Document:

Exhibit 10.29

 

Exhibit 10.29

REGISTRATION RIGHTS AGREEMENT

          This Registration Rights Agreement (this “Agreement”) is made and entered into as of July 30,
2007, by and between Chad Therapeutics, Inc., a California corporation (the “Company”), and
Calliope Capital Corporation (the “Purchaser”).

          This Agreement is made pursuant to the Security Agreement, dated as of the date hereof, by and
among the Purchaser, the Company (as amended, modified or supplemented from time to time, the
“Security Agreement”), and pursuant to the Note and Warrants referred to therein.

          The Company and the Purchaser hereby agree as follows:

     1. Definitions. Capitalized terms used and not otherwise defined herein that are defined in
the Security Agreement shall have the meanings given such terms in the Security Agreement. As used
in this Agreement, the following terms shall have the following meanings:

          “Commission” means the Securities and Exchange Commission.

          “Common Stock” means shares of the Company’s common stock, par value $0.01 per share.

          “Effectiveness Date” means, (i) with respect to the Registration Statement required to be
filed in connection with the shares of Common Stock issuable upon conversion of the Note and
exercise of the Warrants issued on the date hereof, a date no later than one hundred eighty (180)
days following the Filing Date and (ii) with respect to each additional Registration Statement
required to be filed hereunder (if any), a date no later than sixty (60) days following the
applicable Filing Date.

          “Effectiveness Period” has the meaning set forth in Section 2(a).

          “Exchange Act” means the Securities Exchange Act of 1934, as amended, and any successor
statute.

          “Filing Date” means, with respect to (1) the Registration Statement required to be filed in
connection with the shares of Common Stock issuable to the Holder upon conversion of the Note and
upon exercise of a Warrant, the date which is sixty (60) days after the issuance of such, Note and
Warrants, and (2) the Registration Statement required to be filed in connection with the shares of
Common Stock issuable to the Holder as a result of adjustments to the Conversion Price made
pursuant to Section 3.5 of the Note or to the Exercise Price made pursuant to Section 4 of the
Warrant or otherwise, thirty (30) days after the occurrence of such event or the date of the
adjustment of the Exercise Price.

Registration Rights Agreement

 

 

          “Holder” or “Holders” means the Purchaser or any of its affiliates or transferees to the
extent any of them hold Registrable Securities, other then those purchasing Registrable Securities
in a market transaction.

          “Indemnified Party” has the meaning set forth in Section 5(c).

          “Indemnifying Party” has the meaning set forth in Section 5(c).

          “Note” shall mean the Secured Convertible Term Note.

          “Proceeding” means an action, claim, suit, investigation or proceeding (including, without
limitation, an investigation or partial proceeding, such as a deposition), whether commenced or
threatened.

          “Prospectus” means the prospectus included in a Registration Statement (including, without
limitation, a prospectus that includes any information previously omitted from a prospectus filed
as part of an effective registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms
of the offering of any portion of the Registrable Securities covered by such Registration
Statement, and all other amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.

          “Registrable Securities” means the shares of Common Stock issuable upon conversion of the Note
and exercise of the Warrants.

          “Registration Statement” means each registration statement required to be filed hereunder,
including the Prospectus therein, amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material
incorporated by reference or deemed to be incorporated by reference in such registration statement.

          “Rule 144” means Rule 144 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

          “Rule 415” means Rule 415 promulgated by the Commission pursuant to the Securities Act, as
such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by
the Commission having substantially the same effect as such Rule.

          ”Secured Convertible Term Note” has the meaning set forth in the Security Agreement.

          “Securities Act” means the Securities Act of 1933, as amended, and any successor statute.

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          “Security Agreement” has the meaning given to such term in the Preamble hereto.

          “Trading Market” means any of the NASD Over The Counter Bulletin Board, NASDAQ Capital Market,
the NASDAQ National Markets System, the American Stock Exchange or the New York Stock Exchange

          “Warrants” means the Common Stock purchase warrants issued in connection with the Security
Agreement, whether on the date thereof or thereafter.

     2. Registration.

          (a) On or prior to each Filing Date, the Company shall prepare and file with the Commission a
Registration Statement covering the Registrable Securities for a selling stockholder resale
offering to be made on a continuous basis pursuant to Rule 415. Each Registration Statement shall
be on Form S-3 (except if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, in which case such registration shall be on another appropriate form in
accordance herewith). The Company shall cause each Registration Statement to become effective and
remain effective as provided herein. The Company shall use its best efforts to cause each
Registration Statement to be declared effective under the Securities Act as promptly as possible
after the filing thereof, but in any event no later than the Effectiveness Date. The Company shall
use its reasonable commercial efforts to keep each Registration Statement continuously effective
under the Securities Act until the date which is the earlier date of when (i) all Registrable
Securities covered by such Registration Statement have been sold or (ii) all Registrable Securities
covered by such Registration Statement may be sold immediately without registration under the
Securities Act and without volume restrictions pursuant to Rule 144(k), as determined by the
counsel to the Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company’s transfer agent and the affected Holders (each, an “Effectiveness
Period”).

          (b) If: (i) the Registration Statement is not filed on or prior to the Filing Date; (ii) the
Registration Statement is not declared effective by the Commission by the Effectiveness Date; (iii)
after the Registration Statement is filed with and declared effective by the Commission, the
Registration Statement ceases to be effective (by suspension or otherwise) as to all Registrable
Securities to which it is required to relate at any time prior to the expiration of the
Effectiveness Period (without being succeeded immediately by an additional registration statement
filed and declared effective) for a period of time which shall exceed 30 days in the aggregate per
year or more than 20 consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective); or (iv) the Common Stock is not listed or
quoted on any Trading Market, or is suspended from trading on its principal Trading Market and is
not available for trading on any other Trading Market, for a period of three (3) consecutive
Trading Days (provided the Company shall not have been able to cure such trading suspension within
30 days of the notice thereof or list the Common Stock on another Trading Market); (any such
failure or breach being referred to as an “Event,” and for purposes of clause (i) or (ii) the date
on which such Event occurs, or for purposes of clause (iii) the date which such 30 day or 20
consecutive day period (as the case may be) is exceeded, or for purposes of clause (iv) the date on
which such three (3) Trading Day period is exceeded, being referred to as “Event Date”), then until
the applicable Event is cured, the Company shall pay to

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each Holder an amount in cash, as liquidated damages and not as a penalty, equal to 1.0% for
each thirty (30) day period (prorated for partial periods) on a daily basis of the original
principal amount of the Note. While such Event continues, such liquidated damages shall be paid
not less often than each thirty (30) days. Any unpaid liquidated damages as of the date when an
Event has been cured by the Company shall be paid within three (3) days following the date on which
such Event has been cured by the Company. Notwithstanding the foregoing, no liquidated damages
shall be payable to any Holder with respect to an Event if such Holder proximately caused the Event
to occur.

          (c) Within three business days of the Effectiveness Date, the Company shall cause its counsel
to issue a blanket opinion in the form attached hereto as Exhibit A, to the transfer agent stating
that the shares are subject to an effective registration statement and can be reissued free of
restrictive legend upon notice of a sale by the Purchaser and confirmation by the Purchaser that it
has complied with the prospectus delivery requirements, provided that the Company has not advised
the transfer agent orally or in writing that the opinion has been withdrawn. Copies of the blanket
opinion required by this Section 2(c) shall be delivered to the Purchaser within the time frame set
forth above.

     3. Registration Procedures. If and whenever the Company is required by the provisions hereof
to effect the registration of any Registrable Securities under the Securities Act, the Company
will, as expeditiously as possible:

          (a) prepare and file with the Commission a Registration Statement with respect to such
Registrable Securities, respond as promptly as possible to any comments received from the
Commission, and use its best efforts to cause such Registration Statement to become and remain
effective for the Effectiveness Period with respect thereto, and promptly provide to the Purchaser
copies of all filings and Commission letters of comment relating thereto;

          (b) prepare and file with the Commission such amendments and supplements to such Registration
Statement and the Prospectus used in connection therewith as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all Registrable Securities
covered by such Registration Statement and to keep such Registration Statement effective until the
expiration of the Effectiveness Period applicable to such Registration Statement;

          (c) furnish to the Purchaser such number of copies of the Registration Statement and the
Prospectus included therein (including each preliminary Prospectus) as the Purchaser reasonably may
request to facilitate the public sale or disposition of the Registrable Securities covered by such
Registration Statement;

          (d) use its best efforts to register or qualify the Purchaser’s Registrable Securities covered
by such Registration Statement under the securities or “blue sky” laws of such jurisdictions within
the United States as the Purchaser may reasonably request, provided, however, that the Company
shall not for any such purpose be required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;

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          (e) list the Registrable Securities covered by such Registration Statement with any securities
exchange on which the Common Stock of the Company is then listed;

          (f) immediately notify the Purchaser at any time when a Prospectus relating thereto is
required to be delivered under the Securities Act, of the happening of any event of which the
Company has knowledge as a result of which the Prospectus contained in such Registration Statement,
as then in effect, includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing; and

          (g) make available for inspection by the Purchaser and any attorney, accountant or other agent
retained by the Purchaser, all publicly available, non-confidential financial and other records,
pertinent corporate documents and properties of the Company, and cause the Company’s officers,
directors and employees to supply all publicly available, non-confidential information reasonably
requested by the attorney, accountant or agent of the Purchaser.

     4. Registration Expenses. All expenses relating to the Company’s compliance with Sections 2
and 3 hereof, including, without limitation, all registration and filing fees, printing expenses,
fees and disbursements of counsel and independent public accountants for the Company, fees and
expenses (including reasonable counsel fees) incurred in connection with complying with state
securities or “blue sky” laws, fees of the NASD, transfer taxes, fees of transfer agents and
registrars, reasonable fees of, and disbursements incurred by, one counsel for the Holders are
called “Registration Expenses”. All selling commissions applicable to the sale of Registrable
Securities, including any fees and disbursements of any special counsel to the Holders beyond those
included in Registration Expenses, are called “Selling Expenses.” The Company shall only be
responsible for all Registration Expenses. The Holder shall be responsible for all Selling
Expenses.

     5. Indemnification.

          (a) In the event of a registration of any Registrable Securities under the Securities Act
pursuant to this Agreement, the Company will indemnify and hold harmless each Holder, and its
officers, directors and each other person, if any, who controls such Holder within the meaning of
the Securities Act, against any losses, claims, damages or liabilities, joint or several, to which
such Holder, or such persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact contained in any
Registration Statement under which such Registrable Securities were registered under the Securities
Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus contained therein,
or any amendment or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, and will reimburse such Holder, and each such person for any
reasonable legal or other expenses incurred by them in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case if and to the extent that any such loss, claim, damage
or liability arises out of or is based upon an untrue statement or

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alleged untrue statement or omission or alleged omission so made in conformity with
information furnished by or on behalf of the Purchaser or any such person in writing specifically
for use in any such document.

          (b) In the event of a registration of the Registrable Securities under the Securities Act
pursuant to this Agreement, the Purchaser will indemnify and hold harmless the Company, and its
officers, directors and each other person, if any, who controls the Company within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or several, to which
the Company or such persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact which was
furnished in writing by the Purchaser to the Company expressly for use in (and such information is
contained in) the Registration Statement under which such Registrable Securities were registered
under the Securities Act pursuant to this Agreement, any preliminary Prospectus or final Prospectus
contained therein, or any amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the Company and each
such person for any reasonable legal or other expenses incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action, provided,
however, that the Purchaser will be liable in any such case if and only to the extent that
any such loss, claim, damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission so made in conformity with information
furnished in writing to the Company by or on behalf of the Purchaser specifically for use in any
such document. Notwithstanding the provisions of this paragraph, the Purchaser shall not be
required to indemnify any person or entity in excess of the amount of the aggregate net proceeds
received by the Purchaser in respect of Registrable Securities in connection with any such
registration under the Securities Act.

          (c) Promptly after receipt by a party entitled to claim indemnification hereunder (an
“Indemnified Party”) of notice of the commencement of any action, such Indemnified Party shall, if
a claim for indemnification in respect thereof is to be made against a party hereto obligated to
indemnify such Indemnified Party (an “Indemnifying Party”), notify the Indemnifying Party in
writing thereof, but the omission so to notify the Indemnifying Party shall not relieve it from any
liability which it may have to such Indemnified Party other than under this Section 5(c) and shall
only relieve it from any liability which it may have to such Indemnified Party under this Section
5(c) if and to the extent the Indemnifying Party is prejudiced by such omission. In case any such
action shall be brought against any Indemnified Party and it shall notify the Indemnifying Party of
the commencement thereof, the Indemnifying Party shall be entitled to participate in and, to the
extent it shall wish, to assume and undertake the defense thereof with counsel satisfactory to such
Indemnified Party, and, after notice from the Indemnifying Party to such Indemnified Party of its
election so to assume and undertake the defense thereof, the Indemnifying Party shall not be liable
to such Indemnified Party under this Section 5(c) for any legal expenses subsequently incurred by
such Indemnified Party in connection with the defense thereof; if the Indemnified Party retains its
own counsel, then the Indemnified Party shall pay all fees, costs and expenses of such counsel,
provided, however, that, if the defendants in any such action include both the
Indemnified Party and the Indemnifying Party and the Indemnified Party shall have reasonably
concluded that there may be reasonable

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defenses available to it which are different from or additional to those available to the
Indemnifying Party or if the interests of the Indemnified Party reasonably may be deemed to
conflict with the interests of the Indemnifying Party, the Indemnified Party shall have the right
to select one separate counsel and to assume such legal defenses and otherwise to participate in
the defense of such action, with the reasonable expenses and fees of such separate counsel and
other expenses related to such participation to be reimbursed by the Indemnifying Party as
incurred.

          (d) In order to provide for just and equitable contribution in the event of joint liability
under the Securities Act in any case in which either (i) the Purchaser, or any officer, director or
controlling person of the Purchaser, makes a claim for indemnification pursuant to this Section 5
but it is judicially determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact that this Section 5
provides for indemnification in such case, or (ii) contribution under the Securities Act may be
required on the part of the Purchaser or such officer, director or controlling person of the
Purchaser in circumstances for which indemnification is provided under this Section 5; then, and in
each such case, the Company and the Purchaser will contribute to the aggregate losses, claims,
damages or liabilities to which they may be subject (after contribution from others) in such
proportion so that the Purchaser is responsible only for the portion represented by the percentage
that the public offering price of its securities offered by the Registration Statement bears to the
public offering price of all securities offered by such Registration Statement, provided,
however, that, in any such case, (A) the Purchaser will not be required to contribute any
amount in excess of the public offering price of all such securities offered by it pursuant to such
Registration Statement; and (B) no person or entity guilty of fraudulent misrepresentation (within
the meaning of Section 10(f) of the Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.

     6. Representations and Warranties.

          (a) The Common Stock is registered pursuant to Section 12(b) or 12(g) of the Exchange Act and,
except with respect to certain matters which the Company has disclosed to the Purchaser on
Schedule 12(u) to the Security Agreement, the Company has timely filed all proxy
statements, reports, schedules, forms, statements and other documents required to be filed by it
under the Exchange Act. The Company has filed (i) its Annual Report on Form 10-K for its fiscal
year ended March 31, 2007and (ii) its Quarterly Reports on Form 10-Q for the fiscal quarters ended
June 30, 2006, September 30, 2006, and December 31, 2006 (collectively, the “SEC Reports”). Each
SEC Report was, at the time of its filing, in substantial compliance with the requirements of its
respective form and none of the SEC Reports, nor the financial statements (and the notes thereto)
included in the SEC Reports, as of their respective filing dates, contained any untrue statement of
a material fact or omitted to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the SEC Reports comply as to form
in all material respects with applicable accounting requirements and the published rules and
regulations of the Commission or other applicable rules and regulations with respect thereto. Such
financial statements have been prepared in accordance with generally accepted accounting principles
(“GAAP”) applied on a consistent basis during the periods involved (except (i) as may be otherwise
indicated in such financial statements or the notes

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thereto or (ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed) and fairly present in all material respects the financial
condition, the results of operations and the cash flows of the Company and its subsidiaries, on a
consolidated basis, as of, and for, the periods presented in each such SEC Report.

          (b) The Common Stock is listed or quoted, as applicable, for trading on the American Stock
Exchange and satisfies all requirements for the continuation of such listing or quotation, as
applicable, and the Company shall do all things necessary for the continuation of such listing or
quotation, as applicable. The Company has not received any notice that its Common Stock will be
delisted from or no longer be quoted on, as applicable, the American Stock Exchange (except for
prior notices which have been fully remedied) or that the Common Stock does not meet all
requirements for the continuation of such listing or quotation, as applicable.

          (c) Neither the Company, nor any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales of any security or solicited any offers
to buy any security under circumstances that would cause the offering of the Securities pursuant to
the Security Agreement to be integrated with prior offerings by the Company for purposes of the
Securities Act which would prevent the Company from selling the Common Stock pursuant to Rule 506
under the Securities Act, or any applicable exchange-related stockholder approval provisions, nor
will the Company or any of its affiliates or subsidiaries take any action or steps that would cause
the offering of the Common Stock to be integrated with other offerings (other than such concurrent
offering to the Purchaser).

          (d) The Note and the Warrants and the shares of Common Stock that the Purchaser may acquire
pursuant to the Note and the Warrants are all restricted securities under the Securities Act as of
the date of this Agreement. The Company will not issue any stop transfer order or other order
impeding the sale and delivery of any of the Registrable Securities at such time as such
Registrable Securities are registered for public sale or an exemption from registration is
available, except as required by federal or state securities laws.

          (e) The Company understands the nature of the Registrable Securities issuable upon the
conversion of the Note and the exercise of each Warrant and recognizes that the issuance of such
Registrable Securities may have a potential dilutive effect. The Company specifically acknowledges
that its obligation to issue the Registrable Securities is binding upon the Company and enforceable
regardless of the dilution such issuance may have on the ownership interests of other shareholders
of the Company.

          (f) Except for agreements made in the ordinary course of business, there is no agreement that
has not been filed with the Commission as an exhibit to a registration statement or to a form
required to be filed by the Company under the Exchange Act, the breach of which could reasonably be
expected to have a material and adverse effect on the Company and its subsidiaries, or would
prohibit or otherwise interfere with the ability of the Company to enter into and perform any of
its obligations under this Agreement in any material respect.

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          (g) The Company will at all times have authorized and reserved a sufficient number of shares
of Common Stock for the full conversion of the Note and the full exercise of the Warrants.

          (h) The Company shall provide written notice to each Holder of (i) the occurrence of each
Discontinuation Event (as defined below) and (ii) the declaration of effectiveness by the SEC of
each Registration Statement required to be filed hereunder, in each case within one (1) business
day of the date of each such occurrence and/or declaration.

     7. Miscellaneous.

          (a) Remedies. In the event of a breach by the Company or by a Holder, of any of their
respective obligations under this Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law and under this Agreement,
including recovery of damages, will be entitled to specific performance of its rights under this
Agreement.

          (b) No Piggyback on Registrations. Except as and to the extent set forth on Schedule 7(b)
hereto, neither the Company nor any of its security holders (other than the Holders in such
capacity pursuant hereto) may include securities of the Company in any Registration Statement other
than the Registrable Securities, and the Company shall not after the date hereof enter into any
agreement providing any such right for inclusion of shares in the Registration Statement to any of
its security holders. Except as and to the extent specified in Schedule 7(b) hereto, the
Company has not previously entered into any agreement granting any registration rights with respect
to any of its securities to any Person that have not been fully satisfied.

          (c) Compliance. Each Holder covenants and agrees that it will comply with the prospectus
delivery requirements of the Securities Act as applicable to it in connection with sales of
Registrable Securities pursuant to any Registration Statement.

          (d) Discontinued Disposition. Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of a Discontinuation
Event (as defined below), such Holder will forthwith discontinue disposition of such Registrable
Securities under the applicable Registration Statement until such Holder’s receipt of the copies of
the supplemented Prospectus and/or amended Registration Statement or until it is advised in writing
(the “Advice”) by the Company that the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental filings that are incorporated or
deemed to be incorporated by reference in such Prospectus or Registration Statement. The Company
may provide appropriate stop orders to enforce the provisions of this paragraph. For purposes of
this Agreement, a “Discontinuation Event” shall mean (i) when the Commission notifies the Company
whether there will be a “review” of such Registration Statement and whenever the Commission
comments in writing on such Registration Statement (the Company shall provide true and complete
copies thereof and all written responses thereto to each of the Holders); (ii) any request by the
Commission or any other Federal or state governmental authority for amendments or supplements to
such Registration Statement or Prospectus or for additional information; (iii) the issuance by the
Commission of any stop order suspending the effectiveness of such Registration Statement

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covering any or all of the Registrable Securities or the initiation of any Proceedings for
that purpose; (iv) the receipt by the Company of any notification with respect to the suspension of
the qualification or exemption from qualification of any of the Registrable Securities for sale in
any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and/or (v)
the occurrence of any event or passage of time that makes the financial statements included in such
Registration Statement ineligible for inclusion therein or any statement made in such Registration
Statement or Prospectus or any document incorporated or deemed to be incorporated therein by
reference untrue in any material respect or that requires any revisions to such Registration
Statement, Prospectus or other documents so that, in the case of such Registration Statement or
Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not misleading.

          (e) Piggy-Back Registrations. If at any time during the applicable Effectiveness Period there
is not an effective Registration Statement covering all of the Registrable Securities required to
be covered during such Effectiveness Period and the Company shall determine to prepare and file
with the Commission a registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities, other than on Form S-4
or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to
equity securities to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee benefit plans, then
the Company shall send to each Holder written notice of such determination and, if within fifteen
(15) days after receipt of such notice, any such Holder shall so request in writing, the Company
shall include in such registration statement all or any part of such Registrable Securities such
Holder requests to be registered, to the extent the Company may do so without violating
registration rights of others which exist as of the date of this Agreement, subject to customary
underwriter cutbacks applicable to all holders of registration rights and subject to obtaining any
required consent of any selling stockholder(s) to such inclusion under such registration statement.

          (f) Amendments and Waivers. The provisions of this Agreement, including the provisions of
this sentence, may not be amended, modified or supplemented, and waivers or consents to departures
from the provisions hereof may not be given, unless the same shall be in writing and signed by the
Company and the Holders of a majority of the then outstanding Registrable Securities.

          (g) Notices. Any notice or request hereunder may be given to the Company or the Purchaser at
the respective addresses set forth below or as may hereafter be specified in a notice designated as
a change of address under this Section 7(g). Any notice or request hereunder shall be given by
registered or certified mail, return receipt requested, hand delivery, overnight mail, Federal
Express or other national overnight next day carrier (collectively, “Courier”) or telecopy
(confirmed by mail). Notices and requests shall be, in the case of those by hand delivery, deemed
to have been given when delivered to any party to whom it is addressed, in the case of those by
mail or overnight mail, deemed to have been given three (3) business days after the date when
deposited in the mail or with the overnight mail carrier, in the case of a Courier, the next
business day following timely delivery of the package with the

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Courier, and, in the case of a telecopy, when confirmed. The address for such notices and
communications shall be as follows:

	 	 	 	 	 
	 

	 	If to the Company:
	 	Chad Therapeutics, Inc.
	 

	 	 	 	Attention:      Chief Financial Officer
	 

	 	 	 	Facsimile:
	 
	 	 	 	 
	 

	 	 	 	with a copy to:
	 
	 	 	 	 
	 

	 	 	 	Attention:
	 

	 	 	 	Facsimile:
	 
	 	 	 	 
	 

	 	If to a Purchaser:
	 	To the address set forth under such Purchaser name on the signature pages hereto.
	 
	 	 	 	 
	 

	 	If to any other Person who is then the registered Holder:
	 	To the address of such Holder as it appears in the stock transfer books of the Company

or such other address as may be designated in writing hereafter in accordance with this Section
7(g) by such Person.

          (h) Successors and Assigns. This Agreement shall inure to the benefit of and be binding upon
the successors and permitted assigns of each of the parties and shall inure to the benefit of each
Holder. The Company may not assign its rights or obligations hereunder without the prior written
consent of each Holder. Each Holder may assign their respective rights hereunder in the manner and
to the persons and entities as permitted under the Security Agreement.

          (i) Execution and Counterparts. This Agreement may be executed in any number of counterparts,
each of which when so executed shall be deemed to be an original and, all of which taken together
shall constitute one and the same agreement. In the event that any signature is delivered by
facsimile transmission, such signature shall create a valid binding obligation of the party
executing (or on whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

          (j) Governing Law, Jurisdiction and Waiver of Jury Trial. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND PERFORMED IN SUCH STATE, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. The
Company hereby consents and agrees that the state or federal courts located in the County of New
York, State of New York shall have exclusion jurisdiction to hear and determine any Proceeding
between the Company, on the one hand, and the Purchaser, on the other hand, pertaining to this
Agreement or to any matter arising out of or related to this Agreement; provided, that the
Purchaser and the Company acknowledge that any appeals from those courts may have to be heard by a
court located outside of the County

Registration Rights Agreement

11

 

of New York, State of New York, and further provided, that nothing in this
Agreement shall be deemed or operate to preclude the Purchaser from bringing a Proceeding in any
other jurisdiction to collect the obligations, to realize on the Collateral or any other security
for the obligations, or to enforce a judgment or other court order in favor of the Purchaser. The
Company expressly submits and consents in advance to such jurisdiction in any Proceeding commenced
in any such court, and the Company hereby waives any objection which it may have based upon lack of
personal jurisdiction, improper venue or forum non conveniens. The Company hereby waives
personal service of the summons, complaint and other process issued in any such Proceeding and
agrees that service of such summons, complaint and other process may be made by registered or
certified mail addressed to the Company at the address set forth in Section 7(g) and that service
so made shall be deemed completed upon the earlier of the Company’s actual receipt thereof or three
(3) days after deposit in the U.S. mails, proper postage prepaid. The parties hereto desire that
their disputes be resolved by a judge applying such applicable laws. Therefore, to achieve the
best combination of the benefits of the judicial system and of arbitration, the parties hereto
waive all rights to trial by jury in any Proceeding brought to resolve any dispute, whether arising
in contract, tort, or otherwise between the Purchaser and/or the Company arising out of, connected
with, related or incidental to the relationship established between then in connection with this
Agreement. If either party hereto shall commence a Proceeding to enforce any provisions of this
Agreement, the Security Agreement or any other Ancillary Agreement, then the prevailing party in
such Proceeding shall be reimbursed by the other party for its reasonable attorneys’ fees and other
costs and expenses incurred with the investigation, preparation and prosecution of such Proceeding.

          (k) Cumulative Remedies. The remedies provided herein are cumulative and not exclusive of any
remedies provided by law.

          (l) Severability. If any term, provision, covenant or restriction of this Agreement is held
by a court of competent jurisdiction to be invalid, illegal, void or unenforceable, the remainder
of the terms, provisions, covenants and restrictions set forth herein shall remain in full force
and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall
use their reasonable efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the intention of the parties that they
would have executed the remaining terms, provisions, covenants and restrictions without including
any of such that may be hereafter declared invalid, illegal, void or unenforceable.

          (m) Headings. The headings in this Agreement are for convenience of reference only and shall
not limit or otherwise affect the meaning hereof.

[Balance of page intentionally left blank; signature page follows]

Registration Rights Agreement

12

 

          IN WITNESS WHEREOF, the parties have executed this Registration Rights Agreement as of the
date first written above.

	 	 	 	 	 	 	 
	 	 	CHAD THERAPEUTICS, INC.
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ Earl L. Yager	 	 
	 

	 	Name:
	 	 

Earl L. Yager
	 	 
	 

	 	Title:
	 	Chief Executive Officer	 	 
	 
	 	 	 	 	 	 
	 	 	CALLIOPE CAPITAL CORPORATION
	 
	 	 	 	 	 	 
	 	 	By:	 	LAURUS CAPITAL MANAGEMENT, LLC, its Investment Advisor
	 
	 	 	 	 	 	 
	 

	 	By:
	 	/s/ David Grin	 	 
	 

	 	Name:
	 	 

David Grin
	 	 
	 

	 	Title:
	 	Director	 	 
	 
	 	 	 	 	 	 
	 	 	Address for Notices:
	 
	 	 	 	 	 	 
	 	 	Calliope Capital Corporation
	 	 	c/o United Corporate Services, Inc. 874
	 	 	Walker Road, Suite C Dover Delaware
	 	 	19904 
	 

	 	Facsimile:
	 	(212) 541-4434	 	 
	 
	 	 	 	 	 	 
	 	 	with copy to:
	 
	 	 	 	 	 	 
	 	 	Laurus Capital Management, LLC
	 	 	335 Madison Avenue, 10th Floor
	 	 	New York, NY 10017
	 

	 	Attention:
	 	Portfolio Services	 	 
	 

	 	Facsimile:
	 	212-581-5037	 	 

Registration Rights Agreement

 

 

EXHIBIT A

                    ,
200         

[Continental Stock Transfer

& Trust Company

Two Broadway

New York, New York 10004

Attn: William Seegraber]

Re:     Chad Therapeutics, Inc. Registration Statement on Form [S-3]

Ladies and Gentlemen:

     As counsel to Chad Therapeutics, Inc. , a                      corporation (the “Company”), we have
been requested to render our opinion to you in connection with the resale by the individuals or
entitles listed on Schedule A attached hereto (the “Selling Stockholders”), of an aggregate
of                      shares (the “Shares”) of the Company’s Common Stock.

     A Registration Statement on Form [S-3] under the Securities Act of 1933, as amended (the
“Act”), with respect to the resale of the Shares was declared effective by the Securities and
Exchange Commission on [date]. Enclosed is the Prospectus dated [date]. We understand that the Shares are to be offered and sold in the manner described in the Prospectus.

     Based upon the foregoing, upon request by the Selling Stockholders at any time while the
registration statement remains effective, it is our opinion that the Shares have been registered
for resale under the Act and new certificates evidencing the Shares upon their transfer or
re-registration by the Selling Stockholders may be issued without restrictive legend. We will
advise you if the registration statement is not available or effective at any point in the future.

Very truly yours,

[Company counsel]

Registration Rights AgreementExhibit 10.30

 

Exhibit 10.30

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 PARENT
THAT SUCH REGISTRATION IS NOT REQUIRED.

SECURED CONVERTIBLE TERM NOTE

     FOR VALUE RECEIVED, CHAD THERAPEUTICS, INC., a California corporation (the “Parent””), hereby
promises to pay to CALLIOPE CAPITAL CORPORATION, c/o United Corporate Services, Inc. 874 Walker
Road, Suite C Dover Delaware 19904 (the “Holder”) or its registered assigns or successors in
interest, sum of Seven Hundred Fifty Thousand Dollars ($750,000), together with any accrued and
unpaid interest hereon, on July 30, 2010 (the “Maturity Date”) if not indefeasibly sooner paid in
full.

     Capitalized terms used herein without definition shall have the meanings ascribed to such
terms in that certain Security Agreement dated as of the date hereof by and between the Parent 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. The Contract Rate shall not at any time be less than ten percent (10.0%)
per annum nor more than thirteen percent (13.0%) per annum. Interest shall be (i) calculated on
the basis of a 360 day year, and (ii) payable monthly, in arrears, commencing on September 1, 2007,
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 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 and shall be subject to adjustment as set forth herein.

Secured Convertible Term Note

 

 

     1.3 Principal Payments. Amortizing payments of the Principal Amount shall be made by
the Parent on November 1, 2007 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 Parent shall make monthly payments to the
Holder on each Amortization Date, each such payment in the amount of $22,727.27 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 Security Agreement and/or any other Ancillary
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 Parent
to the Holder under this Note, the Security Agreement and/or any other Ancillary 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 Parent
shall pay the Holder an amount in cash equal to 100% 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 Parent 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 $1.18.

          (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 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) consecutive trading days immediately preceding such Amortization
Date shall be greater than or equal to one hundred fifteen percent (115%) of the Fixed Conversion
Price and (ii) the amount of such conversion does not exceed twenty five percent (25%) of the
average dollar trading volume of the Common Stock for the period of twenty-two (22) consecutive
trading days immediately preceding and including 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

Secured Convertible Term Note

2

 

Criteria, shall be paid in cash by the Companies, jointly and severally, at the rate of 100% 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, the
Parent shall not be permitted to pay any part of its obligations to the Holder hereunder in shares
of Common Stock if (i) there fails to exist an effective current Registration Statement (as defined
in the Registration Rights Agreement) covering the resale of the shares of Common Stock to be
issued in connection with such payment and there fails to exist an exemption from registration for
resale available pursuant to Rule 144 of the Securities Act and in respect of the Common Stock to
be issued in connection with such payment or (ii) an 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 Parent may prepay this Note (“Optional
Redemption”) by paying to the Holder a sum of money equal to (i) 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 if prepaid on or before July 1, 2008; (ii)
one hundred fifteen percent (115%) 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 if prepaid
after July 1, 2008 but on or before July 1, 2009; or (iii) one hundred ten percent (110%) 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 if prepaid after July 1, 2009 but before the Maturity
Date (each of the foregoing (i), (ii) and (iii) a “Redemption Amount”) outstanding on the
Redemption Payment Date (as defined below). The Companies 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
Article III 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 Companies fail to pay the Redemption Amount on the Redemption Payment
Date as set forth herein, then such Redemption Notice will be null and void.

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

Secured Convertible Term Note

3

 

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 herein to the contrary, in no
event shall the Holder be entitled to convert any portion of this Note in excess of that portion of
this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially
owned by the Holder and its Affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the Note or the unexercised
or unconverted portion of any other security of the Holder subject to a limitation on conversion
analogous to the limitations contained herein) and (2) the number of shares of Common Stock
issuable upon the conversion of the portion of this Note with respect to which the determination of
this proviso is being made, would result in beneficial ownership by the Holder and its Affiliates
of any amount greater than 9.99% of the then outstanding shares of Common Stock (whether or not, at
the time of such exercise, the Holder and its Affiliates beneficially own more than 9.99% of the
then outstanding shares of Common Stock). As used herein, the term “Affiliate” means any person or
entity that, directly or indirectly through one or more intermediaries, controls or is controlled
by or is under common control with a person or entity, as such terms are used in and construed
under Rule 144 under the Securities Act. For purposes of the second preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulations 13D-G thereunder, except as otherwise provided in
clause (1) of such sentence. For any reason at any time, upon written or oral request of the
Holder, the Parent shall within one (1) business day confirm orally and in writing to the Holder
the number of shares of Common Stock outstanding as of any given date. The limitations set forth
herein (x) may be waived by the Holder upon provision of no less than sixty-one (61) days prior
written notice to the Parent and (y) shall automatically become null and void (i) following notice
to the Parent upon the occurrence and during the continuance of an Event of Default (as defined in
the Security Agreement), or (ii) upon receipt by the Holder of a Notice of Redemption, except that
at no time shall the Parent be obligated to issue any shares of Common Stock pursuant to the terms
of this Note, the Security Agreement, any Ancillary Agreement (as defined in the Security
Agreement) or if the issuance of such shares of Common Stock would exceed the aggregate number of
shares of Common Stock which the Parent may issue pursuant to the terms of this Note, the Security
Agreement, any Ancillary Agreement without violating the rules or regulations of the Principal
Market (the “Exchange Cap”), except that such limitation shall not apply in the event that the
Parent obtains the approval of its stockholders as required by the applicable rules or regulations
of the Principal Market for issuances of Common Stock in excess of such amount.

     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 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

Secured Convertible Term Note

4

 

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”). Pursuant to the terms of the Notice of Conversion, the
Parent will issue instructions to the transfer agent accompanied by an opinion of counsel within
two (2) business days 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”).
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.

     3.4 Late Payments. The Parent 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, in addition to
all other rights and remedies which the Holder may have under this Note, applicable law or
otherwise, the Parent shall pay late payments to the Holder for any late issuance of Conversion
Shares in the form required pursuant to this Article II upon conversion of this Note, in the amount
equal to $500 per business day after the Delivery Date. The Parent shall, make any payments
incurred under this Section in immediately available funds upon demand.

     3.5 Conversion Mechanics. The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing that portion of the principal and interest
and fees to be converted, if any, by the then applicable Fixed Conversion Price. In the event of
any conversions of a portion of the outstanding Principal Amount pursuant to this Article III, such
conversions shall be deemed to constitute conversions of the outstanding Principal Amount applying
to Monthly Amounts for the remaining Amortization Dates in chronological order.

     3.6 Adjustment Provisions. The Fixed Conversion Price and number and kind of shares
or other securities to be issued upon conversion determined pursuant to this Note shall be subject
to adjustment from time to time upon the occurrence of certain events during the period that this
conversion right remains outstanding, as follows:

          (a) Reclassification. If the Parent at any time shall, by reclassification or
otherwise, change the Common Stock into the same or a different number of securities of any class
or classes, this Note, as to the unpaid Principal Amount and accrued interest thereon, shall
thereafter be deemed to evidence the right to purchase an adjusted number of such securities and
kind of securities as would have been issuable as the result of such change with respect to the
Common Stock (i) immediately prior to or (ii) immediately after, such reclassification or other
change at the sole election of the Holder.

          (b) Stock Splits, Combinations and Dividends. If the shares of Common Stock are
subdivided or combined into a greater or smaller number of shares of

Secured Convertible Term Note

5

 

Common Stock, or if a dividend
is paid on the Common Stock or any preferred stock issued by the Parent in shares of Common Stock,
the Fixed Conversion Price shall be proportionately reduced in case of subdivision of shares or
stock dividend or proportionately increased in the case of combination of shares, in each such case
by the ratio which the total number of shares of Common Stock outstanding immediately after such
event bears to the total number of shares of Common Stock outstanding immediately prior to such
event.

     3.7 Reservation of Shares. During the period the conversion right exists, the Parent
will reserve from its authorized and unissued Common Stock a sufficient number of shares to provide
for the issuance of Conversion Shares upon the full conversion of this Note and the Warrants. The
Parent represents that upon issuance, the Conversion Shares will be duly and validly issued, fully
paid and non-assessable. The Parent agrees that its issuance of this Note shall constitute full
authority to its officers, agents, and transfer agents who are charged with the duty of executing
and issuing stock certificates to execute and issue the necessary certificates for the Conversion
Shares upon the conversion of this Note.

     3.8 Registration Rights. The Holder has been granted registration rights with respect
to the Conversion Shares as set forth in the Registration Rights Agreement.

     3.9 Issuance of New Note. Upon any partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of the Holder, be issued
by the Parent to the Holder for the principal balance of this Note and interest which shall not
have been converted or paid. Subject to the provisions of Article IV of this Note, the Parent
shall not pay any costs, fees or any other consideration to the Holder for the production and
issuance of a new Note.

     3.10 Rights of Shareholders. No Holder shall be entitled to vote or receive dividends
or be deemed the holder of the Note Shares or any other securities of the Parent which may at any
time be issuable upon conversion of this Note for any purpose, nor shall anything contained herein
be construed to confer upon the Holder, as such, any of the rights of a shareholder of the Parent
or any right to vote for the election of directors or upon any matter submitted to shareholders at
any meeting thereof, or to give or withhold consent to any corporate action (whether upon the
recapitalization, issuance of shares, reclassification of shares, change of nominal value,
consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise, in each case, until the Delivery Date applicable to
the respective Note Shares purchasable upon the conversion hereof shall have occurred as provided
herein.

ARTICLE IV

EVENTS OF DEFAULT

     4.1 Events of Default. The occurrence of an Event of Default under the Security
Agreement shall constitute an event of default (“Event of Default”) hereunder.

     4.2 Default Interest. Following the occurrence and during the continuance of an Event
of Default, the Parent shall pay additional interest on the outstanding principal balance of this
Note in an amount equal to one percent (1%) per month, and all outstanding Obligations,

Secured Convertible Term Note

6

 

including unpaid interest, shall continue to accrue interest at such additional interest rate from the date
of such Event of Default until the date such Event of Default is cured or waived.

     4.3 Default Payment. Following the occurrence and during the continuance of an Event
of Default, the Holder, at its option, may elect, in addition to all rights and remedies of the
Holder under the Security Agreement and the Ancillary Agreements and all obligations of the Parent
under the Security Agreement and the Ancillary Agreements, to accelerate the maturity of all
obligations hereunder (“Default Payment”). The Default Payment shall be one hundred twenty percent
(120%) of the outstanding principal amount of the Note, plus accrued but unpaid interest and all
other fees then remaining unpaid, and all amounts payable hereunder. The Default Payment shall be
applied first to any fees due and payable to the Holder pursuant to the Notes and/or the Ancillary
Agreements, then to accrued and unpaid interest due on the Notes, the Security Agreement and then
to the outstanding principal balance of the Notes. The Default Payment shall be due and payable
immediately on the date that the Holder has demanded payment of the Default Payment pursuant to
this Section 4.3.

ARTICLE V

MISCELLANEOUS

     5.1 Conversion Privileges. The conversion privileges set forth in Article III shall
remain in full force and effect immediately from the date hereof until the date this Note is
indefeasibly paid in full and irrevocably terminated.

     5.2 Cumulative Remedies. The remedies under this Note shall be cumulative.

     5.3 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder
hereof in the exercise of any power, right or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such power, right or privilege preclude
other or further exercise thereof or of any other right, power or privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies
otherwise available.

     5.4 Notices. Any notice herein required or permitted to be given shall be in writing
and shall be deemed effectively given: (a) upon personal delivery to the party notified, (b) when
sent by confirmed telex or facsimile if sent during normal business hours of the recipient, if not,
then on the next business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit with a nationally
recognized overnight courier, specifying next day delivery, with written verification of receipt.
All communications shall be sent to the Parent at the address provided for the Parent in
the Security Agreement executed in connection herewith, and to the Holder at the address
provided in the Security Agreement for the Holder, with a copy to Laurus Capital Management, LLC,
Attn: Portfolio Services, 335 Madison Avenue, 10th Floor, New York, New York 10017,
facsimile number (212) 581-5037, or at such other address as the Parent or the Holder may designate
by ten days advance written notice to the other parties hereto. A Notice of Conversion shall be
deemed given when made to the Parent pursuant to the Security Agreement.

Secured Convertible Term Note

7

 

     5.5 Amendment Provision. The term “Note” and all references thereto, as used
throughout this instrument, shall mean this instrument as originally executed, or if later amended
or supplemented, then as so amended or supplemented, and any successor instrument as such successor
instrument may be amended or supplemented.

     5.6 Assignability. This Note shall be binding upon the Parent and its subsidiaries,
successors and assigns, and shall inure to the benefit of the Holder and its successors and
assigns, and may be assigned by the Holder in accordance with the requirements of the Security
Agreement. The Parent may not assign any of its obligations under this Note without the prior
written consent of the Holder, any such purported assignment without such consent being null and
void.

     5.7 Cost of Collection. In case of any Event of Default under this Note, the Parent
shall, pay the Holder the Holder’s reasonable costs of collection, including reasonable attorneys’
fees.

     5.8 Governing Law, Jurisdiction and Waiver of Jury Trial.

          (a) THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF
THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

          (b) THE PARENT HEREBY CONSENTS AND AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN THE
COUNTY OF NEW YORK, STATE OF NEW YORK SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY
CLAIMS OR DISPUTES BETWEEN THE PARENT, ON THE ONE HAND, AND THE HOLDER, ON THE OTHER HAND,
PERTAINING TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY AGREEMENTS OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS NOTE, THE SECURITY AGREEMENT OR ANY OF THE OTHER ANCILLARY
AGREEMENTS PROVIDED, THAT THE PARENT ACKNOWLEDGES THAT ANY APPEALS FROM THOSE COURTS MAY
HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF THE COUNTY OF NEW YORK, STATE OF NEW YORK; AND
FURTHER PROVIDED, THAT NOTHING IN THIS NOTE SHALL BE DEEMED OR OPERATE TO PRECLUDE
THE HOLDER FROM BRINGING SUIT OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO ENFORCE
A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF THE HOLDER. THE PARENT EXPRESSLY SUBMITS AND CONSENTS
IN ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND THE PARENT
HEREBY WAIVES ANY OBJECTION WHICH IT MAY HAVE BASED UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON CONVENIENS. THE PARENT HEREBY WAIVES PERSONAL SERVICE OF THE SUMMONS, COMPLAINT
AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND AGREES THAT SERVICE OF SUCH SUMMONS,
COMPLAINT AND OTHER PROCESS MAY BE MADE BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PARENT AT
THE ADDRESS SET FORTH IN THE SECURITY AGREEMENT AND THAT SERVICE SO

Secured Convertible Term Note

8

 

MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF THE PARENT’S ACTUAL RECEIPT THEREOF OR THREE (3) DAYS AFTER DEPOSIT IN THE U.S.
MAILS, PROPER POSTAGE PREPAID

          (c) THE PARENT DESIRES THAT ITS DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH APPLICABLE LAWS.
THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF THE JUDICIAL SYSTEM AND OF
ARBITRATION, EACH PARENT HERETO WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION, SUIT, OR
PROCEEDING BROUGHT TO RESOLVE ANY DISPUTE, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE BETWEEN
THE HOLDER, AND THE PARENT ARISING OUT OF, CONNECTED WITH, RELATED OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH THIS NOTE, THE SECURITY AGREEMENT, ANY
OTHER ANCILLARY AGREEMENT OR THE TRANSACTIONS RELATED HERETO OR THERETO.

     5.9 Severability. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed modified to conform
with such statute or rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any other provision of this Note.

     5.10 Maximum Payments. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the maximum permitted by
applicable law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum rate permitted by such law, any payments in excess of such maximum
rate shall be credited against amounts owed by the Parent to the Holder and thus refunded to the
Parent.

     5.11 Security Interest . The Holder has been granted a security interest in certain
assets of the Parent as more fully described in the Security Agreement dated as of the date hereof.

     5.12 Construction. Each party acknowledges that its legal counsel participated in the
preparation of this Note and, therefore, stipulates that the rule of construction that ambiguities
are to be resolved against the drafting party shall not be applied in the interpretation of this
Note to favor any party against the other.

     5.13 Registered Obligation. This Note is intended to be a registered obligation
within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i) and the Parent (or its agent)
shall register this Note (and thereafter shall maintain such registration) as to both
principal and any stated interest. Notwithstanding any document, instrument or agreement relating
to this Note to the contrary, transfer of this Note (or the right to any payments of principal or
stated interest thereunder) may only be effected by (i) surrender of this Note and either the
reissuance by the Parent of this Note to the new holder or the issuance by the Parent of a new
instrument to the new holder, or (ii) transfer through a book entry system maintained by the Parent
(or its agent), within the meaning of Treasury Regulation Section 1.871-14(c)(1)(i)(B).

Secured Convertible Term Note

9

 

[Balance of page intentionally left blank; signature page follows]

Secured Convertible Term Note

10

 

     IN WITNESS WHEREOF, the Parent has caused this Secured Convertible Term Note to be signed in
its name effective as of this 30th day of July, 2007.

	 	 	 	 	 
	 	CHAD THERAPEUTICS, INC.

 	 
	 	By:  	/s/ Earl L. Yager
 	 
	 	 	Name:  	Earl L. Yager 	 
	 	 	Title:  	Chief Executive Officer 	 
	 

WITNESS:

	 	 	 
	/s/ Tracy A. Kern
	 	 
	 

	 	 

Secured Convertible Term Note

11

 

EXHIBIT A

NOTICE OF CONVERSION

(To be executed by the Holder in order to convert all or part of

the Secured Convertible Term Note into Common Stock)

[Name and Address of Parent]

     The undersigned hereby converts $                     of the principal due on [specify applicable
Repayment Date] under the Secured Convertible Term Note dated as of                     , 200___ (the “Note”)
issued by Chad Therapeutics, Inc. (the “Parent”) by delivery of shares of Common Stock of the
Parent (“Shares”) on and subject to the conditions set forth in the Note.

	 	 	 	 	 	 	 
	1.

	 	Date of Conversion	 	 	 	 
	 

	 	 
	 	 

	 	 
	 
	 	 	 	 	 	 
	2.

	 	Shares To Be Delivered:	 	 	 	 
	 

	 	 
	 	 

	 	 

	 	 	 	 	 	 	 
	 	 	[HOLDER]	 	 
	 
	 	 	 	 	 	 
	 

	 	By:	 	 	 	 
	 

	 	Name:
	 	 

	 	 
	 

	 	Title:
	 	 

	 	 
	 

	 	 	 	 

	 	 

Secured Convertible Term Note

12

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