EXHIBIT 10.01
PROMISSORY NOTE
FACE AMOUNT
$462,000
PRICE
$385,000
INTEREST RATE
0% per annum
NOTE NUMBER
May-2007-101
ISSUANCE DATE
May 15, 2007
MATURITY DATE
April 15, 2008
FOR VALUE RECEIVED, Human Biosystems, Inc., a
California corporation, and all of its subsidiaries (the “
Company ”) (OTC BB: HBSC) hereby promises to pay to
the order of DUTCHESS PRIVATE EQUITIES FUND, LTD., a Cayman
Island exempted company (the “ Holder ”),
by the Maturity Date, or earlier, the Face Amount of Four
Hundred and Sixty- Two Thousand Dollars ($462,000) plus accrued
interest U.S., (this “ Note ”) in such
amounts, at such times and on such terms and conditions as are
specified herein. The Company and the Holder are sometimes
hereinafter collectively referred to as the “
Parties ” and each a “ Party ”
to this Agreement.
Article 1
Method of Payment
Section 1.1
Payments made to the Holder by the Company in
satisfaction of this Note (referred to as a “ Payment
,” or “ Payments ”, or the amounts
outlined as the “ Payment Amount ”) shall be in
an amount of the greater of 1) one hundred percent (100%) of
proceeds raised from Puts given to the Dutchess Private Equities
Fund (as the “Investor”) by the Company, exceeding one
hundred and twenty thousand ($120,000) per month (“Threshold
Amount”) or 2) fifty-one thousand three hundred and
thirty-three dollars ($51,333.00) per month on the Face Amount.
Payments shall be due on the 15 th of
each month or upon immediately available funds exceeding the
Threshold Amount (“Payment Date”).
Upon such time as the terms and conditions of
Article 20 have been met, or in the event the Company fails to
comply fully with the obligations under Article 20, the Payment
Amount shall be changed to the total Face Amount remaining on the
Note divided by the months left until Maturity. For example,
if there is two hundred thousand dollars ($200,000) remaining on
the Face Amount of the Note and there is two (2) months until the
Maturity Date, the Holder may elect to request the monthly payment
to one hundred thousand ($100,000) per month.
Payments made during a month that exceed the
Payment Amount due shall NOT be applied to the any future
Payments due to the Holder by the Company.
Section 1.2
If the Company raises any funds from a
third-party, whether involving the issuance of debt or equity,
including any equity line agreements with the Holder or a third
party (a “ Financing ”), then the Company
shall pay to the Holder one hundred percent (100%) of the net
proceeds in excess of two million dollars ($2,000,000) therefrom
as prepayment of the Face Amount of this Note and penalties, if
any, then due. A Financing will also include the sale by
the Company of any of its assets (excluding assets sold in the
normal course of business). All
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prepayments described in
this Section 1.2 shall be made to the Holder
within one (1) business day of the Company’s receipt of
proceeds from the Financing. Failure to comply with this
Section 1.2 shall constitute an Event of Default (as
described in Article 4 hereof). The Holder may, but
is not required to, waive all or part of this Section 1.2
upon request from the Company.
Article 2
Intentionally Omitted
Article 3
Unpaid Amounts
Section 3.1
In the event that the Company has not repaid the
Face Amount by the Maturity Date (the “ Residual
Amount ”), then as liquidated damages (the “
Liquidated Damages ”), the Face Amount shall be
increased by ten percent (10.0%) and an
additional two and one-half percent (2.5%) per month (pro rata
for partial periods), compounded daily, for each month until the
Face Amount is paid in full. Further, if a Residual Amount
remains at Maturity, it shall constitute an Event of Default
hereunder. The Parties acknowledge that the Liquidated
Damages are not interest under this Note and shall not
constitute a penalty.
Article 4
Defaults and Remedies
Section 4.1
Events of Default. An “ Event of
Default ” occurs if any one of the following
occur:
(a)
The Company does not make a Payment within ten
(10) business days of a Payment Date, or a Residual Amount on
the Note exists on the Maturity Date;
(b)
The Company, pursuant to or within the meaning
of any Bankruptcy Law (as defined below): (i) commences a
voluntary case; (ii) consents to the entry of an order for
relief against it in an involuntary case; (iii) consents to the
appointment of a Custodian (as defined below) of the Company or
for its property; (iv) makes an assignment for the benefit of
its creditors; or (v) a court of competent jurisdiction enters
an order or decree under any Bankruptcy Law that: (A) is for
relief against the Company in an involuntary case; (B) appoints
a Custodian of the Company or for its property; or (C) orders
the liquidation of the Company, and the order or decree remains
unstayed and in effect for sixty (60) calendar days;
(c)
The Company’s no par value common stock
(the “Common Stock”) is suspended or is no longer
listed on any recognized exchange, including an electronic
over-the-counter bulletin board, in excess of two (2)
consecutive trading days;
(d)
The registration statement for the shares
underlying the current Equity Line of Credit is not effective
for any reason;
(e)
The Company breaches a material term of this
Agreement or any of the Company’s representation or
warranties hereunder were false when made;
(f)
The Company fails to carry out Puts, including
any paperwork needed, in a timely manner;
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(g)
The occurrence of any event which is described
elsewhere in this Note as constituting an Event of Default
hereunder.
(h)
The Company is delinquent in any public
filings.
As used in this Section 4.1 , the term
“ Bankruptcy Law ” means Title 11 of the
United States Code or any similar federal or state law for the
relief of debtors, and the term “ Custodian ”
means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
Section 4.2
Remedies. Upon the occurrence of
each and every Event of Default, the Holder may seek any or all
of the following remedies:
(a)
The Holder may elect to execute the Puts in an
amount that will repay the Holder and fully enforce the
Holder’s rights under this Agreement.
(b)
The Holder may increase the Face Amount of the
Note by ten percent (10.0%) and an additional two and one-half
percent (2.5%) per month (pro rata for partial periods),
compounded daily, until such Event of Default is cured (if
capable of being cured) or this Note is repaid in full (i.e.,
exercise the Liquidated Damages option). The Parties
acknowledge that the Liquidated Damages are not interest under
this Note and shall not constitute a penalty.
(c)
The Holder may elect to stop any further funding
to the Company excluding the Equity Line of Credit.
(d)
The Holder may also do either (i) or (ii)
below, but not both:
(i)
Switch the Residual Amount to a three-year
(“ Convertible Maturity Date ”), eighteen
percent (18%) interest bearing convertible debenture at a
floating rate discount of fifty percent (50%) to the prevailing
market price during conversion, and with such other terms
described hereinafter (the “ Convertible Debenture
”). The Convertible Debenture shall be considered
closed (“ Convertible Closing Date ”) as of
the date of the Event of Default. If the Holder chooses to
convert the Residual Amount to a Convertible Debenture, then the
Company shall have ten (10) business days after notice of
default from the Holder (the “ Notice of Convertible
Debenture ”) to file a registration statement covering
an amount of shares equal to three hundred percent (300%) of the
Residual Amount, plus interest thereon and any Liquidated
Damages due at such time. In the event the Company does
not file such registration statement within such period of time,
or such registration statement is not declared by the Commission
to be effective under the Securities Act within sixty (60) days
of the Convertible Closing Date, then the Residual Amount shall
increase by five thousand dollars ($5,000) per day. In the
event the Company is given the option for accelerated
effectiveness of the registration statement, the Company will
cause such registration statement to be declared effective as
soon as reasonably practicable and will not take any action to
delay the registration to become effective. In the event
that the Company is given the option for accelerated
effectiveness of the registration statement, but chooses not to
cause such registration statement to be declared effective on
such
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accelerated basis, the
Residual Amount shall increase by five thousand dollars ($5,000)
per day commencing on the earliest date as of which such
registration statement would have been declared to be effective
if subject to accelerated effectiveness.
(ii)
The Holder may increase the Payment Amount
described under Article 1 hereof to fulfill the repayment
of the Residual Amount. The Company shall provide full
cooperation to the Holder in directing funds owed to the Holder
on any Put made by the Company to the Investor. The
Company agrees to diligently carry out the terms outlined in the
Equity Line for delivery of any such shares. In the event
the Company is not diligently fulfilling its obligation to
direct funds owed to the Holder from Puts to the Investor, as
reasonably determined by the Holder, the Holder may, after
giving the Company two (2) business days advance notice to cure
same, elect to increase the Face Amount of the Note by two and
one-half percent (2.5%) per day, compounded daily, in addition
to and on top of any additional remedies available to the Holder
under this Note.
Section 4.3
Conversion Privilege
(a)
The Holder shall have the right to convert the
Convertible Debenture into shares of Common Stock at any time
following the Convertible Closing Date and before the close of
business on the Convertible Maturity Date. The number of
shares of Common Stock issuable upon the conversion of the
Convertible Debenture shall be determined pursuant to Section
4.4 hereof, but the number of shares issuable shall be
rounded up to the nearest whole share.
(b)
In the event all or any portion of the
Convertible Debenture remains outstanding on the Convertible
Maturity Date (the “ Debenture Residual Amount
”), the unconverted portion of such Convertible Debenture
will automatically be converted into shares of Common Stock on
such date in the manner set forth in Section 4.4
hereof.
Section 4.4
Conversion Procedure
(a)
The Holder may elect to convert the Debenture
Residual Amount in whole or in part any time and from time to
time following the Convertible Closing Date. Such
conversion shall be effectuated by providing the Company, or its
attorney, with that portion of the Convertible Debenture to be
converted together with a facsimile or electronic mail of the
signed notice of conversion (the “ Notice of
Conversion ”). The date on which the Notice of
Conversion is effective (“ Conversion Date ”)
shall be deemed to be the date on which the Holder has delivered
to the Company a facsimile or electronically mailed the Notice
of Conversion (receipt being via a confirmation of the time such
facsimile or electronic mail to the Company as provided by the
Holder). The Holder can elect to either reissue the
Convertible Debenture, or continually convert the existing
Debenture.
(a)
(b)
C ommon Stock to be Issued.
Upon the conversion of the Convertible Debenture by
the Holder, the Company shall instruct its transfer agent to issue
stock certificates without restrictive legends or stop transfer
instructions, if, at that time, the aforementioned registration
statement described in Section 4.2 hereof has been declared
effective
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(or with proper
restrictive legends if the registration statement has not as yet
been declared effective), in specified denominations
representing the number of shares of Common Stock issuable upon
such conversion. In the event that the Convertible
Debenture is deemed saleable under Rule 144 of the Securities
Act, the Company shall, upon a Notice of Conversion, instruct
the transfer agent to issue free trading certificates without
restrictive legends, subject to other applicable securities
laws. The Company is responsible to for all costs
associated with the issuance of the shares, including but not
limited to the opinion letter, whether issued by the
Company’s counsel or the Holder’s counsel, overnight
delivery of the certificates and any other costs that arise.
In the event the Holder’s counsel writes the
opinion, the Company shall instruct the transfer agent to
authorize and rely on such opinion. The Company hereby
acknowledges that the date of consideration for the Debenture is
the Issuance Date of the Note and shall use all commercially
reasonable best efforts to facilitate sales under Rule 144 of
the Securities Act. The Company shall act as registrar of
the Shares of Common Stock to be issued and shall maintain an
appropriate ledger containing the necessary information with
respect to each Convertible Debenture. The Company
warrants that no instructions have been given or will be given
to the transfer agent which limit, or otherwise prevent resale
and that the Common Stock shall otherwise be freely resold,
except as may be set forth herein or subject to applicable
law.
(c)
Conversion Rate. The Holder is
entitled to convert the Convertible Debenture Residual Amount,
plus accrued interest and penalties, anytime following the
Convertible Closing Date, at the lesser of either (i) fifty
percent (50%) of the lowest closing bid price during the fifteen
(15) trading days immediately preceding the Notice of Conversion
or (ii) 100% of the lowest bid price for the twenty (20) trading
days immediately preceding the Convertible Closing Date (“
Fixed Conversion Price ”). No fractional
shares or scrip representing fractions of shares will be issued
on conversion, but the number of shares issuable shall be
rounded up to the nearest whole share.
(d)
Nothing contained in the Convertible Debenture
shall be deemed to establish or require the Company to pay
interest to the Holder at a rate in excess of the maximum rate
permitted by applicable law. In the event that the rate of
interest required to be paid exceeds the maximum rate permitted
by governing law, the rate of interest required to be paid
thereunder shall be automatically reduced to the maximum rate
permitted under the governing law and such excess shall be
returned with reasonable promptness by the Holder to the
Company. In the event this Section 4.4(d) applies,
the Parties agree that the terms of this Note shall remain in
full force and effect except as is necessary to make the
interest rate comply with applicable law.
(e)
The Holder shall be treated as a shareholder of
record on the date the Company is required to issue the Common
Stock to the Holder. If prior to the issuance of stock
certificates, the Holder designates another person as the entity
in the name of which the stock certificates requesting the
Convertible Debenture are to be issued, the Holder shall provide
to the Company evidence that either no tax shall be due and
payable as a result of such transfer or that the applicable tax
has been paid by the Holder or such person. If the Holder
converts any part of the Convertible Debentures, or will be, the
Company shall issue to the Holder a new Convertible Debenture
equal to the unconverted amount, immediately upon request by the
Holder.
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(f)
Within four (4) business days after receipt of
the documentation referred to in this Section, the Company shall
deliver a certificate for the number of shares of Common Stock
issuable upon the conversion. In the event the Company
does not make delivery of the Common Stock as instructed by
Holder within four (4) business days after the Conversion Date,
the Company shall pay to the Holder an additional one percent
(1.0%) per day in cash of the full dollar value of the Debenture
Residual Amount then remaining after conversion, compounded
daily.
(g)
The Company shall at all times reserve (or make
alternative written arrangements for reservation or contribution
of shares) and have available all Common Stock necessary to meet
conversion of the Convertible Debentures by the Holder of the
entire amount of Convertible Debentures then outstanding.
If, at any time, the Holder submits a Notice of Conversion
and the Company does not have sufficient authorized but unissued
shares of Common Stock (or alternative shares of Common Stock as
may be contributed by stockholders of the Company) available to
effect, in full, a conversion of the Convertible Debentures (a
“ Conversion Default ,” the date of such
default being referred to herein as the “ Conversion
Default Date ”), the Company shall issue to the Holder
all of the shares of Common Stock which are available. Any
Convertible Debentures, or any portion thereof, which cannot be
converted due to the Company’s lack of sufficient
authorized common stock (the “ Unconverted
Debentures ”), may be deemed null and void upon
written notice sent by the Holder to the Company. The
Company shall provide notice of such Conversion Default (“
Notice of Conversion Default ”) to the Holder, by
facsimile, within one (1) business days of such default.
(h)
The Company agrees to pay the Holder payments
for a Conversion Default (“ Conversion Default
Payments ”) in the amount of (N/365) multiplied by
0.24, the product of which is then multiplied by the initial
issuance price of the outstanding or tendered but not converted
Convertible Debentures held by the Holder, where N equals the
number of days from the Conversion Default Date to the date (the
“ Authorization Date ”) that the Company
authorizes a sufficient number of shares of Common Stock to
effect conversion of all remaining Convertible Debentures.
The Company shall send notice (“ Authorization
Notice ”) to the Holder that add
