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EXHIBIT 10.7
THIS NOTE AND THE COMMON SHARES ISSUABLE
UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THIS NOTE AND THE COMMON
SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO NATURADE, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
SECURED CONVERTIBLE MINIMUM BORROWING NOTE
FOR VALUE RECEIVED, each of NATURADE, INC., a Delaware
corporation
(the "PARENT"), and the other companies
listed on Exhibit A attached hereto
(such other companies together with the
Parent, each a "COMPANY" and
collectively, the "COMPANIES"), jointly and
severally, promises to pay to LAURUS
MASTER FUND, LTD., c/o M&C Corporate
Services Limited, P.O. Box 309 GT, Ugland
House, South Church Street, George Town,
Grand Cayman, Cayman Islands, Fax:
345-949-8080 (the "HOLDER") or its
registered assigns or successors in interest,
the sum of Five Hundred Thousand Dollars
($500,000), or, if different, the
aggregate principal amount of all Loans (as
defined in the Security Agreement
referred to below), together with any
accrued and unpaid interest hereon, on
July 26, 2008 (the "MATURITY DATE") if not
sooner paid.
Capitalized terms used herein without definition shall have the
meanings ascribed to such terms in the
Security and Purchase Agreement among the
Companies and the Holder dated as of the
date hereof (as amended, modified
and/or supplemented from time to time, the
"SECURITY AGREEMENT").
The following terms shall apply to this Minimum Borrowing Note
(this
"NOTE"):
ARTICLE I
CONTRACT RATE
1.1 Contract Rate. Subject to Sections 4.2 and 5.10, interest
payable on the outstanding principal amount
of this Note (the "PRINCIPAL
AMOUNT") shall accrue at a rate per annum
equal to the "prime rate" published in
The Wall Street Journal from time to time
(the "PRIME RATE"), plus two percent
(2.0%) (the "CONTRACT RATE"). The Contract
Rate shall be increased or decreased
as the case may be for each increase or
decrease in the Prime Rate in an amount
equal to such increase or decrease in the
Prime Rate; each change to be
effective as of the day of the change in
the Prime Rate. Subject to Section 1.2,
the Contract Rate shall not at any time be
less than six percent (6.0%).
Interest shall be (i) calculated on the
basis of a 360 day year, and (ii)
payable monthly, in arrears, commencing on
August 1, 2005 on the first business
day of each consecutive calendar month
thereafter through and including the
Maturity Date and on the Maturity Date,
whether by acceleration or otherwise.
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1.2 Contract Rate Adjustments and Payments. The Contract Rate
shall
be calculated on the last business day of
each calendar month hereafter (other
than for increases or decreases in the
Prime Rate which shall be calculated and
become effective in accordance with the
terms of Section 1.1) until the Maturity
Date (each a "DETERMINATION DATE") and
shall be subject to adjustment as set
forth herein. If (i) the Parent shall have
registered the shares of the Common
Stock underlying the conversion of each
Minimum Borrowing Note, each Warrant and
each Option on a registration statement
declared effective by the Securities and
Exchange Commission (the "SEC"), and (ii)
the market price (the "MARKET PRICE")
of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market for
the five (5) trading days immediately
preceding a Determination Date exceeds the
then applicable Fixed Conversion Price by
at least twenty-five percent (25%),
the Contract Rate for the succeeding
calendar month shall automatically be
reduced by 200 basis points (200 b.p.)
(2.0%) for each incremental twenty-five
percent (25%) increase in the Market Price
of the Common Stock above the then
applicable Fixed Conversion Price.
Notwithstanding the foregoing (and anything
to the contrary contained herein), in no
event shall the Contract Rate at any
time be less than zero percent (0%).
ARTICLE II
LOANS; PAYMENTS UNDER THIS NOTE
2.1 Loans. All Loans evidenced by this Note shall be made in
accordance with the terms and provisions of
the Security Agreement.
2.2 No Effective Registration. Notwithstanding anything to the
contrary herein, the Holder shall not be
required to accept shares of Common
Stock as payment following a conversion by
the Holder if there fails to exist an
effective current Registration Statement
(as defined in the Registration Rights
Agreement) covering the shares of Common
Stock to be issued, or if an Event of
Default hereunder exists and is continuing,
unless such requirement is otherwise
waived in writing by the Holder in whole or
in part at the Holder's option.
2.3 Optional Redemption in Cash. The Companies will have the
option
of prepaying this Note ("OPTIONAL
REDEMPTION") by paying to the Holder a sum of
money equal to one hundred twenty five
percent (125%) of the principal amount of
this Note together with accrued but unpaid
interest thereon and any and all
other sums due, accrued or payable to the
Holder arising under this Note, the
Security Agreement, or any other Ancillary
Agreement (the "REDEMPTION AMOUNT")
outstanding on the Redemption Payment Date
(as defined below). The Company shall
deliver to the Holder a written notice of
redemption (the "NOTICE OF
REDEMPTION") specifying the date for such
Optional Redemption (the "REDEMPTION
PAYMENT DATE"), which date shall be ten
(10) days after the date of the Notice
of Redemption (the "REDEMPTION PERIOD"). A
Notice of Redemption shall not be
effective with respect to any portion of
this Note for which the Holder has
previously delivered a Notice of Conversion
(defined below) pursuant to Section
3.1, or for conversions elected to be made
by the Holder pursuant to Section 3.1
during the Redemption Period. The
Redemption Amount shall be determined as if
such Holder's conversion elections had been
completed immediately prior to the
date of the Notice of Redemption. On the
Redemption Payment Date, the Redemption
Amount (plus any additional interest and
fees accruing on the Notes during the
Redemption Period) must be irrevocably paid
in full in immediately available
funds to the Holder. In the event the
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Companies fail to pay the Redemption Amount
on the Redemption Payment Date, then
such Redemption Notice shall be null and
void.
ARTICLE III
CONVERSION RIGHTS AND FIXED CONVERSION PRICE
3.1 Optional Conversion. Subject to the terms of this Article
III,
the Holder shall have the right, but not
the obligation, at any time until the
Maturity Date, or during an Event of
Default (as defined in Article IV), and,
subject to the limitations set forth in
Section 3.2 hereof, to convert all or
any portion of the outstanding Principal
Amount and/or accrued interest and fees
due and payable into fully paid and
nonassessable shares of the Common Stock at
the Fixed Conversion Price. For purposes
hereof, subject to Section 3.6 hereof,
the initial "FIXED CONVERSION PRICE" means
$0.80. The shares of Common Stock to
be issued upon such conversion are herein
referred to as the "CONVERSION
SHARES."
3.2 Conversion Limitation. Notwithstanding anything contained
herein
to the contrary, the Holder shall not be
entitled to convert pursuant to the
terms of this Note an amount that would be
convertible into that number of
Conversion Shares which would exceed the
difference between (i) 4.99% of the
outstanding shares of Common Stock and (ii)
the number of shares of Common Stock
beneficially owned by the Holder. For
purposes of the immediately preceding
sentence, beneficial ownership shall be
determined in accordance with Section
13(d) of the Exchange Act and Regulation
13d-3 thereunder. The Conversion Shares
limitation described in this Section 3.2
shall automatically become null and
void following notice to any Company upon
the occurrence and during the
continuance of an Event of Default, or upon
75 days prior notice to the Parent,
except that at no time shall the number of
shares of Common Stock beneficially
owned by the Holder exceed 19.99% of the
outstanding shares of Common Stock.
Notwithstanding anything contained herein
to the contrary, the provisions of
this Section 3.2 are irrevocable and may
not be waived by the Holder or any
Company.
3.3 Mechanics of Holder's Conversion. In the event that the
Holder
elects to convert this Note into Common
Stock, the Holder shall give notice of
such election by delivering an executed and
completed notice of conversion in
substantially the form of Exhibit A hereto
(appropriately completed) ("NOTICE OF
CONVERSION") to the Parent and such Notice
of Conversion shall provide a
breakdown in reasonable detail of the
Principal Amount, accrued interest and
fees that are being converted. On each
Conversion Date (as hereinafter defined)
and in accordance with its Notice of
Conversion, the Holder shall make the
appropriate reduction to the Principal
Amount, accrued interest and fees as
entered in its records and shall provide
written notice thereof to the Parent
within two (2) Business Days after the
Conversion Date. Each date on which a
Notice of Conversion is delivered or
telecopied to the Parent in accordance with
the provisions hereof shall be deemed a
Conversion Date (the "CONVERSION DATE").
Pursuant to the terms of the Notice of
Conversion, the Parent will issue
instructions to the transfer agent
accompanied by an opinion of counsel within
one (1) Business Day of the date of the
delivery to the Parent of the Notice of
Conversion and shall cause the transfer
agent to transmit the certificates
representing the Conversion Shares to the
Holder by crediting the account of the
Holder's designated broker with the
Depository Trust Corporation ("DTC") through
its Deposit Withdrawal Agent Commission
("DWAC") system within three (3)
Business Days after receipt by the Parent
of the Notice of Conversion (the
"DELIVERY DATE"). In the case of the
exercise of
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the conversion rights set forth herein the
conversion privilege shall be deemed
to have been exercised and the Conversion
Shares issuable upon such conversion
shall be deemed to have been issued upon
the date of receipt by the Parent of
the Notice of Conversion. The Holder shall
be treated for all purposes as the
record holder of the Conversion Shares,
unless the Holder provides the Parent
written instructions to the contrary.
3.4 Late Payments. Each Company understands that a delay in the
delivery of the Conversion Shares in the
form required pursuant to this Article
beyond the Delivery Date could result in
economic loss to the Holder. As
compensation to the Holder for such loss,
in addition to all other rights and
remedies which the Holder may have
