EXHIBIT 10.1
CONVERTIBLE NOTE

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) OR APPLICABLE
STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE COMPANY THAT THERE IS AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT.
 
Amount: $XX,XXX.XX
Irvine, California
 
Date: _____________, 2006

 
FOR VALUE RECEIVED, NUWAY MEDICAL, INC., a corporation organized under the laws
of the state of Delaware (“Issuer”), promises to pay to the order of
_______________________(hereafter, together with any subsequent holder hereof,
called “Holder”), at its office, at “Holder’s Address” (as that term is defined
below), or at such other place as Holder may direct, the “Amount” noted above
(the “Loan Amount”), payable on September 13, 2008, or at an earlier date as
provided herein (the “Maturity Date”). This convertible note is duly authorized
issue of the Issuer, issued on the “Date” noted (the “Issuance Date”), and
designated as its Convertible Note due September 13, 2008 (the “Note”).

The Issuer agrees to pay interest on the unpaid principal amount of the Loan
Amount from time to time outstanding hereunder at the following rates per year,
compounded annually: (i) before maturity of the Loan Amount, whether by
acceleration or otherwise, at the rate per annum equal to ten percent (10%);
(ii) after the maturity of the Loan Amount, whether by acceleration or
otherwise, until paid, at a rate per annum equal to fifteen percent (15%).
 
Payments of both principal and interest are to be made in immediately available
funds in lawful money of the United States of America, or in Common Stock of the
Issuer as set forth below.

Accrual of interest shall commence as of the Issuance Date. Interest shall be
payable by the Issuer, at the Issuer’s option, in cash or in that number of
shares of Common Stock of the Issuer (the “Common Stock”) (at a price per share
calculated pursuant to the conversion formula contained below), upon the earlier
to occur of (i) upon conversion of this Note pursuant to the conversion features
set forth below, or (ii) upon an Event of Default as defined below, and if an
Event of Default occurs interest due hereunder shall be payable in cash or stock
as set forth herein at the option of the Holder. Unless otherwise agreed in
writing by both parties hereto, the interest so payable will be paid to the
person in whose name this Note (or one or more predecessor Notes) is registered
on the records of the Issuer regarding registration and transfers of the Note
(the “Note Register”), provided, however, that the Issuer’s obligation to a
transferee of this Note arises only if such transfer, sale or other disposition
is made in accordance with the terms and conditions contained in this Note and
the Subscription Agreement (the “Agreement”) that the Holder executed at the
time of making an investment in the Issuer.

  The Note is subject to the following additional provisions:

 
1.
The Issuer shall be entitled to withhold from all payments of principal and/or
interest of this Note any amounts required to be withheld under the applicable
provisions of the Internal Revenue Code of 1986, as amended, or other applicable
laws at the time of such payments.

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2.
This Note has been issued subject to investment representations of the original
Holder hereof and may be transferred or exchanged only in compliance with the
Securities Act and applicable state securities laws and in compliance with the
restrictions on transfer provided in the Agreement. Prior to the due presentment
for such transfer of this Note, the Issuer and any agent of the Issuer may treat
the person in whose name this Note is duly registered in the Note Register as
the owner hereof for the purpose of receiving payment as herein provided and all
other purposes, whether or not this Note is overdue, and neither the Issuer nor
any such agent shall be affected by notice to the contrary. The transferee shall
be bound, as the original Holder by the same representations and terms described
herein and under the Agreement.

 

 
3.
Subject to the “Conversion Contingencies” set forth in paragraph 5 below, the
Holder may, at its option, at any time convert the principal amount of this Note
or any portion thereof, and any accrued and unpaid interest thereon, into such
number of shares of fully paid and non-assessable Common Stock of the Issuer
(“Conversion Shares”) as is obtained by dividing the Loan Amount by $0.0275
(“Conversion Price”). The right to convert the Note may be exercised by the
Issuer by telecopying, mailing (via first class mail, postage prepaid) or
personally delivering an executed and completed notice of conversion (the
“Notice of Voluntary Conversion”) to the Issuer. The business day (a “Business
Day”) on which a Notice of Voluntary Conversion is delivered in accordance with
the provisions hereof shall be deemed the “Voluntary Conversion Date”. The
Issuer will transmit the certificates representing Conversion Shares issuable
upon such conversion of the Note (together with the certificates representing
the Note not so converted) to the Holder via express courier, by electronic
transfer (if applicable) or otherwise, within ten Business Days after the later
to occur of (i) the Voluntary Conversion Date or (ii) the Business Day on which
the Issuer has received from the Holder the original Note being so converted.
Notwithstanding the preceding sentence, the conversion of this Note may require
that the Issuer amend its charter to increase the number of shares of its Common
Stock authorized and therefore the conversion may not take place prior to the
Issuer’s completion of that process. Any delay due to such circumstance shall
not be an event of default under this Note.

 

4.
Subject to the “Conversion Contingencies” set forth in paragraph 5 below, the
Issuer may, at its option, (i) on or after September 13, 2007, if the Company
has received one or more written firm commitments, or has closed on one or more
transactions, or a combination of the foregoing, of at least $3 million gross
proceeds of equity or debt; or (ii) on the Maturity Date, require the Holder to
convert the Note or any portion thereof, and any accrued and unpaid interest
thereon, into such number of Conversion Shares as is obtained by dividing the
Loan Amount by the Conversion Price. The obligation of the Holder to convert the
Note may be exercised by the Company by telecopying, mailing (via first class
mail, postage prepaid) or personally delivering an executed and completed notice
of conversion (the “Notice of Mandatory Conversion”) to the Holder’s Address
maintained in the Note Register. The Holder covenants and agrees to acknowledge
a Notice of Mandatory Conversion in writing by completing, dating and signing
such Notice of Mandatory Conversion and returning it to the Company by
telecopier, first class mail (postage prepaid) or personal delivery (the “Holder
Acknowledgment Date”). The business day on which a Notice of Mandatory
Conversion is delivered in accordance with the provisions hereof shall be deemed
the “Mandatory Conversion Date”. The Issuer will transmit the certificates
representing Conversion Shares issuable upon such conversion of the Note
(together with the certificates representing any portion of the Note not so
converted) to the Holder via express courier, by electronic transfer (if
applicable) or otherwise within ten Business Days after the later to occur of
(i) the Holder Acknowledgment Date or (ii) the date that the Issuer has received
from the Holder the original Note being so converted. Notwithstanding the
preceding sentence, the conversion of this Note may require that the Issuer
amend its charter to increase the number of shares of Common Stock

 
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authorized and therefore the conversion may not take place prior to the Issuer’s
completion of that process. Any delay due to such circumstance shall not be an
event of default under this Note.
 

5.
Conversion Contingencies: Notwithstanding anything else herein to the contrary,
the Holder shall not have the right, and the Company shall not have the
obligation, to convert all or any portion of this Note, unless and until each of
the following events has first occurred: (i) the Company’s stockholders have
approved an increase in the number of shares of Common Stock authorized by the
Company’s Certificate of Incorporation in an amount not less than the amount
required to permit all Notes issued in this series to be converted into shares
of the Company’s Common Stock as provided herein, at a validly held meeting of
stockholders at which a quorum is present and acting throughout; and (ii) the
Company has filed with the Secretary of State of State of Delaware a Certificate
of Amendment to the Company’s Certificate of Incorporation to amend its
Certificate of Incorporation to increase the number of shares of Common Stock
authorized by the Company’s Certificate of Incorporation.

 

6.
The principal amount of this Note, and any accrued interest thereon, shall be
reduced as per that principal amount indicated on the Notice of Voluntary
Conversion or Notice of Mandatory Conversion, as the case may be, upon the
proper receipt by the Holder of such Conversion Shares due upon such Notice of
Voluntary Conversion or Notice of Mandatory Conversion.

 

7.
If after the termination date of the offering pursuant to which the Note was
offered and sold and on or before the first to occur of (i) a Voluntary
Conversion, (ii) a Mandatory Conversion or (iii) the Maturity Date, the Company
shall sell any (x) shares of its common stock at a price per share less than
$0.0275 per share or (y) other security convertible into, or exercisable or
exchangeable for any shares of its common stock at an exercise or conversion
price less than $0.0275 (in either case subject to adjustment for any stock
split, reverse stock split, stock dividend or other reclassification or
recapitalization) (a “Dilution Event”), then the initial Conversion Price of the
Notes shall automatically be reduced to such lower price (“Anti-Dilution
Protection”). Notwithstanding the previous sentence, the granting of stock
options by the Company pursuant to any employee benefit plan presently in
existence or which may exist in the future shall not, under any circumstances,
be a Dilution Event resulting in Anti-Dilution Protection.

 

8.
The number of Conversion Shares shall be adjusted as follows. If the Issuer
shall at any time subdivide its outstanding shares of Common Stock into a
greater number of shares of Common Stock, the number of Conversion Shares in
effect immediately prior to such subdivision shall be proportionately increased,
and conversely, in case the outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the Conversion Price in effect
immediately prior to such combination shall be proportionately reduced.

 

9.
No provision of this Note shall alter or impair the obligation of the Issuer,
which is absolute and unconditional, upon an Event of Default (as defined
below), to pay the principal of, and interest on this Note at the place, time,
and rate, and in the coin or currency herein prescribed.

 

10.
Events Of Default. Each of the following occurrences is hereby defined as an
“Event of Default”:

 

 
a.
Nonpayment. The Issuer shall fail to make any payment of principal, interest, or
other amounts payable hereunder when and as due; or

 
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b.
Dissolutions, etc. The Issuer or any subsidiary shall fail to comply with any
provision concerning its existence or any prohibition against dissolution,
liquidation, merger, consolidation or sale of assets; or

 

c.
Noncompliance with this Agreement. The Issuer shall fail to comply in any
material respect with any provision hereof, which failure does not otherwise
constitute an Event of Default, and such failure shall continue for ten (10)
days after the occurrence of such failure; or

 

d.
Bankruptcy. Any bankruptcy, insolvency, reorganization, arrangement,
readjustment, liquidation, dissolution, or similar proceeding, domestic or
foreign, is instituted by or against the Issuer or any of its subsidiaries, or
the Issuer or any of its subsidiaries shall take any step toward, or to
authorize, such a proceeding; or

 

e.
Insolvency. The Issuer shall make a general assignment for the benefit of its
creditors, shall enter into any composition or similar agreement, or shall
suspend the transaction of all or a substantial portion of its usual business.

 

11.
If one or more “Events of Default” shall occur, then, or at any time thereafter,
and in each and every such case, unless such Event of Default shall have been
waived in writing by the Holder (which waiver shall not be deemed to be a waiver
of any subsequent default) or cured as provided herein, at the option of the
Holder, and in the Holder's sole discretion, the Holder may elect to consider
this Note (and all interest through such date) immediately due and payable. In
order to so elect, the Holder must deliver written notice of the election and
the amount due to the Issuer via certified mail, return receipt requested, at
the Issuer’s address as set forth herein (or any other address provided to the
Holder), and thereafter the Issuer shall have ten business days upon receipt to
cure the Event of Default, pay the Note, or convert the amount due on the Note
pursuant to the conversion formula set forth above. It is agreed that in the
event of such action, such Holder shall be entitled to receive all reasonable
fees, costs and expenses incurred, including without limitation such reasonable
fees and expenses of attorneys. The parties acknowledge that a change in control
of the Issuer shall not be deemed to be an Event of Default as set forth herein.

 

12.
In case any provision of this Note is held by a court of competent jurisdiction
to be excessive in scope or otherwise invalid or unenforceable, such provision
shall be adjusted rather than voided, if possible, so that it is enforceable to
the maximum extent possible, and the validity and enforceability of the
remaining provisions of this Note will not in any way be affected or impaired
thereby.

 
 
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13.
This Note does not entitle the Holder hereof to any voting rights or other
rights as a stockholder of the Issuer prior to the conversion into Common Stock
thereof, except as provided by applicable law. If, however, at the time of the
surrender of this Note and conversion the Holder hereof shall be entitled to
convert this Note, the Conversion Shares so issued shall be and be deemed to be
issued to such holder as the record owner of such shares as of the close of
business on the Conversion Date.

 
IN WITNESS WHEREOF, the Issuer has caused this Note to be duly executed by an
officer thereunto duly authorized.

NUWAY MEDICAL, INC.
 
By___________________________
Name: Dennis Calvert, President
 
ACCEPTED:
 
Signature: _______________________
 
Print Name: ______________________
 
Holder’s Address: _________________
 
________________________________
 
________________________________
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NOTICE OF VOLUNTARY CONVERSION

(To be Executed by the Registered Holder in order to convert the Note)

The undersigned hereby irrevocably elects to convert $__________ of the
principal amount of the above Note, and $__________ of accrued and unpaid
interest, into ___________ Shares of Common Stock of NuWay Medical, Inc.
according to the conditions hereof, as of the date written below.

Date of Voluntary Conversion: _______________
Signature: _____________________________
 
Print Name: ____________________________
 
Holder’s Address: _______________________
 
______________________________________
 
______________________________________
 
 
ACCEPTED:
 
NUWAY MEDICAL, INC.
 
BY (Signature): __________________________
 
Print Name: _____________________________
 
Title: __________________________________
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NOTICE OF MANDATORY CONVERSION

(To be Executed by the Company in order to required the Holder to convert the
Note)

The undersigned hereby notifies you of its irrevocably election to require you
to convert $___________ of the principal amount of the above Note, and
$__________ of accrued and unpaid interest, into ___________ Shares of Common
Stock of NuWay Medical, Inc. according to the conditions hereof, as of the date
written below.

Date of Mandatory Conversion: _______________
NUWAY MEDICAL, INC.
 
BY (Signature) ______________________
 
Print Name: ________________________
 
Title: _____________________________
 
ACCEPTED AND AGREED BY HOLDER:
 
Signature: _________________________
 
Print Name: ________________________
 
Holder’s Address: ___________________
 
__________________________________
 
__________________________________
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