EXHIBIT 10.2
THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE AND THE COMMON SHARES 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
HYPERTENSION DIAGNOSTICS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
SUBJECT TO THE TERMS AND CONDITIONS OF THAT CERTAIN SUBSCRIPTION
AGREEMENT DATED AS OF MARCH __, 2002 BETWEEN HYPERTENSION DIAGNOSTICS,
INC. AND THE HOLDER HEREOF.
CONVERTIBLE NOTE
FOR VALUE RECEIVED, HYPERTENSION DIAGNOSTICS, INC., a Minnesota
corporation (the "Borrower"), hereby promises to pay to __________________ (the
"Holder") or order, without demand, the sum of ________________ ($_________),
with simple interest accruing at the annual rate of eight percent (8%), on March
____, 2005 (the "Maturity Date").
The following terms shall apply to this Note:
ARTICLE 1
PAYMENT RELATED PROVISIONS
1.1. Payment Grace Period. The Borrower shall have a ten (10) day grace
period to pay any monetary amounts due under this Note, after which
grace period a default interest rate of fifteen percent (15%) per annum
shall apply to the amounts owed hereunder from the date of the
expiration of the ten (10) day grace period until such default is cured
by payment of all amounts then past due, provided that from and after
the date of cure of the default, the annual rate specified in Section
1.3 again shall be applied.
1.2. Conversion Rights. The Conversion Rights set forth in Article 2 shall
remain in full force and effect commencing from the date hereof and
until the Note is paid in full.
1.3. Interest Rate. Subject to the Holder's right to convert, interest
payable on this Note shall accrue at the annual rate of eight percent
(8%) and be payable September 30, 2002 and semi-annually thereafter, and
on the Maturity Date, accelerated or otherwise, when the principal and
remaining accrued but unpaid interest shall be due and payable, or
sooner as described below.
ARTICLE 2
CONVERSION RIGHTS
The Holder shall have the right to convert the principal amount and
interest due under this Note into Shares of the Borrower's Common Stock as set
forth below.
1
2.1 Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the issuance of
this Note and then at any time until this Note is fully paid, to
convert any outstanding and unpaid principal portion of this
Note, and/or at the Holder's election, the interest accrued on
the Note, (the date of giving of such notice of conversion being
a "Conversion Date") into fully paid and nonassessable shares of
common stock of Borrower as such stock exists on the date of
issuance of this Note, or any shares of capital stock of
Borrower into which such stock shall hereafter be changed or
reclassified (the "Common Stock") at the conversion price, as
defined in Section 2.1(b) hereof (the "Conversion Price"),
determined as provided herein. Upon delivery to the Company of a
Notice of Conversion, attached hereto as Exhibit A, as described
in the subscription agreement entered into between the Company
and Holder relating to this Note (the "Subscription Agreement"),
ALL THE TERMS OF WHICH ARE INCORPORATED HEREIN BY THIS
REFERENCE, of the Holder's written request for conversion,
Borrower shall issue and deliver to the Holder within five (5)
business days from the Conversion Date that number of shares of
Common Stock for the portion of the Note converted in accordance
with the foregoing. At the election of the Holder, the Company
will deliver accrued but unpaid interest on the Note through the
Conversion Date directly to the Holder on or before the Delivery
Date (as defined in the Subscription Agreement). The number of
shares of Common Stock to be issued upon each conversion of this
Note shall be determined by dividing that portion of the
principal (and interest, at the election of the Holder) of the
Note to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be at the election of the
Holder: (i) $____ (80% of the average of the closing bid prices
of the Common Stock of the last five trading days prior to the
Closing Date) (the "Conversion Base Price"); or (ii) eighty
percent (80%) of the average of the closing bid prices on the
last five trading days of any consecutive twenty trading day
period after the issuance of this Note if the closing bid price
of the Common Stock is below the Conversion Base Price for each
of the twenty (20) trading days during such consecutive twenty
trading day period (the new "Conversion Base Price"), as
reported by the Principal Market. "Principal Market" with
respect to the Borrower's Common Stock shall mean the NASD OTC
Bulletin Board, NASDAQ SmallCap Market, NASDAQ National Market
System, American Stock Exchange or New York Stock Exchange
(whichever of the foregoing is at the time the principal trading
exchange or market for the Common Stock, the "Principal
Market"), or if not then trading on a Principal Market, such
other principal market or exchange where the Common Stock is
listed or traded. If the Principal Market does not report bid
prices, then the closing price shall be substituted for the bid
price referred to in this Section 2.1(b)(ii) when determining
the Conversion Price.
(c) The Conversion Base Price described in Section 2.1(b)(i) above
and number and kind of shares or other securities to be issued
upon conversion determined pursuant to Section 2.1(a) and
2.1(b), shall be subject to adjustment from time to time upon
the happening of certain events while this conversion right
remains outstanding, as follows:
(A) Merger, Sale of Assets, etc. If the Borrower at any time
shall consolidate with or merge into or sell or convey
all or substantially all its assets to any other
corporation, this Note, as to the unpaid principal
portion thereof and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase
such number and kind of shares or other securities and
2
property as would have been issuable or
distributable on account of such consolidation,
merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or
purchase right immediately prior to such
consolidation, merger, sale or conveyance. The
foregoing provision shall similarly apply to
successive transactions of a similar nature by
any such successor or purchaser. Without
limiting the generality of the foregoing, the
anti-dilution provisions of this Section shall
apply to such securities of such successor or
purchaser after any such consolidation, merger,
sale or conveyance.
(B) Reclassification, etc. If the 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
portion thereof and accrued interest thereon,
shall thereafter be deemed to evidence the right
to purchase such number 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.
(C) 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 Conversion Base 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.
(D) Share Issuance. Subject to the provisions of
this Section, if the Borrower at any time shall
issue any shares of Common Stock prior to the
conversion of the entire principal amount of the
Note (otherwise than as: (i) provided in
Sections 2.1(c)A, 2.1(c)B or 2.1(c)C or this
subparagraph D; and (ii) the Excepted Issuances
(as defined in the Subscription Agreement) [(i)
and (ii) above are hereinafter referred to as
the "Existing Option Obligations"]) for a
consideration less than the Conversion Base
Price that would be in effect at the time of
such issue, then, and thereafter successively
upon each such issue, the Conversion Base Price
shall be reduced as follows: (i) the number of
shares of Common Stock outstanding immediately
prior to such issue shall be multiplied by the
Conversion Base Price in effect at the time of
such issue and the product shall be added to the
aggregate consideration, if any, received by the
Borrower upon such issue of additional shares of
Common Stock; and (ii) the sum so obtained shall
be divided by the number of shares of Common
Stock outstanding immediately after such issue.
The resulting quotient shall be the adjusted
Conversion Base Price. Except for the Existing
Option Obligations, for purposes of this
adjustment, the issuance of any security of the
Borrower carrying the right to convert such
security into shares of Common Stock or of any
warrant, right or option to purchase Common
Stock shall result in an adjustment to the
Conversion Base Price upon the issuance of
shares of Common Stock upon exercise of such
conversion or purchase rights.
(d) From and after the issuance date of this Note and for
the remaining period during which 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
3
conversion of this Note. Borrower represents that upon
issuance, such shares will be duly and validly issued,
fully paid and non-assessable. Borrower 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.
2.2. Method of Conversion. This Note may be converted by the Holder in whole
or in part as described in Section 2.1(a) hereof and the Subscription
Agreement. Upon partial conversion of this Note, if requested by the
Holder, a new Note containing the same date and provisions of this Note
shall be issued by the Borrower to the Holder for the remaining
principal balance of this Note and interest which shall not have been
converted or paid.
2.3. Maximum Conversion. The Holder shall not be entitled to convert on a
Conversion Date that amount of the Note in connection with that number
of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Holder and
its affiliates on a Conversion Date, and (ii) the number of shares of
Common Stock issuable upon the conversion of the Note with respect to
which the determination of this provision is being made on a Conversion
Date, which would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock
of the Company on such Conversion Date. For the purposes of the
provision to the immediately preceding sentence, beneficial ownership
shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Holder shall not be limited to aggregate
conversions of only 4.99% and aggregate conversion by the Holder may
exceed 4.99%. The Holder shall have the authority and obligation to
determine whether the restriction contained in this Section 2.3 will
limit any conversion hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of the Notes are convertible shall be the
responsibility and obligation of the Holder. The Holder may void the
conversion limitation described in this Section 2.3 upon 75 days prior
written notice to the Company. The Holder may allocate which of the
equity of the Borrower deemed beneficially owned by the Holder shall be
included in the 4.99% amount described above and which shall be
allocated to the excess above 4.99%.
ARTICLE 3
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, all without demand, presentment or
notice, or grace period, all of which hereby are expressly waived, except as set
forth below:
3.1. Failure to Pay Principal or Interest. The Borrower fails to pay any
installment of principal or interest hereon when due and such failure
continues for a period of ten (10) days after the due date. The ten (10)
day period described in this Section 3.1 is the same ten (10) day period
described in Section 1.1 hereof.
3.2. Breach of Covenant. The Borrower breaches any material covenant or other
term or condition of this Note in any material respect and such breach,
if subject to cure, continues for a period of seven (7) days after
written notice to the Borrower from the Holder.
4
3.3. Breach of Representations and Warranties. Any material representation or
warranty of the Borrower made herein, in the Subscription Agreement
entered into by the Holder and Borrower in connection with this Note, or
in any agreement, statement or certificate given in writing pursuant
hereto or in connection therewith shall be false or misleading in any
material respect.
3.4. Receiver or Trustee. The Borrower shall make an assignment for the
benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5. Judgments. Any money judgment, writ or similar final process shall be
entered or filed against Borrower or any of its property or other assets
for more than $100,000, and shall remain unpaid, unvacated, unbonded or
unstayed for a period of forty-five (45) days.
3.6. Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings or relief under any bankruptcy law or
any law for the relief of debtors shall be instituted by or against the
Borrower and if instituted against Borrower are not dismissed within
forty-five (45) days of initiation.
3.7. Default. A default by the Borrower, after applicable notice and cure
periods, under any one or more obligations in an aggregate monetary
amount in excess of $100,000.
3.8. Stop Trade. A Securities and Exchange Commission stop trade order or
Principal Market trading suspension for longer than five (5) trading
days.
3.9. Failure to Deliver Common Stock or Replacement Note. Borrower's failure
to timely deliver Common Stock to the Holder pursuant to and in the form
required by this Note and Section 9 of the Subscription Agreement, or if
required, a replacement Note.
3.10. Non-Registration Event. The occurrence of a Non-Registration Event as
described in Section 10.4 of the Subscription Agreement.
3.11. Approval Default. The occurrence of an Approval Default as described in
Section 7 of the Subscription Agreement.
3.12. Delisting. Delisting of the Common Stock from the Nasdaq SmallCap Market
or such other principal exchange on which the Common stock is listed for
trading; failure to comply with the requirements for continued listing
on the Nasdaq SmallCap Market for a period of seven (7) consecutive
trading days; or notification from the Nasdaq SmallCap Market or any
Principal Market that the Borrower is not in compliance with the
conditions for such continued listing on the Nasdaq SmallCap Market or
other Principal Market.
ARTICLE 4
MISCELLANEOUS
4.1. Failure or Indulgence Not Waiver. No failure or delay on the part of
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.
5
4.2. Notices. Any notice herein required or permitted to be given shall be in
writing and may be personally served or sent by facsimile transmission
(with copy sent by regular, certified or registered mail or by overnight
courier). For the purposes hereof, the address and facsimile number of
the Holder is as set forth on the first page hereof. The address and
facsimile number of the Borrower shall be Hypertension Diagnostics,
Inc., ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇, facsimile
number: (▇▇▇) ▇▇▇-▇▇▇▇. Both the Holder and the Borrower may change the
address and facsimile number for notice by service of notice to the
other as herein provided. Notice of Conversion shall be deemed given
when made to the Borrower pursuant to the Subscription Agreement.
4.3. 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.
4.4. Assignability. This Note shall be binding upon the Borrower and its
successors and permitted assigns, and shall inure to the benefit of the
Holder and its successors and assigns, and may be assigned by the
Holder.
4.5. 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.
4.6. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New York. 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 New York County in the State of New
York. Both parties and the individual signing this Agreement on behalf
of the Borrower agree to submit to the jurisdiction of such courts. The
prevailing party shall be entitled to recover from the other party its
reasonable attorneys' fees and costs.
4.7. 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 the Borrower to the Holder and
thus refunded to the Borrower.
4.8. Redemption. This Note is subject to certain mandatory redemption rights
described in the Subscription Agreement.
6
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by its President on this ____ day of March, 2002.
HYPERTENSION DIAGNOSTICS, INC.
By:
-----------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President
WITNESS:
--------------------------------
7
EXHIBIT A
NOTICE OF CONVERSION
(To be executed by the Registered 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 HYPERTENSION
DIAGNOSTICS, INC. on March ___, 2002 into Shares of Common Stock of HYPERTENSION
DIAGNOSTICS, INC. 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:
------------------------------------------------------------------------
--------------------------------------------------------------------------------
8