Exhibit 10.2
 
NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF
THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN SECURED BY SUCH SECURITIES.
 

Original Issue Date: May __, 2012  $________________

 

ATHERONOVA INC.
12% CONVERTIBLE NOTE

THIS NOTE (this “Note”) is one of a series of duly authorized and validly issued
12% Convertible Notes (the “Notes”) of AtheroNova Inc., a Delaware corporation
(the “Company”), having its principal place of business at 2301 Dupont Drive,
Suite 525, Irvine, CA  92612.

FOR VALUE RECEIVED, the Company promises to pay to _______________________ or
its registered assigns (the “Holder”), or shall have paid pursuant to the terms
hereunder, the principal sum of $____________ on September 30, 2012 (the
“Maturity Date”) or such earlier date as this Note is required or permitted to
be repaid as provided hereunder, and to pay interest to the Holder on the
aggregate unconverted and then outstanding principal amount of this Note in
accordance with the provisions hereof.

The Company’s obligations under this Note are guaranteed by the Company’s
Subsidiaries pursuant to the Subsidiary Guarantee.

This Note is subject to the following additional provisions:

Section 1.               Definitions.  For the purposes hereof, in addition to
the terms defined elsewhere in this Note (a) capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement and
(b) the following terms shall have the following meanings:

“Alternate Consideration” shall have the meaning set forth in Section 5(c).

“Bankruptcy Event” means any of the following events: (a) the Company or any
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Company or any
Subsidiary thereof; (b) there is commenced against the Company or any Subsidiary
thereof any such case or proceeding that is not dismissed within 60 days after
commencement; (c) the Company or any Subsidiary thereof is adjudicated insolvent
or bankrupt or any order of relief or other order approving any such case or
proceeding is entered; (d) the Company or any Subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part of its
property that is not discharged or stayed within 60 days after such appointment;
(e) the Company or any Subsidiary thereof makes a general assignment for the
benefit of creditors; (f) the Company or any Subsidiary thereof calls a meeting
of its creditors with a view to arranging a composition, adjustment or
restructuring of its debts; or (g) the Company or any Subsidiary thereof, by any
act or failure to act, expressly indicates its consent to, approval of or
acquiescence in any of the foregoing or takes any corporate or other action for
the purpose of effecting any of the foregoing.
 
 
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“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 New York are authorized or required by law
or other governmental action to close.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Price” shall have the meaning set forth in Section 4(c).

“Conversion Shares” means, collectively, the shares of Common Stock issued or
issuable upon conversion or redemption of this Note in accordance with the terms
hereof, including without limitation shares of Common Stock issued or issuable
as interest hereunder or as damages under the Transaction Documents.

“Event of Default” shall have the meaning set forth in Section 7.

“Exchange Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations promulgated thereunder.

“Fundamental Transaction” shall have the meaning set forth in Section 5(c).

“Fundamental Transaction Cash Amount” means the sum of (i) the then outstanding
principal amount of this Note, plus all accrued and unpaid interest thereon, and
(ii) all other amounts, costs and expenses due in respect of this Note.

“Indebtedness” means (a) any liabilities for borrowed money or amounts owed
(other than trade accounts payable incurred in the ordinary course of business),
(b) all guaranties, endorsements and other contingent obligations in respect of
indebtedness of others, whether or not the same are or should be reflected in
the Company’s balance sheet (or the notes thereto), except guaranties by
endorsement of negotiable instruments for deposit or collection or similar
transactions in the ordinary course of business, and (c) the present value of
any lease payments due under leases required to be capitalized in accordance
with United States generally accepted accounting principles.
 
 
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“Los Angeles Courts” shall have the meaning set forth in Section 8(d).

“Note Register” shall have the meaning set forth in Section 2(c).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of this Note,
regardless of any transfers of this Note and regardless of the number of
instruments which may be issued to evidence this Note.

“Permitted Indebtedness” means (a) the Indebtedness existing on the Original
Issue Date, (b) lease obligations and purchase money indebtedness incurred in
connection with the acquisition of capital assets and lease obligations with
respect to newly acquired or leased assets, (c) Indebtedness incurred to replace
all or any party of the Indebtedness existing on the Original Issue Date, (d)
Indebtedness incurred to repay this Note in its entirety and (e) Indebtedness
that is expressly subordinate to this Note pursuant to a written subordination
agreement with the Holder.

“Permitted Lien” means the individual and collective reference to the following:
(a) Liens for taxes, assessments and other governmental charges or levies not
yet due or Liens for taxes, assessments and other governmental charges or levies
being contested in good faith and by appropriate proceedings for which adequate
reserves (in the good faith judgment of the management of the Company) have been
established in accordance with United States generally accepted accounting
principles; (b) Liens imposed by law which were incurred in the ordinary course
of the Company’s business, such as carriers’, warehousemen’s and mechanics’
Liens, statutory landlords’ Liens, and other similar Liens arising in the
ordinary course of the Company’s business, and which (x) do not individually or
in the aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the
Company and its consolidated Subsidiaries or (y) are being contested in good
faith by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the property or
asset subject to such Lien; and (c) Liens incurred in connection with Permitted
Indebtedness under clauses (a) through (d) thereunder.
 
“Purchase Agreement” means the Securities Purchase Agreement, dated as of May
14, 2012, among the Company and the purchasers signatory thereto, as amended,
modified or supplemented from time to time in accordance with its terms.

“Qualified Equity Financing” means a bona fide equity financing, conducted with
the principal purpose of raising capital, pursuant to which the Company sells
shares of Common Stock with aggregate gross proceeds to the Company of not less
than $3,000,000 (in one or more closings) to one or more investors, including
the conversion of the Notes into Common Stock but excluding any and all other
notes and other Indebtedness which are converted into Common Stock.
 
 
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“Securities Act” means the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder.

“Subsidiary” shall have the meaning set forth in the Purchase Agreement.

“Trading Day” means a day on which the principal Trading Market is open for
business.

“Trading Market” means the following markets or exchanges on which the Common
Stock is listed or quoted for trading on the date in question: NYSE Amex, the
NASDAQ Stock Market, the New York Stock Exchange, the OTC Bulletin Board, the
OTCQX U.S. or the OTCQB.

“Transaction Documents” shall have the meaning set forth in the Purchase
Agreement.

Section 2.             Interest; No Prepayment.

a)           Interest Rate.  Interest shall accrue daily on the outstanding
principal amount of this Note at a rate per annum equal to 12%, subject to
Section 2(d) below.

b)           Payment of Interest.  On the Maturity Date, the Company shall pay
to the Holder any accrued but unpaid and unconverted interest hereunder on the
aggregate unconverted and then outstanding principal amount of this Note, and on
each Conversion Date the Company shall pay to the Holder any accrued but unpaid
and unconverted interest hereunder on that portion of the principal amount then
being converted.  At the Holder’s election, the amount of interest payable on
each Conversion Date (“Interest Amount”) may be added to and included with the
principal amount being so converted on such date.

c)           Interest Calculations.  Interest shall be calculated on the basis
of a 360-day year, consisting of 12 30-day periods, and shall accrue daily
commencing on the Original Issue Date until payment in full of the outstanding
principal, together with all accrued and unpaid interest and other amounts which
may become due hereunder, has been made.  Interest hereunder will be paid to the
Person in whose name this Note is registered on the records of the Company
regarding registration and transfers of this Note (the “Note Register”).

d)           Prepayment.  The Company or its assignee may purchase this entire
Note by paying in cash to the Holder the then outstanding principal amount of
this Note, plus all accrued but unpaid interest thereon at the time of the
closing of such purchase.  At least 15 days before such closing, the Company
shall give the Holder a notice of the date for the closing, so that the Holder
may avoid all or part of the purchase by converting all or part of this Note’s
outstanding principal and unpaid interest under Section 4(a) before the
closing.  At the closing, the Holder shall assign this Note to the Company or
its assignee, free and clear of any liens, claims or encumbrances other than
transfer restrictions under applicable securities laws.
 
 
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Section 3.             Registration of Transfers and Exchanges.

a)           Different Denominations. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same.  No service charge will be
payable for such exchange.

b)           Investment Representations.  This Note has been issued subject to
certain investment representations of the original Holder set forth in the
Purchase Agreement and may be transferred or exchanged only in compliance with
the Purchase Agreement and applicable federal and state securities laws and
regulations.

c)           Reliance on Note Register.  Prior to due presentment for transfer
to the Company of this Note, the Company and any agent of the Company may treat
the Person in whose name this Note is duly registered on the Note Register as
the owner hereof for the purpose of receiving payment as herein provided and for
all other purposes, whether or not this Note is overdue, and neither the Company
nor any such agent shall be affected by notice to the contrary.

d)           Transfer Restrictions.  Any transfer of this Note shall also be
subject to the applicable restrictions and requirements of Sections 3.2 and 4.1
of the Purchase Agreement and other provisions of the Transaction Documents.

Section 4.             Conversion.

a)           Voluntary Conversion. At any time after the Original Issue Date
until this Note is no longer outstanding, this Note shall be convertible, in
whole or in part, into shares of Common Stock at the option of the Holder, at
any time and from time to time (subject to the conversion limitations set forth
in Section 4(d) hereof).  The Holder shall effect conversions by delivering to
the Company a Notice of Conversion, the form of which is attached hereto as
Annex A (a “Notice of Conversion”), specifying therein the principal amount of
this Note and any accrued but unpaid interest thereon to be converted and the
future date (which may be the same date as the date such notice is deemed
effective pursuant to Section 8(a)) on which such conversion shall be effected
(such date, the “Conversion Date”).  If no Conversion Date is specified in a
Notice of Conversion, the Conversion Date shall be the date that such Notice of
Conversion is deemed delivered hereunder.  To effect conversions hereunder, the
Holder shall not be required to physically surrender this Note to the Company
unless the entire principal amount of this Note, plus all accrued and unpaid
interest thereon, has been so converted.  Conversions hereunder shall have the
effect of lowering the outstanding principal amount of this Note in an amount
equal to the applicable principal amount so converted.  The Holder and the
Company shall maintain records showing the principal amount(s) converted and the
date of such conversion(s).  In the event of any dispute or discrepancy, the
records of the Company shall be controlling and determinative in the absence of
manifest error.  The Holder, and any assignee by acceptance of this Note,
acknowledge and agree that, by reason of the provisions of this paragraph,
following conversion of a portion of this Note, the unpaid and unconverted
principal amount of this Note may be less than the amount stated on the face
hereof.
 
 
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b)           Conversion Price.  The conversion price shall be equal to the lower
of (i) $0.90 per share (subject to adjustment herein) and (ii) to the extent
consummated, the per share price at which shares of Common Stock are sold in the
Qualified Equity Financing (subject to adjustment herein for events occurring
after the consummation of the Qualified Equity Financing) (the “Conversion
Price”).

c)           Conversion Limitations.  Unless otherwise approved in writing by
the Company, any individual conversion under Section 4(a) must be for at least
10,000 Conversion Shares (such number to be appropriately adjusted for any stock
splits, stock dividends and similar events).

 
d)
Mechanics of Conversion.

 
i.           Conversion Shares Issuable Upon Conversion of Principal
Amount.  The number of Conversion Shares issuable upon a conversion hereunder
shall be determined by the quotient obtained by dividing (x) the outstanding
principal amount of this Note to be converted plus any accrued but unpaid
interest thereon to be converted, by (y) the Conversion Price.

ii.           Delivery of Certificate Upon Conversion.  The Company shall
deliver, or cause to be delivered, to the Holder after each Conversion Date a
certificate or certificates representing the number of Conversion Shares being
acquired upon the conversion of this Note.

iii.           Obligation Absolute.  The Company’s obligations to issue and
deliver the Conversion Shares upon conversion of this Note in accordance with
the terms hereof are absolute and unconditional, irrespective of any action or
inaction by the Holder to enforce the same, any waiver or consent with respect
to any provision hereof, the recovery of any judgment against any Person or any
action to enforce the same, or any setoff, counterclaim, recoupment, limitation
or termination, or any breach or alleged breach by the Holder or any other
Person of any obligation to the Company or any violation or alleged violation of
law by the Holder or any other Person, and irrespective of any other
circumstance which might otherwise limit such obligation of the Company to the
Holder in connection with the issuance of such Conversion Shares; provided,
however, that such delivery shall not operate as a waiver by the Company of any
such action the Company may have against the Holder.  In the event the Holder of
this Note shall elect to convert any or all of the outstanding principal amount
hereof, the Company may not refuse conversion based on any claim that the Holder
or anyone associated or affiliated with the Holder has been engaged in any
violation of law, agreement or for any other reason, unless an injunction from a
court, on notice to Holder, restraining and or enjoining conversion of all or
part of this Note shall have been sought and obtained, and the Company posts a
surety bond for the benefit of the Holder in the amount of 100% of the
outstanding principal amount of this Note, which is subject to the injunction,
which bond shall remain in effect until the completion of arbitration/litigation
of the underlying dispute and the proceeds of which shall be payable to the
Holder to the extent it obtains judgment.  In the absence of such injunction,
the Company shall issue Conversion Shares or, if applicable, cash, upon a
properly noticed conversion.  Nothing herein shall limit a Holder’s right to
pursue actual damages or declare an Event of Default pursuant to Section 7
hereof for the Company’s failure to deliver Conversion Shares within the period
specified herein and the Holder shall have the right to pursue all remedies
available to it hereunder, at law or in equity including, without limitation, a
decree of specific performance and/or injunctive relief.  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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iv.           Reservation of Shares Issuable Upon Conversion. The Company
covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose of issuance
upon conversion of this Note and payment of interest on this Note, each as
herein provided, free from preemptive rights or any other actual contingent
purchase rights of Persons other than the Holder (and the other holders of the
Notes), not less than such aggregate number of shares of the Common Stock as
shall (subject to the terms and conditions set forth in the Purchase Agreement)
be issuable (taking into account the adjustments of Section 5) upon the
conversion of the outstanding principal amount of this Note and payment of
interest hereunder.  The Company covenants that all shares of Common Stock that
shall be so issuable shall, upon issue, be duly authorized, validly issued,
fully paid and nonassessable.

v.           Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this Note.  As to any
fraction of a share which Holder would otherwise be entitled to purchase upon
such conversion, the Company shall round to the nearest whole share.

vi.           Transfer Taxes.  The issuance of certificates for shares of the
Common Stock on conversion of this Note shall be made without charge to the
Holder hereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificates, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of this Note and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid.
 
 
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Section 5.             Certain Adjustments.
 
a)           Stock Dividends and Stock Splits.  If the Company, at any time
while this Note is outstanding: (A) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Company upon
conversion of, or payment of interest on, the Notes); (B) subdivides outstanding
shares of Common Stock into a larger number of shares; (C) combines (including
by way of a reverse stock split) outstanding shares of Common Stock into a
smaller number of shares; or (D) issues, in the event of a reclassification of
shares of the Common Stock, any shares of capital stock of the Company, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding any treasury shares of the
Company) outstanding immediately before such event and of which the denominator
shall be the number of shares of Common Stock outstanding immediately after such
event.  Any adjustment made pursuant to this section shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision, combination or
re-classification.
 
b)           Pro Rata Distributions.  The Company shall not, at any time while
this Note is outstanding, distribute to all holders of Common Stock (and not to
Holders of the Notes) evidences of its Indebtedness or assets (including cash
and cash dividends) or rights or warrants to subscribe for or purchase any
security other than the Common Stock.
 
c)           Fundamental Transaction.  If, at any time while this Note is
outstanding, (A) the Company effects any merger or consolidation of the Company
with or into another Person, (B) the Company effects any sale of all or
substantially all of its assets in one or a series of related transactions, (C)
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 (D) 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 upon any subsequent conversion of this Note, the Holder
shall have the right to receive, for each Conversion Share that would have been
issuable upon such conversion immediately prior to the occurrence of such
Fundamental Transaction, the same kind and amount of securities, cash or
property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental
Transaction, the holder of one share of Common Stock (the “Alternate
Consideration”).  For purposes of any such conversion, the determination of the
Conversion Price shall be appropriately adjusted to apply to such Alternate
Consideration based on the amount of Alternate Consideration issuable in respect
of 1 share of Common Stock in such Fundamental Transaction, and 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.  To the extent necessary to effectuate the foregoing provisions,
any successor to the Company or surviving entity in such Fundamental Transaction
shall issue to the Holder a new Note consistent with the foregoing provisions
and evidencing the Holder’s right to convert such Note into Alternate
Consideration.  The terms of any agreement pursuant to which a Fundamental
Transaction is effected shall include terms requiring any such successor or
surviving entity to comply with the provisions of this Section 5(c) and insuring
that this Note (or any such replacement security) will be similarly adjusted
upon any subsequent transaction analogous to a Fundamental Transaction.  In the
event of a Fundamental Transaction, the Holder may elect, by giving written
notice of such election to the Company at least five Trading Days before the
closing of such Fundamental Transaction, to sell this Note to the Company or its
designated assignee, concurrently with such closing, for a cash payment equal to
the Fundamental Transaction Cash Amount at the time of the closing.  Notice of
any such proposed Fundamental Transaction and of such election shall be given to
the Holder at least 15 days before such closing.  In connection with such
purchase, the Holder shall assign this Note to the Company or its assignee, free
and clear of any liens, claims or encumbrances other than transfer restrictions
under applicable securities laws.
 
 
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d)           Calculations.  All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case may be.  For
purposes of this Section 5, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding treasury shares, if any) issued and
outstanding.

e)           Notice to the Holder.

i.           Adjustment to Conversion Price.  Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 5, the Company shall promptly
deliver to each Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

ii.           Notice to Allow Conversion by Holder.  If (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Company shall declare a special nonrecurring cash dividend on or
a redemption of the Common Stock, (C) the Company shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this
Note, and shall cause to be delivered to the Holder at its last address as it
shall appear upon the Note Register, at least 20 days prior to the applicable
record or effective date hereinafter specified, a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided that the failure to deliver such
notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice.  The
Holder is entitled to convert this Note during the 20-day period commencing on
the date of such notice through the effective date of the event triggering such
notice.
 
 
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Section 6.             Negative Covenants. As long as any portion of this Note
remains outstanding, unless the holders of at least a majority in principal
amount of the then outstanding Notes shall have otherwise given prior written
consent, the Company shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly:

a)           other than Permitted Indebtedness, enter into, create, incur,
assume, guarantee or suffer to exist any Indebtedness for borrowed money of any
kind, including but not limited to, a guarantee, on or with respect to any of
its property or assets now owned or hereafter acquired or any interest therein
or any income or profits therefrom;

b)           other than Permitted Liens, enter into, create, incur, assume or
suffer to exist any Liens of any kind, on or with respect to any of its property
or assets now owned or hereafter acquired or any interest therein or any income
or profits therefrom;

c)           repay, repurchase or offer to repay, repurchase or otherwise
acquire more than a de minimis number of shares of its Common Stock or Common
Stock Equivalents other than as to (a) the Conversion Shares or Warrant Shares
as permitted or required under the Transaction Documents and (b) repurchases of
Common Stock or Common Stock Equivalents of departing employees of the Company,
provided that such repurchases shall not exceed an aggregate of $50,000 for all
employees during the term of this Note;
 
d)           pay cash dividends or distributions on Common Stock of the Company;
 
e)           enter into any transaction with any Affiliate of the Company which
would be required to be disclosed in any public filing with the Commission,
unless such transaction is expressly approved by a majority of the disinterested
directors of the Company (even if less than a quorum otherwise required for
board approval);

f)           consummate (a) the sale, transfer or other disposition of all or
substantially all of the assets of the Company, including the exclusive license
of all or substantially all of the Company’s intellectual property rights, in
one or more related transactions, or (b) a merger, consolidation, sale or other
transaction involving the Company with or into another entity, or any other
corporate reorganization, if more than fifty percent (50%) of the combined
equity or voting power of the continuing or surviving entity’s equity securities
outstanding immediately after such merger, consolidation or other reorganization
is owned, directly or indirectly, by Persons who were not stockholders of the
Company holding shares of the voting equity of the Company immediately prior to
such merger, consolidation or other reorganization; or

g)           enter into any agreement with respect to any of the foregoing.
 
 
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For the avoidance of doubt, subject to the express provisions of the Transaction
Documents, the Company shall be entitled to seek and obtain additional debt or
equity financing from parties other than the purchasers of the Notes, as
approved by its board of directors.

Section 7.             Events of Default.

a)           “Event of Default” means, wherever used herein, any of the
following events (whatever the reason for such event and whether such event
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), provided that an event specified in
item (i), (ii), (iii), or (viii) below will not become an Event of Default
unless and until it is not cured within the earlier to occur of (1) five Trading
Days after notice of such failure sent by the Holder or by any other Holder and
(2) 10 Trading Days after the Company has become or should have become aware of
such failure:

i.             any default in the payment of (A) the principal amount of any
Note or (B) interest and other amounts owing to a Holder on any Note, as and
when the same shall become due and payable (whether on a Conversion Date or the
Maturity Date or by acceleration or otherwise);
 
 
ii.            the Company shall fail to observe or perform any other covenant
or agreement contained in the Notes (other than a breach by the Company of its
obligations to deliver shares of Common Stock to the Holder upon conversion,
which breach is addressed in clause (xi) below);

iii.           a default or event of default (subject to any grace or cure
period provided in the applicable agreement, document or instrument) shall occur
under (A) any of the Transaction Documents or (B) any other material agreement,
lease, document or instrument to which the Company or any Subsidiary is
obligated (and not covered by clause (vi) below);

iv.            any representation or warranty made in this Note, any other
Transaction Documents, any written statement pursuant hereto or thereto or any
other report, financial statement or certificate made or delivered to the Holder
or any other Holder shall be untrue or incorrect in any material respect as of
the date when made or deemed made;

v.            the Company or any Subsidiary shall be subject to a Bankruptcy
Event;

vi.           the Company or any Subsidiary shall default on any of its
obligations under 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
that (a) involves an obligation greater than $100,000, whether such Indebtedness
now exists or shall hereafter be created, and (b) results in such Indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;

vii.          if the Common Stock shall not be eligible for listing or quotation
for trading on a Trading Market and shall not be eligible to resume listing or
quotation for trading thereon within 10 Trading Days;
 
 
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viii.         if at any time after three months following the Original Issue
Date the Company is not subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act or has failed to file all reports required to be filed
thereunder during the then preceding 12 months (or such shorter period that the
Company was required to file such reports);

ix.            if the Subsidiary Guarantee ceases to be in full force and effect
at any time for any reason; or

x.           any monetary judgment, writ or similar final process shall be
entered or filed against the Company, any subsidiary or any of their respective
properties or other assets for more than $100,000, and such judgment, writ or
similar final process shall remain unvacated, unbonded or unstayed for a period
of 45 days; provided, however, that any judgment which is covered by insurance
or an indemnity from a creditworthy party (such creditworthiness as reasonably
determined by the Holder) shall not be included in calculating the amount of
such judgment, writ or final process so long as the Company provides the Holder
a written statement from such insurer or indemnity provider (which written
statement shall be reasonably satisfactory to the Holder) to the effect that
such judgment is covered by insurance or an indemnity and the Company will
receive the proceeds of such insurance or indemnity within 45 days of the
issuance of such judgment.

b)           Acceleration Upon Event of Default.  If any Event of Default
occurs, the outstanding principal amount of this Note, plus accrued but unpaid
interest and other amounts owing in respect thereof through the date of
acceleration, shall become, at the Holder’s election (which the Holder shall not
make more than the later of 30 days after the date (a) such Event of Default is
cured or otherwise resolved and (b) the Holder is aware of such cure or
resolution), immediately due and payable in cash at the Mandatory Default
Amount.  If there is such an acceleration, then upon the payment in full of the
Mandatory Default Amount, the Holder shall promptly surrender this Note to or as
directed by the Company.  Such acceleration may be rescinded and annulled by
Holder at any time prior to payment hereunder and the Holder shall have all
rights as a holder of the Note until such time, if any, as the Holder receives
full payment pursuant to this Section 7(b).  No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.

Section 8.             Miscellaneous.
 
a)           Notices.  Any and all notices or other communications or deliveries
to be provided by the Holder hereunder, including, without limitation, any
Notice of Conversion, shall be in writing and delivered personally, by
facsimile, or sent by a nationally recognized overnight courier service,
addressed to the Company, at the address set forth above, or such other
facsimile number or address as the Company may specify for such purpose by
notice to the Holder delivered in accordance with this Section 8(a).  Any and
all notices or other communications or deliveries to be provided by the Company
hereunder shall be in writing and delivered personally, by facsimile, or sent by
a nationally recognized overnight courier service addressed to each Holder at
the facsimile number or address of the Holder appearing on the books of the
Company, or if no such facsimile number or address appears, at the principal
place of business of the Holder.  Any notice or other communication or
deliveries hereunder shall be deemed given and effective on the earliest of (i)
the date of transmission or delivery, if such notice or communication is
delivered via facsimile at the facsimile number, or delivered by such courier
service to the address, specified in this Section 8(a) prior to 5:30 p.m.
(Pacific time), (ii) the date immediately following the date of transmission or
delivery, if such notice or communication is delivered via facsimile at the
facsimile number, or delivered by such courier to the address, specified in this
Section 8(a) between 5:30 p.m. (Pacific time) and 11:59 p.m. (Pacific time) on
any date, or (iii) upon actual receipt by the party to whom such notice is
required to be given.  The address for such notices and communications shall be
as set forth on the signature pages attached to the Purchase Agreement.
 
 
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b)           Absolute Obligation.  Except as expressly provided herein, no
provision of this Note shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of and accrued
interest, as applicable, on this Note at the time, place, and rate, and in the
coin or currency, herein prescribed.  This Note is a direct debt obligation of
the Company.  This Note ranks pari passu with all other Notes now or hereafter
issued under the terms set forth herein.

c)           Lost or Mutilated Note.  If this Note shall be mutilated, lost,
stolen or destroyed, the Company shall execute and deliver, in exchange and
substitution for and upon cancellation of the mutilated Note, or in lieu of or
in substitution for a lost, stolen or destroyed Note, a new Note for the
principal amount of this Note so mutilated, lost, stolen or destroyed, but only
upon receipt of evidence of such loss, theft or destruction of such Note, and of
the ownership hereof, reasonably satisfactory to the Company.

d)           Governing Law.  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 any of the
Transaction Documents (whether brought against a party hereto or its respective
Affiliates, directors, officers, shareholders, 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 (including with respect to the enforcement of any of
the Transaction Documents), 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 attorney’s fees and
other costs and expenses reasonably incurred in the investigation, preparation
and prosecution of such action or proceeding.
 
e)           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.
 
 
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f)           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.  The Company covenants (to the extent that it may lawfully
do so) that it shall not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay, extension or
usury law or other law which would prohibit or forgive the Company from paying
all or any portion of the principal of or interest on this Note as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this indenture, and the Company (to
the extent it may lawfully do so) hereby expressly waives all benefits or
advantage of any such law, and covenants that it will not, by resort to any such
law, hinder, delay or impeded the execution of any power herein granted to the
Holder, but will suffer and permit the execution of every such as though no such
law has been enacted.

g)           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.

h)           Headings.  The headings contained herein are for convenience only,
do not constitute a part of this Note and shall not be deemed to limit or affect
any of the provisions hereof.

i)            Assumption.  Any successor to the Company or any surviving entity
in a Fundamental Transaction shall (i) assume, prior to such Fundamental
Transaction, all of the obligations of the Company under this Note and the other
Transaction Documents pursuant to written agreements in form and substance
satisfactory to the Holder (such approval not to be unreasonably withheld or
delayed) and (ii) issue to the Holder a new Note of such successor entity
evidenced by a written instrument substantially similar in form and substance to
this Note, including, without limitation, having a principal amount and interest
rate equal to the principal amount and the interest rate of this Note and having
similar ranking to this Note, which shall be satisfactory to the Holder (any
such approval not to be unreasonably withheld or delayed).  The provisions of
this Section 8(i) shall apply similarly and equally to successive Fundamental
Transactions and shall be applied without regard to any limitations of this
Note.

j)            Usury.  This Note shall be subject to the anti-usury limitations
contained in the Purchase Agreement.

[Signature Page Follows]
 
 
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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a
duly authorized officer as of the date first above indicated.

 
ATHERONOVA INC.
 
 
 
By:__________________________________________
     Name:
     Title:
Facsimile No. for delivery of Notices:

 
 
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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 12% Convertible
Note due September 30, 2012 (the “Note”) of AtheroNova Inc., a Delaware
corporation (the Company”), into shares of common stock (the “Common Stock”), of
the Company according to the conditions hereof, as of the date written
below.  If shares of Common Stock are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto and is delivering herewith such certificates and opinions as
reasonably requested by the Company in accordance therewith.  No fee will be
charged to the holder for any conversion, except for such transfer taxes, if
any.

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of the Note, as determined in accordance
with Section 13(d) of the Exchange Act.

Conversion calculations:

  Date to Effect Conversion:  

 

  Principal Amount of Note to be Converted:  

 

  Interest Accrued on Account of Conversion at Issue:           Number of shares
of Common Stock to be issued (not less than 10,000 shares):      

 

  Signature:  

 

  Name:  

 

  Address for Delivery of Common Stock Certificates:                       Or  
        DWAC Instructions:  

 

  Broker No:      Account No:   

 
 
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