EXHIBIT 10.16
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS.
THIS NOTE IS SUBORDINATED TO THE LOAN OBLIGATIONS DUE TO FINOVA CAPITAL
CORPORATION PURSUANT TO A SUBORDINATION AND STANDSTILL AGREEMENT EXECUTED AND
DELIVERED BY LENDER.
CREATIVE MEDICAL DEVELOPMENT, INC.
Eight Percent Secured Convertible Subordinated Note
Due January 22, 2004
CREATIVE MEDICAL DEVELOPMENT, INC., hereinafter referred to as the
"Company," for value received, hereby promises to pay to Xxxxxxx X. Xxxxxxxxxx
("Lender"), at 0000 Xx Xxxxxx XX. X., Xxxxx, Xxxxxx 00000, or such other place
as the holder ofthis Note may designate in writing from time to time, in lawful
money of the United States of America the principal sum of One Hundred
Twenty-Two Thousand Five Hundred Eighty Dollars ($122,580.00), together with
interest on the outstanding principal balance at the rate of eight percent (8%)
per annum.
1. Payments. Company shall pay to Lender monthly payments of interest
beginning on February 22, 1999 and continuing on the 22nd day of each month
thereafter until the principal balance has been either paid in full or converted
to Common Stock and Series B Preferred Stock pursuant to Section 4 hereof Except
as otherwise set forth herein, the entire principal balance is due and payable
on January 22, 2004. Company shall have no right to prepay this Note unless
Lender in its sole discretion consents thereto or, on or after the third
anniversary of this Note, Company has given Lender written notice of its intent
to prepay all or any portion of the principal balance of this Note which has not
been converted pursuant to Section 4 of this Note at least sixty (60) days prior
to the prepayment. If Lender notifies Company in writing at least sixty (60)
days prior to the second anniversary of this Note of the exercise of this option
to accelerate repayment of this Note, Company shall pay to Lender the principal
and interest due under this Note, amortized over a one year period, in twelve
(12) equal monthly payments beginning on January 22, 2001, and continuing on the
22nd day of each month thereafter until January 22, 2002, when the remaining
principal and interest due under this Note shall be paid in full.
2. Subordination. The indebtedness evidenced by this Note is subordinated
and junior in right of payment to the prior payment of the secured Senior
Indebtedness of the Company. "Senior Indebtedness" means all indebtedness of the
Company due and owing to Finova Capital Corporation. The term "Senior
Indebtedness" also means any lender who provides an operating line of credit
loan to the Company to pay off the loan due and owing to Finova Capital
Corporation. Upon occurrence of an event of default under the Senior
Indebtedness, Company shall suspend making any payments to Lender, and Company
shall not resume making payments to the holder of this Note until the Senior
Indebtedness has been paid in full. Concurrently with the execution and delivery
of this Note, Lender shall execute and deliver to Finova Capital Corporation its
form of Subordination and Standstill Agreement.
1
3. Conversion. Lender shall have the right, exercisable at any time prior
to maturity upon written notice to Company, to convert the principal amount
hereof into (a) shares of the Common Stock of the Company, at the conversion
price of $0.0644 (the "Conversion Price") of principal due under this Note for
one (1) frilly paid and nonassessable share of Common Stock; and (b) .1041
shares of Series B Preferred Stock for each share of Common Stock received in
this conversion. Except as otherwise expressly set forth below to the contrary
in relation to the issuance of additional Shares, in the event there is any
change in the number of issued and outstanding shares of stock of the Company
due to the declaration of stock dividends or through merger, consolidation or
recapitalization resulting in stock split-ups or combinations or exchanges of
shares or otherwise, the number of shares of Common Stock of the Company and/or
Series B Preferred Stock into which the principal amount of this Note may be
converted and the Conversion Price shall be adjusted proportionately by the
Company. If after the date of this Note and prior to Lender's exercise of its
conversion rights, the Company issues any class of Common or Preferred Stock or
securities convertible into or carrying a right to acquire Common Stock of the
Company ("Shares"), excluding any shares of Common Stock or Series B Preferred
Stock issued pursuant to any options, conversion rights, warrants or other
agreements in effect prior to the date of this Note, which are exercisable at a
price of $.89 per share or less, and also excluding the conversion rights
granted to other holders of the Eight Percent Secured Convertible Subordinated
Notes issued by Lender for any tranche of the aggregate maximum principal amount
of $275,160.00 (including the principal amount of this Note), then Lender is
granted a preemptive right to purchase additional shares of Common Stock of the
Company equal to its Pro Rata Share of such Shares, which must be exercised
concurrently with Lender's conversion of the principal amount of this Note to
Common Stock and Series B Preferred Stock of the Company. The term "Pro Rata
Share" means nineteen and six-tenths percent (19.6%). Lender shall pay the
Conversion Price for the Common Stock issued to Lender as its Pro Rata Share of
the Shares concurrently with conversion of the principal amount of this Note to
Common Stock and Series B Preferred Stock of the Company. As a condition to
issuance of the Common Stock and Series B Preferred Stock to Lender pursuant to
this Section 3, Lender and Company shall execute and deliver a Registration
Rights Agreement in the form delivered to Lender prior to or concurrently with
delivery of this Note.
4. Collateral. The indebtedness due under this Note is secured by the
Subordinated Security Agreement executed and delivered by Company
contemporaneously herewith.
5. Default. Each of the following shall constitute an event of default
under this Note:
(a) Failure of the Company to pay any installment of interest or
principal when due or payable, which is not cured within twenty (20) days after
written notice to Company;
(b) Levy or execution against any material property of Company, which
levy or execution is not released or discharged within thirty (30) days;
(c) Appointment of a receiver for any material part of the property of
Company, assignment for the benefit of creditors by Company, commencement of any
proceeding under any bankruptcy or insolvency laws, or any laws relating to the
relief of debtors, readjustment of indebtedness, reorganization, composition or
extension, by or against Company; or
2
(d) The occurrence of any event of default under the promissory
note(s) and related loan documents for the Senior Indebtedness.
6. Remedies. Upon the occurrence of any event of default, Lender shall have
the rights and remedies of a secured party under the Uniform Commercial Code of
Oregon. In addition, Lender may declare the entire outstanding principal balance
and accrued interest to be immediately due and payable by giving written notice
to the Company specifying such default. In the event this Note is declared to be
due and payable in frill, Lender shall be entitled to payment under this Note
after payment in frill of principal and interest on any Senior Indebtedness
outstanding at such time has been made.
7. Waiver. No recourse shall be had for payment of the principal of; or the
interest upon, this Note or for any claim based hereon, or otherwise, against
any incorporator, shareholder, officer, director or attorney, either directly by
reason of any matter prior to delivery of this Note, or otherwise, all such
liability, by the acceptance hereof as a part of the consideration of the issue
hereof; being expressly waived.
8. Notices. Any and all notices, demands or other communications required
or desired to be given hereunder by any party shall be in writing and shall be
validly given or made to the other party if it is served personally; deposited
in the United States mail, certified or registered, postage prepaid, return
receipt requested; sent by facsimile (with verbal verification of complete
receipt); or sent by a nationally recognized overnight courier. If such notice,
demand or other communication is served personally or by facsimile (with verbal
verification of complete receipt), notice shall be conclusively deemed made at
the time of such personal service or facsimile transmission. If such notice,
demand or other communication is given by mall, such notice shall be
conclusively deemed given seventy-two (72) hours after the deposit thereof in
the United States mall addressed to the party to whom such notice, demand or
other communication is to be given as hereinafter set forth. If such notice,
demand or communication is given by courier, such notice shall be conclusively
deemed given on the date of delivery according to the records of such courier.
All notices shall be sent to the parties' address set forth as follows:
If to Lender: Xxxxxxx X. Xxxxxxxxxx
0000 Xx Xxxxxx XX. X.
Xxxxx, XX 00000
If to Company: Creative Medical Development, Inc.
000 XX Xxxxx Xxxx.
Xxxxxxxx, XX 00000
Facsimile: (000) 000-0000
With a copy to: Xxxx X. Xxxx
Farleigh, Wada & Xxxx, P.C.
000 X.X. Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxx, Xxxxxx 00000
Facsimile: (000) 000-0000
Any party hereto may change its address for the purpose of receiving notices,
demands and other communications as herein provided by a written notice given in
the manner provided hereby to the other party or parties hereto.
3
9. Governing Law. The issuance, validity, interpretation, and enforcement
of this Note shall be governed by the laws of the State of Oregon.
10. Attorney's Fees. If any arbitration or legal proceeding is brought to
enforce or interpret any of the provisions of this Note or to recover any monies
due hereunder, the prevailing party shall be entitled to recover from the losing
party reasonable attorney's fees and costs incurred in such arbitration, at
trial and in any appeal.
11. Arbitration. The binding arbitration agreement of the parties contained
in the Security Agreement is hereby incorporated by this reference and shall
apply in all respects to all disputes, controversies or claims relating to or
arising out of this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be duly
executed the 22nd day of January, 1999.
COMPANY: CREATIVE MEDICAL DEVELOPMENT, INC
By: /s/ M. Xxxxxxx Xxx Xxxxxx
--------------------------------------
Title: VP Finance & Treasurer
-----------------------------------
LENDER:
/s/ Xxxxxxx X. Xxxxxxxxxx
-----------------------------------------
Name: Xxxxxxx X Xxxxxxxxxx
4
