EXHIBIT NO. 10.1
[FORM OF] CONVERTIBLE LOAN AGREEMENT
Dated as of [date] ("Subscription Date")
This CONVERTIBLE LOAN AGREEMENT (this "Agreement") is entered into between
NUWAY MEDICAL, INC., a corporation organized under the laws of the state of
Delaware (the "Borrower"), and [investor], the "Investor". The Investor shall be
referred to herein as the "Lender". Capitalized terms used herein shall have the
meanings ascribed to such terms in Section 8 of this Agreement.
In consideration of the mutual covenants and undertakings contained
herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Borrower and the Lender hereby
agree as follows:
SECTION 1. LOAN
SECTION 1.1. TERM LOAN. Subject to the terms and conditions of this
Agreement, the Lender agrees to loan to the Borrower, and the Borrower agrees to
borrow from the Lender, in the aggregate principal amount of the "Subscription
Amount", (collectively, the "Term Loan"). The Lender hereby agrees to make such
loan to the Borrower on the date so indicated, with such payment to be made in
immediately available funds via wire transfer or cashier's check.
SECTION 1.2. TERM NOTE. The Term Loan shall be evidenced by a convertible
promissory note (the "Convertible Term Note"), substantially in the form of
Exhibit A, with appropriate insertions, dated the date hereof, payable to the
order of the Lender and in the initial principal amount of the Subscription
Amount. The Term Loan shall be due and payable one year from the "Subscription
Date", or at an earlier date as provided in Section 3.2 hereof (the "Term Loan
Maturity Date").
SECTION 2. INTEREST AND FEES
SECTION 2.1. INTEREST. The Borrower agrees to pay interest on the unpaid
principal amount of the Term Loan from time to time outstanding hereunder at the
following rates per year, compounded annually:
(a) before maturity of the Term Loan, whether by acceleration or
otherwise, at the rate per annum equal to ten percent (10%).
(b) after the maturity of the Term Loan, whether by acceleration or
otherwise, until paid, at a rate per annum equal to fifteen percent 15%).
SECTION 2.2. INTEREST PAYMENT DATE. Accrued interest shall be paid in full
on the Term Loan Maturity Date.
-1-
SECTION 2.3. BASIS OF COMPUTATION. Interest shall be computed for the
actual number of days elapsed on the basis of a year consisting of 360 days,
including the date the Term Loan is made and excluding the date the Term Loan or
any portion thereof is paid or prepaid.
SECTION 3. CONVERSION AND PAYMENTS
SECTION 3.1. PAYMENTS.
(a) Place of Payment. Cash payments required to be made under this
Agreement and the Convertible Term Note of principal, interest, fees and
other amounts payable hereunder, shall be made to the Lender at its office
located at [investor address] (the "Investor's Address").
(b) Form of Payment. All payments of principal and interest shall be
made by wire transfer to the Lender.
SECTION 3.2. PREPAYMENT.
(a) Optional Prepayment. The Borrower may from time to time prepay
the Term Loan or any portion thereof without premium or penalty.
(b) Mandatory Prepayment.
(i) Within ten (10) days of the occurrence of any of the
following events, the Borrower shall make a prepayment of the Term
Loan in an amount equal to the proceeds received by the Borrower, in
each case up to the total amount then due under the Term Loan, from:
(A) the sale of any of the Borrower's assets
outside the ordinary course of business; and
(B) any insurance payouts or condemnation awards
payable by reason of theft, loss, destruction,
damage, taking or any other similar event with
respect to any property or assets of the Borrower
(provided, however, so long as no Event of Default
or Unmatured Event of Default has occurred and is
continuing the Borrower may use such insurance
payouts or condemnation awards within thirty (30)
days after receipt by the Borrower to replace any
such property with property performing the same or
similar function).
SECTION 3.3. CONVERSION.
(a) Conversion into Preferred Stock. Pursuant to the conversion
provisions set forth in the Convertible Term Note, the Term Loan may be
converted into series A preferred stock of the Borrower pursuant to the
terms set forth in the Convertible Term Note.
-2-
(b) One Year Buy Back of Preferred Shares. At the Lender's sole
option, the Lender may require the Borrower to repurchase the shares of
preferred stock issued to the Lender herein at the end of a one year
period for a price of 110% of the Subscription Amount. If the Borrower is
unable to buy back the shares upon said terms, the Borrower's president,
as indicated below, will buy back the shares from the Lender upon those
terms.
SECTION 4. REPRESENTATIONS AND WARRANTIES
To induce the Lender to make the Term Loan, the Borrower represents and
warrants to the Lender that (except in each case as otherwise disclosed in the
Borrower's filings with the SEC):
SECTION 4.1. ORGANIZATION. The Borrower is a corporation existing and in
good standing under the laws of the State of Delaware; each of its subsidiaries
is a corporation, limited liability company or partnership duly existing and in
good standing under the laws of the state of its formation; the Borrower and
each of its subsidiaries are duly qualified, in good standing and authorized to
do business in each jurisdiction where, because of the nature of their
activities or properties, such qualification is required, except where the
failure to be so qualified would not have a material adverse effect on the
Borrower's business, financial condition or results of operations (a "Material
Adverse Effect"); and the Borrower and each of its subsidiaries have the power
and authority to own their properties and to carry on their businesses as now
being conducted.
SECTION 4.2. AUTHORIZATION; NO CONFLICT. The borrowings hereunder, the
execution and delivery of this Agreement and the Convertible Term Note, the
performance by the Borrower of its obligations under this Agreement and the
Convertible Term Note are within the Borrower's corporate powers, have been
authorized by all necessary corporate action, have received all necessary
governmental approval (if any shall be required) and do not and will not
contravene or conflict with any provision of law or of the charter or by-laws of
the Borrower or any subsidiary or of any agreement binding upon the Borrower or
any subsidiary.
SECTION 4.3. FINANCIAL STATEMENTS. The Borrower's un-audited consolidating
and consolidated financial statements as at December 31, 2003, copies of which
have been made available to the Lender, have been prepared in conformity with
GAAP applied on a basis consistent with that of the preceding fiscal year, and
accurately present the financial condition of the Borrower and its subsidiaries
as at such dates and the results of their operations for the respective periods
then ended.
SECTION 4.4. LIENS. None of the assets of the Borrower or any subsidiary
thereof are subject to any mortgage, pledge, title retention lien, or other
lien, encumbrance or security interest.
-3-
SECTION 4.5. ADVERSE CONTRACTS. Neither the Borrower nor any of its
subsidiaries is a party to any agreement or instrument or subject to any charter
or other corporate restriction, nor is it subject to any judgment, decree or
order of any court or governmental body, which may have a material and adverse
effect on the business, property, assets, operations, conditions or prospects of
the Borrower and its subsidiaries taken as a whole or on the ability of the
Borrower to perform its obligations under this Agreement and the Convertible
Term Note. Neither the Borrower nor any of its subsidiaries has, nor with
reasonable diligence should have had, knowledge of or notice that it is in
default in the performance, observance or fulfillment of any of the obligations,
covenants or conditions contained in any such agreement, instrument,
restriction, judgment, decree or order.
SECTION 4.6. REGULATION U. The Borrower is not engaged principally in, nor
is one of the Borrower's important activities, the business of extending credit
for the purpose of purchasing or carrying "margin stock" within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System as now and
from time to time hereinafter in effect.
SECTION 4.7. LITIGATION AND CONTINGENT LIABILITIES. No litigation
(including derivative actions), arbitration proceedings or governmental
proceedings are pending or threatened against the Borrower or any of its
subsidiaries which would (singly or in the aggregate), if adversely determined,
have a material and adverse effect on the business, properties, assets,
operations, conditions or prospects of the Borrower or any subsidiary.
SECTION 5. COVENANTS
Until all obligations of the Borrower hereunder and under the Convertible
Term Note are paid and fulfilled in full, the Borrower agrees that it shall, and
shall cause each of its subsidiaries to, comply with the following covenants,
unless the Lender consents otherwise in writing:
SECTION 5.1. CORPORATE EXISTENCE, MERGERS, ETC. The Borrower and each
subsidiary shall preserve and maintain its corporate existence, rights,
franchises, licenses and privileges, and will not liquidate, dissolve, or merge,
or consolidate with or into any other corporation, or sell, lease, transfer or
otherwise dispose of all or a substantial part of its assets (except those
assets sold in the ordinary course of its business), except that:
(a) Any subsidiary may merge or consolidate with or into the
Borrower or any one or more wholly-owned subsidiaries; and
(b) Any subsidiary may sell, lease, transfer or otherwise dispose of
any of its assets to the Borrower or one or more wholly-owned
subsidiaries.
SECTION 5.2. INSPECTION. The Borrower and each subsidiary shall permit the
Lender and its agents at any time during normal business hours to inspect their
properties and to inspect and make copies of their books and records, provided
that the Lender agrees to enter into confidentiality agreements with respect to
the foregoing.
-4-
SECTION 5.3. USE OF PROCEEDS.
(a) Use of Proceeds. The Borrower shall use the proceeds from the
Term Loan solely for operating costs, including but not limited to,
employee salaries and costs associated with filing SEC compliance
documents.
(b) Margin Regulations. Neither the Borrower nor any subsidiary
shall use or permit any proceeds of the Term Loan to be used, either
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of "purchasing or carrying any margin stock" within the meaning
of Regulations U or X of the Board of Governors of the Federal Reserve
System, as amended from time to time.
(c) Tender Offers and Going Private. Neither the Borrower nor any
subsidiary shall use (or permit to be used) any proceeds of the Term Loan
to acquire any security in any transaction which is subject to Section 13
or 14 of the Securities Exchange Act of 1934, as amended, or any
regulations or rulings thereunder.
SECTION 5.4. COMPLIANCE WITH LAW. The Borrower and each of its
subsidiaries shall comply in all material respects with all laws and regulations
(whether federal, state or local and whether statutory, administrative, judicial
or otherwise) and with every lawful governmental order or similar action
(whether administrative or judicial) applicable to it, except in each case as
would not have a Material Adverse Effect.
SECTION 5.5. AFFILIATE TRANSACTIONS. Not enter into any transaction with
an affiliate, except for transactions in the ordinary course of business
pursuant to the reasonable requirements of the Borrower's or each subsidiaries'
business and upon fair and reasonable terms no less favorable to the Borrower or
the subsidiaries than the Borrower or the subsidiaries would obtain in a
comparable arms-length transaction.
SECTION 6. CONDITIONS OF LENDING
The obligation of the Lender to make the Term Loan is subject to the
following conditions precedent:
SECTION 6.1. DOCUMENTATION. In addition to the conditions precedent set
forth in Section 6.2 and Section 6.3, the obligation of the Lender to make the
Term Loan is subject to the conditions precedent that the Lender shall have
received all of the following, each duly executed and dated a date acceptable to
the Lender, in form and substance satisfactory to the Lender and its counsel, at
the expense of the Borrower, and in such number of signed counterparts as the
Lender may request (except for the Convertible Term Note, of which only the
original shall be signed):
-5-
(a) Agreement. This Agreement;
(b) Note. The Convertible Term Note;
(c) Resolution. A copy of a resolution of the Board of Directors of
the Borrower authorizing or ratifying the execution, delivery and
performance, respectively, of this Agreement, the Convertible Term Note
and the other documents provided for in this Agreement, certified by the
secretary or assistant secretary of the Borrower; and
(d) Miscellaneous. Such other documents and certificates as the
Lender may request.
SECTION 6.2. REPRESENTATIONS AND WARRANTIES; NO DEFAULT.
(a) Representations and Warranties. At the date of the Term Loan,
the Borrower's representations and warranties set forth herein shall be
true and correct in all material respects as at such date with the same
effect as though those representations and warranties had been made on and
as at such date.
(b) No Default. At the time of the Term Loan, and immediately after
giving effect to the Term Loan, the Borrower shall be in compliance with
all the terms and provisions set forth herein on its part to be observed
or performed, and no Event of Default or Unmatured Event of Default shall
have occurred and be continuing at the time of the Term Loan, or would
result from the making of the Term Loan.
SECTION 6.3. NO MATERIAL ADVERSE CHANGE. No material adverse change in, or
effect on, (a) the business, assets, properties, operations, condition or
prospects of the Borrower or any of its subsidiaries or (b) the ability of the
Borrower to perform its obligations under this Agreement or the Convertible Term
Note, in all cases whether due to a single circumstance or event or an
aggregation of circumstances or events, shall have occurred.
SECTION 7. DEFAULT
SECTION 7.1. EVENTS OF DEFAULT. Each of the following occurrences is
hereby defined as an "Event of Default":
(a) Nonpayment. The Borrower shall fail to make any payment of
principal, interest, or other amounts payable hereunder when and as due;
or
(b) Default under Related Documents. Any default, event of default,
or similar event shall occur or continue under any instrument, document,
note, agreement, or guaranty delivered to the Lender in connection with
the Term Loan (including without limitation the Convertible Term Note), or
any such instrument, document, note, agreement, or guaranty shall not be,
or shall cease to be, enforceable in accordance with its terms; or
-6-
(c) Cross-Default. There shall occur any default or event of
default, or any event which might become such with notice or the passage
of time or both, or any similar event, or any event which requires the
prepayment of borrowed money or the acceleration of the maturity thereof,
under the terms of any evidence of indebtedness or other agreement issued
or assumed or entered into by the Borrower, any of its subsidiaries or
under the terms of any indenture, agreement or instrument under which any
such evidence of indebtedness or other agreement is issued, assumed,
secured or guaranteed, in each case in respect of an amount that exceeds
$100,000, and such event shall continue beyond any applicable period of
grace; or
(d) Dissolutions, etc. The Borrower or any subsidiary shall fail to
comply with any provision concerning its existence or any prohibition
against dissolution, liquidation, merger, consolidation or sale of assets;
or
(e) Warranties. Any representation, warranty, schedule, certificate,
financial statement, report, notice or other writing furnished by or on
behalf of the Borrower or any of its subsidiaries to the Lender is false
or misleading in any material respect on the date as of which the facts
therein set forth are stated or certified; or
(f) ERISA. (i) Institution of any steps by the Borrower or any
subsidiary to terminate a Plan if as a result of such termination the
Borrower or such subsidiary could be required to make a contribution to
such Plan, or could incur a liability or obligation to such Plan, in
either case in excess of $100,000; (ii) a contribution failure occurs with
respect to any plan sufficient to give rise to a lien under Section 302(f)
of ERISA with respect to any Plan; (iii) there shall occur any withdrawal
or partial withdrawal from a Multiemployer Plan and the withdrawal
liability (without unaccrued interest) to Multiemployer Plans as a result
of such withdrawal (including any outstanding withdrawal liability that
the Borrower or any subsidiary and any ERISA Affiliate have incurred on
the date of such withdrawal) exceeds $100,000; or (iv) any "reportable"
event shall occur under ERISA in respect of any employee benefit plan
maintained for employees of the Borrower or any subsidiary; or
(g) Litigation. Any suit, action or other proceeding (judicial or
administrative) commenced against the Borrower or any of its subsidiaries,
or with respect to any assets of the Borrower or such subsidiary, shall
threaten to have a material and adverse effect on the asset, condition
(financial or otherwise) or future operations of the Borrower or such
subsidiary; or a final judgment or settlement in excess of $100,000 in
excess of insurance shall be entered in, or agreed to in respect of, any
such suit, action or proceeding; or
-7-
(h) Noncompliance with this Agreement. The Borrower shall fail to
comply in any material respect with any provision hereof, which failure
does not otherwise constitute an Event of Default, and such failure shall
continue for ten (10) days after the occurrence of such failure; or
(i) Bankruptcy. Any bankruptcy, insolvency, reorganization,
arrangement, readjustment, liquidation, dissolution, or similar
proceeding, domestic or foreign, is instituted by or against the Borrower
or any of its subsidiaries, or the Borrower or any of its subsidiaries
shall take any step toward, or to authorize, such a proceeding; or
(j) Insolvency. The Borrower or any of its subsidiaries shall become
insolvent, generally shall fail or be unable to pay its debts as they
mature, shall admit in writing its inability to pay its debts as they
mature, shall make a general assignment for the benefit of its creditors,
shall enter into any composition or similar agreement, or shall suspend
the transaction of all or a substantial portion of its usual business.
SECTION 7.2. REMEDIES. Upon the occurrence of any Event of Default set
forth in subsections (a)-(k) of Section 7.1 and during the continuance thereof,
the Lender or any other holder of the Convertible Term Note may declare the
Convertible Term Note and any other amounts owed to the Lender to be immediately
due and payable, whereupon the Convertible Term Note and any other amounts owed
to the Lender shall forthwith become due and payable. Upon the occurrence of any
Event of Default set forth in subsections (l)-(m) of Section 7.1, the
Convertible Term Note and any other amounts owed to the Lender shall be
immediately and automatically due and payable without action of any kind on the
part of the Lender or any other holder of the Convertible Term Note. The
Borrower expressly waives presentment, demand, notice or protest of any kind in
connection herewith. The Lender shall promptly give the Borrower notice of any
such declaration, but failure to do so shall not impair the effect of such
declaration. No delay or omission on the part of the Lender or any holder of the
Convertible Term Note in exercising any power or right hereunder or under the
Convertible Term Note shall impair such right or power or be construed to be a
waiver of any Event of Default or any acquiescence therein, nor shall any single
or partial exercise of any power or right hereunder preclude other or further
exercise thereof, or the exercise of any other power or right.
SECTION 8. DEFINITIONS
SECTION 8.1. GENERAL. As used herein:
(a) "Affiliate" of any Person means (a) any Person that, directly or
indirectly, is in control of, is controlled by, or is under common control
with such Person, (b) any Person who is a director or officer (i) of such
Person, (ii) of any subsidiary of such Person or (iii) of any Person
described in clause (a) above or (c) in the case of a trust, its
protectors or trustees, any Person who is or has been a beneficiary
thereof, or any Person who is or has been able to appoint a beneficiary
thereof. For purposes of this definition, control of a Person shall mean
the power, direct or indirect (i) to vote 25% or more of the securities
having ordinary voting power for the election of directors of such Person,
whether by ownership of securities, contract, proxy or otherwise, or (ii)
to direct or cause the direction of the management and policies of such
Person, whether by ownership of securities, contract, proxy or otherwise.
-8-
(b) "Agreement" shall have the meaning set forth in the Preamble.
(c) "Borrower" shall have the meaning set forth in the Preamble.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
(e) "ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time.
(f) "ERISA Affiliate" means any corporation or trade or business
which is a member of the same controlled group of corporations (within the
meaning of Section 414(b) of the Code) as such Borrower or is under common
control (within the meaning of Section 414(c) of the Code) with the
Borrower.
(g) "GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect on the date of this Agreement,
consistently applied.
(h) "Investor" shall have the meaning set forth in the Preamble.
(i) "Investor's Address" shall have the meaning set forth in Section
3.1.
(j) "Lender" shall have the meaning set forth in the Preamble.
(k) "Multiemployer Plan" means a multiemployer plan defined as such
in Section 3(37) of ERISA to which contributions have been made by the
Borrower or any ERISA Affiliate as a "contributing sponsor" (within the
meaning of Section 4001(a)(13) of ERISA).
(l) "PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
(m) "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, corporation, limited liability company, institution, public
benefit corporation, other entity or government (whether federal, state,
county, city, municipal, local, foreign, or otherwise, including any
instrumentality, division, agency, body or department thereof).
-9-
(n) "Plan" means any plan, program or arrangement which constitutes
an "employee benefit plan" within the meaning of Section 3(3) of ERISA and
which is maintained or contributed to by the Borrower or its ERISA
Affiliates for the benefit of their employees, including former employees.
(o) "Subsidiary" means any corporation, partnership, joint venture,
trust, or other legal entity of which the Borrower owns directly or
indirectly 50% or more of the outstanding voting stock or interest, or of
which the Borrower has effective control, by contract or otherwise.
(p) "Subscription Amount" shall equal [amount].
(q) "Subscription Date" shall have the meaning set forth in the
Preamble.
(r) "Term Loan Maturity Date" shall have the meaning set forth in
Section 1.2.
(s) "Convertible Term Note" shall have the meaning set forth in
Section 1.2.
(t) "Unmatured Event of Default" means an event or condition, which
would become an Event of Default with notice or the passage of time or
both.
Except as and unless otherwise specifically provided herein, all accounting
terms in this Agreement shall have the meanings given to them by GAAP and shall
be applied and all reports required by this Agreement shall be prepared, in a
manner consistent with the audited financial statements referred to in Section
4.3.
SECTION 8.2. APPLICABILITY OF SUBSIDIARY AND AFFILIATE REFERENCES. Terms
hereof pertaining to any subsidiary or affiliate shall apply only during such
times as the Borrower has any subsidiary or affiliate.
SECTION 9. MISCELLANEOUS
SECTION 9.1. WAIVER OF DEFAULT. The Lender may, by written notice to the
Borrower, at any time and from time to time, waive any Event of Default or
Unmatured Event of Default, which shall be for such period and subject to such
conditions as shall be specified in any such notice. In the case of any such
waiver, the Lender and the Borrower shall be restored to their former position
and rights hereunder and under the Convertible Term Note, respectively, and any
Event of Default or Unmatured Event of Default so waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to or impair any right
consequent thereon or to any subsequent or other Event of Default or Unmatured
Event of Default.
SECTION 9.2. NOTICES. All notices, requests and demands to or upon the
respective parties hereto shall be deemed to have been given or made when
deposited in the mail, postage prepaid, addressed:
-10-
(a) if to the Lender to the Investor's Address,
(b) if to the Borrower to NuWay Medical, Inc., 2603 Main Street,
Suite 1150, Irvine, California 92614 Attention: Chief Executive Officer.
or to such other address as may be hereafter designated in writing by the
respective parties hereto.
SECTION 9.3. NONWAIVER; CUMULATIVE REMEDIES. No failure to exercise, and
no delay in exercising, on the part of the Lender of any right, power or
privilege hereunder shall preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies of the
Lender herein provided are cumulative and not exclusive of any rights or
remedies provided by law.
SECTION 9.4. SURVIVAL OF AGREEMENTS. All agreements, representations and
warranties made herein shall survive the delivery of the Convertible Term Note
and the making of the Term Loan.
SECTION 9.5. SUCCESSORS. This Agreement shall, upon execution and delivery
by the Borrower and acceptance by the Lender, become effective and shall be
binding upon and inure to the benefit of the Borrower, the Lender and their
respective successors and assigns, except that the Borrower may not transfer or
assign any of its rights or interest hereunder without the prior written consent
of the Lender.
SECTION 9.6. CAPTIONS. Captions in this Agreement are for convenience of
reference only and shall not define or limit any of the terms or provisions
hereof. References herein to Sections or provisions without reference to the
document in which they are contained are references to this Agreement.
SECTION 9.7. SINGULAR AND PLURAL. Unless the context requires otherwise,
wherever used herein the singular shall include the plural and vice versa, and
the use of one gender shall also denote the others where appropriate.
SECTION 9.8. COUNTERPARTS. This Agreement may be executed by the parties
on any number of separate counterparts, and by each party on separate
counterparts; each counterpart shall be deemed an original instrument; and all
of the counterparts taken together shall be deemed to constitute one and the
same instrument.
SECTION 9.9. FEES. The Borrower agrees to pay or reimburse the Lender for
all costs and expenses of enforcing this Agreement or the Convertible Term Note,
or preserving its rights hereunder or under any document or instrument executed
in connection herewith (including legal fees and reasonable time charges of
attorneys who may be employees of the Lender, whether in or out of court, in
original or appellate proceedings or in bankruptcy).
SECTION 9.10. CONSTRUCTION. This Agreement, the Convertible Term Note, and
any other document or instrument executed in connection herewith shall be
governed by, and construed and interpreted in accordance with, the internal laws
of the State of California and shall be deemed to have been executed in the
State of California.
-11-
[SIGNATURE PAGE FOLLOWS]
-12-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the day and year first above written.
BORROWER
NUWAY MEDICAL, INC.
/s/ Dennis Calvert
-----------------------------
Dennis Calvert, President
LENDER
/s/ investor
-----------------------------
-13-
EXHIBIT A
CONVERTIBLE TERM NOTE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR APPLICABLE
STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
Subscription Amount: [amount] Irvine, California
Dated: [date]
FOR VALUE RECEIVED, NUWAY MEDICAL, INC., a corporation organized under the
laws of the state of Delaware ("Borrower"), promises to pay to the order of
"Investor", as that term is defined in the Convertible Loan Agreement by and
between Borrower and Investor ("Convertible Loan Agreement") (hereafter,
together with any subsequent holder hereof, called "Lender"), at its office at
"Investor's Address", as that term is defined in the Convertible Loan Agreement,
or at such other place as Lender may direct, the "Subscription Amount", noted
above (the "Loan"), payable in full one year from the "Subscription Date", or at
an earlier date as provided in Section 3.2 of the Convertible Loan Agreement
(the "Maturity Date"). This Convertible Term Note is duly authorized issue of
the Borrower (the "Issuer"), issued on [date] (the "Issuance Date"), and
designated as its Convertible Term Note due one year from the Issuance Date (the
"Note").
Borrower agrees to pay interest on the unpaid principal amount from time
to time outstanding hereunder on the dates and at the rate or rates as set forth
in the Convertible Loan Agreement.
Payments of both principal and interest are to be made in immediately
available funds in lawful money of the United States of America, or in Preferred
Stock of the Borrower as set forth below.
Accrual of interest shall commence as of the Issuance Date. Interest shall
be payable by the Issuer, at the Issuer's option, in cash or in that number of
shares of preferred stock of the Issuer (the "Preferred Stock") (at a price per
share calculated pursuant to the conversion formula contained below), upon the
earlier to occur of (i) upon conversion of this Note pursuant to the conversion
features set forth below, or (ii) upon an Event of Default as defined below, and
if an Event of Default occurs interest due hereunder shall be payable in cash or
stock as set forth herein at the option of the Holder. Unless otherwise agreed
in writing by both parties hereto, the interest so payable will be paid to the
person in whose name this Note (or one or more predecessor Notes) is registered
on the records of the Issuer regarding registration and transfers of the Note
(the "Note Register"), provided, however, that the Issuer's obligation to a
transferee of this Note arises only if such transfer, sale or other disposition
is made in accordance with the terms and conditions contained in the Agreement
and this Note.
-1-
The Note is subject to the following additional provisions:
1. The Issuer shall be entitled to withhold from all payments of
principal and/or interest of this Note any amounts required to be withheld under
the applicable provisions of the U.S. Internal Revenue Code of 1986, as amended,
or other applicable laws at the time of such payments.
2. This Note has been issued subject to investment representations
of the original Holder hereof and may be transferred or exchanged only in
compliance with the Securities Act and applicable state securities laws and in
compliance with the restrictions on transfer provided in the Agreement. Prior to
the due presentment for such transfer of this Note, the Issuer and any agent of
the Issuer may treat the person in whose name this Note is duly registered on
the Issuer's Note register as the owner hereof for the purpose of receiving
payment as herein provided and all other purposes, whether or not this Note is
overdue, and neither the Issuer nor any such agent shall be affected by notice
to the contrary. The transferee shall be bound, as the original Holder by the
same representations and terms described herein and under the Agreement.
3. The Holder or Issuer may, at its option, at any time up to and
including [date], convert the principal amount of this Note or any portion
thereof, and any accrued interest thereon, into [number] shares of fully paid
and non assessable Series A Preferred Stock of the Issuer ("Conversion Shares").
The right to convert the Note may be exercised by telecopying an executed and
completed notice of conversion (the "Notice of Conversion") to the Holder or
Issuer. Each business day on which a Notice of Conversion is telecopied in
accordance with the provisions hereof shall be deemed a "Conversion Date". The
Issuer will transmit the certificates representing Conversion Shares issuable
upon such conversion of the Note (together with the certificates representing
the Note not so converted) to the Holder via express courier, by electronic
transfer (if applicable) or otherwise within ten Business Days after the
Conversion Date, provided, the Issuer has received the original Note being so
converted from the Holder. If the Company has not received the original Note
being converted within three Business Days after Conversion Date, then the
Issuer shall transmit the certificates representing the Conversion Shares
issuable upon such conversion of the Note (together with the certificates
representing the Note not so converted) to the Holder via express courier, by
electronic transfer (if applicable) or otherwise within five business days after
receipt of the original Notice of Conversion and original Note being converted.
4. The principal amount of this Note, and any accrued interest
thereon, shall be reduced as per that principal amount indicated on the Notice
of Conversion upon the proper receipt by the Holder of such Conversion Shares
due upon such Notice of Conversion.
-2-
5. The number of Conversion Shares shall be adjusted as follows:
a. If the Issuer shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, the
number of Conversion Shares in effect immediately prior to such subdivision
shall be proportionately increased, and conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares of
Common Stock, the Conversion Price in effect immediately prior to such
combination shall be proportionately reduced.
6. No provision of this Note shall alter or impair the obligation of
the Issuer, which is absolute and unconditional, upon an Event of Default (as
defined below), to pay the principal of, and interest on this Note at the place,
time, and rate, and in the coin or currency herein prescribed.
7. The Issuer hereby expressly waives demand and presentment for
payment, notice on nonpayment, protest, notice of protest, notice of dishonor,
notice of acceleration or intent to accelerate, and diligence in taking any
action to collect amounts called for hereunder and shall be directly and
primarily liable for the payment of all sums owing and to be owing hereon,
regardless of and without any notice, diligence, act or omission as or with
respect to the collection of any amount called for hereunder.
8. If one or more "Events of Default" shall occur, as that term is
used in the Convertible Loan Agreement, then, or at any time thereafter, and in
each and every such case, unless such Event of Default shall have been waived in
writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) or cured as provided herein, at the option of the Holder,
and in the Holder's sole discretion, the Holder may consider this Note (and all
interest through such date) immediately due and payable in cash, without
presentment, demand protest or notice of any kind, all of which are hereby
expressly waived, anything herein or in any note or other instruments contained
to the contrary notwithstanding, and Holder may immediately, and without
expiration of any period of grace, enforce any and all of the Holder's rights
and remedies provided herein or any other rights or remedies afforded by law
(including but not limited to consequential damages if any). It is agreed that
in the event of such action, such Holder shall be entitled to receive all
reasonable fees, costs and expenses incurred, including without limitation such
reasonable fees and expenses of attorneys. The parties acknowledge that a change
in control of the Issuer shall not be deemed to be an Event of Default as set
forth herein.
9. In case any provision of this Note is held by a court of
competent jurisdiction to be excessive in scope or otherwise invalid or
unenforceable, such provision shall be adjusted rather than voided, if possible,
so that it is enforceable to the maximum extent possible, and the validity and
enforceability of the remaining provisions of this Note will not in any way be
affected or impaired thereby.
-3-
10. The Holder shall have the right, if applicable, to include all
of the Conversion Shares underlying this Note (the "Registrable Securities") as
part of any registration of securities filed by the Issuer (other than in
connection with a transaction contemplated by Rule 145(a) promulgated under the
Act or pursuant to Form S-4 or S-8) and must be notified in writing of such
filing as soon as reasonably practicable; PROVIDED, HOWEVER, that the Holder
agrees it shall not have any piggy-back registration rights pursuant to this
Note if the Conversion Shares underlying this Note may be sold in the United
States pursuant to the provisions of Rule 144 without any restriction on resale.
Holder shall have five business days after receipt of the aforementioned notice
from the Issuer, to notify the Issuer in writing as to whether the Issuer is to
include Holder or not include Holder as part of such registration; PROVIDED,
HOWEVER, that if any registration pursuant to this paragraph shall be
underwritten, in whole or in part, the Issuer may require that the Registrable
Securities requested for inclusion pursuant to this paragraph be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. If in the good faith judgment of the underwriter
evidenced in writing of such offering only a limited number of Registrable
Securities should be included in such offering, or no such shares should be
included, the Holder, and all other selling stockholders, shall be limited to
registering such proportion of their respective shares as shall equal the
proportion that the number of shares of selling stockholders permitted to be
registered by the underwriter in such offering bears to the total number of all
shares then held by all selling stockholders desiring to participate in such
offering. All registration expenses incurred by the Issuer in complying with the
terms of this Note shall be paid by the Issuer, exclusive of underwriting
discounts, commissions and legal fees and expenses for counsel to the Holder.
11. This Note does not entitle the Holder hereof to any voting
rights or other rights as a shareholder of the Issuer prior to the conversion
into Preferred Stock thereof, except as provided by applicable law. If, however,
at the time of the surrender of this Note and conversion the Holder hereof shall
be entitled to convert this Note, the Conversion Shares so issued shall be and
be deemed to be issued to such holder as the record owner of such shares as of
the close of business on the Conversion Date.
12. Except as expressly provided herein or as required by law, so
long as this Note remains outstanding, the Issuer shall not, without the
approval by vote or written consent by the Holder, take any action that would
adversely affect the rights, preferences or privileges of this Note.
IN WITNESS WHEREOF, the Issuer has caused this Convertible Term Note
to be duly executed by an officer thereunto duly authorized.
NUWAY MEDICAL, INC.
By
---------------------------
Name: Dennis Calvert, its President
-4-
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert ___________ of the
principal amount of the above Note into ___________ Shares of Series A Preferred
Stock of NuWay Medical, Inc. according to the conditions hereof, as of the date
written below.
Date of Conversion:
---------------------------------
Signature:
------------------------------------------
Name:
------------------------------------------------
Address:
---------------------------------------------
Date of Conversion:
---------------------------------
Signature:
------------------------------------------
Name:
------------------------------------------------
Address:
---------------------------------------------
-5-