Exhibit 4.2
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 DYNAMIC HEALTH
PRODUCTS, INC. THAT SUCH REGISTRATION IS NOT
REQUIRED.
SECURED REVOLVING
NOTE
FOR VALUE RECEIVED, each of DYNAMIC
HEALTH PRODUCTS, INC., a Florida 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, on order, the sum of Four
Million Dollars ($4,000,000), without duplication of any amounts
owing by the Companies to Holder under the Minimum Borrowing Notes
(as defined in the Security Agreement referred to below), 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 March 29, 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 Agreement among the Companies and the Holder dated
as of the date hereof (as amended, modified and supplemented from
time to time, the “ Security Agreement
”).
The following terms shall apply to
this Secured Revolving Note (this “ Note
”):
ARTICLE I
CONTRACT RATE AND MINIMUM
BORROWING NOTE
1.1 Contract Rate . Subject
to Sections 3.2 and 4.10, 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%) (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 be less than six percent
(6%).
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 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%)
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
be less than zero percent (0%). Interest shall be (i) calculated on
the basis of a 360 day year, and (ii) payable monthly, in arrears,
commencing on April 1, 2005 and on the first business day of each
consecutive calendar month thereafter until the Maturity Date (and
on the Maturity Date), whether by acceleration or
otherwise.
1.3 Allocation of Principal to
Minimum Borrowing Note . In the event that the amount due and
payable hereunder should equal or exceed $1,000,000, to the extent
that the outstanding balance on any Minimum Borrowing Note shall be
less than or equal $1,000,000 (the difference of $2,000,000 less
the actual balance of such Minimum Borrowing Note, the “
Available Minimum Borrowing ”), such portion of the
balance hereof as shall equal the Available Minimum Borrowing shall
be deemed to be simultaneously extinguished on this Note and
transferred to, and evidenced by, such Minimum Borrowing
Note.
ARTICLE II
CONVERSION RIGHTS AND FIXED
CONVERSION PRICE
2.1 Optional Conversion .
Subject to the terms of this Article II, 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 III), and,
subject to the limitations set forth in Section 2.2 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 restricted shares of the Common Stock at the
Fixed Conversion Price (defined below). For purposes hereof,
subject to Section 3.6 hereof, the initial “ Fixed
Conversion Price ” means $1.13 [which has been determined
on the date of this Note as an amount equal to 103% of the average
closing price of the Common Stock for the ten (10) trading days
immediately prior to the date of this Note; provided that the Fixed
Conversion Price shall not exceed 110% of the closing price on the
date immediately preceding the Closing Date]. The shares of Common
Stock to be issued upon such conversion are herein referred to as
the “ Conversion Shares. ”
2.2 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)
2
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 without any
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. Notwithstanding anything contained herein to the
contrary, the provisions of this Section 2.2 are irrevocable and
may not be waived by the Holder or any Company.
2.3 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 (“ 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 ”). A
form of Notice of Conversion is annexed hereto as Exhibit B
. To the extent that a registration statement registering the
shares of Common Stock underlying this Note has been filed by the
Parent and such registration statement is effective on the date on
which a Notice of Conversion is delivered to the Parent (such a
registration statement, an “Effective Registration
Statement”), 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 ”). To the extent that an Effective
Registration Statement is not existing, the Parent will issue
instructions to its transfer agent within one (1) Business Day of
the date of delivery to the Parent of the Notice of Conversion and
shall cause the transfer agent to issue the certificates
representing the Conversion Shares (with a restrictive legend if
necessary) to Holder on the Delivery Date. In the case of the
exercise of 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.
2.4 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, the Companies shall,
jointly and severally, pay late payments to the Holder for any late
issuance of Conversion Shares in the form required pursuant to this
Article II upon conv
