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
-8-
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 tim
