Exhibit 10.1
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS
NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS
NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO EP MEDSYSTEMS INC., THAT SUCH REGISTRATION IS
NOT REQUIRED.
SECURED CONVERTIBLE NOTE
FOR VALUE RECEIVED, EP MEDSYSTEMS, INC., a New Jersey corporation
(hereinafter called "Borrower") promises to pay to LAURUS MASTER FUND, LTD., c/o
Ironshore Corporate Services Ltd., P.O. Box 1234 G.T., Queensgate House, South
Church Street, Grand Cayman, Cayman Islands, Fax: ▇▇▇-▇▇▇-▇▇▇▇ (the "Holder") or
its registered assigns, on order, without demand, the sum of FOUR MILLION
DOLLARS ($4,000,000) (the "Principal Amount") or such other principal amount as
may be from time to time outstanding under the Security Agreement (as herein
defined), together with any accrued and unpaid interest, on August 28, 2006 (the
"Maturity Date").
Capitalized terms used herein without definition shall have the meanings
ascribed to such terms in the Security Agreement between Borrower and the Holder
dated the date hereof (as amended, modified and supplemented from time to time,
the "Security Agreement").
The following terms shall apply to this Note:
ARTICLE I
INTEREST
1.1. Interest Rate. Subject to Section 5.3 hereof, interest on this Note
shall be payable at the Contract Rate in accordance with the terms of the
Security Agreement.
ARTICLE II
ADVANCES, PAYMENTS UNDER NOTE
2.1. Mechanics of Advances. All Loans
evidenced by this Note shall be made in accordance with the terms and provisions
of the Security Agreement.
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2.2. Borrower Conversion Rights. Subject to adjustment as provided in
Section 3.6 hereof, the Conversion Price per share shall be two dollars and
fifty-five cents ($2.55) (the "Fixed Conversion Price"). In the event that the
Common Stock trades on the principal trading exchange or market for the Common
Stock (the "Principal Market") at a price greater than 120% of the Fixed
Conversion Price for a period of at least eleven (11) consecutive trading days,
then Borrower may, at its sole option, provide the Holder irrevocable written
notice ("Call Notice") requiring the conversion at the Fixed Conversion Price
(then in effect) of all or a portion of the Note held by the Holder (subject to
the limitation provided for in Section 3.3 hereof) as of the date set forth in
such Call Notice (the "Call Date"). The Call Date shall be at least two (2)
trading days following the date of the Call Notice, provided a registration
statement covering resales of that number of Conversion Shares provided for in
the Call Notice has been declared effective and is available for use. The number
of Conversion Shares to be issued in connection with any such conversion
pursuant to a particular Call Notice pursuant to this Section 2.2 shall not
exceed 30% of the aggregate dollar trading volume of the Common Stock for the
eleven (11) trading days immediately preceding the Call Notice. If the price of
the Common Stock falls below 110% of the Fixed Conversion Price during the ten
(10) trading day period preceding the Call Date, then the Holder will be
required to convert only such amount of the Note pursuant to such Call Notice as
will equal thirty percent (30%) of the aggregate dollar trading volume for each
day during such 10 day period that the closing price of the Common Stock was
greater than one hundred ten percent (110%) of the then applicable Fixed
Conversion Price. The Company shall not be permitted to give the Investor more
than one Call Notice during any fifteen (15) day period.
2.3. Prepayments. In the event Borrower wishes to prepay all or a portion
of the Obligations in cash in an amount in excess of $500,000 during any
calendar year, Borrower shall deliver to the Holder a written irrevocable notice
indicating the amount intended to be so prepaid (the "Prepayment Amount") and
the date on which such prepayment shall be made (the "Prepayment Date"). Such
notice shall be delivered to the Holder at least five (5) Business Days prior to
the Prepayment Date. On the Prepayment Date, Borrower shall pay to the Holder
$500,000 plus 125% (the "Premium") of the Prepayment Amount in excess of
$500,000 in satisfaction of the Prepayment Amount; provided, however, no such
Premium shall be applicable to any prepayment made by Borrower of an Approved
Overadvance. All such prepayments shall be (a) applied to the Obligations in
such order as the Holder shall elect, (b) shall be subject to the terms of
Section 16 of the Security Agreement and (c) shall be credited (conditional upon
final collection) to the Obligations one Business Day after receipt of such
amounts by ▇▇▇▇▇▇ in good funds in dollars of the United States of America. Any
amount received by ▇▇▇▇▇▇ after 12:00 noon (New York time) on any Business Day
shall be deemed received on the next Business Day. Conversions under Sections
2.2 or 3.1 shall not be deemed for any purpose to be prepayments hereunder.
ARTICLE III
CONVERSION RIGHTS
3.1. Optional Conversion. Subject to the terms of this Article III, the
Holder shall have the right, but not the obligation, at any time until the
Maturity Date, including at any time prior to a Prepayment Date (as defined in
Section 2.3), or thereafter during an Event of Default (as defined in Article
V), and, subject to the volume limitations set forth in Section 3.3 hereof, to
convert all or any portion of the outstanding Principal Amount and/or accrued
interest and fees due and payable into fully paid and nonassessable shares of
Borrower's common stock, as currently constituted (the "Common Stock") at the
conversion price set forth in Section 3.2 (the "Conversion Price"). The shares
of Common Stock to be issued upon such conversion are herein referred to as the
"Conversion Shares."
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3.2. Conversion Price. Notwithstanding the foregoing, the Fixed Conversion
Price shall be adjusted upward (as hereafter provided) immediately following
each conversion under Sections 2.2 and/or 3.1 hereof in a multiple (calculated
on an aggregate cumulative basis for all such conversions taken together) of
$2,000,000 (each aggregate $2,000,000 conversion, a "Specified Event").
Following the occurrence of each Specified Event, the Fixed Conversion Price
shall be adjusted upward based on a formula equal to 115% of the closing price
for the Common Stock on the Principal Market, or on any securities exchange or
other securities market on which the Common Stock is then being listed or
traded, for the three (3) trading days immediately prior to the occurrence of
the Specified Event.
3.3. Conversion Limitation. Notwithstanding anything contained herein to
the contrary, the Holder shall not be entitled to convert pursuant to the terms
of this Note an amount that would be convertible into that number of Conversion
Shares which would exceed the difference between the number of shares of Common
Stock beneficially owned by such Holder or issuable upon exercise of warrants
held by such Holder and 4.99% of the outstanding shares of Common Stock of
Borrower. For the purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Exchange
Act and Regulation 13d-3 thereunder. The Holder may void the Conversion Share
limitation described in this Section 3.3 upon 75 days prior notice to Borrower,
or without any notice requirement upon an Event of Default.
3.4. Mechanics of Conversion. In the event that the Holder elects to
convert this Note into Common Stock, the Holder shall give notice of such
election by delivering an executed and completed notice of conversion ("Notice
of Conversion") to Borrower and such Notice of Conversion shall provide a
breakdown in reasonable detail of the amount of Principal Amount, accrued
interest and fees that are being converted. On each Conversion Date (as
hereinafter defined) and in accordance with its Notice of Conversion, the Holder
shall make the appropriate reduction to the Principal Amount, accrued interest
and fees as entered in its records and shall provide written notice thereof to
Borrower within two (2) business days after the Conversion Date. Each date on
which a Notice of Conversion is delivered or telecopied to Borrower in
accordance with the provisions hereof shall be deemed a Conversion Date (the
"Conversion Date"). A form of Notice of Conversion that may be employed by the
Holder is annexed hereto as Exhibit A. Borrower will cause the transfer agent to
transmit the certificates representing the Conversion Shares to the Holder by
crediting the account of the Holder's designated broker with the Depository
Trust Corporation ("DTC") through its Deposit Withdrawal Agent Commission
("DWAC") system within three (3) business days after receipt by Borrower of the
Notice of Conversion (the "Delivery Date").
In the case of the exercise of the conversion rights set forth herein, the
conversion privilege shall be deemed to have been exercised and the Conversion
Shares issuable upon such conversion shall be deemed to have been issued upon
the date of receipt by Borrower of the Notice of Conversion. The Holder shall be
treated for all purposes as the record holder of such Common Stock, unless the
Holder provides Borrower written instructions to the contrary.
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3.5. Late Payments. ▇▇▇▇▇▇▇▇ understands that a delay in the delivery of
the shares of Common Stock in the form required pursuant to this Article beyond
the Delivery Date could result in economic loss to the Holder. As compensation
to the Holder for such loss and ▇▇▇▇▇▇▇▇ agrees to pay late payments to the
Holder for late issuance of such shares in the form required pursuant to this
Article III upon conversion of the Note, in the amount equal to the greater of
(i) $500 per Business Day after the Delivery Date and (ii) the Holder's actual
damages from such delayed delivery. Borrower shall pay any payments incurred
under this Section in immediately available funds upon demand and, in the case
of actual damages, accompanied by reasonable documentation of the amount of such
damages.
3.6. Adjustment Provisions. The Fixed Conversion Price and number and kind
of shares or other securities to be issued upon conversion determined pursuant
to Sections 3.1 and 3.2, shall be subject to adjustment from time to time upon
the happening of certain events while this conversion right remains outstanding,
as follows:
A. Reclassification, etc. If Borrower at any time shall, by
reclassification or otherwise, change the Common Stock into the same or a
different number of securities of any class or classes, this Note, as to the
unpaid Principal Amount and accrued interest thereon, shall thereafter be deemed
to evidence the right to purchase an adjusted number of such securities and kind
of securities as would have been issuable as the result of such change with
respect to the Common Stock immediately prior to such reclassification or other
change.
B. Stock Splits, Combinations and Dividends. If the shares of Common Stock
are subdivided or combined into a greater or smaller number of shares of Common
Stock, or if a dividend is paid on the Common Stock in shares of Common Stock,
the Fixed Conversion Price shall be proportionately reduced in case of
subdivision of shares or stock dividend or proportionately increased in the case
of combination of shares, in each such case by the ratio which the total number
of shares of Common Stock outstanding immediately after such event bears to the
total number of shares of Common Stock outstanding immediately prior to such
event.
C. Share Issuances. Subject to the provisions of this Section 3.6, if
Borrower shall at any time prior to the conversion or repayment in full of the
Principal Amount issue any Additional Shares to a Person other than the Holder
pursuant to Subsections A or B above for a consideration per share less than the
Fixed Conversion Price in effect at the time of issuance, the Fixed Conversion
Price shall be immediately reset to the price determined by multiplying the
Fixed Conversion Price (as in effect from time to time) by a fraction, the
numerator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of shares of Common Stock which
the aggregate consideration received by Borrower for the total number of
Additional Shares so issued would purchase at the Fixed Conversion Price (as in
effect from time to time) and the denominator of which shall be the number of
shares of Common Stock outstanding immediately prior to such issue plus the
number of such Additional Shares so issued; provided that, for the purposes of
this Section C, all shares of Common Stock issuable upon exercise, exchange or
conversion of outstanding options, convertible securities and preferred stock
shall be deemed to be outstanding prior to such issuance; provided, however, in
no event may the Fixed Conversion Price be reduced to a price which is lower
than the closing market price on the date such reset is effective. For purposes
hereof, the issuance of any security of Borrower convertible into or exercisable
or exchangeable for Common Stock shall result in an adjustment to the Fixed
Conversion Price only upon the conversion, exercise or exchange of such
securities. "Additional Shares" means all shares of Common Stock, except:
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(a) shares of Common Stock issued or issuable upon conversion of preferred
stock outstanding on the date hereof;
(b) shares of Common Stock or options or warrants issued or issuable to
officers, directors and employees of, and consultants to, Borrower pursuant to
an option plan, purchase plan or other employee or consultant incentive plan,
pursuant to stock grants or any other plan or arrangement approved by Borrower's
Board of Directors;
(c) shares of Common Stock or preferred stock or options or warrants
exercisable for Common Stock or preferred stock issued to banks, savings and
loan associations, equipment lessors or other similar lending institutions in
connection with such entities providing working capital credit facilities or
equipment financing to Borrower or to landlords not otherwise affiliated with
Borrower in connection with the lease of office, laboratory, warehouse or other
similar property approved by Borrower's Board of Directors;
(d) shares of Borrower's capital stock issued pursuant to the acquisition
of another corporation by Borrower by merger, purchase of all or substantially
all of the assets or stock or other reorganization approved by Borrower's Board
of Directors;
(e) shares of Borrower's capital stock issued in connection with the
acquisition of technology or licenses or other similar transactions approved by
Borrower's Board of Directors; and
(f) shares of Borrower's capital stock issued to Persons with which
Borrower has strategic or business relationships, provided that such issuance is
approved by the Board of Directors of Borrower and is not primarily for capital
raising purposes.
D. Computation of Consideration. For purposes of any computation respecting
consideration received pursuant to Subsection C above, the following shall
apply:
(a) in the case of the issuance of shares of Common Stock for cash, the
consideration shall be the amount of such cash, provided that in no case shall
any deduction be made for any commissions, discounts or other expenses incurred
by Borrower for any underwriting of the issue or otherwise in connection
therewith;
(b) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors of Borrower (irrespective of the accounting
treatment thereof); and
(c) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration received
therefor shall be deemed to be the consideration received by Borrower for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by Borrower upon the conversion or exchange thereof (the
consideration in each case to be determined in the same manner as provided in
clauses (a) and (b) of this Subsection (D)).
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3.7. Reservation of Shares. During the period the conversion right exists,
Borrower will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of Common Stock upon the full
conversion of this Note. Borrower represents that upon issuance, such shares
will be duly and validly issued, fully paid and non-assessable. ▇▇▇▇▇▇▇▇ agrees
that its issuance of this Note shall constitute full authority to its officers,
agents, and transfer agents who are charged with the duty of executing and
issuing stock certificates to execute and issue the necessary certificates for
shares of Common Stock upon the conversion of this Note.
3.8. Registration Rights. The Holder has been granted registration rights
with respect to the shares of Common Stock issuable upon conversion of this Note
as more fully set forth in a Registration Rights Agreement dated the date
hereof.
ARTICLE IV
EVENTS OF DEFAULT
The occurrence of any of the following events is an Event of Default
("Event of Default"):
4.1. Failure to Pay Principal or Interest. Borrower shall default in the
payment of (i) principal on any Note when due or (ii) interest on any Note when
due and such interest payment default shall continue for a period of three (3)
Business Days.
4.2. Failure to Pay Other Obligations. Borrower shall fail to make payment
of any of the other Obligations when required hereunder and such default shall
continue for a period of five (5) Business Days.
4.3. Breach of Representations and Warranties. Any material representation
or warranty made by Borrower hereunder, in any certificate, statement or
document delivered pursuant to the terms hereof, or in connection with the
transactions contemplated by this Note should prove to have been false or
misleading in any material respect when made or deemed made, as determined by
▇▇▇▇▇▇ in good faith in the exercise of its reasonable discretion;
4.4. Breach of Covenants. Borrower shall fail to perform any covenant or
any other term or condition of this Note and such failure shall remain
unremedied for 10 days after the occurrence thereof.
4.5. Default Under Related Agreement. The occurrence of an Event of Default
under and as defined in the Security Agreement.
4.6. Stop Trade. A stop trade order is instituted by the SEC or the
Principal Market governing body undertakes to officially suspend trading of the
stock for 30 consecutive trading days, but excluding in all cases (i) a stop
trade order not resulting from actions or omissions solely of Borrower, (ii) a
stop trade order or a Principal Market suspension disputed in writing to the SEC
or the Principal Market governing body by Borrower (which default shall be
suspended until such stop trade order or the Principal Market suspension is
finally determined by the SEC or the Principal Market governing body to be
effective), (iii) a delisting from a Principal Market that is not a suspension
by its governing body and (iv) any suspension of all trading on such Principal
Market.
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ARTICLE V
DEFAULT PAYMENTS
5.1. Default Interest Rate. Following the occurrence and during the
continuance of an Event of Default, interest on this Note shall automatically be
increased to the Default Rate in effect for Loans at such time, and all
outstanding Obligations, including unpaid interest, shall continue to accrue
interest from the date of such Event of Default at such interest rate applicable
to such Obligations until such Event of Default is cured or waived.
5.2. Cumulative Remedies. The remedies under this Note shall be cumulative.
ARTICLE VI
MISCELLANEOUS
6.1. Failure or Indulgence Not Waiver. No failure or delay on the part of
the Holder hereof in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude other or further exercise thereof or
of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
6.2. Notices. Any notice herein required or permitted to be given shall be
in writing and provided in accordance with the terms of the Security Agreement.
6.3. Amendment Provision. The term "Note" and all reference thereto, as
used throughout this instrument, shall mean this instrument as originally
executed, or if later amended or supplemented, then as so amended or
supplemented.
6.4. Assignability. This Note shall be binding upon Borrower and its
successors and assigns, and shall inure to the benefit of the Holder and its
successors and assigns, and may be assigned by the Holder in accordance with the
terms hereof and the legend set forth herein.
6.5. Cost of Collection. If default is made in the payment of this Note,
Borrower shall pay the Holder hereof reasonable costs of collection, including
reasonable attorneys' fees.
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6.6. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only
in the state courts of New York or in the federal courts located in the state of
New York. Both parties and the individual signing this Note on behalf of
Borrower agree to submit to the jurisdiction of such courts. The prevailing
party shall be entitled to recover from the other party its reasonable
attorney's fees and costs. In the event that any provision of this Note is
invalid or unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or rule of
law. Any such provision which may prove invalid or unenforceable under any law
shall not affect the validity or unenforceability of any other provision of this
Note. Nothing contained herein shall be deemed or operate to preclude the Holder
from bringing suit or taking other legal action against Borrower in any other
jurisdiction to collect on Borrower's obligations to Holder, to realize on any
collateral or any other security for such obligations, or to enforce a judgment
or other court order in favor of ▇▇▇▇▇▇.
6.7. Maximum Payments. Nothing contained herein shall be deemed to
establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate of
interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by Borrower to the Holder and thus refunded to Borrower.
6.8. Security Interest. The Holder of this Note has been granted a security
interest in certain assets of Borrower more fully described in the Security
Agreement.
6.9. Construction. Each party acknowledges that its legal counsel
participated in the preparation of this Note and, therefore, stipulates that the
rule of construction that ambiguities are to be resolved against the drafting
party shall not be applied in the interpretation of this Note to favor any party
against the other.
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IN WITNESS WHEREOF, ▇▇▇▇▇▇▇▇ has caused this Note to be signed in its name
effective as of this 28th day of August, 2003.
EP MEDSYSTEMS INC.
By: /s/▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President and Chief Executive
Officer
WITNESS:_/s/___________________
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NOTICE OF CONVERSION
(To be executed by the Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by EP MEDSYSTEMS INC. on
_______, 2003 into Shares of Common Stock of EP MEDSYSTEMS INC. (the "Borrower")
according to the conditions set forth in such Note, as of the date written
below.
Date of Conversion:
Conversion Price:
Shares To Be Delivered:
Signature:
Print Name:
Address:
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