NEITHER THEISSUANCE AND SALEOF THESECURITIES REPRESENTED BY THISCERTIFICATE NOR THESECURITIES INTO WHICHTHESE SECURITIESARECONVERTIBLE HAVE BEENREGISTERED UNDER THESECURITIES ACT OF 1933, ASAMENDED, ORAPPLICABLE STATESECURITIES LAWS.THE SECURITIESMAY NOT BEOFFERED FOR SALE, SOLD,TRANSFERRED ORASSIGNED (I) IN THEABSENCE OF(A) ANEFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THESECURITIES ACT OF 1933, ASAMENDED, OR (B) ANOPINIONOF COUNSEL (WHICHCOUNSEL SHALL BESELECTED BYTHE HOLDER), IN AGENERALLY ACCEPTABLE FORM, THATREGISTRATION IS NOTREQUIRED UNDER SAIDACT OR (II)UNLESS SOLDPURSUANT TORULE 144OR RULE 144AUNDER SAIDACT. NOTWITHSTANDING THEFOREGOING, THESECURITIES MAY BE PLEDGED IN CONNECTION WITH ABONA FIDE MARGIN ACCOUNT OR OTHER LOAN ORFINANCING ARRANGEMENT SECURED BY THESECURITIES.
| Principal Amount:US$35,000.00 | Issue Date: July 15, 2019 |
| Purchase Price: US$30,000.00 | |
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED,Grow Solutions HoldingsInc.,a Nevada corporation,jointly with its subsidiary Pure RootsLLC(hereinaftercollectively called the “Borrower”),herebypromises topay tothe orderofRALPH AIELLO, or registered assigns (the “Holder”) the sumof US$35,000.00 together withany interestas setforth herein,on July 14, 2020 (the “Maturity Date”), and topay interestonthe unpaid principal balance hereofat the rateof ten percent (10%) (the “Interest Rate”) per annum fromthe funding date hereof (the “Issue Date”) untilthe same becomes dueandpayable, whether atmaturity or upon accelerationorby prepaymentorotherwise. This Notemay be prepaid in wholeor in partasexplicitly set forth herein.Anyamountof principalor intereston this Note which is not paid when due shallbearinterestatthe rateoftwenty-four percent (24%)perannum fromthedue date thereof until the same is paid (the “Default Interest”).Interestshall commence accruingon the date thattheNote is fully paid and shall be computed on the basisof a360-dayyear and the actual numberofdays elapsed. All payments due hereunder (to the extent not converted into common stockofGrow Solutions HoldingsInc., $0.001 parvalue per share (the “Common Stock”)inaccordance with the terms hereof) shallbe made in lawfulmoney of the United Statesof America. All payments shallbemadeat such addressas the Holder shall hereafter give tothe Borrowerbywrittennotice made in accordance with the provisionsofthis Note. Wheneverany amount expressedtobedueby the termsofthis Note is due onany day whichis not a business day, the same shall insteadbe due on the next succeedingdaywhich is a businessday and, in the caseof any interest payment date which is notthe dateonwhich this Noteis paidin full, the extensionofthe due date thereof shall notbe taken into account for purposesof determiningthe amount of interest dueon such date. As usedin this Note, the term “business day” shall meanany day other than a Saturday,Sunday or adayon which commercial banks in thecity of New York, New York are authorizedor requiredby laworexecutive orderto remain closed.
This Note isfree from all taxes, liens, claims and encumbrances withrespect to the issuethereof and shall not besubject topreemptive rights or other similar rights ofshareholders of theBorrower and will not imposepersonal liability upon theholder thereof.
Thefollowing terms shall apply to thisNote:
ARTICLEI.CONVERSION RIGHTS
1.1 Conversion Right.TheHolder shallhave theright atany time pursuant toSection 1.6(a)or ArticleIII to convertall orany part of theoutstanding and unpaidprincipal amount of this Note into fully paidandnon-assessableshares of Common Stock,assuchCommon Stock exists on theIssue Date, oranyshares ofcapitalstock or other securities of theBorrowerintowhich such Common Stock shallhereafterbechanged or reclassifiedat theConversion Price (asdefined below) determinedas provided herein (a“Conversion”);provided,however, that in noeventshall theHolderbeentitledto convertany portion of this Note inexcessof that portion of this Note uponconversionofwhich the sum of (1) the number ofsharesof Common Stock beneficiallyownedby theHolder and itsaffiliates (other thansharesof Common Stockwhichmay be deemed beneficially ownedthroughthe ownership of theunconverted portion of theNotesor theunexercised orunconverted portion of any other securityof theBorrower subject to alimitationonconversionorexercise analogous to thelimitationscontainedherein) and (2) the number ofsharesof Common Stock issuable upon the conversion of theportionofthis Note withrespect towhich thedetermination of thisproviso isbeing made, wouldresult inbeneficial ownershipby the Holderand itsaffiliates of more than 9.99% of theoutstanding shares of CommonStock. For purposes of theprovisoto theimmediately preceding sentence,beneficialownership shall bedetermined inaccordancewithSection 13(d) of the SecuritiesExchangeAct of 1934,as amended (the“Exchange Act”), and Regulations 13D-Gthereunder, exceptas otherwise provided inclause (1) of suchproviso,provided, further,however, that thelimitationson conversion maybe waivedby the Holder upon,at theelection of theHolder, not less than 61days’ prior notice to theBorrower, and theprovisionsof theconversion limitation shallcontinueto apply until such 61st day (or such laterdate, as determinedbytheHolder, asmay be specified in such notice ofwaiver). The number ofsharesof CommonStock to beissued uponeach conversion of thisNote shall bedeterminedby dividing theConversionAmount(as defined below)by theapplicable Conversion Price then ineffecton thedate specified in thenoticeof conversion, in theform attached heretoasExhibit A (the“Notice of Conversion”),deliveredto theBorrowerbytheHolderin accordance withSection 1.4below; provided that the Notice of Conversion is submittedby facsimile or e-mail (orby othermeans resulting in, or reasonablyexpected to result in,notice) to theBorrower before 6:00 p.m.,New York, New York time on suchconversion date (the“Conversion Date”). Theterm “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 conversionplus(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, provided however, that the Borrower shall have the right topay any orall interest in cashplus(3) at the Holder’s option, Default Interest, if any, on the amounts referredtoin the immediately preceding clauses (1) and/or (2)plus (4) at the Holder’s option,anyamounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
(a) Calculationof ConversionPrice. Subject to theadjustments described herein, and provided that noEventofDefault (asdefinedinArticleIII)has occurred, the conversionprice (the “ConversionPrice”)shallequal theVariable ConversionPrice (asdefined herein) (subject toequitable adjustments for stocksplits, stockdividendsorrights offeringsby theBorrowerrelating to theBorrower’s securities or thesecuritiesofany subsidiaryof the Borrower,combinations, recapitalization, reclassifications, extraordinary distributionsand similar events). The“Variable Conversion Price” shallequalthe lesser of (i) onecent ($0.01) or (ii) 50%multipliedby theMarket Price (as definedherein) (representing a discount rateof 50%).“Market Price” means thelowestclosing bidprice for the Common Stock,as reportedbyBloombergLP,during the twenty (20) TradingDayperiod ending on the latestcomplete Trading Daypriorto theConversion Date. To the extent theConversion Price of theBorrower’s CommonStock closes below theparvalue per share,theBorrower will takeall steps necessary tosolicit theconsent of thestockholders toreduce thepar valueto thelowest value possibleunder law. TheBorrower agrees to honorall conversions submittedpending thisadjustment. Furthermore, the ConversionPricemay beadjusted downward if, withinthree(3)business days of thetransmittalof theNotice ofConversion to theBorrower, the Common Stockhas aclosingbidwhichis 5% orlower than thatset forth in the Notice ofConversion. If thesharesof theBorrower’s Common Stockhavenot been delivered withinthree (3)business days to theHolder, the Notice ofConversionmay berescinded. Atany timeafter the Closing Date, if in thecase that theBorrower’s Common Stock is notdeliverableby DWAC(including if theBorrower’stransferagent has a policyprohibitingor limiting deliveryofshares of theBorrower’s Common Stockspecifiedin a Notice of Conversion),an additional 10% discount will apply forall future conversions under all Notes.If in thecasethat theBorrower’s Common Stock is“chilled”for deposit into the DTCsystem and onlyeligiblefor clearing deposit,an additional 7.5% discount shall apply forallfuture conversionsunder allNotes while the“chill” is ineffect.If in thecase of both of theabove, an additional cumulative 17.5% discount shallapply. “Trading Day” shall meanany day onwhichthe Common Stock istradable foranyperiod on theOTCBB, OTCQBor on theprincipal securities exchange or other securitiesmarketon which the CommonStock is thenbeing traded. TheBorrower shall beresponsiblefor thefees of itstransfer agent and all DTCfees associated withany suchissuanceby applying suchamountto theprincipal amount dueunder the Note.Holder shall beentitled todeduct $500.00 from theconversion amount ineach NoticeofConversiontocover Holder’s deposit fees associated witheachNoticeofConversion.Ifatany time the ConversionPrice as determined hereunderfor any conversion would be less than theparvalue of the Common Stock, thenatthe sole discretion of theHolder,theConversion Pricehereunder may equal such parvaluefor such conversionandtheConversionAmountforsuch conversion may beincreasedto includeAdditional Principal, where“AdditionalPrincipal” meanssuchadditional amountto beaddedto the Conversion Amount to the extent necessary tocausethe number ofconversion shares issuableupon such conversion toequalthesamenumber of conversionshares aswould havebeen issued hadthe ConversionPricenot beenadjustedby theHolderto thepar value price.
While this Note isoutstanding, each timeany third party has theright toconvert monies owed tothat third party (or receiveshares pursuant to asettlement orotherwise), including but notlimited tounder Section 3(a)(9)and Section 3(a)(10), at adiscount tomarketgreater than the Conversion Price ineffectat that time (prior toallother applicableadjustmentsin theNote),then theHolder, inHolder’s sole discretion, mayutilize suchgreater discountpercentage(prior toall applicableadjustmentsin this Note)untilthis Note is nolongeroutstanding.While this Note is outstanding, each time any thirdparty has alookback period greater than the lookbackperiod in effect under the Noteatthat time, including but not limited tounder Section 3(a)(9)and Section3(a)(10), then theHolder,inHolder’s sole discretion, mayutilize suchgreater number oflookback daysuntil this Note isnolongeroutstanding.TheBorrower shallgivewrittennotice to theHolder within one(1) business day ofbecoming aware ofany event thatcouldpermit theHolder to make anyadjustmentdescribed in thetwo immediately preceding sentences.
(b) Conversion PriceDuring Major Announcements. Notwithstandinganythingcontained inSection 1.2(a) to thecontrary,in theevent theBorrower (i) makes a publicannouncement that it intends toconsolidateormerge withany other corporation (other than amerger inwhich theBorroweris the surviving orcontinuing corporation and itscapitalstockisunchanged)orsell ortransfer all or substantiallyall of theassets of theBorroweror (ii)any person,group or entity (includingtheBorrower) publiclyannouncesa tenderoffer topurchase50% or more of theBorrower’s Common Stock (oranyothertakeover scheme) (thedate of the announcementreferred to inclause (i) or (ii) ishereinafter referred toas the“Announcement Date”),then theConversion Priceshall,effectiveupon theAnnouncement Dateand continuing throughthe AdjustedConversion Price Termination Date (as defined below), beequalto thelower of (x) theConversion Price which wouldhave been applicable for aConversion occurringon theAnnouncement Date and(y)theConversion Price that wouldotherwise bein effect.Fromand after theAdjusted Conversion Price Termination Date, theConversion Price shall bedetermined as set forth inthis Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shallmean, withrespectto anyproposed transaction ortender offer (or takeoverscheme) forwhicha publicannouncement as contemplatedbythis Section1.2(b) has been made, thedateupon which the Borrower (in the case ofclause (i) above) or theperson, group or entity (in thecase of clause (ii)above) consummatesor publiclyannounces thetermination orabandonment of theproposed transaction ortender offer (ortakeover scheme) which causedthis Section 1.2(b) tobecome operative.
(c) ProRata Conversion; Disputes.In theevent of a disputeas to the number ofshares of Common Stockissuable to theHolder inconnection with aconversion of thisNote, theBorrower shall issue to theHolder the number of sharesof Common Stock not indispute and resolve such dispute inaccordance withSection 4.13.
1.3 AuthorizedShares. TheBorrower covenantsthat during theperiodtheconversionrightexists, theBorrower willreserve from itsauthorizedand unissued CommonStock asufficient number ofshares,freefrompreemptiverights,to provide for theissuance ofCommonStock upon thefullconversion ofthis Note issuedpursuanttothe Purchase Agreement. TheBorrowerisrequiredatall times tohaveauthorized andreserved tentimes thenumber ofshares that is actually issuable uponfull conversion ofthe Note (based onthe Conversion Price oftheNotes ineffect fromtime to time) (the“ReservedAmount”). TheReservedAmountshall beincreased fromtime to time inaccordance with theBorrower’sobligations pursuant toSection 3(d)of thePurchaseAgreement. TheBorrowerrepresentsthat upon issuance, suchshares willbe duly andvalidlyissued,fullypaid and non-assessable.Inaddition, if the Borrower shall issue any securities or make any change to itscapital structure which would change the number of shares of Common Stock into which theNotes shall be convertible atthe then current Conversion Price, theBorrower shall atthe same time make proper provision so that thereafter thereshall be asufficient number of shares of Common Stock authorized and reserved, freefrom preemptive rights, for conversion of theoutstanding Notes. The Borrower (i) acknowledges that ithas irrevocably instructed its transfer agentto 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 arecharged with the duty of executing stock certificates toexecuteand issue the necessary certificates for shares of Common Stock in accordance with the terms andconditions of this Note.Notwithstanding the foregoing,in no event shall theReserved Amount be lower than the initial Reserved Amount, regardless of any prior conversions.
If, atanytime theBorrower does not maintain orreplenish the Reserved Amount withinthree (3)business days of therequest of theHolder, theprincipal amount of the Note shallincreaseby Five Thousandand No/100 UnitedStates Dollars ($5,000)(under Holder’sand Borrower’s expectation that any principal amountincrease willtack back to theIssue Date)peroccurrence.
(a) Mechanicsof Conversion.Subject toSection 1.1, this Notemay beconvertedby theHolder in whole or inpart at any timefrom time to timeafter theIssue Date,by
(A)submitting to theBorrower a Notice of Conversion(byfacsimile, e-mail or other reasonablemeans ofcommunication dispatched on theConversion Date prior to 5:00 p.m.,New York,New York time)and (B) subject toSection 1.4(b), surrendering this Noteat theprincipal office of theBorrower.
(b) Surrenderof Note UponConversion. Notwithstanding anything to the contraryset forth herein, uponconversion ofthis Note inaccordancewith theterms hereof, theHolder shall not berequired to physically surrender this Note to theBorrower unless theentire unpaid principal amount of this Note is soconverted. TheHolder and theBorrower shall maintainrecords showing theprincipal amountsoconverted and thedates of suchconversions or shall use such other method, reasonably satisfactory to theHolder and theBorrower, soas not torequire physical surrender of this Note uponeach suchconversion.In theevent ofany disputeordiscrepancy, such records of theBorrower shall,primafacie, becontrolling anddeterminative in theabsence of manifest error. Notwithstanding theforegoing,if any portion of this Note isconverted as aforesaid, theHolder may nottransfer this Note unless the Holderfirst physically surrenders this Note to theBorrower, whereupon theBorrower willforthwith issueand deliver upon the orderof theHolder anew Note of liketenor, registered as theHolder (uponpaymentby theHolder ofanyapplicable transfer taxes)mayrequest, representing in theaggregatethe remaining unpaidprincipal amount of thisNote. TheHolder andanyassignee,byacceptanceof thisNote, acknowledgeand agree that,byreason of theprovisions ofthis paragraph, following conversion of a portion of thisNote, theunpaid and unconverted principal amount of this Noterepresentedby this Notemay be less than theamount stated on theface hereof.
(c) PaymentofTaxes.TheBorrower shall not berequired topay any taxwhichmay bepayable inrespect ofany transferinvolved in the issue and delivery ofshares of CommonStock or othersecurities or property onconversion of this Notein aname other than that of theHolder (or in streetname), and the Borrower shall not berequired to issue ordeliverany suchsharesor othersecurities or property unlessand until theperson or persons (other than the Holder or thecustodian in whosestreet name suchshares are to be held for theHolder’s account) requesting theissuance thereof shallhave paid to theBorrower theamount ofany such tax or shallhave establishedto thesatisfaction of theBorrower that such taxhas been paid.
(d) Delivery of Common Stock UponConversion. Uponreceiptby theBorrower from the Holder of afacsimile transmission or e-mail (or otherreasonable meansofcommunication) of a Notice ofConversion meeting therequirements for conversionas provided in thisSection 1.4, theBorrower shall issueand deliver or cause to beissued and delivered toor upon theorder of theHolder certificates for the Common Stockissuable upon suchconversion withinthree (3)business daysafter suchreceipt (the“Deadline”) (and, solely in the case of conversion of theentire unpaid principalamount hereof, surrender of this Note) inaccordance with the termshereof and thePurchase Agreement.
(e) Obligation of Borrower to Deliver Common Stock. Upon receiptbythe Borrower of a Noticeof Conversion, the Holder shallbedeemed to bethe holder of recordof the Common Stock issuable upon such conversion, theoutstanding principal amount and the amount of accrued and unpaid intereston this Note shall be reduced to reflectsuch conversion, and, unless the Borrower defaultsonits obligationsunder this ArticleI,all rights with respectto the portionofthis 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.Ifthe 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 absoluteandunconditional, irrespective of the absence of any actionbythe 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 breachbythe 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 longasthe Notice of Conversion is receivedbythe Borrower before 5:00 p.m., New York, New York time, on such date.
(f) Delivery of Common StockbyElectronic Transfer.Inlieu of deliveringphysical certificatesrepresenting the Common Stockissuable uponconversion, provided theBorrower isparticipating in the Depository Trust Company(“DTC”) Fast Automated Securities Transfer (“FAST”) program, uponrequest of the Holderand itscompliance withthe provisionscontained inSection 1.1and in thisSection 1.4,the Borrower shall use itscommercially reasonable best efforts tocause itstransfer agent to electronically transmit theCommon Stockissuable upon conversion to the Holderbycrediting theaccount of Holder’s Prime Broker with DTCthrough itsDeposit Withdrawal At Custodian(“DWAC”) system.
(g) DTC Eligibility &Sub-Penny.If theBorrower fails to maintainits statusas “DTC Eligible” for anyreason, or, if theConversion Price is less than$0.01,at any time while this Note isoutstanding, theprincipal amount of the Note shallincreasebyFive Thousandand No/100 UnitedStates Dollars ($5,000) (under Holder’sand Borrower’s expectation thatanyprincipal amount increase willtack back to theIssue Date).
(h) FailuretoDeliver Common Stock Prior toDelivery Deadline.Without in anyway limiting theHolder’s right to pursue otherremedies,including actualdamages and/or equitable relief, the partiesagreethat if deliveryofthe Common Stock issuable uponconversionof this Note is notdeliveredby theDeadline (other than afailure due to thecircumstances described inSection 1.3above, whichfailure shall begovernedby such Section) theBorrower shallpay to theHolder $1,000 perdayin cash, foreachdaybeyondtheDeadline that theBorrower failstodeliver such CommonStock until theBorrower issues and delivers acertificateto theHolder orcredit theHolder's balance account with OTC for the number ofshares of CommonStocktowhich theHolder isentitledupon suchHolder's conversion of any Conversion Amount(underHolder'sand Borrower's expectation that anydamageswilltack back to theIssue Date).. Such cashamount shall bepaid toHolderby thefifthday of the month following the month inwhichithas accrued or, at the option of theHolder(bywritten notice to theBorrowerby thefirst day of the monthfollowing the month inwhich ithas accrued), shall beadded to theprincipal amount of thisNote, inwhich event interest shall accruethereon inaccordance with the terms of this Noteand suchadditional principal amount shall beconvertible into Common Stock inaccordancewith theterms of thisNote. TheBorrower agrees that theright toconvert is a valuableright to the Holder. Thedamages resultingfrom afailure, attempt tofrustrate, interference with suchconversion right aredifficult if notimpossibletoqualify. Accordingly, theparties acknowledge that theliquidated damages provision contained in thisSection 1.4(h) are justified.
(i) Rescindmentof aNotice ofConversion.If(i)theBorrower fails torespond to Holderwithin one (1)business dayfrom theConversion Dateconfirming thedetailsofNotice ofConversion, (ii) theBorrower failsto provide any of theshares ofthe Borrower’s Common Stockrequested in theNotice ofConversionwithinthree (3)businessdaysfrom thedate ofreceipt of theNoteofConversion,(iii) theHolder isunable to procure alegal opinionrequiredto have the shares of theBorrower’s CommonStockissued unrestrictedand/ordeposited tosell for anyreasonrelatedto theBorrower’sstanding,(iv) theHolder isunable todeposit theshares ofthe Borrower’s Common Stock requested in theNotice ofConversionforany reasonrelated to theBorrower’s standing,(v)at any time after amissedDeadline,attheHolder’ssolediscretion, or(vi) ifOTC Markets changestheBorrower's designation to‘Limited Information’(Yield),‘NoInformation’(StopSign),‘CaveatEmptor’(Skull &Crossbones), ‘OTC’,‘Other OTC’ or‘Grey Market’(ExclamationMark Sign) orother trading restriction on the day of orany dayafter theConversion Date, the Holdermaintainstheoption andsole discretion torescindthe Notice ofConversion (“Rescindment”) with a“Notice ofRescindment.”
1.5 Concerningthe Shares. Thesharesof Common Stockissuable uponconversion of this Note may not be sold ortransferred unless (i) suchshares are soldpursuant toan effective registration statement under theActor (ii) theBorrower or its transferagent shall have beenfurnished withan opinion ofcounsel (which opinion shall be inform, substance and scope customary for opinions ofcounsel incomparable transactions) to theeffect that theshares to be sold ortransferredmay be sold ortransferred pursuant toan exemption from suchregistration or (iii) suchshares are sold ortransferred pursuant to Rule 144under the Act (or asuccessor rule) (“Rule 144”) or (iv) suchshares are transferred toan “affiliate” (asdefined in Rule 144) of the Borrower whoagrees tosell orotherwise transfer theshares only inaccordance with thisSection 1.5and who isan Accredited Investor (as defined in thePurchase Agreement). Except as otherwise provided in thePurchase Agreement (and subject to the removalprovisions set forth below), until such timeas theshares of CommonStock issuable uponconversion of this Notehave been registered under theAct or otherwisemay be soldpursuant to Rule 144 without any restrictionas to the number ofsecurities as of a particulardate thatcan then be immediately sold,each certificate forshares of Common Stockissuable uponconversion of this Note thathas not beensoincluded inan effective registration statement or thathas notbeen soldpursuant toan effective registrationstatement oran exemption thatpermits removal of thelegend, shallbear alegend substantially in the followingform, asappropriate:
“NEITHER THEISSUANCE AND SALEOF THESECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES AREEXERCISABLE HAVEBEEN REGISTERED UNDER THESECURITIES ACTOF 1933, ASAMENDED, OR APPLICABLE STATE SECURITIES LAWS. THESECURITIES MAYNOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCEOF (A) ANEFFECTIVEREGISTRATIONSTATEMENT FOR THESECURITIES UNDER THESECURITIES ACTOF 1933, ASAMENDED, OR (B) ANOPINION OF COUNSEL (WHICH COUNSEL SHALL BESELECTED BYTHEHOLDER), IN AGENERALLY ACCEPTABLE FORM,THAT REGISTRATION IS NOTREQUIRED UNDER SAID ACT OR(II)UNLESSSOLD PURSUANT TO RULE144 ORRULE 144A UNDERSAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAYBE PLEDGED IN CONNECTION WITH ABONA FIDE MARGINACCOUNT OR OTHER LOANOR FINANCING ARRANGEMENT SECURED BY THESECURITIES.”
Thelegend set forth above shall beremoved and theBorrower shallissue to theHolder anew certificatetherefore free ofany transferlegend if (i) theBorrower or itstransfer agent shallhave received an opinion ofcounsel, in form,substance and scope customary for opinionsofcounsel incomparable transactions, to theeffect that a publicsale ortransfer of such Common Stock may be made withoutregistration under theAct, which opinion shall be reasonablyacceptedby theBorrower so that thesale ortransfer iseffected or (ii) in the case of the Common Stockissuable upon conversion of thisNote, such security isregistered for saleby the Holderunder aneffective registration statement filedunder theAct orotherwise may be soldpursuant to Rule 144 without any restrictionas to the number ofsecurities as of a particulardate thatcan thenbe immediately sold.In theevent that theBorrower does notaccept the opinion ofcounsel providedby theBuyer withrespect to thetransfer ofSecurities pursuant toan exemptionfromregistration, suchas Rule 144 or Regulation S,at theDeadline, it will beconsidered an Event ofDefault pursuant toSection 3.2 of theNote.
| 1.6 | EffectofCertainEvents. |
(a) EffectofMerger, Consolidation, Etc. At theoption of theHolder, thesale, conveyance or disposition ofall or substantiallyallof the assets of theBorrower, theeffectuationby theBorrower of atransactionorseries ofrelated transactions inwhich more than 50% of the voting power of theBorroweris disposedof, or the consolidation,mergeror otherbusiness combination of theBorrowerwith or into any otherPerson (asdefinedbelow) orPersons when theBorroweris not the survivor shall either: (i)bedeemedto bean Event ofDefault (as definedinArticleIII) pursuant to which theBorrower shall berequired to pay to the Holder upon theconsummation ofand as acondition to suchtransaction an amount equal to the Default Amount(as definedin ArticleIII)or (ii) betreated pursuant toSection 1.6(b) hereof. “Person” shallmean any individual, corporation, limited liabilitycompany, partnership, association, trust or otherentityororganization.
(b) Adjustment Due to Merger, Consolidation, Etc.If, atany time when this Note is issued and outstanding and priorto conversionof allof the Notes, there shallbe any merger, consolidation, exchangeof shares, recapitalization, reorganization, or other similar event,as a result of which sharesof Common Stock of the Borrower shallbe changed intothe sameor a different numberof shares of another classor classesof stockor securities of the Borroweror another entity,or in caseof any saleor conveyanceofall or substantiallyall of the assetsof the Borrower other than in connection with a plan of complete liquidation of theBorrower, thenthe Holderofthis Note shall thereafter havetheright to receiveupon conversionofthis Note,upon the basis and upon the terms and conditions specified herein andin lieu of the sharesof Common Stockimmediately theretofore issuable uponconversion, such stock, securitiesor assets whichthe Holder would have been entitledto receivein such transaction had this Note been converted in full immediatelyprior to such transaction (without regard toany limitationson conversion set forth herein), andin any such case appropriate provisions shallbe made with respect to the rights and interestsof the Holder of this Noteto the end that the provisions hereof (including, without limitation, provisions for adjustmentof the Conversion Price and ofthe number of shares issuable upon conversionof the Note) shall thereafterbe applicable,asnearlyasmay be practicablein relationto any securities or assets thereafter deliverableupon the conversion hereof. The Borrower shall not affectany transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable,thirty (30) days prior written notice (but inany eventat least fifteen (15) days prior written notice)ofthe record dateofthe special meetingofshareholdersto approve, or if thereis no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganizationor other similar event or sale of assets (during which time the Holder shallbe entitledto convert thisNote)and (b) the resulting successoror acquiringentity (if not the Borrower) assumesby written instrument the obligationsof this Section 1.6(b). The above provisions shall similarlyapply to successive consolidations, mergers, sales, transfersor share exchanges.
(c) Adjustment Due to Distribution.If theBorrower shalldeclareor make any distribution of itsassets (orrights toacquire itsassets) toholders of Common Stockas adividend, stockrepurchase,byway of return ofcapital orotherwise (includinganydividend or distribution to theBorrower’s shareholders in cash orshares (orrights toacquire shares) ofcapital stock of a subsidiary (i.e., a spin-off)) (a“Distribution”), then theHolder of this Note shallbeentitled, upon any conversion of this Noteafter thedate ofrecord fordetermining shareholdersentitled tosuch Distribution, toreceivetheamount ofsuch assetswhich would have beenpayableto theHolder withrespect to theshares of Common Stockissuable upon suchconversion had suchHolder been the holderof suchshares of Common Stock on therecord date for thedeterminationofshareholders entitled tosuch Distribution.
(d) Adjustment Due to DilutiveIssuance.If,atany timewhenany Notes areissued and outstanding, theBorrower issues orsells, or inaccordance with thisSection 1.6(d) hereof isdeemed to haveissued or sold,except forshares of Common Stockissued directlytovendors orsuppliers of theBorrower insatisfaction ofamounts owed tosuch vendors orsuppliers (provided, however, that suchvendors orsuppliers shall nothave an arrangement totransfer, sell orassign suchsharesof Common Stockprior to theissuance of such shares), anysharesof Common Stock for noconsideration or for aconsideration pershare (before deduction ofreasonable expenses orcommissions orunderwriting discounts orallowances inconnection therewith) less than theConversion Price ineffect on thedate of such issuance (ordeemed issuance)of suchshares of Common Stock (a“Dilutive Issuance”), then immediately upon the DilutiveIssuance, theConversion Price will bereduced to the amount of theconsideration per sharereceivedby theBorrower insuch DilutiveIssuance.
TheBorrowershall bedeemed to have issued orsoldshares ofCommonStock iftheBorrowerin any manner issues orgrantsanywarrants,rights oroptions (not includingemployee stockoptionplans), whether ornot immediately exercisable, tosubscribe for or topurchase CommonStock orothersecurities convertibleinto orexchangeableforCommon Stock(“Convertible Securities”)(suchwarrants,rightsandoptions topurchaseCommon StockorConvertibleSecurities arehereinafterreferred toas“Options”) andthe price per shareforwhich Common Stock isissuableupon theexercise ofsuch Options is less than theConversionPrice then ineffect,then the Conversion Priceshall beequal to such price per share.Forpurposes oftheprecedingsentence, the“price per sharefor whichCommon Stock is issuable upon theexercise of suchOptions” isdeterminedbydividing (i)the totalamount, ifany,received orreceivableby theBorroweras consideration for theissuance orgranting ofallsuch Options, plus theminimum aggregateamount ofadditional consideration, ifany,payable to theBorrower upon theexercise ofall such Options, plus, in thecase ofConvertible Securitiesissuable upon the exercise ofsuch Options, theminimum aggregateamountofadditionalconsideration payableupon theconversion orexchange thereofat thetime suchConvertibleSecurities firstbecomeconvertible orexchangeable,by (ii)the maximum total number ofshares ofCommonStock issuable upon theexercise ofallsuchOptions (assumingfull conversion ofConvertibleSecurities, ifapplicable). Nofurther adjustment to theConversion Price will bemade upon theactualissuanceofsuch Common Stock upon the exercise ofsuch Options orupon the conversionor exchange ofConvertible Securitiesissuable upon exercise of suchOptions.
Additionally, the Borrower shallbe deemedto have issuedor sold sharesof Common Stock if the Borrowerin any manner issuesor sellsany Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exerciseof Options), andthepriceper sharefor which Common Stock is issuableupon such conversion or exchangeisless than the Conversion Price thenin effect, then the Conversion Price shallbe equal to such price per share. Forthe purposesof the preceding sentence, the “pricepersharefor which Common Stock is issuable upon such conversionorexchange” is determinedby dividing (i) the total amount,ifany, received or receivableby the Borroweras consideration for the issuance or saleofall such Convertible Securities, plus theminimumaggregate amountof additional consideration,ifany, payable tothe Borrower upon the conversion or exchange thereofatthe time such Convertible Securities first become convertibleor exchangeable,by (ii)the maximum total number of sharesof Common Stock issuable upon the conversion or exchange of allsuchConvertible Securities. No further adjustment to the ConversionPrice willbemade uponthe actual issuanceofsuch Common Stock upon conversionorexchange of such Convertible Securities.
(e) Purchase Rights.If,atany time whenanyNotes are issued and outstanding, theBorrower issues any convertiblesecurities orrights topurchase stock,warrants, securities or other property (the“Purchase Rights”) pro rata to the recordholders ofanyclassof Common Stock, then theHolder of this Note will beentitled toacquire, upon theterms applicable to suchPurchase Rights, theaggregate Purchase Rights which suchHolder could have acquired if suchHolder had held the number ofshares of Common Stock acquirable uponcomplete conversion of this Note(without regard toany limitations onconversion contained herein) immediately before thedate onwhich arecord istaken for thegrant, issuance orsaleof suchPurchase Rights or, if no suchrecord is taken,thedate as of which the recordholdersofCommon Stock are tobedetermined for thegrant, issue or sale ofsuch Purchase Rights.
(f) Notice of Adjustments. Upon theoccurrence ofeach adjustment orreadjustment of theConversion Price as aresult of the eventsdescribed in thisSection 1.6, theBorrower, at its expense, shall promptlycompute suchadjustment orreadjustment and prepare and furnish to theHolder acertificate setting forth suchadjustment orreadjustment and showing indetail thefacts upon which suchadjustment orreadjustment isbased. TheBorrower shall, upon thewritten request atany time of theHolder, furnish to suchHolder a likecertificate setting forth (i) suchadjustment orreadjustment, (ii) theConversion Price at the time ineffect and (iii) the number ofshares of Common Stockand theamount, ifany,ofothersecuritiesor property whichat the time would bereceived uponconversion of theNote.
1.7 TradingMarket Limitations.Unlesspermittedbytheapplicablerulesandregulations of theprincipal securitiesmarket onwhich theCommon Stock isthen listed ortraded,in noevent shall theBorrowerissueupon conversion of orotherwise pursuant to this Noteandthe otherNotesissued pursuant to thePurchaseAgreementmore than the maximum numberofshares ofCommon Stock that theBorrowercan issue pursuant to any rule oftheprincipalUnitedStates securitiesmarket onwhich the Common Stock isthen traded (the“MaximumShareAmount”),which shall be9.99% of thetotal shares outstandingon theClosing Date(as defined inthePurchaseAgreement), subject toequitableadjustment fromtime totimefor stocksplits,stock dividends,combinations,capital reorganizationsandsimilar eventsrelating to the Common Stockoccurring afterthe datehereof.Once the MaximumShare Amounthas been issued, if theBorrower fails toeliminateanyprohibitionsunder applicable law or therulesorregulations ofanystockexchange, interdealer quotationsystemor other self-regulatory organization withjurisdiction over theBorrowerorany of itssecurities on theBorrower’sability to issuesharesof Common Stock inexcess of the MaximumShare Amount, inlieu of anyfurther right to convert thisNote, this will beconsidered an Event ofDefault under Section 3.2 of theNote.
| 1.8 | Statusas Shareholder. Upon submission of a Notice ofConversionby aHolder, |
(i) theshares covered thereby (other than theshares, ifany, which cannot beissued because theirissuance wouldexceed suchHolder’s allocated portion of theReserved Amount or Maximum Share Amount) shall be deemedconverted intosharesof Common Stockand (ii) theHolder’s rights as aHolder of suchconverted portion of this Note shallcease and terminate, excepting only theright toreceive certificates for suchsharesof Common Stockand to anyremedies provided hereinorotherwise available at law or in equity to suchHolder becauseof a failureby theBorrower to comply with theterms of thisNote. Notwithstanding theforegoing, if aHolder has notreceived certificates forall shares of Common Stockprior to the tenth(10th) business dayafter theexpiration of theDeadline withrespect to a conversion ofany portion of this Note for anyreason, then(unless the Holderotherwise elects toretain its statusas a holder of Common Stockby sonotifying theBorrower) theHolder shallregain therights of aHolderof this Note withrespect to suchunconverted portions of this Noteand theBorrower shall,as soonas practicable, return suchunconverted Note to theHolder or, if the Note has notbeen surrendered, adjust itsrecordstoreflect that such portion of this Notehas not beenconverted.Inall cases, the Holder shall retainall of itsrights and remedies (including, withoutlimitation, (i) theright to receiveConversion DefaultPayments pursuant to Section 1.3 to theextent required thereby for suchConversion Default and anysubsequent ConversionDefault and (ii) theright to have the ConversionPrice withrespect tosubsequent conversions determined inaccordance withSection 1.3) forthe Borrower’s failure toconvert this Note.
1.9 Prepayment.Notwithstandinganything to the contrarycontained in thisNote, theBorrowermay prepay theamounts outstanding hereunder pursuant to the followingtermsand conditions:
(a) At any time during the periodbeginning on theIssue Date and ending on thedate which is thirty (30)days following theIssue Date, theBorrower shall have the right,exercisable on not less thanthree (3) Trading Daysprior written notice to theHolder of the Note to prepay theoutstanding Note(principal and accrued interest), in fullby making apayment tothe Holder ofan amount incash equal to125%, multipliedby the sumof: (w) the then outstandingprincipal amount of this Noteplus(x)accrued andunpaid interest on the unpaidprincipal amount of this Noteplus(y)Default Interest, ifany.
(b) Atany timeduringtheperiodbeginning the daywhich is thirty-one (31)daysfollowing theIssueDateand ending on thedatewhich issixty(60)daysfollowing theIssueDate, theBorrowershall have theright,exercisable onnot less thanthree (3)Trading Dayspriorwrittennoticetothe Holder of theNote toprepay theoutstandingNote(principaland accrued interest),in fullbymakingapayment to the Holderof anamountin cashequal to 130%,multipliedbythesumof:(w) the then outstandingprincipalamountofthis Noteplus(x) accrued and unpaidinterestonthe unpaidprincipalamountofthisNoteplus(y)DefaultInterest,ifany.
(c) At anytimeduring theperiodbeginning the day which issixty-one (61)daysfollowing theIssueDateandending onthe datewhich isninety (90)daysfollowing theIssueDate, theBorrowershallhave theright, exercisable onnotless thanthree (3)TradingDayspriorwrittennotice tothe Holder of theNote toprepay theoutstanding Note (principaland accrued interest), infullbymaking apayment tothe Holder ofanamount incashequal to 135%,multipliedby thesumof:(w) the then outstandingprincipalamountofthis Noteplus (x)accrued and unpaidinterest onthe unpaidprincipalamount ofthisNoteplus(y)DefaultInterest,ifany.
(d) Atany time during the period beginning thedaywhich is ninety-one (91)days following theIssue Date and ending onthe datewhich is one hundred eighty days (180)days following theIssue Date, theBorrower shall have theright, exercisable on not less thanthree (3) TradingDays priorwritten notice to theHolder of the Note to prepay the outstanding Note(principal and accrued interest), in fullby making a payment to the Holder ofan amount in cashequal to140%, multipliedby the sumof: (w) the thenoutstanding principalamount of this Noteplus (x)accrued and unpaidinterest on the unpaidprincipal amount of thisNoteplus(y)Default Interest, ifany.
(e) Aftertheexpiration of onehundred eighty (180)days following thedate of theNote, theBorrower shall havenoright ofprepayment.
Any notice of prepayment hereunder(an“Optional Prepayment Notice”) shall bedeliveredto theHolder of the Note at itsregistered addresses and shall state: (1) that theBorrower is exercising its rightto prepay the Note, and (2) the date of prepaymentwhich shall benot more than three (3) Trading Daysfrom the date of the OptionalPrepaymentNotice. Onthe datefixed for prepayment(the “Optional Prepayment Date”), the Borrower shall make payment of the applicable prepayment amount to orupon the order of the Holder asspecifiedbythe Holder in writingto theBorrower atleast one(1)business day prior to the Optional Prepayment Date.Ifthe Borrower delivers anOptional Prepayment Notice and fails to pay the applicable prepayment amount due to the Holder of the Notewithin two (2) business daysfollowing the Optional PrepaymentDate,the Borrower shall forever forfeit itsright to prepay the Note pursuant tothis Section 1.9.
1.10 Mandatory Prepayment Option.Inthe event that the company conducts aregistered offering with the SEC, at the soleand absolute discretion of the Holder, theHoldermay demandcash prepaymentbytheBorrower to the Holder inwriting (each a"Prepayment Demand").Intheevent of the issuanceof aPrepayment Demandby theHolder,the amount of theprepayment necessary to fully satisfy theobligationsshall equal theapplicable amounts provided inSection 1.9 herein. Theprepayment required pursuant to thisSectionshallbepaidbytheBorrower followingtheeffectivenessof theregistration statement and shall bepaidout of theproceeds of the saleof anyshares pursuantthereto.Intheevent that theshares soldare insufficient to fully satisfy theobligationsowing pursuanthereto, theHolder shallcontinue tohave therights and remedies available to itunder and pursuant to this Note.
ARTICLEII.CERTAIN COVENANTS
2.1 Distributions onCapital Stock. So longas theBorrower shallhaveanyobligation under thisNote, theBorrower shall not withoutthe Holder’s written consent(a) pay, declare orset apart for suchpayment, anydividendor other distribution(whether incash, propertyor othersecurities) onshares ofcapital stock other thandividends onshares of Common Stock solely in theform ofadditional shares of Common Stockor (b) directly or indirectly orthroughany subsidiary makeany other payment or distribution inrespect of itscapital stockexcept for distributionspursuant toanyshareholders’ rights plan which isapprovedby a majority of theBorrower’s disinterested directors.
2.2 Restrictionon StockRepurchases.So longas theBorrower shallhaveanyobligation under thisNote, theBorrower shall not without theHolder’s written consent redeem, repurchase orotherwise acquire (whether for cash or inexchange for property or other securities orotherwise) in any onetransaction orseries ofrelated transactions anyshares ofcapital stock of theBorrower or anywarrants, rights or options topurchaseoracquireany suchshares.
2.3 Borrowings.So longas theBorrower shall haveanyobligation under thisNote, theBorrower shall not, without the Holder’swritten consent, create, incur, assume guarantee, endorse, contingentlyagree to purchase or otherwisebecome liable upon theobligationof anyperson, firm, partnership, jointventure orcorporation, exceptby theendorsement ofnegotiable instruments fordepositorcollection, or suffer to exist any liability forborrowed money, except (a)borrowings inexistence orcommitted on the datehereof and of which theBorrower has informedHolder inwriting prior to the datehereof, (b)indebtedness to tradecreditors financial institutions or otherlenders incurred in theordinary course of business or(c) borrowings, theproceeds ofwhich shall be used to repay this Note.
2.4 Saleof Assets. Solongas the Borrower shall haveany obligation underthis Note, the Borrower shall not, without the Holder’s written consent, sell, leaseor otherwise dispose ofany significant portionof its assets outsidethe ordinary course of business.Any consentto the dispositionof any assetsmay beconditionedon a specified use of the proceedsofdisposition.
2.5 Advancesand Loans. SolongastheBorrower shall haveany obligation underthis Note,theBorrower shallnot,withouttheHolder’s writtenconsent,lend money, give credit or makeadvancesto anyperson,firm,jointventureorcorporation, including,withoutlimitation, officers, directors,employees,subsidiariesandaffiliatesof theBorrower,except loans,creditsoradvances (a) inexistenceor committed onthedatehereofand whichthe BorrowerhasinformedHolder inwriting prior tothedate hereof,(b)madeinthe ordinary course of businessor (c) not in excess of$100,000.
2.6 Section 3(a)(9)or3(a)(10) Transaction.So longas this Note isoutstanding, theBorrower shall not enter into any transaction orarrangement structured inaccordance with, based upon, orrelatedor pursuant to, in whole or in part,either Section3(a)(9) of theSecurities Act (a“3(a)(9) Transaction”)orSection 3(a)(l0) of theSecurities Act (a“3(a)(l0) Transaction”).Intheevent that theBorrower does enter into, ormakesany issuance of Common Stockrelated to a3(a)(9) Transaction or a3(a)(l0) Transaction while this Note isoutstanding, aliquidated damages chargeof 25% of the outstandingprincipal balance of this Note, but not less thanFive Thousand Dollars $5,000, will be assessedand will become immediately dueand payable to the Holderat itselection in theform of cashpayment oraddition to thebalanceof this Note.
2.7 PreservationofExistence, etc.TheBorrower shall maintainand preserve, andcause each of itsSubsidiaries to maintainand preserve, itsexistence, rights and privileges, and become orremain, and causeeach of itsSubsidiaries (other than dormantSubsidiaries thathave no or minimumassets) to become or remain,dulyqualified and ingood standing ineach jurisdiction inwhich thecharacter of theproperties owned orleasedby it or in which thetransaction of itsbusiness makes suchqualification necessary.
2.8 Non-circumvention.TheBorrower herebycovenants and agrees that theBorrower will not,by amendment of itsCertificate orArticles ofIncorporation orBylaws, orthroughanyreorganization, transfer ofassets, consolidation, merger, scheme ofarrangement, dissolution, issue orsale ofsecurities, orany other voluntary action, avoid orseek toavoid theobservance orperformance ofany of theterms of thisNote, and willat all times ingood faith carry outall theprovisions of this Noteand takeall actionasmay berequired toprotecttherights of theHolder.
2.9 Repaymentfrom Proceeds. While any portion of this Noteis outstanding, if theBorrower receives cash proceeds from any source or series of related or unrelated sources, including but notlimited to, from payments fromcustomers,the issuance ofequityor debt, theconversion of outstanding warrants of the Borrower, the issuance of securities pursuant toanequityline of credit of the Borrower or thesaleof assets, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform theHolder ofsuch receipt, following which the Holder shall havethe right in its sole discretion to require theBorrower to immediatelyapplyall oranyportion of such proceeds to repay all oranyportion of theoutstandingamounts owed under this Note. Failureof the Borrower tocomplywith this provision shall constitute anEvent of Default.Inthe event that such proceeds arereceivedbythe Holder prior to the Maturity Date, the required prepayment shall be subject to the terms of Section 1.9 herein.
ARTICLEIII.EVENTS OFDEFAULT
Ifany of thefollowing events of default (each,an“EventofDefault”) shalloccur:
3.1 FailuretoPay Principal orInterest.TheBorrower fails topay theprincipal hereof orinterest thereonwhen due on thisNote, whether at maturity, uponaccelerationorotherwise.
3.2 Conversion andtheShares.TheBorrower fails to issueshares of Common Stock to theHolder (orannounces orthreatens in writing that it will not honor itsobligation to do so) uponexerciseby the Holder of theconversion rights of theHolder inaccordance with theterms of thisNote, fails totransfer or cause itstransfer agent totransfer (issue) (electronically or incertificated form)any certificate forsharesof Common Stockissued to theHolder upon conversion of or otherwisepursuant to this Noteas and whenrequiredby thisNote, theBorrower directs itstransfer agent not to transferordelays, impairs, and/orhinders its transferagent intransferring (orissuing) (electronicallyor incertificated form)anycertificate forshares of Common Stock to beissued to theHolder uponconversion ofor otherwisepursuant to this Noteas and whenrequiredby thisNote, orfails toremove (ordirects itstransfer agent not toremoveorimpairs, delays, and/orhinders itstransfer agent from removing)any restrictivelegend (or towithdrawanystoptransfer instructions inrespect thereof) onanycertificate forany shares of Common Stockissued to theHolder uponconversion of orotherwise pursuant to this Noteas and when requiredby this Note (ormakesanywritten announcement, statement orthreat that itdoes notintend to honor theobligations described in thisparagraph) andany suchfailure shallcontinue uncured (orany writtenannouncement, statement orthreat not to honor itsobligations shall not berescinded inwriting) forthree (3)business days after theHolder shallhave delivered a Notice ofConversion.It isan obligation of theBorrower toremain current initsobligations to itstransfer agent.It shall be anevent ofdefault of thisNote, if aconversion ofthis Note isdelayed, hindered orfrustrated due to abalance owedby theBorrower to itstransfer agent.Ifat the option of theHolder, theHolder advancesany funds to theBorrower’s transferagent inorder toprocess aconversion, suchadvanced funds shall bepaidby theBorrowerto theHolder withinforty-eight (48) hours of ademand from theHolder.
3.3 FailuretoDeliver Transaction Expense Amount. TheBorrower fails todeliver theTransaction Expense Amount(as defined inthe Purchase Agreement) to theHolder withinthree
(3)business days of the datesuch amount isdue.
3.4 Breachof Covenants. TheBorrower breachesanymaterial covenant or othermaterial term orcondition contained in thisNote andanycollateral documents including but not limited to thePurchase Agreement and such breachcontinues for a period of ten (10)days afterwritten notice thereof to theBorrower from theHolder (exceptthat no cure period shall apply for theBorrower’s breach ofSection 4.16 of thisNote).
3.5 BreachofRepresentations and Warranties.Anyrepresentation or warranty of theBorrower madeherein or in anyagreement, statement orcertificate given inwriting pursuant hereto or inconnection herewith (including, withoutlimitation, thePurchase Agreement), shall befalse ormisleading inany materialrespect when made and thebreach ofwhichhas (or with the passage of time willhave) amaterial adverse effect on therights of theHolder withrespect to this Note or thePurchase Agreement.
3.6 ReceiverorTrustee.TheBorrower orany subsidiary of theBorrower shall makean assignment for the benefit ofcreditors orcommence proceedings for its dissolution, orapply for orconsent to theappointment of areceiver or trustee for it or for asubstantial part of itsproperty orbusiness, or such a receiver or trustee shallotherwisebeappointed for theBorrower or for asubstantial part of itsproperty orbusiness without itsconsent and shall not bedischarged within sixty (60)days after such appointment.
3.7 Judgments.Anymoney judgment,writ orsimilar process shallbe entered or filedagainst theBorrower or any subsidiary of theBorrower or any of its property or otherassets for more than $50,000,and shallremain unvacated, unbonded orunstayed for aperiod oftwenty (20)days unless otherwise consented toby theHolder, which consent will not be unreasonably withheld.
3.8 Bankruptcy. Bankruptcy, insolvency, reorganizationor liquidationproceedings or otherproceedings, voluntaryorinvoluntary, forrelief underany bankruptcy lawor any law for therelief ofdebtors shall beinstitutedby or against theBorrower orany subsidiaryof theBorrower, or the Borroweradmits inwriting its inability topay itsdebts generallyas theymature, or have filed against itan involuntary petition for bankruptcyrelief, all under federal or statelaws as applicable or theBorrower admits inwriting its inability to payitsdebts generally as theymature,or have filedagainst itan involuntarypetition for bankruptcyrelief, all underinternational, federal or statelaws asapplicable.
3.9 DelistingofCommon Stock. TheBorrower shallfail tomaintain the listing of the Common Stock onat least one of theOTCBB, OTCQB, OTC Pink or anequivalent replacementexchange, theNasdaq National Market, the Nasdaq SmallCap Market, theNew York StockExchange,or theNYSE MKT.
3.10 Failureto Comply with theExchange Act.TheBorrower shallfail to comply with the reporting requirements of theExchange Act (including but not limited tobecoming delinquent in itsfilings); and/or theBorrower shallcease to besubject tothe reportingrequirements of theExchange Act.
3.11 Liquidation.Anydissolution, liquidation,or winding up ofBorrower oranysubstantial portion of itsbusiness.
3.12 Cessationof Operations. Anycessation ofoperationsbyBorrowerorBorrower admits it isotherwise generally unable topay itsdebts as such debts become due, provided,however, thatany disclosure of theBorrower’s ability tocontinue as a“going concern” shall not bean admission that theBorrower cannotpay its debts as they become due.
3.13 MaintenanceofAssets. ThefailurebyBorrower to maintainany material intellectual propertyrights, personal, real property or otherassets which are necessary to conduct itsbusiness (whether nowor in thefuture)or any disposition orconveyance ofanymaterial asset of theBorrower.
3.14 Financial Statement Restatement.The restatementofanyfinancial statements filedby theBorrower with the SEC for any date orperiod from twoyears prior to theIssueDateof this Noteand until this Note is nolonger outstanding, if theresult of suchrestatement would,bycomparison to theunrestated financial statement, have constituted a materialadverse effect on therights of theHolder with respect to this Note or thePurchase Agreement.
3.15 ReverseSplits. TheBorrower effectuates areverse split of itsCommon Stock without twenty(20) days priorwritten notice to theHolder.
3.16 ReplacementofTransfer Agent.Inthe event that theBorrower proposes toreplace itstransfer agent, theBorrower fails toprovide, prior to theeffective date of suchreplacement, a fullyexecuted Irrevocable Transfer AgentInstructions in aform as initiallydelivered pursuant to thePurchase Agreement (including but not limited to theprovision to irrevocably reserveshares of Common Stock in theReserved Amount)signedby thesuccessor transfer agent toBorrower and theBorrower.
3.17 CessationofTrading.Anycessationof trading of the Common Stock onat least one of theOTCBB, OTCQB, OTC Pink oranequivalent replacement exchange, theNasdaq National Market, the Nasdaq SmallCap Market, theNew York StockExchange,or theNYSE MKT,and suchcessation of trading shallcontinue for a period of fiveconsecutive (5) TradingDays.
3.19 Bid Price.TheBorrower shall lose the“bid” price for itsCommon Stock($0.0001 on the “Ask” with zeromarket makers on the“Bid” per Level 2) and/or a market(including theOTCBB, OTCQB oran equivalent replacement exchange).
3.21 InsideInformation. Any attemptbythe Borrower or its officers, directors, and/or affiliates to transmit, convey,disclose, or any actual transmittal, conveyance,or disclosurebythe Borrower or its officers, directors, and/oraffiliates of, materialnon-publicinformation concerning the Borrower, to the Holder or its successors and assigns,whichis notimmediately curedbyBorrower’s filing of a Form8-Kpursuant to Regulation FDon thatsame date.
3.22 UnavailabilityofRule 144.If,at anytime on orafterthe datewhich issix (6)monthsaftertheIssueDate, the Holder isunable to(i)obtain astandard “144 legal opinionletter”fromanattorney reasonably acceptable to theHolder,the Holder’sbrokeragefirm(and respectiveclearing firm),and theBorrower’stransfer agent in order tofacilitatethe Holder’sconversion ofany portion of theNote intofreetrading shares of theBorrower’s CommonStock pursuant toRule 144, and(ii)thereupon deposit such shares into the Holder’sbrokerage account.
Upon theoccurrenceof anyEvent ofDefaultspecifiedinSections3.1,3.2, 3.3, 3.4,3.5,3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15,3.16. 3.17, 3.18, 3.19, 3.20, exercisablethrough the delivery of written notice to theBorrowerby such Holders (the“DefaultNotice”), the Note shall become immediately due andpayableand theBorrowershall pay to the Holder, infullsatisfaction of its obligationshereunder,anamountequal to(i)150% (EXCEPTWITH RESPECTTOSECTION3.2,INWHICH CASE 150%SHALLBE REPLACEDWITH200%)timesthesum of (w) the then outstandingprincipal amountofthisNoteplus(x) accrued andunpaidintereston the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”)plus(y)DefaultInterest,ifany,on theamounts referredto inclauses(w) and/or(x)plus(z)any amounts owed to the Holder pursuant to Sections 1.3and 1.4(g)hereof (the then outstanding principal amount of this Note to the date of paymentplus theamounts referredto inclauses (x),(y)and(z) shall collectively beknownas the “DefaultSum”)or (ii)atthe option ofthe Holder, the “parity value”oftheDefaultSumto beprepaid, where parity valuemeans(a) the highest numberofsharesofCommon Stock issuableupon conversion of or otherwise pursuant to such DefaultSuminaccordancewithArticleI,
treating the TradingDay immediately preceding theMandatoryPrepayment Dateasthe “Conversion Date” for purposesofdetermining the lowest applicable Conversion Price, unless the Default Event arisesasa resultof a breachin respectof a specific Conversion Date in which case such Conversion Date shallbethe Conversion Date),multipliedby(b)the highest Trading Price for the Common Stock during the period beginning on the dateoffirst occurrenceofthe Event of Default and ending oneday prior to theMandatoryPrepayment Date(the“Default Amount”) andallother amounts payable hereunder shall immediately become due and payable,all without demand, presentmentornotice, allofwhichhereby areexpressly waived, together with all costs, including, without limitation, legal feesand expenses, of collection, and the Holder shallbeentitled to exerciseallother rightsandremedies availableatlaw or in equity. Further,if a breach of Sections 3.9, and/or3.18occursor is continuing after the six (6) month anniversaryofthisNote,then the principal amountofthe Note shall increasebyFive Thousand and No/100 United States Dollars ($5,000) (under Holder’s and Borrower’s expectation thatanyprincipal amount increase will tack backto the Issue Date)andthe Holder shall beentitled to use the lowest Trading Price during the delinquency periodas a base price forthe conversion with the Variable Conversion Price shallbe redefinedtomeanfifty percent (50%) multipliedbythe MarketPrice (at the optionof theHolder), subject toadjustment as provided in this Note. For example,ifthe lowest TradingPrice during thedelinquencyperiod is $0.01 per shareand the conversion discount is 50%, then the Holdermayelect to convert future conversionsat $0.005pershare.Ifthis Noteis notpaid atMaturityDate, then the outstanding principal due under this Note shall increasebyFive Thousand and No/100 United States Dollars ($5,000).
TheHolder shallhave theright atany time, torequire theBorrower to immediatelyissue, inlieu of theDefault Amount, the number ofshares of Common Stock of theBorrower equal to the Default Amountdividedby theConversion Price then ineffect, subject to theterms of thisNote. Thisrequirementby theBorrower shall automatically apply upon theoccurrence ofan Event of Default without theneed forany party togiveanynoticeortakeany otheraction.
IftheHolder shallcommence an action or proceeding toenforceanyprovisions of thisNote, including, without limitation,engaging an attorney, then if the Holder prevails in suchaction, theHolder shall bereimbursedby theBorrower for itsattorneys' fees and othercosts and expensesincurred in the investigation,preparation and prosecution of such action orproceeding.
ARTICLEIV.MISCELLANEOUS
4.1 Failureor Indulgence Not Waiver. No failureor delay on the part of the Holder in the exercise ofany power, rightor privilege hereunder shall operateas a waiver thereof, nor shallany singleor partial exerciseof any such power, rightor privilege preclude other or further exercise thereof orof any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusiveof, any rightsorremediesotherwiseavailable.
4.2 Notices.Allnotices, demands, requests, consents, approvals, and othercommunications required or permittedhereunder shall be inwriting and, unlessotherwise specified herein, shall be (i) personallyserved, (ii) deposited in the mail,registered orcertified, return receiptrequested, postage prepaid, (iii)deliveredby reputableair courier service withcharges prepaid, or
(iv)transmittedbyhand delivery, telegram, orfacsimile, addressed as setforth belowor to such otheraddress as such party shallhave specified most recentlybywritten notice. Any notice or othercommunication required orpermitted tobegiven hereunder shallbe deemedeffective (a)upon hand delivery or deliverybyfacsimile,withaccurate confirmation generatedbythetransmitting facsimile machine, at theaddressor numberdesignated below (ifdeliveredon a business day duringnormal business hourswheresuchnoticeis to bereceived), or thefirst businessday following such delivery (ifdelivered other thanon abusinessday duringnormal business hours where suchnotice is to bereceived)or (b) on the secondbusinessday following thedate of mailingbyexpresscourier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
Ifto theBorrower, to:
GrowSolutionsHoldingsInc.PureRootsLLC
_____________________
_____________________
Attn:
Ifto theHolder: RALPH AIELLO
Attn:
4.3 Amendments.This Noteandany provisionhereofmay onlybe amendedbyan instrument inwriting signedby theBorrower and theHolder. Theterm “Note” and all reference thereto, as used throughout thisinstrument, shallmean thisinstrument (and the otherNotes issuedpursuant to thePurchase Agreement) as originallyexecuted, or iflater amended or supplemented, thenas soamendedor supplemented.
4.4 Assignability.This Note shall be binding upon theBorrower and itssuccessors and assigns, and shall inure to be the benefit of theHolder and its successorsand assigns.Neither theBorrower nor the Holder shallassign this Note oranyrights orobligations hereunder without theprior written consent of theother. Notwithstanding theforegoing, theHoldermayassign itsrights hereunder toany“accredited investor” (asdefined in Rule501(a) of the 1933Act) in aprivate transaction from theHolder or toany of its“affiliates”, as that term isdefined under the 1934Act, without theconsent of the Borrower. Notwithstanding anything in this Note to thecontrary, this Notemay bepledged as collateral inconnection with abona fidemargin account or other lendingarrangement. TheHolder andanyassignee,byacceptanceof thisNote, acknowledge and agree that followingconversion of a portion of thisNote, theunpaidandunconverted principal amount of this Noterepresentedby this Notemay be less than theamount stated on theface hereof.
4.5 Cost of Collection. If defaultis made inthe payment of this Note, the Borrower shallpay the Holder hereof reasonable costs of collection, including reasonable attorneys’ fees.
4.6 Governing Law.This Note shall begovernedbyand construed inaccordance with thelawsof theState ofNevada withoutregard toprinciples ofconflictsoflaws. Anyaction broughtbyeither party against the other concerning the transactions contemplated by this Note shall be brought exclusively in the federal or state courts located in the State of New York. The partiestothis Note hereby irrevocably waiveanyobjection to jurisdiction and venue ofanyaction instituted hereunder and shall not assertanydefense based on lack of jurisdiction or venue or based uponforum non conveniens.THE BORROWER HEREBY IRREVOCABLY WAIVESANYRIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATEDHEREBY. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.Inthe event thatanyprovision of this Note oranyother agreement delivered in connection herewith is invalid or unenforceable underanyapplicable statute or rule of law, then such provision shall be deemed inoperative to the extent that itmayconflict therewith and shall be deemed modified to conform with such statute or rule of law.Anysuch provision which may prove invalid or unenforceable underanylaw shall not affect the validity or enforceability of any other provision ofanyagreement. Each party hereby irrevocably waives personal serviceofprocess and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Documentbymailing a copy thereof via registeredorcertified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient serviceofprocess and notice thereof. Nothing contained herein shall be deemed to limit in anyway anyright to serve process inanyother manner permittedbylaw.
4.7 CertainAmounts.Whenever pursuant to this Note theBorrower isrequired to payan amount inexcess of the outstanding principalamount (or the portionthereof required to bepaid at that time) plusaccrued and unpaidinterest plusDefault Interest on suchinterest, theBorrower and the Holderagree that the actualdamages to the Holderfrom thereceipt of cashpayment on this Notemay bedifficult to determineand theamount to be sopaidby theBorrower represents stipulated damages and not a penalty and isintended tocompensate theHolder inpart for loss of the opportunity toconvert this Noteand toearn areturn from the sale ofshares of Common Stockacquired uponconversion of this Noteat aprice inexcess of theprice paid for suchshares pursuant to thisNote. TheBorrower and the Holder herebyagree that suchamount of stipulateddamages is not plainlydisproportionate to the possible loss to theHolder from thereceipt of acash payment without the opportunity to convert this Note intoshares of Common Stock.
4.8 Purchase Agreement.Byitsacceptance of thisNote, each partyagrees tobe boundby theapplicable terms of thePurchase Agreement.
4.9 Notice ofCorporate Events. Except as otherwise provided below, theHolder of this Note shallhavenorights as aHolderofCommon Stock unlessand only to the extent that itconvertsthis Note into Common Stock. TheBorrower shallprovidetheHolder withprior notification ofany meeting of theBorrower’s shareholders(andcopies of proxymaterials and otherinformation senttoshareholders).In theeventofany takingby theBorrowerof a record of itsshareholders for the purposeofdeterminingshareholders whoare entitledtoreceive payment ofanydividend or other distribution, anyrightto subscribefor, purchaseorotherwise acquire (includingby way of merger, consolidation,reclassificationorrecapitalization)any share ofanyclass oranyothersecurities orproperty, or toreceiveany otherright,or for thepurposeofdetermining shareholders whoare entitled to vote inconnectionwith any proposed sale,lease orconveyanceofall or substantiallyallof theassets of theBorrowerorany proposed liquidation, dissolutionorwinding up of theBorrower, theBorrowershall mail anotice to theHolder, at least twenty (20)days prior to therecord date specified therein (or thirty (30) daysprior to theconsummationof thetransaction orevent, whicheverisearlier), of thedate onwhichany suchrecord is to betaken for thepurposeof such dividend, distribution,right or otherevent, and a briefstatement regarding theamount and characterof suchdividend, distribution, right or otherevent to the extentknownat such time. TheBorrower shall make a publicannouncement ofany event requiringnotification to theHolder hereunder substantially simultaneously with thenotification to theHolderin accordance with theterms of thisSection4.9including, butnot limited to,name changes, recapitalizations, etc.assoon as possibleunder law.
4.10 Usury.Ifit shallbe found thatany interestor otheramount deemed interest duehereunder violates theapplicable lawgoverning usury, theapplicable provision shall automatically berevised toequal the maximumrate ofinterest or otheramount deemedinterest permitted underapplicable law. TheBorrower covenants (to the extent that it may lawfully do so) that it will notseek toclaim or takeadvantage ofany usury law that wouldprohibit orforgive theBorrower frompaying all or a portion of theprincipal orinterest on this Note.
4.11 Remedies.TheBorrower acknowledges that abreachby it of itsobligations hereunder willcause irreparable harm to theHolder,by vitiating the intentand purposeof thetransaction contemplated hereby. Accordingly, theBorrower acknowledges that theremedy at law for abreach of itsobligations under this Note will beinadequate and agrees, in theevent of abreach orthreatened breachby theBorrower of theprovisions of thisNote, that theHolder shall beentitled, inaddition toall otheravailable remedies at law or in equity,and inaddition to thepenalties assessable herein, toan injunction orinjunctions restraining, preventing or curinganybreach of this Noteand toenforce specifically theterms and provisions thereof, withoutthe necessityof showing economic lossand without any bond or other security beingrequired. Noprovision of this Note shallalter orimpair the obligation of theBorrower, which isabsolute andunconditional, to pay theprincipal of, and interest on, this Noteat the time,place, and rate,and in theform, herein prescribed.
4.12 Severability.Intheevent thatanyprovision of this Note is invalid orunenforceable underanyapplicable statute or rule oflaw, then such provision shall bedeemed inoperative to the extent that it mayconflict therewith and shall bedeemed modified toconformwith such statute or rule of law.Anyprovision hereof whichmayprove invalid or unenforceable under any law shall not affect the validity or enforceabilityofany other provision hereof.
4.13 Dispute Resolution.Inthecase of adispute as to thedetermination ofthe Conversion Price,Conversion Amount,any prepayment amount orDefault Amount,DefaultSum,Closing orMaturity Date, the closing bid price, orfairmarketvalue (as thecase maybe) orthe arithmeticcalculation of theConversionPrice or theapplicable prepaymentamount(s) (as thecase maybe), theBorrower orthe Holdershall submit thedisputeddeterminations orarithmeticcalculations viafacsimile (i)within two(2) Business Daysafter receipt of theapplicablenotice givingrise tosuchdispute to theBorrower orthe Holder or(ii)if nonotice gave rise tosuchdispute,at any timeafter theHolder learned of thecircumstances givingrise tosuch dispute.If theHolder and theBorrowerareunable to agree uponsuchdetermination orcalculation within two (2)Business Days of suchdisputeddetermination orarithmeticcalculation(asthe case maybe) beingsubmitted totheBorrower orthe Holder, then theBorrowershall,within two(2)BusinessDays,submitviafacsimile (a) thedisputed determination ofthe Conversion Price, theclosingbid price, the orfair marketvalue(as thecase maybe) toanindependent, reputableinvestmentbankselected by theBorrower andapprovedby theHolder or(b) thedisputedarithmetic calculation of theConversion Price, Conversion Amount, any prepayment amount orDefaultAmount, DefaultSum toanindependent,outside accountantselectedbythe Holder that is reasonably acceptable to theBorrower.TheBorrowershall causeatitsexpense theinvestmentbank ortheaccountant toperform thedeterminations orcalculationsand notify theBorrowerand theHolder oftheresults nolaterthan ten(10)Business Daysfrom the time itreceives suchdisputeddeterminationsorcalculations. Such investment bank’s oraccountant’s determination orcalculationshall bebinding uponallparties absentdemonstrable error.
4.14[ RES E R V ED]
4.15Piggyback Registration Rights. Borrower shallfilearegistration statement toregister common shares underlying conversionsof the Note within thirty (30)days after closing and shall use its besteffortstohavesuchregistration statement declared effectivewithin 120days following theclosing. TheBorrower shall include on theregistration statement theBorrower files with SEC (or on thesubsequent registration statement ifsuch registration statement iswithdrawn, and excluding thecurrent registration statement that theBorrower has on filewith the SEC)all shares issuable upon conversion of this Note, unless suchshares areat that timeeligible forsaleunder Rule 144under theSecurities Act. Failureto do so willresult inliquidated damagesof 25% of theoutstanding principalbalanceof this Note, but not less thanFive Thousandand No/100 UnitedStates Dollars ($5,000), being immediately dueand payable to the Holderat itselection in theform ofcash payment oraddition to thebalanceof this Note.
[signature pagefollows]
INWITNESS WHEREOF, each Borrower has causedthis Note to besignedin itsnameby its dulyauthorized officer as of thedate first abovewritten.
GROWSOLUTIONSHOLDINGS INC.
By:________________________________
Name:
Title:ChiefExecutive Officer
PUREROOTS LLC
By:_______________________
Name:
Title:ChiefExecutive Officer
EXHIBIT A
NOTICE OF CONVERSION
Theundersigned herebyelects to convert $________principal amount of theNote (definedbelow)together with $___________ofaccrued and unpaid interest thereto, totaling$___________into that number ofsharesof Common Stock to beissued pursuant to theconversionof theNote(“CommonStock”) asset forthbelow, ofGrow Solutions HoldingsInc., aNevada corporation(the “Borrower”),accordingtotheconditions ofthe convertible note of theBorrowerdated as ofMarch _, 2019(the“Note”),asofthe date written below. No feewillbechargedto the Holder foranyconversion,exceptfor transfertaxes,ifany.Box Checked as to applicable instructions:
[ ] TheBorrowershall electronically transmittheCommonStock issuablepursuanttothis Notice ofConversionto theaccount ofthe undersigned oritsnomineewithDTCthroughitsDepositWithdrawal AtCustodiansystem(“DWACTransfer”).
Nameof DTC PrimeBroker: AccountNumber:
[ ] The undersigned hereby requests that the Borrower issue a certificateor certificates for the number of sharesof Common Stock set forthbelow(which numbers are based on the Holder’s calculation attached hereto)in thename(s) specifiedimmediately below or,ifadditional space is necessary,onan attachment hereto:
Name:[NAME]
Address:[ADDRESS]
DateofConversion: ___________________
Applicable Conversion Price: $
NumberofSharesof Common Stock to beIssued
PursuanttoConversionof theNotes: _________
Amount ofPrincipal BalanceDueremaining
Under the Note after this conversion: ________________________
Accruedandunpaid interest remaining:
[HOLDER]
By:_______________________
Name:[NAME]
Title: [TITLE]
Date:[DATE]
