Contract
Exhibit
10.3
THIS
NOTE
AND THE SECURITIES ISSUABLE UPON CONVERSION HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS.
NEITHER THIS NOTE NOR THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE
TRANSFERRED EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR
(B)
IN A TRANSACTION WHICH IS EXEMPT FROM REGISTRATION UNDER THE SECURITIES ACT
OF
1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS. THIS NOTE IS SUBJECT
TO
THAT CERTAIN CONVERTIBLE NOTE AND WARRANT PURCHASE AGREEMENT, DATED OCTOBER
24,
2008, BY AND AMONG THE COMPANY AND THE PURCHASERS NAMED THEREIN.
AVAX
TECHNOLOGIES, INC.
CONVERTIBLE
PROMISSORY NOTE
[$_____.00]
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_______
__, 2008
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AVAX
TECHNOLOGIES, INC., a Delaware corporation (the “Company”), for value received,
promises to pay to [____] or registered assigns (the “Holder”), the principal
sum of [________] Dollars $[__] on December 31, 2008, and interest (computed
on
the basis of a 365-day year) from the date hereof on the unpaid principal amount
from time to time outstanding at the rate of six percent (6%) per annum, due
and
payable in arrears on the maturity date hereof, unless payment is required
at an
earlier date pursuant to the terms hereof. This Note is one of a series of
similar Notes issued by the Company in the aggregate principal amount not to
exceed $1,500,000.
1.
Conversion.
(a)
Voluntary
Conversion.
At
any
time after the date hereof until this Note is no longer outstanding, this Note
shall be convertible, in whole or in part, into shares of Common Stock, $.004
par value per share, of the Company (“Common Stock”) at the option of the
Holder, at any time and from time to time, at a rate of one (1) share of Common
Stock for each $0.09 (subject to adjustment, the “Conversion Price”) of unpaid
principal of and interest on this Note on the Conversion Date (as defined
below). The Holder shall effect conversions by delivering to the Company a
Notice of Conversion specifying therein the principal amount of the Note to
be
converted and the date 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. Conversions hereunder shall have the effect
of
lowering the outstanding principal amount of the 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).
(b)
Mandatory
Conversion.
This
Note shall automatically convert into the securities described below and at
the
conversion ratios described below upon the closing of the Offering (as defined
in Section 1(c)) if the closing of the Offering occurs on or prior to the
maturity date of this Note. Upon the closing of the Offering, all principal
of
and accrued and unpaid interest on this Note will automatically convert, at
the
election of the Holder, into either (i)1 share of Common Stock, $.004 par value
per share, of the Company (“Common Stock”) for each $0.09 of unpaid principal of
and interest on this Note on the conversion date, or (ii) into that number
of
securities issued by the Company in the Offering equal to the quotient obtained
by dividing the principal and accrued interest owed hereunder on the conversion
date by the lesser of (a) $.09 or (b) ninety percent (90%) of the price at
which
the securities are issued in the Offering and otherwise on the same terms and
conditions and with the same rights and preferences as the securities issued
in
the Offering. To exercise this election as to the form and amount of securities
to be received upon conversion of this Note, the Holder shall deliver to the
Company during usual business hours at the Company’s principal executive office
written notice in form satisfactory to the Company that the Holder elects to
receive the conversion securities specified in either clause (i) or clause
(ii)
above. Such notice shall also state the name or names (with address) in which
the certificate or certificates for shares (or other securities) that are
issuable on such conversion are to be registered.
(c)
Offering
of Securities.
In
accordance with Section 7.5 of the Convertible Note and Warrant Purchase
Agreement dated the date hereof (the “Agreement”), the Company will use its
reasonable efforts to close an offering of securities on or before November
15,
2008, in which the gross proceeds to the Company are not less than $15,000,000
(the “Offering”). Upon the closing of the Offering, the Note will automatically
convert into either (i) shares of Common Stock, or (ii) the securities issued
in
the Offering, in accordance with Section 1(b).
(d)
Surrender
of Note and Delivery of Certificates.
When
surrendered for automatic conversion this Note shall, unless the shares (or
other securities) issuable on conversion are to be issued in the same name
as
the name in which this Note is then registered, be duly endorsed by, or
accompanied by instruments of transfer in form satisfactory to the Company
duly
executed by, the holder or his or its duly authorized attorney. As promptly
as
practicable after the surrender of this Note for conversion and the receipt
of
the notice specified above, the Company shall deliver or cause to be delivered
to the Holder, or on the Holder’s written order, a certificate or certificates
for the number of full shares (or other securities) issuable upon the conversion
of this Note, in accordance with the provisions hereof. Such conversion shall
be
deemed to have been made automatically on the closing of the Offering, and
from
and after such time, the Holder will have no rights hereunder other than the
right to receive the conversion shares (or other securities) and the Holder
in
whose name any certificate or certificates for shares of shall be issuable
upon
such conversion shall be deemed to have become on the Conversion Date the Holder
of record of the shares represented thereby.
2.
Adjustment of Conversion Price.
(a)
Stock
Dividends, Stock Splits, etc.
If the
Company:
(i)
declares a dividend of Common Stock on its Common Stock,
(ii)
subdivides its outstanding Common Stock into a larger number of shares of Common
Stock by reclassification, stock split or otherwise, or
(iii)
combines its outstanding Common Stock into a smaller number of shares of Common
Stock by reclassification, reverse stock split or otherwise,
the
number of shares of Common Stock issuable upon conversion of this Note pursuant
to Section 1 immediately prior to any such event shall be adjusted
proportionately so that thereafter the Holder shall be entitled to receive
upon
conversion of this Note the number of shares of Common Stock which such Holder
would have owned after the happening of any of the events described above had
this Note been converted immediately prior to the happening of such event,
provided that the Conversion Price shall in no event be reduced to less than
the
par value of the shares issuable upon conversion. An adjustment made pursuant
to
this Section 2 will become effective immediately after the record date in the
case of a dividend and will become effective immediately after the effective
date in the case of a subdivision or combination.
(b)
Merger
or Consolidation.
If,
prior to maturity of this Note, the Company at any time consolidates or merges
with another corporation (other than a merger or consolidation in which the
Company is the surviving corporation), the Holder hereof will thereafter be
entitled to receive, upon the conversion hereof, the securities or property
to
which a Holder of the number of shares of Common Stock then deliverable upon
the
conversion hereof would have been entitled upon such consolidation or merger,
and the Company shall take such steps in connection with such consolidation
or
merger as may be necessary to ensure that the provisions hereof shall thereafter
be applicable, as nearly as reasonably may be, in relation to any securities
or
property thereafter deliverable upon the conversion of this Note.
(c)
Subsequent
Equity Sales.
(i)
If,
at any time while this Note is Outstanding, the Company issues additional shares
of Common Stock or rights, warrants, options or other securities or debt
convertible, exercisable or exchangeable for shares of Common Stock or otherwise
entitling any person to acquire shares of Common Stock (collectively, “Common
Stock Equivalents”) at a price (exclusive of commissions payable by the Company
in connection therewith) per share of Common Stock less than the Conversion
Price (as adjusted hereunder to such date), then the Conversion Price shall
be
reduced to such price. For purposes of this paragraph, in connection with any
issuance of any Common Stock Equivalents, (A) the maximum number of shares
of
Common Stock potentially issuable at any time upon conversion, exercise or
exchange of such Common Stock Equivalents (the “Deemed Number”) shall be deemed
to be outstanding upon issuance of such Common Stock Equivalents, (B) the
Effective Price applicable to such Common Stock shall equal the minimum dollar
value of consideration payable to the Company to purchase such Common Stock
Equivalents and to convert, exercise or exchange them into Common Stock (net
of
any discounts, fees, commissions and other expenses), divided by the Deemed
Number, and (C) no further adjustment shall be made to the Conversion Price
upon
the actual issuance of Common Stock upon conversion, exercise or exchange of
such Common Stock Equivalents.
(ii)
If,
at any time while this Note is outstanding, the Company issues Common Stock
Equivalents with an Effective Price or a number of underlying shares that floats
or resets or otherwise varies or is subject to adjustment based (directly or
indirectly) on market prices of the Common Stock (a “Floating Price Security”),
then for purposes of applying the preceding paragraph in connection with any
subsequent conversion, the Effective Price will be determined separately on
each
Conversion Date and will be deemed to equal the lowest Effective Price at which
any holder of such Floating Price Security is entitled to acquire Common Stock
on such Conversion Date (regardless of whether any such holder acquires any
shares on such date).
(d)
No
adjustments to the Conversion Price shall be required:
(i)
Unless such adjustment would require an increase or decrease of at least $0.01
per share of Common Stock; provided,
however,
that
any adjustments that by reason of this Section 2(d)(i) are not required to
be
made shall be carried forward and cumulated with amounts in any subsequent
adjustment, and provided,
further,
however,
that
adjustments shall be required and made in accordance with the provisions of
this
Section 2 (other than this Section 2(d)(i)) not later than such time as may
be
required in order to preserve the tax-free nature of a distribution to the
Holder of this Note or Common Stock issuable upon the exercise hereof. All
calculations that shall be required pursuant to this Section 2 shall be made
to
the nearest cent or to the nearest one-hundredth of a share, as the case may
be.
Anything in this Section 2 to the contrary notwithstanding, the Company shall
be
entitled to make such adjustments to the Conversion Price, in addition to those
required by this Section 2 as it in its discretion shall deem to be advisable
in
order that any stock dividend, subdivision of shares or distribution of rights
to purchase stock or securities convertible or exchangeable for stock hereafter
made by the Company to its stockholders is not taxable.
(ii)
If
the Company issues shares of Common Stock pursuant to (a) the exercise of any
warrants (or warrants or options to acquire any shares of convertible preferred
stock) of the Company outstanding on the date hereof, (b) the exercise of the
Notes, or a portion thereof, (c) the conversion of shares of any series of
convertible preferred stock of the Company outstanding on the date hereof,
or
(d) the exercise of any stock options or warrants currently outstanding or
issued after the date hereof pursuant to any Company benefit plan or
compensation arrangement for employees of the Company.
(e)
Notice.
If the
Company proposes to take any action referred to in this Section 2, or to effect
the liquidation, dissolution or winding up of the Company, then the Company
shall cause notice thereof to be mailed to the Holder at least ten (10) days
prior to the record date or effective date, as applicable, of the stock
dividend, merger, consolidation or other event subject to this
Section.
(f)
Statement
of Adjustment.
Whenever
the Conversion Price is adjusted as provided in Section 2, the Company shall
promptly file at the Company’s principal executive office, a statement, signed
by the Chairman of the Board, the President or any Vice President of the
Company, showing in reasonable detail the facts requiring such adjustment and
the Conversion Price that will be effective after such adjustment. The Company
shall also cause a notice setting forth any such adjustment to be sent by mail,
first class, postage prepaid, to each Holder this Note. Where appropriate,
such
notice may be given in advance and may be included as part of a notice required
to be mailed under the provisions of Section 2(e).
(g)
Fractional
Shares.
No
fractional shares of Common Stock will be issued upon conversion of this Note,
but a payment in cash will be made in respect of any fraction of a share which
would otherwise be issuable upon the conversion of this Note. Such payment
shall
be based on the fair market value of the Common Stock at the time of conversion
of this Note.
(h)
Securities
Act of 1933.
Upon
conversion of this Note, the Holder may be required to execute and deliver
to
the Company an instrument, in form satisfactory to the Company, representing
that the shares (or other securities) issuable upon conversion hereof are being
acquired for investment only and not with a view to distribution within the
meaning of the Securities Act of 1933, as amended.
3.
Prepayment of Principal.
The
principal amount of this Note may NOT be prepaid in whole or in part, without
the prior written consent of the Holder.
4.
Default.
The
entire unpaid principal of this Note and the interest then accrued on this
Note
shall become and be immediately due and payable, upon written demand of the
Holder, or at the option of the Holder, in its sole discretion, convertible
in
accordance with Section 1(a) hereof, in either case without any other notice
or
demand of any kind or any presentment or protest, if any one of the following
events occurs and be continuing at the time of such demand:
(a)
If the
Offering has not closed on or before the maturity date hereof and the Company
fails to pay the principal amount of and all accrued interest on this Note
on
the maturity date hereof; or
(b)
If the
Company defaults in the performance of any other obligation under this Note
or
the Agreement, and such default continues for ten (10) days after notice thereof
by the Holder hereof to the Company; or
(c)
If the
Company (i) makes an assignment for the benefit of creditors, (ii) applies
for,
consents to, acquiesces in, files a petition seeking or admits (by answer,
default or otherwise) the material allegations of a petition filed against
it
seeking the appointment of a trustee, receiver or liquidator, in bankruptcy
or
otherwise, of itself or of all or a substantial portion of its assets, or a
reorganization, arrangement with creditors or other remedy, relief or
adjudication available to or against a bankrupt, insolvent or debtor under
any
bankruptcy or insolvency law or any law affecting the rights of creditors
generally, or (iii) admits in writing its inability to pay its debts generally
as they become due; or
(d)
If an
order for relief shall have been entered by a bankruptcy court or if a decree,
order or judgment shall have been entered adjudging the Company insolvent,
or
appointing a receiver, liquidator, custodian or trustee, in bankruptcy or
otherwise, for it or for all or a substantial portion of its assets, or
approving the winding-up or liquidation of its affairs on the grounds of
insolvency or nonpayment of debts, and such order for relief, decree, order
or
judgment shall remain undischarged or unstayed for a period of sixty (60) days;
or
(e)
If any
substantial part of the property of the Company is sequestered or attached
and
is not returned to the possession of the Company or released from such
attachment within sixty (60) days.
5.
General.
(a)
Successors
and Assigns.
This
Note, and the obligations and rights of the Company hereunder, shall be binding
upon and inure to the benefit of the Company, the Holder, and their respective
successors and assigns.
(b)
Recourse.
Recourse
under this Note is to the general unsecured assets of the Company only and
in no
event to the officers, directors or stockholders of the Company.
(c)
Changes.
Changes
in or additions to this Note may be made or compliance with any term, covenant,
agreement, condition or provision set forth herein may be omitted or waived
(either generally or in a particular instance and either retroactively or
prospectively), upon written consent of the Company and the Holder.
(d)
Currency.
All
payments shall be made in such coin or currency of the United States of America
as at the time of payment is legal tender therein for the payment of public
and
private debts.
(e)
Saturdays,
Sundays, Holidays.
If any
date specified in this Note as a date for the making of any payment of principal
or interest under this Note falls on a Saturday, Sunday or on a day that is
a
legal holiday in the State of Pennsylvania, then the date for the making of
that
payment shall be the next subsequent day that is not a Saturday, Sunday or
legal
holiday.
(f)
Governing
Law.
This
Note shall be construed and enforced in accordance with, and the rights of
the
parties shall be governed by, the laws of the State of
Delaware.
IN
WITNESS WHEREOF,
this
Note has been executed and delivered on the date first above written by the
duly
authorized representative of the Company.
AVAX
TECHNOLOGIES, INC.
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By:
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Name:
Xxxxxxxx Xxxxxxxx
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Title:
Chief Executive Officer
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