EXHIBIT NO. 10.3
[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.
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.
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]
(a) 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 Common Stock . Pursuant to the conversion
provisions set forth in the Convertible Term Note, the Term Loan may be
converted into series Common Stock of the Borrower pursuant to the terms
set forth in the Convertible Term Note.
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 January 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.
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.
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):
(a) Agreement. This Agreement;
(b) Note. The Convertible Term Note;
(c) 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. Lender further represents that it an "Accredited
Investor" as that term is defined in Rule 501 of Regulation D promulgated
under the Securities Act of 1933, as amended (the "Securities Act").
(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
(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
(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.
(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).
(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:
if to the Lender to the Investor's Address, at [investor]
(a) if to the Borrower to NuWay Medical, Inc., 2603 Main Street,
Suite 1150, Irvine, California 92614 Attention: Chief Executive Officer,
with a Fax to 949-625-9819. Attention Dennis Calvert (Email:
Nuwaymedical@aol.com)
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.
[SIGNATURE PAGE FOLLOWS]
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
--------------------------