NEITHER THEISSUANCENORSALEOFTHESECURITIESREPRESENTEDBYTHISCERTIFICATENORTHESECURITIES INTOWHICHTHESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDERTHE SECURITIES ACT OF1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED(I)IN THEABSENCE OF (A) AN EFFECTNE REGISTRATION STATEMENT FORTHE SECURITIESUNDER THESECURITIES ACT OF 1933, AS AMENDED,OR (B) ANOPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THATREGISTRATIONISNOT REQUIRED UNDER SAID ACT OR (ll) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.NOTWITHSTANDING THEFOREGOING, THE SECURJTIES MAY BEPLEDGED INCONNECTION WITH A BONA FIDE MARGIN ACCOU NT OR OTHER LOAN ORFINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal Amount:$121,000 Purchase Price:$121,000 | Issue Date:March2,2015 |
CONVERTIBLEPROMISSORYNOTE
FOR VALUERECEIVED, WELLPOWER,INC.,aNEVADAcorporation(hereinafter calledthe"Borrower"), hereby promises topay to the orderofMAGNA EQUITIES I,LLC, a New York corporation, or registered assigns (the "Holder") the sum ofOne HundredTwenty One Thousand Dollars ($12 I ,000), on March2, 2016 (the "Maturity Date"), and to pay interest on theunpaid principalbalance hereof at therate of twelve percent (12%) (the"Interest Rate") per annumfrom the date hereof (the "Issue Date") until the same becomes dueand payable, whetherat maturity or upon accelerationorby prepayment orotherwise,compounded onamonthlybasis. ThisNote may not beprepaid inwholeor in part except as otherwise explicitly set forth in Section1.9 hereof. Any amountof principal or interest on this Note which is not paidwhen due shall bear interest at the rateoftwenty two percent(22%) per annumfrom the duedate thereof until the same is paid ("Default Interest"). Interest shall commenceaccruing onthe Issue Date, shall be computed on the basis of a365-day year and the actual number of days elapsed. Allpaymentsdue hereunder (to the extent not convertedinto commonstock, (the "Common Stock") in accordancewith theterms hereof)shall be made inlawful money of the UnitedStates of America. All paymentsshall bemade atsuch addressas theHolder shallhereaftergive to theBorrowerby written notice madeinaccordance with the provisions of this Note. Whenever any amount expressedto be due by the termsofthisNote is due on anydaywhich is not a business day, thesame shall instead be due on the nextsucceeding day which is a business day and, in the case of anyinterest payment date which is notthedate onwhichthisNoteispaid in full,the extension of thedue date thereof shall not be taken into account for purposes of determining the amount ofinterest due on suchdate.As used inthisNote, theterm"business day" shall meanany day otherthanaSaturday, Sundayora day onwhichcommercial banksin thecity of NewYork, New York are authorized or required by lawor executive ordertoremain closed. Each capitalized term usedherein, andnot otherwisedefined, shall have the meaning ascribed thereto in that certain Securities Exchange Agreement dated the date hereof, pursuant to which this Note was originally issued (the "Exchange Agreement").
ThisNoteisfree fromalltaxes,liens,claimsandencumbranceswithrespecttotheissuethereofandshallnot besubjecttopreemptive rights or other similar rights of shareholders of the Borrowerand will not impose personalliability upon theholderthereof.
The followingtermsshallapplytothisNote:
ARTICLE I. CONVERSIONRIGHTS
1.1 ConversionRight.TheHoldershallhavetherightfromtimetotime,andatanytimeduring the periodbeginning on thedate ofthis Noteand ending on the later of(i) the Maturity Dateand (ii) thedate of paymentof the Default Amount (as defined in Article III) pursuant to Section l.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paidandnon-assessableshares of Common Stock, assuch Common Stock exists on theIssueDate, or any shares of capital stock or othersecurities oftheBorrowerinto whichsuchCommon Stock shallhereafterbechangedorreclassified atthe conversion price (the "Conversion Price")determinedas providedherein (a "Conversion"); provided, however, thatin no eventshallthe Holder be entitled to convert any portion ofthis Note in excess of that portionof this Note upon conversion of which thesumof (1) the number of shares of CommonStock beneficially owned by the Holder andits affiliates (other thansharesof Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations containedherein)and (2) thenumber ofshares ofCommon Stock issuableuponthe conversionof the portion of this Note with respect to which the determinationof this provisoisbeing made, would result in beneficialownership by theHolderand its affiliatesof more than4.99% of the outstandingsharesof CommonStock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulations 13D-G thereunder , except as otherwise provided in clause (1) of suchproviso, provided,further,however, that the limitations on conversion may bewaived bythe Holder upon,attheelectionof the Holder, notlessthan 61days'prior notice to theBorrower and the provisions of the conversionlimitationshallcontinuetoapplyuntilsuch 61st day (or suchlater date, as determined by the Holder, asmaybespecified insuchnoticeofwaiver).The number ofsharesofCommon Stocktobe issueduponeach conversion ofthis Noteshallbedetermined by dividing theConversionAmount (asdefined below) by theapplicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the "Noticeof Conversion"), delivered to the Borrower bythe Holder inaccordance with Section 1.4 below; providedthat the Notice of Conversion is submitted by facsimile (or by other means resultingin,or reasonably expected to result in, notice) to the Borrower before6:00 p.m.,NewYork,NewYorktime onsuchconversion date (the"Conversion Date"). The term "Conversion Amount" means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted insuchconversionplus(2)at theBorrower'soption,accruedandunpaid interest, if any,onsuch principal amount at the interest rates provided in this Note to the Conversion Date, provided, however, that the Companyshallhave the rightto payany or all interestin cash plus (3) at the Borrower' s option, Default Interest, if any, onthe amounts referred to in the immediately preceding clauses (I) and/or (2) (4) at the Holder 's option, any amounts owedto the Holder pursuantto Sections 1.3 and l.4(g) hereof.
The Holderagrees,unlessotherwisemutuallyagreedupon,thattheHoldershallnotsellCommonSharesreceived through conversion ofthe Note,in anyonegiven Tradingday,thatinaggregateshall sumto morethanthegreater of i) $4,000orii) 20% ofthe specific TradingDay's number of common shares traded on the applicabletrading market.
1.2 ConversionPrice.
(a) Calculationof ConversionPrice.The conversionprice (the"Conversion Price") shall bethe Variable Conversion Price (as defined herein)(subject to equitable adjustments forstock splits, stock dividendsor rights offeringsby the Borrower relating to the Borrower' s securities or thesecurities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinarydistributions andsimilar events). The "Variable Conversion Price" shall mean thelowerofi)a 40% discount from the lowestdailyVWAP in the ten (10)Trading Days priorto conversionand ii) $0.04. "TradingPrice" means, for any securityasof anydate, thelowest trading price on the Over-the-Counter Bulletin Board, orapplicable trading market (the"OTCQB") asreported by a reliable reporting service("Reporting Service") mutually acceptable to Borrower and Holder(i.e. Bloomberg).I f the Trading Price cannotbecalculated for suchsecurity on such date inthe manner provided above,the Trading Price shall bethe fair market value as mutually determined by the Borrower and the holdersof a majority in interest of the Notes being converted for which thecalculationof the Trading Price isrequired in orderto determinethe ConversionPrice ofsuch Notes. "Trading Day" shallmean any day on whichthe Common Stock istraded for any period on the OTCQB,or on the principal securities exchange or othersecuritiesmarket on which the Common Stock is then being traded.If the Issuer's Common stock is chilled fordeposit at DTC and/or becomeschilled at any point while this Agreement remainsoutstanding,anadditional8%discountwill be attributed to the ConversionPricedefined hereof. If the Borrowerisunable to issue any sharesunder this provisiondue to thefactthat there isan insufficient number of authorized and unissued sharesavailable, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided that Borrower takes immediate steps required to get the appropriatelevel ofapproval from shareholders or the board of directors, where applicable toraise the number ofauthorizedshares tosatisfy the Notice of Conversion.
(b) ConversionPrice DuringMajorAnnouncements.NotwithstandinganythingcontainedinSectionI.2(a)tothecontrary,in the event the Borrower(i)makes a public announcementthat it intendstoconsolidate or merge with any other corporation(other than a mergerin whichtheBorroweris the surviving or continuing corporation and itscapital stockisunchanged)orsellor transfer all orsubstantiallyall of theassets of the Borroweror(ii) any person,group or entity(includingtheBorrower)publicly announces a tenderoffer topurchase 50%ormore oftheBorrower's Common Stock (or any other takeoverscheme)(thedate of the announcement referred to in clause (i) or(ii) ishereinafterreferred to as the "AnnouncementDate"), thenthe Conversion Price shall, effectiveupon the Announcement Date and continuingthrough the AdjustedConversionPrice TerminationDate (as definedbelow),beequalto the lowerof (x) the Conversion Price which wouldhave beenapplicable for a Conversionoccurringon theAnnouncementDate and (y) theConversion Price that would otherwise be in effect. Fromand afterthe Adjusted Conversion Price Termination Date, the Conversion Priceshallbedetermined as set forth inthisSectionI.2(a). For purposeshereof,"AdjustedConversion PriceTerminationDate" shall mean, with respect toanyproposed transactionortender offer(or takeoverscheme) for which a public announcement as contemplatedby this Section 1.2(b) hasbeenmade, the date upon which the Borrower(inthe case ofclause(i)above)or the person, group or entity (in thecase of clause (ii) above) consummatesorpubliclyannounces the termination or abandonmentof theproposedtransaction ortenderoffer(ortakeoverscheme)whichcaused thisSection l.2(b)to become operative.
1.3Authorized Shares.TheBorrowercovenantsthatduringtheperiodtheconversionright exists,theBorrowerwillreserve fromits authorizedand unissuedCommon Stockasufficientnumber of shares, free from preemptive rights, to provide fortheissuanceofCommon Stock uponthe full conversion of this Note issued pursuantto theExchangeAgreement. TheBorrower isrequiredat all times tohave authorized andreserved fivetimesthenumber of sharesthat is actually issuable upon fullconversionof the Note(basedon the Conversion Price of the Notes ineffect fromtimetotime) (the"Reserved Amount''). The ReservedAmount shall be increased from time to time in accordance withthe Borrower's obligation s pursuantto Section4(g) of the Exchange Agreement. Commencing ontheexpiration ofthe firstmonth from theissuedateof this Note, the Reserved Amount shall be recalculated eachmonth based upon theVariable Conversion Price and the CompanyshallnotifytheTransfer Agent and the Holder in writing bythefifth dayof thefollowingmonthofthenew ReservedAmount. In theevent the Company does not notify the Transfer Agentof thenew Reserved Amount inatimelymanner,theHoldershallhavethe absoluteright tonotify the TransferAgent,without anyfurther actionby theCompany. Notwithstanding the foregoing, innoevent shall theReservedAmount be lowerthan the initialReserved Amount,regardless of any priorconversions. The Borrowerrepresents that uponissuance, suchshareswill bedulyand validlyissued, fullypaidandnon-assessable. In addition, if theBorrower shall issue anysecurities ormakeanychange toitscapitalstructurewhich wouldchange the number of shares ofCommonStockintowhichthe Notesshallbeconvertibleatthe then currentConversion Price,theBorrowershallat thesametimemakeproper provision so that thereafter thereshallbe a sufficientnumberof shares of Common Stock authorizedand reserved, free from preemptive rights, for conversionof the outstanding Notes.TheBorrower (i) acknowledges that ithas irrevocablyinstructedits transferagent toissuecertificates forthe Common Stockissuableupon conversion of thisNote, and(ii)agreesthat its issuance ofthis Noteshall constitute full authoritytoitsofficers and agentswhoare charged with the dutyof executing stock certificates to execute and issuethenecessary certificates for shares of Common Stock in accordance with theterms and conditions ofthis Note.
If, atanytimetheBorrowerdoesnotmaintaintheReserved Amount itwill be considered an Event of Default under Section 3.2 of the Note.
1.4 Method ofConversion.
| (a) | Mechanics ofConversion.Subject toSection 1.1,thisNotemay be converted by the Holder inwholeor in part at any time from time totimeafter the Issue Date, by: (A) submitting tothe Borrower a Notice of Conversion (by facsimile, e-mailor other reasonable meansof communication dispatched on the ConversionDate prior to 6:00, New York, New York time) and (B) subject to Section l.4 (b),surrendering this Noteattheprincipal office of theBorrower. |
(b) SurrenderofNoteUponConversion. Notwithstandinganythingtothecontrarysetforthherein,uponconversionofthis Noteinaccordancewiththetermshereof, theHolder shall not berequired tophysicallysurrender this Noteto theBorrowerunlesstheentireunpaid principalamountof this Noteis so converted. TheHolder and the Borrowershallmaintain recordsshowingthe principalamount so convertedand thedates of suchconversions or shall usesuch othermethod, reasonably satisfactory to the HolderandtheBorrower, so as notto require physical surrenderof thisNoteupon eachsuchconversion.In the event of any dispute or discrepancy,such records oftheBorrower shall,prima facie,be controlling anddeterminative in the absence ofmanifest error. Notwithstanding theforegoing, ifanyportion ofthisNote is converted asaforesaid,theHolder may not transfer this Note unless theHolder first physicallysurrendersthis Noteto theBorrower,whereupontheBorrower will forthwith issueand deliver upon the order oftheHoldera newNoteoflike tenor, registered asthe Holder (upon payment by theHolder of any applicable transfer taxes) may request, representing in theaggregatetheremaining unpaid principal amount ofthis Note. The Holder and anyassignee, by acceptance ofthis Note, acknowledgeand agreethat,by reason of theprovisions ofthis paragraph, followingconversion of aportionof thisNote,the unpaid and unconverted principalamountof this Noterepresentedbythis Notemaybelessthanthe amountstatedon theface hereof.
(c) PaymentofTaxes.TheBorrowershallnotberequiredtopayanytaxwhichmaybe payableinrespect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and theBorrower shall not be required to issue or deliver any such shares or other securities or property unless and until the personor persons (other than the Holder or thecustodian in whose streetname such shares are to beheld for the Holder's account) requestingtheissuance thereofshall have paid to the Borrower the amount of any such tax or shall have established to the satisfactionof theBorrower that such tax has been paid.
(d) DeliveryofCommonStockUponConversion.UponreceiptbytheBorrowerfromtheHolder of a facsimile transmission or e-mail(or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion asprovided inthisSection 1.4, the Borrower shallissue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion with in three (3) business days after suchreceipt ( but in any event the fifth (5th) business day being hereinafter referred to asthe"Deadline") (and, solely inthe case of conversionof the entire unpaidprincipal amount hereof,surrender of the this Note) in accordance with the terms hereof and the Exchange Agreement.
(e) ObligationofBorrowertoDeliverCommonStock.UponreceiptbytheBorrowerofaNoticeofConversion,theHoldershallbedeemed to bethe holder of record of theCommon Stock issuable upon such conversion,the outstanding principal amount and the amount of accrued and unpaid interest on thisNote shall be reduced to reflect such conversion,and,unlesstheBorrower defaultson itsobligations under this ArticleI,allrights with respect to the portion of this Note being soconverted shall forthwith terminate excepttheright toreceivetheCommon Stock orothersecurities, cash orother assets, asherein provided , onsuch conversion. If theHolder shall have given a Notice ofConversion asprovided herein, the Borrower's obligation toissue anddeliverthe certificates for CommonStock shall be absoluteandunconditional , irrespective ofthe absence of any action by the Holder toenforce thesame,anywaiveror consent with respectto any provision thereof, the recovery of any jud gmentagainst anypersonor any action to enforcethesame,any failure ordelay in the enforcement ofany other obligationofthe Borrower to the holder ofrecord, or any setoff, counterclaim,recoupment, l imitationor termination , or any breach or alleged breach bytheHolder of anyobligation tothe Borrower, andirrespective of any other circumstancewhich mightotherwise limit suchobligation of the Borrower to the Holderinconnectionwith suchconversion. The Conversion Date specified in theNotice of Conversion shall betheConversion Date so long astheNoticeofConversion is received by the Borrower before 6:00p.m., New York, New Yorktime, onsuchdate.
(t)Delivery of CommonStockbyElectronicTransfer.InlieuofdeliveringphysicalcertificatesrepresentingtheCommon Stockissuableuponconversion, provided theBorrower's transfer agentis participating inthe Depository TrustCompany("OTC") FastAutomated Securities Transfer("FAST')program, upon request of theHolder and its compliance withthe provisions contained inSection I.I and in this Section1.4, the Borrower shall useits best efforts to cause itstransferagent toelectronicallytransmit the Common Stock issuable uponconversion to theHolderby creditingthe account ofHolder'sPrime Broker with OTC through its Deposit Withdrawal Agent Commission("DWAC") system.
(g) Failure toDeliverCommonStockPriortoDeadline.WithoutinanywaylimitingtheHolder's rightto pursue otherremedies, including actual damagesand/or equitable relief,the parties agree that ifdeliveryof the Common Stock issuable upon conversion of thisNote isnotdelivered by theDeadline (other than a failuredue to thecircumstances described inSection1.3 above, which failureshallbe governed bysuch Section)the Borrower shallpay to the Holder $2,000 per day in cash, for each daybeyondtheDeadlinethat the Borrower fails to deliversuch Common Stock. Such cash amount shall bepaid to Holder by the fifth day of themonth followingthemonth in whichit has accruedor,at theoption oftheHolder (by writtennotice tothe Borrower by thefirst day of the monthfollowing themonth in which it has accrued), shallbe added to the principal amount of this Note, in which event interest shall accruethereoninaccordance with theterms of th is Noteandsuchadditionalprincipal amountshall be convertible into Common Stock inaccordancewiththeterms of this Note. TheBorrower agrees thattherightto convert isa valuablerightto theHolder.Thedamages resulting from afailure, attempt to frustrate, interference withsuchconversionright aredifficultif not impossible toqualify. Accordingly theparties acknowledge that the liquidateddamages provision contained inthis Section l.4(g) are justified.
1.5 ConcerningtheShares. ThesharesofCommonStockissuableuponconversionofthisNotemay notbesold ortransferred unless (i) suchsharesare soldpursuanttoaneffectiveregistration statement under the Act or (ii) theBorrower or itstransfer agentshall have beenfurnishedwith anopinionof counsel(which opinionshallbe in form, substance and scope customary for opinionsofcounsel in comparabletransactions)totheeffect that theshares to besoldortransferredmaybesold ortransferred pursuant to anexemptionfrom suchregistrationor(iii) suchsharesaresoldortransferredpursuant toRule 144 under the Act (ora successor rule) ("Rule 144")or (iv) such shares aretransferred toan"affiliate" (as defined inRule144) of the Borrowerwhoagrees tosellor otherwise transfer thesharesonlyin accordancewiththisSection1.5 and whois an AccreditedInvestor(as defined in theExchange Agreement). Exceptas otherwiseprovidedinthe Exchange Agreement (andsubjectto the removal provisionsset forthbelow), untilsuchtime asthe shares ofCommon Stock issuableupon conversion ofthisNotehavebeenregistered under the Act or otherwise may be sold pursuanttoRule 144without any restriction as to the numberofsecuritiesas of a particulardate that canthenbeimmediately sold,eachcertificateforshares of CommonStockissuableuponconversion of this Note that has not beensoincluded in aneffectiveregistrationstatementor that has notbeen sold pursuant to an effectiveregistrationstatement or anexemptionthatpermits removal of thelegend,shallbear a legendsubstantially inthefollowingform, asappropriate:
"NEITHER THEISSUANCEANDSALEOFTHESECURITIESREPRESENTED BYTHIS CERTIFICATENORTHESECURITIESINTOWHICHTHESESECURITIESARE EXERCISABLE HAVEBEENREGISTERED UNDERTHE SECURITIES ACT OF 1933,AS AMENDED,OR APPLICABLE STATE SECURITIES LAWS. THESECURITIES MAYNOTBE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) ANEFFECTIVEREGISTRATIONSTATEMENT FORTHE SECURITIES UNDER THE SECURITIES ACT OF 1933,AS AMENDED,OR (B) AN OPINION OF COUNSEL(WHICH COUNSELSHALL BE SELECTED BY THE HOLDER),IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATIONIS NOT REQUIRED UNDER SAID ACT OR(II) UNLESSSOLD PURSUANT TO RULE 144 OR RULE 144AUNDERSAIDACT. NOTWITHSTANDING THE FOREGOING,THE SECURITIES MAYBE PLEDGED IN CONNECTION WITHA BONA FIDE MARGIN ACCOU NT OROTHER LOAN OR FINANCINGARRANGEMENTSECURED BYTHE SECURITIES."
ThelegendsetforthaboveshallberemovedandtheBorrowershallissue to theHolderanewcertificate therefore free of anytransferlegendif (i) the Borrower orits transfer agentshallhavereceivedan opinion ofcounsel, in form,substanceand scope customary foropinionsof counsel incomparabletransactions,to theeffectthat a publicsale or transferofsuchCommon Stockmay be made without registration under the Act,whichopinionshallbe accepted by the Company so that thesaleortransferiseffected or(ii) inthe case of theCommonStockissuableuponconversion ofthis Note,such security isregisteredforsaleby the Holder underaneffectiveregistrationstatementfiled under theActor otherwise may be soldpursuantto Rule 144 without anyrestriction as to thenumberof securities as of aparticulardatethat can thenbe immediatelysold. In theeventthat theCompanydoes notaccepttheopinion ofcounselprovided by theBuyerwithrespecttothetransfer of Securities pursuant to anexemption from registration,suchas Ru le 144 or Regulations S, at the Deadline, it will beconsideredan Event of DefaultpursuanttoSection3.2 of the Note.
1.6 Effect of Certain Events.
(a) EffectofMerger.Consolidation,Etc. AttheoptionoftheHolder,thesale,conveyanceordispositionofallorsubstantiallyallof theassetsoftheBorrower,theeffectuation bytheBorrower of atransactionorseriesofrelatedtransactions inwhichmore than 50% ofthevoting power of the Borrowerisdisposedof, orthe consolidation,mergeror otherbusinesscombinationof the Borrower with or intoany other Person(as defined below)or Personswhen theBorrower is not thesurvivorshalleither: (i) be deemed to be an Event of Default (as defined in Article III)pursuant to which the Borrowershallberequiredtopay totheHolder upon the consummationofand as acondition tosuchtransaction an amount equal tothe DefaultAmount (asdefined inArticle III)or(ii)betreated pursuant toSection l.6 (b) hereof. "Person" shallmean anyindividual, corporation,limitedliability company, partnership,association, trust or otherentityor organization.
(b)AdjustmentDuetoMerger.Consolidation,Etc.If,atanytimewhenthisNoteisissuedand outstandingandprior toconversion ofall ofthe Notes, thereshall be anymerger,consolidation, exchange ofshares, recapitalization, reorganization ,or othersimilar event, as a result ofwhich shares of Common Stock ofthe Borrowershallbe changedintothesameora differentnumber of sharesof another class or classesof stockorsecurities of theBorrower or anotherentity, or in case of any sale or conveyance ofall orsubstantiallyall of the assets of the Borrowerother than in connection withaplanof complete liquidation oftheBorrower, thenthe Holderof this Noteshall thereafter havethe rightto receive upon conversion of this Note, uponthe basis andupon the terms and conditions specifiedherein and in lieu ofthe sharesofCommon Stock immediately theretofore issuableuponconversion,such stock, securities orassetswhich the Holder would havebeen entitled toreceive insuchtransaction hadthisNotebeen converted in full immediatelypriorto such transaction (withoutregard to anylimitations onconversion set forth herein),and in anysuch case appropriate provisions shallbemade with respectto the rightsand interestsof the Holderof thisNoteto the end thattheprovisions hereof (including,withoutlimitation,provisions for adjustment ofthe Conversion Price and of the number ofsharesissuable uponconversionof theNote)shallthereafter beapplicable,as nearly as may be practicable in relation to any securities orassets thereafter deliverable uponthe conversion hereof. The Borrowershall notaffect anytransaction described in this Section I.6(b)unless itfirst gives, to the extent practicable,thirty (30)daysprior written notice (but in any event at leastfifteen (15) daysprior written notice) of the record date of thespecial meeting ofshareholdersto approve, or if there is no such recorddate,the consummationof, such merger, consolidation, exchange ofshares, recapitalization, reorganization orother sim ilar event orsale of assets(duringwhichtime the Holder shall be entitledto convertthis Note)and (b) theresulting successor or acquiring entity(if notthe Borrower)assumes by written instrument theobligations of thisSectionl.6(b). The above provisionsshallsimilarly apply tosuccessive consolidations,mergers, sales, transfers or share exchanges.
(c) AdjustmentDue toDistribution.IftheBorrowershalldeclareormakeanydistributionofitsassets(orrightstoacquireitsassets) toholdersofCommon Stock as adividend, stockrepurchase, by way ofreturn ofcapital orotherwise(including any dividend or distribution tothe Borrower's shareholders in cash or shares(or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"), thenthe Holder of this Note shall beentitled,uponany conversion ofthis Note after thedateof recordfor determiningshareholders entitled tosuchDistribution , to receive the amount ofsuch assets which would have been payable to the Holder withrespectto theshares ofCommon Stockissuableuponsuchconversion had suchHolderbeenthebolderof such shares of Common Stock on the recorddate forthe determination ofshareholdersentitled to such Distribution.
(d) AdjustmentDuetoDilutiveIssuance.If,atanytimewhenanyNotesareissuedand outstanding, theBorrower issues or sells,or in accordance with this Section1.6(d) hereof is deemed tohaveissuedorsold, any shares of CommonStock for no consideration or for a consideration per share (beforededuction ofreasonable expenses orcommissions or underwritingdiscounts or allowancesinconnectiontherewith)less than theConversion Price in effecton the date of such issuance (or deemed issuance) of such shares of Common Stock (a"Dilutive Issuance"), then immediately upon theDilutiveIssuance, theConversion Price willbe reduced tothe amount of the consideration persharereceivedbythe Borrower insuch Dilutive Issuance, but innoevent shall theConversionPricebe abovetheoriginal Conversion Price.
TheBorrowershallbedeemedtohaveissuedorsoldsharesofCommonStockiftheBorrowerin any manner issues orgrants any warrants, rights or options (not includingemployee stock optionplans), whether or notimmediatelyexercisable,tosubscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to purchase Common Stock or Convertible Securitiesarehereinafter referred to as "Options") and the price per share for which Common Stock is issuable upon theexerciseofsuchOptionsisless thantheConversionPricethen in effect,then the Conversion Price shallbeequaltosuchprice pershare. For purposes of thepreceding sentence,the "price persharefor whichCommon Stockisissuable uponthe exercise ofsuchOptions"is determined bydividing (i) thetotal amount,ifany, receivedor receivableby theBorrower as considerationfor the issuance orgranting of allsuch Options,plus the minimum aggregateamount ofadditionalconsideration, if any, payable to the Borrower upon the exercise ofall such Options, plus, in the caseofConvertible Securitiesissuable upon the exercise ofsuchOptions, the minimum aggregate amount ofadditional consideration payable upon the conversion orexchange thereof atthe time such Convertible Securities first become convertible orexchangeable, by (ii)the maximum total number of shares of Common Stock issuable upon theexerciseofall such Options (assuming fullconversion ofConvertible Securities, if applicable).No further adjustment to theConversion Price will bemadeupon the actualissuance ofsuch Common Stock upon the exercise of such Options or uponthe conversionor exchangeof ConvertibleSecuritiesissuable uponexercise of such Options.
Additionally, theBorrowershallbedeemedtohaveissuedorsoldsharesofCommonStockiftheBorrowerinanymanner issues or sells anyConvertible Securities, whetheror not immediatelyconvertible (otherthanwhere the same are issuable upon the exercise ofOptions),and the pricepershareforwhich Common Stockisissuable uponsuch conversion or exchangeis less than theConversion Pricethenin effect,thenthe ConversionPrice shall be equal to such price pershare. Forthe purposes of the preceding sentence, the"price pershareforwhich Common Stock isissuable upon such conversion or exchange" isdetermined bydividing (i)the total amount, ifany,received or receivable by the Borrower as consideration forthe issuance orsale of all such Convertible Securities, plus the minimumaggregate amount of additional consideration, if any, payableto the Borrower uponthe conversionor exchange thereof at the timesuchConvertibleSecurities firstbecome convertible orexchangeable, by (ii) themaximum total number of shares of CommonStock issuable upontheconversion or exchangeof all such Convertible Securities.No further adjustmenttotheConversionPricewill be madeuponthe actualissuanceofsuchCommon Stock uponconversionorexchangeof suchConvertible Securities.
(e) Purchase Rights.If,atanytimewhenanyNotesareissuedandoutstanding,theBorrowerissues anyconvertible securitiesor rights topurchasestock, warrants, securities or other property (the "Purchase Rights") pro ratato the record holders of anyclass ofCommon Stock,then the Holder of this Note will be entitled to acquire,upon theterms applicable to such PurchaseRights,the aggregate Purchase Rights which such Holder could have acquired if such Holderhad held thenumberof sharesof Common Stockacquirableupon complete conversionof this Note (without regard to any limitations on conversion contained herein) immediately before the dateon which arecordistakenfor thegrant, issuance orsale ofsuch PurchaseRightsor,if nosuchrecordis taken, the date asof which the record holdersofCommonStock are to be determined forthe grant, issue orsaleofsuch Purchase Rights.
(f) NoticeofAdjustments. UpontheoccurrenceofeachadjustmentorreadjustmentoftheConversionPriceasaresult ofthe events described in thisSection 1.6, theBorrower, atits expense, shall promptlycomputesuch adjustment orreadjustment andprepare andfurnish tothe Holder of acertificate setting forth such adjustment orreadjustment andshowing indetailthe factsupon whichsuch adjustment or readjustmentisbased. The Borrowershall,upon thewritten requestatany timeoftheHolder,furnishtosuch Holder a likecertificate setting forth(i)suchadjustment orreadjustment, (ii) the Conversion Priceat the time ineffectand (iii) the number ofshares of Common Stock and the amount, ifany, of other securities or property which at the time would be receiveduponconversion of the Note.
1.7 TradingMarketLimitations.Unlesspermittedbytheapplicablerulesandregulationsofthe principalsecuritiesmarketonwhichtheCommonStockisthen listedor traded,in no event shall theBorrower issueupon conversionof orotherwise pursuant to this Note andthe other Notesissued pursuant to theExchangeAgreementmore than themaximum number ofsharesof Common Stock that the Borrower can issue pursuant to any rule of the principal United Statessecuritiesmarket onwhich the Common Stockis then traded (the"Maxim um ShareAmount''), which shall be 9.99%of the total shares outstanding on theClosingDate (asdefined inthe ExchangeAgreement), subject toequitable adjustment from time totimefor stocksplits, stockdividends, combinations, capitalreorganizations andsimilar events relatingto the Common Stockoccurring after the date hereof.Oncethe Maximum Share Amounthasbeen issued, if theBorrower fails to eliminate anyprohibitions under applicable laworthe rules orregulations of any stock exchange,interdealerquotation system orother self-regulatory organization with jurisdictionover the Borrower or any of its securitieson the Borrower's abilityto issueshares of Common Stock in excess of the Maximum ShareAmount, in lieu of any further right to convert thisNote, thiswillbe considered an Eventof Defaultunder Section 3.3of the Note.
1.8 StatusasShareholder.UponsubmissionofaNoticeofConversionbyaHolder,(i)theshares covered thereby(other than theshares,if any,which cannot beissuedbecause theirissuancewouldexceedsuchHolder's allocatedportion of the Reserved Amountor MaximumShare Amount)shall be deemed convertedinto shares of Common Stock and (ii) theHolder's rights as a Holderofsuchconverted portionof this Note shall cease and terminate, exceptingonlythe right to receivecertificates for such shares of CommonStock and to any remedies provided hereinor otherwiseavailable at law orin equity tosuchHolderbecause of a failureby the Borrower to complywiththe terms of this Note. Notwithstanding the foregoing,if a Holder has notreceivedcertificates forall shares ofCommon Stock prior to thetenth (10th) business day after the expirationofthe Deadline withrespect to a conversionof any portion ofthis Note for any reason, then(unless the Holderotherwise elects to retainitsstatus as a holder of CommonStock byso notifying the Borrower) the Holder shall regainthe rights of a Holderof this Note withrespect tosuch unconverted portions ofthis Note and the Borrowershall, assoon as practicable,return such unconverted Note to theHolderor,if the Note has not been surrendered, adjust its records to reflect that suchportion of this Note has notbeen converted. In all cases,the Holder shallretainall ofitsrights and remedies(including, without limitation, (i) the rightto receive Conversion DefaultPayments pursuantto Section 1.3 to the extent required therebyfor such Conversion Default and any subsequent ConversionDefaultand (ii) therightto have the Conversion Price withrespectto subsequentconversions determined in accordance with Section 1 .3) for theBorrower's failureto convertthis Note.
1.9 Prepayment.Notwithstanding anythingtothecontrarycontainedinthisNote,solongastheBorrowerhasnot receiveda Notice ofConversion from theHolder,then atany time during the period beginning ontheIssue Date and ending on thedate which is ninety (90) days followingtheissuedate, the Borrowershall have theright, exercisableon notlessthan three (3) TradingDays prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest),infull, inaccordancewith this Section 1.9. Any noticeof prepayment hereunder (an "Optional Prepayment Notice")shall be deliveredto theHolder of theNoteat its registeredaddress andshallstate: (1) thattheBorrowerisexercising its right to prepay theNote, and (2) thedateof prepayment which shall be not more than three (3) TradingDays from the date ofthe Optional PrepaymentNotice. On thedate fixed for prepayment (the "Optional PrepaymentDate"), the Borrower shall make payment of the Optional Prepayment Amount (asdefined below) toor uponthe orderof the Holder as specified by the Holder in writing to the Borrower at leastone (1)business day priorto the Optional Prepayment Date. IftheBorrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder ofan amount in cash (the"OptionalPrepayment Amount") equal to150%,multiplied bythe sum of:(w)the then outstanding principal amount ofthis Note (x) accrued and unpaid interest on the unpaidprincipal amount ofthis Note tothe Optional Prepayment Dateplus(y)DefaultInterest, if any, on the amounts referred to in clauses (w) and(x)plus (z) anyamounts owed tothe Holder pursuant toSections 1.3and 1.4(g)hereof.If the Borrowerdelivers and OptionalPrepayment Notice andfails topay the Optional Prepayment Amount due to theHolder of theNote within two(2) businessdays followingthe Optional PrepaymentDate, the Borrower shall foreverforfeitits right to prepaythe Note pursuantto this Section 1.9.
ARTICLE II. CERTAINCOVENANTS
2.1 Negative CovenantsAslong asanyportionofthisNoteremainsoutstanding,unless theholders of allof theoutstanding Notesshallhave otherwise givenprior writtenconsent, the Borrower shallnot, and shall notpermit any ofitssubsidiaries(whetheror not a subsidiaryon theIssue Date) to, directly or indirectly:
(a) otherthanindebtednessexistingasoftheInitialDateorincurredintheordinarycourseofbusinessfor tradeexpenses(not borrowed money)("Permitted Indebtedness"),enterinto, create, incur, assume, guarantee or sufferto exjst anyindebtedness for borrowedmoney ofanykind, including, but notlimitedto, a guarantee, on or withrespect toanyof its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom, which indebtednessshallbesenior isrespect to securityto this Note;
(b) otherthanPermittedLiens(asdefinedbelow),enterinto,create,incur, assumeorsuffertoexistanyliens,chargesor encumbrances of any kind or nature("Liens"),onor withrespect to anyof its property orassets nowowned orhereafter acquiredorany interest therein or any income or profits therefrom . "Permitted Lien"meansthe individualand collective referenceto thefollowing: (a)Liensfortaxes, assessmentsandother governmental chargesorlevies notyetdue orLiensfor taxes, assessmentsand other governmental charges or levies being contested in good faith and by appropriate proceedings for whichadequatereserves (in thegood faithjudgment of the managementof the Borrower) have been establishedin accordance withGAAP;(b)Liensimposedbylaw which were incurredin theordinary course of the Borrower 'sbusiness, such ascarriers', warehousemen 's and mechanics' Liens,statutorylandlords'Liens,andothersimilar Liensarising in theordinarycourseof theBorrower's business, and which (x) donotindividuallyorintheaggregatematerially detractfrom thevalue ofsuchproperty orassetsor materially impair theuse thereof in the operation of thebusiness of the Borrowerand itsconsolidated subsidiaries or(y) are being contested in good faith byappropriate proceedings, which proceedings have the effect of preventing for the foreseeablefuture the forfeiture or sale of the property or asset subjecttosuch Lien; (c)Liens incurred inconnection with PermittedIndebtednessunder clauses (a),and (b)thereunder; and(d) Liensincurred in connection with Permitted Indebtedness underclause(c) thereunder, provided thatsuch Liens arenotsecured by assetsof theBorroweroritssubsidiariesotherthan the assets soacquiredorleased.
(c) amenditscharterdocuments, including,without limitation,itscertificateofincorporationandbylaws,inanymannerthatmaterially and adverselyaffects any rights of the Holder;
(d) repay,repurchaseoroffertorepay, repurchaseorotherwiseacquire morethanademinimisnumberofsharesofitsCommon Stock orCommonStock equivalents;
(e) repay,repurchaseoroffertorepay,repurchaseorotherwiseacquireanyindebtedness,otherthantheNotesifonapro-ratabasis,otherthanregularly scheduled principal and interest payments assuchtermsare ineffect asofthe Issue Date, provided that such paymentsshallnot be permitted if, at suchtime, or after givingeffect to suchpayment, any Eventof Default exist oroccur;
(f) paycashdividendsordistributionsonanyequitysecuritiesoftheBorrower;
(g) sell,lease orotherwisedisposeofanyportionofitsassetsoutsidetheordinarycourseof business, other than de minimissales. Any consent to the disposition of any assetsmay beconditioned on a specifieduse of the proceeds of disposition ;
(h) solongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder'swritten consent, lend money , givecredit ormake advances to any person, firm,joint venture orcorporation,including, without limitation,officers, directors, employees, subsidiariesandaffiliates of the Borrower, exceptloans,credits or advances(a) inexistence orcommitted on the date hereofand which the Borrower has informedHolder inwriting priorto the date hereof,(b) madein the ordinary course of business or (c) not in excessof $1,000;
(i) enterintoanytransactionwithanyaffiliateoftheBorrowerwhichwouldberequiredtobedisclosed in anypublicfiling withtheCommission,unlesssuchtransactionismadeonanarm's lengthbasisandexpresslyapproved bya majority of thedisinterested directors of theBorrower(evenif less thana quorum otherwise requiredfor boardapproval);or
(j) enter intoanyagreement withrespecttoanyoftheforegoing.
ARTICLE III.EVENTSOFDEFAULT
If anyofthefollowingeventsofdefault(each,an"EventofDefault")shalloccur:
3.1 FailuretoPayPrincipalorInterest.TheBorrowerfailstopaytheprincipalhereoforinterestthereonwhen due on this Note, whetherat maturity, uponaccelerationor otherwise.
3.2 ConversionandtheShares.TheBorrowerfailstoissuesharesofCommonStocktotheHolder (orallowancesorthreatensinwritingthatit willnothonor its obligationtodo so) upon exercisebythe Holder of the conversionrights ofthe Holder in accordance with theterms of this Note, failsto transferorcause itstransfer agentto transfer(issue) (electronically orin certificatedform) anycertificate for shares of Common Stockissued to the Holder uponconversion of or otherwise pursuanttothisNote as and whenrequiredby this Note, the Borrower directs itstransfer agent not totransfer or delays,impairs, and/orhindersits transfer agent in transferring(orissuing( electronically or incertificatedform) anycertificatefor sharesofCommon Stock tobe issued to theHolder upon conversion ofor otherwise pursuant to thisNote asand when required bythis Note, or failstoremove (ordirects its transfer agentnot to remove or impairs, delays,and/orhindersits transfer agent fromremoving) anyrestrictivelegend(ortowithdraw any stop transfer instructionsinrespectthereof) onany certificatefor anysharesofCommon Stockissuedto the Holder upon conversion of orotherwisepursuant tothisNote asand when required by this Note (ormakes any written announcement, statement or threat that itdoesnot intendto honor the obligations described inthisparagraph) andanysuchfailureshallcontinue uncured (oranywritten announcement,statementor threatnot to honor its obligationsshallnot berescinded inwriting) for three (3)business days after theHolder shall have delivered a Notice of Conversion.
3.3 BreachofCovenants.TheBorrowerbreachesanymaterialcovenantorothermaterialtermorconditioncontainedinthisNote andanycollateral documents including butnot limited to theExchange Agreementand such breachcontinues for a periodoften(10) days afterwrittennoticethereoftothe Borrower from the Holder;
3.4 BreachofRepresentationsandWarranties.AnyrepresentationorwarrantyoftheBorrowermade hereinor inanyagreement,statementorcertificategiven inwriting pursuantheretoor in connection herewith (including, without l imitation, the ExchangeAgreement), shallbe false or misleading in any material respectwhen madeand the breach ofwhichhas(or withthepassage of time will have)amaterial adverse effectonthe rightsof theHolder with respect tothisNote or theExchange Agreement;
3.5 Bankruptcy,ReceiverorTrustee.TheBorroweroranysubsidiaryoftheBorrowershallcommence,or there shall be commenced against the Borrower or any subsidiaryof the Borrower underanyapplicable bankruptcy or insolvency laws as now or hereafter in effectorany successorthereto, or theBorrower orany subsidiary ofthe Borrower commencesanyotherproceeding underany reorganization, arrangement, adjustmentof debt, relief ofdebtors, dissolution, insolvency orliquidationorsimilarlaw of any jurisdictionwhethernow or hereafterin effectrelatingtothe Borroweror anysubsidiary oftheBorroweror there iscommenced against the Borroweror anysubsidiary of the Borroweranysuch bankruptcy, insolvency or otherproceeding which remains undismissed for aperiod of 61 days;orthe Borrower or anysubsidiary ofthe Borrower isadjudicatedinsolvent orbankrupt; or any orderof relief orother order approving any such case orproceedingis entered; or the Borrower orany subsidiary of the Borrower suffers anyappointment of any custodian,private or courtappointed receiver orthe like forit oranysubstantialpart of its property whichcontinuesundischargedor unstayedfor a period of sixty one (61) days; or the Borrower or any subsidiary oftheBorrowermakes a generalassignment forthe benefit ofcreditors; or theBorrowerorany subsidiary of theBorrower shall fail to pay, orshallstatethat it isunable to pay, or shall be unable topay, its debts generally as they becomedue; ortheBorrower or anysubsidiary of theBorrower shallcalla meetingof its creditors with a view toarranginga composition, adjustment or restructuring of its debts; or the Borrower or anysubsidiaryofthe Borrower shallby any act or failure to act expresslyindicate itsconsent to, approval oforacquiescence in any oftheforegoing; or anycorporate or other actionis taken bythe Borrower or any subsidiary of the Borrower for thepurpose ofeffecting any of the foregoing;
3.6 Judgments.Anymoneyjudgment,writorsimilarprocessshallbeentered orfiled against the Borrower or any subsidiary ofthe Borroweror any ofitspropertyor other assetsfor more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) daysunlessotherwiseconsented to bytheHolder,whichconsent willnot be unreasonably withheld;
3.7 IndebtednessDefault.TheBorroweroranysubsidiaryoftheBorrowershalldefaultin any of itsobligationsunder any other Note or any mortgage, credit agreement or other facility,indenture agreement, factoring agreement or otherinstrumentunder which theremay be issued,or bywhichthere may besecured orevidenced any indebtedness for borrowedmoneyor money dueunder anylong term leasingor factoring arrangementof the Borrower or any subsidiary oftheBorrower in anamount exceeding $25,000, whethersuchindebtedness nowexists or shall hereafter be created and such default shallresult insuch indebtednessbecomingorbeing declared dueand payable prior to thedateon which it would otherwisebecome due andpayable;
3.8 DelistingofCommonStock;OTCChill.TheBorrowershallfailtomaintainthelistingoftheCommon Stock on atleast one of theOTCQBor anequivalentreplacement exchange, theNasdaqNational Market, the NasdaqSmaUCapMarket, theNewYorkStock Exchange, or theAmerican Stock Exchange orthereshall be no bid pricefor the stock for a period of one business day OR the Depository Trust Company placesa chill on newdeposits of Common Stock, which is notremoved within ten(10) tradingdays;
3.9 FailuretoComplywiththeExchangeAct.TheBorrowershallfailtocomplywith the reportingrequirementsof the Exchange Act; and/or the Borrowershall cease to be subject to the reporting requirements of theExchange Act.
3.10 Liquidation.Anydissolution, Liquidation,orwindingupofBorroweroranysubstantialportionof itsbusiness.
3.11 CessationofOperations.AnycessationofoperationsbyBorrowerorBorroweradmitsitisotherwisegenerallyunableto payits debts as such debts become due, ·provided,however, that any disclosure of theBorrower's ability to continueas a "going concern" shallnot be anadmissionthat the Borrower cannot payits debts as they become due.
3.12 MaintenanceofAssets.The failurebyBorrowertomaintainanymaterialintellectualpropertyrights,personal,realpropertyor other assets whichare necessaryto conduct its business (whether nowor in thefuture).
3.13 FinancialStatementRestatement.TherestatementofanyfinancialstatementsfiledbytheBorrowerwiththeSEC foranydate orperiod fromtwo yearspriorto theIssueDateof this Note and until this Note isnolonger outstanding,if the result of such restatementwould, by comparisonto the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Noteor the Exchange Agreement.
3.14 ReverseSplits.The BorrowereffectuatesareversesplitofitsCommonStockwithouttwenty(20) dayspriorwritten noticetotheHolder.
3.15 ReplacementofTransferAgent.IntheeventthattheBorrowerproposestoreplaceitstransferagent,theBorrowerfailsto provide, prior to theeffectivedate of such replacement, fully executedIrrevocableTransferAgentInstructionsin aform as initially delivered pursuant to the ExchangeAgreement(includingbutnot limitedto the provisionto irrevocable reserve shares of Common Stock in the Reserved Amount) signed by the successor transferagent to Holder andthe Borrower.
3.16 FailuretoPayPost-ClosingExpenses.ThefailurebyBorrowertopayanyandallPost-ClosingExpensesasdefinedinsection4.6.
3.17 Delisting.Fromand aftertheinitialtrading,listingorquotationoftheCommonStockonaPrincipalMarket,aneventresulting in the Common Stock no longer being traded,listedor quoted ona Principal Market;failure to comply with the requirements for continued quotation on a PrincipalMarket; ornotification from a Principal Marketthat the Borrower is not incompliance withtheconditionsforsuch continued quotation and suchnon-compliance continuesfor seven (7) tradingdaysfollowing such notification.
3.18 Cross-Default.Notwithstandinganythingtothecontrarycontainedin thisNoteortheotherrelated or companiondocuments, a breach or defaultby the Borrower ofanycovenantorothertermorcondition contained inanyof theOtherAgreements, after the passage of all applicablenotice and cure or graceperiods,shall, at theoption of theBorrower, beconsidered a defaultunderthis Note andthe OtherAgreements, inwhich event the Holdershall be entitled(but in noevent required) to applyallrights andremediesofthe Holder under theterms of thisNote and the Other Agreements by reason of a default under said Other Agreementor hereunder. "Other Agreements" means collectively, all agreementsandinstrumentsbetween, among orby: (1)theBorrower, and, orfor thebenefit of,(2) theHolder and anyaffiliateofthe Holder, including, withoutlimitation,promissory notes; provided , however, the term "Other Agreements" shallnot includethe relatedorcompanion documents tothisNote.Each of the loan transactions will be cross-defaultedwith eachother loan transaction and withall otherexisting and future debtof Borrowerto theHolder.
3.19 ConsecutiveLateFilings.Ifthe Companyfilesalatenotification(NT10-QorNT10-K)forany quarterly or annual reportforanytwo (2) consecutive periods.
Upon theoccurrenceandduringthecontinuationofanyEventofDefaultspecifiedinSection3.1(solelywithrespecttofailureto pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrowershallpay to theHolder, in full satisfaction ofitsobligationshereunder, an amountequal to theDefaultSum (as definedherein). UPON THE OCCURRENCE AND DURING THE CONTJNUATION OF ANY EVENT OF DEFAULTSPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGTATIONSHEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULTSUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections3.1(solely with respect tofailureto pay the principal hereof orinterestthereonwhen dueon this Noteupon a Trading Market Prepayment Event pursuant toSection1.7 or upon acceleration),3.3,3.4, 3.6,3.8,3.9,3.11,3.12,3.13,3.14, 3.15, 3.16, 3.17, 3.18, 3.19,and/or 3.20 exercisable through the delivery of written notice tothe Borrower by suchHolders (the "DefaultNot ice"), and upon the occurrence of an Event of Default specifiedin the remaining sections ofArticles III (other than failure to pay the principal hereof orinterest thereon at the MaturityDatespecified inSection 3.1 hereof),theNoteshallbecomeimmediatelydue andpayableand the Borrower shall pay to theHolder,in fullsatisfaction of its obligations hereunder,an amount equalto the greater of (i) 150%timesthesumof (w)thethen outstandingprincipal amount of thisNoteplus(x)accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the"Mandatory PrepaymentDate") plus(y) DefaultInterest, ifany, on the amounts referred toin clauses (w) and/or (x) plus (z) any amounts owed to the Holderpursuant to Sections 1.3 andl .4(g)hereof (the thenoutstandingprincipal amount of th.is Note to the date of payment plus the amounts referred to in clauses (x),(y) and (z)shall collectively be known asthe"Default Sum") or (ii) the "parity value" of the Default Sumtobe prepaid,whereparityvaluemeans(a)thehighestnumber of shares of Common Stockissuableupon conversion of or otherwise pursuant to such Default Sum in accordance with Article IItreating the Trading Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for purposesof determining thelowest applicableConversion Price,unless the Default Eventarisesas a result ofsuchbreach in respect of aspecific Conversion Date in whichcasesuch Conversion Date shall be theConversionDate, multiplied by (b) the highest Closing Price for the Common Stock during the period beginning onthe date of first occurrence ofthe Event ofDefault andendingone day priortotheMandatory Prepayment Date (the "Default Amount") and all otheramounts payable hereunder shall immediately become due and payable, all withoutdemand,presentmentor notice,all of which hereby areexpresslywaived,togetherwith all costs, including, withoutlimitation,legal feesand expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at low orinequity.
If theBorrowerfailstopaytheDefaultAmountwithinfive(5)businessdaysofwrittennotice that such amount isdueand payable ,then the Holdershallhave theright at anytime,solongasthe Borrower remains in default(and solong and to the extent that there are sufficientauthorized shares), to require theBorrower,upon writtennotice,to immediately issue,in lieu of theDefaultAmount,thenumberof shares of Common Stockof the Borrower equalto the DefaultAmount divided bythe ConversionPrice then in effect.
ARTICLEIV.MISCELLANEOUS
4.1 FailureorIndulgenceNotWaiver.NofailureordelayonthepartoftheHolder in theexerciseof any power,rightor privilegehereunder shall operateasa waiverthereof,nor shall anysingleor partial exerciseofanysuchpower, right orprivilegeprecludeother or furtherexercisethereof orofany other right, power or privileges. All rightsand remediesexisting hereunderare cumulative to, and notexclusiveof, anyrights orremedies otherwise available.
4.2 Notices.Allnotices,demands,requests,consents,approvals,andothercommunicationsrequired orpermittedhereunder shallbe in writing and,unless otherwise specified herein, shall be (i) personallyserved, (ii) deposited inthe mail, registered orcertified, return receiptrequested, postageprepaid , (iii) deliveredbyreputable aircourierservice with charges prepaid , or(iv)transmitted by hand delivery, telegram, or facsimile,addressedas set forth below or to such other addressas suchparty shall have specifiedmost recently by writtennotice. Anynotice or other communication requiredor permitted to be given hereundershall bedeemed effective(a) upon handdelivery or delivery by facsimile,withaccurateconfirmation generated bythe transmitting facsimile machine,at the addressor numberdesignatedbelow(if delivered on abusinessday duringnormalbusinesshours where suchnotice is to be received), orthe firstbusinessday following such delivery (ifdeliveredotherthan on abusinessday duringnormalbusiness hours where such notice is to bereceived) or (b)on the secondbusiness day following the dateofmailing by express courier service,fully prepaid, addressed to such address, oruponactual receiptof suchmailing, whichever shall firstoccur. Theaddresses forsuchcommunicationsshall be:
If totheBorrower,to:
WELLPOWER,INC.
11111 KATYFREEWAYSUITE#910
HOUSTON, TX77079
Attn: Mr.DanPatience,President,CFO
If totheHolder:
MAGNA EQUITIESI,LLC
5HANOVERSQUARE NEWYORK,NYI0004
Attn:JoshuaSason,ManagingMember
4.3 Amendments.ThisNoteandanyprovisionhereofmayonlybeamendedbyaninstrumentin writing signed bythe Borrower and the Holder. The term "Note" and all reference thereto, as used throughout this instrument, shall meanthis instrument (andthe other Notes issued pursuant to the Exchange Agreement) as originally executed, or if lateramended or supplemented, then as so amended or supplemented.
4.4 Assignability.ThisNoteshallbebindingupontheBorroweranditssuccessorsandassigns,andshallinure to be the benefitof the Holder and its successors andassigns. Each transfereeofth is Note mustbe an"accredited investor"(as defined in Rule 50l(a) of the1933 Act). Notwithstandinganything in thisNote tothe contrary, this Note maybepledged ascollateral in connection with a bonafide margin account or other lending arrangement.
4.5 CostofCollection. IfdefaultismadeinthepaymentofthisNote,theBorrowershallpaytheHolderhereofcosts of collection,includingreasonable attorneys' fees.
4.6 Post-ClosingExpenses. TheIssuerwillbearanyandallmiscellaneousexpensesthatmayariseasaresultofthis Agreement post-closing. These expensesinclude, butare not limited to, thecost oflegal opinion production, transfer agentfees,equityissuancefees,etc.Thefailureto pay anyand allPost-Closing Expenses will be deemedadefault as described in Section 2.6.10 herein.
4.6Governing Law.ThisNoteshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateof New York without regard to principles ofconflicts oflaws. Any action broughtby eitherparty against the other concerning thetransactions contemplatedbythisNoteshall be brought only in thestatecourtsof New Yorkor inthefederal courtslocated in the state and county ofNew York. The partiesto thisNote hereby irrevocably waive any objection to jurisdictionand venueof any action instituted hereunder andshallnotassert any defensebasedon lackof jurisdictionorvenue orbaseduponforumnonconveniens.The Borrower andHolder waive trial by jury.The prevailingpartyshallbe entitled to recover fromthe otherpartyitsreasonable attorney'sfeesandcosts. Inthe event that any provision of thisNoteoranyother agreementdelivered inconnection herewith is invalid or unenforceable under any applicable statuteor ruleof Jaw, then such provisionshall bedeemedinoperativetothe extentthat itmayconflict therewith andshall be deemedmodified toconform withsuchstatute orruleof law. Any such provisionwhich mayprove invalidor unenforceable underany lawshallnotaffect the validityor enforceability of any other provision of any agreement. Each partyhereby irrevocably waivespersonalservice of process and consentsto process being served inany suit, actionor proceeding inconnectionwith this Agreement orany other Transaction Documentby mailinga copy thereofvia registered orcertified mailorovernight delivery(withevidence of delivery)to such party at the address in effect for notices toitunderthis Agreement and agrees that suchservice shall constitute goodand sufficientservice of process and noticethereof. Nothingcontainedherein shallbe deemedtolimit inany way any right to serve process in any othermanner permitted by law.
4.7 CertainAmounts.WheneverpursuanttothisNotetheBorrowerisrequiredtopayan amount inexcess of the outstanding principal amount (or the portionthereofrequired tobepaidat thattime)plusaccrued and unpaidinterestplusDefaultInterest onsuchinterest, the Borrower and theHolderagree thattheactualdamagesto the Holderfrom the receipt ofcashpaymenton thisNote may be difficult to determineand theamounttobe so paid by theBorrower representsstipulateddamages andnot a penalty andisintendedto compensatethe Holder in partfor loss of the opportunitytoconvert this Noteandto earn a return from thesale ofshares ofCommon Stockacquired upon conversion ofthisNote ataprice in excess of the price paid for such shares pursuant to this Note. TheBorrowerandtheHolder hereby agreethat suchamount ofstipulateddamages is not plainlydisproportionate tothe possible losstothe Holder from thereceiptof a cashpaymentwithout the opportunity to convertthis Noteintoshares of CommonStock.
4.8 ExchangeAgreement.Byitsacceptanceof thisNote,eachpartyagreestobebound by the applicable terms oftheExchange Agreement.
4.9 NoticeofCorporateEvents.Exceptasotherwiseprovidedbelow,theHolderofthisNoteshallhaveno rightsas a Holder of CommonStockunlessandonlyto the extent that it converts this Noteinto CommonStock. The Borrower shall provide the Holder with prior notification of any meeting of theBorrower 's shareholders (andcopiesof proxymaterial s and other information sent to shareholders).In the event of any taking by the Borrower of a record of itsshareholdersforthe purpose ofdeterminingshareholders who are entitled to receive payment of anydividendor other distribution, any right to subscribe for, purchase or otherwise acquire (includingbywayofmerger,consolidation , reclassification or recapitalization) anyshare ofany class or anyothersecuritiesorproperty, orto receiveany other right,orfor thepurposeof determiningshareholders who are entitled to vote in connection with any proposedsale,leaseor conveyanceof all or substantially all of the assets of the Borroweror any proposed liquidation, dissolutionor winding up of the Borrower, the Borrower shall maila noticeto theHolder, at least twenty{20) days priorto therecord date specified therein (or thirty (30)days prior to the consummation of thetransaction or event, whichever is earlier), of the date on which any such recordis to betaken forthepurpose ofsuch dividend,distribution, right or otherevent, anda briefstatementregarding the amount and character ofsuch dividend, distribution,rightor othereventtothe extent knownat such time. TheBorrower shall makea publicannouncement ofanyeventrequiringnotification to the Holderhereunder substantiallysimultaneously withthenotificationto the Holder inaccordancewith the terms of thisSection 4.9.
4.10 Remedies.TheBorroweracknowledgesthatabreachbyitofits obligations hereunderwillcauseirreparableharm totheHolder, byvitiatingtheintentandpurposeofthetransaction contemplatedhereby. Accordingly , the Borroweracknowledgesthat theremedy atlaw forabreach ofitsobligationsunderthisNote willbeinadequateandagrees,in theeventof a breach orthreatened breachbythe Borrower oftheprovisions ofthisNote, thattheHoldershallbeentitled,inaddition toall otheravailableremedies atlaworin equity,and inaddition tothepenaltiesassessableherein,toaninjunctionor injunctions restraining,preventingor curing any breach of this Note and to enforcespecificallytheterms andprovisions thereof,without thenecessity ofshowing economiclossandwithoutany bondorother securitybeingrequired.
4.11 Severability.Ifanyprovisionofthis Noteisinvalid,illegalorunenforceable, thebalanceofthisNote shallremain in effect, and ifanyprovision isinapplicable toany person orcircumstance,itshallnevertheless remain applicable toall otherpersons andcircumstances. If it shall be found that anyinterestor otheramount deemedinterest due hereunder shallviolateapplicablelaws govern ing usury, theapplicable rateofinterestduehereundershallautomatically be lowered toequalthemaximumpermitted rate ofinterest. The Borrower covenants (to the extent that it maylawfully do so) that itshall notatany time insist upon,plead, orinany manner whatsoever claimor take thebenefit oradvantage of,anystay, extension or usury laworother lawwhichwould prohibitor forgive the Borrower from paying allor any portion of the principaloforinterest onthisNote ascontemplatedherein, whereverenacted, now orat anytime hereafter in force,orwhich may affect the covenantsortheperformance ofthis indenture, andtheBorrower(to the extentit maylawfullydo so) hereby expresslywaivesallbenefitsor advantage of anysuch law, and covenantsthat itwill not, by resort to any suchlaw,hinder,delayorimpededtheexecution of anypowerhereingranted totheHolder, butwill suffer andpermittheexecution of everysuchasthough no suchlaw hasbeenenacted.
(Signature PagesFollow)
IN WITNESSWHEREOF,BorrowerhascausedthisNotetobesignedinitsnamebyits duly authorized officer this March2, 20 15.
WELL POWER, INC.
/s/ Dan Patience
DanPatience,President,CFO
Exhibit A.
NOTICE OF CONVERSION
The undersigned hereby elects to convert $_________ of the principal amount of the Note (defined below) into Shares of Common Stock of WELL POWER, INC., a(n) NEVADA Corporation (the "Borrower") according to the conditions of the Convertible Note of the Borrower dated as of March 2, 20 15 (the "Note"). No fee will be charged to the Holder or Holder's Custodian for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
[ ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC Transfer").
Name of DTC Prime Broker: _________
Account Number: _________
[ ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder's calculation attached hereto) in the name(s) specified immediately below:
Magna Equities I, LLC
EIN #: 45-2043511
Date of Conversion: _________
Conversion Price: _________
Shares to Be Delivered: _________
Remaining Principal Balance Due
After This Conversion: _________
Signature _________
Print Name: Joshua Sason
FORM OFLEGALOPINION
1. The Company is a corporation duly organized, validly existing and in good standing under the laws of [_________]. The Company has all requisite power and authority, and all material governmental licenses, authorizations, consents and approvals, that are required to own and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted (all as described in the Company's filings with the SEC). The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to qualify could have a Material Adverse Effect on the Company.
2. Each of the following subsidiaries of the Company (the "Subsidiaries") is a corporation, duly organized and in good standing under the laws of its state of organization, as noted: [_________].
3. The Company has all requisite power and authority (i) to execute, deliver and perform the Transaction Documents, (ii) to issue, sell and deliver the Notes, and the Underlying Shares pursuant to the Transaction Documents and (iii) to carry out and perform its obligations under, and to consummate the transactions contemplated by, tbe Transaction Documents.
4. All action on the part of the Company, its directors and its stockholders necessary for the authorization, execution and delivery by the Company of the Transaction Documents, the authorization, issuance, sale and delivery of the Notes pursuant to the Agreement, the issuance and delivery the Underlying Shares and the consummation by the Company of the transactions contemplated by the Transaction Documents bas been duly taken. The Transaction Documents have been duly and validly executed and delivered by the Company and constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms, except that (a) such enforceability may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of creditors' rights in general and (b) the remedies of specific performance and injunctive and other forms of injunctive relief may be subject to equitable defenses.
5. To our knowledge, the Company has filed all reports (the "SEC Reports") required to be filed by it under Sections I 3(a) and l5(d) of the Exchange Act of 1934, as amended (the "Exchange Act"). As of their respective filing dates, the SEC Reports complied in all material respects as to form with the requirements of the Exchange Act and the rules and regulations of the Commission promulgated thereunder.
6. Based in part upon the representations of the Purchasers contained in the Agreement, the Notes and the Underlying Shares may be issued to the Purchasers without registration under the Securities Act of 1933, as amended.
7. The execution, delivery and performance by the Company of, and the compliance by the Company with the terms of, the Transaction Documents and the issuance, sale and delivery of the Notes and the Underlying Shares pursuant to the Agreement do not (a) conflict with or result in a violation of any provision of law, rule or regulation applicable to the Company or its Subsidiaries or of the certificate of incorporation or by-laws or other similar organizational documents of the Company or its Subsidiaries, (b) conflict with, result in a breach of or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or result in or permit the termination or modification of, any agreement, instrument, order, writ, judgment or decree known to us to which the Company of its Subsidiaries is a party or is subject or (c) result in the creation or imposition of any lien, claim or encumbrance on any of the assets or properties of the Company or its Subsidiaries.
8. To our knowledge, except as set forth in the Agreement, there is no claim, action, suit, proceeding, arbitration , investigation or inquiry, pending or threatened, before any court or governmental or administrative body or agency, or any private arbitration tribunal, against the Company or its Subsidiaries, or any of the officers, directors or employees (in connection with the discharge of their duties as officers, directors and employees) of the Company or its Subsidiaries, or affecting any of its properties or assets.
9. In connection with the valid execution, delivery and performance by the Company of the Transaction Documents, or the offer, sale, issuance or delivery of the Notes and the Underlying Shares or the consummation of the transactions contemplated thereby, no consent, license, permit, waiver, approval or authorization of, or designation, declaration, registration or filing with, any court, governmental or regulatory authority, or self-regulatory organization, is required.
