[EXHIBIT 10.15]
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). THE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT OR UNLESS SOLD PURSUANT TO RULE 144 OR
REGULATION S UNDER SAID ACT.
CALLABLE SECURED CONVERTIBLE NOTE
Boca Raton, Florida
March 30, 2005 $273,800
FOR VALUE RECEIVED, MED GEN, INC., a Nevada corporation
(hereinafter called the "Borrower"), hereby promises to pay to
the order of AJW QUALIFIED PARTNERS, LLC or registered assigns
(the "Holder") the sum of $273,800, on March 30, 2008 (the
"Maturity Date"), and to pay interest on the unpaid principal
balance hereof at the rate of eight percent (8%) (the "Interest
Rate") per annum from March 30, 2005 (the "Issue Date") until the
same becomes due and payable, whether at maturity or upon
acceleration or by prepayment or otherwise. Any amount of
principal or interest on this Note which is not paid when due
shall bear interest at the rate of fifteen percent (15%) per
annum from the due date thereof until the same is paid ("Default
Interest"). Interest shall commence accruing on the Issue Date,
shall be computed on the basis of a 365-day year and the actual
number of days elapsed and shall be payable quarterly provided
that no interest shall be due and payable for any month in which
the Trading Price (as such term is defined below) is greater than
$.0644 for each Trading Day (as such term is defined below) of
the month. All payments due hereunder (to the extent not
converted into common stock, $.001 par value per share (the
"Common Stock") in accordance with the terms hereof) shall be
made in lawful money of the United States of America. All
payments shall be made at such address as the Holder shall
hereafter give to the Borrower by written notice made in
accordance with the provisions of this Note. Whenever any amount
expressed to be due by the terms of this Note is due on any day
which is not a business day, the same shall instead be due on the
next succeeding day which is a business day and, in the case of
any interest payment date which is not the date on which this
Note is paid in full, the extension of the due date thereof shall
not be taken into account for purposes of determining the amount
of interest due on such date. As used in this Note, the term
"business day" shall mean any day other than a Saturday, Sunday
or a day on which commercial banks in the city of New York, New
York are authorized or required by law or executive order to
remain closed. Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in
that certain Securities Purchase Agreement, dated March 30, 2005,
pursuant to which this Note was originally issued (the "Purchase
Agreement").
This Note is free from all taxes, liens, claims and
encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of
shareholders of the Borrower and will not impose personal
liability upon the holder thereof. The obligations of the
Borrower under this Note shall be secured by that certain
Security Agreement and Intellectual Property Security Agreement,
each dated March 30, 2005 by and between the Borrower and the
Holder.
The following terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right from time
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to time, and at any time on or prior to the earlier of (i) the
Maturity Date and (ii) the date of payment of the Default Amount
(as defined in Article III) pursuant to Section 1.6(a) or Article
III, the Optional Prepayment Amount (as defined in Section 5.1 or
any payments pursuant to Section 1.7, each in respect of the
remaining outstanding principal amount of this Note to convert
all or any part of the outstanding and unpaid principal amount of
this Note into fully paid and non-assessable shares of Common
Stock, as such Common Stock exists on the Issue Date, or any
shares of capital stock or other securities of the Borrower into
which such Common Stock shall hereafter be changed or
reclassified at the conversion price (the "Conversion Price")
determined as provided herein (a "Conversion"); provided,
however, that in no event shall the Holder be entitled to convert
any portion of this Note in excess of that portion of this Note
upon conversion of which the sum of (1) the number of shares of
Common Stock beneficially owned by the Holder and its affiliates
(other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted
portion of the Notes or the unexercised or unconverted portion of
any other security of the Borrower (including, without
limitation, the warrants issued by the Borrower pursuant to the
Purchase Agreement) subject to a limitation on conversion or
exercise analogous to the limitations contained herein) and (2)
the number of shares of Common Stock issuable upon the conversion
of the portion of this Note with respect to which the
determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more
than 4.99% of the outstanding shares of Common Stock and provided
further that the Holder shall not be entitled to convert any
portion of this Note during any month immediately succeeding a
Determination Date on which the Borrower exercises its prepayment
option pursuant to Section 5.2 of this Note. For purposes of the
proviso to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulations
13D-G thereunder, except as otherwise provided in clause (1) of
such proviso. The number of shares of Common Stock to be issued
upon each conversion of this Note shall be determined by dividing
the Conversion Amount (as defined below) by the applicable
Conversion Price then in effect on the date specified in the
notice of conversion, in the form attached hereto as Exhibit A
(the "Notice of Conversion"), delivered to the Borrower by the
Holder in accordance with Section 1.4 below; provided that the
Notice of Conversion is submitted by facsimile (or by other means
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resulting in, or reasonably expected to result in, notice) to the
Borrower before 6:00 p.m., New York, New York time on such
conversion date (the "Conversion Date"). The term "Conversion
Amount" means, with respect to any conversion of this Note, the
sum of (1) the principal amount of this Note to be converted in
such conversion plus (2) accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Note
to the Conversion Date plus (3) Default Interest, if any, on the
amounts referred to in the immediately preceding clauses (1)
and/or (2) plus (4) at the Holder's option, any amounts owed to
the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant
to Section 2(c) of that certain Registration Rights Agreement,
dated as of March 30, 2005, executed in connection with the
initial issuance of this Note and the other Notes issued on the
Issue Date (the "Registration Rights Agreement"). The term
"Determination Date" means the last business day of each month
after the Issue Date.
1.2 Conversion Price.
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(a) Calculation of Conversion Price. The Conversion Price
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shall be the lesser of (i) the Variable Conversion Price (as defined
herein) and (ii) the Fixed Conversion Price (as defined herein)
(subject, in each case, to equitable adjustments for stock
splits, stock dividends or rights offerings by the Borrower
relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization,
reclassifications, extraordinary distributions and similar
events). The "Variable Conversion Price" shall mean the
Applicable Percentage (as defined herein) multiplied by the
Market Price (as defined herein). "Market Price" means the
average of the lowest three (3) Trading Prices (as defined below)
for the Common Stock during the twenty (20) Trading Day period
ending one Trading Day prior to the date the Conversion Notice is
sent by the Holder to the Borrower via facsimile (the "Conversion
Date"). "Trading Price" means, for any security as of any date,
the intraday trading price on the Over-the-Counter Bulletin Board
(the "OTCBB") as reported by a reliable reporting service
mutually acceptable to and hereafter designated by Holders of a
majority in interest of the Notes and the Borrower or, if the
OTCBB is not the principal trading market for such security, the
intraday trading price of such security on the principal
securities exchange or trading market where such security is
listed or traded or, if no intraday trading price of such
security is available in any of the foregoing manners, the
average of the intraday trading prices of any market makers for
such security that are listed in the "pink sheets" by the
National Quotation Bureau, Inc. If the Trading Price cannot be
calculated for such security on such date in the manner provided
above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority
in interest of the Notes being converted for which the
calculation of the Trading Price is required in order to
determine the Conversion Price of such Notes. "Trading Day"
shall mean any day on which the Common Stock is traded for any
period on the OTCBB, or on the principal securities exchange or
other securities market on which the Common Stock is then being
traded. "Applicable Percentage" shall mean 60.0%. The "Fixed
Conversion Price" shall mean $.09.
(b) Conversion Price During Major Announcements.
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Notwithstanding anything contained in Section 1.2(a) to the
contrary, in the event the Borrower (i) makes a public
announcement that it intends to consolidate or merge with any
other corporation (other than a merger in which the Borrower is
the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the
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assets of the Borrower or (ii) any person, group or entity
(including the Borrower) publicly announces a tender offer to
purchase 50% or more of the Borrower's Common Stock (or any other
takeover scheme) (the date of the announcement referred to in
clause (i) or (ii) is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective
upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to
the lower of (x) the Conversion Price which would have been
applicable for a Conversion occurring on the Announcement Date
and (y) the Conversion Price that would otherwise be in effect.
From and after the Adjusted Conversion Price Termination Date,
the Conversion Price shall be determined as set forth in this
Section 1.2(a). For purposes hereof, "Adjusted Conversion Price
Termination Date" shall mean, with respect to any proposed
transaction or tender offer (or takeover scheme) for which a
public announcement as contemplated by this Section 1.2(b) has
been made, the date upon which the Borrower (in the case of
clause (i) above) or the person, group or entity (in the case of
clause (ii) above) consummates or publicly announces the
termination or abandonment of the proposed transaction or tender
offer (or takeover scheme) which caused this Section 1.2(b) to
become operative.
1.3 Authorized Shares. Subject to the Stockholder Approval (as
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defined in the Agreement), the Borrower covenants that during the
period the conversion right exists, the Borrower will reserve
from its authorized and unissued Common Stock a sufficient number
of shares, free from preemptive rights, to provide for the
issuance of Common Stock upon the full conversion of this Note
and the other Notes issued pursuant to the Purchase Agreement.
The Borrower is required at all times to have authorized and
reserved two times the number of shares that is actually issuable
upon full conversion of the Notes (based on the Conversion Price
of the Notes or the Exercise Price of the Warrants in effect from
time to time) (the "Reserved Amount"). The Reserved Amount shall
be increased from time to time in accordance with the Borrower's
obligations pursuant to Section 4(h) of the Purchase Agreement.
The Borrower represents that upon issuance, such shares will be
duly and validly issued, fully paid and non-assessable. In
addition, if the Borrower shall issue any securities or make any
change to its capital structure which would change the number of
shares of Common Stock into which the Notes shall be convertible
at the then current Conversion Price, the Borrower shall at the
same time make proper provision so that thereafter there shall be
a sufficient number of shares of Common Stock authorized and
reserved, free from preemptive rights, for conversion of the
outstanding Notes. The Borrower (i) acknowledges that it has
irrevocably instructed its transfer agent to issue certificates
for the Common Stock issuable upon conversion of this Note, and
(ii) agrees that its issuance of this Note shall constitute full
authority to its officers and agents who are charged with the
duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock in accordance
with the terms and conditions of this Note.
If, at any time a Holder of this Note submits a Notice
of Conversion, and the Borrower does not have sufficient
authorized but unissued shares of Common Stock available to
effect such conversion in accordance with the provisions of this
Article I (a "Conversion Default"), subject to Section 4.8, the
Borrower shall issue to the Holder all of the shares of Common
Stock which are then available to effect such conversion. The
portion of this Note which the Holder included in its Conversion
Notice and which exceeds the amount which is then convertible
into available shares of Common Stock (the "Excess Amount")
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shall, notwithstanding anything to the contrary contained herein,
not be convertible into Common Stock in accordance with the terms
hereof until (and at the Holder's option at any time after) the
date additional shares of Common Stock are authorized by the
Borrower to permit such conversion, at which time the Conversion
Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined
below) and (ii) the Conversion Price on the Conversion Date
thereafter elected by the Holder in respect thereof. In
addition, the Borrower shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the
amount of (x) the sum of (1) the then outstanding principal
amount of this Note plus (2) accrued and unpaid interest on the
unpaid principal amount of this Note through the Authorization
Date (as defined below) plus (3) Default Interest, if any, on the
amounts referred to in clauses (1) and/or (2), multiplied by (y)
..24, multiplied by (z) (N/365), where N = the number of days from
the day the holder submits a Notice of Conversion giving rise to
a Conversion Default (the "Conversion Default Date") to the date
(the "Authorization Date") that the Borrower authorizes a
sufficient number of shares of Common Stock to effect conversion
of the full outstanding principal balance of this Note. The
Borrower shall use its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable following
the earlier of (i) such time that the Holder notifies the
Borrower or that the Borrower otherwise becomes aware that there
are or likely will be insufficient authorized and unissued shares
to allow full conversion thereof and (ii) a Conversion Default.
The Borrower shall send notice to the Holder of the authorization
of additional shares of Common Stock, the Authorization Date and
the amount of Holder's accrued Conversion Default Payments. The
accrued Conversion Default Payments for each calendar month shall
be paid in cash or shall be convertible into Common Stock (at
such time as there are sufficient authorized shares of Common
Stock) at the applicable Conversion Price, at the Borrower's
option, as follows:
(a) In the event Holder elects to take such payment in
cash, cash payment shall be made to Holder by the fifth (5th) day
of the month following the month in which it has accrued; and
(b) In the event Holder elects to take such payment in
Common Stock, the Holder may convert such payment amount into
Common Stock at the Conversion Price (as in effect at the time of
conversion) at any time after the fifth day of the month
following the month in which it has accrued in accordance with
the terms of this Article I (so long as there is then a
sufficient number of authorized shares of Common Stock).
The Holder's election shall be made in writing to the
Borrower at any time prior to 6:00 p.m., New York, New York time,
on the third day of the month following the month in which
Conversion Default payments have accrued. If no election is
made, the Holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the Holder's right to pursue actual
damages (to the extent in excess of the Conversion Default
Payments) for the Borrower's failure to maintain a sufficient
number of authorized shares of Common Stock, and each holder
shall have the right to pursue all remedies available at law or
in equity (including degree of specific performance and/or
injunctive relief).
1.4 Method of Conversion.
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(a) Mechanics of Conversion. Subject to Section 1.1, this
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Note may be converted by the Holder in whole or in part at any time
from time to time after the Issue Date, by (A) submitting to the
Borrower a Notice of Conversion (by facsimile or other reasonable
means of communication dispatched on the Conversion Date prior to
6:00 p.m., New York, New York time) and (B) subject to Section
1.4(b), surrendering this Note at the principal office of the
Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding
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anything to the contrary set forth herein, upon conversion of this
Note in accordance with the terms hereof, the Holder shall not be
required to physically surrender this Note to the Borrower unless
the entire unpaid principal amount of this Note is so converted.
The Holder and the Borrower shall maintain records showing the
principal amount so converted and the dates of such conversions
or shall use such other method, reasonably satisfactory to the
Holder and the Borrower, so as not to require physical surrender
of this Note upon each such conversion. In the event of any
dispute or discrepancy, such records of the Borrower shall be
controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Note is
converted as aforesaid, the Holder may not transfer this Note
unless the Holder first physically surrenders this Note to the
Borrower, whereupon the Borrower will forthwith issue and deliver
upon the order of the Holder a new Note of like tenor, registered
as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the
remaining unpaid principal amount of this Note. 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 represented by this Note may be
less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required
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to pay any tax which may be payable in respect of any transfer
involved in the issue and delivery of shares of Common Stock or other
securities or property on conversion of this Note in a name other
than that of the Holder (or in street name), and the Borrower
shall not be required to issue or deliver any such shares or
other securities or property unless and until the person or
persons (other than the Holder or the custodian in whose street
name such shares are to be held for the Holder's account)
requesting the issuance thereof shall have paid to the Borrower
the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt
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by the Borrower from the Holder of a facsimile transmission (or
other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in
this Section 1.4, the Borrower shall issue and deliver or cause
to be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion
within two (2) business days after such receipt (and, solely in
the case of conversion of the entire unpaid principal amount
hereof, surrender of this Note) (such second business day being
hereinafter referred to as the "Deadline") in accordance with the
terms hereof and the Purchase Agreement (including, without
limitation, in accordance with the requirements of Section 2(g)
of the Purchase Agreement that certificates for shares of Common
Stock issued on or after the effective date of the Registration
Statement upon conversion of this Note shall not bear any
restrictive legend).
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(e) Obligation of Borrower to Deliver Common Stock.
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Upon receipt by the Borrower of a Notice of Conversion, the Holder
shall be deemed to be the holder of record of the Common Stock
issuable upon such conversion, the outstanding principal amount
and the amount of accrued and unpaid interest on this Note shall
be reduced to reflect such conversion, and, unless the Borrower
defaults on its obligations under this Article I, all rights with
respect to the portion of this Note being so converted shall
forthwith terminate except the right to receive the Common Stock
or other securities, cash or other assets, as herein provided, on
such conversion. If the Holder shall have given a Notice of
Conversion as provided herein, the Borrower's obligation to issue
and deliver the certificates for Common Stock shall be absolute
and unconditional, irrespective of the absence of any action by
the Holder to enforce the same, any waiver or consent with
respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure
or delay in the enforcement of any other obligation of the
Borrower to the holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged
breach by the Holder of any obligation to the Borrower, and
irrespective of any other circumstance which might otherwise
limit such obligation of the Borrower to the Holder in connection
with such conversion. The Conversion Date specified in the
Notice of Conversion shall be the Conversion Date so long as the
Notice of Conversion is received by the Borrower before 6:00
p.m., New York, New York time, on such date.
(f) Delivery of Common Stock by Electronic Transfer. In
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lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Borrower's transfer
agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of
the Holder and its compliance with the provisions contained in
Section 1.1 and in this Section 1.4, the Borrower shall use its
best efforts to cause its transfer agent to electronically
transmit the Common Stock issuable upon conversion to the Holder
by crediting the account of Holder's Prime Broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system.
(g) Failure to Deliver Common Stock Prior to Deadline.
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Without in any way limiting the Holder's right to pursue other
remedies, including actual damages and/or equitable relief, the
parties agree that if delivery of the Common Stock issuable upon
conversion of this Note is more than two (2) days after the
Deadline (other than a failure due to the circumstances described
in Section 1.3 above, which failure shall be governed by such
Section) the Borrower shall pay to the Holder $2,000 per day in
cash, for each day beyond the Deadline that the Borrower fails to
deliver such Common Stock. Such cash amount shall be paid to
Holder by the fifth day of the month following the month in which
it has accrued or, at the option of the Holder (by written notice
to the Borrower by the first day of the month following the month
in which it has accrued), shall be added to the principal amount
of this Note, in which event interest shall accrue thereon in
accordance with the terms of this Note and such additional
principal amount shall be convertible into Common Stock in
accordance with the terms of this Note.
1.5 Concerning the Shares. The shares of Common Stock issuable
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upon conversion of this Note may not be sold or transferred
unless (i) such shares are sold pursuant to an effective
registration statement under the Act or (ii) the Borrower or its
transfer agent shall have been furnished with an opinion of
counsel (which opinion shall be in form, substance and scope
7
customary for opinions of counsel in comparable transactions) to
the effect that the shares to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration or
(iii) such shares are sold or transferred pursuant to Rule 144
under the Act (or a successor rule) ("Rule 144") or (iv) such
shares are transferred to an "affiliate" (as defined in Rule 144)
of the Borrower who agrees to sell or otherwise transfer the
shares only in accordance with this Section 1.5 and who is an
Accredited Investor (as defined in the Purchase Agreement).
Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), until such
time as the shares of Common Stock issuable upon conversion of
this Note have been registered under the Act as contemplated by
the Registration Rights Agreement or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of
securities as of a particular date that can then be immediately
sold, each certificate for shares of Common Stock issuable upon
conversion of this Note that has not been so included in an
effective registration statement or that has not been sold
pursuant to an effective registration statement or an exemption
that permits removal of the legend, shall bear a legend
substantially in the following form, as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED. THE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER SAID
ACT, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE AND
SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER
SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
S UNDER SAID ACT."
The legend set forth above shall be removed and the
Borrower shall issue to the Holder a new certificate therefor
free of any transfer legend if (i) the Borrower or its transfer
agent shall have received an opinion of counsel, in form,
substance and scope customary for opinions of counsel in
comparable transactions, to the effect that a public sale or
transfer of such Common Stock may be made without registration
under the Act and the shares are so sold or transferred, (ii)
such Holder provides the Borrower or its transfer agent with
reasonable assurances that the Common Stock issuable upon
conversion of this Note (to the extent such securities are deemed
to have been acquired on the same date) can be sold pursuant to
Rule 144 or (iii) in the case of the Common Stock issuable upon
conversion of this Note, such security is registered for sale by
the Holder under an effective registration statement filed under
the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular
date that can then be immediately sold. Nothing in this Note
shall (i) limit the Borrower's obligation under the Registration
Rights Agreement or (ii) affect in any way the Holder's
obligations to comply with applicable prospectus delivery
requirements upon the resale of the securities referred to
herein.
1.6 Effect of Certain Events.
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(a) Effect of Merger, Consolidation, Etc. At the option
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of the Holder, the sale, conveyance or disposition of all or
substantially all of the assets of the Borrower, the effectuation
by the Borrower of a transaction or series of related
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transactions in which more than 50% of the voting power of the
Borrower is disposed of, or the consolidation, merger or other
business combination of the Borrower with or into any other
Person (as defined below) or Persons when the Borrower is not the
survivor shall either: (i) be deemed to be an Event of Default
(as defined in Article III) pursuant to which the Borrower shall
be required to pay to the Holder upon the consummation of and as
a condition to such transaction an amount equal to the Default
Amount (as defined in Article III) or (ii) be treated pursuant to
Section 1.6(b) hereof. "Person" shall mean any individual,
corporation, limited liability company, partnership, association,
trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at
--------------------------------------------
any time when this Note is issued and outstanding and prior to
conversion of all of the Notes, there shall be any merger,
consolidation, exchange of shares, recapitalization,
reorganization, or other similar event, as a result of which
shares of Common Stock of the Borrower shall be changed into the
same or a different number of shares of another class or classes
of stock or securities of the Borrower or another entity, or in
case of any sale or conveyance of all or substantially all of the
assets of the Borrower other than in connection with a plan of
complete liquidation of the Borrower, then the Holder of this
Note shall thereafter have the right to receive upon conversion
of this Note, upon the basis and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock,
securities or assets which the Holder would have been entitled to
receive in such transaction had this Note been converted in full
immediately prior to such transaction (without regard to any
limitations on conversion set forth herein), and in any such case
appropriate provisions shall be made with respect to the rights
and interests of the Holder of this Note to the end that the
provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and of the number of shares
issuable upon conversion of the Note) shall thereafter be
applicable, as nearly as may be practicable in relation to any
securities or assets thereafter deliverable upon the conversion
hereof. The Borrower shall not effect any transaction described
in this Section 1.6(b) unless (a) it first gives, to the extent
practicable, thirty (30) days prior written notice (but in any
event at least fifteen (15) days prior written notice) of the
record date of the special meeting of shareholders to approve, or
if there is no such record date, the consummation of, such
merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event or sale of assets (during
which time the Holder shall be entitled to convert this Note) and
(b) the resulting successor or acquiring entity (if not the
Borrower) assumes by written instrument the obligations of this
Section 1.6(b). The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers or share
exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall
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declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend,
stock repurchase, by way of return of capital or otherwise
(including any dividend or distribution to the Borrower's
shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a
"Distribution"), then the Holder of this Note shall be entitled,
upon any conversion of this Note after the date of record for
determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable
to the Holder with respect to the shares of Common Stock issuable
upon such conversion had such Holder been the holder of such
shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
9
(d) Adjustment Due to Dilutive Issuance. If, at any time
when any Notes are issued and outstanding, the Borrower issues or
sells, or in accordance with this Section 1.6(d) hereof is deemed
to have issued or sold, any shares of Common Stock for no
consideration or for a consideration per share (before deduction
of reasonable expenses or commissions or underwriting discounts
or allowances in connection therewith) less than the Fixed
Conversion Price in effect on the date of such issuance (or
deemed issuance) of such shares of Common Stock (a "Dilutive
Issuance"), then immediately upon the Dilutive Issuance, the
Fixed Conversion Price will be reduced to the amount of the
consideration per share received by the Borrower in such Dilutive
Issuance; provided that only one adjustment will be made for each
Dilutive Issuance.
The Borrower shall be deemed to have issued or
sold shares of Common Stock if the Borrower in any manner issues
or grants any warrants, rights or options (not including employee
stock option plans), whether or not immediately exercisable, to
subscribe for or to purchase Common Stock or other securities
convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase
Common Stock or Convertible Securities are hereinafter referred
to as "Options") and the price per share for which Common Stock
is issuable upon the exercise of such Options is less than the
Fixed Conversion Price then in effect, then the Fixed Conversion
Price shall be equal to such price per share. For purposes of
the preceding sentence, the "price per share for which Common
Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or
receivable by the Borrower as consideration for the issuance or
granting of all such Options, plus the minimum aggregate amount
of additional consideration, if any, payable to the Borrower upon
the exercise of all such Options, plus, in the case of
Convertible Securities issuable upon the exercise of such
Options, the minimum aggregate amount of additional consideration
payable upon the conversion or exchange thereof at the time such
Convertible Securities first become convertible or exchangeable,
by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further
adjustment to the Conversion Price will be made upon the actual
issuance of such Common Stock upon the exercise of such Options
or upon the conversion or exchange of Convertible Securities
issuable upon exercise of such Options.
Additionally, the Borrower shall be deemed to have
issued or sold shares of Common Stock if the Borrower in any
manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable
upon the exercise of Options), and the price per share for which
Common Stock is issuable upon such conversion or exchange is less
than the Fixed Conversion Price then in effect, then the Fixed
Conversion Price shall be equal to such price per share. For the
purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such conversion or exchange"
is determined by dividing (i) the total amount, if any, received
or receivable by the Borrower as consideration for the issuance
or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to
the Borrower upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Fixed
Conversion Price will be made upon the actual issuance of such
Common Stock upon conversion or exchange of such Convertible
Securities.
10
(e) Purchase Rights. If, at any time when any Notes are
---------------
issued and outstanding, the Borrower issues any convertible securities
or rights to purchase stock, warrants, securities or other
property (the "Purchase Rights") pro rata to the record holders
of any class of Common Stock, then the Holder of this Note will
be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such Holder
could have acquired if such Holder had held the number of shares
of Common Stock acquirable upon complete conversion of this Note
(without regard to any limitations on conversion contained
herein) immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights or, if no
such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of
such Purchase Rights.
(f) Notice of Adjustments. Upon the occurrence of each
---------------------
adjustment or readjustment of the Conversion Price as a result of
the events described in this Section 1.6, the Borrower, at its
expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to the Holder of a certificate setting
forth such adjustment or readjustment and showing in detail the
facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of the
Holder, furnish to such Holder a like certificate setting forth
(i) such adjustment or readjustment, (ii) the Conversion Price at
the time in effect and (iii) the number of shares of Common Stock
and the amount, if any, of other securities or property which at
the time would be received upon conversion of the Note.
1.7 Trading Market Limitations. Unless permitted by the
--------------------------
applicable rules and regulations of the principal securities
market on which the Common Stock is then listed or traded, in no
event shall the Borrower issue upon conversion of or otherwise
pursuant to this Note and the other Notes issued pursuant to the
Purchase Agreement more than the maximum number of shares of
Common Stock that the Borrower can issue pursuant to any rule of
the principal United States securities market on which the Common
Stock is then traded (the "Maximum Share Amount"), which shall be
19.99% of the total shares outstanding on the Closing Date (as
defined in the Purchase Agreement), subject to equitable
adjustment from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating
to the Common Stock occurring after the date hereof. Once the
Maximum Share Amount has been issued (the date of which is
hereinafter referred to as the "Maximum Conversion Date"), if the
Borrower fails to eliminate any prohibitions under applicable law
or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with
jurisdiction over the Borrower or any of its securities on the
Borrower's ability to issue shares of Common Stock in excess of
the Maximum Share Amount (a "Trading Market Prepayment Event"),
in lieu of any further right to convert this Note, and in full
satisfaction of the Borrower's obligations under this Note, the
Borrower shall pay to the Holder, within fifteen (15) business
days of the Maximum Conversion Date (the "Trading Market
Prepayment Date"), an amount equal to 130% times the sum of (a)
the then outstanding principal amount of this Note immediately
following the Maximum Conversion Date, plus (b) accrued and
unpaid interest on the unpaid principal amount of this Note to
the Trading Market Prepayment Date, plus (c) Default Interest, if
any, on the amounts referred to in clause (a) and/or (b) above,
plus (d) any optional amounts that may be added thereto at the
Maximum Conversion Date by the Holder in accordance with the
terms hereof (the then outstanding principal amount of this Note
immediately following the Maximum Conversion Date, plus the
amounts referred to in clauses (b), (c) and (d) above shall
collectively be referred to as the "Remaining Convertible
11
Amount"). With respect to each Holder of Notes, the Maximum
Share Amount shall refer to such Holder's pro rata share thereof
determined in accordance with Section 4.8 below. In the event
that the sum of (x) the aggregate number of shares of Common
Stock issued upon conversion of this Note and the other Notes
issued pursuant to the Purchase Agreement plus (y) the aggregate
number of shares of Common Stock that remain issuable upon
conversion of this Note and the other Notes issued pursuant to
the Purchase Agreement, represents at least one hundred percent
(100%) of the Maximum Share Amount (the "Triggering Event"), the
Borrower will use its best efforts to seek and obtain Shareholder
Approval (or obtain such other relief as will allow conversions
hereunder in excess of the Maximum Share Amount) as soon as
practicable following the Triggering Event and before the Maximum
Conversion Date. As used herein, "Shareholder Approval" means
approval by the shareholders of the Borrower to authorize the
issuance of the full number of shares of Common Stock which would
be issuable upon full conversion of the then outstanding Notes
but for the Maximum Share Amount.
1.8 Status as Shareholder. Upon submission of a Notice of
---------------------
Conversion by a Holder, (i) the shares covered thereby (other
than the shares, if any, which cannot be issued because their
issuance would exceed such Holder's allocated portion of the
Reserved Amount or Maximum Share Amount) shall be deemed
converted into shares of Common Stock and (ii) the Holder's
rights as a Holder of such converted portion of this Note shall
cease and terminate, excepting only the right to receive
certificates for such shares of Common Stock and to any remedies
provided herein or otherwise available at law or in equity to
such Holder because of a failure by the Borrower to comply with
the terms of this Note. Notwithstanding the foregoing, if a
Holder has not received certificates for all shares of Common
Stock prior to the tenth (10th) business day after the expiration
of the Deadline with respect to a conversion of any portion of
this Note for any reason, then (unless the Holder otherwise
elects to retain its status as a holder of Common Stock by so
notifying the Borrower) the Holder shall regain the rights of a
Holder of this Note with respect to such unconverted portions of
this Note and the Borrower shall, as soon as practicable, return
such unconverted Note to the Holder or, if the Note has not been
surrendered, adjust its records to reflect that such portion of
this Note has not been converted. In all cases, the Holder shall
retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments
pursuant to Section 1.3 to the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii)
the right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Section 1.3) for the
Borrower's failure to convert this Note.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the Borrower
------------------------------
shall have any obligation under this Note, the Borrower shall not
without the Holder's written consent (a) pay, declare or set
apart for such payment, any dividend or other distribution
(whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock
solely in the form of additional shares of Common Stock or (b)
directly or indirectly or through any subsidiary make any other
payment or distribution in respect of its capital stock except
for distributions pursuant to any shareholders' rights plan which
is approved by a majority of the Borrower's disinterested
directors.
12
2.2 Restriction on Stock Repurchases. So long as the Borrower
--------------------------------
shall have any obligation under this Note, the Borrower shall not
without the Holder's written consent redeem, repurchase or
otherwise acquire (whether for cash or in exchange for property
or other securities or otherwise) in any one transaction or
series of related transactions any shares of capital stock of the
Borrower or any warrants, rights or options to purchase or
acquire any such shares.
2.3 Borrowings. So long as the Borrower shall have any
----------
obligation under this Note, the Borrower shall not, without the
Holder's written consent, create, incur, assume or suffer to
exist any liability for borrowed money, except (a) borrowings in
existence or committed on the date hereof and of which the
Borrower has informed Holder in writing prior to the date hereof,
(b) indebtedness to trade creditors or financial institutions
incurred in the ordinary course of business or (c) borrowings,
the proceeds of which shall be used to repay this Note.
2.4 Sale of Assets. So long as the Borrower shall have any
--------------
obligation under this Note, the Borrower shall not, without the
Holder's written consent, sell, lease or otherwise dispose of any
significant portion of its assets outside the ordinary course of
business. Any consent to the disposition of any assets may be
conditioned on a specified use of the proceeds of disposition.
2.5 Advances and Loans. So long as the Borrower shall have any
------------------
obligation under this Note, the Borrower shall not, without the
Holder's written consent, lend money, give credit or make
advances to any person, firm, joint venture or corporation,
including, without limitation, officers, directors, employees,
subsidiaries and affiliates of the Borrower, except loans,
credits or advances (a) in existence or committed on the date
hereof and which the Borrower has informed Holder in writing
prior to the date hereof, (b) made in the ordinary course of
business or (c) not in excess of $50,000.
2.6 Contingent Liabilities. So long as the Borrower shall have
----------------------
any obligation under this Note, the Borrower shall not, without
the Holder's written consent, which shall not be unreasonably
withheld, assume, guarantee, endorse, contingently agree to
purchase or otherwise become liable upon the obligation of any
person, firm, partnership, joint venture or corporation, except
by the endorsement of negotiable instruments for deposit or
collection and except assumptions, guarantees, endorsements and
contingencies (a) in existence or committed on the date hereof
and which the Borrower has informed Holder in writing prior to
the date hereof, and (b) similar transactions in the ordinary
course of business.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an
"Event of Default") shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to
------------------------------------
pay the principal hereof or interest thereon when due on this
Note, whether at maturity, upon a Trading Market Prepayment Event
pursuant to Section 1.7, upon acceleration or otherwise;
13
3.2 Conversion and the Shares. The Borrower fails to issue
-------------------------
shares of Common Stock to the Holder (or announces or threatens
that it will not honor its obligation to do so) upon exercise by
the Holder of the conversion rights of the Holder in accordance
with the terms of this Note (for a period of at least sixty (60)
days, if such failure is solely as a result of the circumstances
governed by Section 1.3 and the Borrower is using its best
efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable), fails to transfer or cause its
transfer agent to transfer (electronically or in certificated
form) any certificate for shares of Common Stock issued to the
Holder upon conversion of or otherwise pursuant to this Note as
and when required by this Note or the Registration Rights
Agreement, or fails to remove any restrictive legend (or to
withdraw any stop transfer instructions in respect thereof) on
any certificate for any shares of Common Stock issued to the
Holder upon conversion of or otherwise pursuant to this Note as
and when required by this Note or the Registration Rights
Agreement (or makes any announcement, statement or threat that it
does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any
announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten (10) days after the
Borrower shall have been notified thereof in writing by the
Holder;
3.3 Failure to Timely File Registration or Effect Registration.
----------------------------------------------------------
The Borrower fails to file the Registration Statement within
sixty (60) days following the Closing Date (as defined in the
Purchase Agreement) or obtain effectiveness with the Securities
and Exchange Commission of the Registration Statement within one
hundred thirty-five (135) days following the Closing Date (as
defined in the Purchase Agreement) or such Registration Statement
lapses in effect (or sales cannot otherwise be made thereunder
effective, whether by reason of the Borrower's failure to amend
or supplement the prospectus included therein in accordance with
the Registration Rights Agreement or otherwise) for more than ten
(10) consecutive days or twenty (20) days in any twelve month
period after the Registration Statement becomes effective;
3.4 Breach of Covenants. The Borrower breaches any material
-------------------
covenant or other material term or condition contained in
Sections 1.3, 1.6 or 1.7 of this Note, or Sections 4(c), 4(e),
4(h), 4(i), 4(j) or 5 of the Purchase Agreement and such breach
continues for a period of ten (10) days after written notice
thereof to the Borrower from the Holder;
3.5 Breach of Representations and Warranties. Any
----------------------------------------
representation or warranty of the Borrower made herein or in any
agreement, statement or certificate given in writing pursuant
hereto or in connection herewith (including, without limitation,
the Purchase Agreement and the Registration Rights Agreement),
shall be false or misleading in any material respect when made
and the breach of which has (or with the passage of time will
have) a material adverse effect on the rights of the Holder with
respect to this Note, the Purchase Agreement or the Registration
Rights Agreement;
3.6 Receiver or Trustee. The Borrower or any subsidiary of the
-------------------
Borrower shall make an assignment for the benefit of creditors,
or apply for or consent to the appointment of a receiver or
trustee for it or for a substantial part of its property or
business, or such a receiver or trustee shall otherwise be
appointed;
14
3.7 Judgments. Any money judgment, writ or similar process
---------
shall be entered or filed against the Borrower or any subsidiary
of the Borrower or any of its property or other assets for more
than $50,000, and shall remain unvacated, unbonded or unstayed
for a period of twenty (20) days unless otherwise consented to by
the Holder, which consent will not be unreasonably withheld;
3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or
----------
liquidation proceedings or other proceedings for relief under any
bankruptcy law or any law for the relief of debtors shall be
instituted by or against the Borrower or any subsidiary of the
Borrower;
3.9 Delisting of Common Stock. The Borrower shall fail to
-------------------------
maintain the listing of the Common Stock on at least one of the
OTCBB or an equivalent replacement exchange, the Nasdaq National
Market, the Nasdaq SmallCap Market, the New York Stock Exchange,
or the American Stock Exchange; or
3.10 Default Under Other Notes. An Event of Default has occurred
-------------------------
and is continuing under any of the other Notes issued pursuant to
the Purchase Agreement,
then, upon the occurrence and during the continuation of any
Event of Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.5,
3.7, 3.9, or 3.10, at the option of the Holders of a majority of
the aggregate principal amount of the outstanding Notes issued
pursuant to the Purchase Agreement exercisable through the
delivery of written notice to the Borrower by such Holders (the
"Default Notice"), and upon the occurrence of an Event of Default
specified in Section 3.6 or 3.8, the Notes shall become
immediately due and payable and the Borrower shall pay to the
Holder, in full satisfaction of its obligations hereunder, an
amount equal to the greater of (i) 130% times the sum of (w) the
then outstanding principal amount of this Note plus (x) accrued
and unpaid interest on the unpaid principal amount of this Note
to the date of payment (the "Mandatory Prepayment Date") plus (y)
Default Interest, if any, on the amounts referred to in clauses
(w) and/or (x) plus (z) any amounts owed to the Holder pursuant
to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement (the then outstanding principal
amount of this Note to the date of payment plus the amounts
referred to in clauses (x), (y) and (z) shall collectively be
known as the "Default Sum") or (ii) the "parity value" of the
Default Sum to be prepaid, where parity value means (a) the
highest number of shares of Common Stock issuable upon conversion
of or otherwise pursuant to such Default Sum in accordance with
Article I, treating the Trading Day immediately preceding the
Mandatory Prepayment Date as the "Conversion Date" for purposes
of determining the lowest applicable Conversion Price, unless the
Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall
be the Conversion Date), multiplied by (b) the highest Closing
Price for the Common Stock during the period beginning on the
date of first occurrence of the Event of Default and ending one
day prior to the Mandatory Prepayment Date (the "Default Amount")
and all other amounts payable hereunder shall immediately become
due and payable, all without demand, presentment or notice, all
of which hereby are expressly waived, together with all costs,
including, without limitation, legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all
other rights and remedies available at law or in equity. If the
Borrower fails to pay the Default Amount within five (5) business
days of written notice that such amount is due and payable, then
the Holder shall have the right at any time, so long as the
Borrower remains in default (and so long and to the extent that
there are sufficient authorized shares), to require the Borrower,
15
upon written notice, to immediately issue, in lieu of the Default
Amount, the number of shares of Common Stock of the Borrower
equal to the Default Amount divided by the Conversion Price then
in effect.
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on
--------------------------------
the part of the Holder in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any
other right, power or privileges. All rights and remedies
existing hereunder are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
4.2 Notices. Any notice herein required or permitted to be
-------
given shall be in writing and may be personally served or
delivered by courier or sent by United States mail and shall be
deemed to have been given upon receipt if personally served
(which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the
United States mail, certified, with postage pre-paid and properly
addressed, if sent by mail. For the purposes hereof, the address
of the Holder shall be as shown on the records of the Borrower;
and the address of the Borrower shall be 7284 Palmetto Park Road,
Suite 207, Boca Raton, FL 33433, facsimile number: () [ ].
Both the Holder and the Borrower may change the address for
service by service of written notice to the other as herein
provided.
4.3 Amendments. This Note and any provision hereof may only be
----------
amended by an instrument in writing signed by the Borrower and
the Holder. The term "Note" and all reference thereto, as used
throughout this instrument, shall mean this instrument (and the
other Notes issued pursuant to the Purchase Agreement) as
originally executed, or if later amended or supplemented, then as
so amended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower
-------------
and its successors and assigns, and shall inure to be the benefit
of the Holder and its successors and assigns. Each transferee of
this Note must be an "accredited investor" (as defined in Rule
501(a) of the 1933 Act). Notwithstanding anything in this Note
to the contrary, this Note may be pledged as collateral in
connection with a bona fide margin account or other lending
arrangement.
4.5 Cost of Collection. If default is made in the payment of
------------------
this Note, the Borrower shall pay the Holder hereof costs of
collection, including reasonable attorneys' fees.
4.6 Governing Law. THIS NOTE SHALL BE ENFORCED, GOVERNED BY AND
-------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY WITHIN
SUCH STATE, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS.
THE BORROWER HEREBY SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS LOCATED IN NEW YORK, NEW YORK WITH
RESPECT TO ANY DISPUTE ARISING UNDER THIS NOTE, THE AGREEMENTS
ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS
16
CONTEMPLATED HEREBY OR THEREBY. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH
SUIT OR PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF
PROCESS UPON A PARTY MAILED BY FIRST CLASS MAIL SHALL BE DEEMED
IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON THE PARTY IN
ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL AFFECT EITHER
PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN
ANY SUCH SUIT OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON SUCH JUDGMENT OR IN
ANY OTHER LAWFUL MANNER. THE PARTY WHICH DOES NOT PREVAIL IN ANY
DISPUTE ARISING UNDER THIS NOTE SHALL BE RESPONSIBLE FOR ALL FEES
AND EXPENSES, INCLUDING ATTORNEYS' FEES, INCURRED BY THE
PREVAILING PARTY IN CONNECTION WITH SUCH DISPUTE.
4.7 Certain Amounts. Whenever pursuant to this Note the
---------------
Borrower is required to pay an amount in excess of the
outstanding principal amount (or the portion thereof required to
be paid at that time) plus accrued and unpaid interest plus
Default Interest on such interest, the Borrower and the Holder
agree that the actual damages to the Holder from the receipt of
cash payment on this Note may be difficult to determine and the
amount to be so paid by the Borrower represents stipulated
damages and not a penalty and is intended to compensate the
Holder in part for loss of the opportunity to convert this Note
and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Note at a price in excess of the
price paid for such shares pursuant to this Note. The Borrower
and the Holder hereby agree that such amount of stipulated
damages is not plainly disproportionate to the possible loss to
the Holder from the receipt of a cash payment without the
opportunity to convert this Note into shares of Common Stock.
4.8 Allocations of Maximum Share Amount and Reserved Amount.
-------------------------------------------------------
The Maximum Share Amount and Reserved Amount shall be allocated
pro rata among the Holders of Notes based on the principal amount
of such Notes issued to each Holder. Each increase to the
Maximum Share Amount and Reserved Amount shall be allocated pro
rata among the Holders of Notes based on the principal amount of
such Notes held by each Holder at the time of the increase in the
Maximum Share Amount or Reserved Amount. In the event a Holder
shall sell or otherwise transfer any of such Holder's Notes, each
transferee shall be allocated a pro rata portion of such
transferor's Maximum Share Amount and Reserved Amount. Any
portion of the Maximum Share Amount or Reserved Amount which
remains allocated to any person or entity which does not hold any
Notes shall be allocated to the remaining Holders of Notes, pro
rata based on the principal amount of such Notes then held by
such Holders.
4.9 Damages Shares. The shares of Common Stock that may be
--------------
issuable to the Holder pursuant to Sections 1.3 and 1.4(g) hereof
and pursuant to Section 2(c) of the Registration Rights Agreement
("Damages Shares") shall be treated as Common Stock issuable upon
conversion of this Note for all purposes hereof and shall be
subject to all of the limitations and afforded all of the rights
of the other shares of Common Stock issuable hereunder, including
without limitation, the right to be included in the Registration
Statement filed pursuant to the Registration Rights Agreement.
For purposes of calculating interest payable on the outstanding
17
principal amount hereof, except as otherwise provided herein,
amounts convertible into Damages Shares ("Damages Amounts") shall
not bear interest but must be converted prior to the conversion
of any outstanding principal amount hereof, until the outstanding
Damages Amounts is zero.
4.10 Denominations. At the request of the Holder, upon surrender
-------------
of this Note, the Borrower shall promptly issue new Notes in the
aggregate outstanding principal amount hereof, in the form
hereof, in such denominations of at least $50,000 as the Holder
shall request.
4.11 Purchase Agreement. By its acceptance of this Note, each
------------------
Holder agrees to be bound by the applicable terms of the Purchase
Agreement.
4.12 Notice of Corporate Events. Except as otherwise provided
--------------------------
below, the Holder of this Note shall have no rights as a Holder
of Common Stock unless and only to the extent that it converts
this Note into Common Stock. The Borrower shall provide the
Holder with prior notification of any meeting of the Borrower's
shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the
Borrower of a record of its shareholders for the purpose of
determining shareholders who are entitled to receive payment of
any dividend or other distribution, any right to subscribe for,
purchase or otherwise acquire (including by way of merger,
consolidation, reclassification or recapitalization) any share of
any class or any other securities or property, or to receive any
other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease
or conveyance of all or substantially all of the assets of the
Borrower or any proposed liquidation, dissolution or winding up
of the Borrower, the Borrower shall mail a notice to the Holder,
at least twenty (20) days prior to the record date specified
therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which
any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement
regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such
time. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially
simultaneously with the notification to the Holder in accordance
with the terms of this Section 4.12.
4.13 Remedies. The Borrower acknowledges that a breach by it of
--------
its obligations hereunder will cause irreparable harm to the
Holder, by vitiating the intent and purpose of the transaction
contemplated hereby. Accordingly, the Borrower acknowledges that
the remedy at law for a breach of its obligations under this Note
will be inadequate and agrees, in the event of a breach or
threatened breach by the Borrower of the provisions of this Note,
that the Holder shall be entitled, in addition to all other
available remedies at law or in equity, and in addition to the
penalties assessable herein, to an injunction or injunctions
restraining, preventing or curing any breach of this Note and to
enforce specifically the terms and provisions thereof, without
the necessity of showing economic loss and without any bond or
other security being required.
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ARTICLE V. CALL OPTION
5.1 Call Option. Notwithstanding anything to the contrary
-----------
contained in this Article V, so long as (i) no Event of Default
or Trading Market Prepayment Event shall have occurred and be
continuing, (ii) the Borrower has a sufficient number of
authorized shares of Common Stock reserved for issuance upon full
conversion of the Notes, then at any time after the Issue Date,
and (iii) the Common Stock is trading at or below $.09 per share,
the Borrower shall have the right, exercisable on not less than
ten (10) Trading Days prior written notice to the Holders of the
Notes (which notice may not be sent to the Holders of the Notes
until the Borrower is permitted to prepay the Notes pursuant to
this Section 5.1), to prepay all of the outstanding Notes in
accordance with this Section 5.1. Any notice of prepayment
hereunder (an "Optional Prepayment") shall be delivered to the
Holders of the Notes at their registered addresses appearing on
the books and records of the Borrower and shall state (1) that
the Borrower is exercising its right to prepay all of the Notes
issued on the Issue Date and (2) the date of prepayment (the
"Optional Prepayment Notice"). On the date fixed for prepayment
(the "Optional Prepayment Date"), the Borrower shall make payment
of the Optional Prepayment Amount (as defined below) to or upon
the order of the Holders as specified by the Holders in writing
to the Borrower at least one (1) business day prior to the
Optional Prepayment Date. If the Borrower exercises its right to
prepay the Notes, the Borrower shall make payment to the holders
of an amount in cash (the "Optional Prepayment Amount") equal to
either (i) 125% (for prepayments occurring within thirty (30)
days of the Issue Date), (ii) 135% for prepayments occurring
between thirty-one (31) and sixty (60) days of the Issue Date,
or (iii) 150% (for prepayments occurring after the sixtieth
(60th) day following the Issue Date), multiplied by the sum of
(w) the then outstanding principal amount of this Note plus
(x) accrued and unpaid interest on the unpaid principal amount of
this Note to the Optional Prepayment Date plus (y) Default
Interest, if any, on the amounts referred to in clauses (w) and
(x) plus (z) any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof or pursuant to Section 2(c) of the
Registration Rights Agreement (the then outstanding principal
amount of this Note to the date of payment plus the amounts
referred to in clauses (x), (y) and (z) shall collectively be
known as the "Optional Prepayment Sum"). Notwithstanding notice
of an Optional Prepayment, the Holders shall at all times prior
to the Optional Prepayment Date maintain the right to convert all
or any portion of the Notes in accordance with Article I and any
portion of Notes so converted after receipt of an Optional
Prepayment Notice and prior to the Optional Prepayment Date set
forth in such notice and payment of the aggregate Optional
Prepayment Amount shall be deducted from the principal amount of
Notes which are otherwise subject to prepayment pursuant to such
notice. If the Borrower delivers an Optional Prepayment Notice
and fails to pay the Optional Prepayment Amount due to the
Holders of the Notes within two (2) business days following the
Optional Prepayment Date, the Borrower shall forever forfeit its
right to redeem the Notes pursuant to this Section 5.1.
5.2 Partial Call Option. Notwithstanding anything to the
-------------------
contrary contained in this Article V, in the event that the
Average Daily Price of the Common Stock, as reported by the
Reporting Service, for each day of the month ending on any
Determination Date is below the Initial Market Price, the
Borrower may, at its option, prepay a portion of the outstanding
principal amount of the Notes equal to the principal amount
hereof divided by thirty-six (36) plus one month's interest. The
term "Initial Market Price" means shall mean the volume weighted
average price of the Common Stock for the five (5) Trading Days
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immediately preceding the Closing. The term "Reporting Service"
means a reliable reporting service mutually acceptable to and
hereinafter designated by the Holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Borrower has caused this Note to be
signed in its name by its duly authorized officer this 30th day
of March, 2005.
MED GEN, INC.
By:
______________________________
Paul B. Kravitz
Chairman and Chief
Executive Officer
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Notes)
The undersigned hereby irrevocably elects to convert
$__________ principal amount of the Note (defined below) into
shares of common stock, par value $.001 per share ("Common
Stock"), of Med Gen, Inc., a Nevada corporation (the "Borrower")
according to the conditions of the convertible Notes of the
Borrower dated as of March 30, 2005 (the "Notes"), as of the date
written below. If securities 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. No fee will be charged to the Holder
for any conversion, except for transfer taxes, if any. A copy of
each Note is attached hereto (or evidence of loss, theft or
destruction thereof).
The Borrower shall electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the
account of the undersigned or its nominee with DTC through its
Deposit Withdrawal Agent Commission system ("DWAC Transfer").
Name of DTC Prime Broker:_____________________
Account Number:_______________________________
In lieu of receiving shares of Common Stock issuable
pursuant to this Notice of Conversion by way of a DWAC Transfer,
the undersigned hereby requests that the Borrower issue a
certificate or certificates for the number of shares of Common
Stock set forth below (which numbers are based on the Holder's
calculation attached hereto) in the name(s) specified immediately
below or, if additional space is necessary, on an attachment
hereto:
Name:_____________________________________________
Address:__________________________________________
The undersigned represents and warrants that all offers
and sales by the undersigned of the securities issuable to the
undersigned upon conversion of the Notes shall be made pursuant
to registration of the securities under the Securities Act of
1933, as amended (the "Act"), or pursuant to an exemption from
registration under the Act.
Date of Conversion:__________________________
Applicable Conversion Price:_________________
Number of Shares of Common Stock to be Issued Pursuant
to
Conversion of the Notes:_____________________
Signature:___________________________________
Name:________________________________________
Address:_____________________________________
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The Borrower shall issue and deliver shares of Common Stock to an
overnight courier not later than three business days following
receipt of the original Note(s) to be converted, and shall make
payments pursuant to the Notes for the number of business days
such issuance and delivery is late.
23