Document:

Exhibit 10.3

 

THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION TO THE REGISTRATION
REQUIREMENTS OF SUCH ACT AND SUCH LAWS. NEITHER THE SECURITIES AND EXCHANGE
COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS PASSED ON OR
ENDORSED THE MERITS OF THIS NOTE.

 

PROMISSORY
NOTE

 

	
  $200,000.00

  	
   

  	
  The
  Woodlands, Texas

  
	
   

  	
   

  	
  August 29,
  2005

  

 

FOR VALUE RECEIVED, POWER 3 MEDICAL PRODUCTS,
INC., a New York corporation (the “Maker”), promises to pay to the order of
Cordillera Fund L.P., a limited partnership (the “Payee”), pursuant to the
terms and conditions contained in this promissory note (this “Note”) the
principal sum of Two Hundred Thousand Dollars ($200,000.00), together with
interest on the unpaid principal balance from the date hereof until paid in
full, if applicable, at the rate and on the terms provided herein.

 

1.                                       Term and
Payment.  Principal and interest of
this Note shall be payable as follows:

 

(i)                                     The
entire unpaid principal balance of this Note shall be payable, in cash, within
one Business Day (as hereinafter defined) of the closing of the Maker’s
issuance and sale of $1,600,000 aggregate principal amount of debentures
pursuant to the Securities Purchase Agreement dated October 28, 2004, as
amended, which closing is to occur within five trading days of the effectiveness
of the Maker’s registration statement on Form SB-2 currently pending with
the U.S. Securities and Exchange Commission (the “Registration Statement
Funding”); provided, however, that if 
the Registration Statement Funding does not occur on or before October 31,
2005, the entire unpaid principal balance of this Note shall be due and payable
in full on such date.  The payment date
of the principal is referred to as the “Payment Date.”

 

(ii)                                  Interest,
computed on the unpaid principal balance of this Note, shall be due and payable
at Payee’s option, as follows:

 

(A)                              the
accrued and unpaid interest calculated in accordance with Section 2 below
shall be paid, in cash, concurrently upon the Payment Date; or

 

 

(B)                                the
accrued and unpaid interest payable on this Note shall be considered paid, in
full, upon Maker’s issuance and delivery of restricted shares of Maker’s common
stock at $0.00 cost basis per share to Payee. 
Such issuance and delivery to occur on 95th  or following 2 days the effectiveness of the
registration statement[, subject to the
provisions of the Securities Purchase Agreement].

 

If the Payment of interest or principal is
due on a day that is not a Business Day (as hereinafter defined), such payment
shall be made on the first Business Day following such payment date.  For purposes of this Note, “Business Day”
means any day other than Saturday, Sunday or any other day on which national
banking associations in the State of New York generally are closed for
commercial banking business.

 

2.                                       Interest Rate.
During the period ending on the Payment Date (the “Payment Period”), the unpaid
principal balance of this Note shall bear simple interest at a per annum rate
equal to ten percent (10%) for such period determined in accordance with this Section 2.
Notwithstanding the foregoing, upon an Event of Default (as hereinafter
defined) with respect to the Payment and until such Event of Default shall have
been cured, such Payment shall bear interest at a rate of twelve percent (12%)
per annum.  Interest shall be payable as
provided in Section 1 above.

 

3.                                       Event of
Default. It is expressly provided that upon failure in the punctual payment
of the principal or interest due hereunder, as the same shall become due and
payable, and the passage of thirty (30) days following when such payment was
due and payable, during which period the Maker may make such payment(s) as are
due and payable and prevent a default of this Note, an “Event of Default” will
have occurred. Upon an Event of Default and until such Event of Default shall
have been cured, the holder of this Note may, at its option, without further
notice or demand, (i) declare the outstanding principal balance of this
Note, and accrued but unpaid interest payable on this Note in cash at the rate
provided in Section 2 hereof, at once due and payable, (ii) declare
the outstanding principal balance of this Note, and accrued but unpaid interest
payable on this Note in Maker’s unrestricted common stock at $0.00 cost basis
per share to Payee at once due and payable at a rate calculated as follows:
166,000 X 5%  = Number of Late Penalty
Shares to be issued to Payee per 30 calendar day period past the Event of
Default, where the minimum pro-rata period is determined by the closest
calendar 15 day anniversary past the Event of Default date, either future or
past.  Penalty Shares will accrue to
Payee until the date that principal, interest and Penalty Shares are delivered
to Payee in full.  (iii) pursue any
and all rights, remedies and recourses available to the holder hereof,
including but not limited to any such rights, remedies or recourses at law or
in equity, or (iii) pursue any combination of the foregoing; and in the
event default is made in the prompt payment of this Note when due or declared
due, and the same is placed in the hands of an attorney for collection, or suit
is brought on the same, or the same is collected through probate, bankruptcy or
other judicial proceedings, then the Maker agrees and promises to pay all costs
of collection, including reasonable attorney’s fees.

 

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4.                                       Right of
Prepayment.  The Maker shall have the
right to prepay all or any part of the unpaid principal or interest hereon at
any time without premium or penalty.  Any
and all prepayments with respect to this Note shall be applied first to payment
of accrued interest as of the date of such prepayment and the balance, if any,
shall be applied in reduction of the unpaid principal.

 

5.                                       No Right of
Setoff.   THE PAYEE ACKNOWLEDGES AND AGREES THAT THE
MAKER HAS NO RIGHTS OF SETOFF AGAINST THE PAYMENT AND THEREFORE SHALL NOT
WITHHOLD OR REDUCE THE PAYMENT ON THIS NOTE BY ANY AMOUNTS DUE FROM THE PAYEE
TO THE MAKER.

 

6.                                       No Usury
Intended; Usury Savings Clause.   In no event shall interest contracted for,
charged or received hereunder, plus any other charges in connection herewith
which constitute interest, exceed the maximum interest permitted by applicable
law. The amounts of such interest or other charges previously paid to the
holder of the Note in excess of the amounts permitted by applicable law shall
be applied by the holder of the Note to reduce the principal of the
indebtedness evidenced by the Note, or, at the option of the holder of the
Note, be refunded. To the extent permitted by applicable law, determination of
the legal maximum amount of interest shall at all times be made by amortizing,
prorating, allocating and spreading in equal parts during the period of the
full stated term of the loan and indebtedness, all interest at any time contracted
for, charged or received from the Maker hereof in connection with the loan and
indebtedness evidenced hereby, so that the actual rate of interest on account
of such indebtedness is uniform throughout the term hereof.

 

7.                                       Transferability.  The Payee may not transfer, sell, assign,
pledge, hypothecate, bequeath, gift, create a lien on, place in trust, assign
or in any other way encumber or dispose of, directly or indirectly and whether
or not by operation of law or for value, this Note or
the obligations represented hereby (collectively, “transfer”) or any beneficial
interest in this Note or any of the obligations represented hereby without the
Maker’s prior written consent, which shall not be unreasonably withheld
provided that the transferee of this Note or any portion hereof (i) executes
and delivers to the Maker an appropriate document, satisfactory to the Maker,
in which such permitted transferee agrees that it shall be bound by the same
transfer restrictions set forth herein with respect to all or any portion of
this Note received by such permitted transferee and (ii) delivers to the
Maker an opinion of counsel or other evidence satisfactory to the Maker to the
effect that the proposed transfer may be made without registration under the
Securities Act of 1933 or the securities laws of any state.

 

8.                                       Waivers.  The Maker hereby waives presentment, protest,
demand for payment, notice of dishonor and all other notices of any kind.  No waiver of any default shall operate as a
waiver of any other default or of the same default on any future occasion, and
no action to enforce payment hereunder nor any indulgences or other
arrangements granted to the Maker, including any extension of time for payment
due thereon, shall release, waive or otherwise affect any right of the owner or
holder hereof.

 

9.                                       Severability.  The provisions of this Note are severable
and, in the event that any court of competent jurisdiction shall determine that
any one or more of the provisions or part of the provisions contained in this
Note shall, for any reason, be held to be invalid, illegal or

 

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unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision or part of a provision of
this agreement and this Note shall be reformed and construed as if such invalid
or illegal or unenforceable provision, or part of such provision, would be
valid, legal and enforceable to the maximum extent possible.

 

10.                                 Entire Agreement; Amendment.
This Note, the $251,000 Promissory Note between the Maker and the Payee dated April 5,
2005 and any documents referenced in Section 1. (i) of this Note
contain the entire understanding and agreement of the parties with respect to
the matters covered hereby and, except as specifically set forth herein or in
the other transaction documents, neither the Maker nor Payee make any
representation, warranty, covenant or undertaking with respect to such
matters.  Terms and conditions set forth
herein supersede all prior understandings and in cases of conflict or
disagreement among agreements or in all instances where this Note provides
specific values, formulas, details or remedies not provided in the April 5,
2005 $251,000 Promissory Note, terms and conditions herein shall apply to the
prior and separate Note and prevail and specifically:

 

(i)                                     The
date August 15th as used in Section 1. (i) in the April 5,
2005 Note is replaced by the November 15th date as used herein.

 

(ii)                                  Section 1.
(ii) B in the April 5, 2005 Note is replaced by the following
language:  the accrued and unpaid
interest payable on this Note shall be considered paid, in full, upon Maker’s
common stock at $0.00 cost basis per share to Payee.  Such issuance and delivery is to occur on the
95th or following 2 days after the effectiveness of the registration
statement [, subject to the provisions of the
Securities Purchase Agreement].

 

(iii)                               The
number 166,00 in Section 3 of this document is replaced with 209,166 in
the same intended use in provisions added herein to Section 3 of the April 5,
2005 Note.

 

No provisions of this Note may be waived or
amended other than by a written instrument signed by the Maker and Payee.

 

11.                                 Governing Law.  This Note will be governed by the laws of the
State of Texas without giving effect to any choice or conflict of law
principles of any jurisdiction.

 

[The rest of this page is
intentionally left blank.]

 

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IN WITNESS WHEREOF, the Maker has caused this Note to be executed as of
the day and year first above written.

 

	
   

  	
  POWER 3 MEDICAL PRODUCTS, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/: Steven B. Rash

  
	
   

  	
  Name:

  	
  Steven B. Rash

  
	
   

  	
  Title:

  	
  Chairman/CEO

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CORDILLERA FUND L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/: Stephen J. Carter

  
	
   

  	
  Name:

  	
  Stephen J. Carter

  
	
   

  	
  Title:

  	
  Co-CEO of Andrew
  Carter Capital

  
	
   

  	
   

  	
  The GP of ACCF
  Gen Par, L.P.

  
	
   

  	
   

  	
  The GP of the
  Cordillera Fund L.P.

  
	
   

  	
   

  	
   

  
					

 

5EXHIBIT 10.1

 

Summary of Compensation
Arrangements for Non-Employee Directors

 

The compensation payable to
the non-employee directors for service on the board is as follows: (i) the
annual retainer paid to each non-employee director for service on the Board of
Directors is $25,000, (ii) the fee paid to each non-employee director for
attendance at each meeting of the Board of Directors is $1,500; (iii)  the
fee paid to each non-employee director for attendance at each meeting of a
committee of the Board of Directors is $1,000, (iv) the annual fee paid to
each chairman of a committee of the Board is $3,000; and (iv) the
additional annual retainer paid to the lead outside director is $75,000.  Each non-employee director receives an option
to purchase 7,500 shares of Class A common stock upon the non-employee
director’s initial election to the board of directors. In addition, each
incumbent non-employee director receives an additional option to purchase 7,500
shares of Class A common stock at the time of each annual meeting of
stockholders of the company, other than directors who were initially elected to
the board of directors at an annual meeting or, if previously, at any time
after the prior year’s annual meeting of stockholders.

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