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 Five
Million ($5,000,000) 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 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 “ Cornell Debenture
”), and Qubit, in connection with its certain note issued by
the Company on
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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 $5,000,000 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 equaled or exceeded
$0.10 per share. If such election is made, the Company shall
provide written
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notice of the
Company Mandated Conversion to the Holder within five
(5) business days of such determination (“ Company
Mandated Conversion Notice ”) by mailing, by first class
mail, postage prepaid, a copy of such notice to the
Holder.
2.3
Conversion Price. The conversion price (the “
Conversion Price ”) shall initially be Two Cents
($.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 to be received by the holders of the Common Stock
includes publicly traded equity securities in the
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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
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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 Debenture. “Senior,” as used herei
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