CONVERTIBLE PROMISSORY NOTE

 

                                                                     EXHIBIT 4.5

 

     THIS PROMISSORY NOTE AND THE SECURITIES   OBTAINABLE UPON CONVERSION   HEREOF

     (COLLECTIVELY,   THE   "SECURITIES")   HAVE   NOT   BEEN   REGISTERED   UNDER   THE

     SECURITIES ACT OF 1933, AS AMENDED ("THE ACT"),   OR THE SECURITIES   LAWS OF

     ANY STATE. THE SECURITIES MAY NOT BE PLEDGED, SOLD, ASSIGNED OR TRANSFERRED

     EXCEPT PURSUANT TO AN EFFECTIVE   REGISTRATION   STATEMENT UNDER SUCH ACT AND

     APPLICABLE   STATE   SECURITIES   LAWS OR PURSUANT TO AN APPLICABLE   EXEMPTION

     FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS.

 

                          CONVERTIBLE PROMISSORY NOTE

 

U.S. $200,000                                                  September 29, 2004

 

     FOR VALUE RECEIVED,   Embryo Development Corp., a Delaware   corporation (the

"Company"),   hereby   promises to pay to the order of Embryo   Partners,   LLC (the

"Lender") the principal amount of Two Hundred   Thousand Dollars   ($200,000) (the

"Principal   Amount"),   together with interest on the Principal Amount under this

senior convertible   promissory note (this "Note") at the per annum rate of eight

(8%)   percent   (calculated   daily on the   basis   of a 360-   day year and   actual

calendar days elapsed).   Subject to conversion as provided herein, the Principal

Amount and   accrued   interest   on this Note shall   become due and payable in one

installment on September 29, 2005 (the "Maturity Date").

 

     Both the   Principal   Amount and   accrued   interest   shall be paid in lawful

money of the United   States of   America   to the   Lender at c/o Sloan   Securities

Corp.,   444 Madison   Avenue,   23rd Floor,   New York, New York 10022,   or at such

other   address as the Lender may   designate by notice in writing to the Company,

in immediately available funds.

 

        If any payment hereunder falls due on a Saturday, Sunday or legal

holiday, it shall be payable on the next succeeding business day and such

additional time shall be included in the computation of interest.

 

     All capitalized   terms not defined herein shall have the meanings   ascribed

thereto in the Note   Purchase   Agreement,   by and between   Company and Lender of

even date herewith (the "Note Purchase Agreement").

 

     1. Senior.   The indebtedness   evidenced by this Note and the payment of the

Principal Amount and interest   thereof shall be Senior (as hereinafter   defined)

to, and have priority in right of payment over, all indebtedness of the Company.

"Senior"   shall be   deemed to mean   that,   in the   event of any   default   in the

payment   of the   obligations   represented   by this   Note or of any   liquidation,

insolvency,   bankruptcy,   reorganization, or similar proceedings relating to the

Company,   all sums   payable   on this   Note,   shall   first be paid in full,   with

interest,   if any, before any payment is made upon any other   indebtedness,   now

outstanding   or   hereinafter   incurred,   and, in any such event,   any payment or

distribution   of any   character   which   shall be made in   respect   of any   other

 

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indebtedness   of the Company,   shall be paid over to the holder of this Note for

application to the payment hereof,   unless and until the obligations   under this

Note (which shall mean the Principal   Amount and other   obligations   arising out

of, premium, if any, interest on, and any costs and expenses payable under, this

Note) shall have been paid and satisfied in full.

 

2. Conversion.

 

     (a) Conversion. In the event the Company consolidates with, or merges into,

another corporation or entity, or effects any other corporate   reorganization or

other transaction or series of transactions   resulting in the transfer of 50% or

more of the   outstanding   voting power of the Company (a "Merger   Transaction"),

the   entire   principal   amount   on this   Note   shall   be   converted   ("Mandatory

Conversion") into the Company's (or the successor entity's) common stock (or, at

the option of   Company,   shares of Series B   Preferred   Stock   representing   the

number of shares of Company   Common based on the   conversion   ratio set forth in

the   certificate   of   Designation   for the   Series B   Preferred   Stock   ("Equity

Securities").   The Mandatory Conversion shall occur at the closing of the Merger

Transaction ("Closing").   The number of shares of Equity Securities to be issued

upon such conversion shall be equal to the quotient obtained by dividing (i) the

entire principal   amount of this Note,   together with accrued interest hereon by

(ii) $0.01   ("Conversion   Price"),   and   concurrent   with the   issuance   of such

shares, the Lender shall be afforded no less than piggyback   registration rights

on the Equity   Securities.   In addition,   the Lender shall have the right at any

time ("Discretionary Conversion") to convert the entire principal amount of this

Note,   together with accrued interest hereon,   into the Equity Securities at the

Conversion   Price.   Any fraction of a share   resulting   from these   calculations

shall be rounded upward to the whole share. The Company   covenants to cause such

shares,   when   issued   pursuant   to this   Section   2(a),   to be   fully   paid and

nonassessable,   and free from all taxes,   liens and charges   with respect to the

issuance   thereof,   other   than any taxes,   liens or   charges   not caused by the

Company.   The Company   represents that the current conversion ratio is 10 shares

of Common Stock for each share of Preferred   Stock, but reserves the right prior

to issuance of the Series B Preferred   Stock to revise the   conversion   ratio up

to, but not greater than, 100 shares of Common Stock for each share of Preferred

Stock.

 

     (b) Mechanics and Effect of Conversion.

 

     (i) Mandatory   Conversion.   At the Closing of the Merger   Transaction,   the

Lender shall surrender this Note, duly endorsed, at the principal offices of the

Company.   At its expense,   the Company will, as soon as practicable   thereafter,

issue and deliver to such Lender, at its address,   a certificate or certificates

for the number of Equity   Securities   to which such Lender is entitled upon such

conversion.   At the   time of the   Mandatory   Conversion,   this   Note,   the   Note

Purchase Agreement will terminate and be of no further force or effect.

 

     (ii) Discretionary Conversion. To exercise a Discretionary Conversion,   the

Lender   shall   surrender   its   Note,   duly   endorsed,   together   with a   written

conversion notice to the Company at its principal   office.   At its expense,   the

Company   will,   as soon as   practicable   thereafter,   issue and   deliver to such

Lender,   at its address,   a certificate or certificates for the number of shares

to which such Lender is entitled upon such conversion. This Note shall be deemed

to have been converted   immediately prior to the close of business on the date 1

 

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business day after giving of such notice and the Lender shall be treated for all

purposes as the record   holder of the Equity   Securities   deliverable   upon such

conversion as of the close of business on such date.

 

     (c) No   Impairment.   The Company   will not, by amendment of its Amended and

Restated    Articles    of    Incorporation    or    through    any     reorganization,

recapitalization,   transfer of assets, consolidation, merger, dissolution, issue

or sale of securities or any other voluntary action,   avoid or seek to avoid the

observance   or   performance   of any of the   terms to be   observed   or   performed

hereunder   by the   Company,   but will at all times in good   faith   assist in the

carrying   out of all the   provisions   of this Section 2 and in the taking of all

such   action   as may be   necessary   or   appropriate   in   order   to   protect   the

conversion rights of the Lender of this Note against impairment.

 

     3.   Reservation of Shares.   The Company shall at all times have   authorized

and reserved for issuance a sufficient   number of shares of its capital stock to

provide for the full conversion of this Note.

 

     4. Change of Control.   Subject to the   conversion   provisions   set forth in

section   2(a) above,   in the event of (i) any   transaction   or series of related

transactions   (including   any   reorganization,   merger   or   consolidation)   that

results in the   transfer of 50% or more of the   outstanding   voting power of the

Company,   and   (ii) a sale   of all or   substantially   all of the   assets   of the

Company to another person, this Note shall be automatically due and payable. The

Company will give the Lender not less than ten (10)   business days prior written

notice of the occurrence of any events referred to in this Section 4.

 

     5. Certain Adjustments. The number and class or series of shares into which

this Note may be converted   under   Section 2 shall be subject to   adjustment   in

accordance with the following provisions:

 

     (a)   Adjustment   for   Reorganization   or   Recapitalization.   Subject to the

mandatory conversion provisions as set forth in Section 2 hereto, if, while this

Note   remains   outstanding   and   has   not   been   converted,   there   shall   be   a

reorganization or recapitalization,   combination, reclassification,   exchange or

subdivision   of   shares   otherwise   provided   for   herein),    all   necessary   or

appropriate   lawful provisions shall be made so that the Lender shall thereafter

be entitled to receive upon   conversion   of this Note,   the   greatest   number of

shares of stock or other   securities   or property   that a holder of the class of

securities   deliverable upon conversion of this Note would have been entitled to

receive   in such   reorganization   or   recapitalization   if this   Note   had   been

converted   immediately   prior to such   reorganization or   recapitalization,   all

subject to further   adjustment   as provided in this   Section 5. If the per share

consideration   payable to the Lender for such class of   securities in connection

with any such transaction is in a form other than cash or marketable securities,

then the value of such   consideration   shall be   determined in good faith by the

Company's Board of Directors.   The foregoing   provisions of this paragraph shall

similarly apply to successive   reorganizations or   recapitalizations   and to the

stock or securities   of any other   corporation   that are at the time   receivable

upon the conversion of this Note. In all events, appropriate adjustment shall be

made in the application of the provisions of this Note (including   adjustment of

the   conversion   price   and   number   of   shares   into   which   this   Note is then

 

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convertible   pursuant to the terms and   conditions of this Note) with respect to

the rights and   interests of the Lender after the   transaction,   to the end that

the   provisions   of this Note shall be applicable   after that event,   as near as

reasonably   may be, in relation to any shares or other   property   deliverable or

issuable after such reorganization or   recapitalization   upon conversion of this

Note.

 

     (b)   Adjustments   for Split,   Subdivision or Combination of Shares.   If the

Company at any time while this Note remains   outstanding and unconverted,   shall

split or