NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES
ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.
THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE
SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD
PURSUANT
TO
RULE
144
OR
RULE
144A
UNDER
SAID
ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN
CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR
FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal Amount: $32,500.00
Issue Date: August 12, 2013
Purchase Price: $32,500.00
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, MYRIAD INTERACTIVE MEDIA, INC., a Delaware
corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER
ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of
$32,500.00 together with any interest as set forth herein, on May 14, 2014 (the “Maturity Date”),
and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the
“Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due
and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note
may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any
amount of principal or interest on this Note which is not paid when due shall bear interest at the
rate of twenty two percent (22%) per annum from the due date thereof until the same is paid
(“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and
shall be computed on the basis of a 365-day year and the actual number of days elapsed. All
payments due hereunder (to the extent not converted into common stock, $0.001 par value per
share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful
money of the United States of America. All payments shall be made at such address as the
Holder shall hereafter give to the Borrower by written notice made in accordance with the
provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is
due on any day which is not a business day, the same shall instead be due on the next succeeding
day which is a business day and, in the case of any interest payment date which is not the date on
which this Note is paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date. As used in this
Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the city of New York, New York are authorized or required by law
or executive order to remain closed.
Each capitalized term used herein, and not otherwise
defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement
dated the date hereof, pursuant to which this Note was originally issued (the “Purchase
Agreement”).
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue
thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the
Borrower and will not impose personal liability upon the holder thereof.
The following terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right from time to time, and at
any time during the period beginning on the date which is one hundred eighty (180) days
following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date
of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article
III, each in respect of the remaining outstanding principal amount of this Note to convert all or
any part of the outstanding and unpaid principal amount of this Note into fully paid and non-
assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any
shares of capital stock or other securities of the Borrower into which such Common Stock shall
hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined
as provided herein (a “Conversion”); provided, however, that 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 Notes or the unexercised or
unconverted portion of any other security of the Borrower subject to a limitation on conversion
or exercise 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 more than 4.99% of the outstanding shares of Common Stock. For
purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise
provided in clause (1) of such proviso, provided, further, however, that the limitations on
conversion may be waived by the Holder upon, at the election of the Holder, not less than 61
days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue
to apply until such 61st day (or such later date, as determined by the Holder, as may be specified
in such notice of waiver). The number of shares of Common Stock to be issued upon each
conversion of this Note shall be determined by dividing the Conversion Amount (as defined
below) by the applicable Conversion Price then in effect on the date specified in the notice of
conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to
the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of
Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably
expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on
such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with
respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be
converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any,
on such principal amount at the interest rates provided in this Note to the Conversion Date, plus
(3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately
preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof.
2
1.2 Conversion Price.
(a) Calculation of Conversion Price.
The conversion price (the
“Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to
equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower
relating to the Borrower’s securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions and similar events).
The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (as defined
herein) (representing a discount rate of 45%). “Market Price” means the average of the lowest
three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading
Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading
Price” means, for any security as of any date, the closing bid price on the Over-the-Counter
Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting
service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTCBB is not
the principal trading market for such security, the closing bid price of such security on the
principal securities exchange or trading market where such security is listed or traded or, if no
closing bid price of such security is available in any of the foregoing manners, the average of the
closing bid prices of any market makers for such security that are listed in the “pink sheets” by
the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security
on such date in the manner provided above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority in interest of the Notes being
converted for which the calculation of the Trading Price is required in order to determine the
Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common
Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other
securities market on which the Common Stock is then being traded.
(b) Conversion Price During Major Announcements.
Notwithstanding
anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public
announcement that it intends to consolidate or merge with any other corporation (other than a
merger in which the Borrower is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any
person, group or entity (including the Borrower) publicly announces a tender offer to purchase
50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement
Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing
through the Adjusted Conversion Price Termination Date (as defined below), be equal to the
lower of (x) the Conversion Price which would have been applicable for a Conversion occurring
on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From
and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be
determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price
Termination Date” shall mean, with respect to any proposed transaction or tender offer (or
takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has
been made, the date upon which the Borrower (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) consummates or publicly announces the
termination or abandonment of the proposed transaction or tender offer (or takeover scheme)
which caused this Section 1.2(b) to become operative.
3
1.3 Authorized Shares.
The Borrower covenants that during the period the
conversion right exists, the Borrower will reserve from its authorized and unissued Common
Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of
Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement.
The Borrower is required at all times to have authorized and reserved five times the number of
shares that is actually issuable upon full conversion of the Note (based on the Conversion Price
of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall
be increased from time to time in accordance with the Borrower’s obligations pursuant to Section
4(g) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will
be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue
any securities or make any change to its capital structure which would change the number of
shares of Common Stock into which the Notes shall be convertible at the then current
Conversion Price, the Borrower shall at the same time make proper provision so that thereafter
there shall be a sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that
it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable
upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full
authority to its officers and agents who are charged with the duty of executing stock certificates
to execute and issue the necessary certificates for shares of Common Stock in accordance with
the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be
considered an Event of Default under Section 3.2 of the Note.
1.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be
converted by the Holder in whole or in part at any time from time to time after the Issue Date, by
(A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable
means of communication dispatched��on the Conversion Date prior to 6:00 p.m., New York, New
York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the
Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the
contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Note to the Borrower unless the entire
unpaid principal amount of this Note is so converted.
The Holder and the Borrower shall
maintain records showing the principal amount so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to
require physical surrender of this Note upon each such conversion. In the event of any dispute or
discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in
the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is
converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically
surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver
upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by
the Holder of any applicable transfer taxes) may request, representing in the aggregate the
remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following
4
conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note
represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and delivery of shares of
Common Stock or other securities or property on conversion of this Note in a name other than
that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver
any such shares or other securities or property unless and until the person or persons (other than
the Holder or the custodian in whose street name such shares are to be held for the Holder’s
account) requesting the issuance thereof shall have paid to the Borrower the amount of any such
tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the
Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of
communication) of a Notice of Conversion meeting the requirements for conversion as provided
in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or
upon the order of the Holder certificates for the Common Stock issuable upon such conversion
within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of
conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance
with the terms hereof and the Purchase Agreement.
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by
the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of
the Common Stock issuable upon such conversion, the outstanding principal amount and the
amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion,
and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to
the portion of this Note being so converted shall forthwith terminate except the right to receive
the Common Stock or other securities, cash or other assets, as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion as provided herein, the
Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute
and unconditional, irrespective of the absence of any action by the Holder to enforce the same,
any waiver or consent with respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure or delay in the enforcement of
any other obligation of the Borrower to the holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the Holder of any
obligation to the Borrower, and irrespective of any other circumstance which might otherwise
limit such obligation of the Borrower to the Holder in connection with such conversion. The
Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as
the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York
time, on such date.
(f) Delivery of Common Stock by Electronic Transfer.
In lieu of
delivering physical certificates representing the Common Stock issuable upon conversion,
provided the Borrower is participating in the Depository Trust Company (“DTC”) Fast
Automated Securities Transfer (“FAST”) program, upon request of the Holder and its
compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower
shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock
issuable upon conversion to the Holder by crediting the account of Holder’s Prime Broker with
DTC through its Deposit Withdrawal Agent Commission (“DWAC”) system.
5
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any
way limiting the Holder’s right to pursue other remedies, including actual damages and/or
equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion
of this Note is not delivered by the Deadline (other than a failure due to the circumstances
described in Section 1.3 above, which failure shall be governed by such Section) the Borrower
shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the
Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the
fifth day of the month following the month in which it has accrued or, at the option of the Holder
(by written notice to the Borrower by the first day of the month following the month in which it
has accrued), shall be added to the principal amount of this Note, in which event interest shall
accrue thereon in accordance with the terms of this Note and such additional principal amount
shall be convertible into Common Stock in accordance with the terms of this Note.
The
Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting
from a failure, attempt to frustrate, interference with such conversion right are difficult if not
impossible to qualify.
Accordingly the parties acknowledge that the liquidated damages
provision contained in this Section 1.4(g) are justified.
1.5 Concerning the Shares.
The shares of Common Stock issuable upon
conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to
an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall
have been furnished with an opinion of counsel (which opinion shall be in form, substance and
scope customary for opinions of counsel in comparable transactions) to the effect that the shares
to be sold or transferred may be sold or transferred pursuant to an exemption from such
registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a
successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in
Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance
with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement).
Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions
set forth below), until such time as the shares of Common Stock issuable upon conversion of this
Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without
any restriction as to the number of securities as of a particular date that can then be immediately
sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has
not been so included in an effective registration statement or that has not been sold pursuant to
an effective registration statement or an exemption that permits removal of the legend, shall bear
a legend substantially in the following form, as appropriate:
“NEITHER
THE
ISSUANCE
AND
SALE
OF
THE
SECURITIES
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO
WHICH
THESE
SECURITIES
ARE
EXERCISABLE
HAVE
BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE
ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B)
AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY
THE
HOLDER),
IN
A
GENERALLY
ACCEPTABLE
FORM,
THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
6
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.”
The legend set forth above shall be removed and the Borrower shall issue to the
Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer
agent shall have received an opinion of counsel, in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act, which opinion shall be accepted
by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock
issuable upon conversion of this Note, such security is registered for sale by the Holder under an
effective registration statement filed under the Act or otherwise may be sold pursuant to Rule
144 without any restriction as to the number of securities as of a particular date that can then be
immediately sold.
In the event that the Company does not accept the opinion of counsel
provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of
Default pursuant to Section 3.2 of the Note.
1.6 Effect of Certain Events.
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the
sale, conveyance or disposition of all or substantially all of the assets of the Borrower, the
effectuation by the Borrower of a transaction or series of related transactions in which more than
50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other
business combination of the Borrower with or into any other Person (as defined below) or
Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of
Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the
Holder upon the consummation of and as a condition to such transaction an amount equal to the
Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof.
“Person” shall mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when
this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar
event, as a result of which shares of Common Stock of the Borrower shall be changed into the
same or a different number of shares of another class or classes of stock or securities of the
Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the
assets of the Borrower other than in connection with a plan of complete liquidation of the
Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion
of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such stock,
securities or assets which the Holder would have been entitled to receive in such transaction had
this Note been converted in full immediately prior to such transaction (without regard to any
limitations on conversion set forth herein), and in any such case appropriate provisions shall be
made with respect to the rights and interests of the Holder of this Note to the end that the
provisions hereof (including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares issuable upon conversion of the Note) shall thereafter be
applicable, as nearly as may be practicable in relation to any securities or assets thereafter
7
deliverable upon the conversion hereof. The Borrower shall not affect any transaction described
in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior
written notice (but in any event at least fifteen (15) days prior written notice) of the record date
of the special meeting of shareholders to approve, or if there is no such record date, the
consummation
of,
such
merger,
consolidation,
exchange
of
shares,
recapitalization,
reorganization or other similar event or sale of assets (during which time the Holder shall be
entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the
Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above
provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share
exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make
any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or
distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of
capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note
shall be entitled, upon any conversion of this Note after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets which would have
been payable to the Holder with respect to the shares of Common Stock issuable upon such
conversion had such Holder been the holder of such shares of Common Stock on the record date
for the determination of shareholders entitled to such Distribution.
(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes
are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d)
hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for
a consideration per share (before deduction of reasonable expenses or commissions or
underwriting discounts or allowances in connection therewith) less than the Conversion Price in
effect on the date of such issuance (or��deemed issuance) of such shares of Common Stock (a
“Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be
reduced to the amount of the consideration per share received by the Borrower in such Dilutive
Issuance.
The Borrower shall be deemed to have issued or sold shares of Common
Stock if the Borrower in any manner issues or grants any warrants, rights or options (not
including employee stock option plans), whether or not immediately exercisable, to subscribe for
or to purchase Common Stock or other securities convertible into or exchangeable for Common
Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock
or Convertible Securities are hereinafter referred to as “Options”) and the price per share for
which Common Stock is issuable upon the exercise of such Options is less than the Conversion
Price then in effect, then the Conversion Price shall be equal to such price per share. For
purposes of the preceding sentence, the “price per share for which Common Stock is issuable
upon the exercise of such Options” is determined by dividing (i) the total amount, if any,
received or receivable by the Borrower as consideration for the issuance or granting of all such
Options, plus the minimum aggregate amount of additional consideration, if any, payable to the
Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Options, the minimum aggregate amount of additional
consideration payable upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full conversion of
8
Convertible Securities, if applicable). No further adjustment to the Conversion Price will be
made upon the actual issuance of such Common Stock upon the exercise of such Options or upon
the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
Additionally, the Borrower shall be deemed to have issued or sold shares
of Common Stock if the Borrower in any manner issues or sells any Convertible Securities,
whether or not immediately convertible (other than where the same are issuable upon the
exercise of Options), and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Conversion Price then in effect, then the Conversion
Price shall be equal to such price per share. For the purposes of the preceding sentence, the
“price per share for which Common Stock is issuable upon such conversion or exchange” is
determined by dividing (i) the total amount, if any, received or receivable by the Borrower as
consideration for the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Borrower upon the
conversion or exchange thereof at the time such Convertible Securities first become convertible
or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities. No further adjustment to the
Conversion Price will be made upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities.
(e) Purchase Rights.
If, at any time when any Notes are issued and
outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants,
securities or other property (the “Purchase Rights”) pro rata to the record holders of any class of
Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have
acquired if such Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without regard to any limitations on conversion contained
herein) immediately before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this Section 1.6, the
Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare
and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing
in detail the facts upon which such adjustment or readjustment is based. The Borrower shall,
upon the written request at any time of the Holder, furnish to such Holder a like certificate
setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of the Note.
1.7 Trading Market Limitations. Unless permitted by the applicable rules and
regulations of the principal securities market on which the Common Stock is then listed or
traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this
Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum
number of shares of Common Stock that the Borrower can issue pursuant to any rule of the
principal United States securities market on which the Common Stock is then traded (the
“Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing
Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time
