THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED,
ASSIGNED, PLEDGED, OR HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF
UNDER SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL, IN FORM AND SUBSTANCE REASONABLY
SATISFACTORY TO THE COMPANY AND ITS COUNSEL AND FROM ATTORNEYS REASONABLY
ACCEPTABLE TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
CONVERTIBLE PROMISSORY NOTE
November 15, 2006 $220,000.00
Two Hundred Twenty Thousand Dollars
15% NOTE
FOR VALUE RECEIVED, HEALTHRENU MEDICAL, INC., a Nevada corporation (the
"Company") hereby promises to pay to the order of PAUL CARTMELL (the "Holder"),
or his registered assigns, the principal sum of TWO HUNDRED TWENTY THOUSAND
DOLLARS AND 00/100 ($220,000.00), and to pay interest from the date hereof on
the outstanding principal sum at the rate of 15% per annum based on a 360-day
year, such interest to accrue from the date hereof (the "Closing Date"). The
principal and accrued but unpaid interest shall be paid in full on or before
January 15, 2007 (the "Maturity Date").
All payments shall be paid in lawful money of the United States of America
at the principal office of the Holder or at such other place as the Holder may
designate from time to time in writing to the Company.
1. CONVERSION RIGHTS.
The Holder shall have the following conversion rights with respect to this
Note (the "Conversion Rights"):
A. Conversion. The Holder is entitled, at its option, to convert, and sell
on the same day, at any time and from time to time commencing on the date hereof
until the Maturity Date, all or any part of the principal amount of the Note
plus accrued interest, into shares (the "Conversion Shares") of the Company's
Common Stock, at the price per share equal to the greater of (i) $0.03 per share
or (ii) 80% of the average of the closing bid price for the Company's Common
Stock for the 10 days preceding the notice of conversion, as reported by the
exchange on which the Company's Common Stock is then traded (the "Conversion
Price"). No fraction of shares or scrip representing fractions of shares will be
issued on conversion, but the number of shares issuable shall be rounded to the
nearest whole share. To convert this Note, the Holder hereof shall deliver
written notice thereof, substantially in the form of Exhibit "A" to this Note,
with appropriate insertions (the "Conversion Notice"), to the Company at its
address as set forth herein. The date upon which the conversion shall be
effective (the "Conversion Date") shall be deemed to be the date set forth in
the Conversion Notice.
B. Reservation of Common Stock. The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of this Note, such number of shares of
Common Stock as shall from time to time be sufficient to effect such conversion,
based upon the Conversion Price. If at any time the Company does not have a
sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its stockholders within thirty
(30) days of that time for the sole purpose of increasing the number of
authorized shares of Common Stock.
2. PREPAYMENTS. The Company may prepay and redeem the Note, at the
election of the Company, upon not less than 10 days' notice, at any time as a
whole only and not in part, at a price equal to the outstanding principal of the
Note together with accrued interest to the Maturity Date, along with any other
sums due hereunder.
3. ADDITIONAL CONSIDERATION. As additional consideration for making the
loan described herein, the Company agrees to issue to the Holder a warrant to
purchase a total of 1,600,000 shares of the Company's common stock which shall
have an exercise price of $0.05 per share (the "$0.05 Warrants") and shall be
exercisable for a period of five years. In addition, if the principal and
interest on the Note have not been repaid within thirty (30) days of the
Maturity Date, then the Company shall issue to the Holder an additional 100,000
$0.05 Warrants with an exercise price of $0.05 per share on the one month
anniversary of the Maturity Date and at the end of each monthly period
thereafter that the Note remains unpaid (the "Penalty Warrants"). The total
number of Penalty Warrants that may be issued pursuant to this provision shall
not exceed 1,000,000. The shares issuable upon conversion of the $0.05 Warrants
and the Penalty Warrants shall be referred to collectively as the "Warrant
Shares". The Company agrees to include the Warrant Shares and Conversion Shares
in the Company's pre-effective amendment to its Registration Statement on Form
SB-2 as filed by the Company on April 12, 2006 with the SEC and to use its best
efforts to cause such registration to be declared effective by the SEC.
4. GRANT OF SECURITY INTEREST. The repayment of this obligation shall be
secured by the grant of a security interest in certain Advance Notices that may
be issued from time to time by the Company to Cornell Capital Partners, LP
pursuant to a certain Standby Equity Distribution Agreement dated May 23, 2005,
as amended to date. The parties acknowledge and agree that the Standby Equity
Distribution Agreement has been entered into for Ten Million Dollars
($10,000,000), however, the Company cannot request funds from Cornell Capital
Partners under the Standby Equity Distribution Agreement until such time as the
Company has an effective registration statement covering the shares that may be
issued pursuant to the Standby Equity Distribution Agreement and that Advance
Notices are subject to certain limits and other restrictions as set forth in the
Agreement. Within five (5) days of the effectiveness of such registration
statement, the Company will take action to perfect the Holder's security
interest in the Advance Notices.
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5. DEFAULT. The Company shall be in default under this Note upon the
occurrence of any of the following events ("Event of Default"):
(a) Failure to make any principal or interest payment required under
this Note within three days of the date such payment is due; or
(b) An assignment for the benefit of creditors or the filing of a
petition under bankruptcy, insolvency or debtor's relief law, or for any
readjustment of indebtedness, composition or extension by the Company, or
commenced against the Company which is not discharged within sixty (60)
days.
6. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of
Default:
(a) specified in clause (a) of Section 5, then the Holder may
declare the Note immediately accelerated due and payable;
(b) specified in clause (b) of Section 5, then the Note shall be
automatically accelerated and immediately due and payable at the option of
Holder, without notice or demand; and
(c) the Holder shall have all of the rights and remedies, at law and
in equity, by statute or otherwise, and no remedy herein conferred upon
the Holder is intended to be exclusive of any other remedy and each remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law, in, equity, by statute or
otherwise.
7. CHANGES; PARTIES. This Note can only be changed by an agreement in
writing signed by the Company and the Holder. This Note shall inure to the
benefit of and be binding upon the Company and the Holder and their respective
successors and assigns.
8. WAIVER OF PRESENTMENT. The Company hereby waives presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, default or enforcement of this Note.
9. MAXIMUM RATE OF INTEREST. It is expressly stipulated and agreed to be
the intent of the Company and Holder at all times to comply with the applicable
law governing the maximum rate of interest payable on or in connection with all
indebtedness and transactions hereunder (or applicable United States federal law
to the extent that it permits Holder to contract for, charge, take, reserve or
receive a greater amount of interest). If the applicable law is ever judicially
interpreted so as to render usurious any amount of money or other consideration
called for hereunder, or contracted for, charged, taken, reserved or received
with respect to any loan or advance hereunder, or if acceleration of the
maturity of this Note or the indebtedness hereunder or if any prepayment by the
Company results in the Company's having paid any interest in excess of that
permitted by law, then it is the Company's and Holder's express intent that all
excess cash amounts theretofore collected by Holder be credited on the principal
balance of this Note (or if this Note has been or would thereby be paid in full,
refunded to the Company), and the provisions of this Note immediately be deemed
reformed and the amounts thereafter collectible hereunder reduced, without the
necessity of the execution of any new document, so as to comply with the
applicable law, but so as to permit the recovery of the fullest amount otherwise
called for hereunder. The right to accelerate maturity of this Note does not
include the right to accelerate any interest which has not otherwise accrued on
the date of such acceleration, and Holder does not intend to collect any
unearned interest in the event of acceleration.
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10. NO IMPLIED WAIVER. No failure or delay on the part of Holder in
exercising any right, power or privilege under this Note and no course of
dealing between the Company and Holder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise of any right, power or privilege Holder
would otherwise have. No notice to, or demand on, the Company in any case shall
entitle the Company to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of Holder to any other or
further action in any circumstances without notice or demand.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED ACCORDING TO THE LAWS
OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO THE PRINCIPLES THEREOF
RELATING TO CONFLICTS OF LAWS.
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IN WITNESS WHEREOF, the Company has executed this Note as of the day and
year set forth above.
HEALTHRENU MEDICAL, INC.
By: ________________________________
Robert W. Prokos
Chief Executive Officer and President
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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 $.01
per share ("Common Stock"), of Health Renu Medical, Inc., a Nevada corporation
(the "Company ") according to the conditions of the convertible Notes of the
Company dated as of November ___, 2006 (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 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:____________________________________
The Borrower shall issue and deliver shares of Common Stock to an
overnight courier not later than three (3) business days following receipt of
the original Note(s) to be converted, and shall make any applicable payments
pursuant to the Notes for the number of business days such issuance and delivery
is late.
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