**Exhibit 10.20**

 

***THIS NOTE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGECOMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON ANEXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIESACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO ANEFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO ANAVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATIONREQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATESECURITIES LAWS.***

 
| No. B1 | U.S. $400,000.00      | Original Issue Date: March    , 2006 |
|-------------|-----------------------|----------------------------------------------------------|
| Holder:     | John Fife             |                                                     |
|        |                  |                                                     |
| Address:    | 303 East Wacker Drive |                                                     |
|        | Suite 301        |                                                     |
|        | Chicago, IL 60601     |                                                     |

 

**SERIES 2006 SECURED NOTE DUE JUNE   ,2006**

 

THISNote is one of a duly authorized issue of Notes of POWER 3 MEDICAL PRODUCTS, INC.,a New York corporation, having a principal place of business at 3400 ResearchForest Drive, The Woodlands, Texas 77381 (the “Company”), designated as its Note (the “Note”), dueupon the earlier of (i) June     , 2006; or (ii) onthe fifth day following the effective date of the Company’s registrationstatement on Form SB-2 (file no.                )  (“Maturity Date”), in an aggregate faceamount of up Four Hundred Thousand and 00/100 Dollars ($400,000.00).

 

FORVALUE RECEIVED, the Company promises to pay to the Holder or registeredassigns, the principal sum of Four Hundred Thousand and 00/100 Dollars($400,000.00), on the Maturity Date. Upon default, all amounts due hereundershall bear interest at the rate of 18% per annum from the day such interest isdue hereunder through and including the date of payment. The principal of, andinterest on, this Note are payable in such coin or currency of the UnitedStates of America as at the time of payment is legal tender for payment ofpublic and private debts, at the address of the Holder last appearing on theNote Register.

 

ThisNote is subject to the following additional provisions:

 

Section 1.               The Notes are exchangeable for an equalaggregate principal amount of Notes of different authorized denominations, asrequested by the Holder surrendering the same but shall not be issuable indenominations of less than integral multiples of Twenty Thousand Dollars($20,000) unless such amount represents the full principal balance of Notesoutstanding to such Holder. No service charge will be made for suchregistration of transfer or exchange.

 

Section 2.

 

(a)           The Holder, by acceptance hereof, agrees togive written notice to the Company

 

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before transferring thisNote; such notice will describe briefly the proposed transfer and will give theCompany the name, address, and tax identification number of the proposedtransferee, and will further provide the Company with an opinion of the Holder’scounsel that such transfer can be accomplished in accordance with federal andapplicable state securities laws (unless such transaction is permitted by theplan of distribution in an effective Registration Statement). Promptly uponreceiving such written notice, the Company shall present copies thereof to theCompany’s counsel.

 

(i)            If in the opinion of such counsel theproposed transfer may be effected without registration or qualification(under any federal or state securities laws), the Company, as promptly aspracticable, shall notify the Holder of such opinion, whereupon the Holdershall be entitled to transfer this Note or to dispose of Underlying Sharesreceived upon the previous conversion of this Note, all in accordance with theterms of the notice delivered by the Holder to the Company; provided that anappropriate legend may be endorsed on this Note respecting restrictionsupon transfer thereof necessary or advisable in the opinion of counsel andsatisfactory to the Company to prevent further transfers which would be inviolation of Section 5 of the Securities Act and applicable statesecurities laws; and provided further that the prospective transferee orpurchaser shall execute such documents and make such representations,warranties, and agreements as may be required solely to comply with theexemptions relied upon by the Company for the transfer or disposition of theNote.

 

(ii)           If in the opinion of the counsel referred toin this Section 2, the proposed transfer or disposition of this Note describedin the written notice given pursuant to this Section 2 may not beeffected without registration or qualification of this Note, the Company shallpromptly give written notice thereof to the Holder, and the Holder will limitits activities in respect to such as, in the opinion of such counsel, arepermitted by law.

 

(b)           Prior to transfer of this Note in compliancewith this Section 2, the Company and any agent of the Company may treatthe person in whose name this Note is duly registered on the Note Register asthe owner hereof for the purpose of receiving payment as herein provided andfor all other purposes, whether or not this Note is overdue, and neither theCompany nor any such agent shall be affected by notice to the contrary.

 

Section 3.               Events of Default.

 

“Eventof Default” wherever used herein, means any one of the following events(whatever the reason and whether it shall be voluntary or involuntary oreffected by operation of law or pursuant to any judgment, decree or order ofany court, or any order, rule or regulation of any administrative orgovernmental body):

 

(i)            any default in the payment of the principalof, interest on, or other obligations in respect of, this Note, free of anyclaim of subordination, as and when the same shall become due and payable,(whether on the Maturity Date or by acceleration or otherwise);

 

(ii)           the Company or any Pledgor shall fail to observe or perform anyother covenant, agreement or warranty contained in, or otherwise commit anybreach of, this Note or the Stock Pledge Agreement, including but not limitedto the obligation of the Pledgor to issue additional 

 

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Collateral, and such failure or breach shall not have been remedied within 10 days afterthe date on which notice of such failure or breach shall have been given;

 

(iii)          the Company shall commence a voluntary case under the United StatesBankruptcy Code or insolvency laws as now or hereafter in effect or anysuccessor thereto (the “Bankruptcy Code”); or an involuntary case iscommenced against the Company under the Bankruptcy Code and the petition is notcontroverted within 30 days, or is not dismissed within 60 days, aftercommencement of such involuntary case; or a “custodian” (as defined in theBankruptcy Code) is appointed for, or takes charge of, all or any substantial part ofthe property of the Company or the Company commences any other proceeding underany reorganization, arrangement, adjustment of debt, relief of debtors,dissolution, insolvency or liquidation or similar law of any jurisdictionwhether now or hereafter in effect relating to the Company or there iscommenced against the Company any such proceeding which remains undismissed fora period of 60 days; or the Company is adjudicated insolvent or bankrupt; orany order of relief or other order approving any such case or proceeding isentered; or the Company suffers any appointment of any custodian or the likefor it or any substantial part of its property which continuesundischarged or unstayed for a period of 60 days; or the Company makes ageneral assignment for the benefit of creditors; or the Company shall fail topay, or shall state that it is unable to pay its debts generally as they becomedue;r the Company shall call a meeting of all of its creditors with a view toarranging a composition or adjustment of its debts; or the Company shall by anyact or failure to act indicate its consent to, approval of or acquiescence inany of the foregoing; or any corporate or other action is taken by the Companyfor the purpose of effecting any of the foregoing;

 

(iv)          the Company shall default in any of its obligations under any mortgage,credit agreement or other facility, indenture, agreement or other instrumentunder which there may be issued, or by which there may be secured orevidenced any indebtedness of the Company in an amount exceeding $2,000,000.00,whether such indebtedness now exists or shall hereafter be created and suchdefault shall result in such indebtedness becoming or being declared due andpayable prior to the date on which it would otherwise become due and payable;

 

(v) the Company shall be a party to any Change of ControlTransaction (as defined in Section 6), shall agree to sell or dispose ofall or in excess of 49% of its assets (based on book value calculation as reflectedin the Company’s most recent financial statements) in one or more transactions(whether or not such sale would constitute a Change of Control Transaction): or

 

(vi) The Company shall have its CommonStock suspended or delisted from trading for in excess of three (3) Trading Days:

 

Section 4.               Interest Rate Limitation. The parties intend to conform strictlyto the applicable usury laws in effect from time to time during the term of theLoan. Accordingly, if any transaction contemplated hereby would be usuriousunder such laws, then notwithstanding any other provision hereof: (i) theaggregate of all interest that is contracted for, charged, or received

 

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underthis Agreement or under any other Loan Document shall not exceed the maximumamount of interest allowed by applicable law (the “Highest Lawful Rate”), andany excess shall be promptly credited to Borrower by Lender (or, to the extentthat such consideration shall have been paid, such excess shall be promptlyrefunded to Borrower by Lender); (ii) neither Borrower nor any otherPerson now or hereafter liable hereunder shall be obligated to pay the amountof such interest to the extent that it is in excess of the Highest Lawful Rate;and (iii) the effective rate of interest shall be reduced to the HighestLawful Rate. All sums paid, or agreed to be paid, to Lender for the use,forbearance, and detention of the debt of Borrower to Lender shall, to theextent permitted by applicable law, be allocated throughout the full term ofthe Note until payment is made in full so that the actual rate of interest doesnot exceed the Highest Lawful Rate in effect at any particular time during thefull term thereof. If at any time the rate of interest under the Note exceedsthe Highest Lawful Rate, the rate of interest to accrue pursuant to thisAgreement shall be limited, notwithstanding anything to the contrary in thisAgreement, to the Highest Lawful Rate, but any subsequent reductions in theBase Rate shall not reduce the interest to accrue pursuant to this Agreementbelow the Highest Lawful Rate until the total amount of interest accrued equalsthe amount of interest that would have accrued if a varying rate per annumequal to the interest rate under the Note had at all times been in effect. Ifthe total amount of interest paid or accrued pursuant to this Agreement underthe foregoing provisions is less than the total amount of interest that wouldhave accrued if a varying rate per annum equal to the interest rate under theNote had been in effect, then Borrower agrees to pay to Lender an amount equalto the difference between (x) the lesser of (A) the amount of interestthat would have accrued if the Highest Lawful Rate had at all times been ineffect, or (B) the amount of interest that would have accrued if a varyingrate per annum equal to the interest rate under the Note had at all times beenin effect, and (y) the amount of interest accrued in accordance with the otherprovisions of this Agreement.

 

Section 5.               Prepayment.

 

(a)           The Company shall have the right to prepaythis Note in whole or in part thereon prior to the Maturity Date.

 

(b)           (i)            The Company shall give at least five (5) business days, but not more than ten (10) business days, written notice ofany intention to prepay this Note prior to the Maturity Date to the Holderwhich notice shall specify the “Prepayment Date”.

 

Section 6.               Definitions. For the purposes hereof, the following terms shall have the followingmeanings:

 

“BusinessDay” means any day except Saturday, Sunday and any day which shall be a legalholiday or a day on which banking institutions in the State of New York areauthorized or required by law or other government action to close.

 

“Changeof Control Transaction” means the occurrence of any of (i) anacquisition after the date hereof by an individual or legal entity or “group”(as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)of in excess of 49% of the voting securities of the Company coupled with areplacement of more than one-half of the members of the Company’s board ofdirectors

 

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whichis not approved by those individuals who are members of the board of directorson the date hereof in one or a series of related transactions, or (ii) themerger of the Company with or into another entity, consolidation or sale of allor substantially all of the assets of the Company in one or a series ofrelated transactions, unless following such transaction, the holders of theCompany’s securities continue to hold at least 40% of such securities followingsuch transaction. The execution by the Company of an agreement to which theCompany is a party or by which it is bound providing for any of the events setforth above in (i) or (ii) does not constitute the occurrence of theevent until after the event in fact occurs.

 

Section 7.               Except as expressly provided herein, noprovision of this Note shall alter or impair the obligation of the Company,which is absolute and unconditional, to pay the principal of, interest andliquidated damages (if any) on, this Note at the time, place, and rate, and inthe coin or currency, herein prescribed. This Note is a direct obligation ofthe Company.

 

Section 8.               If this Note shall be mutilated, lost, stolenor destroyed, the Company shall execute and deliver, in exchange andsubstitution for and upon cancellation of a mutilated Note, or in lieu of or insubstitution for a lost, stolen or destroyed Note, a new Note for the principalamount of this Note so mutilated, lost, stolen or destroyed but only uponreceipt of evidence of such loss, theft or destruction of such Note, and of theownership hereof, and indemnity, if requested, all reasonably satisfactory tothe Company.

 

Section 9.

Choiceof Law and Venue; Submission to Jurisdiction; Service of Process.

 

(a)           THE VALIDITY OF THIS NOTE , ITS CONSTRUCTION,INTERPRETATION, AND ENFORCEMENT, AND THE RIGHTS OF THE PARTIES HERETO SHALL BEDETERMINED UNDER, GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THESTATE OF NEW YORK (WITHOUT REFERENCE TO THE CHOICE OF LAW PRINCIPLES THEREOF).THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION WITHTHIS NOTE SHALL BE TRIED AND LITIGATED ONLY IN THE STATE AND FEDERAL COURTSLOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK OR, AT THE SOLE OPTION OFHOLDER, IN ANY OTHER COURT IN WHICH HOLDER SHALL INITIATE LEGAL OR EQUITABLEPROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER INCONTROVERSY.

 

(b)           COMPANY HEREBY SUBMITS FOR ITSELF AND INRESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, TO THE JURISDICTION OFTHE AFORESAID COURTS AND WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW,ANY RIGHT IT MAY HAVE TO ASSERT THE DOCTRINE OF FORUM NON CONVENIENS OR TOOBJECT TO VENUE TO THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THISSECTION.

 

(c)           COMPANY HEREBY WAIVES PERSONAL SERVICE OF THESUMMONS, COMPLAINT, OR OTHER PROCESS ISSUED IN ANY ACTION OR PROCEEDING ANDAGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT, OR OTHER PROCESS MAY BEMADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO COMPANY.

 

(d)           NOTHING IN THIS AGREEMENT SHALL BE DEEMED OROPERATE TO AFFECT THE RIGHT OF HOLDER TO SERVE LEGAL PROCESS IN ANY OTHERMANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY HOLDER OF ANYJUDGMENT OR ORDER OBTAINED IN SUCH

 

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FORUM OR THE TAKING OF ANYACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM ORJURISDICTION.

 

(e)           To the extent determined by such court, the Company shall reimburse theHolder for any reasonable legal fees and disbursements incurred by the Holderin enforcement of or protection of any of its rights under any of this Note.

 

Section 10.             Any waiver by the Company or the Holder of abreach of any provision of this Note shall not operate as or be construed to bea waiver of any other breach of such provision or of any breach of any otherprovision of this Note. The failure of the Company or the Holder to insist uponstrict adherence to any term of this Note on one or more occasions shall not beconsidered a waiver or deprive that party of the right thereafter to insistupon strict adherence to that term or any other term of this Note. Any waivermust be in writing.

 

Section 11.             If any provision of this Note is invalid,illegal or unenforceable, the balance of this Note shall remain in effect, andif any provision is inapplicable to any person or circumstance, it shallnevertheless remain applicable to all other persons and circumstances.

 

Section 12.             Whenever any payment or other obligationhereunder shall be due on a day other than a Business Day, such payment shallbe made on the next succeeding Business Day (or, if such next succeedingBusiness Day falls in the next calendar month, the preceding Business Day inthe appropriate calendar month).

 

Section 13.             Security. The obligation of the Company for payment of principal, interest andall other sums hereunder, in the event of a default and failure of the Companyto perform hereunder, is secured by the pledge of certain securities (the “PledgedShares”) by Steven B. Rash and Ira Goldknopf as Pledgors under the termsand conditions of a Stock Pledge Agreement, and a Guaranty executed anddelivered by such parties.

 

Section 14.Registration Rights . If,at any time prior to payment in full of this Note, the Company participates(whether voluntarily or by reason of an obligation to a third party) in theregistration of any shares of the Company’s stock (other than a registration onForm S-4, S-8 or successor form), the Company shall give written noticethereof to the Holder and the Holder shall have the right, exercisable withinten (10) business days after receipt of such notice, to demand inclusionof all or a portion of the Pledged Shares in such registration statement. Ifthe Holder exercises such election, the Pledged Shares so designated shall beincluded in the registration statement at no cost or expense to the Holder(other than any costs or commissions which would be borne by the Holder ). TheHolder’s rights under this Section 7 shall expire at such time as theHolder can sell all of the Pledged Shares under Rule 144(k) without volumeor other restrictions or limit.

 

Section 15 . Waiver ofJury Trial

 

COMPANY HEREBY WAIVE ITSRESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON ORARISING OUT OF THIS NOTE . COMPANY REPRESENTS THAT EACH HAS REVIEWED THISWAIVER AND KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWINGCONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THISAGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

 

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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]

 

**IN WITNESS WHEREOF**, the Company has caused this instrument to be duly executed by anofficer duly authorized for such purpose, as of the date first above indicated.

 
|    | POWER 3 MEDICAL PRODUCTS, INC.      |
|---------|------------------------------------------|
|    |                                     |
|    |                                     |
|    | By:                                      | /s/: Steven B. Rash |   |
|    | Steven B. Rash, Chief  Executive Officer |
|    |                                     |
| Attest: |                                     |
|    |                                     |
| By:     | /s/: Linh Rivera                         |   |   |
|         |                                          |  |  |  |  |  |

 

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