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
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$
250,000
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February 9, 2006
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(Principal
Amount)
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THE
IMMUNE RESPONSE CORPORATION, a Delaware corporation (the “
Company ”), for value received, hereby promises to pay
to the order of Qubit Holdings, LLC (the “ Holder
”), on January 1, 2008 (the “ Maturity
Date”) , the principal sum of Two Hundred Fifty Thousand
Dollars (US $250,000), 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.
The
obligations of the Company under this Note 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 and the
holders of Bridge Notes (as defined below). 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 ”), 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 certain senior
secured promissory notes up to an aggregate principal amount of
$5,000,000 to be offered by the Company (the “
Offering ”), after the date hereof, in a private
placement of such notes (the “ Bridge Notes ”)
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
and the holders of Bridge Notes, who shall become a party to the
Intercreditor Agreement upon the first closing of the
Offering.
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
$0.10 per share. If such election is made, the Company shall
provide written notice of the Company Mandated Conversion to the
Holder within five (5) business days of such determination
(“ Company Mandated Conversion Notice ”) by
mailing, by first class mail, postage prepaid, a copy of such
notice to the Holder.
2.3
Conversion Price. The conversion price (the “
Conversion Price ”) shall initially be Two Cents
($.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
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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 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
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(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 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
Bridge Notes, 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 Bridge Notes, the Cheshire
Note and the Cornell Debenture. “Senior,” as used
herein, shall be deemed to mean that, in the event of any default
in the payment of the obligations represented by this Note (after
giving effect to “cure” provisions, if any) or of any
liquidation, insolvency, bankruptcy, reorganization, or similar
proceedings relating to the Company, all sums payable on this Note,
the Bridge Notes, the Cheshire Note and the Cornell Debenture from
such collateral will first be paid, with interest, if any, before
any payment from such collateral is made upon any other
indebtedness, now outstanding or hereinafter incurred, and, in any
such event, any payment or distribution of any character from such
collateral which
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