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THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”). THE SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION S UNDER SAID
ACT.
CALLABLE SECURED CONVERTIBLE NOTE
New
York, New York
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January
31, 2008
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$508,046.20
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FOR VALUE RECEIVED ,
OPTIGENEX INC., a
Delaware corporation (hereinafter called the “
Borrower ”),
hereby promises to pay to the order of AJW Master Fund, Ltd. or
registered assigns (the “
Holder ”)
the sum of $508,046.20, on January 31, 2011 (the
“Maturity Date ”),
and to pay interest on the unpaid principal balance hereof at the
rate of two percent (2%) per annum from January 31, 2008 (the
“
Issue Date ”)
until the same becomes due and payable, whether at maturity or upon
acceleration or by prepayment or otherwise. Any amount of principal
or interest on this Note which is not paid when due shall bear
interest at the rate of fifteen percent (15%) per annum from the
due date thereof until the same is paid (“
Default Interest ”).
Interest shall commence accruing on the Issue Date, shall be
computed on the basis of a 365-day year and the actual number of
days elapsed and shall be payable, quarterly on March 31,
June 30, September 30 and December 31 of each year
beginning on the last day of the first full quarter after Issue
Date. All payments due hereunder (to the extent not converted into
common stock, $.001 par value per share, of the Borrower (the
“
Common Stock ”)
in accordance with the terms hereof) shall be made in lawful money
of the United States of America. All payments shall be made at such
address as the Holder shall hereafter give to the Borrower by
written notice made in accordance with the provisions of this Note.
Whenever any amount expressed to be due by the terms of this Note
is due on any day which is not a business day, the same shall
instead be due on the next succeeding day which is a business day
and, in the case of any interest payment date which is not the date
on which this Note is paid in full, the extension of the due date
thereof shall not be taken into account for purposes of determining
the amount of interest due on such date. As used in this Note, the
term “business day” shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of
New York, New York are authorized or required by law or executive
order to remain closed. Each capitalized term used herein, and not
otherwise defined, shall have the meaning ascribed thereto in that
certain Securities Purchase Agreement dated February 12, 2007 (the
“
Purchase Agreement ”).
This
Note is free from all taxes, liens, claims and encumbrances
with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of shareholders of
the Borrower and will not impose personal liability upon the
holder thereof. The obligations of the Borrower under this
Note shall be secured by that certain Security Agreement and
that certain Intellectual Property Security Agreement, each by
and among the Borrower, the Holder and the other parties
thereto and dated February 12, 2007.
This
Note represents the principal amount of outstanding and
accrued interest payable on those certain existing notes
issued by the Borrower to Holder and Holder’s affiliates
and related entities (the “
Interest Debt ”)
as of December 31, 2007. This Note shall represent the obligation
owed by such Interest Debt and shall be collectible in lieu of such
Interest Debt as of December 31, 2007, owed under the existing
notes and not in addition thereto. Where the terms of the existing
notes conflict with the terms of this Note as related to interest
owed under the existing notes, the terms of this Note shall
prevail.
The
following terms shall apply to this Note:
ARTICLE I.
CONVERSION RIGHTS
1.1
Conversion Right
. The
Holder shall have the right from time to time, and at any time on
or prior to the earlier of (i) the Maturity Date and (ii) the date
of payment of the Default Amount (as defined in Article III)
pursuant to Section 1.6(a) or Article III, the Optional Prepayment
Amount (as defined in Section 5.1) or (iii) any payments pursuant
to Section 1.7, each in respect of the remaining outstanding
principal amount of this Note to convert all or any part of the
outstanding and unpaid principal amount of this Note into fully
paid and non-assessable shares of Common Stock, as such Common
Stock exists on the Issue Date, or any shares of capital stock or
other securities of the Borrower into which such Common Stock shall
hereafter be changed or reclassified at the conversion price (the
“
Conversion Price ”)
determined as provided herein (a “
Conversion ”);
provided ,
however ,
that in no event shall the Holder be entitled to convert any
portion of this Note in excess of that portion of this Note upon
conversion of which the sum of (1) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other
than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the Notes or
the unexercised or unconverted portion of any other security of the
Borrower (including, without limitation, the Warrants issued by the
Borrower pursuant to the Purchase Agreement) subject to a
limitation on conversion or exercise analogous to the limitations
contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Note with
respect to which the determination of this proviso is being made,
would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common
Stock. For purposes of the proviso 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 Regulations 13D-G thereunder, except as otherwise
provided in clause (1) of such proviso. The number of shares of
Common Stock to be issued upon each conversion of this Note shall
be determined by dividing the Conversion Amount (as defined below)
by the applicable Conversion Price then in effect on the date
specified in the notice of conversion, in the form attached hereto
as Exhibit A (the “
Notice of Conversion ”),
delivered to the Borrower by the Holder in accordance with Section
1.4 below; provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Borrower before 6:00 p.m., New York,
New York time on such conversion date (the “
Conversion Date ”).
The term “
Conversion Amount ”
means, with respect to any conversion of this Note, the sum of (1)
the principal amount of this Note to be converted in such
conversion
plus (2)
accrued and unpaid interest, if any, on such principal amount at
the interest rates provided in this Note to the Conversion
Date
plus (3)
Default Interest, if any, on the amounts referred to in the
immediately preceding clauses (1) and/or (2)
plus (4)
at the Holder’s option, any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section
2(c) of that certain Registration Rights Agreement, dated as of
February 12, 2007 (the “
Registration Rights Agreement ”).
1.2
Conversion Price
.
(a)
Calculation of Conversion Price
. The
Conversion Price shall be the Variable Conversion Price (as defined
herein) (subject to equitable adjustments for stock splits, stock
dividends or rights offerings by the Borrower relating to the
Borrower’s securities or the securities of any subsidiary of
the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). The “
Variable Conversion Price ”
shall mean the Applicable Percentage (as defined herein) multiplied
by the Market Price (as defined herein). “
Market Price ”
means the average of the lowest three (3) Trading Prices (as
defined below) for the Common Stock during the twenty (20) Trading
Day period ending one Trading Day prior to the date the Conversion
Notice is sent by the Holder to the Borrower via facsimile (the
“
Conversion Date ”).
“
Trading Price ”
means, for any security as of any date, the intraday trading price
on the Over-the-Counter Bulletin Board (the “
OTCBB ”)
as reported by a reliable reporting service mutually acceptable to
and hereafter designated by Holders of a majority in interest of
the Notes and the Borrower or, if the OTCBB is not the principal
trading market for such security, the intraday trading price of
such security on the principal securities exchange or trading
market where such security is listed or traded or, if no intraday
trading price of such security is available in any of the foregoing
manners, the average of the intraday trading prices of any market
makers for such security that are listed in the “pink
sheets” by the National Quotation Bureau, Inc. If the Trading
Price cannot be calculated for such security on such date in the
manner provided above, the Trading Price shall be the fair market
value as mutually determined by the Borrower and the holders of a
majority in interest of the Notes being converted for which the
calculation of the Trading Price is required in order to determine
the Conversion Price of such Notes. “
Trading Day ”
shall mean any day on which the Common Stock is traded for any
period on the OTCBB, or on the principal securities exchange or
other securities market on which the Common Stock is then being
traded. The “
Applicable Percentage ”
shall mean 60%.
(b)
Conversion Price During Major Announcements
. Notwithstanding
anything contained in Section 1.2(a) to the contrary, in the event
the Borrower (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a
merger in which the Borrower is the surviving or continuing
corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of the Borrower or (ii) any
person, group or entity (including the Borrower) publicly announces
a tender offer to purchase 50% or more of the Borrower’s
Common Stock (or any other takeover scheme) (the date of the
announcement referred to in clause (i) or (ii) is hereinafter
referred to as the “
Announcement Date ”),
then the Conversion Price shall, effective upon the Announcement
Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (x)
the Conversion Price which would have been applicable for a
Conversion occurring on the Announcement Date and (y) the
Conversion Price that would otherwise be in effect. From and after
the Adjusted Conversion Price Termination Date, the Conversion
Price shall be determined as set forth in this Section 1.2(a). For
purposes hereof, “
Adjusted Conversion Price Termination Date
”
shall mean, with respect to any proposed transaction or tender
offer (or takeover scheme) for which a public announcement as
contemplated by this Section 1.2(b) has been made, the date upon
which the Borrower (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or
publicly announces the termination or abandonment of the proposed
transaction or tender offer (or takeover scheme) which caused this
Section 1.2(b) to become operative.
1.3
Authorized Shares
. The
Borrower covenants that during the period the conversion right
exists, the Borrower will reserve from its authorized and unissued
Common Stock a sufficient number of shares, free from preemptive
rights, to provide for the issuance of Common Stock upon the full
conversion of this Note and the other Notes issued on the date
hereof. The Borrower is required at all times to have authorized
and reserved two times the number of shares that is actually
issuable upon full conversion of the Notes (based on the Conversion
Price of the Notes in effect from time to time) (the “
Reserved Amount ”).
The Reserved Amount shall be increased from time to time in
accordance with the Borrower’s obligations pursuant to
Section 4(h) of the Purchase Agreement. The Borrower represents
that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable. In addition, if the Borrower shall
issue any securities or make any change to its capital structure
which would change the number of shares of Common Stock into which
the Notes shall be convertible at the then current Conversion
Price, the Borrower shall at the same time make proper provision so
that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Notes. The Borrower (i)
acknowledges that it has irrevocably instructed its transfer agent
to issue certificates for the Common Stock issuable upon conversion
of this Note, and (ii) agrees that its issuance of this Note
shall constitute full authority to its officers and agents who are
charged with the duty of executing stock certificates to execute
and issue the necessary certificates for shares of Common Stock in
accordance with the terms and conditions of this Note.
If,
at any time a Holder of this Note submits a Notice of
Conversion, and the Borrower does not have sufficient
authorized but unissued shares of Common Stock available to
effect such conversion in accordance with the provisions of
this Article I (a “
Conversion Default ”),
subject to Section 4.8, the Borrower shall issue to the Holder all
of the shares of Common Stock which are then available to effect
such conversion. The portion of this Note which the Holder included
in its Conversion Notice and which exceeds the amount which is then
convertible into available shares of Common Stock (the
“
Excess Amount ”)
shall, notwithstanding anything to the contrary contained herein,
not be convertible into Common Stock in accordance with the terms
hereof until (and at the Holder’s option at any time after)
the date additional shares of Common Stock are authorized by the
Borrower to permit such conversion, at which time the Conversion
Price in respect thereof shall be the lesser of (i) the Conversion
Price on the Conversion Default Date (as defined below) and (ii)
the Conversion Price on the Conversion Date thereafter elected by
the Holder in respect thereof. In addition, the Borrower shall pay
to the Holder payments (“
Conversion Default Payments ”)
for a Conversion Default in the amount of (x) the
sum of (1)
the then outstanding principal amount of this Note
plus (2)
accrued and unpaid interest on the unpaid principal amount of this
Note through the Authorization Date (as defined below)
plus (3)
Default Interest, if any, on the amounts referred to in clauses (1)
and/or (2),
multiplied by (y)
.24,
multiplied by (z)
(N/365), where N = the number of days from the day the holder
submits a Notice of Conversion giving rise to a Conversion Default
(the “
Conversion Default Date ”)
to the date (the “
Authorization Date ”)
that the Borrower authorizes a sufficient number of shares of
Common Stock to effect conversion of the full outstanding principal
balance of this Note. The Borrower shall use its best efforts to
authorize a sufficient number of shares of Common Stock as soon as
practicable following the earlier of (i) such time that the Holder
notifies the Borrower or that the Borrower otherwise becomes aware
that there are or likely will be insufficient authorized and
unissued shares to allow full conversion thereof and (ii) a
Conversion Default. The Borrower shall send notice to the Holder of
the authorization of additional shares of Common Stock, the
Authorization Date and the amount of Holder’s accrued
Conversion Default Payments. The accrued Conversion Default
Payments for each calendar month shall be paid in cash or shall be
convertible into Common Stock (at such time as there are sufficient
authorized shares of Common Stock) at the applicable Conversion
Price, at the Borrower’s option, as follows:
(a) In
the event the Borrower elects to make such payment in cash, cash
payment shall be made to Holder by the fifth (5
th )
day of the month following the month in which it has accrued;
and
(b) In
the event the Borrower elects to make such payment in Common Stock,
the Holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of conversion) at any
time after the fifth day of the month following the month in which
it has accrued in accordance with the terms of this Article I (so
long as there is then a sufficient number of authorized shares of
Common Stock).
The
Borrower’s election shall be made in writing to the
Holder at any time prior to 6:00 p.m., New York, New York
time, on the third day of the month following the month in
which Conversion Default payments have accrued. If no election
is made, the Borrower shall be deemed to have elected to remit
Common Stock. Nothing herein shall limit the Holder’s
right to pursue actual damages (to the extent in excess of the
Conversion Default Payments) for the Borrower’s failure
to maintain a sufficient number of authorized shares of Common
Stock, and each holder shall have the right to pursue all
remedies available at law or in equity (including degree of
specific performance and/or injunctive relief).
1.4
Method of Conversion
.
(a)
Mechanics of Conversion
. Subject
to Section 1.1, this Note may be converted by the Holder in whole
or in part at any time from time to time after the Issue Date, by
(A) submitting to the Borrower a Notice of Conversion (by
facsimile or other reasonable means of communication dispatched on
the Conversion Date prior to 6:00 p.m., New York, New York time)
and (B) subject to Section 1.4(b), surrendering this Note at
the principal office of the Borrower.
(b)
Surrender of Note Upon Conversion
. Notwithstanding
anything to the contrary set forth herein, upon conversion of this
Note in accordance with the terms hereof, the Holder shall not be
required to physically surrender this Note to the Borrower unless
the entire unpaid principal amount of this Note is so converted.
The Holder and the Borrower shall maintain records showing the
principal amount so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder
and the Borrower, so as not to require physical surrender of this
Note upon each such conversion. In the event of any dispute or
discrepancy, such records of the Borrower shall be controlling and
determinative in the absence of manifest error. Notwithstanding the
foregoing, if any portion of this Note is converted as aforesaid,
the Holder may not transfer this Note unless the Holder first
physically surrenders this Note to the Borrower, whereupon the
Borrower will forthwith issue and deliver upon the order of the
Holder a new Note of like tenor, registered as the Holder (upon
payment by the Holder of any applicable transfer taxes) may
request, representing in the aggregate the remaining unpaid
principal amount of this Note. The Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of
the provisions of this paragraph, following conversion of a portion
of this Note, the unpaid and unconverted principal amount of this
Note represented by this Note may be less than the amount stated on
the face hereof.
(c)
Payment of Taxes
. The
Borrower shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issue and delivery of
shares of Common Stock or other securities or property on
conversion of this Note in a name other than that of the Holder (or
in street name), and the Borrower shall not be required to issue or
deliver any such shares or other securities or property unless and
until the person or persons (other than the Holder or the custodian
in whose street name such shares are to be held for the
Holder’s account) requesting the issuance thereof shall have
paid to the Borrower the amount of any such tax or shall have
established to the satisfaction of the Borrower that such tax has
been paid.
(d)
Delivery of Common Stock Upon Conversion
. Upon
receipt by the Borrower from the Holder of a facsimile transmission
(or other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in
this Section 1.4, the Borrower shall issue and deliver or cause to
be issued and delivered to or upon the order of the Holder
certificates for the Common Stock issuable upon such conversion
within five (5) business days after such receipt (and, solely in
the case of conversion of the entire unpaid principal amount
hereof, surrender of this Note) (such second business day being
hereinafter referred to as the “
Deadline ”)
in accordance with the terms hereof and the Purchase Agreement
(including, without limitation, in accordance with the requirements
of Section 2(g) of the Purchase Agreement that certificates for
shares of Common Stock issued on or after the effective date of the
Registration Statement upon conversion of this Note shall not bear
any restrictive legend).
(e)
Obligation of Borrower to Deliver Common
Stock
. Upon
receipt by the Borrower of a Notice of Conversion, the Holder shall
be deemed to be the holder of record of the Common Stock issuable
upon such conversion, the outstanding principal amount and the
amount of accrued and unpaid interest on this Note shall be reduced
to reflect such conversion, and, unless the Borrower defaults on
its obligations under this Article I, all rights with respect to
the portion of this Note being so converted shall forthwith
terminate except the right to receive the Common Stock or other
securities, cash or other assets, as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion
as provided herein, the Borrower’s obligation to issue and
deliver the certificates for Common Stock shall be absolute and
unconditional, irrespective of the absence of any action by the
Holder to enforce the same, any waiver or consent with respect to
any provision thereof, the recovery of any judgment against any
person or any action to enforce the same, any failure or delay in
the enforcement of any other obligation of the Borrower to the
holder of record, or any setoff, counterclaim, recoupment,
limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any
other circumstance which might otherwise limit such obligation of
the Borrower to the Holder in connection with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the
Conversion Date so long as the Notice of Conversion is received by
the Borrower before 6:00 p.m., New York, New York time, on such
date.
(f)
Delivery of Common Stock by Electronic
Transfer
. In
lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Borrower’s
transfer agent is participating in the Depository Trust Company
(“
DTC ”)
Fast Automated Securities Transfer (“
FAST ”)
program, upon request of the Holder and its compliance with the
provisions contained in Section 1.1 and in this Section 1.4, the
Borrower shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion
to the Holder by crediting the account of Holder’s Prime
Broker with DTC through its Deposit Withdrawal Agent Commission
(“
DWAC ”)
system.
(g)
Failure to Deliver Common Stock Prior to
Deadline
. Without
in any way limiting the Holder’s right to pursue other
remedies, including actual damages and/or equitable relief, the
parties agree that if delivery of the Common Stock issuable upon
conversion of this Note is more than two (2) days after the
Deadline (other than a failure due to the circumstances described
in Section 1.3 above, which failure shall be governed by such
Section) the Borrower shall pay to the Holder $2,000 per day in
cash, for each day beyond the Deadline that the Borrower fails to
deliver such Common Stock. Such cash amount shall be paid to Holder
by the fifth day of the month following the month in which it has
accrued or, at the option of the Holder (by written notice to the
Borrower by the first day of the month following the month in which
it has accrued), shall be added to the principal amount of this
Note, in which event interest shall accrue thereon in accordance
with the terms of this Note and such additional principal amount
shall be convertible into Common Stock in accordance with the terms
of this Note.
1.5
Concerning the Shares
. The
shares of Common Stock issuable upon conversion of this Note may
not be sold or transferred unless (i) such shares are sold pursuant
to an effective registration statement under the Act or (ii) the
Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions)
to the effect that the shares to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration or
(iii) such shares are sold or transferred pursuant to Rule 144
under the Act (or a successor rule) (“
Rule 144 ”)
or (iv) such shares are transferred to an “affiliate”
(as defined in Rule 144) of the Borrower who agrees to sell or
otherwise transfer the shares only in accordance with this Section
1.5 and who is an Accredited Investor (as defined in the Purchase
Agreement). Except as otherwise provided in the Purchase Agreement
(and subject to the removal provisions set forth below), until such
time as the shares of Common Stock issuable upon conversion of this
Note have been registered under the Act as contemplated by the
Registration Rights Agreement or otherwise may be sold pursuant to
Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, each
certificate for shares of Common Stock issuable upon conversion of
this Note that has not been so included in an effective
registration statement or that has not been sold pursuant to an
effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the
following form, as appropriate:
“THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER SAID ACT, OR AN OPINION OF COUNSEL IN FORM,
SUBSTANCE AND SCOPE CUSTOMARY FOR OPINIONS OF COUNSEL IN
COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT UNLESS SOLD PURSUANT TO RULE 144 OR REGULATION
S UNDER SAID ACT.”
The
legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any
transfer legend if (i) the Borrower or its transfer agent
shall have received an opinion of counsel, in form, substance
and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of
such Common Stock may be made without registration under the
Act and the shares are so sold or transferred, (ii) such
Holder provides the Borrower or its transfer agent with
reasonable assurances that the Common Stock issuable upon
conversion of this Note (to the extent such securities are
deemed to have been acquired on the same date) can be sold
pursuant to Rule 144 or (iii) in the case of the Common Stock
issuable upon conversion of this Note, such security is
registered for sale by the Holder under an effective
registration statement filed under the Act or otherwise may be
sold pursuant to Rule 144 without any restriction as to
the
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