NEITHERTHEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBY THISCERTIFICATENORTHE SECURITIESINTO WHICHTHESE SECURITIES ARECONVERTIBLEHAVEBEENREGISTEREDUNDERTHESECURITIESACT OF 1933,ASAMENDED,ORAPPLICABLESTATESECURITIESLAWS.THESECURITIESMAY NOT BEOFFEREDFORSALE, SOLD, TRANSFERRED OR ASSIGNED(I)INTHEABSENCEOF(A)ANEFFECTIVEREGISTRATIONSTATEMENTFORTHESECURITIESUNDERTHESECURITIESACTOF1933,AS AMENDED, OR(B)ANOPINIONOFCOUNSEL(WHICHCOUNSEL SHALLBESELECTEDBYTHEHOLDER),INAGENERALLYACCEPTABLEFORM,THAT REGISTRATION ISNOTREQUIRED UNDERSAID ACTOR(II) UNLESS SOLDPURSUANTTORULE144OR RULE144AUNDERSAIDACT. NOTWITHSTANDINGTHEFOREGOING,THESECURITIESMAY BEPLEDGEDIN CONNECTION WITHABONAFIDEMARGINACCOUNTOROTHERLOAN ORFINANCINGARRANGEMENT SECUREDBYTHESECURITIES.
PrincipalAmount:$37,500.00
IssueDate:April 28, 2014
PurchasePrice:$37,500.00
CONVERTIBLEPROMISSORY NOTE
FORVALUERECEIVED,INDEPENDENTFILM DEVELOPMENT CORPORATION,aNevadacorporation(hereinaftercalledthe“Borrower”),herebypromisestopay totheorderofKBMWORLDWIDE,INC.,aNewYorkcorporation,orregisteredassigns(the“Holder”)thesumof$37,500.00togetherwithany interestassetforthherein,onJanuary30, 2015(the“Maturity Date”),and to payinterest on the unpaid principalbalance hereofattherate ofeightpercent(8%)(the“InterestRate”) perannumfromthe date hereof(the“IssueDate”)untilthesamebecomesdueandpayable,whetheratmaturity oruponacceleration orby prepayment or otherwise.This Note may not be prepaid in whole or in partexceptas otherwiseexplicitly setforth herein.Anyamount of principal or interest on this Note whichis notpaidwhendueshallbearinterestattherateoftwentytwo percent(22%)perannumfromthe due datethereof untilthesame ispaid(“DefaultInterest”).Interestshallcommenceaccruingon thedatethattheNoteisfully paidandshallbecomputedonthebasisofa365-dayyearandtheactual number ofdayselapsed. All payments due hereunder(to theextent notconverted intocommonstock,$0.001parvalue pershare(the“CommonStock”)inaccordance withthe terms hereof) shall be made inlawful moneyof the UnitedStates of America. All payments shall be madeat suchaddressas the Holder shall hereaftergive to theBorrowerbywritten notice made inaccordancewith the provisions of this Note.Wheneveranyamountexpressed to be dueby the terms of this Note is due onanyday whichis not a businessday, the same shall insteadbe due on thenext succeedingdaywhich is a business dayand, in thecase ofanyinterest payment
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datewhichisnotthedateonwhichthisNoteispaidinfull,theextension oftheduedatethereof shallnotbetakenintoaccountforpurposesof determining theamountofinterestdueonsuch date.AsusedinthisNote,theterm“businessday”shallmeananydayotherthanaSaturday,Sunday oraday onwhichcommercialbanksinthecity ofNewYork,NewYorkareauthorized orrequiredby law orexecutive order toremainclosed. Eachcapitalizedtermusedherein,and nototherwisedefined,shall havethemeaningascribedtheretointhatcertainSecuritiesPurchase Agreementdatedthedatehereof,pursuanttowhichthisNotewas originally issued(the“PurchaseAgreement”).
ThisNoteisfreefromalltaxes, liens,claimsandencumbranceswithrespecttotheissue thereofandshallnotbesubjecttopreemptiverightsor other similarrightsof shareholdersof theBorrowerand will not imposepersonal liabilityupon theholderthereof.
The followingterms shallapplyto this Note:
ARTICLEI.CONVERSIONRIGHTS
1.1ConversionRight.TheHoldershallhavetherightfromtimetotime,andatany timeduringtheperiodbeginningonthedatewhichisonehundredeighty(180)daysfollowing thedateofthisNoteandending onthelaterof:(i)theMaturityDateand(ii)thedate ofpaymentoftheDefaultAmount(asdefinedinArticleIII)pursuantto Section1.6(a)orArticleIII,eachinrespectoftheremaining outstandingprincipalamountofthisNotetoconvertalloranypartoftheoutstandingandunpaidprincipalamountofthisNoteintofully paidandnon-assessable shares ofCommonStock,as suchCommonStock exists onthe Issue Date, orany sharesof capitalstockorothersecuritiesoftheBorrowerintowhichsuch CommonStockshall hereafterbechangedor reclassifiedattheconversion price(the“Conversion Price”)determined asprovidedherein(a“Conversion”);provided,however,thatinnoeventshallthe Holder beentitledtoconvertanyportionofthisNoteinexcessofthatportionofthisNoteuponconversion of which the sumof(1) the numberof shares ofCommonStock beneficially ownedby the Holderand itsaffiliates(otherthansharesofCommonStockwhichmaybedeemedbeneficially ownedthroughtheownershipof the unconvertedportionof the Notesor the unexercisedor unconverted portion ofanyother securityoftheBorrowersubject to alimitation onconversion orexerciseanalogous tothelimitationscontainedherein)and(2)thenumberofsharesofCommonStock issuable upon theconversion ofthe portion of this Note withrespect to which thedeterminationofthisprovisoisbeingmade,wouldresultinbeneficialownershipby the Holderand itsaffiliates of more than 4.99% ofthe outstanding sharesofCommonStock.For purposesoftheprovisototheimmediatelypreceding sentence,beneficialownershipshallbe determinedinaccordance with Section13(d) of theSecuritiesExchangeActof 1934,asamended(the“ExchangeAct”),andRegulations13D-Gthereunder,exceptasotherwise providedinclause(1)ofsuchproviso,provided,further,however,thatthe limitationsonconversionmay be waivedby theHolderupon,attheelectionofthe Holder, notlessthan61 days’ prior notice totheBorrower,andthe provisionsof theconversionlimitationshallcontinue
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toapply untilsuch61stday(orsuchlaterdate,asdetermined by theHolder,asmay bespecified insuchnotice ofwaiver).The numberofsharesof Common Stocktobe issueduponeachconversionofthisNoteshallbedeterminedby dividing theConversionAmount(asdefined below)by theapplicableConversionPricethenineffectonthedatespecifiedinthenoticeofconversion,intheformattachedheretoasExhibitA(the“Notice ofConversion”),deliveredto theBorrowerby theHolderinaccordancewithSection 1.4below;providedthattheNoticeofConversionissubmittedbyfacsimileore-mail(orby othermeansresultingin,orreasonablyexpectedtoresultin,notice) totheBorrower before 6:00p.m.,NewYork,NewYorktime on suchconversiondate(the“ConversionDate”). The term“ConversionAmount” means,withrespecttoanyconversionofthisNote,thesumof(1)theprincipalamountofthisNotetobeconvertedinsuchconversionplus(2)atthe Holder’soption,accruedandunpaidinterest,ifany, onsuchprincipalamountatthe interestratesprovidedinthisNote totheConversionDate,plus(3)atthe Holder’soption,DefaultInterest,ifany,ontheamountsreferredtointhe immediately precedingclauses(1)and/or(2)plus(4)attheHolder’soption,anyamountsowedtotheHolder pursuant toSections 1.3and 1.4(g)hereof.
1.2ConversionPrice.
(a)CalculationofConversionPrice.Theconversionprice(the“Conversion Price”) shallequalthe VariableConversion Price(asdefinedherein)(subjecttoequitableadjustmentsforstocksplits,stock dividendsorrightsofferingsbytheBorrowerrelatingtotheBorrower’ssecuritiesorthesecuritiesofany subsidiary oftheBorrower,combinations,recapitalization,reclassifications,extraordinary distributionsandsimilarevents). The"VariableConversionPrice"shallmean58%multipliedby theMarketPrice(asdefined herein)(representing adiscountrate of 42%).“MarketPrice” means theaverage of the lowest three(3)TradingPrices(asdefined below)forthe CommonStockduringtheten(10)Trading Dayperiodending on the latestcomplete Trading Dayprior to theConversion Date.“TradingPrice”means,foranysecurityasofanydate,theclosingbidpriceon theOver-the-CounterBulletinBoard,PinkSheetselectronicquotationsystemorapplicabletrading market(the“OTC”)asreportedbyareliablereportingservice(“ReportingService”)designatedby the Holder(i.e.Bloomberg)or,iftheOTCisnottheprincipaltrading marketforsuchsecurity,theclosingbidpriceofsuch security ontheprincipalsecuritiesexchangeortradingmarket where such security is listed or traded or, if noclosing bid price of such security isavailable inanyof theforegoingmanners,theaverageoftheclosingbidpricesofanymarket makersforsuch security thatare listed in the“pink sheets”. If the TradingPricecannotbecalculatedfor suchsecurity onsuch datein themannerprovidedabove,theTradingPriceshallbethefairmarket valueas mutually determinedby theBorrowerand the holders of a majority in interest of the Notesbeingconvertedforwhichthecalculationofthe TradingPriceisrequiredinorderto determinetheConversionPriceofsuch Notes.“TradingDay”shallmeananyday on whichtheCommonStockistradableforanyperiodonthe OTC,orontheprincipal securitiesexchangeor othersecurities marketon which theCommonStock is then beingtraded.
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(b)ConversionPriceDuringMajorAnnouncements.Notwithstandinganythingcontainedin Section1.2(a)tothecontrary,intheeventtheBorrower(i)makesa publicannouncementthatitintendstoconsolidateormergewithany othercorporation(otherthana mergerinwhichtheBorroweristhesurvivingorcontinuingcorporationanditscapitalstockis unchanged)orsellortransferallorsubstantiallyalloftheassetsoftheBorroweror(ii)any person,grouporentity(includingtheBorrower) publiclyannouncesatenderoffertopurchase
50%ormoreoftheBorrower’sCommonStock(orany othertakeoverscheme)(thedateoftheannouncementreferredtoinclause(i)or(ii)ishereinafterreferredtoasthe“Announcement Date”),thentheConversionPrice shall,effective uponthe AnnouncementDateandcontinuing throughthe Adjusted Conversion PriceTerminationDate(asdefinedbelow),beequaltothe lower of(x) theConversion Price whichwouldhave beenapplicableforaConversionoccurring onthe AnnouncementDateand(y) theConversionPrice thatwouldotherwise be ineffect.Fromandafter the AdjustedConversion Price TerminationDate,theConversion Price shallbe determinedassetforthinthis Section1.2(a).For purposeshereof,“Adjusted Conversion Price TerminationDate”shallmean,withrespecttoanyproposedtransactionortenderoffer(or takeoverscheme)forwhichapublicannouncementascontemplated bythisSection1.2(b)has beenmade,thedateuponwhichtheBorrower(inthecaseofclause(i)above)ortheperson,grouporentity(inthecaseofclause(ii)above)consummatesorpubliclyannouncesthe terminationorabandonmentof theproposedtransactionortender offer(ortakeoverscheme) whichcaused thisSection 1.2(b)to becomeoperative.
1.3 AuthorizedShares.TheBorrowercovenantsthatduringtheperiodtheconversionrightexists,theBorrowerwillreservefromitsauthorized andunissued CommonStocka sufficientnumber of shares,freefrompreemptiverights,toprovidefor the issuance ofCommonStock upon the fullconversion ofthisNoteissued pursuant to the PurchaseAgreement. TheBorrower isrequiredatalltimestohaveauthorizedandreservedfive timesthe numberof sharesthatisactuallyissuableuponfullconversionoftheNote(basedon theConversionPrice of the Notes ineffectfrom time to time)(the“Reserved Amount”). TheReservedAmount shall be increasedfrom timeto time inaccordance with theBorrower’s obligations hereunder. TheBorrowerrepresents that upon issuance, such shares will be dulyand validlyissued,fullypaidandnon-assessable.Inaddition,iftheBorrowershallissueanysecuritiesormakeanychangeto itscapitalstructurewhichwouldchangethenumberofsharesof CommonStockinto whichthe Notesshallbeconvertibleatthe thencurrentConversion Price,theBorrower shallatthe same time make properprovisionsothatthereafterthere shallbe asufficientnumberofshares ofCommonStockauthorizedandreserved,freefrompreemptiverights,forconversion ofthe outstanding Notes.TheBorrower(i)acknowledgesthatithas irrevocably instructeditstransfer agent to issuecertificatesfor theCommonStock issuable uponconversion of this Note,and(ii)agrees that its issuance of this Note shallconstitutefullauthority to its officersandagents whoarechargedwiththe dutyofexecutingstockcertificatestoexecuteandissue the necessarycertificatesfor shares ofCommonStock inaccordance with the termsandconditions of this Note.
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If,atanytimetheBorrowerdoesnotmaintaintheReservedAmountitwillbeconsideredan Event ofDefault underSection 3.2 oftheNote.
1.4Method ofConversion.
(a)MechanicsofConversion.SubjecttoSection1.1,thisNotemaybeconvertedbytheHolderinwholeorinpartatany timefromtimetotimeaftertheIssueDate,by(A)submittingto theBorrower a Notice ofConversion(byfacsimile,e-mail or otherreasonable meansofcommunication dispatchedontheConversionDate prior to6:00p.m.,New York,New Yorktime)and(B)subject toSection1.4(b),surrenderingthisNoteat the principal office of theBorrower.
(b)SurrenderofNoteUponConversion.Notwithstandinganything tothecontrary setforthherein,uponconversionofthisNoteinaccordancewiththetermshereof,the Holdershallnotberequiredtophysically surrenderthisNotetotheBorrowerunlesstheentire unpaidprincipalamountofthisNoteissoconverted. TheHolderandtheBorrowershall maintainrecords showingtheprincipalamount soconvertedand thedatesofsuchconversions or shallusesuchothermethod,reasonably satisfactorytotheHolderandtheBorrower,soasnottorequirephysical surrenderofthisNoteuponeachsuchconversion.In theevent ofanydisputeor discrepancy,suchrecordsof theBorrowershall,primafacie,becontrollinganddeterminative in theabsenceofmanifesterror. Notwithstandingtheforegoing, ifanyportionofthisNoteisconvertedasaforesaid,theHoldermay nottransferthisNoteunlesstheHolderfirstphysically surrendersthisNotetotheBorrower,whereupontheBorrowerwillforthwithissueanddeliver uponthe orderofthe Holdera newNote oflike tenor,registeredasthe Holder(uponpayment by theHolderofanyapplicabletransfertaxes)mayrequest, representinginthe aggregatetheremainingunpaidprincipalamountofthisNote. TheHolderandanyassignee,byacceptanceof thisNote,acknowledgeandagreethat, byreasonoftheprovisionsofthisparagraph,followingconversionof aportionof thisNote,the unpaidandunconvertedprincipalamountofthisNoterepresentedbythis Notemaybeless than the amount stated on the facehereof.
(c)PaymentofTaxes.TheBorrowershallnotberequiredtopayanytax whichmay bepayableinrespectofany transferinvolvedintheissueanddelivery ofsharesofCommonStock or other securities or property onconversionof this Note in aname other than thatof theHolder(or instreetname),andtheBorrower shallnotberequiredtoissueordeliveranysuchsharesorothersecuritiesorproperty unlessanduntilthepersonorpersons(otherthan the Holder or thecustodianinwhose streetname suchsharesare tobe heldfor the Holder’saccount)requestingtheissuancethereofshall havepaid to theBorrowertheamount ofany such taxorshall have established to thesatisfaction oftheBorrowerthat such taxhas been paid.
(d)DeliveryofCommonStockUponConversion.UponreceiptbytheBorrowerfromthe Holder ofafacsimile transmissionore-mail(orotherreasonablemeansofcommunication)ofaNoticeofConversionmeetingtherequirementsforconversionasprovided
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inthis Section1.4,theBorrower shallissueanddeliver orcause tobe issuedanddeliveredtoor upontheorder ofthe HoldercertificatesfortheCommonStockissuable uponsuchconversion withinthree(3)businessdaysaftersuchreceipt(the“Deadline”)(and,solely inthecaseofconversionoftheentireunpaidprincipalamounthereof,surrender ofthisNote) inaccordance with theterms hereof andthePurchaseAgreement.
(e)ObligationofBorrowertoDeliverCommonStock.Uponreceiptby theBorrowerofa Noticeof Conversion,the Holdershallbe deemedtobethe holderofrecordof the CommonStockissuableuponsuchconversion,theoutstandingprincipalamountandtheamountofaccruedandunpaidinterestonthisNote shallbereducedtoreflectsuchconversion,and,unlesstheBorrowerdefaultsonitsobligationsunder thisArticleI,allrightswithrespectto theportionofthisNote being soconvertedshallforthwithterminateexcepttherighttoreceive theCommon Stockor othersecurities,cashorotherassets,ashereinprovided,onsuchconversion. If theHolder shallhavegivenaNotice ofConversion asprovidedherein,theBorrower’sobligationtoissueanddeliver thecertificatesforCommon Stockshallbeabsoluteandunconditional,irrespectiveoftheabsenceofanyactionby theHolder toenforcethesame,any waiver orconsent withrespect toanyprovision thereof, therecovery ofany judgmentagainstanypersonoranyactiontoenforcethesame,anyfailureor delayintheenforcementofany otherobligationof theBorrowertotheholderofrecord,oranysetoff,counterclaim,recoupment,limitationortermination,orany breachorallegedbreachby theHolderofany obligation to theBorrower,and irrespective ofany othercircumstancewhich might otherwise limit such obligation of theBorrowerto the Holderinconnection withsuchconversion. TheConversionDatespecifiedintheNoticeofConversionshallbetheConversionDatesolongas the Notice ofConversion isreceivedby theBorrower before 6:00 p.m., New York,New York time, on such date.
(f)DeliveryofCommonStockbyElectronicTransfer.Inlieuof delivering physicalcertificatesrepresenting theCommonStockissuableuponconversion, providedtheBorrower isparticipatingintheDepositoryTrustCompany(“DTC”)Fast AutomatedSecurities Transfer(“FAST”) program, uponrequest of the Holderand itscompliancewiththe provisionscontainedin Section1.1andinthisSection1.4,theBorrower shall use itsbestefforts tocause its transferagent toelectronically transmit theCommonStock issuableuponconversiontotheHolderbycreditingtheaccountofHolder’sPrimeBrokerwith DTCthrough its DepositWithdrawal AgentCommission(“DWAC”)system.
(g)FailuretoDeliverCommonStockPriortoDeadline.Withoutinany way limitingtheHolder’srighttopursueotherremedies,includingactualdamagesand/orequitablerelief,thepartiesagreethatifdelivery ofthe CommonStockissuable uponconversion ofthisNoteisnotdelivered by theDeadline(otherthanafailureduetothecircumstancesdescribedinSection1.3above,which failureshallbegovernedby suchSection)theBorrower shallpay totheHolder$2,000perday incash,foreachday beyondtheDeadlinethattheBorrowerfailstodeliversuchCommonStock.Suchcashamount shall bepaidtoHolderby the
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fifthdayofthemonthfollowing themonthinwhichithasaccruedor,attheoptionoftheHolder(bywrittennoticetotheBorrowerby thefirstdayofthemonthfollowingthemonthinwhichit has accrued),shallbeaddedtotheprincipalamountof thisNote,inwhicheventinterestshallaccrue thereoninaccordance withthe termsof thisNoteandsuchadditionalprincipalamount shallbeconvertibleintoCommonStockinaccordancewiththetermsofthisNote.TheBorroweragrees that theright toconvert is avaluable right to theHolder.Thedamagesresultingfromafailure,attempttofrustrate,interference withsuchconversionrightare difficultif not impossibletoqualify.Accordinglythepartiesacknowledgethattheliquidateddamages provisioncontained in thisSection 1.4(g)arejustified.
1.5ConcerningtheShares.ThesharesofCommonStockissuableuponconversionofthisNotemaynotbesold ortransferredunless(i)suchsharesaresoldpursuanttoaneffectiveregistrationstatementunder the Actor(ii) theBorrower oritstransferagentshall have beenfurnishedwithanopinionofcounsel(whichopinionshallbe inform,substanceand scopecustomaryforopinionsofcounselincomparabletransactions)totheeffectthattheshares tobesoldortransferredmay besoldortransferredpursuanttoanexemptionfromsuchregistrationor(iii)suchsharesare soldor transferredpursuant toRule144under theAct(or a successorrule)(“Rule144”) or(iv) suchsharesare transferredtoan“affiliate”(asdefinedinRule 144) of theBorrower whoagreestosell orotherwise transfer the sharesonly inaccordancewiththisSection1.5and whoisanAccreditedInvestor(asdefinedinthePurchase Agreement). ExceptasotherwiseprovidedinthePurchase Agreement(andsubjecttotheremovalprovisions setforthbelow),until suchtimeasthesharesofCommon Stockissuable uponconversionofthis Notehave beenregisteredunderthe Actorotherwisemay be soldpursuanttoRule144withoutanyrestrictionastothenumberofsecuritiesasofaparticulardatethatcanthenbeimmediately sold,eachcertificateforsharesofCommon Stockissuable uponconversionof thisNote thathas not been soincluded inaneffectiveregistrationstatement or that has not beensold pursuant toaneffectiveregistrationstatementoranexemptionthatpermitsremovalof thelegend, shallbear alegend substantially in the followingform,asappropriate:
“NEITHERTHE ISSUANCEAND SALEOFTHE SECURITIES REPRESENTED BYTHISCERTIFICATENORTHE SECURITIESINTO WHICHTHESE SECURITIESAREEXERCISABLEHAVEBEEN REGISTEREDUNDERTHE SECURITIESACTOF1933,ASAMENDED,ORAPPLICABLESTATESECURITIESLAWS.THESECURITIESMAYNOTBEOFFEREDFORSALE, SOLD,TRANSFERREDORASSIGNED(I)INTHEABSENCEOF(A)ANEFFECTIVEREGISTRATIONSTATEMENTFORTHE SECURITIESUNDER THESECURITIESACTOF1933,ASAMENDED,OR(B)ANOPINIONOFCOUNSEL(WHICHCOUNSEL SHALLBE SELECTEDBY THEHOLDER),IN AGENERALLYACCEPTABLE FORM,THATREGISTRATION ISNOTREQUIREDUNDER SAIDACTOR(II)UNLESS SOLDPURSUANTTORULE144ORRULE144AUNDERSAIDACT.NOTWITHSTANDINGTHE FOREGOING,THE SECURITIESMAYBEPLEDGED INCONNECTIONWITH ABONAFIDEMARGINACCOUNTOR
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OTHERLOANORFINANCINGARRANGEMENTSECUREDBYTHE SECURITIES.”
The legendsetforthabove shallberemovedandtheBorrower shallissue tothe Holderanewcertificatethereforefreeofanytransferlegendif(i)theBorroweroritstransferagentshallhavereceivedanopinionofcounsel,inform,substanceandscopecustomaryfor opinionsofcounselincomparable transactions,totheeffectthatapublicsale ortransferof suchCommonStock maybemadewithoutregistration undertheAct,whichopinion shall be acceptedby theCompany sothatthesale ortransferiseffectedor(ii)inthecaseoftheCommonStock issuableuponconversionofthisNote,suchsecurity isregisteredforsalebytheHolderunderaneffectiveregistrationstatementfiledundertheActorotherwisemaybesoldpursuanttoRule
144withoutanyrestrictionastothenumberofsecuritiesasofaparticulardatethatcanthenbe immediatelysold.Intheevent that theCompanydoes notaccept theopinion ofcounsel providedby theHolderwithrespecttothetransferofSecurities pursuanttoanexemptionfromregistration,suchas Rule144orRegulation S,atthe Deadline,itwillbeconsideredanEvent of Default pursuant toSection 3.2 oftheNote.
1.6EffectofCertain Events.
(a)EffectofMerger,Consolidation,Etc.AttheoptionoftheHolder,the sale,conveyanceordispositionofallorsubstantiallyalloftheassetsoftheBorrower,theeffectuation by theBorrowerof atransactionorseriesofrelatedtransactions inwhichmorethan
50%ofthevoting poweroftheBorrowerisdisposedof,ortheconsolidation,mergerorother businesscombinationoftheBorrowerwithorintoanyotherPerson(asdefinedbelow)orPersonswhentheBorrower isnotthe survivorshalleither:(i) bedeemedtobeanEventof Default(asdefinedinArticleIII) pursuanttowhichtheBorrower shallberequiredtopay tothe Holder upontheconsummationofandasaconditiontosuchtransaction anamountequaltothe Default Amount(as defined in ArticleIII) or(ii) be treated pursuant toSection 1.6(b) hereof.“Person”shall meanany individual,corporation,limitedliabilitycompany,partnership,association, trust orotherentity ororganization.
(b)AdjustmentDuetoMerger,Consolidation,Etc.If,atanytimewhenthisNoteisissuedandoutstandingandpriortoconversionofalloftheNotes,thereshallbeany merger,consolidation,exchange of shares,recapitalization,reorganization,or other similarevent,asaresultof whichsharesofCommon Stockof theBorrower shallbechangedintothe same ora differentnumber ofsharesofanotherclassorclassesof stockor securitiesof theBorroweroranotherentity,orincaseofanysale orconveyance ofallorsubstantiallyalloftheassetsof theBorrowerother thaninconnectionwitha planofcomplete liquidationof theBorrower,thenthe Holder of thisNote shallthereafter have therighttoreceive uponconversion of thisNote,uponthebasisanduponthetermsandconditionsspecifiedhereinandinlieuof the sharesofCommonStock immediately theretofore issuable uponconversion, such stock, securitiesorassetswhich theHolder wouldhave beenentitledtoreceiveinsuchtransactionhad
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thisNotebeenconvertedinfullimmediatelypriortosuchtransaction(withoutregardtoany limitationsonconversionsetforthherein),andinany suchcaseappropriateprovisionsshallbe made withrespecttotherightsandinterestsofthe Holderof thisNote totheendthatthe provisionshereof(including,withoutlimitation,provisionsforadjustmentoftheConversionPriceandof the number of sharesissuable uponconversionof theNote) shallthereafter beapplicable,as nearlyas maybepracticableinrelationtoany securities orassetsthereafterdeliverableupontheconversionhereof. TheBorrowershallnotaffectany transactiondescribedinthisSection1.6(b)unless(a)itfirstgives,totheextentpracticable, thirty(30)daysprior written notice(but inanyeventat leastfifteen(15) daysprior written notice) of therecorddate ofthe specialmeetingofshareholderstoapprove,orifthere isnosuchrecorddate,theconsummationof,suchmerger,consolidation,exchangeofshares,recapitalization,reorganizationorothersimilareventorsaleofassets(duringwhichtimetheHoldershallbeentitledtoconvertthisNote)and(b)the resulting successororacquiringentity(ifnottheBorrower)assumesby writteninstrumenttheobligationsofthisSection 1.6(b). Theabove provisionsshallsimilarlyapply to successiveconsolidations,mergers,sales,transfersor shareexchanges.
(c)AdjustmentDuetoDistribution.IftheBorrowershalldeclareormakeanydistributionofitsassets(orrightstoacquireitsassets)toholdersofCommonStockasa dividend,stockrepurchase,bywayofreturnofcapital or otherwise(includingany dividendor distribution to theBorrower’s shareholders incash or shares(orrights toacquire shares) ofcapital stock of asubsidiary(i.e., aspin-off))(a“Distribution”), then theHolder ofthis Note shallbeentitled,uponanyconversionofthisNoteafterthedateofrecordfordetermining shareholdersentitled tosuch Distribution, toreceivethe amountofsuchassets which wouldhave beenpayabletotheHolderwithrespecttothe sharesofCommonStockissuableuponsuchconversionhadsuchHolder beenthe holder of suchsharesofCommon Stockontherecorddateforthedetermination ofshareholdersentitled to such Distribution.
(d)AdjustmentDuetoDilutiveIssuance.If,atanytimewhenanyNotes areissuedandoutstanding,theBorrowerissuesorsells,orinaccordancewiththisSection1.6(d) hereofisdeemedtohaveissuedorsold,anysharesofCommonStockfornoconsiderationorfor aconsiderationper share(before deductionofreasonableexpensesorcommissionsor underwriting discounts orallowancesinconnectiontherewith)lessthanthe ConversionPriceineffectonthedateofsuchissuance(ordeemedissuance)ofsuchsharesofCommonStock(a“DilutiveIssuance”), thenimmediately upon theDilutiveIssuance, theConversionPricewillbereduced totheamountoftheconsiderationpersharereceivedby theBorrowerinsuchDilutiveIssuance.
TheBorrower shallbedeemedtohave issuedorsoldsharesofCommonStockiftheBorrowerinany mannerissuesorgrantsanywarrants,rightsoroptions(not includingemployeestockoptionplans),whetherornotimmediatelyexercisable,tosubscribefor ortopurchaseCommonStockorothersecuritiesconvertibleintoorexchangeableforCommon
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Stock(“ConvertibleSecurities”)(suchwarrants,rightsandoptionstopurchaseCommonStock orConvertibleSecuritiesare hereinafterreferredtoas“Options”)andthe price per sharefor whichCommonStockis issuableupontheexerciseofsuchOptionsisless thanthe ConversionPricethenineffect,thentheConversionPriceshallbeequaltosuchpricepershare.For purposesofthe preceding sentence, the“pricepershareforwhichCommonStockisissuable upon theexerciseof such Options” is determined bydividing(i) thetotalamount, ifany,receivedor receivable by theBorrowerasconsiderationfortheissuance orgrantingofallsuchOptions,plusthe minimumaggregateamountofadditionalconsideration,ifany,payable totheBorrowerupontheexercise ofallsuch Options,plus,inthecaseof ConvertibleSecurities issuable upontheexercise of suchOptions,the minimumaggregateamountofadditionalconsiderationpayableupontheconversionorexchange thereofatthetime such ConvertibleSecuritiesfirstbecome convertibleorexchangeable, by(ii)themaximumtotalnumberofshares of CommonStockissuableupontheexerciseofallsuchOptions(assumingfullconversionofConvertibleSecurities,ifapplicable). Nofurtheradjustment totheConversionPrice will be madeupon theactual issuanceofsuchCommonStock upon the exerciseofsuch Options orupon the conversion orexchangeofConvertibleSecurities issuableuponexerciseofsuch Options.
Additionally,theBorrowershallbedeemedtohaveissuedorsoldshares ofCommonStockiftheBorrowerinany mannerissuesorsellsanyConvertibleSecurities, whether ornotimmediatelyconvertible(otherthanwherethesameareissuableupontheexercise ofOptions),andthe priceper shareforwhich Common Stockisissuable uponsuchconversionorexchangeislessthantheConversionPrice thenineffect,thentheConversionPrice shall beequal tosuch priceper share.For the purposes of thepreceding sentence, the“pricepershareforwhich Common Stockisissuable uponsuchconversionorexchange” is determinedbydividing(i)thetotalamount,ifany,receivedorreceivableby theBorrowerasconsiderationfor the issuance or sale ofallsuch ConvertibleSecurities,plusthe minimumaggregateamountofadditionalconsideration,ifany,payable totheBorrower upontheconversion orexchangethereofat the time suchConvertibleSecuritiesfirst becomeconvertible orexchangeable,by(ii) the maximum total number of shares ofCommonStock issuable upon theconversionorexchangeofallsuch ConvertibleSecurities. NofurtheradjustmenttotheConversion Price willbe made upontheactualissuance ofsuch Common Stockuponconversion or exchangeofsuchConvertibleSecurities.
(e)PurchaseRights.If,atanytimewhenanyNotesareissuedand outstanding,theBorrowerissuesanyconvertiblesecuritiesorrightstopurchasestock,warrants, securitiesorotherproperty(the“PurchaseRights”) proratatotherecord holdersofanyclassofCommonStock,thenthe Holder of thisNote willbeentitledtoacquire,uponthe termsapplicable tosuch PurchaseRights,theaggregatePurchaseRightswhichsuchHoldercouldhaveacquiredif suchHolderhadheldthe numberof sharesofCommon Stockacquirable uponcompleteconversion of this Note(withoutregard toany limitations onconversioncontained herein) immediately before the date on which arecord is takenfor the grant, issuanceor sale of
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suchPurchaseRightsor,ifnosuchrecordistaken,thedateasofwhichtherecordholdersof
CommonStockareto bedeterminedforthegrant,issueorsaleofsuchPurchaseRights.
(f)Notice of Adjustments.Uponthe occurrenceofeachadjustmentorreadjustmentofthe ConversionPriceasaresultoftheeventsdescribedinthisSection1.6, theBorrower,atitsexpense,shallpromptlycomputesuchadjustmentorreadjustmentandprepareandfurnish totheHolderacertificatesettingforthsuchadjustmentorreadjustmentandshowing indetailthefactsuponwhichsuchadjustmentorreadjustmentisbased.TheBorrowershall, uponthewrittenrequestatany timeoftheHolder,furnishtosuchHolderalikecertificate settingforth(i) suchadjustment orreadjustment,(ii) theConversionPriceat the time ineffectand(iii)thenumberofsharesof CommonStockandtheamount,ifany,ofothersecuritiesor property whichat thetimewould be received uponconversion oftheNote.
1.7TradingMarketLimitations.Unlesspermittedbytheapplicablerulesandregulationsoftheprincipalsecuritiesmarketon whichtheCommonStockisthenlistedor traded, in noevent shall theBorrower issue uponconversion ofor otherwise pursuant to this Noteandthe other Notesissuedpursuant tothePurchase Agreementmore thanthe maximum numberofsharesofCommonStockthattheBorrowercanissuepursuanttoanyruleofthe principalUnited States securitiesmarketonwhichtheCommon Stockisthentraded(the“MaximumShareAmount”),whichshallbe4.99%ofthetotalsharesoutstanding onthe Closing Date(asdefinedinthePurchaseAgreement),subjecttoequitableadjustmentfromtime totimeforstocksplits,stockdividends,combinations,capitalreorganizationsand similareventsrelating to theCommonStockoccurringafter the datehereof. Once the MaximumShare Amount has beenissued,iftheBorrower failstoeliminateany prohibitionsunderapplicablelaw ortherules orregulations ofanystockexchange, interdealer quotationsystem or other self-regulatory organizationwithjurisdictionovertheBorrower oranyofitssecuritiesontheBorrower’sability toissue sharesofCommonStockinexcessofthe MaximumShareAmount,inlieuofanyfurtherright toconvert this Note, this will beconsideredan Event of Default underSection 3.3 oftheNote.
1.8StatusasShareholder.UponsubmissionofaNoticeofConversionbya Holder,(i)thesharescoveredthereby(otherthantheshares,ifany, whichcannotbeissued because their issuancewouldexceedsuchHolder’sallocatedportionof theReservedAmountor MaximumShareAmount)shallbedeemedconvertedintosharesofCommonStockand(ii) the Holder’srightsasaHolderofsuchconverted portionofthis Noteshallceaseandterminate,exceptingonly theright toreceivecertificatesforsuchsharesofCommonStockandtoanyremedies provided herein or otherwiseavailableat law or inequity to such Holder becauseof afailureby theBorrowertocomply with the terms of this Note. Notwithstanding theforegoing, if a Holder hasnotreceivedcertificatesforallsharesofCommon Stockprior tothe tenth(10th) businessdayafter theexpirationoftheDeadlinewithrespecttoaconversionofanyportionof this Noteforanyreason, then(unless the Holder otherwiseelects toretain its statusas a holderofCommonStock bysonotifying theBorrower)theHoldershallregaintherightsofaHolderof
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thisNotewithrespectto suchunconvertedportionsofthisNoteandtheBorrowershall,assoonaspracticable,returnsuchunconvertedNotetothe Holderor,if the Notehasnotbeen surrendered,adjustitsrecordstoreflectthatsuchportionofthisNote hasnotbeenconverted.Inallcases,theHoldershallretainallofitsrightsandremedies(including,withoutlimitation,(i) therighttoreceiveConversionDefault Paymentspursuantto Section1.3totheextentrequired therebyforsuchConversion Defaultandany subsequentConversionDefaultand(ii)theright to have theConversion Price withrespecttosubsequentconversionsdeterminedinaccordance withSection 1.3) fortheBorrower’sfailuretoconvertthis Note.
1.9Prepayment.NotwithstandinganythingtothecontrarycontainedinthisNote,atany timeduringtheperiodbeginningontheIssueDateandendingonthedatewhichisthirty(30)daysfollowingtheIssueDate, theBorrowershall havethe right,exercisable on not less than three(3)TradingDayspriorwrittennoticetotheHolderoftheNotetoprepay theoutstanding Note(principalandaccruedinterest),infull,inaccordancewiththisSection1.9.Any noticeof prepaymenthereunder(an“Optional Prepayment Notice”) shallbe deliveredtothe Holder of the Noteat itsregisteredaddressesand shall state:(1)that theBorrowerisexercising itsright to prepay theNote,and(2)thedateofprepayment whichshallbenotmore thanthree(3)Trading Daysfrom the dateof the OptionalPrepayment Notice. On the datefixedfor prepayment(the“OptionalPrepaymentDate”),theBorrowershallmake paymentofthe OptionalPrepayment Amount(asdefinedbelow)toorupontheorderoftheHolderasspecifiedby theHolderin writing totheBorrowerat least one(1)business daypriortothe OptionalPrepayment Date.If theBorrowerexercisesitsrighttoprepay theNote,theBorrowershallmakepaymenttothe Holder ofanamountin cash(the“OptionalPrepaymentAmount”)equalto110%,multipliedby the sum of:(w) the then outstanding principalamount of this Noteplus(x) accruedand unpaid interestontheunpaidprincipalamountofthis NotetotheOptionalPrepaymentDateplus(y) DefaultInterest,ifany,ontheamountsreferredtoinclauses(w)and(x)plus(z)anyamounts owed tothe Holder pursuantto Sections1.3and1.4(g) hereof.If theBorrowerdeliversanOptionalPrepaymentNoticeandfailstopaytheOptionalPrepaymentAmountduetotheHolder oftheNotewithintwo(2)business daysfollowing theOptionalPrepaymentDate, theBorrower shallforever forfeit itsright to prepaytheNotepursuant to thisSection 1.9.
NotwithstandinganythingtothecontrarycontainedinthisNote,atanytime duringtheperiodbeginning onthedatewhichis thirty-one(31)daysfollowingthe IssueDateandending on thedatewhich is sixty(60)daysfollowing theIssueDate,theBorrowershall have theright,exercisableonnotlessthanthree(3)TradingDayspriorwrittennoticetotheHolder of theNotetoprepay theoutstandingNote(principalandaccruedinterest), infull,inaccordance with thisSection 1.9. AnyOptionalPrepayment Notice shall be delivered to the Holder of the Noteat itsregisteredaddressesand shall state:(1) that the Borrower isexercising itsright to prepay theNote,and(2) thedate ofprepayment whichshallbe notmore thanthree(3) Trading DaysfromthedateoftheOptionalPrepayment Notice. OntheOptionalPrepaymentDate,the BorrowershallmakepaymentoftheSecondOptionalPrepaymentAmount(asdefinedbelow)to orupontheorderoftheHolderasspecified by theHolderinwritingtotheBorroweratleastone
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(1)businessdaypriortotheOptionalPrepaymentDate.IftheBorrowerexercisesitsrightto prepay theNote,theBorrowershallmakepaymenttotheHolderofanamountincash(the“Second OptionalPrepayment Amount”)equal to 115%, multipliedby the sum of:(w) the then outstanding principalamount of this Noteplus(x) accruedand unpaid interest on the unpaid principalamount of this Note to the OptionalPrepayment Dateplus(y)DefaultInterest, ifany, on theamountsreferred to inclauses(w)and(x)plus(z)anyamounts owed to the Holder pursuantto Sections1.3and1.4(g)hereof.IftheBorrowerdeliversanOptionalPrepayment NoticeandfailstopaytheSecond OptionalPrepaymentAmountdueto theHolder oftheNote withintwo(2)business daysfollowing theOptionalPrepaymentDate,theBorrowershallforever forfeit itsright toprepaytheNotepursuant to thisSection 1.9.
NotwithstandinganythingtothecontrarycontainedinthisNote,atanytime duringtheperiodbeginning onthe date whichissixty-one(61)daysfollowingthe Issue Dateandendingonthedate whichisninety(90)daysfollowingthe Issue Date,theBorrowershall have theright,exercisable onnotlessthanthree(3)TradingDayspriorwrittennotice tothe Holder of the Note toprepay the outstandingNote(principalandaccrued interest), infull, inaccordance with thisSection 1.9. Any OptionalPrepayment Notice shall be delivered to the Holder of the Noteat itsregisteredaddressesand shall state:(1) that the Borrower isexercising itsright toprepay theNote,and(2)thedateofprepayment whichshall benot morethanthree(3)TradingDaysfrom thedateoftheOptionalPrepayment Notice.On theOptionalPrepayment Date,theBorrower shallmake payment of theThirdOptionalPrepaymentAmount(asdefined below)to orupontheorderoftheHolderas specifiedbytheHolderin writing to theBorrower at least one(1) businessdayprior tothe OptionalPrepaymentDate. If the Borrowerexercisesitsright toprepay theNote, theBorrowershall makepayment totheHolderofanamount incash(the“Third OptionalPrepayment Amount”)equal to 120%, multiplied by the sum of:(w) the thenoutstanding principalamountofthis Noteplus(x) accruedandunpaidinterestontheunpaid principalamount of thisNote to the OptionalPrepayment Dateplus(y)DefaultInterest, ifany, on theamountsreferred to inclauses(w)and(x)plus(z)anyamounts owed to the Holder pursuantto Sections1.3and1.4(g)hereof. Ifthe BorrowerdeliversanOptionalPrepayment Noticeandfails to paythe Third OptionalPrepayment Amount due to the Holder of the Note withintwo(2)business daysfollowing theOptionalPrepaymentDate,theBorrowershallforever forfeit itsright toprepaytheNotepursuant to thisSection 1.9.
Notwithstandinganytothecontrarystatedelsewhereherein,atanytimeduring theperiodbeginningon thedatethatisninety-one(91)dayfromthe IssueDateandendingone hundredtwenty(120) daysfollowingthe IssueDate,theBorrower shall havetheright,exercisableonnotlessthanthree(3)TradingDayspriorwrittennoticeto theHolderoftheNote toprepay theoutstandingNote(principalandaccruedinterest),infull,inaccordancewiththisSection1.9. Any OptionalPrepayment Notice shall bedelivered totheHolderof the Noteat itsregisteredaddressesand shall state:(1) that theBorrower isexercising itsright to prepaythe Note,and(2)thedateofprepaymentwhichshallbenotmorethanthree(3)Trading Daysfrom the dateof theOptionalPrepaymentNotice. Onthe OptionalPrepayment Date,theBorrower
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shallmakepaymentoftheFourthOptionalPrepaymentAmount(asdefinedbelow)toorupon theorderoftheHolderasspecifiedby theHolderin writingtotheBorroweratleast one(1) businessday priortotheOptionalPrepaymentDate. IftheBorrowerexercisesitsrighttoprepay the Note,theBorrowershallmake paymenttothe Holderofanamountincash(the“Fourth OptionalPrepaymentAmount”)equalto125%,multipliedby thesumof:(w)thethen outstanding principalamount of this Noteplus(x) accruedand unpaid interest on the unpaid principalamount of this Note to the OptionalPrepayment Dateplus(y)Default Interest, ifany, on theamountsreferred to inclauses(w)and(x)plus(z)anyamounts owed to the Holder pursuantto Sections1.3and1.4(g)hereof. Ifthe BorrowerdeliversanOptionalPrepayment NoticeandfailstopaytheFourthOptionalPrepayment Amount duetotheHolderof theNote withintwo(2)business daysfollowing theOptionalPrepaymentDate,theBorrowershallforever forfeit itsright toprepaytheNotepursuant to thisSection 1.9.
Notwithstandinganytothecontrarystatedelsewhereherein,atanytimeduring theperiodbeginningonthedatethat isonehundredtwenty-one(121)dayfrom the IssueDateandendingonehundredfifty(150)daysfollowingthe IssueDate,theBorrowershallhavetheright,exercisable onnot less thanthree(3)TradingDays prior writtennotice tothe Holderofthe Note to prepay the outstandingNote(principal andaccrued interest), infull, inaccordance with this Section1.9.Any Optional Prepayment Noticeshall be deliveredtotheHolderofthe Noteat itsregisteredaddressesandshallstate:(1)thattheBorrowerisexercisingitsrighttoprepay the Note,and(2) the date ofprepaymentwhichshallbe notmore thanthree(3) Trading Daysfrom the dateof theOptionalPrepaymentNotice. Onthe OptionalPrepaymentDate,theBorrower shallmake paymentof theFifth OptionalPrepayment Amount(as defined below) to or upon the orderofthe Holderas specifiedbythe Holderinwritingto theBorrowerat least one(1)business day prior to the Optional Prepayment Date. If theBorrowerexercises itsright to prepaythe Note, theBorrower shall makepayment to theHolder ofanamount in cash(the“Fifth Optional PrepaymentAmount”)equalto130%,multipliedby thesumof:(w) thethenoutstanding principalamountof this Noteplus(x) accruedand unpaid interest on the unpaid principalamount of thisNote tothe Optional Prepayment Dateplus(y) Default Interest, ifany, on theamountsreferredtoinclauses(w)and(x)plus(z)anyamounts owedtothe Holderpursuant to Sections 1.3and 1.4(g)hereof.IftheBorrowerdeliversan Optional Prepayment Notice andfails topay theFifth OptionalPrepayment Amount due tothe Holder ofthe Note withintwo(2) business daysfollowing the Optional Prepayment Date, theBorrower shallforeverforfeit itsright to prepay theNote pursuant to this Section 1.9.
Notwithstandinganytothecontrarystatedelsewhereherein,atanytimeduring theperiodbeginningonthedatethat isonehundredfifty-one(151)dayfrom the IssueDateandending one hundredeighty(180) daysfollowing the IssueDate, theBorrower shall have theright,exercisable onnotlessthanthree(3)TradingDaysprior writtennoticetotheHolderofthe Note to prepay the outstandingNote(principalandaccrued interest), infull, inaccordance with thisSection1.9.Any OptionalPrepaymentNoticeshallbedeliveredtotheHolderoftheNoteatitsregisteredaddressesand shall state:(1) that theBorrower isexercising itsright to prepay the
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Note,and(2)thedateofprepaymentwhichshallbenotmorethanthree(3)Trading Daysfrom thedateoftheOptionalPrepaymentNotice.OntheOptionalPrepaymentDate,theBorrower shallmakepaymentofthe SixthOptionalPrepaymentAmount(asdefinedbelow)tooruponthe orderoftheHolderas specifiedbytheHolderinwritingto theBorrowerat least one(1)business day prior to the OptionalPrepayment Date. If theBorrowerexercises itsright to prepay the Note,theBorrower shallmakepayment totheHolder ofanamountin cash(the“SixthOptionalPrepaymentAmount”)equalto135%,multiplied by thesumof:(w) thethenoutstanding principalamountof this Noteplus(x) accruedand unpaid interest on the unpaid principalamount of this Note tothe OptionalPrepayment Dateplus(y) Default Interest, ifany, on theamountsreferredtoinclauses(w)and(x)plus(z)anyamountsowedtotheHolderpursuanttoSections 1.3and 1.4(g)hereof.IftheBorrowerdeliversan OptionalPrepayment Notice andfails topay theSixthOptionalPrepayment Amount duetothe HolderoftheNote withintwo(2) business daysfollowing the OptionalPrepayment Date, theBorrower shallforeverforfeit itsright to prepaytheNotepursuant to thisSection 1.9.
Aftertheexpirationofonehundredeighty(180)followingthedateoftheNote, theBorrowershall havenoright ofprepayment.
ARTICLEII.CERTAINCOVENANTS
2.1DistributionsonCapitalStock.Solongas theBorrowershallhaveany obligationunderthisNote,theBorrowershallnotwithoutthe Holder’swrittenconsent(a)pay, declareorsetapartforsuchpayment,anydividendorotherdistribution(whetherincash, propertyorothersecurities)on sharesofcapital stock otherthan dividendson sharesofCommonStocksolely intheform ofadditionalsharesofCommonStockor(b)directly orindirectlyor throughany subsidiarymakeany otherpaymentordistributioninrespectofitscapitalstockexceptfordistributions pursuant toanyshareholders’ rights plan whichisapprovedbyamajority oftheBorrower’s disinterested directors.
2.2RestrictiononStockRepurchases.SolongastheBorrowershallhaveany obligationunder thisNote,theBorrower shallnotwithoutthe Holder’swrittenconsentredeem,repurchaseorotherwiseacquire(whetherforcashorinexchangeforpropertyorothersecurities orotherwise)inanyonetransaction orseries of related transactionsanysharesofcapital stockof theBorroweror anywarrants,rights oroptions topurchaseor acquire anysuch shares.
2.3Borrowings.SolongastheBorrowershallhaveanyobligationunderthis Note,theBorrower shallnot,withoutthe Holder’swrittenconsent,create,incur,assumeguarantee,endorse,contingentlyagreetopurchaseorotherwisebecomeliableuponthe obligationofanyperson,firm,partnership,jointventureorcorporation,exceptby theendorsementofnegotiableinstrumentsfordeposit orcollection,orsuffertoexistany liabilityfor borrowedmoney,except(a)borrowings inexistenceorcommittedonthedatehereofandof
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whichtheBorrowerhasinformedHolderinwritingpriortothedatehereof,(b)indebtednessto tradecreditorsorfinancialinstitutionsincurredintheordinarycourseofbusinessor(c) borrowings, theproceedsofwhich shall beused torepaythis Note.
2.4SaleofAssets.SolongastheBorrowershallhaveanyobligationunderthis Note,theBorrowershallnot,withouttheHolder’swrittenconsent,sell,leaseorotherwise disposeofanysignificantportionofitsassets outsidetheordinarycourse of business. Anyconsent to the disposition ofanyassets maybeconditioned on a specifieduse of the proceeds of disposition.
2.5AdvancesandLoans.SolongastheBorrowershallhaveanyobligation underthisNote,theBorrowershallnot,withouttheHolder’swrittenconsent,lendmoney,givecreditormakeadvancestoany person,firm,jointventureorcorporation, including,without limitation, officers, directors,employees, subsidiariesandaffiliates of theBorrower,except loans,creditsoradvances(a) inexistence orcommittedonthe date hereofandwhichtheBorrowerhasinformedHolder inwritingpriortothe date hereof,(b)made inthe ordinarycourseofbusinessor (c)not inexcess of$100,000.
ARTICLEIII.EVENTSOFDEFAULT
Ifanyofthefollowingevents ofdefault(each,an“Event ofDefault”)shall occur:
3.1FailuretoPayPrincipalorInterest.TheBorrowerfailstopaytheprincipalhereofor interestthereonwhendue onthisNote,whetheratmaturity,uponaccelerationor otherwise.
3.2ConversionandtheShares.TheBorrowerfailstoissuesharesofCommonStocktotheHolder(orannouncesorthreatensinwritingthatitwillnothonoritsobligationto do so) upon exercisebythe Holder of theconversionrights of the Holderinaccordance with the terms of this Note,failsto transfer orcause its transferagent to transfer(issue)(electronicallyor incertificatedform)anycertificateforsharesof CommonStockissuedtotheHolderuponconversion ofor otherwise pursuant to this Noteasand whenrequired by this Note, theBorrower directsitstransferagentnottotransferor delays,impairs,and/or hindersitstransferagent in transferring(orissuing)(electronically or incertificatedform)anycertificatefor sharesof CommonStock tobeissuedtotheHolderuponconversionoforotherwisepursuanttothis Noteasand whenrequiredby this Note, orfails toremove(or directs its transferagent not toremove or impairs, delays,and/or hinders its transferagentfromremoving)anyrestrictive legend(ortowithdrawanystop transferinstructionsinrespectthereof)onanycertificateforany sharesofCommon Stockissuedtothe Holder uponconversionof or otherwise pursuanttothis Noteasandwhen requiredbythisNote(ormakesanywrittenannouncement,statementorthreat that it does not intend tohonor the obligations described in this paragraph)andany suchfailure
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shallcontinueuncured(orany writtenannouncement,statementorthreatnottohonorits obligationsshallnotberescindedinwriting)forthree(3)businessdaysaftertheHoldershall havedeliveredaNoticeofConversion.Itisan obligationoftheBorrowertoremaincurrentin itsobligationstoitstransferagent.Itshallbeaneventof defaultof thisNote,if aconversionof thisNoteisdelayed,hinderedorfrustrateddueto abalanceowed by theBorrowertoitstransfer agent. IfattheoptionoftheHolder,theHolderadvancesanyfundstotheBorrower’stransferagentinordertoprocessaconversion,suchadvancedfundsshallbepaidby theBorrowertothe Holderwithinfortyeight(48)hours ofademandfrom theHolder.
3.3BreachofCovenants.TheBorrowerbreachesanymaterialcovenantorothermaterialtermorconditioncontainedinthisNoteandanycollateraldocumentsincluding butnot limitedtothePurchase Agreementandsuchbreachcontinuesfor a periodof ten(10) daysafter written noticethereofto theBorrower from theHolder.
3.4BreachofRepresentationsandWarranties.Any representationorwarrantyof theBorrowermadehereinorinanyagreement,statementorcertificategiveninwriting pursuant heretoorinconnectionherewith(including, withoutlimitation,thePurchaseAgreement),shall befalseormisleadinginany materialrespect when madeand thebreach ofwhich has(orwith thepassageoftimewill have)amaterialadverseeffect on the rights oftheHolderwithrespect to this NoteorthePurchase Agreement.
3.5ReceiverorTrustee.TheBorroweroranysubsidiaryoftheBorrowershall makeanassignmentforthebenefitofcreditors,orapplyfororconsenttotheappointmentofareceiverortrusteeforitorforasubstantialpartofitspropertyorbusiness,orsuchareceiveror trusteeshall otherwisebeappointed.
3.6Judgments.Anymoneyjudgment,writorsimilarprocessshallbeenteredorfiledagainsttheBorroweroranysubsidiaryoftheBorroweroranyofitspropertyorotherassetsfor morethan$50,000,andshallremainunvacated,unbondedor unstayedfor aperiodof twenty(20)daysunlessotherwiseconsentedto by theHolder,whichconsentwillnotbeunreasonably withheld.
3.7Bankruptcy.Bankruptcy,insolvency,reorganizationorliquidation proceedingsorotherproceedings,voluntaryorinvoluntary,forreliefunderanybankruptcylaw orany lawfor therelief of debtors shall be institutedby oragainst theBorrower orany subsidiaryoftheBorrower.
3.8DelistingofCommonStock. TheBorrowershallfail tomaintain thelistingof theCommonStockonatleastoneoftheOTC(whichspecifically includesthePinkSheetselectronic quotationsystem) oranequivalentreplacementexchange,the NasdaqNational Market,the Nasdaq SmallCapMarket,the NewYork StockExchange,orthe American Stock Exchange.
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3.9FailuretoComplywiththeExchangeAct.TheBorrowershallfailtocomply withthereportingrequirementsof the Exchange Act;and/or theBorrower shallcease tobe subject to the reportingrequirements oftheExchangeAct.
3.10Liquidation.Anydissolution,liquidation,orwindingupofBorroweroranysubstantial portion ofits business.
3.11Cessation ofOperations.AnycessationofoperationsbyBorrowerorBorroweradmitsitisotherwisegenerally unabletopay itsdebtsassuchdebtsbecomedue, provided, however, thatanydisclosureoftheBorrower’sabilitytocontinue as a “goingconcern” shall not be anadmission that theBorrowercannotpayits debtsas theybecomedue.
3.12MaintenanceofAssets.ThefailurebyBorrowertomaintainany material intellectualpropertyrights, personal,realpropertyorotherassetswhicharenecessarytoconduct its business(whethernow orin thefuture).
3.13Financial StatementRestatement.Therestatementofanyfinancialstatementsfiled by theBorrowerwiththeSECforanydateorperiodfromtwoyearspriortotheIssueDateofthisNoteanduntilthisNoteis nolongeroutstanding, iftheresultofsuchrestatementwould, bycomparisontotheunrestatedfinancialstatement,haveconstituteda materialadverseeffectontherightsoftheHolderwithrespecttothisNote orthePurchase Agreement.
3.14ReverseSplits. TheBorrowereffectuatesareversesplitofits
CommonStock without twenty(20)dayspriorwritten noticeto theHolder.
3.15Replacement ofTransferAgent.In theevent thattheBorrowerproposes toreplace itstransferagent,theBorrowerfailstoprovide,prior totheeffectivedate ofsuchreplacement,afullyexecutedIrrevocableTransferAgentInstructions inaformasinitially deliveredpursuanttothePurchaseAgreement(including butnotlimitedtotheprovisionto irrevocablyreservesharesofCommonStockintheReservedAmount)signed by thesuccessor transferagent toBorrower and theBorrower.
3.16Cross-Default.Notwithstandinganythingtothecontrarycontainedinthis Noteortheotherrelatedorcompaniondocuments,abreachordefaultby theBorrowerofanycovenantorothertermorconditioncontainedinanyoftheOtherAgreements,afterthepassage of allapplicablenoticeandcureorgraceperiods,shall,at theoption oftheHolder, beconsidered a defaultunder thisNoteandtheOtherAgreements,inwhicheventtheHolder shallbeentitled(butinnoeventrequired)toapplyallrightsandremediesofthe Holderunderthetermsofthis
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NoteandtheOtherAgreementsbyreason ofadefaultundersaidOtherAgreementor hereunder.“OtherAgreements”means,collectively,allagreementsandinstrumentsbetween,amongorby:(1)theBorrower,and, orforthebenefitof,(2)theHolderandanyaffiliateofthe Holder,including, withoutlimitation,promissory notes;provided,however,theterm“Other Agreements”shallnotincludetherelatedorcompaniondocumentstothisNote. Eachof the loantransactions willbecross-defaultedwith eachother loantransactionandwithallotherexistingandfuturedebtofBorrowerto theHolder.
UpontheoccurrenceandduringthecontinuationofanyEventofDefaultspecifiedinSection3.1(solelywith respecttofailuretopaytheprincipalhereoforinterestthereonwhendueattheMaturityDate),theNoteshallbecomeimmediately dueandpayableandtheBorrower shallpay totheHolder, infullsatisfactionofits obligationshereunder,anamountequaltothe DefaultSum(asdefinedherein).UPONTHEOCCURRENCE ANDDURING THECONTINUATIONOF ANYEVENT OF DEFAULTSPECIFIEDINSECTION3.2,THE NOTESHALLBECOMEIMMEDIATELYDUE ANDPAYABLEAND THEBORROWERSHALLPAYTOTHEHOLDER, INFULLSATISFACTIONOFITSOBLIGATIONS HEREUNDER,ANAMOUNTEQUAL TO:(Y) THEDEFAULTSUM(ASDEFINED HEREIN);MULTIPLIEDBY (Z)TWO(2).Upontheoccurrenceandduring thecontinuation ofanyEventofDefaultspecifiedinSections3.1(solely withrespecttofailuretopay theprincipal hereofor interestthereonwhendue onthisNote uponaTradingMarketPrepaymentEvent pursuant toSection1.7oruponacceleration),3.3,3.4,3.6,3.8,3.9,3.11,3.12,3.13,3.14,and/or
3.15exercisablethroughthedeliveryofwrittennoticetotheBorrowerbysuchHolders(the“DefaultNotice”),anduponthe occurrence ofanEventofDefaultspecifiedtheremaining sectionsofArticlesIII (otherthan failureto pay theprincipalhereoforinterestthereonatthe MaturityDatespecifiedinSection3,1hereof),theNoteshallbecomeimmediately dueand payableandtheBorrowershallpay totheHolder,infullsatisfactionofits obligationshereunder,anamountequaltothegreaterof(i)150%timesthesumof(w)thethenoutstanding principalamountofthisNoteplus(x)accruedandunpaidinterestonthe unpaidprincipalamountofthis Notetothedateof payment(the“MandatoryPrepaymentDate”)plus(y) DefaultInterest, ifany, ontheamountsreferredtoinclauses(w)and/or(x)plus(z)anyamountsowedtotheHolder pursuanttoSections1.3and1.4(g)hereof(thethenoutstandingprincipalamountofthisNoteto thedateofpaymentplustheamountsreferred toinclauses(x),(y)and(z)shallcollectively be knownasthe“DefaultSum”)or(ii)the“parityvalue”oftheDefaultSumtobeprepaid,where parityvaluemeans(a)thehighestnumberofsharesofCommonStockissuable uponconversion oforotherwisepursuanttosuchDefaultSuminaccordance withArticleI,treatingthe Trading Day immediately precedingtheMandatoryPrepaymentDateasthe“ConversionDate”for purposesof determiningthe lowestapplicableConversionPrice,unlessthe DefaultEventarisesasaresultofabreachinrespectofaspecificConversionDate inwhichcase such Conversion DateshallbetheConversionDate),multipliedby(b)thehighestClosingPricefortheCommonStock duringthe periodbeginningon the dateoffirst occurrenceof theEvent ofDefaultandendingonedaypriortotheMandatoryPrepaymentDate(the“DefaultAmount”)andallotheramounts payable hereunder shall immediatelybecome dueand payable,all without demand,
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presentmentornotice,allofwhichherebyareexpresslywaived,togetherwithallcosts, including,withoutlimitation,legalfeesandexpenses,ofcollection,andthe Holdershallbeentitled toexercise all other rightsandremediesavailable at law orinequity.
IftheBorrowerfailstopay theDefaultAmountwithinfive(5)businessdaysofwritten noticethatsuchamountisdueandpayable,thentheHoldershallhavetherightatany time,so longastheBorrowerremainsindefault(andsolongandtotheextentthattherearesufficientauthorizedshares),torequiretheBorrower,uponwrittennotice,toimmediately issue,inlieuof theDefaultAmount,thenumberofsharesofCommonStockoftheBorrowerequaltothe Default Amount divided bytheConversionPricethen ineffect.
ARTICLEIV.MISCELLANEOUS
4.1FailureorIndulgenceNotWaiver.Nofailureordelayonthepartofthe Holderintheexercise ofany power,rightor privilege hereundershalloperateas a waiver thereof, nor shallanysingle or partialexercise ofanysuch power,right or privilege preclude other orfurtherexercise thereof or ofanyotherright, power or privileges. Allrightsandremediesexistinghereunderarecumulativeto,and notexclusiveof,anyrights orremedies otherwise available.
4.2Notices.Allnotices,demands,requests,consents,approvals,andothercommunicationsrequiredor permittedhereunder shallbe inwritingand,unlessotherwise specifiedherein,shallbe(i)personallyserved,(ii)depositedinthe mail,registeredorcertified,returnreceiptrequested,postageprepaid,(iii) deliveredbyreputableaircourierservicewithchargesprepaid,or(iv) transmittedby handdelivery,telegram,orfacsimile,addressedasset forth belowortosuchotheraddressassuchpartyshallhavespecifiedmostrecentlybywritten notice. Any noticeorothercommunicationrequiredorpermittedtobegivenhereundershallbe deemedeffective(a) uponhanddeliveryor deliverybyfacsimile,withaccurateconfirmationgeneratedby thetransmittingfacsimilemachine,attheaddressornumberdesignatedbelow(if delivered onabusinessdayduringnormal business hours wheresuchnoticeis to bereceived),or thefirstbusinessdayfollowingsuchdelivery(if deliveredotherthan on abusinessday during normal business hours where such notice is to bereceived) or(b) on the second business dayfollowingthedateofmailing byexpresscourierservice,fullyprepaid,addressedtosuchaddress,or uponactualreceiptof suchmailing, whichever shallfirst occur. Theaddressesfor suchcommunications shall be:
Ifto theBorrower, to:
INDEPENDENTFILMDEVELOPMENTCORPORATION
445Park Avenue-Suite915
New York,NY 10022
Attn: DAVID GARLAND,ChiefExecutiveOfficer facsimile:
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With a copybyfaxonlyto(whichcopyshall notconstitutenotice):[enternameoflawfirm]
Attn:[attorneyname][enter address line1][enter city, state,zip]
facsimile:[enter faxnumber]
Ifto theHolder:
KBMWORLDWIDE,INC.
80CuttermillRoad –Suite410
GreatNeck,NY 11021
Attn:Seth Kramer,President
e-mail:info@kbmworldwide.com
With a copybyfaxonlyto(whichcopyshall notconstitutenotice): NaidichWurmanBirnbaum &Maday,LLP
Att:Judah A. Eisner, Esq.
Attn:BernardS.Feldman, Esq.facsimile: 516-466-3555
e-mail:dyork@nwbmlaw.com
4.3Amendments.ThisNoteandanyprovisionhereofmayonlybeamendedbyaninstrumentinwritingsignedby theBorrowerandtheHolder.Theterm“Note”andallreference thereto,asusedthroughoutthisinstrument,shallmeanthisinstrument(andthe other NotesissuedpursuanttothePurchaseAgreement)asoriginallyexecuted,oriflateramendedor supplemented, thenas soamended orsupplemented.
4.4Assignability. ThisNoteshallbebindingupontheBorrowerandits successorsandassigns,andshallinure tobe the benefitof the Holderanditssuccessorsandassigns.EachtransfereeofthisNote mustbean“accreditedinvestor”(as definedin Rule 501(a)ofthe1933Act).NotwithstandinganythinginthisNotetothecontrary,thisNote may be pledgedascollateral inconnection with abonafide marginaccount or other lendingarrangement.
4.5Cost ofCollection.Ifdefault is madein thepayment ofthis Note,the
Borrowershall paytheHolderhereof costs ofcollection, includingreasonable attorneys’fees.
4.6GoverningLaw.ThisNoteshallbegovernedbyandconstruedinaccordance withthelawsoftheStateofNewYorkwithoutregardtoprinciplesofconflictsoflaws.Anyactionbroughtbyeither partyagainstthe otherconcerningthe transactionscontemplatedbythis
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Noteshallbebroughtonly inthestatecourtsofNewYorkorinthefederalcourtslocatedinthe stateandcountyofNassau.Thepartiesto this Note herebyirrevocably waiveanyobjection to jurisdictionandvenueofanyactioninstitutedhereunderandshallnotassertanydefensebased onlackofjurisdictionor venueorbaseduponforumnonconveniens.TheBorrowerandHolder waive trialby jury.The prevailing party shall beentitledtorecoverfromthe other party itsreasonableattorney'sfeesandcosts. In theevent thatanyprovision of this Note orany otheragreementdeliveredinconnectionherewithisinvalidorunenforceableunderanyapplicable statute orruleof law,thensuchprovisionshallbe deemedinoperative totheextentthatitmayconflicttherewithandshallbe deemedmodifiedtoconformwithsuch statute orruleof law. Anysuchprovisionwhichmay proveinvalidorunenforceableunderanylawshallnotaffectthe validity orenforceability ofany otherprovisionofanyagreement. Eachparty hereby irrevocablywaivespersonalserviceofprocessandconsentstoprocessbeingservedinany suit,actionorproceedinginconnectionwiththisAgreementorany otherTransactionDocumentby mailing acopy thereof viaregisteredorcertified mail or overnight delivery(withevidence of delivery)tosuchpartyattheaddressineffectfornoticestoitunderthisAgreementandagrees thatsuchservice shallconstitutegoodandsufficientservice of processandnotice thereof. Nothingcontainedherein shallbedeemedtolimitinanywayanyrighttoserveprocessinany othermannerpermittedbylaw.
4.7CertainAmounts.WheneverpursuanttothisNotetheBorrowerisrequiredto payanamountinexcessoftheoutstandingprincipalamount(ortheportionthereofrequiredto bepaidatthattime)plusaccruedandunpaidinterestplusDefaultInterest onsuch interest,theBorrowerandthe Holderagree thattheactualdamagestothe Holderfromthereceiptofcash paymentonthisNotemaybe difficulttodetermineandtheamounttobe sopaidby theBorrowerrepresentsstipulated damagesand not apenaltyand isintended tocompensate the Holder inpartfor loss ofthe opportunity toconvertthisNoteandtoearnareturnfromthe sale of shares ofCommonStockacquired uponconversion of this Noteat a price inexcess of the price paidfor suchsharespursuant tothisNote. TheBorrowerandtheHolder herebyagree that suchamount of stipulated damages is not plainly disproportionate to the possible loss to the Holderfrom thereceipt of acash payment without the opportunity toconvert this Note into shares ofCommonStock.
4.8PurchaseAgreement.ByitsacceptanceofthisNote,eachpartyagreestobe boundbytheapplicableterms ofthePurchaseAgreement.
4.9NoticeofCorporateEvents.Exceptasotherwiseprovidedbelow,theHolder ofthisNoteshallhavenorightsasaHolderofCommonStockunlessandonly totheextentthat itconvertsthisNoteintoCommon Stock.TheBorrowershallprovidetheHolderwithprior notificationofanymeetingoftheBorrower’sshareholders(andcopiesofproxy materialsand otherinformationsenttoshareholders). Intheeventofanytakingby theBorrower ofarecord ofitsshareholdersforthepurposeofdetermining shareholderswhoareentitledtoreceive payment ofanydividend or other distribution,anyright to subscribefor, purchaseor otherwise
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acquire(includingbywayofmerger,consolidation,reclassification or recapitalization) anyshare ofanyclassoranyothersecuritiesorproperty,ortoreceiveanyotherright,orforthepurposeof determiningshareholders whoareentitledtovoteinconnectionwithanyproposedsale,leaseorconveyanceofallorsubstantiallyalloftheassetsoftheBorroweroranyproposedliquidation, dissolutionorwindingupoftheBorrower,theBorrowershallmailanoticetotheHolder,at leasttwenty(20)dayspriortotherecorddatespecifiedtherein(or thirty(30)daysprior totheconsummationofthetransactionorevent,whicheverisearlier),ofthedateonwhichany suchrecord is to be takenfor the purposeof such dividend, distribution,right or otherevent,and a briefstatementregardingtheamountandcharacterofsuchdividend,distribution,rightorothereventtotheextentknownatsuchtime.TheBorrower shallmakea publicannouncementofanyeventrequiringnotification totheHolderhereundersubstantially simultaneously withthe notification to theHolderinaccordancewith theterms ofthisSection 4.9.
4.10Remedies.TheBorroweracknowledgesthatabreachbyitofits obligationshereunderwillcauseirreparableharmtotheHolder,by vitiatingtheintentand purposeofthetransactioncontemplated hereby. Accordingly,theBorroweracknowledgesthat theremedyatlawforabreachofitsobligationsunderthisNotewill beinadequateandagrees,in the eventofabreach orthreatened breachby theBorroweroftheprovisions ofthis Note, that the Holdershallbeentitled, inadditiontoallotheravailableremediesatlaworinequity,andinadditiontothepenaltiesassessableherein,toaninjunctionorinjunctionsrestraining,preventing orcuringany breachofthisNoteandtoenforcespecifically thetermsandprovisionsthereof, withoutthenecessityof showingeconomiclossandwithoutanybond orothersecuritybeingrequired.
INWITNESSWHEREOF,BorrowerhascausedthisNotetobesignedinitsnameby its dulyauthorized officerthis April 28, 2014.
INDEPENDENTFILMDEVELOPMENTCORPORATION
By:
DAVIDGARLAND
ChiefExecutiveOfficer
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EXHIBITA--NOTICEOFCONVERSION
Theundersignedherebyelectstoconvert$
principalamountofthe
Note(defined below)intothatnumberofsharesofCommonStocktobe issuedpursuant tothe conversionoftheNote(“CommonStock”)assetforthbelow,ofINDEPENDENTFILMDEVELOPMENTCORPORATION,aNevadacorporation(the“Borrower”)accordingtotheconditions oftheconvertiblenoteoftheBorrowerdatedasofApril28,2014(the“Note”),asofthedatewritten below.NofeewillbechargedtotheHolderforanyconversion, exceptfortransfertaxes,ifany.
BoxChecked astoapplicableinstructions:
[ ]TheBorrowershallelectronicallytransmittheCommonStockissuablepursuanttothisNoticeofConversiontotheaccountoftheundersignedoritsnomineewithDTCthroughitsDeposit WithdrawalAgentCommission system(“DWACTransfer”).
NameofDTCPrimeBroker:Account Number:
[]TheundersignedherebyrequeststhattheBorrowerissueacertificateorcertificatesforthenumberofsharesofCommonStock setforthbelow (whichnumbersarebasedontheHolder’scalculationattachedhereto)inthename(s)specifiedimmediately belowor,if additionalspaceisnecessary, on an attachmenthereto:
KBMWORLDWIDE,INC.
80CuttermillRoad –Suite410
Great Neck,NY11021
Attention:CertificateDelivery
e-mail: info@kbmworldwide.com
DateofConversion:
ApplicableConversionPrice: $NumberofSharesofCommon Stockto beIssued
PursuanttoConversionof theNotes:
AmountofPrincipalBalanceDueremaining
UndertheNoteafterthisconversion:
KBMWORLDWIDE,INC.
By:
Name:SethKramer Title: President
Date: