QUICK-MED TECHNOLOGIES, INC. SENIOR CONVERTIBLE PROMISSORY NOTE
$375,000.00 June
27,
2007
QUICK-MED
TECHNOLOGIES, INC.
THIS
PROMISSORY NOTE IS SUBJECT TO THE PROVISIONS OF A CERTAIN INTERCREDITOR
AGREEMENT
DATED AS OF SEPTEMBER 27, 2007 AMONG ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, PHRONESIS PARTNERS, L.P.
AND QUICK-MED TECHNOLOGIES, INC.
FOR
VALUE
RECEIVED, the undersigned, QUICK-MED TECHNOLOGIES, INC. (the “Borrower”),
promises unconditionally to pay to the order of Phronesis Partners, L.P., its
successors or assigns (the “Lender”) at the Lender’s office at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
▇▇. #▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, or at such other place as the Lender may from
time to time designate, the principal amount of three hundred seventy five
thousand dollars ($375,000.00) (the “Principal Amount”) as is disbursed to
Borrower pursuant to this Note, together with interest on the unpaid Principal
Amount outstanding from time to time at the rate or rates hereafter specified
and any and all other sums which may be owing to the Lender by the Borrower
pursuant to this Note. The Borrower acknowledges it has already received
proceeds of ONE HUNDRED TWENTY FIVE THOUSAND DOLLARS ($125,000) from Lender
and
that therefore this is the current Principal Amount as of the date of this
Note.
The following terms shall apply to this Promissory Note:
1. Advances.
Provided no existing uncured “Event of Default”, as hereinafter defined, shall
have occurred hereunder, the Lender shall make additional advances (each an
“Advance” or collectively the “Advance”) to the Borrower ONE HUNDRED TWENTY FIVE
THOUSAND DOLLARS ($125,000) to pay the 12 month salary for the Borrower’s Chief
Executive Officer as approved by its Board of Directors on June 14, 2007 and
an
additional ONE HUNDRED TWENTY FIVE THOUSAND DOLLARS ($125,000) to fund the
operations of the Borrower. Should the Chief Executive Officer unable to remain
in his executive position during the first 12 month period, any remaining
balance of $125,000 allocated for his salary at that time shall be returned
to
Lender. Lender shall have no obligations to make an Advance to the Borrower
hereunder should an Event of Default have occurred and be continuing hereunder
or if the total principal amount of Advances outstanding at any time exceed
$375,000.00. Additional advances will be recorded with an acknowledgement in
the
form set forth as Exhibit
A.
2. Interest
Rate.
Interest shall accrue on the outstanding Principal Amount at the rate of eight
percent (8%) per annum. Interest shall be calculated on the basis of a year
of
three hundred sixty five (365) days applied to the actual days on which there
exists an unpaid balance under this Note.
3. Interest
Payments.
The
Borrower shall pay accrued and unpaid interest on the Maturity Date, as the
case
may be and as hereinafter defined, and thereafter on demand until all sums
due
under this Note, whether principal, interest, or other sums, have been paid
in
full.
4. Principal.
Unless
sooner paid or converted, the entire outstanding Principal Amount as well as
all
other sums under this Note that remain unpaid shall be due and payable on June
27, 2010 (the “Maturity Date”); provided that, the Borrower shall make amortized
payments on the outstanding principal plus interest during the term of this
Note
depending on the free cash flow from operations in excess of anticipated cost
from operations as determined in the discretion of the Borrower’s Board of
Directors.
5. Prepayment.
Borrower may prepay any portion of the outstanding principal amount of this
Promissory Note with 30 days prior written notice.
6. Conversion.
This
Note shall be convertible into shares of Common Stock of the Borrower, on the
terms and conditions set forth in this Section 6.
(a) Conversion
Right.
Subject
to the provisions of Section 6(d), at any time or times on or after the first
date of this Note, the Lender shall be entitled to convert any portion of the
outstanding and unpaid Conversion Amount (as defined below) into validly issued,
fully paid and nonassessable shares of Common Stock in accordance with Section
6(c), at the Conversion Rate (as defined below).
(b) Conversion
Rate.
The
number of shares of Common Stock issuable upon conversion of any Conversion
Amount pursuant to Section 6(a) shall be determined by dividing (x) such
Conversion Amount by (y) the Conversion Price (the “Conversion
Rate”).
(i) “Conversion
Amount” means the portion of the Principal and interest to be converted,
redeemed or otherwise with respect to which this determination is being
made.
(ii) “Conversion
Price” means, as of any Conversion Date (as defined below), the average closing
price per share of the Borrower’s common stock for the 20 trading days
(approximately 30 calendar days) preceding the date of the Advance or $0.74
per
share.
(c) Mechanics
of Conversion.
(i) Optional
Conversion.
To
convert any Conversion Amount into shares of Common Stock on any date (a
“Conversion Date”), the Lender shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 5:00 p.m., Eastern Standard Time, on such
date, a copy of an executed notice of conversion in the form attached hereto
as
Exhibit
B
(the
“Conversion Notice”) to the Borrower and (B) if required by Section 6(c)(iii),
surrender this Note to a common carrier for delivery to the Borrower as soon
as
practicable on or following such date (or an indemnification undertaking with
respect to this Note in the case of its loss, theft or destruction). The
Borrower shall transmit by facsimile a confirmation of receipt of such
Conversion Notice to the Lender and the Borrower’s transfer agent, (the
“Transfer Agent”). The Transfer Agent shall issue and deliver to the address as
specified in the Conversion Notice, a certificate or certificates, registered
in
the name of the Lender or its designee, for the number of shares of Common
Stock
to which the Lender shall be entitled. If this Note is physically surrendered
for conversion as required by Section 6(c)(iii) and the outstanding Principal
of
this Note is greater than the Principal portion of the Conversion Amount being
converted, then the Borrower shall as soon as practicable and in no event later
than ten (10) Business Days after receipt of this Note and at its own expense,
issue and deliver to the holder a new Note in accordance with Section 14(d))
representing the outstanding Principal not converted. The Person or Persons
entitled to receive the shares of Common Stock issuable upon a conversion of
this Note shall be treated for all purposes as the record holder or holders
of
such shares of Common Stock on the Conversion Date.
(ii) Book-Entry.
Notwithstanding anything to the contrary set forth herein, upon conversion
of
any portion of this Note in accordance with the terms hereof, the Lender shall
not be required to physically surrender this Note to the Borrower unless (A)
the
full Conversion Amount represented by this Note is being converted or (B) the
Lender has provided the Borrower with prior written notice (which notice may
be
included in a Conversion Notice) requesting physical surrender and reissue
of
this Note. The Lender and the Borrower shall maintain records showing the
Principal converted and the dates of such conversions or shall use such other
method, reasonably satisfactory to the Lender and the Borrower, so as not to
require physical surrender of this Note upon conversion.
(iii) Legend.
The
Converted Shares shall bear a legend that reads:
THE
SECURITIES EVIDENCED BY THIS STOCK CERTIFICATE MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933,
AS
AMENDED, OR (B) AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
7. Adjustment.
If the
Borrower at any time on or after the date of this Note subdivides (by any stock
split, stock dividend, recapitalization or otherwise) one or more classes of
its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Borrower at any time on or after the Closing
Date combines (by combination, reverse stock split or otherwise) one or more
classes of its outstanding shares of Common Stock into a smaller number of
shares, the Conversion Price in effect immediately prior to such combination
will be proportionately increased.
8. Negative
Covenants. During
the term of this Promissory Note and until all obligations hereunder are
satisfied, Borrower
shall not, without first obtaining the affirmative written consent of the
Lender, which shall not be unreasonably withheld: (i) pay or declare any
dividend or distribution on any common stock or preferred stock (“Capital
Stock”), or apply any of its assets to the redemption, purchase or acquisition,
directly or indirectly, through subsidiaries or otherwise, of any share capital
or assets of another entity; (ii) sell, transfer, lease, offer as
collateral or otherwise dispose of any of its Capital Stock, assets or
properties other than in the ordinary course of business transactions or as
unanimously approved by the Board of Directors; (iii) enter into
any joint
venture, business combination, merger,
consolidation, recapitalization or other reorganization or permit any subsidiary
to enter into any merger, consolidation, recapitalization or other
reorganization; (iv) enter into any agreement, or allow any subsidiary, to
enter
any agreement to issue or offer any security, including, without limitation,
any
equity security, convertible note, secured note or promissory note and (v)
amend or repeal any provision of, or add any provision to, the Borrower's
certificate of incorporation or by-laws other than for subject matters not
involving the items subject to Lender’s prior written consent listed above;
provided however, Lender shall not be obligated to provide affirmative written
consent, if in Lender’s reasonable opinion, consent to any of the foregoing
actions would: (a) impair Lender’s ability to be repaid under this Promissory
Note or (b) impair Borrower’s ability to perform its obligations under the Share
Exchange Agreement.
9. Repayment
Extension.
If any
payment of principal or interest shall be due on a Saturday, Sunday or any
other
day on which banking institutions in the State of Florida are required or
permitted to be closed, such payment shall be made on the next succeeding
business day and such extension of time shall be included in computing interest
under this Note.
10. Manner
and Application of Payments.
All
payments due hereunder shall be paid in lawful money of the United States of
America which shall be legal tender in payment of all debts and dues, public
and
private, in immediately available funds, without offset, deduction or
recoupment. Any payment by check or draft shall be subject to the condition
that
any receipt issued therefore shall be ineffective unless the amount due is
actually received by the Lender.
11. Collateral;
Security Interest.
The
Borrower hereby grants to the Lender as collateral security for its obligations
hereunder a security interest in and to all right, title and interest of the
Borrower in and to all of the Borrower’s personal property assets of each and
every type more specifically identified in Article 9 of the Uniform Commercial
Code as in effect in the State of Florida, whether now owned or hereafter
acquired, wherever located. The Lender is hereby authorized to file a financing
statement naming the Borrower, as debtor, and the Lender, as secured party,
in
respect of all such collateral. Lender’s interest in the collateral security
shall be limited to the outstanding principal and interest under the Note.
Notwithstanding the foregoing, the Lender shall not unreasonably withhold the
Borrower’s request to restructure the security interest in case of a future debt
or equity financing.
12. No
Other Outstanding Notes.
The
Lender represents to the Borrower that it has no other outstanding obligations
and that this Promissory Note shall rank senior to all outstanding obligations
of the Lender; provided that, this Note shall rank pari
passu
with all
other debt obligations owed to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and debt issued concurrently
with
this Note to Phronesis Partners.
13. Events
of Default.
The
occurrence of any one or more of the following events shall constitute an “Event
of Default” under this Note:
(a) the
failure of the Borrower to pay any sum due under this Note within three (3)
days
after such payment was first due, whether by demand or otherwise;
(b) the
occurrence or commencement of a liquidation or bankruptcy or similar proceeding
in respect of the Borrower or any of its assets and;
(c) the
breach by Lender of any of the Negative Covenants set forth in Section 9 of
this
Promissory Note.
14. Rights
and Remedies Upon Default.
Upon
the occurrence of an Event of Default hereunder, the Lender, in the Lender’s
sole discretion and without notice to the Borrower may: (a) declare the entire
outstanding Principal Amount, together with all accrued interest and all other
sums due under this Note to be immediately due and payable, and the same shall
thereupon become immediately due and payable without presentment, demand or
notice which are hereby expressly waived; (b) exercise its right of setoff
against any money, funds, credits or other property of any nature whatsoever
of
the Borrower now or at any time hereafter in the possession of, in transit
to or
from, under the control or custody of, or on deposit with, the Lender in any
capacity whatsoever, including without limitation, any balance of any deposit
account and any credits with the Lender; (c) terminate any outstanding
commitments of the Lender to the Borrower; (d) exercise all rights and remedies
of a secured party in respect of the collateral referred to above as provided
under Article 9 of the Uniform Commercial Code as in effect on the date hereof
in the State of Florida; and (e) exercise any or all rights, powers, and
remedies now or hereafter existing at law, in equity, by statute or
otherwise.
15. Remedies
Cumulative.
Each
right, power and remedy of the Lender hereunder, or now or hereafter existing
at
law, in equity, by statute or otherwise shall be cumulative and concurrent,
and
the exercise or beginning of the exercise of any one or more of them shall
not
preclude the simultaneous or later exercise by the Lender of any or all such
other rights, powers or remedies. No failure or delay by the Lender to insist
upon the strict performance of any one or more provisions of this Note or to
exercise any right, power or remedy consequent upon a breach thereof or default
hereunder shall constitute a waiver thereof or preclude the Lender from
exercising any such right, power or remedy. By accepting full or partial payment
after the due date of any amount of principal of or interest on this Note,
or
other amounts payable on demand, the Lender shall not be deemed to have waived
the right either to require prompt payment when due and payable of all other
amounts of principal of or interest on this Note or other amounts payable on
demand, or to exercise any rights and remedies available to it in order to
collect all such other amounts due and payable under this Note.
16. Maximum
Rate of Interest.
Notwithstanding any provision of this Note to the contrary, the Borrower shall
not be obligated to pay interest pursuant to this Note in excess of the maximum
rate of interest permitted by the laws of any state determined to govern this
Note or the laws of the United States applicable to loans in such state. If
any
provisions of this Note shall ever be construed to require the payment of any
amount of interest in excess of that permitted by applicable law, then the
interest to be paid pursuant to this Note shall be held subject to reduction
to
the amount allowed under applicable law and any sums paid in excess of the
interest rate allowed by law shall be applied in reduction of the principal
balance outstanding pursuant to this Note. The Borrower acknowledges that it
has
been contemplated at all times by the Borrower that the laws of the State of
Florida will govern the maximum rate of interest that it is permissible for
the
Lender to charge the Borrower pursuant to this Note.
17. Waiver
of Presentment.
The
Borrower waives demand, presentment, protest, and notice of demand, of
non-payment, of dishonor, protest and all other demands in connection with
the
delivery, acceptance, performance or enforcement of this Note.
18. Choice
of Law; Forum Selection; Consent to Jurisdiction.
This
Note shall be governed by, construed and interpreted in accordance with the
laws
of the State of Florida. The Borrower hereby (a) agrees that all disputes and
matters whatsoever arising under, in connection with, or incident to this Note
shall be litigated, if at all, in and before a court located in the State of
Florida to the exclusion of the courts of any other state or country and (b)
irrevocably submits to the non-exclusive jurisdiction of any Florida court
or
federal court sitting in the State of Florida in any action or proceeding
arising out of or relating to this Note, and hereby irrevocably waives any
objection to the laying of venue of any such action or proceeding in any such
court and any claim that any such action or proceeding has been brought in
an
inconvenient forum. A final judgment in any such action or proceeding shall
be
conclusive and may be enforced in any other jurisdiction by suit on the judgment
or in any other manner provided by law.
19. Service
of Process.
The
Borrower hereby consents to process being served in any suit, action or
proceeding instituted in connection with this Note by the mailing of a copy
thereof to the Borrower by certified mail, postage prepaid, return receipt
requested. The Borrower hereby irrevocably agrees that such service shall be
deemed to be service of process upon the Borrower in any such suit, action
or
proceeding. Nothing in this Note shall affect the right of the Lender to serve
process in any other manner otherwise permitted by law, and nothing in this
Note
will limit the right of the Lender otherwise to bring proceedings against the
Borrower in the courts of any other jurisdiction or jurisdictions.
20. Notice.
Any
notice, demand, request or other communication which the Lender or the Borrower
may be required to give hereunder shall be in writing and shall be effective
when delivered and at the address provided below:
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(a)
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if
to the Lender, to Phronesis Partners, L.P. at ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇
▇▇▇▇, ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇; and
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(b)
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if
to the Borrower, to it at Quick-Med Technologies, Inc., ▇▇▇▇ ▇.▇.
▇▇▇▇
▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: Chief Financial
Officer.
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Notwithstanding
anything to the contrary, all notices and demands for payment from the Lender
actually received in writing by the Borrower shall be considered to be effective
upon the receipt thereof by the Borrower regardless of the procedure or method
utilized to accomplish delivery thereof to the Borrower.
21. Miscellaneous.
Time is
of the essence under this Note. The paragraph headings of this Note are for
convenience only, and shall not limit or otherwise affect any of the terms
hereof. This Note, if any, constitute the entire agreement between the parties
with respect to their subject matter and supersede all prior letters,
representations, or agreements, oral or written, with respect thereto. The
Lender may, without notice to or consent of the Borrower, sell, assign, pledge
or transfer this Note or sell, assign, transfer or grant participations in
all
or any part of the obligations evidenced by this Note to others at any time
and
from time to time, and the Lender may divulge to any potential assignee,
transferee or participant all information, reports, financial statements and
documents obtained in connection with this Note or otherwise. No modification,
release, or waiver of this Note shall be deemed to be made by the Lender unless
in writing signed by the Lender, and each such waiver, if any, shall apply
only
with respect to the specific instance involved. No course of dealing or conduct
shall be effective to modify, release or waive any provisions of this Note.
This
Note shall inure to the benefit of and be enforceable by the Lender and the
Lender’s successors and assigns and any other person to whom the Lender may
grant an interest in the obligations evidenced by this Note and shall be binding
upon and enforceable against the Borrower and the Borrower’s personal
representatives, successors, heirs and assigns. Whenever used herein, the
singular number shall include the plural, the plural the singular, and the
use
of the masculine, feminine, or neuter gender shall include all genders. This
Note may be executed in any number of counterparts, all of which, when taken
together shall constitute one Note.
[signature
page follows]
Senior
Convertible Note
IN
WITNESS WHEREOF,
the
Borrower has duly executed this Note as of the day and year first hereinabove
set forth.
BORROWER:
QUICK-MED
TECHNOLOGIES, INC.
By:________________________________
Name:
Title:
LENDER:
PHRONESIS
PARTNERS, L.P.
By:________________________________
Name:
▇▇▇▇▇ ▇▇▇▇▇▇▇
Title:
General Partner
Senior
Convertible Note
EXHIBIT
A
ADDITIONAL
ADVANCE
The
Company hereby acknowledges receipt of additional proceeds from Lender and
that
the principal amount under the Note has increased as set forth
below:
| 1. |
Principal
Amount (Current): $_________
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| 2. |
Additional
Funding:$_________
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| 3. |
Principal
Amount (After Additional Funding):$___________
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QUICK-MED
TECHNOLOGIES, INC.
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By:
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Name:
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Title:
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11
{00072197.1
/ 0000.090}
EXHIBIT
B
QUICK-MED
TECHNOLOGIES, INC.
CONVERSION
NOTICE
Reference
is made to the Senior Convertible Note (the “Note”)
issued
to the undersigned by Quick-Med Technologies, Inc. (the “Company”).
In
accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock (as defined in the Note), as of the date
specified below.
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Date
of Conversion:
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Aggregate
Conversion Amount to be converted:
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Please
confirm the following information:
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Conversion
Price:
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Number
of shares of Common Stock to be issued:
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Please
issue the Common Stock into which the Note is being converted in
the
following name and to the following address:
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Issue
to:
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Facsimile
Number:
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Authorization:
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By:
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Title:
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Dated:
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Account
Number:
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(if
electronic book entry transfer)
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Transaction
Code Number:
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(if
electronic book entry transfer)
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ACKNOWLEDGMENT
The
Company hereby acknowledges this Conversion Notice and hereby directs
[Insert
Name of Transfer Agent] to
issue
the above indicated number of shares of Common Stock from the Company and
acknowledged and agreed to by [Insert
Name of Transfer Agent].
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QUICK-MED
TECHNOLOGIES, INC.
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By:
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Name:
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Title:
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