial owner” (as defined in Rule
13(d)(3) and 13(d)(5) under the Exchange Act) of more than fifty
percent (50%) of the voting power of the Common
Stock.
“COMMON STOCK” means the
Common Stock, par value $0.001 per share, of the
Company.
“COMPANY” means Avicena
Group, Inc.
“CONVERSION PRICE” means
$5.00 per share as adjusted as provided in SECTION 8(d) below and
as may be reduced pursuant to SECTION 8(k) below.
“CURRENT MARKET PRICE”
means, when used with respect to any security as of any date, the
last sale price, regular way, or, in case no such sale takes place
on such date, the closing bid price, regular way, of such security
in either case as reported on the Nasdaq National Market, or, if
such security is not listed or admitted to trading on the Nasdaq
National Market, as reported on the Nasdaq SmallCap Market, or if
such security is not listed or admitted to trading on any national
or international securities exchange or the Nasdaq National Market
or the Nasdaq SmallCap Market, the average of the high bid and low
asked prices of such security in the over-the-counter market as
reported by the National Association of Securities Dealers, Inc.
Automated Quotations System or such other system then in use or, if
such security is not quoted by any such organization, the
average
of the closing bid and asked prices of such
security furnished by an New York Stock Exchange member firm
selected by the Company. If such security is not quoted by any such
organization and no such New York Stock Exchange member firm is
able to provide such prices, then the Current Market Price of such
security shall be the fair market value thereof as determined in
good faith by the Board of Directors of the Company.
“EVENT OF DEFAULT” is
defined in SECTION 4 hereof.
“EXCHANGE ACT” means the
Securities Exchange Act of 1934, as amended.
“INTEREST CONVERSION
PRICE” means, as of any date, (a) the sum of the Current
Market Price of the Common Stock for each of the twenty
(20) Trading Days immediately preceding such date, divided by
(b) twenty (20).
“INTEREST PAYMENT DATE”
means (a) each
January 1, April 1, July 1 and
October 1 of each calendar year during the term of this Note,
and (b) the Maturity Date.
“LOAN DOCUMENTS” means
this Note and all other documents evidencing Obligation.
“MATURITY DATE” means
March 31, 2009 or March 31, 2010, as elected by the
Lender in writing prior to the first advance on the
Note.
“MAXIMUM RATE” means the
highest non-usurious rate of interest (if any) permitted from day
to day by applicable law.
“NOTE” refers to this
Convertible Promissory Note.
“OBLIGATION” shall mean
all indebtedness, liabilities, and obligations, of the Company
arising under this Note and the other Loan Documents.
“PERSON” means any
individual, corporation, limited liability company, partnership,
joint venture, association, joint-stock company, trust, charitable
foundation, unincorporated organization, government or any agency
or political subdivision thereof, or any other entity.
“REGISTRATION RIGHTS
AGREEMENT” means that certain Registration Rights Agreement
dated of even date hereof, between Lender and the
Company.
“SEC” means the
Securities and Exchange Commission and any successor
thereof.
“TRADING DAY” means each
Monday, Tuesday, Wednesday, Thursday, and Friday, other than any
day on which securities are not traded on the applicable securities
exchange or in the applicable securities market.
2. ADVANCES; PAYMENT.
(a) ADVANCES.
So long as no Event of Default has
occurred and the Company, then at the request of the Company and
before the Maturity Date on least three (3) days’ prior
written notice, Lender shall lend to the Company, in multiple
advances, an amount not to exceed in the aggregate $3,500,000 (the
“ADVANCES”). Each Advance shall be in the amount of
$200,000, provided that an Advance may only be made if the
Company’s cash balance is less than $300,000. Notwithstanding
the foregoing, the Lender may advance the remaining available
balance of the Note at any time.
(b) INTEREST AND PRINCIPAL PAYMENTS.
The unpaid principal of, and interest on, this Note shall be due
and payable as follows:
(i) Interest, computed as aforesaid,
shall be due and payable quarterly as it accrues on each Interest
Payment Date, commencing on July 1, 2007; and
(ii) the unpaid principal of, and
interest on, this Note shall be finally due and payable on the
Maturity Date.
(c) LENDER’S RIGHT TO CONVERT
INTEREST PAYMENTS INTO COMMON STOCK. Lender may, at its election,
cause the accrued interest on this Note as of any date to be
converted into the number of Shares of Common Stock obtained by
dividing (i) such unpaid accrued interest by (ii) the
Interest Conversion Price; provided that (A) Lender shall
notify the Company in writing of its election to cause a conversion
under this SECTION 2(c) at least thirty (30) days prior to the
date such interest is to be converted into Shares of Common Stock,
and (B) if any fractional share of the Common Stock would be
issuable upon the conversion of any portion of the accrued interest
on this Note, then the Company shall pay a cash adjustment therefor
in respect of such fractional share equal to the product of
(x) the percentage representing such fractional share, and
(y) the Interest Conversion Price.
(d) VOLUNTARY PREPAYMENT. The
Company reserves the right, upon ten (10) days’ prior
written notice to Lender, to prepay the outstanding principal
balance of this Note, in whole or in part, at any time and from
time to time. All prepayments shall be made together with payment
of interest accrued on the amount of principal being prepaid
through the date of such prepayment.
(e) PAYMENTS GENERALLY. Except as
otherwise provided herein, all payments of principal of and
interest on this Note shall be made by the Company to Lender in
federal or other immediately available funds. Should the principal
of, or any installment of the principal of or interest on, this
Note become due and payable on any day other than a Business Day,
the maturity thereof shall be extended to the next succeeding
Business Day, and interest shall be payable with respect to such
extension. Payments made to Lender by the Company hereunder shall
be applied first to accrued interest and then to
principal.
3. WAIVER. Except as provided
herein, the Company waives presentment, demand, protest, notice of
protest and non-payment, or other notice of default, notice of
acceleration and intention to accelerate, or other notice of any
kind, and agrees that its liability under this Note shall not be
affected by any renewal or extension in the time of payment hereof,
or in any indulgences, or by any release or change in any security
for the payment of this Note, and hereby consents to any and all
renewals, extensions, indulgences, releases, or changes, regardless
of the number of such renewals, extensions, indulgences, releases,
or changes.
4. EVENTS OF DEFAULT AND REMEDIES.
An “EVENT OF DEFAULT” shall exist hereunder if any one
or more of the following events shall occur and be continuing:
(a) the Company shall fail to pay when due any principal of,
or interest upon, this Note or the Obligation and such failure
shall continue for five (5) Business Days after such payment
became due; or (b) the Company shall fail to perform any of
the covenants or agreements contained herein or in any other Loan
Document and such failure shall continue unremedied for thirty
(30) days after written notice thereof; or (c) any
representation or warranty made by the Company to Lender herein or
in any other Loan Document shall prove to be untrue or inaccurate
in any material respect; or (d) the Company shall
(1) apply for or consent to the appointment of a receiver,
trustee, intervener, custodian, or liquidator of itself or of all
or a substantial part of its assets, (2) be adjudicated
bankrupt or insolvent or file a voluntary petition for bankruptcy
or admit in writing that it is unable to pay its debts as they
become due, (3) make a general assignment for the benefit of
creditors, (4) file a petition or answer seeking
reorganization or an arrangement with creditors or to take
advantage of any bankruptcy or insolvency laws, or (5) file an
answer admitting the material allegations of, or consent to, or
default in answering, a petition filed against it in any
bankruptcy, reorganization, or insolvency proceeding, or take
corporate action for the purpose of effecting any of the foregoing;
or (e) an order, judgment, or decree shall be entered by any
court of competent jurisdiction or other competent authority
approving a petition seeking reorganization of the Company
appointing a receiver, trustee, intervener, or liquidator of the
Company, or of all or substantially all of its assets, and such
order, judgment, or decree shall continue unstayed and in effect
for a period of thirty (30) days; or (f) the dissolution
or liquidation of the Company; or (g) a Change of Control; or
(h) the Company shall default in the payment of any
indebtedness of such Company in excess of $250,000 individually or
in the aggregate or default shall occur in respect of any note or
credit agreement relating to any such indebtedness and such default
shall continue for more than the period of grace, if any, specified
therein; or (i) any final judgment(s) for the payment of money
in excess of the sum of $250,000 individually or in the aggregate
shall be rendered against the Company and such judgment(s) shall
not be satisfied or discharged at least ten (10) days prior to
the date on which any of the Company’s assets could be
lawfully sold to satisfy such judgment(s).
Upon the occurrence of any Event of
Default hereunder, then the holder hereof may, at its option,
(i) declare the entire unpaid principal balance and accrued
interest upon the Obligation to be immediately due and payable
without presentment or notice of any kind which the Company waives
pursuant to SECTION 3 herein, and/or (ii) pursue and enforce
any of Lender’s rights and remedies available pursuant to any
applicable law or agreement; provided, however, in the case of any
Event of Default specified in PARAGRAPH (d) or (e) of
this SECTION 4 with respect to the Company, without any notice to
the Company or any other act by Lender, the principal balance and
interest accrued on this Note shall become immediately due and
payable without presentment, demand, protest, or other notice of
any kind, all of which are hereby waived by the Company.
5. REPRESENTATIONS AND
COVENANTS.
(a) REPRESENTATIONS. The Company
represents and warrants to Lender that:
(i) The Company is duly organized
and in good standing under the laws of the state of its
incorporation, formation, or organization;
(ii) The Company has full power and
authority to enter into this Note and the other Loan Documents, to
execute and deliver the Loan Documents, and to incur the
obligations provided for in the Loan Documents, all of which has
been duly authorized by all necessary action.
(iii) the Loan Documents are the
legal and binding obligations of the Company, enforceable in
accordance with their respective terms;
(iv) to the best of the
Company’s knowledge, neither the execution and delivery of
this Note and the other Loan Documents, nor consummation of any of
the transactions herein or therein contemplated, nor compliance
with the terms and provisions hereof or thereof, will contravene or
conflict with any provision of law, statute, or regulation to which
the Company is subject or any judgment, license, order, or permit
applicable to the Company or any indenture, mortgage, deed of
trust, or other instrument to which the Company may be subject; to
the best of the Company’s knowledge, no consent, approval,
authorization, or order of any court, governmental authority, or
third party is required in connection with the execution, delivery,
and performance by the Company of this Note or any of the other
Loan Documents or to consummate the transactions contemplated
herein or therein;
(v) all audited financial statements
delivered by the Company to Lender prior to the date hereof fairly
present the financial condition of the Company, and have been
prepared in accordance with generally accepted accounting
principles, consistently applied, and no material adverse change
has occurred in the financial condition or business of the Company
since the date of the most recent financial statements which the
Company has delivered to Lender;
(vi) no litigation, investigation,
or governmental proceeding is pending, or, to the knowledge of any
of the Company’s officers, threatened against or affecting
the Company, which may result in any material adverse change in the
Company’s business, properties, or operations;
(vii) there is no fact known to the
Company that the Company has not disclosed to Lender in writing
which may result in any material adverse change in the
Company’s business, properties, or operations;
(viii) the Company owns all of the
assets reflected on the Company’ most recent balance sheet
free and clear of all liens, security interests, or other
encumbrances;
(ix) the principal office, chief
executive office, and principal place of business of each Company
is 228 Hamilton Avenue, 3rd Floor, Palo Alto, CA 94301;
(ix) all taxes required to be paid
by the Company have in fact been paid;
(x) the Company is not in violation
of any material law, ordinance, governmental rule, or regulation to
which it is subject, and is not in material default under any
material agreement, contract, or understanding to which it is a
party;
(xi) the Company and any properties
or assets owned by it are not in violation of, in any material
respect, any environmental laws, nor is there existing, pending, or
threatened any investigation or inquiry by any governmental
authority pursuant to any environmental laws, nor is there existing
or pending any remedial obligations under any environmental
laws;
(xii) the Company has filed all
reports, schedules, forms, statements, and other documents required
to be filed by the Company with the SEC pursuant to the reporting
requirements of the Exchange Act (all of the foregoing filed prior
to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents incorporated by
reference therein being hereinafter referred to as the “SEC
DOCUMENTS”);
(xiii) as of their respective dates,
the SEC Documents complied in all material respects with the
requirements of the Exchange Act and the rules and regulations of
the SEC promulgated thereunder applicable to the SEC Documents and
none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of material fact or omitted to
state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances
under which they were made, not misleading; and
(xiv) all material agreements of the
Company or to which the property or assets of the Company are
subject have been filed as exhibits to the SEC Documents as
required.
(b) AFFIRMATIVE COVENANTS. Until
payment in full of the Obligation, the Company agrees and covenants
that the Company shall and shall cause each of the other Company
to:
(i) conduct its business in an
orderly and efficient manner consistent with good business
practices and in accordance with all valid regulations, laws, and
orders of any governmental authority and will act in accordance
with customary industry standards in maintaining and operating its
assets, properties, and investments;
(ii) maintain complete and accurate
books and record
