Exhibit 10.1

 

THIS 6% SENIOR SECURED CONVERTIBLE NOTE (THIS “NOTE”) HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE
SECURITIES LAWS OF ANY STATE, AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH
A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE COMPANY THAT SUCH REGISTRATION
IS NOT REQUIRED UNDER THE SECURITIES ACT OR ANY APPLICABLE STATE SECURITIES
LAWS.

 

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER IN THE EVENT OF A PARTIAL
REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR CONVERSION OF
ANY PORTION OF THIS NOTE, THE OUTSTANDING PRINCIPAL AMOUNT REPRESENTED BY THIS
NOTE MAY BE LESS THAN THE PRINCIPAL AMOUNT AND ACCRUED INTEREST SET FORTH BELOW.

 

ATHERONOVA INC.

 

6% SENIOR SECURED CONVERTIBLE NOTE

 

Issuance Date: February 12, 2014

 

Original Principal Amount: $___________________

 

 

FOR VALUE RECEIVED, ATHERONOVA INC., a Delaware corporation (the “Company”),
hereby promises to pay to the order of ___________________, or registered
assigns (the “Holder”), the amount set out above as the Original Principal
Amount (as reduced pursuant to the terms hereof pursuant to redemption,
conversion or otherwise, the “Principal”) when due, whether upon the Maturity
Date (as defined below), acceleration, redemption or otherwise (in each case in
accordance with the terms hereof) and to pay interest (“Interest”) on any
outstanding Principal at the applicable Interest Rate (as defined below) from
the date set forth above as the Issuance Date (the “Issuance Date”) until the
same becomes due and payable, upon the Maturity Date or acceleration,
conversion, redemption or otherwise (in each case in accordance with the terms
hereof). This Note is one of a series of duly authorized and validly issued 6%
Senior Secured Convertible Notes of the Company (collectively, the “Notes”)
issued pursuant to that certain Securities Purchase Agreement dated January 13,
2014, among the Company, the Holder and the other parties signatory thereto (the
“Purchase Agreement”). Capitalized terms used herein without definition shall
have the meanings ascribed to such terms in the Purchase Agreement.

 

 

1.

General Terms.

 

(a)

Payment of Principal. The “Maturity Date” shall be February 11, 2017.

 

 
 

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(b)     Interest. Interest on the unpaid Principal shall accrue daily at the
rate of six percent (6%) (the “Interest Rate”) per annum commencing on the
Issuance Date; provided that from and after the occurrence and during the
continuance of an Event of Default (as defined below) Interest shall accrue on
all of the unpaid Principal hereunder at the lesser of the default rate of
twenty-four percent (24%) per annum or the maximum rate permitted under
applicable law (the “Default Rate”).

 

(c)     Security. The Company’s obligations under this Note are secured by the
collateral set forth in that certain Security Agreement dated as of the original
Issuance Date, among the Company and the holders of the Notes, and the Company’s
obligations under this Note are guaranteed by the Company’s subsidiaries
pursuant to the Subsidiary Guarantee dated as of the original Issuance Date.

 

 

2.

Events of Default.

 

(a)     Event of Default. An “Event of Default,” wherever used herein, means any
one of the following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):

 

(i)      The Company’s failure to pay to the Holder any amount of Principal,
Interest or other amounts when and as due under this Note (including, without
limitation, the Company’s failure to pay any redemption payments or amounts
hereunder);

 

(ii)     A Conversion Failure as defined in Section 3(b)(ii) hereof;

 

(iii)    The Company or any subsidiary of the Company shall commence, or there
shall be commenced against the Company or any subsidiary of the Company under
any applicable bankruptcy or insolvency laws as now or hereafter in effect or
any successor thereto, or the Company or any subsidiary of the Company commences
any other proceeding under any reorganization, arrangement, adjustment of debt,
relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company or any
subsidiary of the Company or there is commenced against the Company or any
subsidiary of the Company any such bankruptcy, insolvency or other proceeding
which remains undismissed for a period of sixty-one (61) days; or the Company or
any subsidiary of the Company is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is entered; or
the Company or any subsidiary of the Company suffers any appointment of any
custodian, private or court appointed receiver or the like for it or any
substantial part of its property which continues undischarged or unstayed for a
period of sixty-one (61) days; or the Company or any subsidiary of the Company
makes a general assignment for the benefit of creditors; or the Company or any
subsidiary of the Company shall fail to pay, or shall state that it is unable to
pay, or shall be unable to pay, its debts generally as they become due; or the
Company or any subsidiary of the Company shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of its
debts; or the Company or any subsidiary of the Company shall by any act or
failure to act expressly indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the Company
or any subsidiary of the Company for the purpose of effecting any of the
foregoing;

 

 
 

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(iv)    The Company or any subsidiary of the Company shall default in any of its
obligations under any other note or any mortgage, credit agreement or other
facility, indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced any
indebtedness for borrowed money or money due under any long term leasing or
factoring arrangement of the Company or any subsidiary of the Company in an
amount exceeding $100,000, whether such indebtedness now exists or shall
hereafter be created;

 

(v)     The common stock of the Company (“Common Stock”) is suspended or
delisted for trading on the Trading Market;

 

(vi)    The Company loses its status as “DTC Eligible”; or

 

(vii)   The Company shall become late or delinquent in its filing requirements
as a fully-reporting issuer registered with the Securities & Exchange
Commission.

 

(b)     Cure Period. Upon receiving a written notice of the occurrence of an
Event of Default, the Company shall have a grace period of five (5) Business
Days (as defined below) to cure such Event of Default.

 

(c)     Remedies upon Event of Default. In addition to any other remedies
provided for herein, while an Event of Default occurs and is continuing, the
outstanding Principal, plus accrued but unpaid Interest and other amounts owing
in respect thereof through the date of acceleration, shall become, at the
Holder’s election, immediately due and payable in cash at the Mandatory Default
Amount. The “Mandatory Default Amount” is equal to the greater of (i) one
hundred twenty percent (120%) of the outstanding Principal (plus all accrued and
unpaid Interest, if any) and (ii) the product of (A) the highest closing price
for the five (5) days on which the Trading Market is open for business (a
“Trading Day”) immediately preceding the Holder’s acceleration and (B) a
fraction, of which the numerator is the entire outstanding Principal, and of
which the denominator is the Conversion Price as of the date such ratio is being
determined. After the occurrence and during the continuance of any Event of
Default, the interest rate on this Note shall accrue at the applicable Default
Rate. Upon the payment in full of the Mandatory Default Amount, the Holder shall
promptly surrender this Note to or as directed by the Company. In connection
with such acceleration described herein, the Holder need not provide, and the
Company hereby waives, any presentment, demand, protest or other notice of any
kind, and the Holder may immediately and without expiration of any grace period
enforce any and all of its rights and remedies hereunder and all other remedies
available to it under applicable law. Such acceleration may be rescinded and
annulled by the Holder at any time prior to payment hereunder and the Holder
shall have all rights as a holder of this Note until such time, if any, as the
Holder receives full payment pursuant to this Section 2(c). No such rescission
or annulment shall affect any subsequent Event of Default or impair any right
consequent thereon.

 

3.     Conversion of Note. This Note shall be convertible into shares of Common
Stock, on the terms and conditions set forth in this Section 3.

  

 
 

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(a)     Conversion Right. Subject to the provisions of Section 3(c), at any time
or times on or after the Issuance Date, the Holder shall be entitled to convert
any portion of the outstanding and unpaid Conversion Amount (as defined below)
into fully paid and non-assessable shares of Common Stock in accordance with
Section 3(b), at the Conversion Price (as defined below) subject to the
Conversion Minimum (as defined below). The number of shares of Common Stock
issuable upon conversion of any Conversion Amount pursuant to this Section 3(a)
shall be equal to the quotient of dividing the Conversion Amount by the
Conversion Price (“Conversion Shares”). The Company shall not issue any fraction
of a share of Common Stock upon any conversion. If the issuance would result in
the issuance of a fraction of a share of Common Stock, the Company shall round
such fraction of a share of Common Stock up to the nearest whole share. The
Company shall pay any and all transfer agent fees, legal fees, costs and any
other fees or costs that may be incurred or charged in connection with the
issuance of shares of Common Stock to the Holder arising out of or relating to
the conversion of this Note.

 

(i)      “Conversion Amount” means the portion of the Principal and Interest to
be converted, plus any penalties, redeemed or otherwise with respect to which
this determination is being made.

 

(ii)     “Conversion Price” shall equal the lesser of (A) $0.23 (subject to
adjustment as provided in this Note) and (B) seventy percent (70%) of the
average of the three (3) lowest daily VWAPs occurring during the twenty (20)
consecutive Trading Days immediately preceding the applicable Conversion Date on
which the Holder elects to convert all or part of this Note, subject to
adjustment as provided in this Note.

 

(iii)    “Conversion Minimum” shall, unless otherwise approved in writing by the
Company, constitute any individual conversion of at least an amount equal to
$25,000 of the Principal.

 

(iv)    “VWAP” means, for any date, the price determined by the first of the
following clauses that applies: (a) the volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the Trading
Market; (b) if the Common Stock is not then quoted for trading on the Trading
Market and if prices for the Common Stock are then reported in the “Pink Sheets”
published by Pink Sheets, LLC, the OTC Market Group’s OTCPink market or a
similar organization or agency succeeding to their functions of reporting
prices, the most recent bid price per share of the Common Stock so reported; or
(c) in all other cases, the fair market value of a share of Common Stock as
determined by an independent appraiser selected in good faith by the Holder and
reasonably acceptable to the Company.

 

(b)     Mechanics of Conversion.

  

 
 

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(i)      Optional Conversion. To convert any Conversion Amount into shares of
Common Stock on any date (a “Conversion Date”), the Holder shall transmit by
email, facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m.,
Pacific time, on such date, a copy of an executed notice of conversion in the
form attached hereto as Exhibit A (the “Conversion Notice”) to the Company. On
or before the third (3rd) Business Day following the date of receipt of a
Conversion Notice, the Company shall (A) if legends are not required to be
placed on certificates of Common Stock pursuant to applicable securities laws
and provided that the Company’s transfer agent is participating in the
Depository Trust Company’s (“DTC”) Fast Automated Securities Transfer Program,
credit such aggregate number of shares of Common Stock to which the Holder shall
be entitled to the Holder’s or its designee’s balance account with DTC, or (B)
if the Company’s transfer agent is not participating in the DTC Fast Automated
Securities Transfer Program, issue and deliver to the address as specified in
the Conversion Notice, a certificate, registered in the name of the Holder or
its designee, for the number of shares of Common Stock to which the Holder shall
be entitled which certificates shall not bear any restrictive legends unless
required pursuant to applicable securities laws. If this Note is physically
surrendered for conversion and the outstanding Principal is greater than the
Principal portion of the Conversion Amount being converted, then the Company
shall, upon request of the Holder, as soon as practicable and in no event later
than three (3) Business Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note representing the outstanding
Principal not converted. The individual, corporation, partnership, limited
liability company, limited liability partnership, trust, association,
organization or other entity (each a “Person”) entitled to receive the shares of
Common Stock issuable upon a conversion of this Note shall be treated for all
purposes as the record holder or holders of such shares of Common Stock upon the
transmission of a Conversion Notice. For the purposes hereof, the term “Business
Day” means any day except any Saturday, any Sunday, any day which shall be a
federal legal holiday in the United States or any day on which banking
institutions in the State of California are authorized or required by law or
other governmental action to close.

 

(ii)     Company’s Failure to Timely Convert. If within three (3) Business Days
after the Company’s receipt of the facsimile or email copy of a Conversion
Notice, the Company shall fail to issue and deliver to Holder the number of
shares of Common Stock to which the Holder is entitled upon such Holder's
conversion of any Conversion Amount (a “Conversion Failure”), the Principal
shall increase by $3,000 per day until the Company issues and delivers a
certificate to the Holder for the number of shares of Common Stock to which the
Holder is entitled upon such Holder’s conversion of any Conversion Amount. If
the Company fails to deliver shares in accordance with the timeframe stated in
this section, resulting in a Conversion Failure, the Holder, at any time prior
to selling all of those shares, may rescind any portion, in whole or in part, of
that particular conversion attributable to the unsold shares and have the
rescinded Conversion Amount returned to the Principal with the rescinded
Conversion Shares returned to the Company.

 

(iii)    DTC Eligibility. If the Company loses its status as “DTC Eligible” for
any reason, the Conversion Price shall thereafter be redefined to mean the
lesser of (A) $0.23 (subject to adjustment as provided in this Note) and (B)
fifty percent (50%) of the lowest trade occurring during the twenty (20)
consecutive Trading Days immediately preceding the applicable Conversion Date on
which the Holder elects to convert all or part of this Note.

 

(iv)    Book-Entry. Notwithstanding anything to the contrary set forth herein,
upon conversion of any portion of this Note in accordance with the terms hereof,
the Holder shall not be required to physically surrender this Note to the
Company unless (A) the full Conversion Amount represented by this Note is being
converted or (B) the Holder has provided the Company with prior written notice
(which notice may be included in a Conversion Notice) requesting reissuance of
this Note upon physical surrender of this Note. The Holder and the Company shall
maintain records showing the Principal and Interest converted and the dates of
such conversions or shall use such other method, reasonably satisfactory to the
Holder and the Company, so as not to require physical surrender of this Note
upon conversion.

  

 
 

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(c)     Limitations on Conversions. The Company shall not effect any conversions
of this Note and the Holder shall not have the right to convert any portion of
this Note or receive shares of Common Stock as payment of interest hereunder to
the extent that after giving effect to such conversion or receipt of such
Interest payment, the Holder, together with any Affiliate thereof and any other
person or entity acting as a group together with the Holder or any of the
Holder’s Affiliates, would beneficially own in excess of 4.99% of the number of
shares of Common Stock outstanding immediately after giving effect to such
conversion or receipt of shares as payment of Interest (the “Beneficial
Ownership Limitation”). For purposes of the foregoing sentence, the number of
shares of Common Stock beneficially owned by the Holder and its Affiliates shall
include the number of shares of Common Stock issuable upon conversion of this
Note with respect to which such determination is being made, but shall exclude
the number of shares of Common Stock which are issuable upon (A) conversion of
the remaining, unconverted principal amount of this Note beneficially owned by
the Holder or any of its Affiliates and (B) exercise or conversion of the
unexercised or unconverted portion of any other securities of the Company
subject to a limitation on conversion or exercise analogous to the limitation
contained herein (including, without limitation, any other Notes or the
Warrants) beneficially owned by the Holder or any of its Affiliates. Except as
set forth in the preceding sentence, for purposes of this Section 3(c),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes
of this section, in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as stated in the most recent of the following: (A) the Company’s most recent
periodic or annual report, as the case may be; (B) a more recent public
announcement by the Company; or (C) a more recent notice by the Company or the
Company’s transfer agent setting forth the number of shares of Common Stock
outstanding. Upon the written or oral request of a Holder, the Company shall
within three Trading Days confirm orally and in writing to the Holder the number
of shares of Common Stock then outstanding. Since the Holder will not be
obligated to report to the Company the number of shares of Common Stock it may
hold at the time of a conversion hereunder, unless the conversion at issue would
result in the issuance of shares of Common Stock in excess of 4.99% of the then
outstanding shares of Common Stock without regard to any other shares which may
be beneficially owned by the Holder or an Affiliate thereof, the Holder shall
have the authority and obligation to determine whether the restriction contained
in this section will limit any particular conversion hereunder and to the extent
that the Holder determines that the limitation contained in this section
applies, the determination of which portion of the principal amount of this Note
is convertible shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Conversion Notice for a principal amount of this Note
that, without regard to any other shares that the Holder or its Affiliates may
beneficially own, would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
conversion for the maximum principal amount permitted to be converted on such
Conversion Date in accordance with Section 3(a) and, any principal amount
tendered for conversion in excess of the permitted amount hereunder shall remain
outstanding under this Note. By written notice to the Company, the Holder may at
any time and from time to time increase or decrease the Beneficial Ownership
Limitation to any other percentage specified in such notice (or specify that the
Beneficial Ownership Limitation shall no longer be applicable), provided,
however, that (A) any such increase (or inapplicability) shall not be effective
until the sixty-fifth (65th) day after such notice is delivered to the Company,
and (B) any such increase or decrease shall apply only to the Holder and not to
any other holder of Notes. The provisions of this section shall be construed and
implemented in a manner otherwise than in strict conformity with the terms of
this section to correct this section (or any portion hereof) which may be
defective or inconsistent with the intended Beneficial Ownership Limitation
herein contained or to make changes or supplements necessary or desirable to
properly give effect to such limitation. The limitations contained in this
section shall apply to a successor holder of this Note.

 

(d)     Other Provisions.

 

(i)     Share Reservation. The Company shall at all times reserve and keep
available out of its authorized Common Stock the full number of shares of Common
Stock issuable upon conversion of all outstanding amounts under this Note; and
within five (5) Business Days following the receipt by the Company of a Holder’s
notice that such minimum number of underlying shares of Common Stock is not so
reserved, the Company shall promptly reserve a sufficient number of shares of
Common Stock to comply with such requirement.

 

(ii)     Prepayment. At any time after the twelve (12)-month period immediately
following the Issuance Date, the Company shall have the option, upon ten (10)
Business Days’ notice to Holder, to pre-pay the entire remaining outstanding
principal amount of this Note in cash, provided that (A) the Company shall pay
the Holder one hundred fifty percent (150%) of the Principal plus Interest
outstanding in repayment hereof, (B) such amount must be paid in cash on the
next Business Day following such ten (10) Business Day notice period, and (C)
the Holder may still convert this Note pursuant to the terms hereof at all times
until such prepayment amount has been received in full. Except as set forth in
this section the Company may not prepay this Note in whole or in part.

 

(iii)     All calculations under this Section 3 shall be rounded up to the
nearest $0.01 or whole share.

 

(iv)     Nothing herein shall limit a Holder’s right to pursue actual damages or
declare an Event of Default pursuant to Section 2 herein for the Company’s
failure to deliver certificates representing shares of Common Stock upon
conversion within the period specified herein and such Holder shall have the
right to pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or injunctive relief,
in each case without the need to post a bond or provide other security. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other section hereof or under applicable law.

  

 
 

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(e)     Listing Conversion. In the event that the Company submits to a national
securities exchange an application satisfying the initial criteria (taking into
account the conversion of the Notes) to list or to have quoted the Company’s
securities on such national securities exchange, the Company may deliver to the
Holder notice thereof (a “Listing Notice”). Upon the Company’s delivery of a
Listing Notice to the Holder, (i) to the extent applicable the Holder shall be
deemed to have automatically issued to the Company a notice specifying that the
Beneficial Ownership Limitation shall no longer be applicable effective as of
the later of (A) the sixty-first (65th) day after the Company’s delivery of the
Listing Notice and (B) the date immediately prior to the effective date of a
listing of the Company’s securities on the applicable national securities
exchange (as applicable, the “Limitation Removal Date”), and (ii) this Note
shall automatically be converted into Conversion Shares, as if an election to
convert all Principal and Interest under this Note had then been made by the
Holder under Section 3(a), upon the Limitation Removal Date. The Limitation
Removal Date shall be deemed to be the “Conversion Date” for purposes of this
Section 3.

 

4.     Adjustments to Conversion Price; Fundamental Transactions. The Conversion
Price and the number and kind of securities issuable upon conversion of this
Note shall be subject to adjustment from time to time as set forth in this
Section 4.

 

(a)     Stock Dividends and Splits. If at any time while this Note is
outstanding the Company (i) declares or pays a stock dividend on its Common
Stock or otherwise makes a distribution on any class of capital stock (or
securities convertible into or exercisable or exchangeable for capital stock)
that is payable in shares of Common Stock, (ii) subdivides outstanding shares of
Common Stock into a larger number of shares, (iii) combines (including, without
limitation, by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (iv) issues by reclassification of shares of
Common Stock any shares of capital stock of the Company (including, without
limitation, in connection with any merger or consolidation), then in each such
case the Conversion Price then in effect shall be adjusted by multiplying such
Conversion Price by a fraction of which (A) the numerator shall be the number of
shares of Common Stock outstanding immediately before such event, and (B) the
denominator shall be the number of shares of Common Stock outstanding
immediately after such event. Any adjustment made pursuant to clause (i) of this
paragraph shall become effective immediately after the record date for such
dividend or distribution, and any adjustment made pursuant to clauses (ii),
(iii) or (iv) of this paragraph shall become effective immediately after the
effective date of such subdivision, combination or reclassification.

  

 
 

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(b)     Subsequent Equity Sales. If, at any time while this Note is outstanding,
the Company or any of its subsidiaries sells or grants any option to purchase or
sells or grants any right to re-price, or otherwise disposes of or issues (or
announces any sale, grant or any option to purchase or other disposition), any
Common Stock or Common Stock Equivalents entitling any Person to acquire shares
of Common Stock at an effective price per share that is lower than the then
Conversion Price (such issuances, collectively, a “Dilutive Issuance”) (if the
holder of the Common Stock or Common Stock Equivalents so issued shall at any
time, whether by operation of purchase price adjustments, reset provisions,
floating conversion, exercise or exchange prices or otherwise, or due to
warrants, options or rights per share which are issued in connection with such
issuance, be entitled to receive shares of Common Stock at an effective price
per share that is lower than the Conversion Price, such issuance shall be deemed
to have occurred for less than the Conversion Price on such date of the Dilutive
Issuance), then and in such event, the Conversion Price shall be reduced,
concurrently with such issue, to the lowest price per share for which any one
such share of Common Stock or Common Stock Equivalent has been issued. For
purposes of this paragraph, the “lowest price per share for which any one such
share of Common Stock or Common Stock Equivalent has been issued” shall be equal
to the sum of the lowest amount of consideration (but not less than $.01)
received or receivable by the Company with respect to any such share (the “Base
Conversion Price”). Such adjustment shall be made whenever such Common Stock or
Common Stock Equivalents are issued. Notwithstanding the foregoing, no
adjustment will be made under this Section 4(b) in respect of an Exempt Issuance
(as defined below) or in the event that such adjustment will result in the
issuance of more than 58,415,980 shares of Common Stock (as appropriately and
equitably adjusted for stock splits, stock dividends and similar events) when
aggregated with any shares of Common Stock issued on or after the Issuance Date
and prior to the Maturity Date (A) in connection with the conversion of any
Notes issued pursuant to the Purchase Agreement, including this Note, or as
payment of principal or interest and (B) in connection with the exercise of any
Warrants issued pursuant to the Purchase Agreement. The Company shall notify the
Holder in writing, no later than 5 Business Days following the issuance of any
Common Stock or Common Stock Equivalents subject to this Section 4(b),
indicating therein the applicable issuance price, or applicable reset price,
exchange price, conversion price and other pricing terms (such notice, the
“Dilutive Issuance Notice”). For purposes of clarification, whether or not the
Company provides a Dilutive Issuance Notice pursuant to this Section 4(b), upon
the occurrence of any Dilutive Issuance, the Holder is entitled to receive a
number of Conversion Shares based upon the Base Conversion Price on or after the
date of such Dilutive Issuance, regardless of whether the Holder accurately
refers to the Base Conversion Price in the Notice of Conversion. “Exempt
Issuance” means the issuance of (a) shares of Common Stock or options to
employees, officers or directors of the Company pursuant to any stock or option
plan duly adopted for such purpose by a majority of the non-employee members of
the Board of Directors or a majority of the members of a committee of
non-employee directors established for such purpose and (b) securities upon the
exercise or exchange of or conversion of any securities issued hereunder and/or
other securities exercisable or exchangeable for or convertible into shares of
Common Stock issued and outstanding on the date of this Agreement, provided that
such securities have not been amended since the date of this Agreement to
directly or indirectly effectively increase the number of such securities or to
decrease the exercise, exchange or conversion price of such securities.

  

 
 

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(c)     Pro Rata Distributions. Subject to Section 4(d) below, if at any time
while this Note is outstanding the Company declares or pays any dividend or
otherwise distributes any of its assets (including, without limitation, cash,
properties, evidences of indebtedness, securities (including any options or
other convertible securities but excluding a distribution of Common Stock
covered by Section 4(a) above or Purchase Rights covered by Section 4(d) below)
or options or rights to acquire any such assets) (in each case, “Distributed
Property”) to all holders of Common Stock pro rata (and not to all Holders in
their capacity as holders of Notes), whether by way of dividend, return of
capital, spin-off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction, then in each such case the Conversion
Price in effect immediately prior to the close of business on the record date
for such dividend or distribution shall be reduced, effective as of the close of
business on such record date, to a price determined by multiplying such
Conversion Price by a fraction of which (i) the denominator shall be the closing
price of Common Stock on the Trading Market on such record date (the “Market
Price”), and (ii) the numerator shall be such Market Price minus the value of
the Distributed Property on such date applicable to one outstanding share of
Common Stock, as determined by the Company’s independent certified public
accounting firm that regularly examines the financial statements of the Company.

 

(d)     Rights Offerings Below Market. Notwithstanding Section 4(c) above, if at
any time while this Note is outstanding the Company grants, issues or sells pro
rata to all holders of its outstanding shares of Common Stock, any options,
convertible securities or other rights (the “Purchase Rights”) entitling them to
directly or indirectly subscribe for or purchase shares of Common Stock at an
effective price per share less than the Market Price on the record date of such
grant, issuance or sale, then in each such case the Conversion Price in effect
immediately prior to the close of business on such record date shall be reduced,
effective as of the close of business on such record date, to a price determined
by multiplying such Conversion Price by a fraction of which (i) the numerator
shall be the number of shares of Common Stock outstanding as of the close of
business on such record date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered for
subscription or purchase (including and assuming receipt by the Company in full
of all consideration payable upon both issuance and exercise of such Purchase
Rights) would purchase at such Market Price, and (ii) the denominator shall be
the number of shares of Common Stock outstanding as of the close of business on
such record date plus the total number of additional shares of Common Stock so
offered for subscription or purchase; provided, that in lieu of receiving such
adjustment to the Conversion Price, the Holder shall have the option, upon
written notice to the Company within thirty (30) days following its receipt of
the notice of such adjustment, to elect to acquire, upon any conversion of this
Note and in accordance with the terms applicable to the issuance of such
Purchase Rights, the aggregate Purchase Rights which the Holder would have
acquired if the Holder had converted such portion of this Note being converted
(without regard to any limitations on ownership or conversion and regardless of
whether this Note was then convertible) immediately prior to such record date.
To the extent that shares of Common Stock have not been delivered pursuant to
such Purchase Rights specified in this section upon the expiration or
termination of such Purchase Rights, the Conversion Price shall be readjusted to
the Conversion Price which would then be in effect had the adjustment made upon
the issuance of such Purchase Rights been made on the basis of delivery of only
the number of shares of Common Stock actually delivered. In determining whether
any Purchase Rights entitle the holder thereof to subscribe for or purchase
shares of Common Stock at less than such Market Price, and in determining the
aggregate offering price of such shares of Common Stock, there shall be taken
into account any consideration received for such Purchase Rights, the value of
such consideration (if other than cash) to be determined in good faith by the
Company’s Board of Directors.

  

 
 

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(e)     Fundamental Transactions. If at any time while this Note is outstanding,
(i) the Company effects any merger or consolidation of the Company with or into
another Person, (ii) the Company effects any sale of all or substantially all of
its assets in one or a series of related transactions, (iii) any tender offer or
exchange offer (whether by the Company or another Person) is completed pursuant
to which holders of Common Stock are permitted to tender or exchange their
shares for other securities, cash or property, or (iv) the Company effects any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is effectively converted into or exchanged for other
securities, cash or property (each, a “Fundamental Transaction”), then the
Holder shall have the right thereafter to receive, upon any conversion of this
Note, for each Conversion Share that would have been issuable upon such
conversion immediately prior to the occurrence of such Fundamental Transaction,
the same amount and kind of securities, cash and property as the Holder would
have been entitled to receive upon the occurrence of such Fundamental
Transaction if the Holder had been the record holder of one Conversion Share
immediately prior to such Fundamental Transaction (without regard to any
limitations or restrictions on conversion or acquisition of Conversion Shares
and whether or not this Note was then convertible) (the “Alternate
Consideration”), and the Conversion Price shall be appropriately and equitably
adjusted to apply to such Alternate Consideration based on the amount of
Alternate Consideration issuable in respect of one share of Common Stock in such
Fundamental Transaction relative to the then Conversion Price. The Company shall
apportion the Conversion Price among the Alternate Consideration in a reasonable
manner reflecting the relative value of any different components of the
Alternate Consideration. If holders of Common Stock are given any choice as to
the securities, cash or property to be received in a Fundamental Transaction,
then the Holder shall be given the same choice as to the Alternate Consideration
it receives upon any conversion of this Note following such Fundamental
Transaction. In case of any such Fundamental Transaction, any successor to the
Company, acquirer or surviving entity (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant, obligation, liability and condition under this Note to be
performed and observed by the Company, subject to such modifications as may be
reasonably deemed appropriate (as determined in good faith by resolution of the
Board of Directors of the Company) in order to provide for adjustments of the
number and kind of Conversion Shares for which this Note is convertible which
shall be as nearly equivalent as practicable to the adjustments provided for in
this section. Such assumption shall be pursuant to a written agreement in form
and substance reasonably satisfactory to the Holder. At the Holder’s request,
any successor to the Company, acquirer or surviving entity in such Fundamental
Transaction shall issue to the Holder a new Note from such entity substantially
similar in form and substance to this Note and consistent with the foregoing
provisions, which new Note shall be reasonably satisfactory to the Holder and
include, without limitation, (A) the outstanding Principal and Interest owed to
the Holder under this Note, (B) an interest rate equal to the Interest Rate, (C)
similar ranking to this Note, and (D) the Holder’s right to convert the new Note
into Alternate Consideration. The terms of any agreement pursuant to which a
Fundamental Transaction is effected shall include terms requiring any such
successor, acquirer or surviving entity to comply with the provisions of this
section and ensuring that this Note (or any such replacement security) will be
similarly adjusted upon any subsequent transaction analogous to a Fundamental
Transaction. Notwithstanding anything to the contrary contained herein, if a
Fundamental Transaction (X) is an all cash transaction, (Y) constitutes or
results in a “Rule 13e-3 transaction” as defined in Rule 13e-3 under the
Exchange Act (going private transaction), or (Z) otherwise results in the
successor, surviving or acquiring entity not being traded on a national
securities exchange, the Nasdaq Global Select Market, the Nasdaq Global Market
or the Nasdaq Capital Market, then upon the written request of the Holder,
delivered before the sixtieth (60th) day after such Fundamental Transaction, the
Company (or any such successor, acquirer or surviving entity) shall redeem this
Note from the Holder for a redemption price, payable in cash within five (5)
Business Days after such request (or, if later, on the effective date of such
Fundamental Transaction), equal to the value of this Note as determined using
the Black-Scholes Option Pricing Model via Bloomberg. The provisions of this
section shall similarly apply to successive Fundamental Transactions and shall
be applied without regard to any limitations of this Note.

  

 
 

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5.     Reissuance of this Note.

 

(a)     Assignability. The Company may not assign this Note. This Note will be
binding upon the Company and its successors and will inure to the benefit of the
Holder and its successors and assigns and may be assigned by the Holder to
anyone of its choosing without the Company’s approval.

 

(b)     Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note, and, in the case of loss, theft or destruction, of an
indemnification undertaking by the Holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of this Note, the
Company shall execute and deliver to the Holder a new Note representing the
outstanding Principal.

 

6.     Notices. Any notices, consents, waivers or other communications required
or permitted to be given under the terms hereof must be in writing and will be
deemed to have been delivered: (a) upon receipt, when delivered personally; (b)
upon receipt, when sent by facsimile (provided confirmation of transmission is
mechanically or electronically generated and kept on file by the sending party);
(c) upon receipt, when sent by email; or (d) one (1) Business Day after deposit
with a nationally recognized overnight delivery service, in each case properly
addressed to the party to receive the same. The addresses and facsimile numbers
for such communications shall be those set forth in the communications and
documents that each party has provided the other immediately preceding the
issuance of this Note or at such other address and/or facsimile number and/or to
the attention of such other person as the recipient party has specified by
written notice given to each other party three (3) Business Days prior to the
effectiveness of such change. Written confirmation of receipt (x) given by the
recipient of such notice, consent, waiver or other communication, (y)
mechanically or electronically generated by the sender's facsimile machine
containing the time, date, recipient facsimile number and an image of the first
page of such transmission or (z) provided by a nationally recognized overnight
delivery service, shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service in
accordance with clause (x), (y) or (z) above, respectively.

 

 
 

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The addresses for such communications shall be:

 

If to the Company, to:

 

AtheroNova Inc.
2301 Dupont Drive, Suite 525
Irvine, CA 92612
Attn:   Chief Executive Officer

Facsimile: (949) 476-1122

Email: tgardner@atheronova.com

 

If to the Holder:

 

___________________
___________________
___________________
Attn: ___________________

Facsimile: ___________________

Email: ___________________

 

7.     Governing Law and Venue. All questions concerning the construction,
validity, enforcement and interpretation of this Note shall be governed by and
construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflict of laws thereof. Each
party agrees that all legal proceedings concerning the interpretation,
enforcement and defense of the transactions contemplated by this Note (whether
brought against a party hereto or its respective Affiliates, directors,
officers, stockholders, employees or agents) shall be commenced in the state and
federal courts sitting in the County of Los Angeles (the “Los Angeles Courts”).
Each party hereto hereby irrevocably submits to the exclusive jurisdiction of
the Los Angeles Courts for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of such Los Angeles Courts, or such Los Angeles Courts are improper
or inconvenient venue for such proceeding. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof via registered or certified
mail or overnight delivery (with evidence of delivery) to such party at the
address in effect for notices to it under this Note and agrees that such service
shall constitute good and sufficient service of process and notice thereof.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any other manner permitted by applicable law. Each party hereto
hereby irrevocably waives, to the fullest extent permitted by applicable law,
any and all right to trial by jury in any legal proceeding arising out of or
relating to this Note or the transactions contemplated hereby. If either party
shall commence an action or proceeding to enforce any provisions of this Note,
then the prevailing party in such action or proceeding shall be reimbursed by
the other party for its attorneys’ fees and other costs and expenses reasonably
incurred in the investigation, preparation and prosecution of such action or
proceeding.

 

 
 

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8.     Waiver. Any waiver by the Company or the Holder of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Company or the Holder to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note. Any waiver by the
Company or the Holder must be in writing. The written consent of the holders of
at least a majority in interest of the outstanding principal amount of the Notes
shall be required for any change or amendment to this Note or the Notes. No
consideration shall be offered or paid to any holder of Notes to amend or
consent to a waiver or modification of the Notes unless the same consideration
also is offered to all of the holders of Notes.

 

9.     Severability. If any provision of this Note is invalid, illegal or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it shall be found
that any Interest or other amount deemed Interest due hereunder violates the
applicable law governing usury, the applicable rate of Interest due hereunder
shall automatically be lowered to equal the maximum rate of interest permitted
under applicable law.

 

10.    Next Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.

 

 
 

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IN WITNESS WHEREOF, the parties hereto have executed this Note, effective as of
the Issuance Date.

 

 

COMPANY: 

   

 

 

 

     

ATHERONOVA INC.

                By:         Name: Thomas W. Gardner     Its: Chief Executive
Officer                         HOLDER              

 

 

 

                                    By:         Name:       Its:    

  

 
 

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 EXHIBIT A

 

 

NOTICE OF CONVERSION

 

 

The undersigned hereby elects to convert principal under the 6% Senior Secured
Convertible Note (the “Note”) due January __, 2017 of AtheroNova Inc., a
Delaware corporation (the “Company”), into shares of common stock (“Common
Stock”) of the Company according to the conditions hereof, as of the date
written below.

 

 

 

By the delivery of this Notice of Conversion, the undersigned represents and
warrants to the Company that (check one):

 

 

 

________     its ownership of the Common Stock does not exceed the amounts
specified under Section 3(c) of the Note, as determined in accordance with
Section 13(d) of the Exchange Act.

 

 

________     immediately prior to giving effect to this Notice of Conversion, it
owns more than 4.99% of the outstanding shares of Common Stock, as determined in
accordance with Section 3(c) of the Note.

 

 

 

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock pursuant to any prospectus.

 

 

 

Conversion calculations: 

Date to Effect Conversion: 

 

 

 

 

 

 

 

 

Principal to be Converted: 

 

 

 

 

 

 

 

 

Interest Accrued on Account 

of Conversion at Issue:

 

 

  Number of shares of Common Stock to be issued (not less than $25,000 of the
Principal and any accrued but unpaid interest thereon):      

 

 

 

  Signature:                 Name:                

Address for Delivery of Common Stock Certificates: