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EXHIBIT 10.4
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 TERM NOTE
FOR VALUE RECEIVED, NATURADE, INC., a Delaware corporation (the
"COMPANY"), 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 One Million Dollars
($1,000,000), 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 that
certain Security and Purchase Agreement
dated as of the date hereof by and between
the Companies and the Holder (as
amended, modified and/or supplemented from
time to time, the "SECURITY
AGREEMENT").
The following terms shall apply to this Secured Convertible
Term
Note (this "NOTE"):
ARTICLE I
CONTRACT RATE AND AMORTIZATION
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.
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 Company shall have
registered the shares of
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the Common Stock underlying the conversion
of this Note and each Warrant 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%).
1.3 Principal Payments. Amortizing payments of the aggregate
principal amount outstanding under this
Note at any time (the "PRINCIPAL
AMOUNT") shall be made by the Company on
November 1, 2005 and on the first
business day of each succeeding month
thereafter through and including the
Maturity Date (each, an "AMORTIZATION
DATE"). Subject to Article III below,
commencing on the first Amortization Date,
the Company shall make monthly
payments to the Holder on each Repayment
Date, each such payment in the amount
of $30,303.03 together with any accrued and
unpaid interest on such portion of
the Principal Amount plus any and all other
unpaid amounts which are then owing
under this Note, the Purchase Agreement
and/or any other Related Agreement
(collectively, the "MONTHLY AMOUNT"). Any
outstanding Principal Amount together
with any accrued and unpaid interest and
any and all other unpaid amounts which
are then owing by the Company to the Holder
under this Note, the Purchase
Agreement and/or any other Related
Agreement shall be due and payable on the
Maturity Date.
ARTICLE II
CONVERSION AND REDEMPTION
2.1 Payment of Monthly Amount.
(a) Payment in Cash or Common Stock. If the Monthly Amount (or
a portion of such Monthly Amount if not all
of the Monthly Amount may be
converted into shares of Common Stock
pursuant to Section 3.2) is required to be
paid in cash pursuant to Section 2.1(b),
then the Company shall pay the Holder
an amount in cash equal to 103% of the
Monthly Amount (or such portion of such
Monthly Amount to be paid in cash) due and
owing to the Holder on the
Amortization Date. If the Monthly Amount
(or a portion of such Monthly Amount if
not all of the Monthly Amount may be
converted into shares of Common Stock
pursuant to Section 3.2) is required to be
paid in shares of Common Stock
pursuant to Section 2.1(b), the number of
such shares to be issued by the
Company to the Holder on such Amortization
Date (in respect of such portion of
the Monthly Amount converted into shares of
Common Stock pursuant to Section
2.1(b)), shall be the number determined by
dividing (i) the portion of the
Monthly Amount converted into shares of
Common Stock, by (ii) the then
applicable Fixed Conversion Price. For
purposes hereof, subject to Section 3.6
hereof, the initial "FIXED CONVERSION
PRICE" means $ 0.80.
(b) Monthly Amount Conversion Conditions. Subject to Sections
2.1(a), 2.2, and 3.2 hereof, the Holder
shall convert into shares of Common
Stock all or
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a portion of the Monthly Amount due on each
Amortization Date if the following
conditions (the "CONVERSION CRITERIA") are
satisfied: (i) the average closing
price of the Common Stock as reported by
Bloomberg, L.P. on the Principal Market
for the five (5) trading days immediately
preceding such Amortization Date shall
be greater than or equal to 115% of the
Fixed Conversion Price and (ii) the
amount of such conversion does not exceed
twenty five percent (25%) of the
aggregate dollar trading volume of the
Common Stock for the period of twenty-two
(22) trading days immediately preceding
such Amortization Date. If subsection
(i) of the Conversion Criteria is met but
subsection (ii) of the Conversion
Criteria is not met as to the entire
Monthly Amount, the Holder shall convert
only such part of the Monthly Amount that
meets subsection (ii) of the
Conversion Criteria. Any portion of the
Monthly Amount due on an Amortization
Date that the Holder has not been able to
convert into shares of Common Stock
due to the failure to meet the Conversion
Criteria, shall be paid in cash by the
Company at the rate of 103% of the Monthly
Amount otherwise due on such
Amortization Date, within three (3)
business days of such Amortization Date.
2.2 No Effective Registration. Notwithstanding anything to the
contrary herein, none of the Company's
obligations to the Holder may be
converted into Common Stock unless (a)
either (i) an effective current
Registration Statement (as defined in the
Registration Rights Agreement)
covering the shares of Common Stock to be
issued in connection with satisfaction
of such obligations exists or (ii) an
exemption from registration for resale of
all of the Common Stock issued and issuable
is available pursuant to Rule 144 of
the Securities Act and (b) no Event of
Default (as hereinafter defined) exists
and is continuing, unless such Event of
Default is cured within any applicable
cure period or otherwise waived in writing
by the Holder.
2.3 Optional Redemption in Cash. The Company may prepay 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 outstanding at such
time 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)
business 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
(as hereinafter defined) or for
conversions elected to be made by the
Holder pursuant to Section 3.3 during the
Redemption Period. The Redemption Amount
shall be determined as if the 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 must
be paid in good funds to the Holder. In the
event the Company fails to pay the
Redemption Amount on the Redemption Payment
Date as set forth herein, then such
Redemption Notice will be null and
void.
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ARTICLE III
HOLDER'S CONVERSION RIGHTS
3.1 Optional Conversion. Subject to the terms set forth in this
Article III, the Holder shall have the
right, but not the obligation, to convert
all or any portion of the issued and
outstanding Principal Amount and/or accrued
interest and fees due and payable into
fully paid and nonassessable shares of
Common Stock at the Fixed Conversion Price.
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
issued and outstanding shares of Common
Stock and (ii) the number of shares of
Common Stock beneficially owned by the
Holder, issuable to the Holder upon
exercise of the Warrants and issuable to
the Holder upon exercise of the
Options. 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 2.2 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
(appropriate completed) ("NOTICE OF
CONVERSION") to the Company and such Notice
of Conversion shall provide a
breakdown in reasonable detail of the
Principal Amount, accrued intere
