NEITHER THEISSUANCE AND SALE OF THESECURITIES REPRESENTEDBY THISCERTIFICATE NOR THESECURITIES INTO WHICH THESESECURITIES ARE CONVERTIBLE HAVE BEENREGISTERED UNDER THESECURITIES ACT OF 1933, ASAMENDED,ORAPPLICABLE STATESECURITIES LAWS. THESECURITIES MAY NOT BEOFFERED FORSALE, SOLD,TRANSFERRED ORASSIGNED(I) IN THEABSENCE OF(A) AN EFFECTIVEREGISTRATION STATEMENT FOR THESECURITIES UNDER THESECURITIES ACT OF 1933, ASAMENDED,OR (B) ANOPINIONOF COUNSEL (WHICHCOUNSEL SHALL BE SELECTED BY THEHOLDER), IN AGENERALLY ACCEPTABLE FORM, THATREGISTRATIONIS NOTREQUIRED UNDER SAIDACT OR (II)UNLESS SOLD PURSUANT TORULE 144 ORRULE 144AUNDER SAIDACT. NOTWITHSTANDING THEFOREGOING, THESECURITIES MAY BEPLEDGED IN CONNECTION WITH A BONAFIDE MARGIN ACCOUNT OR OTHERLOAN ORFINANCING ARRANGEMENT SECURED BY THESECURITIES.
| Principal Amount:US$27,500.00 | Issue Date: October 9, 2019 |
| Purchase Price: US$25,000.00 | |
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED,Grow Solutions HoldingsInc.,a Nevada corporation,jointly with itssubsidiary Pure RootsLLC (hereinaftercollectivelycalled the “Borrower”), hereby promises topay to the orderofRALPH AIELLO,or registered assigns (the “Holder”) the sumof US$27,500.00 together withany interest as setforth herein,on October8,2020 (the “Maturity Date”), andto pay interest on the unpaid principal balance hereofat the rateof ten percent (10%) (the “Interest Rate”) per annum from the funding date hereof (the “Issue Date”) until the same becomes dueandpayable, whetheratmaturity or upon accelerationorby prepayment or otherwise. This Notemay be prepaidin whole or in partasexplicitlyset forth herein.Any amountof principal or intereston this Note which is not paid whendueshall bear interestat therate of twenty-four percent (24%)per annum from theduedate thereof untilthe same is paid (the “Default Interest”).Interestshall commence accruingon the date that the Note isfullypaid and shallbe computedon the basisof a360-dayyearand the actual numberof days elapsed. All payments due hereunder (to the extent not converted into common stockof Grow Solutions HoldingsInc.,$0.001par value per share (the “Common Stock”)inaccordance with the terms hereof) shallbe madeinlawfulmoney of theUnited States of America. All payments shallbe made at such addressasthe Holder shall hereafter giveto the Borrowerby written notice madeinaccordance withthe provisionsof this Note. Wheneverany amount expressed to be dueby the termsof this Note isdue on any day which is not a businessday, the same shall insteadbedue on thenext succeedingday which is a businessday and,in the case ofany interest payment date which is notthedateon whichthis Note is paid in full,the extensionof the due date thereof shall not be taken into accountfor purposesofdetermining the amountof interest due on such date. As usedinthis Note,the term “business day” shall meanany day other than a Saturday,Sunday or aday on which commercial banksin thecity of New York, New York are authorizedorrequiredbylaworexecutive order to remain closed.
This Note isfree from all taxes,liens, claims and encumbrances withrespect to the issuethereof and shall not besubject topreemptive rights or othersimilar rights ofshareholdersof theBorrower and will not imposepersonalliability upon theholder thereof.
Thefollowing terms shall apply to thisNote:
ARTICLEI.CONVERSION RIGHTS
1.1 Conversion Right. The Holder shallhavetheright atany time pursuant toSection 1.6(a) or ArticleIII to convertall or any part of the outstandingandunpaidprincipal amount of this Noteintofullypaid and non-assessablesharesof Common Stock,as such Common Stockexistson theIssue Date, oranyshares ofcapital stockorother securities of theBorrower intowhichsuch Common Stock shallhereafter bechangedorreclassified at theConversion Price (as definedbelow) determined as provided herein (a“Conversion”);provided,however, that in noeventshall the Holder be entitled to convertany portion of this Note inexcessof that portion of thisNote uponconversionofwhich the sum of (1) the number ofsharesof Common Stock beneficiallyownedby theHolder and itsaffiliates (other thanshares of Common Stockwhich maybe deemed beneficially ownedthrough theownership of theunconverted portion of theNotesor theunexercisedorunconverted portion ofanyother security of theBorrower subject to a limitation onconversionorexercise analogous to the limitations containedherein) and (2) the number ofshares of Common Stockissuableupon theconversionof the portion of this Note withrespect towhich thedeterminationof thisproviso isbeing made, wouldresult inbeneficial ownershipbythe Holderand itsaffiliatesof more than 9.99%of theoutstanding shares of Common Stock.For purposes of theprovisoto the immediately precedingsentence, beneficial ownership shall bedeterminedinaccordance withSection 13(d) of theSecurities Exchange Act of 1934,as amended (the“Exchange Act”), andRegulations13D-Gthereunder, except as otherwiseprovidedin clause (1) of such proviso,provided, further, however, that thelimitations onconversion maybewaivedby the Holder upon,attheelection of theHolder, not less than 61days’ prior notice to theBorrower, and theprovisions of theconversionlimitationshall continue to apply until such 61st day (or suchlater date, as determinedby theHolder, asmay bespecified in suchnoticeofwaiver). The number ofshares ofCommon Stock to beissued uponeach conversionof this Note shallbe determinedby dividing theConversion Amount(as defined below)by theapplicable Conversion Price then ineffect on thedate specifiedin the notice of conversion, in the formattached hereto as Exhibit A (the “NoticeofConversion”), deliveredto theBorrowerby theHolderinaccordance withSection 1.4below; provided that the Notice ofConversionis submittedbyfacsimile or e-mail (orby othermeans resulting in, or reasonably expected toresult in,notice) to theBorrower before 6:00 p.m.,New York, New Yorktime on suchconversion date (the“Conversion Date”). Theterm “Conversion Amount”means,withrespect toany conversion of thisNote, the sum of (1) the principalamountof this Note to beconverted in such conversionplus (2)atthe Holder’s option,accrued and unpaid interest, ifany,on such principalamount at theinterest rates provided in this Note to theConversion Date, providedhowever, that theBorrowershallhave therighttopay any orall interest incashplus (3) at theHolder’s option,Default Interest, ifany, on theamounts referredto in the immediately precedingclauses (1)and/or(2)plus (4)at the Holder’s option, anyamounts owed to theHolder pursuant toSections1.3and 1.4(g) hereof.
(a) Calculation of ConversionPrice. Subjectto theadjustments describedherein, and provided that noEvent ofDefault (as defined inArticleIII) hasoccurred, theconversion price (the “Conversion Price”) shall equal theVariable ConversionPrice(asdefined herein) (subject toequitable adjustments for stock splits, stockdividends orrights offeringsby theBorrower relatingto theBorrower’s securities or thesecurities of any subsidiary of theBorrower, combinations, recapitalization, reclassifications, extraordinary distributionsand similar events). The“Variable ConversionPrice”shall equal thelesser of (i) one cent($0.01)or (ii) 50%multipliedby theMarket Price (as defined herein) (representing a discountrate of 50%). “MarketPrice” means the lowestclosing bidprice for the Common Stock,as reportedbyBloombergLP,during the twenty (20) TradingDayperiodending on thelatest complete TradingDayprior to theConversion Date. To the extent theConversion Price of theBorrower’sCommon Stockcloses below thepar value per share, theBorrower will takeallsteps necessarytosolicit the consent of thestockholders toreduce thepar value to the lowestvalue possible underlaw. TheBorrower agrees to honorall conversions submittedpending thisadjustment. Furthermore, theConversion Pricemaybeadjusted downward if, withinthree (3)business days of thetransmittalof the Notice ofConversion to theBorrower,the CommonStock has aclosingbid which is 5% or lower than thatset forthin the Notice of Conversion.If thesharesof theBorrower’s Common Stockhavenotbeen delivered withinthree (3)business days to theHolder, the Notice ofConversionmay berescinded.Atany time after the ClosingDate, if in thecase that theBorrower’s Common Stockis notdeliverablebyDWAC(including if theBorrower’stransferagent has a policy prohibiting or limitingdeliveryofshares of theBorrower’s Common Stockspecified in a Notice ofConversion), an additional 10% discount will apply forall future conversionsunder all Notes.If in thecase that theBorrower’s Common Stockis “chilled”fordeposit into the DTCsystem and onlyeligible for clearingdeposit, an additional 7.5% discount shall apply forall future conversions underallNotes while the“chill” is ineffect.If in the caseof both of theabove, an additional cumulative 17.5% discount shallapply. “Trading Day” shallmeanany day onwhichthe Common Stockis tradable foranyperiod on the OTCBB, OTCQB or on theprincipal securities exchange or othersecurities market onwhichthe Common Stock is then beingtraded. TheBorrowershall be responsible for thefeesof itstransfer agentand all DTCfees associated with any suchissuanceby applying suchamount to theprincipal amountdueunder theNote. Holder shall beentitled todeduct $500.00 from theconversion amount ineach Notice ofConversion tocover Holder’s deposit fees associated witheach Notice ofConversion.Ifatanytime theConversion Priceas determinedhereunder forany conversion would be less than the parvalueof the Common Stock, thenat the solediscretionof the Holder, theConversion Price hereundermayequal suchpar value for such conversionand the Conversion Amountfor suchconversionmay beincreasedto include AdditionalPrincipal, where “AdditionalPrincipal” means suchadditional amount to beaddedto the Conversion Amount to theextent necessary to cause the number of conversionshares issuable upon such conversion to equal thesamenumber ofconversion shares as wouldhavebeenissued had theConversion Price notbeen adjustedby theHolderto thepar valueprice.
Whilethis Note isoutstanding, each time any third partyhas theright toconvert monies owed tothat third party (orreceive shares pursuant to asettlement orotherwise),including but notlimited tounder Section 3(a)(9)andSection3(a)(10), at adiscount tomarketgreaterthan the Conversion Price ineffectat that time (prior to all other applicableadjustmentsin the Note), then theHolder, inHolder’ssolediscretion,mayutilize such greaterdiscountpercentage(priortoallapplicable adjustments in thisNote) untilthis Note isnolongeroutstanding.While this Note is outstanding,eachtime any third party has alookbackperiodgreater than thelook back period in effect under the Noteatthattime,including but notlimited tounder Section 3(a)(9)and Section3(a)(10), then the Holder, inHolder’s solediscretion,mayutilize such greater number oflookbackdaysuntil thisNote isnolongeroutstanding. TheBorrowershallgivewritten notice to theHolder within one(1) business day ofbecomingaware ofany event thatcould permittheHolder tomake any adjustment described in thetwo immediately preceding sentences.
(b) Conversion Price During Major Announcements. Notwithstandinganythingcontained in Section1.2(a) to thecontrary,in theevent theBorrower(i) makes a publicannouncement that itintendstoconsolidate ormerge withany othercorporation (other than amergerinwhich theBorrower is the survivingorcontinuing corporation and itscapital stock isunchanged) orsellortransfer all orsubstantially allof theassetsof theBorroweror (ii)anyperson, group or entity (including theBorrower) publiclyannouncesa tenderoffer to purchase 50% or more of theBorrower’sCommon Stock (orany othertakeover scheme) (thedate of theannouncement referredto inclause (i) or (ii) ishereinafter referred toas the“Announcement Date”), then the ConversionPrice shall,effectiveupon theAnnouncement Date and continuing through theAdjusted Conversion Price Termination Date (asdefined below), be equal to thelowerof (x) the ConversionPrice which would have beenapplicablefor a Conversionoccurring on theAnnouncementDateand (y) the ConversionPrice that would otherwise be ineffect. From and after theAdjusted Conversion Price Termination Date, theConversion Price shall bedetermined as setforthin thisSection 1.2(a). Forpurposes hereof, “AdjustedConversion Price Termination Date” shallmean, withrespectto any proposedtransaction ortender offer (ortakeover scheme) for which a public announcementas contemplatedby thisSection 1.2(b) has been made, the date uponwhich theBorrower(in thecase ofclause (i)above)or the person,group or entity (in the case of clause (ii) above)consummatesor publiclyannounces theterminationor abandonment of the proposedtransaction or tender offer (ortakeover scheme) which causedthis Section1.2(b)tobecome operative.
(c) ProRata Conversion; Disputes.Inthe event of a disputeas to the number ofsharesof Common Stockissuable to theHolder inconnection with a conversion of thisNote, theBorrower shall issue to theHolder the numberofsharesof Common Stock notin disputeand resolve such dispute inaccordance withSection4.13.
1.3 Authorized Shares. TheBorrower covenantsthat during theperiod theconversionrightexists,theBorrowerwillreserve from itsauthorized andunissued Common Stock asufficientnumberofshares, freefrom preemptiverights, toprovide forthe issuance ofCommonStock upon thefullconversionofthis Note issuedpursuant tothe PurchaseAgreement. TheBorrowerisrequiredatalltimestohaveauthorizedandreserved tentimesthenumberofsharesthatisactually issuable uponfull conversionofthe Note (based onthe Conversion Price ofthe Notes ineffectfrom time to time) (the“Reserved Amount”). TheReservedAmount shall beincreasedfromtime totime in accordance with theBorrower’sobligations pursuant toSection3(d) of thePurchase Agreement. TheBorrower representsthat uponissuance,such shareswill
bedulyandvalidlyissued,fullypaid andnon-assessable.Inaddition, if the Borrower shall issue any securities ormakeany change to its capital structure whichwould change the number of shares of Common Stock into whichthe Notes shall be convertibleatthe then currentConversion Price, the Borrower shall atthesametime make properprovisionso thatthereafter there shall be asufficient 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 hasirrevocably instructed its transfer agentto issue certificates for theCommon Stock issuable upon conversion of this Note, and (ii) agreesthat itsissuance of this Note shall constitute fullauthority to itsofficers and agents who are chargedwith thedutyof executing stock certificates to execute and issue the necessary certificates for shares of Common Stock inaccordance with the terms andconditions of this Note.Notwithstanding the foregoing, in no event shall the Reserved Amountbe lower than the initial Reserved Amount, regardless of any prior conversions.
If, atanytime theBorrower does not maintain orreplenishtheReserved Amount withinthree (3)business days of therequestoftheHolder, the principal amount of the Note shallincreasebyFive ThousandandNo/100 United StatesDollars ($5,000)(under Holder’s and Borrower’s expectation thatany principalamount increase willtack back to theIssueDate)per occurrence.
(a) Mechanics of Conversion.SubjecttoSection 1.1, this Note may beconvertedby theHolder in whole or in partatany timefromtime to timeafter theIssue Date,by
(A) submitting to theBorrower a NoticeofConversion(byfacsimile,e-mailor other reasonablemeans ofcommunication dispatched on theConversion Date prior to 5:00 p.m.,NewYork, New York time)and (B) subject toSection1.4(b), surrendering this Noteattheprincipaloffice of theBorrower.
(b) Surrender of Note UponConversion.Notwithstanding anything to the contrary setforth herein, upon conversion of this Note in accordance with theterms hereof, theHoldershall notbe required to physically surrender this Note to theBorrowerunless the entireunpaid principal amount of this Note is so converted. TheHolder and theBorrower shall maintainrecords showing the principal amount soconverted and the datesof such conversions or shall use such other method, reasonably satisfactory to theHolder and theBorrower,soas not torequire physical surrenderof this Note uponeach suchconversion.In the event ofany dispute ordiscrepancy, such records of theBorrower shall,primafacie, becontrolling and determinative in theabsence of manifesterror.Notwithstanding theforegoing, ifanyportion of this Note isconverted as aforesaid, theHoldermay nottransfer this Note unless theHolder first physicallysurrenders this Note tothe Borrower, whereupon theBorrowerwillforthwith issueand deliver upon theorder of theHolder a new Note of like tenor,registered as the Holder (uponpaymentby theHolder ofanyapplicable transfer taxes) mayrequest, representing in theaggregate theremaining unpaid principalamount of thisNote.TheHolder andanyassignee,byacceptance of thisNote, acknowledge and agree that,by reason of theprovisionsofthis paragraph, followingconversionof a portion of thisNote, theunpaid and unconverted principalamount of this Noterepresentedby this Note maybe less than the amountstated on theface hereof.
(c) Payment of Taxes. TheBorrowershall not berequired to payany taxwhich may bepayable inrespectofany transferinvolved in the issueanddelivery ofsharesof Common Stock or othersecurities or propertyonconversion of this Note in aname other than that of theHolder (or instreet name), and theBorrower shall not berequiredto issue ordeliver any suchsharesor othersecurities or property unlessanduntil theperson orpersons (other than theHolder or the custodian in whose street name suchsharesare tobeheld for the Holder’saccount) requesting the issuancethereof shall havepaid to theBorrower theamount ofany such tax orshall have establishedto thesatisfaction of theBorrowerthat such taxhas been paid.
(d) Deliveryof Common Stock Upon Conversion. Uponreceiptby theBorrower from theHolderof afacsimile transmission ore-mail(or otherreasonable means ofcommunication)of a Notice ofConversion meeting therequirementsforconversion as provided in thisSection1.4, theBorrower shall issueand deliverorcause to beissued and deliveredto or upon theorder of the Holdercertificatesfor the CommonStock issuable upon suchconversionwithinthree (3)business days aftersuch receipt (the“Deadline”) (and, solely in the caseofconversion of theentire unpaid principal amount hereof, surrender of thisNote) in accordance with thetermshereofand thePurchaseAgreement.
(e) Obligation of Borrower to Deliver Common Stock. Upon receiptby the Borrowerofa Noticeof Conversion,theHolder shallbe deemedto be the holder of record of the Common Stock issuable upon suchconversion, the outstanding principal amountand the amountof accrued and unpaid interest on this Note shallbe reduced to reflect such conversion, and, unless the Borrower defaults on its obligationsunder this ArticleI,all rights with respect to the portionof this Note beingsoconverted shall forthwith terminate exceptthe righttoreceive the Common Stockor other securities, cash or other assets, as herein provided, on such conversion.If the Holder shall have given a Notice of Conversion as providedherein,the Borrower’s obligation toissue and deliver the certificates for Common Stock shallbeabsolute and unconditional, irrespectiveof the absenceof any actionby the Holder to enforce the same,anywaiveror consent with respect toanyprovisionthereof, the recoveryof anyjudgment againstany personor any actionto enforce the same,any failure or delayin the enforcement ofany other obligationofthe Borrower to the holderofrecord,or any setoff, counterclaim, recoupment, limitation or termination,or any breachor alleged breachby the Holderof any obligation to the Borrower, and irrespectiveof any other circumstance which might otherwise limit such obligationof the Borrowerto the Holderin connection with such conversion. The ConversionDate specifiedinthe Noticeof Conversion shallbe the Conversion Dateso longas the Notice of Conversion is receivedby the Borrower before 5:00 p.m., New York, New York time, on such date.
(f) Delivery of Common StockbyElectronic Transfer.Inlieu ofdelivering physical certificates representing the CommonStock issuable uponconversion, provided theBorrower isparticipatingin the DepositoryTrust Company (“DTC”)Fast Automated Securities Transfer (“FAST”) program, uponrequest of the Holderand its compliance with theprovisions contained inSection 1.1and in thisSection 1.4, theBorrower shall use its commerciallyreasonable best efforts tocauseitstransfer agent toelectronicallytransmit the Common Stock issuable uponconversion to the Holderbycrediting theaccount of
Holder’sPrimeBrokerwith DTCthrough itsDeposit WithdrawalAt Custodian(“DWAC”) system.
(g) DTC Eligibility &Sub-Penny.IftheBorrower fails to maintain its statusas“DTCEligible” foranyreason, or,if theConversionPrice is less than $0.01,atany time while this Note isoutstanding, the principalamountof the Note shallincreaseby FiveThousand and No/100 UnitedStates Dollars ($5,000) (under Holder’s and Borrower’s expectation that any principalamount increasewilltack back to theIssue Date).
(h) Failure toDeliver Common Stock Prior to Delivery Deadline. Without in anyway limiting theHolder’s right to pursue otherremedies, includingactual damages and/or equitable relief, the partiesagree that if delivery of theCommon Stockissuable uponconversionof this Noteis notdeliveredby theDeadline (other than afailuredue to thecircumstances described inSection1.3above, which failure shall begovernedby suchSection) theBorrowershall pay to theHolder $1,000perday in cash, foreachdaybeyond theDeadline that theBorrower fails to deliver such Common Stock until theBorrower issues and delivers a certificate to the Holder orcredit theHolder's balance account with OTC for the numberofsharesof CommonStock towhichtheHolder isentitled upon suchHolder's conversion of anyConversion Amount(under Holder's and Borrower's expectation thatanydamages willtack back to theIssue Date).. Such cash amount shall bepaidtoHolderby thefifthday of the month following the month inwhichithas accrued or, at the option of theHolder(bywritten notice to theBorrowerby thefirstdayof the month following the month inwhich ithas accrued), shall beadded to theprincipalamountof thisNote, inwhich event interest shallaccrue thereon inaccordancewith theterms of this Noteand suchadditional principal amount shall be convertible into Common Stock inaccordancewith theterms of thisNote. TheBorrower agrees that theright toconvert is avaluable right to theHolder.Thedamages resultingfrom afailure, attempt tofrustrate, interferencewithsuch conversionright are difficult if not impossible toqualify. Accordingly, theparties acknowledge that theliquidated damages provision contained inthis Section 1.4(h) are justified.
(i) Rescindment of aNotice ofConversion.If (i)the Borrowerfailsto respond toHolderwithinone (1)businessday from theConversion Dateconfirmingthe detailsofNotice ofConversion,(ii) theBorrowerfailstoprovide any of theshares oftheBorrower’sCommon Stockrequested in theNotice ofConversion withinthree (3)businessdaysfrom the date ofreceiptofthe Note ofConversion, (iii) the Holder isunable toprocure alegal opinion required tohave theshares of theBorrower’sCommonStock issued unrestricted and/or deposited tosellforany reasonrelatedto theBorrower’s standing, (iv) theHolder is unable to deposit theshares oftheBorrower’s CommonStockrequestedin theNotice ofConversionforany reason related to theBorrower’s standing, (v)at anytime after amissedDeadline, atthe Holder’ssolediscretion, or(vi) ifOTCMarketschanges theBorrower'sdesignationto‘Limited Information’(Yield), ‘NoInformation’(Stop Sign),‘CaveatEmptor’(Skull &Crossbones), ‘OTC’,‘Other OTC’ or‘Grey Market’(ExclamationMark Sign) orother tradingrestriction onthe day of or any dayafter theConversion Date, theHolder maintains theoption andsole discretion torescindthe Notice ofConversion (“Rescindment”) witha“NoticeofRescindment.”
1.5 Concerning theShares. Theshares of Common Stockissuable uponconversion of this Note may not be soldortransferred unless (i) such shares are sold pursuant toan effective registration statement under theAct or (ii) theBorroweror itstransfer agent shallhave beenfurnished withan opinion ofcounsel (which opinion shall be inform, substance and scope customary for opinions of counsel incomparable transactions) to theeffectthat theshares to be sold ortransferredmay be sold ortransferred pursuant toan exemptionfrom such registration or (iii) suchshares are soldortransferred pursuant to Rule 144under theAct (or asuccessor rule) (“Rule 144”) or (iv) suchsharesaretransferred toan “affiliate” (as defined in Rule 144) of theBorrower who agrees tosellorotherwise transfer thesharesonly inaccordance with thisSection1.5and who isan Accredited Investor (as defined in thePurchase Agreement). Except as otherwise provided in thePurchase Agreement (and subject to the removal provisionsset forth below), until such timeas thesharesof Common Stockissuable uponconversionof this Notehave beenregistered undertheAct or otherwise may be sold pursuant to Rule 144withoutanyrestriction as to the number of securitiesasof aparticular date that can then be immediately sold,each certificate forsharesof Common Stockissuableupon conversion of this Note thathasnotbeen soincluded in aneffective registration statement or thathas not been soldpursuanttoan effective registration statement oranexemptionthat permits removal ofthe legend, shallbear alegend substantially in thefollowing form, asappropriate:
“NEITHERTHEISSUANCEAND SALEOF THESECURITIES REPRESENTED BY THIS CERTIFICATE NOR THESECURITIES INTO WHICH THESE SECURITIES AREEXERCISABLE HAVE BEEN REGISTERED UNDER THESECURITIESACTOF 1933, AS AMENDED,OR APPLICABLESTATESECURITIES LAWS. THESECURITIESMAYNOT 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 UNDERSAIDACT 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.”
Thelegend set forth above shall beremoved andtheBorrower shall issue to theHoldera new certificatetherefore freeof anytransfer legend if (i) theBorroweror itstransfer agent shallhavereceivedan opinion of counsel, inform, substance and scopecustomary for opinions ofcounselincomparable transactions, to theeffectthat a publicsale ortransfer of such Common Stock maybe made withoutregistration under the Act, which opinion shall be reasonablyacceptedbytheBorrower so that thesale or transfer iseffected or (ii) in thecaseof the CommonStock issuable uponconversionof thisNote, such securityisregistered for saleby theHolder under an effective registration statement filedunder theActorotherwisemay be soldpursuantto Rule 144 without anyrestriction as to thenumberofsecurities as of aparticular date
thatcan then be immediately sold.In theevent that theBorrower does notacceptthe opinion ofcounsel providedby theBuyer withrespect to thetransferofSecurities pursuant toan exemption from registration, such as Rule 144 orRegulation S,attheDeadline, it will beconsideredanEvent ofDefault pursuant toSection 3.2 of theNote.
| 1.6 | EffectofCertainEvents. |
(a) EffectofMerger,Consolidation, Etc. At the option of the Holder, thesale, conveyanceor disposition ofall orsubstantially all of 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 (asdefined below) orPersons when theBorroweris not the survivor shalleither: (i) be deemed to beanEvent ofDefault (asdefined in ArticleIII) pursuant towhich theBorrower shall berequired topayto theHolder upon theconsummationofand as acondition to suchtransaction an amount equal to theDefaultAmount(as defined in ArticleIII) or (ii) betreated pursuant toSection 1.6(b)hereof.“Person” shallmeanany individual,corporation,limited liabilitycompany, partnership, association, trust orotherentity ororganization.
(b) Adjustment Due to Merger, Consolidation, Etc.If, atanytime when this Noteis issued and outstanding andpriorto conversionof allof the Notes, there shallbe any merger, consolidation, exchange of shares, recapitalization, reorganization,or other similar event,as a result of which sharesof Common Stockof the Borrower shall be changed into the sameor a different numberofshares of another class or classesof stock or securitiesofthe Borroweror another entity, or in caseof any sale or conveyanceof allor substantiallyall of the assets of the Borrower other thaninconnection with a planof completeliquidation of the Borrower, then the Holderof this Note shall thereafter have the right to receive upon conversion of this Note, uponthe basisandupon the terms and conditions specified herein and inlieu of the shares of Common Stock immediatelytheretofore issuableuponconversion, such stock, securitiesor assets which the Holder would have been entitled to receive in such transaction had this Note been convertedin fullimmediatelypriorto such transaction (without regardto any limitations onconversion set forth herein), andin any such case appropriate provisions shallbe made with respect totherightsand interests of the Holder of this Note totheend that the provisions hereof (including, without limitation, provisionsfor adjustmentof theConversion Price andof the number of shares issuable upon conversionofthe Note) shall thereafterbe applicable,asnearly asmay be practicableinrelation toany securitiesor assets thereafter deliverable upon the conversion hereof.The Borrower shallnotaffectanytransaction described in this Section 1.6(b) unless (a) it first gives,to the extent practicable,thirty (30)days prior written notice (but inany event at least fifteen (15) daysprior written notice)ofthe record date of the specialmeeting of shareholderstoapprove,or ifthereis no such record date, the consummation of, such merger, consolidation, exchangeof shares, recapitalization, reorganizationor other similar event or saleofassets (during which time the Holder shallbe entitled to convert this Note) and (b) the resulting successoror acquiringentity(if not the Borrower) assumesby written instrumenttheobligations of this Section 1.6(b). The above provisions shall similarlyapply tosuccessive consolidations, mergers,sales, transfers or share exchanges.
(c) Adjustment Due toDistribution.IftheBorrower shalldeclare or make any distribution of itsassets (orrightstoacquireitsassets) toholdersof Common Stockas adividend, stock repurchase,byway of return of capital orotherwise(includinganydividendor distribution to theBorrower’s shareholders incashorshares (or rights toacquire shares) ofcapital stock of a subsidiary(i.e.,a spin-off)) (a “Distribution”), then theHolder of this Note shall beentitled, upon any conversion of this Noteafterthedate ofrecord for determiningshareholders entitled to suchDistribution,toreceive theamount of suchassets which wouldhave been payable to theHolder withrespect to thesharesofCommon Stockissuable upon suchconversion had suchHolder been the holder of suchshares of Common Stock onthe record date for thedetermination ofshareholdersentitled tosuch Distribution.
(d) Adjustment Due to DilutiveIssuance.If,atany timewhenanyNotes are issued and outstanding,theBorrower issuesorsells,or inaccordance with thisSection 1.6(d) hereof isdeemed tohave issued or sold,except forshares of Common Stockissued directly tovendors orsuppliersof theBorrowerinsatisfaction ofamounts owed to such vendors orsuppliers (provided, however, that suchvendorsorsuppliers shall nothave an arrangementtotransfer, sell orassign suchshares of Common Stockprior to theissuanceof suchshares),anyshares of Common Stock for noconsideration or for a considerationpershare (before deduction ofreasonable expenses orcommissionsorunderwriting discounts orallowancesinconnection therewith) less than theConversion Price ineffect on the date of suchissuance(ordeemed issuance) of suchsharesof Common Stock (a“Dilutive Issuance”), then immediately upon the DilutiveIssuance, theConversion Pricewill bereduced to theamountof theconsideration per share receivedby theBorrower insuchDilutiveIssuance.
TheBorrower shall bedeemed tohave issued or soldshares ofCommonStockiftheBorrowerin anymanner issues orgrantsany warrants,rights oroptions(not including employee stockoption plans), whether ornot immediately exercisable, tosubscribe for or topurchase Common Stock orother securitiesconvertible into orexchangeableforCommon Stock(“Convertible Securities”)(suchwarrants, rights and options topurchaseCommon Stock orConvertibleSecurities arehereinafter referred to as “Options”)and thepriceper sharefor whichCommon Stock isissuable upon theexercise ofsuch Options is less than theConversionPrice then ineffect,then the Conversion Priceshall beequal to suchprice per share.Forpurposesofthe precedingsentence,the “pricepersharefor whichCommon Stock isissuableupon theexercise of suchOptions”isdetermined bydividing (i) thetotal amount, ifany,receivedorreceivable by theBorroweras consideration forthe issuance orgrantingofallsuch Options,plustheminimumaggregateamountofadditional consideration, ifany,payable to theBorrower upon theexercise ofall suchOptions,plus, in the case ofConvertibleSecurities issuableupontheexercise ofsuch Options, theminimum aggregateamount ofadditional consideration payableupon theconversionorexchangethereof at the time suchConvertible Securities firstbecome convertibleorexchangeable, by (ii)the maximum total number ofshares ofCommon Stock issuable upon the exerciseofall such Options (assumingfull conversion ofConvertibleSecurities, ifapplicable).Nofurtheradjustmentto theConversion Pricewill be madeuponthe actual issuanceofsuch Common Stockupontheexercise ofsuch Options orupontheconversionorexchange ofConvertible Securitiesissuable upon exercise of suchOptions.
Additionally,the Borrower shallbe deemedtohave issued or sold shares of Common Stock ifthe Borrowerin any manner issues or sellsany Convertible Securities, whetherornotimmediately convertible (other than where the same are issuable upon the exerciseof Options), and the priceper sharefor which Common Stock is issuableuponsuch conversionor exchange is less than the ConversionPricethenin effect, then the Conversion Price shallbeequalto such priceper share. Forthe purposes of thepreceding sentence, the “price per share for which Common Stock is issuable upon such conversionor exchange” is determinedby dividing (i) the total amount,ifany, receivedor receivableby the Borroweras consideration for the issuanceorsaleofall suchConvertibleSecurities, plus the minimum aggregate amountof additional consideration, if any, payableto the Borrowerupon the conversion or exchange thereofat the time such Convertible Securities first become convertible or exchangeable,by(ii) the maximum total numberof shares of Common Stock issuable upon the conversionorexchange ofall such Convertible Securities. No further adjustmenttothe Conversion Price will be made uponthe actual issuance of such Common Stock upon conversionorexchange of such Convertible Securities.
(e) Purchase Rights. If, atany timewhenanyNotesareissued and outstanding, theBorrower issues any convertiblesecurities orrightstopurchase stock,warrants, securitiesor other property (the“Purchase Rights”) pro rata to therecord holders ofanyclass of Common Stock,then theHolder of this Note will beentitled toacquire, upon theterms applicable to suchPurchase Rights, theaggregate Purchase Rights which such Holdercould have acquired if suchHolder had held the number ofsharesof Common Stockacquirable uponcomplete conversion of this Note(without regard toanylimitations onconversion contained herein) immediately before thedateonwhich arecord istakenfor thegrant, issuance orsale of suchPurchase Rights or, if nosuch recordistaken, thedate as ofwhichtherecord holders of Common Stockareto be determined for thegrant, issue or sale of suchPurchaseRights.
(f) Notice of Adjustments. Upon theoccurrence ofeach adjustment orreadjustment of the ConversionPrice as aresult of the eventsdescribedin thisSection 1.6, theBorrower, at its expense, shall promptly compute suchadjustment or readjustmentandprepareand furnish to theHolder a certificatesetting forth suchadjustmentorreadjustment andshowing indetail thefacts upon whichsuch adjustment orreadjustment isbased.TheBorrower shall, upon thewritten request at any time of theHolder, furnish to suchHolderalike certificate setting forth
(i) suchadjustment orreadjustment, (ii) the ConversionPrice at the time ineffect and (iii) the number ofshares of Common Stockandtheamount, ifany,ofother securities or property whichat the timewouldbereceived uponconversion of theNote.
1.7 TradingMarket Limitations.Unless permittedby theapplicable rules andregulations of theprincipalsecurities market onwhich the Common Stock isthenlisted ortraded,in noeventshall theBorrowerissueupon conversion of orotherwisepursuant to this Noteandthe otherNotesissued pursuant tothe PurchaseAgreement morethan themaximum number ofshares ofCommon Stock that theBorrowercan issuepursuanttoany rule of theprincipal UnitedStatessecuritiesmarketon which theCommon Stock isthen traded (the“MaximumShareAmount”),whichshallbe9.99% of thetotal sharesoutstandingonthe Closing Date(as defined inthe PurchaseAgreement),subject toequitable adjustment fromtime totime forstocksplits, stock dividends, combinations, capitalreorganizations andsimilareventsrelating
to the Common Stock occurringafter thedate hereof.Once the MaximumShare Amount hasbeen issued, if theBorrower fails toeliminateanyprohibitions under applicable law or therulesorregulations ofany stockexchange,interdealer quotationsystem orotherself-regulatoryorganization withjurisdiction over theBorrower orany of its securities on theBorrower’s ability to issuesharesofCommon Stock inexcess of the MaximumShare Amount, inlieu ofanyfurther right to convert this Note, this will be consideredan EventofDefault underSection3.2of theNote.
1.8 Statusas Shareholder. Upon submission of a Notice ofConversionby aHolder, (i) theshares covered thereby (other than theshares, ifany,whichcannot beissued because theirissuance wouldexceed such Holder’sallocated portion of theReserved Amount or MaximumShare Amount) shall bedeemed convertedintoshares of Common Stockand (ii) theHolder’s rights as a Holder of suchconvertedportion of this Note shallcease and terminate,exceptingonly theright toreceive certificates for suchshares of Common Stockand to anyremedies provided herein or otherwiseavailable at law or in equity to suchHolder becauseofafailureby theBorrowerto comply with theterms of this Note. Notwithstanding theforegoing,if aHolder has notreceived certificates forall shares of Common Stock prior to the tenth (10th)businessdayafter theexpiration of theDeadline withrespect to a conversion of any portion of this Note foranyreason, then(unless theHolder otherwiseelectsto retain its statusas a holder of CommonStockby sonotifying theBorrower)theHolder shallregain therightsof aHolder of this Note withrespectto suchunconverted portions of this NoteandtheBorrower shall,as soonas practicable,return suchunconverted Note to theHolder or, if the Notehas notbeen surrendered, adjust itsrecords toreflect that such portion of this Note has notbeen converted.Inall cases, theHolder shallretain all of itsrights and remedies (including, without limitation,(i)theright toreceive Conversion Default Payments pursuant toSection 1.3 to the extentrequiredthereby for such ConversionDefault and any subsequentConversion Default and (ii) theright tohave theConversion Price withrespect tosubsequent conversions determined inaccordancewithSection 1.3)fortheBorrower’s failureto convert this Note.
1.9 Prepayment. Notwithstanding anything to the contrary contained inthis Note, theBorrowermay prepay theamounts outstanding hereunderpursuant to the followingterms and conditions:
(a) At any time during theperiod beginning on the IssueDate and ending on thedate which is thirty (30)daysfollowing theIssue Date, theBorrowershallhave theright, exercisable on not lessthan three (3) Trading Daysprior written notice tothe Holder of the Note to prepay theoutstandingNote(principal and accrued interest), in fullbymaking apayment to theHolder ofan amount incash equal to125%, multipliedby the sumof: (w) the thenoutstanding principal amount ofthis Noteplus (x)accrued and unpaid interest on theunpaid principal amount of this Noteplus(y)Default Interest, ifany.
(b) Atany timeduring theperiodbeginning the day whichis thirty-one (31)daysfollowing theIssueDate and ending on thedate which is sixty (60)daysfollowing theIssueDate, theBorrower shallhave theright, exercisable onnot less than three(3)TradingDayspriorwrittennotice tothe Holder of theNote to prepay theoutstanding Note(principal andaccruedinterest), infullbymaking apaymenttotheHolder ofan amountincash equalto130%,
multipliedbythesumof:(w)thethen outstandingprincipalamount ofthis Noteplus(x)accruedand unpaid interest onthe unpaid principal amount ofthis Noteplus(y)DefaultInterest,ifany.
(c) Atany timeduringtheperiodbeginning the day which is sixty-one(61)daysfollowing theIssueDate andending on thedate which isninety (90)daysfollowing theIssueDate, theBorrower shallhave theright,exercisableonnot less than three(3)TradingDaysprior written notice tothe Holderofthe Note to prepay theoutstandingNote (principalandaccruedinterest),infullbymaking apaymentto theHolderofan amount incash equal to135%,multipliedbythesumof:(w) the then outstanding principal amount ofthis Noteplus(x)accruedand unpaid interest onthe unpaid principal amount ofthis Noteplus(y)DefaultInterest,ifany.
| (d) | Atany time during theperiodbeginning theday which is ninety-one |
(91)days following theIssue Date and ending on thedate which is onehundred eightydays
(180)days following theIssueDate,theBorrower shallhave theright,exercisable on notless thanthree (3) TradingDays prior written notice to theHolderof the Note to prepay theoutstanding Note(principal and accrued interest), in fullby making a payment to the Holderofan amount incash equal to140%, multipliedby the sumof: (w) the thenoutstanding principal amount of this Noteplus(x)accrued and unpaid interest on theunpaid principal amount of this Noteplus(y)Default Interest, ifany.
(e) After theexpiration of onehundredeighty (180)days following thedateof theNote, theBorrower shall have noright ofprepayment.
Any notice of prepayment hereunder(an“OptionalPrepayment Notice”) shall be delivered to the Holder of the Note atits registered addresses and shall state: (1) that the Borrower isexercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Daysfrom the date of theOptional Prepayment Notice. Onthedatefixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the applicable prepaymentamount to or upon the orderof the Holder asspecifiedbythe Holder in writing to the Borrower atleast one (1) business day prior to the Optional Prepayment Date. Ifthe Borrower deliversanOptional Prepayment Notice and fails topay the applicable prepayment amount due to the Holder of the Note within two (2) business daysfollowing the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant tothis Section 1.9.
1.10 Mandatory Prepayment Option.In the event that the company conducts aregistered offering with the SEC,at the soleand absolute discretion of theHolder,the Holdermaydemand cash prepaymentby theBorrower to the Holder inwriting (each a"Prepayment Demand").In theevent of theissuanceof aPrepayment Demandby theHolder,the amount of theprepayment necessary to fully satisfy theobligationsshall equal theapplicable amountsprovidedinSection
1.9herein. Theprepayment required pursuant to thisSection shall bepaidbytheBorrower following theeffectivenessof theregistration statementand shall bepaid out of theproceeds of thesaleof anysharespursuantthereto.In the event that theshares sold are 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 longastheBorrower shall have anyobligation under thisNote, theBorrower shall not without theHolder’s written consent (a) pay, declare orsetapart for suchpayment,any dividend or other distribution(whether incash, property or other securities) onsharesofcapital stock other thandividends onshares of Common Stock solely in theform ofadditional sharesof Common Stock or (b) directlyor indirectly orthroughany subsidiary makeany other payment or distribution inrespect of itscapital stockexcept for distributionspursuant to any shareholders’rights planwhichisapprovedby a majority of theBorrower’s disinterested directors.
2.2 Restriction on StockRepurchases.So longas theBorrower shall haveanyobligation under this Note, theBorrower shall not without the Holder’s writtenconsent redeem, repurchase or otherwiseacquire (whether for cash or inexchangefor property or othersecurities orotherwise)inany onetransaction orseriesof relatedtransactions anyshares ofcapital stock of theBorrower or anywarrants, rights or options topurchaseoracquireanysuchshares.
2.3 Borrowings. So longas theBorrowershallhaveanyobligationunder thisNote,theBorrowershall not,without theHolder’s written consent, create, incur, assume guarantee, endorse, contingently agree topurchaseorotherwise becomeliable upon theobligation ofanyperson,firm, partnership, jointventureor corporation,exceptby theendorsementofnegotiable instruments fordepositorcollection, orsuffertoexist any liability forborrowed money, except(a) borrowings inexistence orcommittedon thedate hereof and ofwhich theBorrower has informed Holder in writingpriorto the date hereof, (b) indebtedness totrade creditors financial institutions or otherlenders incurred in theordinarycourse ofbusiness or
(c) borrowings,the proceeds ofwhich shall be used to repay this Note.
2.4 Sale of Assets. Solongas the Borrower shall haveany obligationunderthis Note, the Borrower shall not, without the Holder’s written consent, sell, leaseorotherwise disposeof any significant portionofits assets outside the ordinary courseof business.Anyconsent to the dispositionof any assetsmay be conditioned on a specified useof the proceedsofdisposition.
2.5 Advancesand Loans. Solong astheBorrower shallhave any obligationunder thisNote, theBorrower shall not, withoutthe Holder’swritten consent,lendmoney,give creditormakeadvancestoanyperson,firm,joint ventureorcorporation, including,withoutlimitation, officers, directors, employees, subsidiariesandaffiliatesofthe Borrower,except loans, credits or advances (a)in existence or committedonthedate hereof andwhichthe Borrower hasinformed Holderinwriting priortothe date hereof,(b) made inthe ordinary course of business or(c) not in excess of$100,000.
2.6 Section 3(a)(9)or3(a)(10) Transaction. So longas this Note isoutstanding,theBorrower shall notenter into anytransaction orarrangement structuredinaccordance with,based upon, orrelated or pursuant to, in whole or in part,either Section 3(a)(9) of theSecurities Act (a“3(a)(9) Transaction”) orSection 3(a)(l0) of the SecuritiesAct(a“3(a)(l0) Transaction”).Intheevent that theBorrower doesenter into, or makesany issuance of Common Stockrelated
to a3(a)(9) Transaction or a3(a)(l0) Transaction while this Note isoutstanding, aliquidated damages charge of 25% of theoutstanding principal balance of thisNote,but not less thanFive Thousand Dollars $5,000, will beassessed and willbecome immediately dueand payable to theHolder at itselectionin theform ofcash payment oraddition to thebalance of this Note.
2.7 PreservationofExistence, etc. TheBorrower shall maintainand preserve, and cause eachof itsSubsidiariesto maintainand preserve, itsexistence,rightsand privileges, and becomeor remain,and causeeach of itsSubsidiaries(other than dormantSubsidiaries that have no or minimumassets)to become orremain, dulyqualified and ingood standing ineach jurisdictioninwhich thecharacter of the propertiesowned orleasedbyit or inwhich thetransaction of its businessmakes suchqualification necessary.
2.8 Non-circumvention. TheBorrowerherebycovenants and agrees that theBorrowerwill not,by amendment of itsCertificateorArticles ofIncorporation orBylaws,orthroughanyreorganization, transferofassets,consolidation,merger, scheme ofarrangement,dissolution, issue orsale ofsecurities,or any other voluntaryaction, avoid orseektoavoid theobservanceorperformanceofany of the termsof thisNote, and willat all times ingood faithcarry outalltheprovisions of this Noteand takeallaction as may be required toprotect therightsof theHolder.
2.9 Repaymentfrom Proceeds. While any portion of this Noteis outstanding, if the Borrower receives cash proceeds from any source or series of relatedor unrelated sources, including but not limited to, from payments from customers, the issuance ofequityor debt, the conversion of outstanding warrants of the Borrower, the issuance of securities pursuant toanequityline of credit of theBorrower or the sale of assets, theBorrowershall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of such receipt, following which theHolder shall have the right inits sole discretiontorequire the Borrower to immediatelyapplyall or any portion of suchproceedsto repay all or any portion of theoutstanding amounts owedunder this Note. Failure of the Borrower tocomplywith this provision shall constitute anEvent of Default. Inthe event that suchproceedsarereceivedbythe Holder prior to theMaturityDate, 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 Failure toPay Principal orInterest. TheBorrower fails topay the principalhereoforinterest thereonwhen due on thisNote, whether at maturity, uponaccelerationorotherwise.
3.2 Conversion and theShares.TheBorrower fails toissue sharesofCommonStock to theHolder (orannounces orthreatens inwritingthat it will not honor itsobligation to do so) uponexerciseby theHolder of the conversionrights of theHolderinaccordance with theterms of thisNote, failstotransferor cause itstransfer agent totransfer(issue) (electronically or incertificated form) any certificate forsharesof Common Stockissued to the Holder uponconversionofor otherwisepursuant to this Note asand whenrequiredbythisNote, theBorrower directs itstransfer agent not totransfer or delays,impairs, and/or hinders itstransfer
agentintransferring(orissuing) (electronicallyor incertificatedform) any certificate forsharesof Common Stock to beissuedto the Holder uponconversionof orotherwise pursuant to this Noteas and when requiredby this Note, orfails toremove (ordirectsitstransfer agent not toremove orimpairs, delays,and/or hinders itstransfer agentfrom removing) any restrictivelegend(or towithdrawanystoptransfer instructions inrespectthereof) onanycertificate forany shares of CommonStock issued to theHolder uponconversion of orotherwisepursuant to this Noteasand when requiredbythis Note (ormakesanywrittenannouncement, statement orthreatthat itdoes notintend to honor theobligationsdescribed in this paragraph)andany suchfailureshallcontinue uncured(or any writtenannouncement, statement orthreatnotto honor itsobligations shall not berescinded inwriting) for three (3) businessdays aftertheHolder shallhave delivered a NoticeofConversion.Itisan obligation of theBorrowertoremain current in itsobligationsto itstransfer agent.It shall bean event of default of thisNote, if a conversion of this Note isdelayed, hindered or frustrated due to abalanceowedbytheBorrower to its transferagent.Ifatthe option of theHolder,theHolder advancesany funds to theBorrower’s transfer agent inordertoprocess a conversion, suchadvancedfunds shall bepaidby theBorrowerto theHolderwithinforty-eight (48) hours of ademandfrom the Holder.
3.3 Failure toDeliver TransactionExpense Amount. TheBorrower fails todelivertheTransaction Expense Amount(as definedin thePurchase Agreement) to theHolderwithinthree (3)businessdays of thedate such amount isdue.
3.4 Breach of Covenants. TheBorrower breachesanymaterial covenantorothermaterial term orcondition containedin this Noteandanycollateraldocuments including but not limited to thePurchase Agreement and suchbreach continues for a period of ten (10)daysafter written notice thereof to theBorrower from the Holder (except that no cureperiod shall apply for theBorrower’s breach ofSection 4.16 of thisNote).
3.5 Breach ofRepresentations and Warranties.Anyrepresentation orwarrantyof theBorrower made herein or inanyagreement,statement or certificategiveninwritingpursuanthereto or inconnection herewith (including, withoutlimitation,thePurchase Agreement), shallbefalse ormisleadingin anymaterial respect when madeandthebreach ofwhich has (or withthepassageoftime will have) amaterial adverseeffecton therights of the Holderwith respectto this Note or thePurchase Agreement.
3.6 Receiver orTrustee. TheBorrower orany subsidiaryoftheBorrower shall makean assignmentfor thebenefit ofcreditorsorcommence proceedings for itsdissolution,or apply for orconsent to theappointment of a receiver or trustee for it or for asubstantial part of its property or business, or such a receiveror trustee shallotherwisebe appointed for the Borrower or for asubstantial partofits property orbusiness without itsconsent and shall not bedischarged within sixty (60)days after such appointment.
3.7 Judgments. Any moneyjudgment, writorsimilar process shall beenteredor filedagainst the Borrower oranysubsidiaryof theBorroweror any of its property or otherassets for more than $50,000, and shallremainunvacated,unbonded orunstayed for a period of twenty (20)days unless otherwiseconsentedtobytheHolder, which consent will not be unreasonably withheld.
3.8 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidationproceedingsor otherproceedings,voluntary orinvoluntary, forreliefunderanybankruptcy law or any law for thereliefofdebtorsshall beinstitutedby oragainst theBorrower oranysubsidiary of theBorrower, or theBorrower admits inwriting its inability topayitsdebtsgenerallyastheymature,orhave filed against itan involuntary petition forbankruptcy relief, all under federalorstatelaws as applicableor theBorrower admits inwriting its inability to pay its debts generallyastheymature,orhave filedagainstitan involuntary petition for bankruptcyrelief, all under international, federal or statelaws asapplicable.
3.9 Delistingof Common Stock.TheBorrower shallfail to maintain the listing of the Common Stock onat least one of theOTCBB, OTCQB, OTC Pink oran equivalent replacement exchange, theNasdaq National Market, theNasdaq SmallCap Market, theNew York StockExchange,or theNYSE MKT.
3.10 Liquidation. Any dissolution,liquidation,or winding up ofBorrower oranysubstantial portion of itsbusiness.
3.11 Cessation ofOperations. Anycessation ofoperationsbyBorrower orBorrower admits it isotherwise generally unable to pay its debtsas such debts become due, provided, however, that any disclosure of theBorrower’sability tocontinue as a “going concern” shall not bean admission that theBorrower cannot pay itsdebtsasthey becomedue.
3.12 Maintenance of Assets. ThefailurebyBorrower to maintainanymaterial intellectual propertyrights, personal, real property or other assetswhich are necessary to conduct itsbusiness (whether now or in the future)or anydisposition orconveyance ofanymaterial asset of theBorrower.
3.13 Financial Statement Restatement. The restatement ofanyfinancial statements filedby theBorrower with the SEC for any date orperiod from twoyears prior to theIssue Date of this Noteand until this Note is no longeroutstanding,if theresult of suchrestatementwould,bycomparison to the unrestatedfinancial statement,have constituted amaterial adverseeffect on therightsof theHolder withrespect to this Note or thePurchase Agreement.
3.14 Reverse Splits. TheBorrower effectuates areverse split of itsCommonStock without twenty(20) days priorwrittennotice to theHolder.
3.15 Replacement ofTransfer Agent.Inthe event that theBorrower proposestoreplaceitstransfer agent, theBorrower failstoprovide, prior to theeffective dateof suchreplacement,a fully executedIrrevocable Transfer Agent Instructions in a form as initially
deliveredpursuant to thePurchase Agreement (including but not limited to theprovision to irrevocably reserve shares of Common Stock in theReserved Amount)signedby thesuccessor transfer agent toBorrower and theBorrower.
3.16 Cessation ofTrading.Any cessation of trading of the Common Stock onat least one of theOTCBB, OTCQB, OTC Pink or anequivalent replacement exchange, the NasdaqNational Market, the Nasdaq SmallCap Market, theNew York StockExchange,or the NYSE MKT,and suchcessationoftrading shallcontinue for a period of fiveconsecutive (5) TradingDays.
3.18 Bid Price. TheBorrower shall lose the “bid” price for itsCommon Stock($0.0001on the “Ask” with zeromarket makers on the“Bid”perLevel 2)and/or amarket (including theOTCBB, OTCQB oran equivalent replacement exchange).
3.20 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/or affiliates of,materialnon-publicinformation concerning the Borrower, to the Holder or itssuccessorsand assigns, which is not immediately curedbyBorrower’s filing of a Form8-Kpursuant to RegulationFDon that same date.
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, to require theBorrower to immediatelyissue, inlieu of theDefault Amount, the number ofshares of Common Stock of theBorrower equal tothe Default Amountdividedby theConversionPrice then ineffect, subject to thetermsof thisNote. Thisrequirementby theBorrower shallautomaticallyapply upon the occurrence ofan Event ofDefaultwithout theneed forany party togiveanynoticeortakeany other action.
IftheHoldershallcommence an action or proceeding toenforceany provisions of thisNote, including,withoutlimitation, engaging an attorney, theniftheHolder prevails in suchaction,theHolder shall bereimbursedby theBorrower for itsattorneys' fees and othercosts and expensesincurredin the investigation,preparation and prosecution of such action orproceeding.
ARTICLEIV.MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failureor delay on the partofthe Holderin the exercise ofany power, right or privilege hereundershall operate as a waiver thereof, nor shallanysingleor partial exercise ofany such power, right or privilegepreclude otherorfurther exercise thereofor of any other right, powerorprivileges. All rights and remedies existing hereunder are cumulative to, and not exclusiveof, any rightsor remedies otherwise available.
4.2 Notices. All notices,demands,requests,consents, approvals, and othercommunications required orpermitted hereunder shall be inwriting and, unless otherwisespecified herein, shall be (i) personallyserved,(ii)deposited in themail, registeredorcertified,
returnreceiptrequested, postage prepaid, (iii)deliveredbyreputable air courier service withcharges prepaid, or (iv)transmittedbyhand delivery, telegram, orfacsimile, addressed as set forth below or to such otheraddress as such party shallhavespecified most recentlybywritten notice.Anynoticeor othercommunication required or permitted to begiven hereunder shall bedeemed effective (a) uponhanddeliveryor deliverybyfacsimile,withaccurateconfirmationgeneratedby the transmittingfacsimile machine, at the address or numberdesignatedbelow (ifdeliveredon abusinessday during normalbusiness hourswheresuch notice is to bereceived),or thefirst businessday following such delivery (ifdeliveredother than on abusinessday duringnormal business hourswhere such notice is to bereceived)or (b) on the secondbusinessdayfollowing thedateof mailingbyexpress courier service,fully prepaid,addressedto suchaddress,or uponactual receiptof suchmailing, whichever shallfirst occur. Theaddressesforsuchcommunications shall be:
Ifto theBorrower, to:
GrowSolutionsHoldingsInc.PureRootsLLC
_____________________
_____________________
Attn:
Ifto theHolder: RALPH AIELLO
Attn:
4.3 Amendments. This Noteandanyprovisionhereofmay only beamendedbyan instrument inwritingsignedbytheBorrower and the Holder. The term “Note”and all reference thereto, as used throughout this instrument,shall mean thisinstrument(and theother Notes issuedpursuantto thePurchase Agreement) as originallyexecuted,or if lateramendedor supplemented, thenassoamendedor supplemented.
4.4 Assignability. This Note shall be binding upon theBorrower and itssuccessors and assigns, and shall inure to be thebenefitof theHolder and itssuccessors and assigns. Neither theBorrower nor the Holder shallassignthis Note oranyrights orobligations hereunder without theprior written consent of the other. Notwithstanding theforegoing, theHoldermayassign itsrights hereunder toany“accredited investor”(as defined in Rule501(a) of the 1933Act) in aprivate transaction from theHolder or toany of its“affiliates”, as that term isdefined under the 1934Act,without the consent of theBorrower. Notwithstanding anything in this Note to thecontrary, this Note may bepledged as collateral inconnection with abona fidemargin account or other lendingarrangement. TheHolder and anyassignee,by acceptance of thisNote, acknowledge and agree that following conversion of a portion of thisNote, theunpaid and unconverted principalamount ofthis Noterepresentedby this Note may be less than theamount statedon theface hereof.
4.5 Costof Collection.If default is made in the payment of this Note, the Borrower shallpay the Holder hereof reasonable costsof collection, including reasonable attorneys’ fees.
4.6 Governing Law. This Note shall begovernedbyand construed inaccordancewith thelaws of the State ofNevadawithoutregard toprinciples of conflicts oflaws.Anyaction broughtby eitherpartyagainstthe other concerning thetransactions contemplatedbythis Note shall bebrought exclusively in thefederalor statecourts located in the State ofNewYork. Theparties to this Note hereby irrevocablywaiveany objection tojurisdiction and venueofanyaction institutedhereunder and shall notassert any defense based onlackofjurisdiction orvenue orbaseduponforum nonconveniens.THE BORROWERHEREBY IRREVOCABLY WAIVES ANY RIGHT ITMAYHAVE TO,AND AGREES NOT TO REQUEST, AJURY TRIAL FOR THEADJUDICATIONOFANYDISPUTEHEREUNDER OR INCONNECTION WITH ORARISING OUT OF THIS NOTE ORANY TRANSACTION CONTEMPLATED HEREBY. Theprevailing party shall beentitledtorecover from the other party itsreasonable attorney's fees and costs.In theeventthat any provision of this Note or any otheragreement delivered inconnection herewith is invalid orunenforceable underanyapplicable statute or rule oflaw, then such provision shall bedeemed inoperative to the extent that itmayconflict therewithand shallbe deemedmodifiedtoconform with suchstatute or rule oflaw. Any such provisionwhich may prove invalid orunenforceable underany law shall notaffect the validity or enforceabilityof any otherprovision of any agreement.Each party hereby irrevocably waivespersonal service ofprocess and consents toprocessbeingserved inany suit,actionor proceeding inconnection with thisAgreementor any other TransactionDocumentby mailing a copythereof viaregisteredorcertified mail orovernight delivery(with evidence ofdelivery) to such party at theaddress ineffect fornotices to it under thisAgreement and agrees that suchservice shallconstitute good and sufficient service of processand notice thereof. Nothing contained herein shall be deemed to limit in anyway anyrighttoserveprocessinany othermanner permittedbylaw.
4.7 Certain Amounts.Wheneverpursuant to this Note theBorrower isrequiredto payan amount inexcess of the outstandingprincipal amount (or the portionthereof requiredtobepaid at that time) plusaccrued and unpaidinterest plusDefault Intereston suchinterest, theBorrower and the Holderagree that theactual damages to the Holder from thereceiptof cashpaymenton this Note maybedifficultto determineand theamount to besopaidbytheBorrower represents stipulated damages and not a penaltyandisintendedtocompensate theHolder inpartfor loss of the opportunity toconvert this Noteandtoearnareturn from thesaleofsharesof Common Stockacquired uponconversionof this Noteat apricein excess of theprice paid for suchsharespursuant to thisNote. TheBorrower and the Holder herebyagree that suchamountofstipulated damages is not plainly disproportionate to thepossiblelosstotheHolder from thereceiptofa cash payment without the opportunity to convert this Note intosharesof Common Stock.
4.8 Purchase Agreement.By itsacceptanceof thisNote, each partyagreesto be boundby theapplicable terms of thePurchase Agreement.
4.9 NoticeofCorporate Events. Except as otherwise providedbelow, the Holder of this Note shallhavenorights as aHolder ofCommonStock unlessand only to the extent that itconvertsthis Note into Common Stock. TheBorrower shallprovidetheHolder withprior notification ofany meetingof theBorrower’sshareholders (andcopiesof proxymaterials and otherinformation sent toshareholders).In the event of any takingbytheBorrower of arecordof itsshareholders for the purpose of determining shareholders whoare entitled toreceive payment ofany dividendor other distribution, anyrighttosubscribefor, purchase orotherwise acquire(includingbyway ofmerger, consolidation, reclassification orrecapitalization) any share ofanyclass orany other securities orproperty, or toreceiveanyother right, or for thepurpose ofdeterminingshareholders who areentitled to vote inconnectionwithanyproposed sale, lease orconveyanceofallor substantiallyallofthe assets of theBorroweror anyproposed liquidation, dissolution or winding up of the Borrower, theBorrowershall mail anotice to the Holder,at least twenty (20)days prior to therecord date specified therein (or thirty (30)days prior to theconsummationof thetransaction or event,whicheveris earlier), of the date onwhichanysuchrecord is to betaken for thepurpose of suchdividend, distribution,right or otherevent, and abrief statement regarding theamount and character of suchdividend,distribution,right or otherevent to the extent knownat such time. TheBorrowershall make a publicannouncement ofanyevent requiringnotification to theHolder hereunder substantially simultaneously with thenotificationto theHolder inaccordance with theterms of thisSection 4.9including,but not limited to,name changes, recapitalizations, etc. as soonaspossibleunder law.
4.10 Usury.If it shall be found that anyinterest or otheramount deemed interestduehereunder violates theapplicablelawgoverning usury, theapplicable provision shallautomatically berevisedtoequal the maximum rate ofinterestor other amountdeemed interest permitted under applicable law. TheBorrower covenants (to the extent that it may lawfully do so) that it will notseek to claim or takeadvantage ofany usury law that wouldprohibit orforgive theBorrower from paying all or a portion of the principal orintereston this Note.
4.11 Remedies. TheBorrower acknowledgesthat abreachby it of itsobligations hereunder will causeirreparable harm to theHolder,by vitiating the intentand purpose of thetransaction contemplated hereby. Accordingly, theBorroweracknowledges that the remedyat law for a breach of itsobligations under this Note will beinadequate and agrees, in the event of abreachorthreatened breachbytheBorrower of theprovisions ofthisNote, that theHoldershall beentitled, inaddition to allotheravailable remediesat law or inequity, and inaddition to thepenalties assessable herein, toan injunctionorinjunctions restraining, preventing or curinganybreachof this Noteandtoenforce specifically theterms and provisions thereof, without the necessity of showing economic lossand without any bondor other security beingrequired.Noprovision of this Note shallalterorimpair theobligation of theBorrower, which isabsolute and unconditional,to pay theprincipal of, and interest on, this Noteatthe time,place, and rate,and in theform, herein prescribed.
4.12 Severability.In theeventthat any provision of this Note isinvalid orunenforceable underanyapplicable statuteorrule oflaw, then such provision shall be deemedinoperativeto the extent that it mayconflict therewithandshall be deemedmodified to conform with such statute or rule oflaw.Anyprovision hereof whichmayprove invalid orunenforceable under any law shall notaffectthe validity orenforceabilityof any other provisionhereof.
4.13 DisputeResolution.Inthecase of adispute as tothedetermination oftheConversionPrice,ConversionAmount,any prepayment amount orDefault Amount, DefaultSum, Closing orMaturity Date,theclosingbid price, orfairmarket value (as the casemaybe) orthe arithmeticcalculationof theConversion Price ortheapplicable prepaymentamount(s)(asthecase maybe), theBorroweror theHolder shall submit the disputeddeterminationsorarithmeticcalculations viafacsimile (i)within two(2)BusinessDaysafterreceipt of theapplicable noticegiving riseto suchdisputetotheBorrower orthe Holder or(ii)if nonotice gave rise to suchdispute, at any timeafter theHolderlearned ofthecircumstances giving rise tosuch dispute.If theHolderandtheBorrowerare unable toagree upon suchdetermination orcalculation within two
(2)Business Days ofsuch disputeddeterminationorarithmetic calculation (asthecase maybe) beingsubmittedto theBorrower orthe Holder,then theBorrowershall,withintwo (2)Business Days,submit viafacsimile(a)thedisputeddetermination of theConversionPrice, theclosingbid price, theorfairmarketvalue (as the casemaybe) toanindependent, reputableinvestmentbank selected by theBorrowerandapprovedby theHolderor (b) thedisputedarithmetic calculationof theConversionPrice, ConversionAmount,any prepayment amount orDefault Amount, DefaultSum toanindependent, outsideaccountantselected by theHolder that isreasonably acceptable to theBorrower. TheBorrower shallcauseatitsexpensetheinvestmentbank or theaccountanttoperform thedeterminations orcalculationsandnotifytheBorrowerandtheHolderoftheresultsnolater than ten (10)BusinessDaysfrom thetimeitreceives such disputeddeterminationsorcalculations. Suchinvestmentbank’s oraccountant’s determinationorcalculation shall bebinding uponallpartiesabsent demonstrable error.
4.14[ RESE R V ED]
4.15Piggyback Registration Rights. Borrower shallfilearegistration statement toregistercommonshares underlying conversions of the Note within thirty (30)days after closing and shall use itsbest efforts to have suchregistrationstatementdeclared effective within 120daysfollowing theclosing. TheBorrowershall include on theregistration statement theBorrowerfiles with SEC (or on the subsequentregistration statement if suchregistration statement iswithdrawn, and excluding the currentregistration statement that theBorrower has on file with the SEC)all shares issuable upon conversion of thisNote, unless suchsharesareat that timeeligible forsale under Rule 144under theSecurities Act. Failureto do sowill result inliquidated damages of 25% of theoutstanding principal balance of thisNote, but not less thanFive Thousand and No/100 UnitedStates Dollars ($5,000), being immediately dueand payable to theHolder at its election in theform ofcash payment oradditionto 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]
