SENIOR NOTE DUE 2006

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED

(THE "1933 ACT").    PURSUANT TO THE NOTE PURCHASE AGREEMENT, THIS NOTE HAS

BEEN ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED

IN THE ABSENCE OF REGISTRATION OF THE RESALE THEREOF UNDER THE 1933 ACT OR AN

OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE TO THE

COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

 

                  OMNI MEDICAL HOLDINGS, INC.

                                

                     SENIOR NOTE DUE 2006

                               

No. SOF-1                                                              $400,000

Colorado Springs, Colorado

October 26, 2005

 

          FOR VALUE RECEIVED, OMNI MEDICAL HOLDINGS, INC., a Utah

corporation (hereinafter called the "Company"), hereby promises to pay to

SIGMA OPPORTUNITY FUND, LLC or registered assigns (the "Holder"), or order,

the sum of Four Hundred Thousand Dollars ($400,000), on the Maturity Date, and

to pay interest on the unpaid principal balance hereof at the Applicable Rate,

until the same becomes due and payable, whether at maturity or upon

acceleration or by repurchase in accordance with the terms hereof or

otherwise.   Any amount, including, without limitation, principal of or

interest on this Note or the Repurchase Price, that is payable under this Note

and that is not paid when due shall bear interest at the Default Rate from the

due date thereof until the same is paid ("Default Interest").   Regular

interest shall be payable on the Maturity Date. Regular interest on this Note

shall be computed on the basis of a 360-day year of twelve 30-day months and

actual days elapsed.   This Note may not be prepaid, redeemed or repurchased at

the option of the Company prior to the Maturity Date.

 

          All payments of principal of and premium, if any, interest, and

other amounts on this Note shall be made in lawful money of the United States

of America.   All payments shall be made by wire transfer of immediately

available funds to such account as the Holder may from time to time designate

by written notice 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.   Certain capitalized terms used in

this Note are defined in Article V.

 

          The obligations of the Company under this Note shall rank in right

of payment senior to all obligations of the Company for indebtedness for

borrowed money or the purchase price of property.   This Note is issued

pursuant to the Note Purchase Agreement and the Holder of this Note and this

Note are subject to the terms and entitled to the benefits of the Note

Purchase Agreement.

 

          The following terms shall apply to this Note:

 

                            ARTICLE I

 

                        CERTAIN COVENANTS

 

          So long as the Company shall have any obligation under this Note:

 

           1.1   Limitations on Certain Indebtedness.   The Company will not

itself, and will not permit any Subsidiary to, create, assume, incur, suffer

to exist or in any manner become liable in respect of, including, without

limitation, by reason of any business combination transaction (all of which

are referred to herein as "incurring"), any Indebtedness other than Permitted

Indebtedness.

 

          1.2   Payment of Obligations.   The Company will pay and discharge,

and will cause each Significant Subsidiary to pay and discharge, subject to

the terms and conditions of the Note Purchase Agreement, all their respective

material obligations and liabilities, except where the same may be contested

in good faith by appropriate proceedings and the Company shall have

established adequate reserves therefor on its books.

 

          1.3   Maintenance of Property; Insurance.   (a) The Company will

keep, and will cause each Significant Subsidiary to keep, all property which,

in the reasonable business judgment of the Company, is useful and necessary in

its business in good working order and condition, ordinary wear and tear

excepted.

 

          (b)   The Company will maintain, and will cause each Significant

Subsidiary to maintain, with financially sound and responsible insurance

companies, insurance, in at least such amounts and against such risks as is

reasonably adequate for the conduct of their respective businesses and the

value of their respective properties.

 

          1.4   Conduct of Business and Maintenance of Existence.   The

Company will continue, and will cause each Significant Subsidiary to continue,

to engage in business of the same general type as now conducted by the

Company, and will preserve, renew and keep in full force and effect, and will

cause each Significant Subsidiary to preserve, renew and keep in full force

and effect their respective corporate existence and their respective rights,

privileges and franchises necessary or desirable in the normal conduct of

business and such matter other than maintenance of the Company's corporate

existence, except where the failure to do so would not have a material adverse

effect on (i) the business, properties, operations, condition (financial or

other), results of operation or prospects of the Company and the Subsidiaries,

taken as a whole or, (ii) the ability of the Company to pay and perform its

obligations under the Transaction Documents.

 

          1.5   Compliance with Laws.   The Company will comply, and will

cause each Significant Subsidiary to comply, in all material respects with all

applicable laws, ordinances, rules, regulations, decisions, orders and

requirements of governmental authorities and courts (including, without

limitation, environmental laws) except (i) where compliance therewith is

contested in good faith by appropriate proceedings or (ii) where non-

compliance therewith could not reasonably be expected to have a material

adverse effect on the business, condition (financial or otherwise),

operations, performance, properties or prospects of the Company and the

Subsidiaries, taken as a whole.

 

          1.6   Investment Company Act.   The Company will not be or become

an open-end investment trust, unit investment trust or face-amount certificate

company that is or is required to be registered under Section 8 of the

Investment Company Act of 1940, as amended.

 

          1.7   Limitations on Asset Sales, Liquidations, Etc.; Certain

Matters.   The Company shall not

 

          (a)   sell, convey or otherwise dispose of all or substantially

all of the assets of the Company as an entirety or substantially as an

entirety in a single transaction or in a series of related transactions; or

 

          (b)   liquidate, dissolve or otherwise wind up the affairs of the

Company.

 

          1.8   Limitation on Certain Issuances.   The Company shall not (A)

offer, sell or issue, or enter into any agreement, arrangement or

understanding to offer, sell or issue, any Common Stock Equivalent for which

the price at which the holder of such Common Stock Equivalent is entitled to

acquire shares of Common Stock varies based on the market or trading price of

the Common Stock, or (B) offer, sell or issue, or enter into any agreement,

arrangement or understanding to offer, sell or issue, any Common Stock or

Common Stock Equivalent on terms which provide for adjustment or repricing of

the purchase price or number of shares or other units of such Common Stock or

Common Stock Equivalents other than pursuant to customary anti-dilution

provisions; provided, however, that nothing in this Section 1.8 shall prohibit

the Company from issuing shares of Common Stock for cash for the account of

the Company (x) in an offering that is underwritten on a firm commitment basis

and registered with the SEC under the 1933 Act, or (y) an offering of Common

Stock that is a private investment in publicly-traded equity (commonly known

as a PIPE).

 

          1.9   Limitations on Liens.   The Company will not itself, and will

not permit any Subsidiary to, create, assume or suffer to exist any mortgage,

lien, pledge, security interest or other charge or encumbrance (including,

without limitation, the lien or retained security title of a conditional

vendor), all of which are referred to below as "liens", upon all or any part

of its property of any character, whether owned at the date hereof or

thereafter acquired, except:

 

          (a)   liens upon any property of any Subsidiary or Subsidiaries as

security for indebtedness owing by such Subsidiary to the Company;

 

          (b)   liens securing this Note;

 

          (c)   liens for taxes or assessments or governmental charges or

levies on its property if such taxes or assessments or charges or levies shall

not at the time be due and payable or if the amount, applicability, or

validity of any such tax, assessment, charge or levy shall currently be

contested in good faith by appropriate proceedings or necessary preliminary

steps are being taken to contest, compromise or settle the amount thereof or

to determine the applicability or validity thereof and if the Company or such

Subsidiary, as the case may be, shall have set aside on its books reserves

(segregated to the extent required by sound accounting practice) deemed by it

adequate with respect thereto; deposits or pledges to secure payment of

worker's compensation, unemployment insurance, old age pensions or other

social security; deposits or pledges to secure performance of bids, tenders,

contracts (other than contracts for the payment of money borrowed or credit

extended), leases, public or statutory obligations, surety or appeal bonds, or

other deposits or pledges for purposes of like general nature in the ordinary

course of business; mechanics', carriers', workers', repairmen's or other like

liens arising in the ordinary course of business securing obligations which

are not overdue for a period of 60 days, or which are in good faith being

contested or litigated, or deposits to obtain the release of such liens; liens

created by or resulting from any litigation or legal proceedings or

proceedings being contested in good faith by appropriate proceedings, provided

any execution levied thereon shall be stayed; leases made, or existing on

property acquired, in the ordinary course of business; landlords' liens under

leases to which the Company or any Subsidiary is a party; and zoning

restrictions, easements, licenses or restrictions on the use of real property

or minor irregularities in title thereto; provided that all such liens

described in this subsection (d) do not, in the aggregate, materially impair

the use of such property in the operations of the business of the Company or

any Subsidiary or the value of such property for the purpose of such business;

 

          (d)   liens existing on the Issuance Date and disclosed in the SEC

Reports; and

 

          (e)   liens upon raw materials, works in progress and finished

goods inventory and accounts receivable granted to a bank, finance company or

other institutional lender providing receivables and inventory financings.

 

          1.10 Transactions with Affiliates.   The Company will not pay, and

will not permit any Subsidiary, directly or indirectly, to pay, any funds to

or for the account of, make any investment (whether by acquisition of stock or

Indebtedness, by loan, advance, transfer of property, guarantee or other

agreement to pay, purchase or service, directly or indirectly, any

Indebtedness, or otherwise) in, lease, sell, transfer or otherwise dispose of

any assets, tangible or intangible, to, or participate in, or effect any

transaction in connection with, any joint enterprise or other joint

arrangement with, any Affiliate of the Company, except, on terms to the

Company or such Subsidiary no less favorable than terms that could be obtained

by the Company or such Subsidiary from a Person that is not an Affiliate of

the Company, as determined in good faith by the Board of Directors.

 

          1.11 Rule 144A Information Requirement.   Within the period prior

to the expiration of the holding period applicable to sales hereof under Rule

144(k) under the 1933 Act (or any successor provision), the Company shall,

during any period in which it is not subject to Section 13 or 15(d) under the

1934 Act, make available to the Holder and any prospective purchaser of this

Note from the Holder, the information required pursuant to Rule 144A(d)(4)

under the 1933 Act upon the request of the Holder and it will take such

further action as the Holder may reasonably request, all to the extent

required from time to time to enable the Holder to sell this Note without

registration under the 1933 Act within the limitations of the exemption

provided by Rule 144A, as Rule 144A may be amended from time to time. Upon the

request of the Holder, the Company will deliver to the Holder a written

statement as to whether it has complied with such requirements.

 

          1.12 Notice of Defaults.   The Company shall notify the Holder

promptly, but in any event not later than five days after the Company becomes

aware of the fact, of any failure by the Company to comply with this Article

I.

 

          1.13 Security Agreement.   No later than 30 days after the date

hereof, the Company and its Subsidiaries shall execute and deliver to the

Holder a Security Agreement, in form, scope and substance reasonably

satisfactory to the Holder, granting a security interest in all of the assets

of the Company and the Subsidiaries to secure the obligations of the Company

under this Note.   The Company and its Subsidiaries shall use its best efforts

to obtain any necessary consents to the granting of such security interest to

the Holder.

 

                            ARTICLE II

                               

                       EVENTS OF DEFAULT

 

          2.1   If any of the following events of default (each, an "Event

of Default") shall occur:

 

          (a)   Failure to Pay Principal, Interest, Etc.   The Company fails

     (1) to pay the principal, or the Repurchase Price hereof when due,

     whether at maturity, upon acceleration or otherwise, as applicable, or

     (2) to pay any installment of interest hereon when due and, in the case

     of this clause (2) of this Section 2.1(a) only, such failure continues

     for a period of ten Business Days after the due date thereof; or

    

          (b)   Breach of Certain Covenants.   The Company fails to comply

     with Section 1.1, 1.7 or 1.8; or

    

           (c)   Breach of Other Covenants.   The Company fails to comply in

     any material respect with any other provision of Article I of this Note

     (other than Section 1.1, 1.7 or 1.8) or breaches any other material

     covenant or other material term or condition of this Note or any of the

     other Transaction Documents (other than as specifically provided in

     clauses (a) and (b) of this Section 2.1), and such breach continues for

     a period of 15 days after written notice thereof to the Company from the

     Holder; or

    

          (d)   Breach of Representations and Warranties.   Any

     representation or warranty of the Company made herein or in any

     agreement, statement or certificate given in writing pursuant hereto (or

     pursuant to any Transaction Documents) shall be false or misleading in

     any material respect when made; or

    

          (e)   Certain Voluntary Proceedings.   The Company or any

     Subsidiary shall commence a voluntary case or other proceeding seeking

     liquidation, reorganization or other relief with respect to itself or

     its debts under any bankruptcy, insolvency or other similar law now or

     hereafter in effect or seeking the appointment of a trustee, receiver,

     liquidator, custodian or other similar official of it or any substantial

     part of its property, or shall consent to any such relief or to the

     appointment of or taking possession by any such official in an

     involuntary case or other proceeding commenced against it, or shall make

     a general assignment for the benefit of creditors, or shall fail

     generally to pay its debts as they become due or shall admit in writing

     its inability generally to pay its debts as they become due; or

    

          (f)   Certain Involuntary Proceedings.   An involuntary case or

     other proceeding shall be commenced against the Company or any

     Subsidiary seeking liquidation, reorganization or other relief with

     respect to it or its debts under any bankruptcy, insolvency or other

     similar law now or hereafter in effect or seeking the appointment of a

     trustee, receiver, liquidator, custodian or other similar official of it

     or any substantial part of its property, and such involuntary case or

     other proceeding shall remain undismissed and unstayed for a period of

     60 consecutive days; or

    

          (g)   Judgments and Governmental Actions.   Any court of competent

     jurisdiction or any governmental authority shall enter one or more

     judgments against the Company or any Subsidiary or any of their

     respective properties or other assets, or find the Company or any

     Subsidiary liable for any damages or past due unpaid liabilities,

     including in respect of any unpaid taxes, including federal or state

     income, sales, use or other taxes, in an aggregate amount in excess of

     $50,000; or

    

          (h)   Default Under Other Agreements.   (a) The Company or any

     Subsidiary shall (i) default in any payment with respect to any

     Indebtedness for borrowed money (other than this Note) which

     Indebtedness has an outstanding principal amount in excess of $75,000

     individually or in the aggregate for all such Indebtedness, beyond the

     period of grace, if any, provided in the instrument or agreement under

     which such Indebtedness was created or (ii) default in the observance or

     performance of any agreement, covenant or condition relating to any such

     Indebtedness or contained in any instrument or agreement evidencing,

     securing or relating thereto, or any other event shall occur or

     condition exist, the effect of which default or other event or condition

     is to cause, or to permit the holder or holders of such Indebtedness (or

     a trustee or agent on behalf of such holder or holders) to cause, any

     such Indebtedness to become due prior to its stated maturity and such

     default or event shall continue beyond the period of grace, if any,

     provided in the instrument or agreement under which such Indebtedness

     was created (after giving effect to any consent or waiver obtained and

     then in effect thereunder) and such default shall continue for five days

     (or to such earlier date as the holder of any other Indebtedness shall

     declare the same due and payable by reason of such default; or (b) any

     Indebtedness of the Company or any Subsidiary which has an outstanding

     principal amount in excess of the $75,000 individually or in the

     aggregate for all such Indebtedness shall, in accordance with its terms,

     be declared to be due and payable, or required to be prepaid other than

     by a regularly scheduled or required payment prior to the stated

     maturity thereof; or     

    

          (i)   Failure to Provide Security Interest.   The Company or any

     Subsidiary does not provide the Holder with a perfected security

     interest in the assets of the Company or any Subsidiary to secure the

     obligations of the Company under the Note within 30 days after the date

      of this Note;

    

then,

          (1)   upon the occurrence and during the continuation of any Event

     of Default specified in clause (a), (b), or (d) of this Section 2.1, at

     the option of the Holder, and upon the occurrence of any Event of

      Default specified in clause (e), (f) or (i) of this Section 2.1:   (X)

     the Company shall pay to the Holder an amount equal to the outstanding

     principal amount of this Note plus accrued and unpaid interest on such

     principal amount to the date of payment plus accrued and unpaid Default

     Interest, if any, thereon at the rate provided in this Note to the date

     of payment, (Y) all other amounts payable hereunder or under any of the

     other Transaction Documents shall immediately become due and payable,

     all without demand, presentment or notice, all of which hereby are

     expressly waived, together with all costs, including, without

     limitation, reasonable legal fees and expenses of collection, and (Z)

     the Holder shall be entitled to exercise all other rights and remedies

     available at law or in equity; and

 

          (2)   upon the occurrence and during the continuation of any Event

     of Default specified in clause (c), (g) or (h) of this Section 2.1:   (A)

     if any Event of Default continues during the period of 30 consecutive

     days following the occurrence of such Event of Default, then thereafter

     so long as any Event of Default is continuing, at the option of the

     Holder (i) the Company shall pay to the Holder an amount equal to the

     outstanding principal amount of this Note plus accrued and unpaid

     interest on such principal amount to the date of payment plus accrued

     and unpaid Default Interest, if any, thereon at the rate provided in

      this Note to the date of payment, and (ii) all other amounts payable

     hereunder shall immediately become due and payable, all without demand,

     presentment or notice, all of which hereby are expressly waived,

     together with all costs, including, wit