EXHIBIT 10.6
[FORM OF] 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
Subscription Date: [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 below (hereafter, together with any
subsequent holder hereof, called "Holder"), at its office at "Investor's
Address", as that term is defined below, or at such other place as Holder 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 herein (the
"Maturity Date"). This Convertible Term Note is duly authorized issue of the
Borrower (the "Issuer"), issued on the Subscription Date (the "Issuance Date"),
and designated as its Convertible Term Note due one year from the Issuance Date
(the "Note").
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: (i) before maturity of the Loan, whether by
acceleration or otherwise, at the rate per annum equal to ten percent (10%);
(ii) after the maturity of the Loan, whether by acceleration or otherwise, until
paid, at a rate per annum equal to fifteen percent (15%).
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 Common
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 Common stock of the Issuer (the "Common 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.
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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 convert the
principal amount of this Note or any portion thereof, and any accrued interest
thereon, into a number shares of fully paid and non assessable Common Stock of
the Issuer pursuant to the following formula: the Subscription Amount divided by
$[share price] ("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. The Conversion of this note may require that the
Issuer amend its charter to increase the number of common shares authorized and
therefore, the conversion may not take place prior to the Issuer's completion of
that process. Any delay due to such circumstance shall not be an event of
default under this Note. Issuer shall promptly take action to affect such
amendments to its charter.
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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.
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. Events Of Default. Each of the following occurrences is hereby
defined as an "Event of Default":
Nonpayment. The Borrower shall fail to make any
payment of principal, interest, or other amounts
payable hereunder when and as due; or
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
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
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
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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
Insolvency. The Borrower becomes 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.
If one or more "Events of Default" shall occur, 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
elect to consider this Note (and all interest through such date) immediately due
and payable. In order to so elect, the Holder must deliver written notice of the
election and the amount due to the Borrower via certified mail, return receipt
requested, at the Borrower's address as set forth herein (or any other address
provided to the Holder), and thereafter the Borrower shall have ten business
days upon receipt to cure the Event of Default, pay the Note, or convert the
amount due on the Note pursuant to the conversion formula set forth above. 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.
8. 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.
9. 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.
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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 Common
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.
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 /s/Dennis Calvert
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Name: Dennis Calvert, its President
ACKNOWLEDGED AND ACCEPTED:
Investor Name: [name]
Investor Signature: /s/ Investor
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