NEITHER THEISSUANCEANDSALEOFTHESECURITIES REPRESENTEDBYTHISCERTIFICATENORTHESECURITIESINTOWHICH THESESECURITIESARECONVERTIBLE HAVEBEENREGISTEREDUNDERTHESECURITIESACTOF1933,AS AMENDED, ORAPPLICABLESTATE SECURITIESLAWS.THESECURITIES MAYNOT BEOFFEREDFOR SALE,SOLD,TRANSFERRED ORASSIGNED(I) IN THEABSENCEOF(A)ANEFFECTIVE REGISTRATIONSTATEMENTFORTHESECURITIES UNDERTHESECURITIES ACT OF1933,ASAMENDED, OR(B)AN OPINION OFCOUNSEL(WHICHCOUNSEL SHALLBESELECTEDBYTHEHOLDER),INAGENERALLY ACCEPTABLEFORM,THATREGISTRATION ISNOT REQUIREDUNDERSAIDACTOR(II)UNLESS SOLDPURSUANTTORULE144ORRULE144A UNDERSAIDACT.NOTWITHSTANDING THEFOREGOING,THESECURITIESMAY BEPLEDGEDINCONNECTIONWITHABONAFIDEMARGIN ACCOUNTOROTHERLOANORFINANCINGARRANGEMENT SECUREDBYTHESECURITIES.
| Principal Amount:$32,500.00 | Issue Date:June 5, 2014 |
| PurchasePrice:$32,500.00 |
CONVERTIBLE PROMISSORYNOTE
FOR VALUERECEIVED,CO-SIGNER,INC., aNevadacorporation(hereinafter calledthe“Borrower”),hereby promisestopay totheorderofKBMWORLDWIDE,INC.,aNewYorkcorporation,orregisteredassigns(the“Holder”)the sumof $32,500.00together with anyinterestas setforthherein,onMarch9,2015(the“MaturityDate”),andtopayintereston theunpaidprincipalbalance hereof at therate ofeightpercent (8%) (the“InterestRate”) perannumfrom thedate hereof (the“Issue Date”) until thesame becomes dueandpayable,whetherat maturity oruponacceleration orbyprepaymentor otherwise.This Notemay notbe prepaid inwholeor inpartexceptas otherwise explicitlysetforthherein. Any amount ofprincipal orintereston thisNote which isnotpaidwhen dueshall bearinterestatthe rateoftwentytwopercent (22%) per annumfrom the due datethereof until thesame is paid(“DefaultInterest”). Interestshallcommenceaccruingon thedate that theNoteis fully paidandshallbe computed on thebasisof a 365-dayyearandtheactual number ofdayselapsed.All paymentsdue hereunder(to the extent notconverted intocommonstock,$0.001parvalue pershare (the“CommonStock”) inaccordancewith theterms hereof)shall bemade inlawfulmoney of theUnited StatesofAmerica.All paymentsshallbemade atsuchaddressas theHolder shallhereaftergivetotheBorrower bywritten notice made inaccordance withtheprovisionsof thisNote. Wheneveranyamountexpressedtobe duebythetermsof thisNoteisdue onany daywhichisnotabusiness day, thesameshallinstead be dueon thenextsucceedingday which is a businessdayand,in thecaseofanyinterestpaymentdate which is not thedate onwhich thisNote ispaid infull,the extensionof the duedatethereofshall not be takenintoaccountforpurposesofdeterminingtheamountofinterestdueonsuchdate.AsusedinthisNote,theterm“businessday”shall mean anydayother than aSaturday,Sundayoradayonwhichcommercialbanks in thecityofNewYork, New Yorkareauthorized orrequiredbylaw orexecutiveorder toremainclosed.Each capitalizedtermusedherein, andnototherwise defined,shallhavethe meaningascribedtheretointhatcertain SecuritiesPurchaseAgreementdatedthedatehereof,pursuant towhichthisNotewasoriginally issued(the “Purchase Agreement”).
This Noteisfreefrom alltaxes,liens, claimsandencumbranceswith respecttothe issuethereofandshallnotbesubjecttopreemptiverightsorother similarrightsofshareholdersoftheBorrower andwill not impose personal liabilityupon the holder thereof.
The followingterms shall applyto thisNote:
ARTICLEI.CONVERSION RIGHTS
1.1 Conversion Right.TheHolder shallhavetherightfromtimetotime, andatanytimeduringtheperiodbeginningonthedate whichisonehundredeighty(180)days followingthedateofthisNote andendingonthelater of:(i)theMaturityDateand (ii)thedateofpayment of the DefaultAmount(asdefined inArticleIII)pursuant toSection1.6(a)orArticle III,each inrespectof theremaining outstandingprincipal amount of thisNote toconvertall or anypart of theoutstanding and unpaidprincipalamount of thisNoteinto fullypaidand non-assessable shares of CommonStock,assuch CommonStockexists on theIssue Date, or anyshares ofcapital stock orothersecurities oftheBorrowerintowhich such CommonStockshallhereafterbechangedorreclassifiedat the conversionprice(the“ConversionPrice”)determinedasprovided herein(a“Conversion”);provided,however,thatin no eventshall theHolder beentitled toconvert any portion of thisNote in excess ofthatportionof thisNote uponconversion ofwhich the sum of (1) the number ofsharesof CommonStockbeneficiallyowned by theHolderanditsaffiliates(otherthansharesofCommonStockwhichmay bedeemedbeneficiallyownedthrough the ownership of the unconvertedportion of theNotesor theunexercised orunconvertedportion of anyothersecurityof theBorrower subject to alimitation onconversionor exerciseanalogous to thelimitationscontained herein)and(2)thenumberofshares of CommonStock issuable upon theconversion of theportionof thisNotewithrespectto which thedetermination ofthisproviso isbeing made,would result inbeneficial ownership by theHolder and itsaffiliatesofmore than 4.99% of theoutstandingsharesof CommonStock.Forpurposesof the proviso to theimmediately preceding sentence,beneficial ownershipshall bedeterminedinaccordancewith Section13(d)ofthe SecuritiesExchange Actof 1934,asamended (the“ExchangeAct”),andRegulations13D-G thereunder,exceptasotherwise provided inclause (1) ofsuchproviso,provided,further,however,that thelimitations onconversion may bewaived by theHolderupon,at theelection of theHolder, notlessthan61days’priornoticetotheBorrower,andthe provisionsof theconversionlimitation shallcontinue to apply untilsuch 61st day(orsuch laterdate, asdetermined by theHolder,as may bespecifiedinsuch noticeofwaiver).Thenumber of shares of CommonStock to beissueduponeachconversion of thisNoteshall bedeterminedby dividing theConversionAmount(asdefinedbelow)by theapplicableConversionPricethenin effect on thedatespecified in thenotice ofconversion, in theformattachedhereto as Exhibit A(the“Notice ofConversion”),delivered totheBorrower by the Holder inaccordancewithSection 1.4below; providedthattheNotice ofConversion issubmittedbyfacsimileor e-mail(or byothermeansresulting in, or reasonablyexpectedtoresultin,notice) totheBorrower before 6:00p.m.,New York,NewYorktime onsuchconversiondate(the“ConversionDate”). Theterm“ConversionAmount” means,withrespect to anyconversion of thisNote, the sum of(1) theprincipal amount of thisNote to beconvertedinsuchconversionplus(2)atthe Holder’soption,accrued andunpaidinterest,ifany,onsuchprincipalamountattheinterest ratesprovidedinthisNote totheConversionDate,plus(3) attheHolder’soption,DefaultInterest,if any,ontheamountsreferredtointheimmediately precedingclauses(1)and/or(2)plus(4)attheHolder’soption,any amountsowedtotheHolderpursuanttoSections 1.3and 1.4(g) hereof.
1.2 ConversionPrice.
(a) Calculationof ConversionPrice. Theconversionprice(the “ConversionPrice”)shallequaltheVariable ConversionPrice(asdefinedherein)(subjecttoequitableadjustmentsforstocksplits,stockdividendsorrightsofferings bytheBorrowerrelatingtotheBorrower’ssecuritiesor thesecuritiesofanysubsidiary of theBorrower,combinations, recapitalization,reclassifications,extraordinary distributionsandsimilarevents). The"VariableConversionPrice"shallmean58%multipliedby the MarketPrice(asdefinedherein)(representing adiscountrate of42%).“Market Price”meanstheaverageofthe lowestthree(3)TradingPrices(asdefinedbelow)fortheCommonStockduringtheten (10)Trading Dayperiodending onthelatestcomplete Trading DaypriortotheConversionDate.“TradingPrice”means,foranysecurityasof any date,theclosingbidpriceonthe Over-the-CounterBulletinBoard, orapplicable tradingmarket (the“OTCBB”)asreportedbyareliable reportingservice(“ReportingService”)designatedbythe Holder(i.e.Bloomberg)or,if theOTCBBis not theprincipal tradingmarket for suchsecurity, theclosing bid priceofsuch security on theprincipal securitiesexchangeor tradingmarketwheresuchsecurity is listed ortraded or, ifnoclosingbidpriceofsuchsecurity isavailableinanyof theforegoingmanners, theaverageof theclosingbidprices ofanymarket makersforsuch security that arelistedinthe“pink sheets”by theNationalQuotation Bureau,Inc.If theTrading Pricecannot becalculatedfor such security onsuchdateinthemannerprovided above, theTradingPrice shallbethefairmarket valueas mutuallydeterminedby theBorrower and theholders of amajority ininterest of theNotesbeingconverted forwhich thecalculation of theTradingPriceisrequired in order todetermine theConversionPriceof suchNotes.“Trading Day”shallmeanany dayonwhichtheCommonStockistradableforanyperiodontheOTCBB,or ontheprincipalsecuritiesexchangeorothersecurities market onwhich theCommonStockisthenbeingtraded.
(b) ConversionPriceDuringMajor Announcements.Notwithstanding anythingcontainedinSection1.2(a)tothecontrary,intheeventtheBorrower(i)makesapublicannouncement thatitintendstoconsolidateormergewithanyothercorporation (otherthanamerger inwhich theBorroweris thesurviving orcontinuing corporationand itscapitalstockisunchanged) orsell ortransfer all orsubstantiallyall ofthe assetsoftheBorrower or (ii)anyperson,group or entity (including theBorrower)publiclyannounces a tenderoffer topurchase 50% ormore of theBorrower’sCommonStock(oranyothertakeover scheme)(thedate of theannouncementreferred to inclause(i)or(ii)ishereinafterreferredtoasthe “AnnouncementDate”),thenthe ConversionPriceshall,effectiveupon theAnnouncementDateand continuingthrough theAdjusted ConversionPrice TerminationDate(as definedbelow), beequal to thelowerof (x)theConversionPricewhichwouldhavebeenapplicableforaConversion occurring ontheAnnouncementDate and(y)theConversionPricethat wouldotherwisebeineffect. FromandaftertheAdjustedConversionPriceTerminationDate,theConversion Priceshallbedetermined assetforthinthisSection 1.2(a).Forpurposeshereof,“AdjustedConversionPrice TerminationDate” shallmean, withrespect to any proposed transactionor tenderoffer (ortakeover scheme)for which a public announcementascontemplatedby thisSection1.2(b) hasbeenmade,thedateuponwhichtheBorrower(inthecaseofclause(i)above)ortheperson, grouporentity(inthecaseofclause(ii)above)consummatesorpubliclyannouncesthetermination orabandonment of theproposedtransaction or tender offer(ortakeover scheme)which caused this Section1.2(b)tobecomeoperative.
1.3 Authorized Shares.The Borrowercovenantsthatduringtheperiodtheconversionrightexists,theBorrowerwillreserve fromitsauthorizedandunissuedCommonStockasufficientnumberofshares,free frompreemptiverights,toprovidefortheissuanceofCommonStock upon the fullconversion ofthis Note issuedpursuant to thePurchase Agreement.The Borrowerisrequiredat alltimes tohaveauthorizedandreservedfivetimesthe numberofshares that is actuallyissuable uponfullconversion of theNote(based ontheConversionPriceof theNotes ineffect from time totime)(the“ReservedAmount”).TheReservedAmountshallbeincreasedfrom timetotime inaccordance with theBorrower’sobligationshereunder.TheBorrower representsthat uponissuance, suchshareswill bedulyand validlyissued,fullypaidandnon-assessable. Inaddition,iftheBorrowershallissueanysecuritiesor makeanychangeto itscapitalstructurewhich wouldchange thenumber ofsharesof CommonStock intowhich theNotesshall beconvertibleat thethencurrent ConversionPrice,theBorrowershall atthesame timemakeproperprovisionsothatthereafterthereshallbeasufficientnumberofsharesof CommonStockauthorized andreserved,free frompreemptive rights, forconversion of theoutstanding Notes.TheBorrower(i) acknowledgesthat ithasirrevocably instructed itstransferagenttoissuecertificates fortheCommonStockissuableuponconversionofthisNote,and
(ii) agreesthatitsissuanceofthisNote shallconstitutefullauthoritytoitsofficers andagentswhoare chargedwiththedutyofexecutingstockcertificatestoexecuteandissue thenecessarycertificates forsharesofCommonStockinaccordancewiththetermsandconditionsofthisNote.
If, atanytimetheBorrowerdoesnotmaintaintheReservedAmountitwillbeconsideredan Event of DefaultunderSection 3.2 ofthe Note.
1.4 Method of Conversion.
(a) Mechanicsof Conversion.SubjecttoSection1.1,thisNotemaybeconverted bytheHolderinwholeorinpart atany timefromtimetotimeaftertheIssueDate, by
(A) submittingto theBorroweraNoticeofConversion(byfacsimile,e-mailorotherreasonable meansofcommunication dispatchedontheConversionDatepriorto6:00p.m.,New York,NewYorktime) and(B)subjecttoSection1.4(b),surrenderingthisNoteattheprincipalofficeoftheBorrower.
(b) SurrenderofNoteUponConversion. Notwithstandinganything tothecontrarysetforth herein,uponconversionofthisNoteinaccordancewiththetermshereof,theHoldershallnotberequiredtophysicallysurrender thisNote totheBorrower unlesstheentireunpaid principalamount of thisNote is soconverted.The Holder and theBorrowershallmaintain records showing the principalamountsoconvertedand thedates of suchconversionsorshall usesuchothermethod,reasonably satisfactory totheHolder andtheBorrower,soas not torequire physical surrenderofthisNoteuponeachsuchconversion.In theevent of any disputeordiscrepancy,suchrecordsoftheBorrowershall,primafacie,becontrollinganddeterminativein theabsence ofmanifesterror. Notwithstanding theforegoing, ifanyportion of thisNote isconvertedasaforesaid,theHoldermaynottransfer thisNoteunlesstheHolderfirstphysicallysurrenders thisNote totheBorrower, whereupon theBorrowerwill forthwithissueanddeliver upon theorderoftheHolderanewNoteofliketenor,registered as theHolder(uponpaymentbytheHolderofanyapplicable transfer taxes) mayrequest, representing in theaggregate theremaining unpaidprincipalamountofthisNote.The Holderandanyassignee,byacceptanceof thisNote,acknowledge andagreethat,byreasonoftheprovisionsofthisparagraph,followingconversionofaportionofthisNote,theunpaidand unconvertedprincipalamountof thisNoterepresentedby thisNotemaybe lessthantheamountstated ontheface hereof.
| 2 |
(c) PaymentofTaxes. TheBorrower shallnot berequiredtopayanytaxwhichmaybepayableinrespectofanytransferinvolvedintheissueanddeliveryofsharesofCommonStock orother securities or property onconversionofthis Note in anameotherthanthatofthe Holder(orinstreetname), andtheBorrower shallnot berequiredtoissue ordeliver anysuchsharesorother securitiesorpropertyunlessanduntilthepersonorpersons(otherthan theHolderor thecustodian inwhosestreet namesuchshares are to beheld for theHolder’saccount)requestingtheissuancethereofshallhave paidtotheBorrowertheamountofany suchtaxorshall haveestablished to the satisfactionofthe Borrowerthatsuchtaxhasbeenpaid.
(d) Deliveryof CommonStockUpon Conversion. UponreceiptbytheBorrowerfromtheHolderofafacsimiletransmissionor e-mail(orotherreasonable meansofcommunication)ofaNoticeofConversion meeting therequirements forconversionas providedin thisSection 1.4, theBorrower shall issueand deliver orcausetobe issuedanddeliveredto or upon theorderof the Holdercertificates for the CommonStockissuableuponsuchconversionwithin three(3)businessdaysafter such receipt(the“Deadline”) (and, solely in thecase ofconversionoftheentire unpaidprincipalamounthereof,surrenderofthisNote)inaccordancewiththetermshereof andthePurchase Agreement.
(e) ObligationofBorrowertoDeliverCommonStock. UponreceiptbytheBorrowerofaNoticeofConversion,theHoldershallbedeemedtobetheholderofrecordoftheCommonStockissuableuponsuchconversion,theoutstandingprincipalamountandtheamount ofaccruedandunpaidinterest on thisNoteshall bereduced toreflect suchconversion,and,unlesstheBorrowerdefaults on itsobligations under thisArticle I,all rightswithrespect to theportionof thisNotebeing soconvertedshallforthwithterminate excepttheright toreceivethe CommonStock orothersecurities, cash orotherassets,as hereinprovided, onsuchconversion.Ifthe Holdershallhavegiven aNoticeofConversion asprovidedherein,theBorrower’sobligation to issueand deliver thecertificates for CommonStockshall beabsolute andunconditional,irrespective of theabsence of any actionby theHoldertoenforce the same, anywaiver orconsentwith respect toany provisionthereof, the recovery ofanyjudgment againstanypersonoranyaction toenforcethesame,anyfailureordelay intheenforcementofany otherobligationoftheBorrowertotheholderofrecord,or anysetoff,counterclaim,recoupment,limitationortermination,oranybreachorallegedbreachbytheHolderofanyobligationtotheBorrower,and irrespective ofany othercircumstancewhichmightotherwiselimitsuchobligationof theBorrowertothe Holderinconnection withsuchconversion.TheConversionDatespecifiedin theNotice ofConversionshallbe theConversionDate so longas theNotice of Conversion isreceivedby theBorrowerbefore6:00 p.m.,NewYork, NewYork time, onsuchdate.
(f) DeliveryofCommonStockbyElectronic Transfer.Inlieuofdeliveringphysical certificatesrepresentingtheCommonStockissuableuponconversion,provided theBorrower isparticipatingin the Depository Trust Company(“DTC”) FastAutomatedSecurities Transfer(“FAST”)program,uponrequestof theHolderanditscompliancewith the provisionscontained in Section 1.1and in this Section 1.4, theBorrowershalluse itsbesteffortstocause itstransfer agenttoelectronicallytransmittheCommonStock issuable uponconversiontotheHolderbycrediting theaccountofHolder’sPrimeBrokerwithDTCthroughitsDepositWithdrawalAgentCommission(“DWAC”) system.
(g) FailuretoDeliverCommonStockPriortoDeadline.WithoutinanywaylimitingtheHolder’sright topursueotherremedies,including actualdamages and/orequitable relief,thepartiesagree thatifdeliveryoftheCommonStockissuableuponconversion of thisNoteis notdelivered by theDeadline (otherthan afailure due tothe circumstancesdescribedinSection 1.3above,whichfailure shall begovernedbysuchSection)theBorrowershallpayto the Holder $2,000per day in cash,foreach daybeyond theDeadlinethattheBorrowerfailstodeliversuchCommonStock.Suchcashamount shallbepaidtoHolderby the fifth day of the monthfollowingthe month inwhich ithasaccrued or,at the option of theHolder(bywrittennoticeto theBorrower bythefirstdayof themonthfollowingthemonth inwhich ithas accrued),shallbe addedtotheprincipalamountofthisNote,inwhicheventinterestshallaccruethereoninaccordancewith thetermsofthisNoteandsuchadditional principalamountshallbeconvertible into CommonStock inaccordancewith thetermsof thisNote. TheBorrower agreesthat theright toconvertis avaluable right to theHolder. The damagesresultingfrom afailure,attempt tofrustrate, interferencewithsuchconversion rightaredifficult if notimpossibletoqualify.Accordinglythe partiesacknowledgethattheliquidateddamagesprovision contained in thisSection1.4(g)arejustified.
1.5 ConcerningtheShares. ThesharesofCommonStock issuableuponconversionofthisNotemaynotbesoldortransferred unless(i)suchsharesaresoldpursuanttoaneffectiveregistrationstatementundertheAct or(ii)theBorroweror itstransferagent shallhave beenfurnishedwith an opinion ofcounsel(whichopinionshall be inform,substance andscope customaryforopinions ofcounselincomparabletransactions) to theeffectthattheshares tobesoldortransferredmay besoldortransferredpursuanttoanexemptionfromsuch registration or(iii) suchsharesaresoldortransferredpursuant to Rule 144under theAct(or asuccessorrule)(“Rule 144”)or(iv)suchshares aretransferred toan“affiliate” (asdefined in Rule 144) of theBorrower whoagreestosellorotherwisetransferthe sharesonly inaccordance with thisSection 1.5and who isanAccreditedInvestor (asdefined in thePurchaseAgreement). Exceptasotherwiseprovidedin thePurchaseAgreement(and subject to theremovalprovisionssetforth below),untilsuchtimeasthesharesofCommonStock issuableuponconversionofthisNotehave beenregisteredunder theActorotherwisemaybe sold pursuant to Rule 144without anyrestrictionas tothe numberofsecuritiesas of aparticulardatethatcanthenbeimmediatelysold,eachcertificateforsharesofCommonStockissuableuponconversionofthisNotethathasnotbeensoincluded inaneffective registrationstatement orthathas notbeen soldpursuanttoaneffective registrationstatementoranexemptionthatpermits removalof thelegend, shallbear a legend substantially in the followingform, asappropriate:
“NEITHERTHEISSUANCE ANDSALEOFTHESECURITIESREPRESENTEDBYTHISCERTIFICATE NORTHESECURITIES INTOWHICHTHESESECURITIES AREEXERCISABLEHAVEBEENREGISTEREDUNDERTHESECURITIESACTOF1933,AS AMENDED,ORAPPLICABLE STATESECURITIESLAWS.THESECURITIESMAY NOTBEOFFERED FORSALE, SOLD,TRANSFERRED ORASSIGNED(I) IN THEABSENCEOF(A) ANEFFECTIVE REGISTRATIONSTATEMENT FOR THESECURITIESUNDERTHESECURITIESACTOF1933,ASAMENDED,OR(B)AN OPINIONOFCOUNSEL(WHICHCOUNSELSHALLBESELECTEDBY THEHOLDER),IN AGENERALLYACCEPTABLEFORM, THATREGISTRATION ISNOT REQUIREDUNDERSAIDACTOR (II)UNLESSSOLDPURSUANTTORULE 144 ORRULE 144AUNDERSAIDACT. NOTWITHSTANDING THEFOREGOING,THESECURITIESMAY BEPLEDGED INCONNECTIONWITHA BONA FIDEMARGINACCOUNTOROTHERLOANORFINANCINGARRANGEMENTSECUREDBYTHESECURITIES.”
The legendsetforthaboveshallberemovedandtheBorrowershallissuetotheHolderanewcertificate thereforefreeofanytransferlegendif(i) theBorroweroritstransferagent shallhavereceived anopinionofcounsel,inform, substanceandscopecustomary for opinions ofcounsel incomparabletransactions, to theeffectthat a public sale ortransferofsuchCommonStock may bemade withoutregistrationundertheAct,which opinionshallbe acceptedbytheCompany sothatthesale ortransferiseffectedor(ii)inthecaseofthe CommonStock issuable uponconversion of thisNote,such security isregisteredforsaleby the Holder underan effectiveregistrationstatementfiledunder the Act orotherwisemaybesoldpursuant to Rule 144withoutany restrictionas to thenumberofsecuritiesasofa particulardatethat canthen beimmediately sold.In theevent that theCompanydoes notacceptthe opinion ofcounselprovided by the Holderwithrespectto thetransfer ofSecurities pursuant toan exemptionfromregistration, such as Rule 144 orRegulation S,attheDeadline, itwill beconsidered anEventofDefaultpursuant toSection 3.2 oftheNote.
| 3 |
1.6 Effect of Certain Events.
(a) EffectofMerger,Consolidation,Etc. Atthe optionoftheHolder,thesale,conveyanceordispositionofallorsubstantiallyalloftheassetsoftheBorrower,theeffectuationbytheBorrower of atransactionorseriesofrelated transactionsinwhich morethan 50% of the votingpower of theBorrower is disposedof,orthe consolidation,merger orotherbusinesscombination of theBorrower with or into anyotherPerson(asdefined below) orPersonswhen theBorroweris not thesurvivor shalleither:(i)be deemed to bean Event ofDefault (asdefinedinArticle III)pursuanttowhichtheBorrowershallberequiredtopaytotheHolderuponthe consummationofandasaconditiontosuchtransactionanamountequaltotheDefaultAmount(as defined inArticle III) or(ii) betreatedpursuant toSection 1.6(b)hereof.“Person” shallmeananyindividual,corporation,limitedliability company,partnership,association, trust or otherentity ororganization.
(b) AdjustmentDuetoMerger, Consolidation,Etc.If,atanytimewhenthisNoteisissuedand outstandingandpriortoconversionofalloftheNotes,there shallbeanymerger, consolidation,exchangeofshares,recapitalization,reorganization,orothersimilarevent,asa result of whichshares of CommonStockof theBorrower shall bechangedinto thesame or adifferent numberofshares ofanotherclassorclasses of stock orsecurities of theBorrower or anotherentity, or incase of anysaleorconveyance ofall or substantiallyall of theassetsof theBorrowerotherthaninconnectionwith aplanofcompleteliquidation of theBorrower,thentheHolderofthisNoteshallthereafterhavetherighttoreceiveuponconversion ofthisNote,uponthe basisanduponthetermsandconditionsspecified hereinandinlieuofthesharesof CommonStock immediatelytheretofore issuable upon conversion,suchstock, securitiesorassets whichtheHolder wouldhavebeen entitledtoreceiveinsuch transactionhadthisNote been converted infull immediately prior tosuch transaction (withoutregard toanylimitations onconversion setforthherein), andinanysuchcaseappropriateprovisionsshallbemadewithrespect totherights andinterestsof theHolderof thisNote totheendthattheprovisionshereof(including, withoutlimitation,provisionsforadjustment of theConversion Priceand of the number ofsharesissuable uponconversion of theNote) shallthereafter beapplicable,as nearlyas maybepracticable inrelation toanysecuritiesorassetsthereafter deliverableupontheconversionhereof.TheBorrowershallnotaffectanytransactiondescribed in thisSection1.6(b) unless(a) itfirstgives,to the extentpracticable, thirty(30)daysprior writtennotice(but inanyeventatleastfifteen(15)days priorwrittennotice)of therecord date ofthespecial meeting ofshareholdersto approve, orifthereis nosuchrecorddate, theconsummationof, suchmerger, consolidation,exchangeofshares,recapitalization,reorganizationorother similarevent orsaleof assets(during which time theHolder shallbeentitled toconvert thisNote)and(b)the resultingsuccessor oracquiringentity(if not theBorrower)assumes bywritten instrument theobligations of thisSection 1.6(b).The aboveprovisionsshallsimilarly apply tosuccessiveconsolidations,mergers, sales,transfersor shareexchanges.
(c) AdjustmentDuetoDistribution.Ifthe Borrowershalldeclareor makeanydistributionofitsassets (orrightstoacquireitsassets)toholdersofCommonStock asadividend, stockrepurchase,bywayofreturnofcapitalorotherwise(includinganydividendordistribution to theBorrower’s shareholders incash orshares (or rights toacquireshares) ofcapital stock of asubsidiary(i.e.,aspin-off))(a “Distribution”),then theHolder ofthisNote shall beentitled, upon anyconversionof thisNoteafter the date ofrecord fordeterminingshareholders entitled to suchDistribution, to receivethe amountof suchassetswhichwouldhavebeenpayable to theHolder withrespect to theshares of CommonStockissuable uponsuch conversionhadsuch Holderbeenthe holder of suchshares of CommonStockon therecorddateforthe determination of shareholdersentitled tosuchDistribution.
(d) AdjustmentDuetoDilutive Issuance.If,atanytimewhenanyNotesare issuedandoutstanding,theBorrowerissuesorsells,orinaccordancewiththisSection 1.6(d)hereofisdeemedtohaveissuedorsold,anysharesofCommonStockfornoconsiderationorforaconsideration per share (beforededuction ofreasonable expenses orcommissionsorunderwriting discountsorallowancesinconnectiontherewith)lessthantheConversionPriceineffect on thedate ofsuch issuance(ordeemedissuance)ofsuchshares of CommonStock (a“DilutiveIssuance”),thenimmediatelyupon theDilutiveIssuance,theConversionPrice will bereduced to theamountoftheconsideration persharereceivedbytheBorrowerin suchDilutive Issuance.
The BorrowershallbedeemedtohaveissuedorsoldsharesofCommonStockiftheBorrowerinanymannerissuesorgrantsanywarrants, rightsoroptions(notincluding employeestockoptionplans),whetherornotimmediatelyexercisable,tosubscribeforortopurchase CommonStockorothersecurities convertibleintoorexchangeableforCommonStock(“Convertible Securities”)(such warrants,rightsandoptionstopurchaseCommonStockor ConvertibleSecuritiesarehereinafter referred toas“Options”) andtheprice pershareforwhich CommonStock isissuableupon theexercise ofsuchOptionsislessthan theConversion Pricethen ineffect, then theConversionPriceshallbeequal to suchprice pershare. Forpurposes of the precedingsentence,the“price per share forwhichCommonStock isissuable upon theexerciseof suchOptions”isdeterminedby dividing(i)the totalamount, ifany,receivedorreceivablebythe Borrowerasconsideration forthe issuanceor grantingofallsuch Options, plus theminimumaggregate amount ofadditional consideration, ifany, payable to theBorrower upon the exercise ofall suchOptions, plus, in thecaseofConvertibleSecurities issuable upon the exercise ofsuchOptions,the minimumaggregateamount ofadditionalconsiderationpayableupon theconversion orexchange thereofat the timesuchConvertible Securitiesfirst becomeconvertible or exchangeable,by(ii)the maximumtotalnumber ofsharesof CommonStockissuable upon theexercise ofallsuch Options(assumingfullconversionofConvertibleSecurities, ifapplicable).Nofurther adjustment to theConversionPricewill bemadeupon the actualissuanceof such CommonStock upon the exerciseof suchOptions orupon the conversion orexchangeof Convertible Securitiesissuableuponexerciseof suchOptions.
Additionally,theBorrower shallbedeemedtohaveissuedorsoldsharesofCommonStockiftheBorrowerinanymannerissuesorsellsanyConvertible Securities,whether ornotimmediatelyconvertible(otherthanwhere thesameareissuableupontheexerciseofOptions), and the price per sharefor which CommonStock isissuable upon suchconversionorexchangeislessthanthe ConversionPricethen ineffect,thenthe ConversionPriceshallbe equal to suchpricepershare. Forthepurposesof the precedingsentence,the“priceper shareforwhichCommonStock isissuable uponsuchconversion orexchange”isdeterminedbydividing(i) thetotalamount,ifany,receivedorreceivableby theBorroweras considerationfor the issuance or sale ofall suchConvertibleSecurities, plus theminimumaggregateamountof additionalconsideration, ifany, payable to theBorrower upon theconversion orexchangethereof atthe timesuchConvertibleSecurities firstbecomeconvertible orexchangeable,by(ii) the maximumtotal number ofshares of CommonStockissuable upontheconversionorexchangeofall suchConvertibleSecurities. NofurtheradjustmenttotheConversionPrice willbemadeupontheactualissuanceofsuchCommonStockuponconversion or exchangeofsuchConvertible Securities.
(e) PurchaseRights.If,atanytimewhenanyNotesareissuedand outstanding,theBorrower issuesanyconvertible securitiesorrightstopurchasestock,warrants, securitiesorotherproperty(the“PurchaseRights”) proratatotherecord holdersofanyclassofCommonStock,thenthe Holder of thisNote willbeentitledtoacquire,uponthetermsapplicabletosuchPurchaseRights,theaggregatePurchase RightswhichsuchHolder couldhaveacquiredifsuchHolder hadheld thenumber ofsharesof CommonStockacquirable uponcompleteconversion ofthisNote(withoutregardto anylimitations onconversioncontainedherein)immediatelybeforethe dateonwhich a recordistakenforthegrant,issuanceorsaleofsuch PurchaseRightsor, if nosuch record istaken, thedateasofwhich therecordholdersof CommonStockareto be determinedforthegrant,issueor saleof such Purchase Rights.
| 4 |
(f) NoticeofAdjustments. Upontheoccurrenceofeach adjustmentorreadjustmentoftheConversion Priceasaresultoftheevents describedinthisSection1.6,theBorrower, atitsexpense,shallpromptlycomputesuchadjustmentorreadjustment andprepareand furnish to theHolder acertificatesettingforthsuchadjustmentorreadjustmentand showing indetail thefacts uponwhich suchadjustment orreadjustmentisbased.TheBorrower shall, upon thewrittenrequestat any time of theHolder,furnishtosuch Holder a likecertificatesettingforth (i)suchadjustmentorreadjustment,(ii)theConversionPrice atthetimeineffectand (iii) thenumber ofsharesof CommonStockandtheamount,ifany, ofothersecuritiesor propertywhichat thetime would be received uponconversionoftheNote.
1.7 TradingMarket Limitations.Unlesspermittedbytheapplicable rulesandregulationsoftheprincipalsecuritiesmarketonwhichtheCommonStockisthenlistedortraded, in no eventshall theBorrower issue uponconversion oforotherwisepursuant to thisNote andthe other Notesissuedpursuantto thePurchaseAgreement morethanthe maximumnumberofsharesof CommonStockthattheBorrowercanissue pursuanttoanyruleof theprincipalUnited Statessecuritiesmarket on which the CommonStock isthentraded(the “MaximumShareAmount”), whichshall be4.99%ofthetotal sharesoutstanding on theClosingDate (asdefined in the PurchaseAgreement), subject toequitableadjustmentfrom time to timeforstock splits,stockdividends, combinations,capitalreorganizations andsimilarevents relating to the CommonStockoccurring after thedatehereof.Once the MaximumShareAmounthasbeenissued,if theBorrower fails toeliminate anyprohibitionsunderapplicable lawor therules orregulationsofany stockexchange,interdealer quotationsystem orotherself-regulatory organizationwithjurisdictionovertheBorroweror anyofitssecuritiesontheBorrower’s ability toissuesharesof CommonStockinexcessofthe MaximumShareAmount,inlieuofanyfurther right toconvert thisNote, thiswill beconsideredan Event ofDefaultunderSection3.3 ofthe Note.
1.8 Statusas Shareholder.UponsubmissionofaNoticeofConversionbyaHolder,(i)thesharescoveredthereby(otherthantheshares,ifany,whichcannotbeissuedbecausetheirissuancewouldexceedsuch Holder’sallocatedportionoftheReservedAmountor MaximumShare Amount)shall bedeemedconvertedintoshares ofCommonStock and(ii) theHolder’srightsasaHolder ofsuchconvertedportionof thisNoteshallcease andterminate,exceptingonly therighttoreceivecertificatesforsuchsharesofCommonStockandtoanyremediesprovided herein orotherwiseavailableat law or in equityto suchHolderbecause of afailure bytheBorrower to complywith theterms of thisNote.Notwithstandingtheforegoing, if aHolderhas notreceivedcertificatesfor allsharesof CommonStock prior to thetenth(10th)businessdayafter theexpiration of theDeadlinewithrespectto a conversion of anyportion of thisNote for anyreason,then(unlesstheHolderotherwise elects toretain itsstatusasa holder of CommonStock by sonotifyingtheBorrower) theHolder shallregain therights of aHolderof thisNotewithrespecttosuchunconvertedportions of thisNoteand theBorrowershall,assoonaspracticable,return suchunconverted Note to theHolderor, if theNote has not beensurrendered, adjust itsrecords toreflect thatsuchportion of thisNote has notbeenconverted. Inall cases, theHolder shallretainall of itsrightsand remedies(including,withoutlimitation,(i) therightto receiveConversionDefaultPaymentspursuant toSection1.3 to the extentrequired therebyfor suchConversionDefault andany subsequentConversionDefaultand(ii)therighttohave theConversion Pricewithrespect tosubsequent conversionsdetermined inaccordance withSection 1.3) fortheBorrower’s failuretoconvert thisNote.
1.9 Prepayment.NotwithstandinganythingtothecontrarycontainedinthisNote,atanytimeduringtheperiodbeginningontheIssue Dateandendingonthedatewhichisthirty(30) days followingtheIssueDate, theBorrowershall havethe right,exercisableon notlessthanthree(3) TradingDayspriorwritten noticeto theHolderoftheNoteto prepay theoutstandingNote (principalandaccrued interest),infull,inaccordancewiththisSection1.9.Anynoticeofprepayment hereunder (an“OptionalPrepayment Notice”) shall bedeliveredto theHolder of theNote at itsregistered addressesand shallstate:(1)that theBorrowerisexercisingitsright to prepay theNote, and(2)thedateofprepaymentwhich shall be notmore thanthree(3) TradingDaysfromthedateoftheOptionalPrepayment Notice.Onthedatefixedforprepayment (the“OptionalPrepaymentDate”), theBorrower shallmake payment of theOptionalPrepaymentAmount(asdefinedbelow) to or upon the order of theHolderas specifiedby theHolder inwritingto theBorroweratleastone(1)business dayprior to theOptionalPrepayment Date.If theBorrowerexercises itsright to prepay the Note, theBorrowershallmakepayment to theHolderofanamountin cash(the“OptionalPrepayment Amount”)equalto110%,multipliedbythe sumof:(w)the thenoutstanding principal amount of thisNoteplus(x) accruedand unpaidintereston theunpaidprincipalamountof thisNoteto theOptionalPrepaymentDateplus(y)Default Interest, ifany, on theamountsreferred to inclauses (w) and (x)plus(z)anyamounts owedto theHolder pursuant toSections1.3and1.4(g)hereof.IftheBorrowerdelivers anOptionalPrepayment Noticeandfails topaytheOptionalPrepaymentAmount dueto theHolder of theNotewithintwo(2)businessdaysfollowing theOptionalPrepaymentDate,theBorrowershallforever forfeit itsright to prepay the Notepursuant to thisSection 1.9.
Notwithstanding anythingto thecontrarycontainedinthisNote, atanytimeduringtheperiodbeginningonthedatewhichisthirty-one(31) daysfollowingtheIssueDateand endingon thedatewhich is sixty(60)days followingtheIssue Date, the Borrower shallhavetheright,exercisable on notlessthanthree(3)TradingDaysprior writtennotice to theHolder of theNote toprepaythe outstandingNote(principalandaccruedinterest),infull, inaccordancewiththisSection1.9.Any OptionalPrepayment NoticeshallbedeliveredtotheHolderoftheNoteatitsregisteredaddressesand shallstate:(1)thattheBorrowerisexercising itsrightto prepay theNote,and (2) thedate ofprepaymentwhichshall be notmore thanthree(3)Trading DaysfromthedateoftheOptionalPrepayment Notice.OntheOptionalPrepayment Date,theBorrower shallmakepaymentoftheSecond OptionalPrepayment Amount(asdefinedbelow) to or upon theorderof theHolderasspecifiedby theHolderinwriting to theBorroweratleast one(1)business dayprior to theOptionalPrepayment Date.If theBorrowerexercisesitsright to prepay theNote, theBorrowershallmake payment to theHolder ofanamountincash(the“Second OptionalPrepaymentAmount”) equalto115%,multipliedby the sumof:(w) thethenoutstanding principal amount of thisNoteplus(x) accruedandunpaidintereston theunpaidprincipalamountof thisNotetotheOptionalPrepaymentDateplus(y)Default Interest,ifany,on theamountsreferred to inclauses(w)and(x)plus(z) anyamountsowedto theHolderpursuanttoSections1.3and1.4(g) hereof. If theBorrowerdeliversan OptionalPrepaymentNotice andfailstopay theSecondOptionalPrepayment Amountdue totheHolderof theNotewithintwo (2)businessdays following the OptionalPrepaymentDate, theBorrower shallforever forfeit itsright to prepaytheNotepursuant to thisSection 1.9.
Notwithstanding anythingto thecontrarycontainedinthisNote, atanytimeduringtheperiodbeginningonthedate whichissixty-one(61)daysfollowingtheIssueDateandendingonthedatewhichisninety(90)daysfollowingtheIssueDate,theBorrowershallhave theright,exercisableon notlessthan three(3) TradingDayspriorwrittennotice to theHolder of theNote to prepay theoutstanding Note(principalandaccruedinterest),infull, inaccordancewiththisSection 1.9. AnyOptionalPrepayment Noticeshall bedeliveredto theHolder of theNoteatitsregisteredaddressesand shallstate:(1)thattheBorrower isexercising itsrighttoprepay theNote,and(2)thedateofprepaymentwhichshallbenotmore thanthree (3) TradingDaysfrom the dateofthe OptionalPrepaymentNotice. On the OptionalPrepaymentDate,theBorrowershallmakepaymentoftheThirdOptional PrepaymentAmount(asdefined below)to orupon theorderofthe Holderas specifiedby theHolderin writing totheBorrower atleastone(1) businessday prior tothe OptionalPrepaymentDate.If theBorrowerexercisesitsrighttoprepay theNote,theBorrowershallmake paymenttotheHolderofanamountincash(the “ThirdOptionalPrepaymentAmount”) equal to120%,multipliedby the sumof:(w) thethen outstandingprincipalamount ofthisNoteplus(x) accruedandunpaidintereston theunpaidprincipal amount of thisNote to theOptional PrepaymentDateplus(y)DefaultInterest, ifany, on theamountsreferredto inclauses(w)and(x)plus(z) anyamountsowedto theHolderpursuanttoSections 1.3and 1.4(g) hereof. If theBorrowerdeliversan OptionalPrepaymentNoticeand fails topaytheThird OptionalPrepaymentAmount due to theHolder of theNotewithin two(2)business days following theOptionalPrepayment Date, theBorrowershallforever forfeit itsrightto prepay theNotepursuant to thisSection 1.9.
| 5 |
Notwithstandinganytothecontrarystatedelsewhereherein, atanytimeduringtheperiod beginningonthedatethatisninety-one(91)dayfromtheIssueDate andendingonehundredtwenty(120)daysfollowing theIssueDate,theBorrowershallhave theright,exercisableon notless thanthree(3) Trading Dayspriorwritten notice to theHolder oftheNote toprepay theoutstandingNote(principalandaccruedinterest),infull,inaccordancewiththisSection 1.9.Any OptionalPrepaymentNoticeshallbedeliveredtotheHolder of theNote atitsregisteredaddresses andshallstate:(1)that theBorrower isexercising itsright to prepaytheNote, and(2)thedateofprepaymentwhichshallbenotmorethanthree(3)Trading Daysfrom thedateof theOptionalPrepaymentNotice. OntheOptionalPrepaymentDate,theBorrower shallmakepaymentof theFourthOptional PrepaymentAmount(asdefinedbelow) toor upon theorderof theHolderas specifiedbytheHolderinwritingtotheBorrowerat least one(1)business daypriorto theOptionalPrepayment Date.IftheBorrowerexercisesitsright toprepay theNote,theBorrowershallmake payment to theHolderofan amount incash(the“Fourth OptionalPrepayment Amount”)equalto125%,multipliedby the sumof: (w) thethenoutstandingprincipalamount of thisNoteplus(x) accruedandunpaidintereston theunpaidprincipalamountof thisNotetotheOptionalPrepayment Dateplus(y) DefaultInterest,ifany, on theamountsreferred to inclauses(w)and(x)plus(z) anyamountsowedto theHolder pursuant toSections 1.3and 1.4(g) hereof.If theBorrower deliversanOptionalPrepayment NoticeandfailstopaytheFourth OptionalPrepaymentAmountdue totheHolder of theNotewithin two(2)business days following theOptionalPrepayment Date, theBorrowershall forever forfeit itsright to prepay theNotepursuant to thisSection 1.9.
Notwithstandinganytothecontrarystatedelsewhereherein, atanytimeduringtheperiodbeginningonthedatethatisonehundredtwenty-one(121)dayfromtheIssueDateandendingonehundredfifty(150)daysfollowingtheIssue Date,theBorrower shallhavetheright, exercisableon notlessthan three(3)TradingDays priorwrittennoticeto theHolder oftheNoteto prepay the outstandingNote(principalandaccruedinterest), infull,inaccordancewith thisSection1.9. Any OptionalPrepaymentNotice shall bedelivered to theHolderoftheNoteat itsregisteredaddressesandshallstate:(1) that theBorrower isexercising itsright to prepay theNote,and (2) thedate ofprepaymentwhichshall be notmorethan three (3)TradingDaysfromthedateoftheOptional PrepaymentNotice.OntheOptionalPrepaymentDate,theBorrowershall makepayment of theFifthOptional PrepaymentAmount(asdefined below) to or upon theorderof theHolder asspecified by theHolderinwriting to theBorroweratleastone(1)business dayprior to the OptionalPrepaymentDate. If theBorrower exercises itsright to prepaytheNote, theBorrowershall makepayment to the Holder ofanamount in cash(the“Fifth OptionalPrepaymentAmount”)equal to130%,multipliedby the sum of: (w)thethenoutstanding principalamountof thisNote plus(x) accruedand unpaidinterest on theunpaidprincipal amount of thisNote totheOptional PrepaymentDateplus(y)Default Interest, ifany, on theamountsreferred to inclauses(w) and(x)plus(z) anyamountsowed to theHolderpursuanttoSections 1.3and1.4(g) hereof. IftheBorrower deliversanOptional PrepaymentNotice and fails topay theFifth OptionalPrepaymentAmount due to theHolder of theNotewithin two(2)businessdays following theOptionalPrepaymentDate, theBorrowershall foreverforfeit itsright to prepay the Notepursuantto thisSection 1.9.
Notwithstandinganytothecontrarystatedelsewhereherein, atanytimeduringtheperiodbeginningonthedatethatisonehundredfifty-one(151)dayfromtheIssueDateandendingone hundred eighty(180)days following theIssueDate, theBorrower shallhavetheright, exercisableonnotlessthan three(3)TradingDays priorwrittennoticetotheHolderoftheNote to prepaythe outstandingNote(principal andaccrued interest), infull, inaccordancewith thisSection1.9.Any OptionalPrepayment NoticeshallbedeliveredtotheHolderoftheNote at itsregisteredaddresses andshallstate:(1) that theBorrower isexercising itsright to prepaythe
Note, and(2)thedateofprepaymentwhichshallbenotmore thanthree(3)TradingDays fromthedateoftheOptionalPrepaymentNotice. OntheOptional PrepaymentDate,theBorrowershallmake payment oftheSixthOptional PrepaymentAmount(asdefined below) to or upon theorderoftheHolderasspecifiedby theHolderinwriting to theBorrower atleast one(1) business dayprior to the OptionalPrepayment Date.If theBorrowerexercisesitsright to prepay theNote, theBorrowershallmake payment to the Holder ofanamountin cash(the “SixthOptionalPrepaymentAmount”)equalto135%,multiplied by the sum of: (w) thethen outstandingprincipalamount of thisNoteplus(x)accruedand unpaidintereston theunpaidprincipalamountof thisNote totheOptional PrepaymentDateplus(y)Default Interest, ifany, on theamountsreferredtoinclauses(w)and(x)plus(z)anyamountsowedtotheHolderpursuanttoSections1.3and1.4(g) hereof. IftheBorrower deliversanOptionalPrepaymentNotice and fails to pay the SixthOptional PrepaymentAmount due to theHolderof theNotewithintwo (2)businessdaysfollowingtheOptionalPrepaymentDate,theBorrowershallforever forfeit itsright to prepay theNotepursuant to thisSection1.9.
Aftertheexpirationofonehundredeighty(180)followingthedateoftheNote, theBorrowershallhavenoright of prepayment.
ARTICLEII.CERTAIN COVENANTS
2.1 DistributionsonCapitalStock.Solongas theBorrowershallhaveanyobligationunderthisNote,theBorrower shallnotwithouttheHolder’swrittenconsent (a)pay,declareorsetapartfor suchpayment,anydividendorotherdistribution(whetherincash,property orothersecurities) onsharesof capitalstockotherthandividendsonsharesofCommonStock solely in theform ofadditionalshares of CommonStockor(b) directly or indirectly orthroughany subsidiarymakeanyotherpayment ordistribution inrespect of itscapitalstock exceptfor distributionspursuant toanyshareholders’ rightsplan whichisapprovedbyamajority ofthe Borrower’sdisinterested directors.
2.2 RestrictiononStockRepurchases.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnotwithouttheHolder’swritten consentredeem,repurchaseorotherwiseacquire(whetherforcashorinexchange forpropertyorothersecurities orotherwise)inany onetransaction orseries of related transactionsanysharesofcapitalstock of the Borroweroranywarrants,rightsoroptions topurchaseoracquireany suchshares.
2.3 Borrowings.So longastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder’swrittenconsent, create,incur,assumeguarantee, endorse, contingentlyagree topurchaseorotherwise becomeliable upon theobligationofanyperson,firm,partnership,jointventureor corporation,exceptbytheendorsement ofnegotiableinstruments fordeposit or collection, orsufferto exist any liability forborrowedmoney, except(a) borrowingsinexistenceorcommittedonthedate hereofandofwhichtheBorrower hasinformedHolderinwritingpriortothedatehereof,(b)indebtednesstotrade creditors orfinancial institutionsincurredin theordinarycourse ofbusinessor(c)borrowings, the proceeds of whichshall be used to repay thisNote.
| 6 |
2.4 Saleof Assets.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder’swrittenconsent,sell,leaseorotherwisedisposeofanysignificantportionofitsassetsoutsidetheordinary courseofbusiness.Anyconsentto thedisposition of anyassetsmaybe conditioned on aspecifieduse of theproceeds of disposition.
2.5 Advancesand Loans.SolongastheBorrowershall haveanyobligationunderthisNote,theBorrowershallnot,withoutthe Holder’swrittenconsent,lendmoney,give creditormakeadvancestoanyperson,firm,jointventureorcorporation,including, withoutlimitation,officers,directors,employees,subsidiaries andaffiliates of theBorrower,exceptloans,creditsoradvances(a) inexistenceor committed on thedatehereofandwhich theBorrowerhasinformedHolder inwritingpriortothedate hereof,(b)made inthe ordinarycourseof businessor(c)not inexcess of$100,000.
ARTICLEIII.EVENTSOFDEFAULT
Ifanyofthefollowing events of default (each,an“Eventof Default”)shalloccur:
3.1 FailuretoPayPrincipalorInterest.TheBorrowerfailstopaytheprincipalhereoforinterestthereon whendueonthisNote,whetherat maturity,uponaccelerationorotherwise.
3.2 ConversionandtheShares.TheBorrowerfailstoissuesharesofCommonStocktotheHolder (orannouncesorthreatensinwritingthatitwillnothonoritsobligationtodoso) uponexercise by theHolder of theconversionrightsoftheHolder inaccordancewith thetermsof thisNote,fails totransferor cause itstransferagenttotransfer(issue) (electronically or incertificatedform)anycertificateforsharesof CommonStockissued to theHolder uponconversion of orotherwise pursuant to thisNoteasand when required by thisNote, theBorrower directs itstransferagent not totransferordelays, impairs,and/orhinders itstransfer agent intransferring(orissuing)(electronicallyor incertificated form) anycertificate forsharesof CommonStock to beissued to theHolderuponconversionof orotherwisepursuant to thisNoteasand when required by thisNote, orfailstoremove(ordirectsitstransfer agent not toremove orimpairs,delays,and/orhinders itstransferagentfromremoving)anyrestrictivelegend(or towithdraw any stoptransfer instructions inrespect thereof) on anycertificate for anysharesofCommonStockissuedtotheHolderuponconversionoforotherwisepursuanttothisNote asandwhen required by thisNote(or makes anywritten announcement,statement orthreatthat itdoes notintendtohonor theobligationsdescribedin this paragraph)andanysuchfailure shallcontinueuncured(oranywrittenannouncement,statementorthreat not to honor itsobligations shallnotberescindedinwriting)forthree(3)business daysaftertheHoldershallhavedelivereda NoticeofConversion. Itisanobligationof theBorrower toremain currentin itsobligations to itstransferagent. Itshallbeanevent ofdefaultof thisNote, if aconversion ofthisNoteisdelayed,hinderedorfrustrateddue to abalanceowedby theBorrower toitstransferagent. Ifatthe option of theHolder, theHolder advances anyfunds to theBorrower’s transferagent in order toprocessaconversion,suchadvancedfundsshall bepaid by theBorrowertotheHolder within fortyeight (48) hours of a demand from the Holder.
3.3 BreachofCovenants. TheBorrowerbreachesanymaterialcovenant orothermaterialtermorconditioncontainedinthisNoteandanycollateraldocumentsincludingbutnotlimitedtothePurchase Agreementandsuchbreachcontinuesforaperiodoften(10) daysafterwrittennotice thereof to theBorrower from the Holder.
3.4 Breachof Representationsand Warranties.AnyrepresentationorwarrantyoftheBorrowermadehereinorinanyagreement,statement orcertificategiveninwritingpursuantheretoorinconnectionherewith(including, withoutlimitation,thePurchaseAgreement),shall befalseor misleadingin anymaterialrespect whenmadeandthe breachofwhichhas (orwiththepassageoftime willhave)a materialadverseeffectontherights oftheHolder with respect to thisNote orthePurchaseAgreement.
3.5 ReceiverorTrustee.TheBorroweroranysubsidiaryoftheBorrowershallmakeanassignment forthebenefitofcreditors,orapplyfororconsenttotheappointmentofareceiver ortrusteeforitorforasubstantialpartofitspropertyorbusiness,orsuchareceiverortrustee shallotherwisebeappointed.
3.6 Judgments.Any moneyjudgment,writorsimilarprocess shallbeenteredorfiledagainsttheBorroweroranysubsidiaryoftheBorroweror anyofitspropertyorotherassets formorethan$50,000,andshallremainunvacated,unbondedorunstayedforaperiodoftwenty(20)days unlessotherwiseconsentedtobytheHolder,whichconsentwill not be unreasonablywithheld.
3.7 Bankruptcy.Bankruptcy, insolvency,reorganizationorliquidationproceedingsorotherproceedings,voluntaryorinvoluntary,for reliefunderanybankruptcylaworanylawforthereliefofdebtorsshallbeinstitutedbyoragainst theBorroweroranysubsidiary ofthe Borrower.
3.8 Delistingof CommonStock.TheBorrower shallfail to maintain thelistingoftheCommonStockonatleastoneoftheOTCBBoran equivalentreplacementexchange,theNasdaqNational Market,theNasdaqSmallCap Market,theNewYorkStock Exchange,ortheAmericanStockExchange.
3.9 Failureto ComplywiththeExchangeAct.TheBorrowershallfailtocomplywiththereportingrequirementsoftheExchangeAct; and/ortheBorrower shallceasetobesubjectto the reportingrequirementsofthe ExchangeAct.
3.10 Liquidation.Any dissolution,liquidation,orwindingupofBorroweroranysubstantial portion ofitsbusiness.
3.11 Cessation of Operations.AnycessationofoperationsbyBorrowerorBorrower admitsitisotherwisegenerallyunabletopayitsdebtsas suchdebts becomedue,provided, however,thatanydisclosureoftheBorrower’sabilityto continueas a“goingconcern” shall not be anadmissionthatthe Borrowercannotpayitsdebtsastheybecome due.
| 7 |
3.12 Maintenanceof Assets. ThefailurebyBorrowertomaintainanymaterialintellectualpropertyrights, personal,real propertyorotherassets whicharenecessarytoconduct itsbusiness(whethernoworin thefuture).
3.13 FinancialStatement Restatement.Therestatementofanyfinancial statementsfiledby theBorrower withtheSECforany dateorperiodfromtwoyears priortotheIssueDateofthisNote anduntilthisNoteisnolongeroutstanding, iftheresultofsuchrestatementwould,bycomparisontotheunrestatedfinancialstatement, haveconstitutedamaterialadverseeffecton therights of theHolderwith respect to thisNote orthePurchase Agreement.
3.14 ReverseSplits.The BorrowereffectuatesareversesplitofitsCommonStock withouttwenty(20) days prior writtennoticeto the Holder.
3.15 Replacementof TransferAgent.In theeventthatthe Borrower proposes toreplaceitstransferagent,theBorrower failstoprovide, priortotheeffectivedateofsuchreplacement,afullyexecutedIrrevocableTransferAgentInstructionsinaform asinitiallydelivered pursuant to thePurchaseAgreement (including but notlimited to theprovision toirrevocably reserveshares of CommonStock intheReserved Amount)signedby thesuccessor transferagent toBorrower and theBorrower.
3.16 Cross-Default.Notwithstanding anythingto thecontrarycontainedinthisNoteortheother relatedorcompaniondocuments,abreachordefaultbytheBorrowerofanycovenantorothertermorcondition containedin anyoftheOtherAgreements, after thepassage of allapplicablenoticeandcureorgraceperiods,shall,at theoption oftheHolder,beconsidered adefaultunder thisNoteand the Other Agreements, inwhicheventtheHolder shall beentitled(but in noevent required) to applyall rightsandremediesof the Holder under the terms of thisNoteandtheOtherAgreementsbyreasonofadefaultundersaidOtherAgreementorhereunder. “OtherAgreements” means, collectively,allagreements andinstrumentsbetween, among orby:(1) theBorrower, and, orfor thebenefitof, (2)theHolderandanyaffiliateof theHolder,including,without limitation,promissorynotes; provided,however, the term“OtherAgreements”shall not include therelated or companiondocuments to thisNote. Each of theloantransactions will becross-defaultedwitheachotherloantransactionandwithall other existingandfuture debtof Borrowerto the Holder.
UpontheoccurrenceandduringthecontinuationofanyEventofDefaultspecifiedinSection3.1(solelywith respecttofailuretopaytheprincipalhereoforinterestthereonwhendueattheMaturityDate),theNoteshall becomeimmediatelydueandpayableandtheBorrowershallpay totheHolder,infullsatisfactionofitsobligationshereunder,anamountequaltotheDefault Sum(asdefinedherein).UPONTHEOCCURRENCEAND DURING THECONTINUATION OFANYEVENT OFDEFAULTSPECIFIEDINSECTION3.2,THE NOTESHALLBECOMEIMMEDIATELYDUEAND PAYABLE ANDTHEBORROWER SHALL PAYTO THEHOLDER,INFULLSATISFACTION OF ITSOBLIGATIONS HEREUNDER,ANAMOUNT EQUALTO: (Y) THEDEFAULTSUM(AS DEFINED HEREIN);MULTIPLIEDBY(Z)TWO(2).Upontheoccurrenceand during thecontinuationofanyEvent ofDefaultspecifiedinSections 3.1 (solelywithrespect to failure topay theprincipal hereof orinterest thereonwhen due on this Note upon aTradingMarket Prepayment EventpursuanttoSection1.7oruponacceleration),3.3, 3.4,3.6,3.8, 3.9,3.11, 3.12,3.13,3.14,and/or3.15exercisable throughthedelivery ofwritten notice totheBorrowerbysuchHolders(the “DefaultNotice”),and upon theoccurrence ofanEvent of Defaultspecifiedtheremaining sections ofArticlesIII(other thanfailure topay theprincipalhereof orinterestthereonat the MaturityDatespecifiedinSection3,1hereof), theNoteshallbecome immediatelydueandpayable andtheBorrower shallpaytotheHolder, infullsatisfactionofitsobligationshereunder, anamountequaltothegreater of(i) 150%timesthesumof(w) the thenoutstandingprincipal amount of thisNoteplus(x)accrued andunpaidinterest on theunpaid principalamount of thisNotetothedateofpayment(the“MandatoryPrepaymentDate”)plus(y)DefaultInterest,ifany, on theamounts referredto inclauses(w) and/or(x)plus(z)anyamounts owed to theHolderpursuant toSections 1.3and1.4(g)hereof(thethen outstandingprincipalamount of thisNotetothedateofpaymentplustheamountsreferred to inclauses (x),(y) and (z)shall collectively beknown as the“DefaultSum”) or(ii) the“parity value” of theDefault Sum to beprepaid,whereparityvaluemeans (a) thehighest numberofshares of CommonStock issuable uponconversion of orotherwise pursuant tosuch Default Sum inaccordance withArticle I,treating the TradingDay immediately preceding the MandatoryPrepayment Dateas the“Conversion Date”forpurposes ofdeterminingthelowestapplicable ConversionPrice,unless theDefault Eventarisesasaresultof abreachinrespectof aspecific ConversionDate inwhichcase suchConversionDateshall be the ConversionDate),multipliedby(b)thehighest ClosingPricefor the CommonStockduringtheperiodbeginningonthedate offirst occurrenceoftheEventofDefaultandending onedayprior to the MandatoryPrepaymentDate(the“Default Amount”)andallother amountspayable hereundershallimmediately become dueandpayable, allwithoutdemand,presentment ornotice,allof which hereby are expresslywaived,together withallcosts, including,without limitation,legalfeesand expenses, ofcollection, and theHolder shall beentitledto exercise allother rightsandremedies available atlawor inequity.
IftheBorrower failstopaytheDefaultAmountwithin five(5)businessdaysofwritten noticethatsuchamountisdueand payable,thentheHoldershallhavetherightatanytime,solongastheBorrowerremainsindefault(andso longandtotheextentthat therearesufficient authorizedshares),torequiretheBorrower,uponwrittennotice,toimmediatelyissue,inlieuof theDefaultAmount, thenumberofsharesof CommonStockof theBorrowerequal tothe DefaultAmountdividedbytheConversionPricethen ineffect.
ARTICLEIV.MISCELLANEOUS
4.1 FailureorIndulgenceNot Waiver.No failureordelayonthepartoftheHolderintheexerciseofanypower, rightorprivilegehereundershalloperateasawaiverthereof,norshallanysingle orpartialexercise ofanysuchpower,right or privilege precludeother orfurtherexercisethereof or ofanyotherright, power orprivileges. Allrightsandremediesexistinghereunderarecumulativeto,andnotexclusiveof,anyrightsorremediesotherwise available.
4.2 Notices.All notices,demands,requests,consents,approvals,andothercommunicationsrequiredorpermittedhereunder shallbeinwritingand, unlessotherwisespecifiedherein,shallbe (i)personallyserved,(ii)depositedinthemail,registeredorcertified, return receiptrequested,postageprepaid,(iii)deliveredbyreputable aircourierservice withchargesprepaid,or(iv)transmittedbyhanddelivery, telegram,or facsimile,addressedas setforthbelowortosuchotheraddressassuchparty shallhavespecifiedmostrecentlybywrittennotice.Anynotice orothercommunication requiredorpermittedtobegivenhereundershallbedeemedeffective(a) uponhanddeliveryordelivery byfacsimile,with accurateconfirmationgeneratedbythe transmittingfacsimilemachine, attheaddressor numberdesignatedbelow(if delivered on a businessday duringnormal businesshourswhere such noticeis to bereceived),or thefirstbusinessdayfollowingsuchdelivery(ifdeliveredotherthanonabusinessdayduringnormalbusinesshours wheresuch notice is to bereceived)or(b) on thesecondbusinessdayfollowingthedate ofmailingbyexpresscourier service, fully prepaid,addressed tosuch address,or uponactual receipt ofsuchmailing, whichevershallfirstoccur. Theaddressesforsuch communicationsshallbe:
| 8 |
Ifto the Borrower, to:
CO-SIGNER,INC.
8275 SouthEasternAvenue-Suite 200-661
LasVegas,NV89123
Attn: KURTISA. KRAMARENKO,ChiefExecutiveOfficer
facsimile:
With acopybyfaxonlyto(whichcopyshall notconstitute notice):
[enter name oflawfirm]
Attn: [attorneyname]
[enter addressline1]
[enter city, state,zip]
facsimile: [enter faxnumber]
Ifto the Holder:
KBM WORLDWIDE,INC.
80Cuttermill Road –Suite410
Great Neck,NY11021
Attn: SethKramer, President
e-mail:info@kbmworldwide.com
With acopybyfaxonlyto(whichcopyshall notconstitute notice):
NaidichWurman Birnbaum &Maday,LLP
Attn: Bernard S.Feldman,Esq.
facsimile:516-466-3555
e-mail: dyork@nwbmlaw.com
4.3 Amendments.This Noteandanyprovisionhereofmayonlybeamendedbyan instrumentinwritingsignedbytheBorrowerandtheHolder. Theterm “Note”andallreferencethereto, asusedthroughoutthisinstrument,shallmeanthisinstrument(andtheotherNotesissuedpursuanttothePurchaseAgreement) asoriginallyexecuted,or iflateramendedorsupplemented, thenas soamended or supplemented.
4.4 Assignability.ThisNoteshallbebindingupontheBorroweranditssuccessorsand assigns,andshallinuretobethebenefitoftheHolderanditssuccessorsand assigns.Eachtransfereeof thisNotemustbean “accreditedinvestor” (asdefinedin Rule501(a) of the 1933Act).NotwithstandinganythinginthisNotetothe contrary,thisNote may bepledgedas collateral inconnectionwith abonafidemarginaccount orotherlendingarrangement
4.5 Cost ofCollection.Ifdefaultismadein thepayment ofthisNote,theBorrowershallpaytheHolder hereof costs ofcollection,includingreasonable attorneys’ fees.
4.6 GoverningLaw.ThisNoteshallbegovernedbyand construedinaccordance withthelawsoftheStateofNewYorkwithoutregardtoprinciplesofconflictsoflaws.Anyactionbroughtbyeitherpartyagainst theotherconcerningthetransactionscontemplatedbythisNoteshallbebroughtonlyinthestate courtsofNewYorkorinthefederalcourtslocatedinthestate and countyofNassau.The parties tothisNoteherebyirrevocablywaive anyobjectiontojurisdictionand venue of any actioninstitutedhereunder andshall notassert any defense based onlackofjurisdictionorvenueorbaseduponforumnonconveniens.TheBorrowerandHolder waivetrialbyjury.Theprevailing partyshall beentitled torecover from theotherparty itsreasonableattorney's feesandcosts. In the eventthatany provision of thisNote or anyother agreementdeliveredinconnectionherewithisinvalidorunenforceable under anyapplicablestatute orrule of law, thensuch provisionshall bedeemedinoperativeto the extentthat it mayconflict therewithand shall bedeemed modified toconformwithsuch statute orrule oflaw. Anysuchprovisionwhichmay prove invalidorunenforceableunderanylawshallnotaffect the validity orenforceabilityof anyother provision of anyagreement. Each partyherebyirrevocablywaives personalservice ofprocessandconsents toprocess beingserved in anysuit,actionorproceeding inconnectionwiththisAgreement or any otherTransaction Document bymailing a copy thereof viaregistered orcertifiedmailorovernight delivery(withevidenceofdelivery) tosuchpartyat theaddressineffectfornoticestoitunderthisAgreementand agreesthatsuchservice shallconstitutegoodand sufficientservice of processandnoticethereof.Nothing contained hereinshall bedeemed tolimit in anyway anyrighttoserveprocess in anyother manner permitted bylaw.
| 9 |
\
4.7 CertainAmounts. WheneverpursuanttothisNotetheBorrowerisrequiredtopayanamountinexcessoftheoutstanding principalamount(ortheportionthereof requiredtobe paidatthattime) plusaccruedandunpaid interestplusDefault Interestonsuch interest,theBorrower andthe Holderagreethat theactualdamages tothe Holderfromthereceipt ofcashpayment on thisNotemay bedifficult todetermineand theamount to be sopaidby theBorrowerrepresents stipulateddamagesand not a penaltyand isintended tocompensatetheHolder inpartfor lossof the opportunity toconvertthisNoteandtoearnareturnfromthesale ofshares of CommonStockacquired uponconversionof this Noteat aprice inexcess ofthepricepaid forsuch sharespursuant to thisNote.The Borrowerand the Holder herebyagree thatsuchamount ofstipulated damages is not plainlydisproportionate to the possible loss to theHolder from thereceiptof acash payment without the opportunity toconvert thisNoteintoshares ofCommonStock.
4.8 PurchaseAgreement.ByitsacceptanceofthisNote,eachpartyagreestobeboundbytheapplicabletermsofthePurchase Agreement.
4.9 NoticeofCorporateEvents.Exceptas otherwiseprovidedbelow,theHolderofthisNoteshallhavenorightsasaHolderofCommonStockunless andonly totheextentthatitconvertsthisNoteintoCommonStock.The BorrowershallprovidetheHolderwith priornotification of any meetingof theBorrower’sshareholders(and copies of proxymaterialsand other information sent toshareholders). In the event ofanytakingby theBorrower of arecordof itsshareholdersfor thepurposeof determiningshareholderswho areentitled toreceivepaymentofanydividendorotherdistribution,any right tosubscribefor,purchaseorotherwiseacquire (including by wayof merger,consolidation, reclassification orrecapitalization) any share ofanyclass or any othersecurities orproperty,ortoreceive any otherright, orforthepurposeofdetermining shareholders who are entitled to vote inconnection with anyproposed sale, leaseor conveyance of all or substantially all of the assets ofthe Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrowershall mail a noticeto the Holder, at least twenty(20) days prior tothe record date specified therein(or thirty(30)days prior to the consummation of the transaction or event, whicheveris earlier), of the date on which anysuch recordisto betaken for the purpose ofsuch dividend, distribution, right or other event, anda brief statement regarding the amount and character of suchdividend, distribution, right or other event to theextent known atsuchtime. The Borrower shall make a public announcement of any eventrequiring notificationto the Holder hereunder substantially simulta11eously with the notification to theHolder in accordancewiththeterms of thisSection 4.9.
4.10 Remedies.The Borroweracknowledgesthatabreachbyitofitsobligations hereunderwillcauseirreparableharmto the Holder, byvitiating theintent and purpose of the transaction contemplated hereby.Accordingly, the Borrower acknowledges that theremedy at law for abreachof its obligations under this Notewill beinadequate and agrees, in the event ofa breachor threatened breach by the Borrower of the provisions of this Note, that the Holder shall beentitled,in addition to all other available remediesat law orin equity, and in addition tothe penaltiesassessable herein, toan injunction orinjunctions restraining, preventing orcuring any breachof thisNoteand toenforcespecifically the terms and provisions thereof, without thenecessity ofshowingeconomic loss and withoutany bond or other securitybeing required.
IN WITNESS WHEREOF,BorrowerhascausedthisNotetobesignedinits namebyits dulyauthorizedofficerthisJune5,2014.
CO-SIGNER, INC.
/s/ Kurtis A. Kramarenko
By: KURTIS A.KRAMARENKO
Chief Executive Officer
| 10 |
EXHIBITANOTICEOF CONVERSION
Theundersignedherebyelectstoconvert$principalamountoftheNote(defined below)intothatnumberofsharesofCommonStocktobeissuedpursuanttotheconversionoftheNote(“CommonStock”)assetforthbelow,ofCO-SIGNER, INC.,aNevada corporation(the“Borrower”)accordingtotheconditionsoftheconvertiblenoteoftheBorrower datedas ofJune 5, 2014(the“Note”),as ofthedatewritten below.No fee will becharged to theHolderfor anyconversion, exceptfortransfer taxes, ifany.
Box Checked astoapplicable instructions:
[ ]TheBorrower shallelectronicallytransmittheCommonStockissuablepursuanttothisNoticeofConversiontotheaccountoftheundersignedoritsnomineewithDTCthroughitsDeposit WithdrawalAgentCommission system(“DWAC Transfer”).
Nameof DTCPrimeBroker:Account Number:
[]Theundersigned herebyrequests thattheBorrower issueacertificateorcertificates forthenumberofsharesofCommonStocksetforthbelow(which numbersarebasedontheHolder’s calculationattachedhereto) inthe name(s)specifiedimmediatelybelowor,ifadditionalspaceisnecessary,onanattachmenthereto:
KBM WORLDWIDE,INC.
80Cuttermill Road –Suite410GreatNeck, NY11021Attention: CertificateDelivery
e-mail: info@kbmworldwide.com
DateofConversion:
Applicable ConversionPrice:$
NumberofSharesof Common Stockto beIssued
PursuanttoConversionoftheNotes:
AmountofPrincipalBalanceDueremaining
UndertheNoteafterthis conversion:
KBMWORLDWIDE,INC.
By:
Name:SethKramer
Title: President
Date:
| 11 |