THIS NOTE AND
THE SECURITIES ISSUABLE UPON CONVERSION HEREOF (THE
“CONVERSION SHARES”) HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”). THESE SECURITIES MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT COVERING THIS NOTE OR CONVERSION SHARES OR
(II) AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
WHERE THE HOLDER HAS FURNISHED TO THE COMPANY AN OPINION OF ITS
COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE IMMUNE RESPONSE
CORPORATION
8% SENIOR SECURED CONVERTIBLE
PROMISSORY NOTE
THE
IMMUNE RESPONSE CORPORATION, a Delaware corporation (the “
Company ”), for value received, hereby promises to pay
to the order of ___(the “ Holder ”), on
January 1, 2008 (the “ Maturity Date”) ,
the principal sum of ___ Dollars (US $___), together with interest
at the rate of Eight Percent (8%) per annum (calculated daily on
the basis of a 360-day year and actual calendar days elapsed) from
the date hereof until the entire principal and accrued interest
thereon shall become paid or otherwise satisfied, subject to
earlier conversion as set forth below.
This
Note is one of a series of duly authorized secured convertible
promissory notes of like tenor and ranking (the “ Bridge
Notes ”) made by the Company limited in aggregate
principal amount to Eight Million ($8,000,000) Dollars (the “
Offering ”) and is being issued as part of a private
placement by the Company pursuant to the terms of a Confidential
Private Placement Memorandum dated February 9, 2006, as
supplemented on February 15, 2006 and February 28, 2006,
and a certain Subscription Agreement by and between the Company and
the Holder (the “ Subscription Agreement
”).
The
obligations of the Company under this Note and the other Bridge
Notes are secured by the grant of a security interest in all of the
assets of the Company pursuant to the terms of a certain Security
Agreement dated as of February 9, 2006 (the “
Security Agreement ”), by the Company in favor of
Hudson Asset Partners, LLC, a Delaware limited liability company
(the “ Agent ”), as agent of the initial Holder
of this Note, the holders of the other Bridge Notes and Qubit
Holdings, LLC (“ Qubit ”). Such security
interest shall rank pari passu with the security interests
in the Company’s assets granted by the Company in favor of
Cheshire Associates LLC (“ Cheshire ”), in
connection with its certain mortgage note issued by the Company in
April 2005 in the original principal amount of $5,740,928 (the
“ Cheshire Note ”), and Cornell Capital
Partners, L.P. (“ Cornell ” and, collectively
with Cheshire, the “ Existing Secured Parties
”), in connection with its certain debenture issued by the
Company in August 2005 in the original principal amount of
$1,000,000 (the
1
“
Cornell Debenture ”), and Qubit, in connection with
its certain note issued by the Company on February 9, 2006 in
the original principal amount of $250,000 (the “ Qubit
Note ”), pursuant to the terms of an Intercreditor
Agreement dated as of February 9, 2006 (the “
Intercreditor Agreement ”) by and among the Company
and the Existing Secured Parties in favor of the Agent, as agent of
the initial Holder of this Note, the holders of the other Bridge
Notes and Qubit. In addition, the obligations of the Company under
this Note and the other Bridge Notes are being further supported
pursuant to a Limited Recourse Interest Agreement dated as of
February 9, 2006 (the “ Limited Recourse Interest
Agreement ”) by Spencer Trask Intellectual Capital
Company, LLC in favor of the Agent, as agent of the initial Holder
of this Note and the holders of the other Bridge Notes;
provided , however , that Bridge Notes issued after
the aggregate principal amount of $6,000,000 has been reached will
not be entitled to the benefits if the Limited Recourse Interest
Agreement.
All
payments shall be made in lawful money of the United States of
America at such place as the Holder hereof may from time to time
designate in writing to the Company, and, in absence of any
designation, shall be paid to the Holder at its address set forth
in the Holder’s Subscription Agreement and shall be credited
first to the accrued interest then due and payable and the
remainder applied to principal. If any payment hereunder falls due
on a Saturday, Sunday or legal holiday, it shall be payable on the
next succeeding business day and such additional time shall be
included in the computation of interest.
1.
Interest . Interest shall accrue on the principal amount
from the date of issuance and be paid on the Maturity Date, subject
to earlier conversion as set forth herein.
2.1
Optional Conversion. The Holder may convert the entire
unpaid principal amount of this Note and any accrued interest
thereon into Common Stock at any time in whole or from time to time
in part commencing on the date on which the Company files with the
Secretary of State of the State of Delaware an amendment to its
certificate of incorporation increasing its authorized shares of
Common Stock to an amount sufficient to allow for conversion of
this Note and terminating at 5:00 PM, New York Time, on the
Maturity Date (the “ Conversion Period
”).
2.2
Mandatory Conversion . The entire unpaid principal amount of
this Note and any accrued interest thereon shall be convertible, at
the option of the Company (“ Company Mandated
Conversion ”), into Common Stock at any time on or after
(i) the later of (x) the date that is six months after
the date hereof or (y) the date on which a registration
statement filed with the Securities and Exchange Commission (the
“ SEC ”) registering (either for initial
issuance or for resale) the shares of Common Stock underlying this
Note shall have been declared effective by the SEC and (ii) a
Certificate of Amendment to the Company’s Certificate of
Incorporation has been filed with the Delaware Secretary of State,
increasing the authorized number of shares of Common Stock to a
number sufficient to permit the reservation of all shares of Common
Stock into which all the Notes are convertible; provided,
however, that such conversion shall only be permitted if
(A) the closing price of the Common Stock on the principal
exchange or market on which it is then traded has equaled or
exceeded $0.10 per share for the 10 of 15 consecutive trading days
immediately preceding the date of the proposed Company Mandatory
Conversion and (ii) the trading volume of the Common Stock
during such period has equaled or exceeded two (2%) percent of the
public float for 10 of the same 15 consecutive trading days in
which such closing price of the Common Stock
2
equaled or
exceeded $0.10 per share. If such election is made, the Company
shall provide written notice of the Company Mandated Conversion to
the Holder within five (5) business days of such determination
(“ Company Mandated Conversion Notice ”) by
mailing, by first class mail, postage prepaid, a copy of such
notice to the Holder.
2.3
Conversion Price. The conversion price (the “
Conversion Price ”) shall initially be Two Cents
($.02) per share of Common Stock.
2.4
Method of Conversion . The Holder, at its option, may
exercise its conversion right in whole or in part at any time
during the Conversion Period by completing and executing the Notice
of Conversion attached to this Note as Attachment I. The
Notice of Conversion, together with this Note, must be received by
the Company on or prior to the termination of the Conversion
Period. To the extent that this Note is converted in part, the
Company shall execute and deliver to the Holder a new note
identical to this Note except that the principal amount of the new
note shall be equal to the portion of the unpaid principal amount
of this Note not converted. In lieu of issuing a fractional share
upon conversion, the Holder will receive the next highest whole
number of shares. The Company shall, or instruct its transfer agent
to, issue and deliver certificates for the shares of Common Stock
issuable upon conversion within three (3) business days after
receipt of the Notice of Conversion. Delivery by the Company of a
Company Mandated Conversion Notice in the case of a Company
Mandated Conversion, when all conditions have been satisfied, shall
have the same effect as cancellation of the original
Note.
(a)
Change in Capitalization . In case of any stock split
(forward or reverse), stock dividend or similar transaction prior
to the date of a conversion (the “ Conversion Date
”) which increases or decreases the number of outstanding
shares of Common Stock, appropriate adjustment shall be made by the
Board of Directors of the Company to the applicable Conversion
Price.
(b)
Reclassification . In case of any reclassification, capital
reorganization or change of the outstanding Common Stock of the
Company (other than as a result of a subdivision, combination or
stock dividend covered by Section 2.5(a)), at any time prior
to the Conversion Date, then, as a condition of such
reclassification, reorganization or change, a lawful provision
shall be made, and duly executed documents evidencing the same from
the Company or its successor shall be delivered to the Holder, so
that the Holder shall have the right to receive upon conversion
(instead of the original number and type of conversion securities,
into which, in fact, this Note would then no longer be convertible)
the kind and amount of shares of Common Stock and other securities
(the “ Conversion Shares ”) and property
receivable upon such reclassification, reorganization or change,
and a change in the Conversion Price, if necessary, that a holder
of Common Stock owning the number of shares of Common Stock which
might have been purchased by the Holder immediately prior to such
reclassification, reorganization or change would be entitled to. In
any such case appropriate provisions shall be made in order to
respect the rights and interests of the Holder under this
Note.
(c)
Consolidation, Merger and Sale of Assets . In the event of
any consolidation of the Company with or a merger of the Company
into another corporation or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety
or substantially as an entirety, whereby (i) the surviving
entity is a publicly traded company, and (ii) the
consideration
3
to be received
by the holders of the Common Stock includes publicly traded equity
securities in the surviving entity or parent corporation, the
Company agrees that a condition of such transaction will be that
the successor or purchasing corporation, as the case may be, shall
assume the obligations of the Company hereunder in writing. In the
case of any such consolidation, merger or sale or conveyance, the
Holder shall have the right, until the payment of the entire
principal amount of the Notes and any accrued interest thereon
(subject to the right of the Holder to convert), upon conversion at
the applicable Conversion Price in effect immediately prior to such
action, to receive (instead of the original number and type of
conversion securities, into which, in fact, this Note would no
longer be convertible) the kind and amount of shares and other
securities and/or property which he would have owned or have been
entitled to receive after the happening of such consolidation,
merger, sale or conveyance had this Note been converted immediately
prior to such action, subject to adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided
for in this Section 2. The provisions of this Section 2.5(c)
shall similarly apply to successive consolidations, mergers, sales
or conveyances.
(d)
Non-Public Successor . In the event of any consolidation of
the Company with or a merger of the Company into another
corporation or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or
substantially as an entirety, whereby (i) the surviving entity
is a non-publicly traded company, or (ii) the consideration to
be received by the Common Stock holders does not include any
publicly traded equity securities in the surviving entity or its
parent corporation, the Company agrees that a condition of such
transaction will be that the Company shall mail to the Holder at
the earliest applicable time (and, in any event not less than ten
(10) days before any record date for determining the persons
entitled to receive the consideration payable in such transaction)
written notice of such record date. Such notice shall also set
forth facts as shall indicate the effect of such action (to the
extent such effect may be known at the date of such notice) on the
applicable Conversion Price of and the kind and amount of
Conversion Shares and other securities and property deliverable
upon conversion of this Note. Upon the closing of the transaction
referenced in the foregoing notice, the right of conversion of this
Note, shall terminate.
(e)
Exchanges and Distributions With Respect to Common Stock .
If the Company shall exchange for its Common Stock or distribute
with respect to its Common Stock other securities issued by it, the
Company shall give notice thereof to the Holder, and the Holder
shall have the right thereafter to convert the Note for (instead of
the original number and type of conversion securities, into which,
in fact, this Note would no longer be convertible) the kind and
amount of shares of stock and other securities retained or received
by a holder of the number of shares of Common Stock into which the
Note might have been converted immediately prior to such exchange
or distribution, subject to adjustment as provided
hereinabove.
(f)
Officer’s Certificate . Whenever the applicable
Conversion Price or the number or type of Conversion Shares is
adjusted, the Company shall promptly mail to the Holder a notice of
adjustment. The notice of adjustment shall include a brief
statement of the facts requiring the adjustment and the manner of
computing it, and shall be certified by the chief financial officer
of the Company. The determination of the adjustment shall be made
by the Company in its sole discretion and shall be final and
binding upon the Holder.
2.6
Taxes on Conversion . If the Holder converts the Note as
described hereunder, the Company shall pay any documentary, stamp
or similar issue or transfer tax due on the issue of
4
shares of
Common Stock upon the conversion. However, the Holder shall pay any
such tax which is due because the shares are issued in a name other
than the Holder’s name.
3.1
Ranking . The Holder’s security interest in the
collateral securing the indebtedness evidenced by this Note and the
payment of the principal thereof shall be Senior (as hereinafter
defined) to, and have priority in right of payment over, all other
security interests in such collateral securing other indebtedness
of the Company, now outstanding or hereinafter incurred, except the
other Bridge Notes, the Qubit Note, the Cheshire Note and the
Cornell Debenture. Pursuant to the Intercreditor Agreement, the
right to receive payment on this Note shall rank equally with the
other Bridge Notes, the Qubit Note, the Cheshire Note and the
Cornell Deben
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