Document:

ex10-1.htm

Exhibit 10.1

 

 

AMENDMENT AND EXCHANGE AGREEMENT

 

THIS AMENDMENT AND EXCHANGE AGREEMENT (this “Agreement”), dated as of June 15, 2012, is by and between AtheroNova Inc., a Delaware corporation formerly known as Trist Holdings, Inc. (the “Company”), and _______________ (the “Investor”).

 

WHEREAS:

 

A.           The Company, the Investor and certain other investors (the “Other Investors”, and collectively with the Investor, the “Investors”) are parties to that certain Securities Purchase Agreement, dated as of May 13, 2010, as amended July 6, 2011 (the “Existing Securities Purchase Agreement”), pursuant to which, among other things, the Investors purchased from the Company 2.5% Senior Secured Convertible Notes (the “Existing Notes”), which are convertible into shares of the Company’s common stock in accordance with the terms thereof.

 

B.           The Company and the Investor desire to enter into this Agreement pursuant to which, among other things, the Company shall (i) amend and restate such Investor’s Existing Notes for a note in the form attached hereto as Exhibit A (the “Note”) with the principal amounts set forth opposite the Investor’s name in column (3) on the Securities Schedule attached hereto, and (ii) amend and restate such Investor’s Common Stock Purchase Warrants (“Existing Warrants”) for a warrant in the form attached hereto as Exhibit B (the “Warrants”) to purchase the number of shares of the Company’s Common Stock set forth opposite the Investor’s name in column (4) on the Securities Schedule attached hereto.

 

C.            The amendment and restatement of the Existing Notes for the Note and the amendment and restatement of the Existing Warrants for the Warrant are being made in reliance upon the exemption from registration provided by Section 3(a)(9) of the Securities Act.

 

D.            Capitalized terms used herein and not otherwise defined herein shall have the respective meanings ascribed to them in the Existing Securities Purchase Agreement.

 

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual promises hereinafter set forth, the Company and the Investor hereby agree as follows:

 

1.            AMENDMENT AND RESTATEMENT OF EXISTING SECURITIES.

 

  (a)           Amendment and Restatement of Existing Notes.  Subject to satisfaction (or waiver) of the conditions set forth in Sections 5 and 6 below, at the closing of this Agreement (the “Closing”), i) the Investor shall surrender to the Company its Existing Notes and ii) the Company shall issue and deliver to the Investor a Note in the principal amount set forth opposite the Investor’s name in column (3) of the Securities Schedule attached hereto.

 

  (b)           Amendment and Restatement of Existing Warrants.  Subject to satisfaction (or waiver) of the conditions set forth in Sections 5 and 6 below, at the Closing iii) the Investor shall surrender to the Company its Existing Warrants and iv) the Company shall issue and deliver to the Investor a Warrant to purchase the number of shares of the Company’s Common Stock set forth opposite the Investor’s name in column (4) on the Securities Schedule attached hereto.

 

  

  

  

 

  (c)           Closing Date.  The date and time of the Closing (the “Closing Date”) shall be 10:00 a.m., Pacific Time on the date hereof, subject to notification of satisfaction (or waiver) of the conditions to the Closing set forth in Sections 5 and 6 below (or such other time and date as is mutually agreed to by the Company and the Investor).  The Closing shall occur on the Closing Date at the offices of Stubbs Alderton & Markiles, LLP, 15260 Ventura Boulevard, 20th Floor, Sherman Oaks, CA 91403.

 

2.            AMENDMENTS TO TRANSACTION DOCUMENTS.

 

  (a)           Reaffirmation.  The Company hereby confirms and agrees that, except as otherwise expressly provided herein:

 

(i)             the Existing Securities Purchase Agreement and each other Transaction Document is, and shall continue to be, in full force and effect and is hereby ratified and confirmed in all respects, except that on and after the Closing Date (i) all references in the Existing Securities Purchase Agreement to “this Agreement”, “hereto”, “hereof”, “hereunder” or words of like import referring to the Securities Purchase Agreement shall mean the Existing Securities Purchase Agreement as amended by this Agreement, and (ii) all references in the other Transaction Documents to the “Securities Purchase Agreement”, “thereto”, “thereof”, “thereunder” or words of like import referring to the Securities Purchase Agreement shall mean the Existing Securities Purchase Agreement as amended by this Agreement.  REFERENCES TO NOTES AND WARRANTS IN ALL TRANSACTION DOCUMENTS MEANS NOTES AND WARRANTS UNDER THIS AGREEMENT;

 

(ii)            to the extent that the Securities Purchase Agreement or any other Transaction Document purports to assign or pledge to the Agent for the Investors and the holders of the Securities, or to grant to the Agent a security interest in or lien on, any collateral as security for the obligations of the Company from time to time existing in respect of the Existing Notes and any other existing Transaction Document, such pledge, assignment and/or grant of the security interest or lien is hereby ratified and confirmed in all respects, and shall apply with respect to the obligations under the Notes and no additional filing is required to be made in order to maintain the perfection of the security interest in, or lien, on such collateral; and

 

(iii)           the execution, delivery and effectiveness of this Agreement shall not operate as an amendment of any right, power or remedy of the Agent or the Investors under any Transaction Document, nor constitute an amendment of any provision of any Transaction Document.

 

  (b)           Amendment to Section 2.1(b)(i) of the Existing Securities Purchase Agreement.  Section 2.1(b)(i) of the Existing Securities Purchase Agreement is hereby amended in its entirety to read as follows:

 

  

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              “(i)          If, during the twenty-six (26) month period following the Initial Closing, AtheroNova Operations obtains (A) a favorable ruling, determination or other correspondence from the United States Patent and Trademark Office (or any foreign equivalent) with respect to any of its existing patent applications and (B) a favorable result from its next phase of animal testing (collectively, the “Favorable Determination Milestones”), in each case, all as determined in the sole discretion of the Purchaser Representative on behalf of the Purchasers, then, following the completion of all of the Favorable Determination Milestones, the Company will have the right, but not the obligation, to cause the Purchasers to purchase Additional Notes (excluding any Warrant coverage), in an aggregate principal amount equal to $1,500,000 (the “First Additional Funding Amount”) in accordance with the following procedures.  Within ten (10) days following the completion of all of the proposed Favorable Determination Milestones (the “Milestone Notice Date”), the Company will have the right to request in writing (the “Favorable Milestone Notice”) the First Additional Funding Amount.  If the Purchaser Representative, on behalf of the Purchasers, determines, in its sole discretion, that all of the Favorable Determination Milestones have been achieved, then each Purchaser will fund its pro rata portion of the First Additional Funding Amount (determined based upon the principal amount of Notes purchased by the Purchasers at all prior Closings), within fifty (50) days after the receipt of the Favorable Milestone Notice.  For clarity, if the Purchaser Representative determines, in its sole discretion, that all of the Favorable Determination Milestones have not been achieved, then the Purchaser Representative will provide written notice thereof to the Company and the Purchasers and the Purchasers will thereafter have no obligation to fund the First Additional Funding Amount.”

 

  (c)            Amendment to Section 2.1(b)(ii) of the Existing Securities Purchase Agreement.  Section 2.1(b)(ii) of the Existing Securities Purchase Agreement is hereby amended in its entirety to read as follows:

 

              “(ii)         If, (A) during the twenty-six (26) month period following the Initial Closing, the Company fails to obtain all of the Favorable Determination Milestones (whether directly or as a result of the determinations of the Purchaser Representative that all of such Favorable Determination Milestones have not been achieved) as described in subsection (i) above or (B) the Company obtains all of the Favorable Determination Milestones but does not submit the Favorable Milestone Notice by the Milestone Notice Date, then the rights of the Company set forth in subsection (i) above shall expire, provided, however, that the Purchasers shall have the right, but not the obligation, during the fifty (50)-day period following the Milestone Notice Date, to cause the Company to accept the Purchasers’ subscription for Additional Notes (excluding any Warrant coverage) in an aggregate principal amount less than or equal to the First Additional Funding Amount (the “Optional Funding”) (such amount to be determined by the Purchasers who elect to participate in the Optional Funding).  In the event any Purchaser desires to participate in the Optional Funding, such Purchaser shall provide the Purchaser Representative with written notice of its intent to participate and its proposed subscription amount within five (5) days following the Milestone Notice Date.  If a Purchaser does not elect to purchase his, her or its full pro rata share of the Optional Funding, the Purchaser Representative shall deliver another written notice to each Purchaser that has elected to purchase his, her or its full pro rata share of the Optional Funding (a “Fully Exercising Purchaser”) stating the portion of the unsubscribed Optional Funding (the “Unpurchased Notes”).  Each Fully Exercising Purchaser shall be entitled, by delivering written notice to the Purchaser Representative within five (5) days following the delivery of such notice, to subscribe for up to all of the Unpurchased Notes.  In the event of an oversubscription, the oversubscribed amount shall be allocated among such Fully Exercising Purchaser on a pro rata basis (determined based upon the principal amount of Notes purchased by the Purchasers at all prior Closings).  A Purchaser’s delivery of the notice of election under this paragraph shall constitute an irrevocable commitment to purchase such Additional Notes.  On the tenth day after the Milestone Notice Date, the Purchaser Representative shall deliver to the Company, on behalf of the Purchasers, a written notice stating the Purchasers’ election to participate in the Optional Funding and the applicable amounts of such participation (the “Optional Funding Notice”).  The Purchasers and the Company shall use their commercially reasonable efforts to consummate the Closing of the Optional Funding within forty (40) days following the delivery by the Purchaser Representative of the Optional Funding Notice.”

 

  

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  (d)           Amendment to Transaction Documents.  Each of the Transaction Documents is hereby amended as follows:

 

(i)             All references to “Notes” shall be amended to mean the Notes as defined in this Agreement.

 

(ii)            All references to “Warrants” shall be amended to mean the Warrants as defined in this Agreement.

 

(iii)           The defined term “Transaction Documents” is hereby amended to include this Agreement.

 

3.             REPRESENTATIONS AND WARRANTIES

 

  (a)           Investor Bring Down.  The Investor hereby represents and warrants to the Company with respect to itself only as set forth in Section 3.2 of the Existing Securities Purchase Agreement as if such representations and warranties were made as of the date hereof and set forth in their entirety in this Agreement.  Such representations and warranties to the transactions thereunder and the securities issued thereby are hereby deemed for purposes of this Agreement to be references to the transactions hereunder and the issuance of the securities hereby.

 

  (b)           Company Bring Down.  The Company represents and warrants to the Investor as set forth in Section 3.1 of the Existing Securities Purchase Agreement, as if such representations and warranties were made as of the date hereof and set forth in their entirety in this Agreement.  Such representations and warranties to the transactions thereunder and the securities issued thereby are hereby deemed for purposes of this Agreement to be references to the transactions hereunder and the issuance of the securities hereby, references therein to “Closing Date” being deemed references to the Closing Date as defined in Section 1(b) above, and references to “the date hereof” being deemed references to the date of this Agreement.

 

  

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  (c)           No Event of Default.  The Company represents and warrants to the Investor that after giving effect to the terms of this Agreement and the Other Agreements (as defined below), no Event of Default (as defined in the Notes) shall have occurred and be continuing as of the date hereof.

 

  (d)           Holding Period.  For the purposes of Rule 144, the Company acknowledges that the holding period of the Notes (including the corresponding Conversion Shares (as defined in the Notes)) and the Warrants (including the corresponding Warrant Shares) may be tacked onto the holding period of the Existing Notes and the Existing Warrants, as applicable, and the Company agrees not to take a position contrary to this Section 3(d).

 

4.             CERTAIN COVENANTS AND AGREEMENTS; WAIVER

 

 

  (a)           Best Efforts.  Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Sections 5 and 6 of this Agreement.

 

  (b)           Fees and Expenses.  Except as otherwise set forth in this Agreement, each party shall pay the fees and expenses of its advisers, counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation, execution, delivery and performance of this Agreement.

 

5.             CONDITIONS TO COMPANY’S OBLIGATIONS HEREUNDER.

 

  The obligations of the Company to the Investor hereunder are subject to the satisfaction of each of the following conditions, provided that these conditions are for the Company’s sole benefit and may be waived by the Company at any time in its sole discretion by providing the Investor with prior written notice thereof:

  (a)           The Investor shall have executed this Agreement and delivered the same to the Company.

 

  (b)           The Investor shall have delivered to the Company the Investor’s Existing Notes and Existing Warrants for cancellation.

 

  (c)           The representations and warranties of the Investor shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date) and the Investor shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Investor at or prior to the Closing Date.

 

6.             CONDITIONS TO INVESTOR’S OBLIGATIONS HEREUNDER.

 

  The obligations of the Investor hereunder are subject to the satisfaction of each of the following conditions, provided that these conditions are for the Investor’s sole benefit and may be waived by the Investor at any time in its sole discretion by providing the Company with prior written notice thereof:

  (a)           The Company shall have executed this Agreement and delivered the same to the Investor.

 

  

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  (b)           The Company shall have executed and delivered to the Investor the Notes and Warrants being issued to such Investor at the Closing.

 

  (c)           Each of the Other Investors shall have (i) executed agreements identical to this Agreement (the “Other Agreements”) (other than changes in the numbers reflecting the different dollar amounts of such Other Investors’ Notes and the Warrant Shares underlying such Other Investors’ Warrants), (ii) satisfied or waived all conditions to the closings contemplated by such agreements and (iii) surrendered their Existing Notes and Existing Warrants for the new Notes and Warrants being issued to such Other Investors at the Closing.

 

  (d)           The Company shall have delivered to the Investor a certificate, executed by the Secretary of the Company and dated as of the Closing Date, as to the resolutions approving the transactions contemplated hereby as adopted by the Board of Directors in a form reasonably acceptable to the Investor as in effect as of the Closing, in the form attached hereto as Exhibit B.

 

  (e)           The representations and warranties of the Company hereunder shall be true and correct in all material respects (except for those representations and warranties that are qualified by materiality or Material Adverse Effect, which shall be true and correct in all respects) as of the date when made and as of the Closing Date as though made at that time (except for representations and warranties that speak as of a specific date, which shall be true and correct as of such specified date) and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by this Agreement and the other Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing Date and after giving effect to the terms of this Agreement and the Other Agreements, no default or Event of Default shall have occurred and be continuing as of the Closing Date.  The Investor shall have received a certificate, executed by the Chief Executive Officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Investor in the form attached hereto as  Exhibit C.

 

  (f)           The Company shall have obtained all governmental, regulatory or third party consents and approvals, if any, necessary for the sale of the Securities.

 

  (g)           The Company shall have delivered to the Investor such other documents relating to the transactions contemplated by this Agreement as the Investor or its counsel may reasonably request.

 

7.             MISCELLANEOUS.

 

  (a)           Counterparts.  This Agreement may be executed in two or more identical counterparts, all of which shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.

 

  

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  (b)           Headings.  The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.

 

  (c)           Severability.  If any provision of this Agreement is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Agreement so long as this Agreement as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties.  The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with a valid provision(s), the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

  (d)           Governing Law; Jurisdiction; Jury Trial.  All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of California, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of California or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of California.  Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the County of Los Angeles, California, 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 any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper.  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 to such party at the address for such notices to it under this Agreement 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 manner permitted by law.  If either party shall commence an action or proceeding to enforce any provisions of this Agreement, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

 

  (e)           No Third Party Beneficiaries.  This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other Person.

 

  

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  (f)            Further Assurances.  Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.

 

  (g)           No Strict Construction.  The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.

 

  (h)           Entire Agreement; Effect on Prior Agreements; Amendments.  Except for the Transaction Documents in effect prior to this Agreement (to the extent any such Transaction Document is not amended by this Agreement), this Agreement supersedes all other prior oral or written agreements between the Investor, the Company, their affiliates and Persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Investor makes any representation, warranty, covenant or undertaking with respect to such matters.  No provision of this Agreement may be amended other than by an instrument in writing signed by the Company and the Investor.  No provision hereof may be waived other than by an instrument in writing signed by the party against whom enforcement is sought.  No consideration shall be offered or paid to any Person to amend or consent to a waiver or modification of any provision of any of the Transaction Documents unless the same consideration also is offered to all of the parties to the Transaction Documents.  The Company has not, directly or indirectly, made any agreements with any of the Investors relating to the terms or conditions of the transactions contemplated by the Transaction Documents, including through any agreement that is not identical to this Agreement, except as set forth in the Transaction Documents.  In the event that the Company enters into any such agreement with more favorable terms than those set forth in this Agreement and the documents contemplated hereby, the Investor shall be granted the benefit of such more beneficial terms.

 

  (i)            Notices.  Any and all notices or other communications or deliveries required or permitted to be provided hereunder shall be in writing and shall be deemed given and effective on the earliest of (a) the date of transmission or delivery, if such notice or communication is delivered via facsimile at the facsimile number, or delivered by a U.S. nationally recognized overnight courier service to the address, set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a Trading Day, (b) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number, or delivered by such courier service to the address, set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, or (c) 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 and/or Securities Schedule attached hereto.

 

  (j)             Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns.  The Company shall not assign this Agreement or any rights or obligations hereunder without the prior written consent of the Investor.  The Investor may assign some or all of its rights hereunder without the consent of the Company, in which event such assignee shall be deemed to be an Investor hereunder with respect to such assigned rights.

 

  

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  (k)            Survival.  The representations and warranties of the Company and the Investor contained herein and the agreements and covenants set forth herein shall survive the Closing.

 

  (l)             Remedies.  The Investor and each holder of the Securities shall have all rights and remedies set forth in the Transaction Documents and all rights and remedies which such holders have been granted at any time under any other agreement or contract and all of the rights which such holders have under any law.  Any Person having any rights under any provision of this Agreement shall be entitled to enforce such rights specifically (without posting a bond or other security), to recover damages by reason of any breach of any provision of this Agreement and to exercise all other rights granted by law.  Furthermore, the Company recognizes that in the event that it fails to perform, observe, or discharge any or all of its obligations under this Agreement, any remedy at law may prove to be inadequate relief to the Investor.  The Company therefore agrees that the Investor shall be entitled to seek temporary and permanent injunctive relief in any such case without the necessity of proving actual damages and without posting a bond or other security.

 

  (m)           Indemnification.  In consideration of the Investor’s execution and delivery of the Transaction Documents, acquiring the Securities thereunder and entering into this Agreement and in addition to all of the Company’s other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Investor and each other holder of the Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons’ agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”) from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys’ fees and disbursements (the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (b) any breach of any covenant, agreement or obligation of the Company contained in the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of the Transaction Documents or any other certificate, instrument or document contemplated hereby or thereby, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of the Investor or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents.  To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law.

 

  

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  (n)            Independent Nature of Investor’s Obligations and Rights.  The obligations of the Investor under any Transaction Document (including this Agreement) are several and not joint with the obligations of any Other Investor, and the Investor shall not be responsible in any way for the performance of the obligations of any Other Investor under any Transaction Document.  Nothing contained herein or in any other Transaction Document, and no action taken by the Investor pursuant hereto, shall be deemed to constitute the Investor and Other Investors as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Investor and Other Investors are in any way acting in concert or as a group, and the Company will not assert any such claim with respect to the obligations or the transactions contemplated by the Transaction Documents and the Company acknowledges that the Investor and Other Investors are not acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents.  The Company acknowledges and the Investor confirms that the Investor has independently participated in the negotiation of the transactions contemplated hereby with the advice of its own counsel and advisors.  The Investor shall be entitled to independently protect and enforce its rights, including, without limitation, the rights arising out of this Agreement or out of any other Transaction Documents, and it shall not be necessary for any Other Investor to be joined as an additional party in any proceeding for such purpose.

 

 

[Signature Page Follows]

 

  

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IN WITNESS WHEREOF, the Investor and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

	 	COMPANY: 
 
ATHERONOVA INC.

 

 

 

By:                                                                                                     

       Name: Thomas W. Gardner

       Title:  Chief Executive Officer

 

Address:  2301 Dupont Drive, Suite 525, Irvine, CA 92612

 

 

 

 

 

 

[Signature Page to Amendment and Exchange Agreement]

 

  

  

  

IN WITNESS WHEREOF, the Investor and the Company have caused their respective signature page to this Agreement to be duly executed as of the date first written above.

 

	 	
INVESTOR:

 

 

By:                                                                                                      

Name:

Title:

 

 

 

 

 

 

[Signature Page to Amendment and Exchange Agreement]

 

  

  

  

 

	
(1)

 

	
(2)

 

	
(3)

 

	
(4)

 

	

Investor

	

Address and

Facsimile Number

	

Aggregate

Principal Amount

of Second

Amended and

Restated

Note

	

Aggregate

Shares of

Common Stock

Underlying

Amended and

Restated Warrant

	  	  	  	  
	
W-Net Fund I, L.P.

	
12400 Ventura Boulevard

Suite 327

Studio City, CA 91604

 

	
$193,451.15

	
636,266

	
MKM Opportunity Master Fund, Ltd.

	
c/o MKM Capital Advisors

1515 Broadway, 11th Floor

New York, NY 10036

 

	
$265,586.77

	
636,266

	
Europa International Inc.

	
1114 Avenue of the Americas

45th Floor

New York, NY 10036

 

	
$427,500.00

	
636,266ex10-2.htm

Exhibit 10.2

 

 

EXECUTION VERSION

 

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 13, 2010

Original Conversion Price (subject to adjustment herein): $0.29

$____________

ATHERONOVA INC.

SECOND AMENDED AND RESTATED

2.5% SENIOR SECURED CONVERTIBLE NOTE

                  THIS SECOND AMENDED AND RESTATED 2.5% SENIOR SECURED CONVERTIBLE NOTE (this “Note”) is one of a series of duly authorized and validly issued Second Amended and Restated 2.5% Senior Secured 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 May 12, 2014 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, or such later date as may be permitted by the Holder as set forth in Section 2 hereof, 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.  This Note amends, supplements, modifies and completely restates and supersedes the 2.5% Senior Secured Convertible Note, dated as of the Original Issue Date, issued by the Company to the Holder with an original principal amount of $500,000.00.

The Company’s and its Subsidiaries’ obligations under this Note and the other Transaction Documents are secured by the Collateral (as defined in the Security Agreement, including without limitation all Intellectual Property Rights) pursuant to the terms of the Security Documents and the 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:

 

  

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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(d).

“Bankruptcy Event” means any of the following events: (a) the Company or any Significant 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 Significant Subsidiary thereof; (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement; (c) the Company or any Significant 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 Significant 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 calendar days after such appointment; (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors; (f) the Company or any Significant 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 Significant 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.

“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.

“Buy-In” shall have the meaning set forth in Section 4(d)(v).

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

“Conversion Fundamental Transaction” shall have the meaning set forth in Section 4(e).

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

“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.

“Forced Conversion Amount” means, with respect to this or another Note, the sum of (i) the greater of (A) 200% of the then outstanding principal amount of the Note, plus 100% of accrued and unpaid interest thereon, or (B) the outstanding principal amount of this Note, plus all accrued and unpaid interest hereon, divided by the Conversion Price immediately prior to the closing of the Conversion Fundamental Transaction or the closing of the purchase contemplated by Section 2(e), as the case may be, multiplied by the VWAP on the last Trading Day prior to such closing date, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of such Note.

 

  

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

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

“Fundamental Transaction Cash Amount”  means the sum of (i) the greater of (A) 200% of the then outstanding principal amount of this Note, plus 100% of accrued and unpaid interest thereon, or (B) the outstanding principal amount of this Note, plus all accrued and unpaid interest hereon, divided by the Conversion Price immediately prior to the closing of the Fundamental Transaction, multiplied by the VWAP on the last Trading Day prior to the closing of the Fundamental Transaction, and (ii) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

“Late Fees” shall have the meaning set forth in Section 2(d).

“Los Angeles Courts” shall have the meaning set forth in Section 8(d).

“Mandatory Default Amount”  means the sum of (i) 120% of the then outstanding principal amount of this Note, (ii) plus 100% of accrued and unpaid interest hereon, and (iii) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

“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 May 13, 2010, 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 evidenced by the Notes, (b) the Indebtedness existing on the initial Closing Date and set forth on Schedule 3.1(aa) attached to the Purchase Agreement, (c) 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, and (d) indebtedness that is expressly subordinate to the Notes pursuant to a written subordination agreement with the Purchasers that is acceptable to each Purchaser in its sole and absolute discretion; provided that such Permitted Indebtedness shall not exceed 75% of the aggregate principal amount of all Notes then outstanding.

 

  

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“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 GAAP; (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), (b), and (c) thereunder.

 

“Purchase Agreement” means the Securities Purchase Agreement, dated as of May 13, 2010, among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Registration Statement” means an effective registration statement under the Securities Act that registers the resale of all Conversion Shares of the Holder, names the Holder as a “selling stockholder” therein, and contains a current prospectus not subject to any blackout, suspension or stop order.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Share Delivery Date” shall have the meaning set forth in Section 4(d).

“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 Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York Stock Exchange or the OTC Bulletin Board.

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

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted for trading as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)); (b)  if the OTC Bulletin Board is not a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board; (c) if the Common Stock is not then quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by Pink Sheets, LLC (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported; or (d) 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.

  

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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 2.5%, 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.  The amount of interest payable on each Conversion Date and the Maturity Date (“Interest Amount”) may be added to and included with the principal amount being so converted or redeemed on such date.

 

 

c)   Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar 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, liquidated damages 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”). Except as otherwise provided herein, if at any time the Company pays interest partially in cash and partially in shares of Common Stock to the holders of the Notes, then such payment of cash shall be distributed ratably among the holders of the then-outstanding Notes based on their (or their predecessor’s) initial purchases of Notes pursuant to the Purchase Agreement.

d)   Default Interest.  After the occurrence and during the continuance of any Event of Default, the interest rate on this Note shall accrue at an interest rate equal to the lesser of twelve percent (12%) per annum, compounded daily, or the maximum rate permitted under applicable law.

e)   Prepayment.  At any time after one (1) year following the initial Closing Date, the Company or its assignee may purchase this entire Note by paying in cash to the Holder the Forced Conversion Amount at the time of the closing of such purchase, provided that, (i) the Company’s Common Stock has been listed or quoted for trading on any Trading Market other than the OTC Bulletin Board for a period of ninety (90) consecutive Trading Days immediately preceding the proposed effective date of such purchase, (ii) no default notice must have been received by the Company from any such Trading Market during or with respect to the foregoing time period, and (iii) the VWAP for any 20 out of 30 consecutive Trading Days immediately preceding the proposed effective date of such purchase exceeds three times the Conversion Price (subject to appropriate and equitable adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the Closing Date).  At least fifteen (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.  Except as otherwise set forth in this Note, the Company may not otherwise prepay any portion of the principal amount of this Note without the prior written consent of the Holder.

 

  

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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(c) 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 conversion.  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 $0.29, subject to adjustment herein (the “Conversion Price”).

c)   Conversion Limitations.

 

                i.   Holder’s Restriction on Conversion. The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, 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 the Beneficial Ownership Limitation (as defined below).  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 4(c), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  To the extent that the limitation contained in this paragraph applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation.  To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination.  In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this paragraph, 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.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.9% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder.  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-first (61st) 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 paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (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 paragraph shall apply to a successor holder of this Note.

 

  

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                ii.   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, by (y) the Conversion Price.

                ii.   Delivery of Certificate Upon Conversion. Not later than three Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the Legend Removal Date, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Note.  On or after the date which is six months following the Original Issue Date on which this Note is issued, the Company shall use commercially reasonable efforts to deliver any certificate(s) or shares required to be delivered by the Company under this Section 4 electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

  

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                iii.   Failure to Deliver Certificates.  If in the case of any Notice of Conversion such certificate(s) or shares are not delivered to or as directed by the applicable Holder by the third Trading Day after the Conversion Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates representing the principal amount of this Note unsuccessfully tendered for conversion to the Company.

 

 

                iv.           Obligation Absolute; Partial Liquidated Damages.  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.  If the Company fails for any reason to deliver to the Holder such certificate(s) or shares pursuant to Section 4(d)(ii) by the third (3rd) Trading Day after the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $7.00 per Trading Day (increasing to $12.50 per Trading Day on the fifth Trading Day after such liquidated damages begin to accrue) for each Trading Day after such third Trading Day after the Share Delivery Date until such certificates are delivered.  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.  Notwithstanding any portion of the foregoing to the contrary, if the Company fails to deliver to the Holder such certificate(s) or shares by the Share Delivery Date pursuant to Section 4(d)(ii) because (i) the conversion by the Holder is delivered in connection with a proposed sale by the Holder of the Conversion Shares under Rule 144 promulgated under the Securities Act, and (ii) in connection with such sale, the Holder has failed to deliver customary representation letters, as prepared by the brokerage firm of Holder in the ordinary course of its business, appropriate to evidence compliance with such rule, then the liquidated damages provisions herein shall not begin to accrue until the Trading Day immediately following the date that the Holder has delivered such representation letters.

 

  

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                v.   Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate(s) or shares by the Share Delivery Date pursuant to Section 4(d)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(d)(ii).  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.  The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

 

  

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                vi.           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 and, if the Registration Statement is then effective under the Securities Act, shall be registered for public sale in accordance with such Registration Statement.

                vii.          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 at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

                viii.         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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e)   Forced Conversion.  If, at any time after one (1) year following the initial Closing Date, (i) the Company’s Common Stock has been listed or quoted for trading on any Trading Market other than the OTC Bulletin Board for a period of ninety (90) consecutive Trading Days immediately preceding the Forced Conversion Date set forth below, (ii) no default notice has been received by the Company from any such Trading Market during or with respect to the foregoing time period, and (iii) the VWAP for any 20 out of 30 consecutive Trading Days immediately preceding the Forced Conversion Date set forth below exceeds three times the Conversion Price (subject to appropriate and equitable adjustment for reverse and forward stock splits, stock dividends, stock combinations and other similar transactions of the Common Stock that occur after the Closing Date), then this Note shall automatically be converted into Conversion Shares, as if an election to convert all outstanding principal and accrued but unpaid interest of this Note had then been made by the Holder under Section 4(a), either:  (i) upon a date (after one (1) year following the initial Closing Date) for such forced conversion of all the Notes specified by the written consents, delivered to the Company, by the holders of at least seventy five percent (75%) in principal amount of the then outstanding Notes; or (ii) immediately prior to the closing of a Conversion Fundamental Transaction (provided, for the avoidance of doubt, such closing occurs after one (1) year following the initial Closing Date).  The conversion date so specified under (i) of the preceding sentence, or the date of such closing under (ii) (each a “Forced Conversion Date”), shall be deemed to be the “Conversion Date” for purposes of this Section 4.  The Holder may elect, by giving written notice of such election to the Company at least five (5) Trading Days before the closing of a Conversion Fundamental Transaction, to avoid such a forced conversion of this Note by selling this Note to the Company or its designated assignee, concurrently with such closing, for a cash payment equal to the Forced Conversion Amount at the time of such closing.  Notice of any proposed Conversion Fundamental Transaction and such election shall be given to the Holder at least fifteen (15) calendar 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.  A “Conversion Fundamental Transaction” shall mean a Fundamental Transaction:  (1) which is approved by the Company’s Board of Directors; (2) pursuant to which each holder of a Note converted into Conversion Shares as a result of such Conversion Fundamental Transaction will receive for such Conversion Shares consideration having a fair market value (as reasonably determined by the Company’s Board of Directors) at least equal to the Forced Conversion Amount for that Note; and (3) under which the consideration received for each outstanding share of the Company’s Common Stock is the same.

f)   Listing Conversion.  In the event that the Company submits to a national securities exchange an application satisfying the initial criteria (taking into account to 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) 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 (61st) 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 outstanding principal and accrued but unpaid interest of this Note had then been made by the Holder under Section 4(a), upon the Limitation Removal Date.  The Limitation Removal Date shall be deemed to be the “Conversion Date” for purposes of this Section 4.

 

  

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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)   Subsequent Rights Offerings.  The Company shall not, at any time while the Note is outstanding, issue rights, options or warrants to all holders of Common Stock (and not to Holders) entitling them to subscribe for or purchase shares of Common Stock at a price per share less than the VWAP at the record date mentioned below.

 

c)   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.

 

  

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d)   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, unless such transaction is a Conversion Fundamental Transaction which is subject to a forced conversion in accordance with Section 4(e), 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(d) 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, other than a Conversion Fundamental Transaction which is subject to a forced conversion in accordance with Section 4(e), the Holder may elect, by giving written notice of such election to the Company at least five (5) 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 fifteen (15) calendar 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.

e)   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.

 

  

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f)   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 calendar 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.

 

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 (whether or not a Subsidiary on any Closing Date) to, directly or indirectly:

 

  

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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 $150,000 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); or

f)   enter into any agreement with respect to any of the foregoing.

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, if possible to cure, within the earlier to occur of (1) 5 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:

 

  

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  i.     any default in the payment of (A) the principal amount of any Note or (B) interest, liquidated damages 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 (xiii) 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 Significant 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 ten (10) Trading Days;

  viii.         if at any time after three months following the initial Closing 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);

 

  

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  ix.            if any of the Security Documents or Subsidiary Guaranties ceases to be in full force and effect (including failure to create, to the extent reasonably feasible, a valid and perfected first priority lien (subject to the Permitted Liens) on and security interest in all the Collateral (as defined in the Security Agreement) and Intellectual Property Rights of the Company and its Subsidiaries) at any time for any reason;

  x.             if Tom Gardner ceases to serve full time as the President and Chief Executive Officer of the Company and perform the duties consistent with such positions for similarly situated companies, provided that if such cessation is due to Tom Gardner’s death, permanent disability, voluntary termination or termination by the Company for cause, then (A) an Event of Default shall not be deemed to have occurred unless and until the Company shall have failed to retain a full-time replacement reasonably acceptable to the Holder within 90 days following such death, permanent disability, voluntary termination or termination by the Company for cause, and (B) following any such acceptable replacement this clause shall apply to such replacement in lieu of Tom Gardner;

  xi.            the Company shall fail for any reason to deliver certificates to a Holder prior to the tenth Trading Day after a Conversion Date or any Forced Conversion Date pursuant to Section 4(d) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Notes in accordance with the terms hereof; or

  xii.           any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property 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 calendar 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 calendar 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, liquidated damages 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 calendar 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.  After the occurrence and during the continuance of any Event of Default, the interest rate on this Note shall accrue as set forth in Section 2(d).  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.  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 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. For the avoidance of doubt, the Mandatory Default Amount shall include amounts due and owing as a Fundamental Conversion Amount or a Fundamental Transaction Cash Amount and no Event of Default, acceleration or payment of any Mandatory Default Amount shall avoid or cause the avoidance of any obligation by the Company to pay the Forced Conversion Amount or the Fundamental Transaction Cash Amount (to the extent not included in the Mandatory Default Amount).

 

  

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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.  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 prior to 5:30 p.m. (New York City 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 between 5:30 p.m. (New York City time) and 11:59 p.m. (New York City 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.

 

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, liquidated damages 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.

 

  

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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 a 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.

 

 

*********************

 

  

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IN WITNESS WHEREOF, the Company has caused this Second Amended and Restated 2.5% Senior Secured Convertible Note to be duly executed by a duly authorized officer as of the date first above indicated.

 

	 	 
ATHERONOVA INC.

 

 
By:                                                                                                    

        Name: Thomas W. Gardner

        Title: Chief Executive Officer

Facsimile No. for delivery of Notices: (949) 476-1122

 

  

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the Second Amended and Restated 2.5% Senior Secured Convertible Note due May 12, 2014 (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.

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 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:                                                                                                                              

23

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