FORM OF NOTE
ANNEX
I
TO
<PROTOTYPE
FOR EACH ISSUANCE>
FORM
OF NOTE
THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OFFERED
FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
OR
AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
| No. 06-01- 1 |
US
$
|
6%
SECURED PROMISSORY NOTE DUE May 26, 2007
THIS
NOTE
is one of a duly authorized issue of up to $1,550,000 of NEAH
POWER SYSTEMS, INC.,
a
corporation organized and existing under the laws of the State of Nevada (the
"Company"), designated as its 6% Secured Promissory Note Series
06-01.
FOR
VALUE
RECEIVED, the Company promises to pay to ____________________, the registered
holder hereof (the "Holder"), the principal sum of ______________ Thousand
and
00/100 Dollars (US $__________) on the Maturity Date (as defined below) and
to
pay interest on the principal sum outstanding from time to time in arrears
at
the rate of 6% per annum (computed on the basis of the actual number of days
elapsed and a year of 365 days), accruing from December 27 , 2006, the date
of
initial issuance of this Note (the “Issue Date”), to the date of payment. Such
interest shall be payable on the date which is the earlier of (i) the Maturity
Date, or (ii) the date of any prepayment of principal permitted hereunder.
Accrual of interest shall commence on the Issue Date and shall continue to
accrue on a daily basis until payment in full of the principal sum has been
made
or duly provided for (whether before or after the Maturity Date).
1Insert
unique Note number for each issuance.
1
Anything
herein to the contrary notwithstanding, on the Initial Stated Maturity Date
(as
defined below) the Company shall pay the interest on the principal on this
Note
in an amount equal to such principal (and such payment shall constitute the
payment of all interest on this Note through the Initial Maturity Date hereof,
but not beyond the Initial Stated Maturity Date.
This
Note
is being issued pursuant to the terms of the Bridge Loan Agreement, dated as
of
December 27, 2006 (the “Loan Agreement”), to which the Company and the Holder
(or the Holder’s predecessor in interest) are parties. Capitalized terms not
otherwise defined herein shall have the meanings ascribed to them in the Loan
Agreement.
This
Note
is subject to the following additional provisions:
1. (a) The
term
“Maturity Date” means the earliest of (i) the Stated Maturity Date (as defined
below), (ii) the New Transaction Threshold Date (as defined below), or (iii)
the
accelerated date as provided in Section 12 hereof.
(b) The
term
“Stated Maturity Date” means (i) May 26, 2007 (the “Initial Stated Maturity
Date), unless (ii) the Company gives the Holder, and the Holder receives at
least ten (10) business days prior to the Initial Stated Maturity Date, a
Maturity Date Extension Notice (as defined below), in which event it means
June
26 , 2007 (the “Extended Stated Maturity Date”). The term “Maturity Date
Extension Notice” means a written notice of the Company’s election to extend the
Stated Maturity Date to the Extended Stated Maturity Date; provided, however,
that such Maturity Date Extension Notice shall be effective if, and only if,
all
of the following conditions are true:
(X)
there
is no Event of Default (as defined below; but without regard to the last clause
of Section 12(g) hereof regarding the 30-day time period for dismissal of the
relevant petition or the vacating of the relevant order) both on the date the
Maturity Date Extension Notice is received by the Holder and on the Initial
Stated Maturity Date, and
(Y)
simultaneously with the giving of such Maturity Date Extension Notice, the
Company provides to the Holder evidence that all periodic filings with the
SEC
have been timely made, and that the Common Stock is listed for trading on the
OTC Bulletin Board,
(Z)
no
later than the business day after the giving of such notice, the Company pays
to
the Holder (by wire transfer in accordance with instructions provided by the
Holder), interest through the Extended Stated Maturity Date, and the amount
equal to 2% of the outstanding principal of this Note.
(c) The
term
“New Transaction Threshold Date” means the date, after the Issue Date, on which
the Company consummates a financing transaction (including, but not limited
to,
any other bridge loan transactions; each, a “Bridge Financing”) in which the
Company receives, on a cumulative basis after taking into account the gross
proceeds from all prior financing transactions (including, but not limited
to,
any Bridge Financings), if any, after the Issue Date, gross proceeds of at
least
Five Hundred Thousand Dollars ($500,000.00), whether or not such transaction
is
effected in connection with the current or future issuance of securities. All
such gross proceeds are determined before deduction of any fees or other
expenses or disbursements of any kind in connection with the relevant New
Transaction.
2
2. (a) This
Note
may be prepaid in whole or in part at any time prior to the Maturity Date,
without penalty. Any payment shall be applied as provided in Section
3.
(b) TIME
IS OF THE ESSENCE WITH RESPECT TO ANY PAYMENT DUE HEREUNDER.
The
Company shall be in default hereunder if any payment is not made in a timely
manner, without any right to cure unless such right to cure is granted by the
Holder in each instance; provided, however, that the grant of such right is
in
the sole discretion of the Holder and may be withheld for any reason or for
no
reason whatsoever.
3. Any
payment made on account of the Note shall be applied in the following order
of
priority: (i) first, to any amounts due hereunder other than principal and
accrued interest, (ii) then, to accrued interest through and including the
date
of payment, and (iii) then, to principal of this Note.
4. All
payments contemplated hereby to be made “in cash” shall be made in immediately
available good funds of United States of America currency by wire transfer
to an
account designated in writing by the Holder to the Company (which account may
be
changed by notice similarly given). For purposes of this Note, the phrase “date
of payment” means the date good funds are received in the account designated by
the notice which is then currently effective.
5. (a) Subject
to the terms of the Loan Agreement, no provision of this Note shall alter or
impair the obligation of the Company, which is absolute and unconditional,
to
pay the principal of, and interest on, this Note at the time, place, and rate,
and in the coin or currency, as herein prescribed. This Note is a direct
obligation of the Company.
(b) Payment
of this Note is secured pursuant to the terms of (i) a Guaranty, and (ii) the
Security Interest Agreement, dated as of December 27, 2006, executed by the
Subsidiary], as debtor, in favor of the Holder, as secured party, the terms
of
which are incorporated herein by reference.
(c) Any
payments received by the Holder with respect to this Note or on account of
any
rights taken with respect to the Security Interest , the Subsidiary’s Guarantee
(as defined below), the Subsidiary’s Security Interest Agreement, the Pledgor’s
Guarantee (as defined below) or the Pledge Agreement shall be applied in the
following order of priority: (i) first, to any amounts due to the Holder under
any of the Transaction Agreements other than interest and principal on the
Note,
(ii) then, to accrued but unpaid interest on the Note, and (iii) then, to
principal on the Note.
3
6. (a) (i) Each
Pledgor (as defined below) is personally guarantying to the Holder the timely
and full fulfillment of all of the obligations of the Company under this Note
on
the terms provided above and in (and as limited by) such Pledgor’s Pledgor
Guarantee, each of which has been executed by the Pledgor in favor of, and
delivered to, the Holder.
(ii) The
term
“Pledgor” means the
Company, Summit
Trading Limited and Xxxx Xxxxxxxxxx, a shareholder of the Company, who is an
Affiliate of the Company as of the Issue Date.
(iii) The
obligations of the Company under this Note and of each Pledgor under the
relevant Pledgor Guarantee are secured under the terms of the Pledge Agreement,
to which the Holder, the Agent named therein and the relevant Pledgor are
parties (each such agreement, a “Pledge Agreement”), the terms of which are
incorporated herein by reference, of which such Pledgor is the record and
beneficial owner. If the Holder forecloses on any of the Pledged Shares, the
obligations of the Company will be reduced only to the extent of the proceeds
actually realized from such foreclosure, in the priority specified in Section
5
hereof.
7. Except
as
provided in Sections 5 and 6 above or in a separate instrument signed by the
party to be charged therewith, no recourse shall be had for the payment of
the
principal of, or the interest on, this Note, or for any claim based hereon,
or
otherwise in respect hereof, against any incorporator, shareholder, officer
or
director, as such, past, present or future, of the Company or any successor
corporation, whether by virtue of any constitution, statute or rule of law,
or
by the enforcement of any assessment or penalty or otherwise, all such liability
being, by the acceptance hereof and as part of the consideration for the issue
hereof, expressly waived and released.
8. The
Holder of the Note, by acceptance hereof, agrees that this Note is being
acquired for investment and that such Holder will not offer, sell or otherwise
dispose of this Note except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended, or any applicable state
Blue Sky or foreign laws or similar laws relating to the sale of
securities.
9. Any
notice given by any party to the other with respect to this Note shall be given
in the manner contemplated by the Loan Agreement in the section entitled
“Notices.”
10. This
Note
shall be governed by and construed in accordance with the laws of the State
of
New York. Each of the parties consents to the exclusive jurisdiction of the
federal courts whose districts encompass any part of the County of New York
or
the state courts of the State of New York sitting in the County of New York
in
connection with any dispute arising under this Agreement and hereby waives,
to
the maximum extent permitted by law, any objection, including any objection
based on forum
non coveniens,
to the
bringing of any such proceeding in such jurisdictions. To the extent determined
by such court, the Company shall reimburse the Holder for any reasonable legal
fees and disbursements incurred by the Holder in enforcement of or protection
of
any of its rights under any of this Note.
4
11. JURY
TRIAL WAIVER. The
Company and the Holder hereby waive a trial by jury in any action, proceeding
or
counterclaim brought by either of the Parties hereto against the other in
respect of any matter arising out of or in connection with this Note.
12. The
following shall constitute an "Event of Default":
|
a.
|
The
Company shall default in the payment of any amount due on this Note,
time
being of the essence; or
|
|
b.
|
Any
of the representations or warranties made by the Company herein,
in the
Loan Agreement or in any of the other Transaction Agreements shall
be
false or misleading in any material respect at the time made;
or
|
|
c.
|
The
Company shall default in any covenant herein, in the Loan Agreement
or in
any of the other Transaction Agreements;
or
|
|
d.
|
There
shall be either (i) a material breach by the Grantor Subsidiary of
the
terms of the Grantor Subsidiary’s Guarantee or of the Grantor Subsidiary’s
Certificate or (ii) an Event of Default under the Security Interest
Agreement to which the Grantor Subsidiary is a party;
or
|
|
e.
|
Bankruptcy,
reorganization, insolvency or liquidation proceedings or other proceedings
for relief under any bankruptcy law or any law for the relief of
debtors
shall be instituted, applied for or consented to by the Company;
or
|
|
f.
|
Any
governmental agency or any court of competent jurisdiction at the
instance
of any governmental agency shall assume custody or control of the
whole or
any substantial portion of the properties or assets of the Company;
or
|
|
g.
|
Bankruptcy,
reorganization, insolvency or liquidation proceedings or other proceedings
for relief under any bankruptcy law or any law for the relief of
debtors
shall be instituted against the Company without its consent or a
trustee,
liquidator or receiver shall be appointed for the Company or for
a
substantial part of its property or business without its consent,
and the
petition in such proceeding is not dismissed, or such appointment
is not
vacated, within thirty (30) days after such filing or such appointment;
|
If
an
Event of Default shall have occurred, 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) at the option of the Holder and in the Holder's sole
discretion, the Holder may consider this Note immediately due and payable (and
the Maturity Date shall be accelerated accordingly), without presentment,
demand, protest or notice of any kinds, all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the
contrary notwithstanding, and interest shall accrue on the total amount due
(the
“Default Amount”) on the date of the Event of Default (the “Default Date”) at
the rate of 18% per annum or the maximum rate allowed by law, whichever is
lower, from the Default Date until the date payment is made, and the Holder
may
immediately enforce any and all of the Holder's rights and remedies provided
herein or any other rights or remedies afforded by law.
5
[Balance
of page intentionally left blank]
6
13. In
the
event for any reason, any payment by or act of the Company or the Holder shall
result in payment of interest which would exceed the limit authorized by or
be
in violation of the law of the jurisdiction applicable to this Note, then
ipso
facto
the
obligation of the Company to pay interest or perform such act or requirement
shall be reduced to the limit authorized under such law, so that in no event
shall the Company be obligated to pay any such interest, perform any such act
or
be bound by any requirement which would result in the payment of interest in
excess of the limit so authorized. In the event any payment by or act of the
Company shall result in the extraction of a rate of interest in excess of a
sum
which is lawfully collectible as interest, then such amount (to the extent
of
such excess not returned to the Company) shall, without further agreement or
notice between or by the Company or the Holder, be deemed applied to the payment
of principal, if any, hereunder immediately upon receipt of such excess funds
by
the Holder, with the same force and effect as though the Company had
specifically designated such sums to be so applied to principal and the Holder
had agreed to accept such sums as an interest-free prepayment of this Note.
If
any part of such excess remains after the principal has been paid in full,
whether by the provisions of the preceding sentences of this Section or
otherwise, such excess shall be deemed to be an interest-free loan from the
Company to the Holder, which loan shall be payable immediately upon demand
by
the Company. The provisions of this Section shall control every other provision
of this Note.
IN
WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by
an officer thereunto duly authorized this 27th day of December,
2006.
By:_______________________________________
__________________________________________
(Print
Name)
_________________________________________
(Title)
