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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 additional shares of Common Stock have been
authorized, the Authorization Date, and the amount of
Holder’s accrued Conversion Default
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