NEITHER THEISSUANCEANDSALEOFTHESECURITIES REPRESENTEDBYTHISCERTIFICATENORTHESECURITIESINTOWHICH THESESECURITIESARECONVERTIBLE HAVEBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED,ORAPPLICABLESTATESECURITIES LAWS.THESECURITIES MAYNOT BEOFFEREDFOR SALE,SOLD,TRANSFERRED ORASSIGNED(I) IN THEABSENCEOF(A)ANEFFECTIVE REGISTRATIONSTATEMENTFOR THESECURITIESUNDER THESECURITIES ACT OF1933,ASAMENDED,OR(B)ANOPINIONOFCOUNSEL(WHICHCOUNSEL SHALLBESELECTEDBYTHEHOLDER),INAGENERALLY ACCEPTABLEFORM,THATREGISTRATION ISNOT REQUIREDUNDERSAIDACTOR(II)UNLESS SOLDPURSUANTTORULE144ORRULE144AUNDERSAIDACT. NOTWITHSTANDING THEFOREGOING, THESECURITIESMAY BEPLEDGED INCONNECTIONWITHABONA FIDEMARGINACCOUNTOROTHERLOANORFINANCINGARRANGEMENTSECUREDBYTHESECURITIES.
Principal Amount:$37,500.00 Issue Date: March 11, 2014PurchasePrice:$37,500.00
CONVERTIBLE PROMISSORYNOTE
FOR VALUERECEIVED,RICH PHARMACEUTICALS,INC.,aNevada
corporation (hereinaftercalledthe“Borrower”),herebypromisestopaytotheorderofASHERENTERPRISES,INC.,aDelawarecorporation,orregisteredassigns (the“Holder”)thesumof
$37,500.00togetherwithanyinterestasset forthherein,onDecember13,2014(the “MaturityDate”),andtopayinterestontheunpaidprincipalbalancehereofattherateofeightpercent(8%)(the“InterestRate”)perannumfromthedatehereof (the“IssueDate”)untilthesame becomes dueand payable,whetherat maturity or uponacceleration orbyprepayment orotherwise. ThisNotemaynotbeprepaidinwholeorinpartexcept asotherwiseexplicitly setforthherein.Anyamountofprincipal orintereston thisNotewhich is notpaid when dueshallbear interestat therateof twentytwopercent(22%)perannum from theduedatethereofuntil thesame ispaid (“DefaultInterest”).Interest shallcommenceaccruing on thedatethat theNote is fullypaidand shall becomputed on thebasis of a 365-day yearand theactualnumberofdayselapsed.All payments due hereunder(to the extent notconvertedinto commonstock, $0.10 parvaluepershare(the“CommonStock”)inaccordance withthetermshereof)shall bemade inlawfulmoneyoftheUnitedStatesofAmerica.Allpayments shallbemade atsuchaddressastheHolder shall hereaftergive to theBorrowerbywrittennotice made inaccordance with theprovisions of thisNote.Wheneveranyamountexpressed to be dueby theterms of thisNote is dueonany daywhich is not abusiness day, thesameshall instead be due on thenextsucceedingday which is abusiness dayand,in thecaseof anyinterestpaymentdatewhich is not thedateonwhich thisNoteispaidinfull,theextension of the duedatethereofshall not betakenintoaccount for purposes ofdeterminingtheamount ofinterest due onsuchdate. As used in thisNote,the term“businessday”shallmeanany day otherthanaSaturday,Sunday oraday onwhichcommercialbanksinthe city of New York,NewYorkare authorizedorrequiredby law orexecutiveorder toremainclosed.Each capitalizedtermusedherein, and nototherwise
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defined, shallhave themeaningascribedtheretointhatcertainSecurities PurchaseAgreementdatedthedatehereof,pursuanttowhichthisNotewasoriginallyissued(the “PurchaseAgreement”).
This Noteisfreefrom alltaxes,liens, claimsandencumbranceswith respecttotheissuethereof andshallnotbesubjecttopreemptiverightsorother similarrightsofshareholdersoftheBorrower andwill not impose personal liabilityupon the holder thereof.
The followingterms shall apply to thisNote:
ARTICLEI.CONVERSION RIGHTS
1.1 ConversionRight. TheHoldershallhavetherightfromtimetotime,andatanytimeduringtheperiodbeginningonthedate whichisonehundredeighty(180)days followingthedateofthisNote andendingonthelater of:(i)theMaturityDateand(ii)thedate ofpaymentof the DefaultAmount(asdefinedinArticle III)pursuant toSection 1.6(a)orArticle III,each inrespect of theremainingoutstandingprincipalamount of thisNotetoconvert all or any part of theoutstandingandunpaidprincipalamount of thisNoteinto fullypaid and non-assessableshares of CommonStock,assuch CommonStockexists ontheIssueDate, or anysharesofcapitalstockorothersecuritiesoftheBorrowerintowhichsuchCommonStockshall hereafter bechanged orreclassified at the conversionprice(the“ConversionPrice”)determined asprovidedherein(a “Conversion”);provided,however, that in no eventshall theHolder beentitled toconvertany portion of thisNote in excess ofthatportionof thisNote uponconversion ofwhich the sum of (1) the number ofsharesof CommonStockbeneficiallyowned by theHolderanditsaffiliates(otherthan shares of CommonStockwhich may bedeemed beneficiallyownedthroughthe ownership of the unconvertedportion of theNotesor theunexercised orunconvertedportion of anyothersecurityof theBorrower subject to alimitation onconversionorexerciseanalogous to thelimitations containedherein)and (2)thenumberofshares of CommonStock issuable upon theconversion of theportionof thisNotewithrespectto which thedetermination ofthisproviso isbeing made,would result inbeneficialownership by theHolderand itsaffiliatesofmorethan 4.99% of theoutstanding sharesof CommonStock.Forpurposesof the proviso to theimmediately preceding sentence,beneficial ownershipshall bedeterminedinaccordancewith Section13(d) of theSecurities Exchange Act of 1934,asamended (the“ExchangeAct”),andRegulations13D-Gthereunder,except asotherwiseprovidedinclause (1) ofsuchproviso,provided,further,however,thatthelimitations onconversionmay bewaivedby theHolderupon,attheelectionof theHolder,notlessthan61days’priornoticeto theBorrower,and the provisions of theconversionlimitationshall continue to apply untilsuch 61st day(or such laterdate,asdeterminedby theHolder,as may bespecifiedinsuchnotice ofwaiver). The number of shares of CommonStock to beissueduponeachconversionof thisNoteshall bedeterminedby dividing theConversionAmount(asdefinedbelow)by theapplicableConversionPricethenineffectonthedatespecifiedinthenotice ofconversion,in theformattached heretoas Exhibit A(the“NoticeofConversion”), delivered to theBorrower by the Holder inaccordance withSection 1.4below; providedthat theNotice ofConversionissubmitted byfacsimile ore-mail(or byothermeans resulting in, or reasonablyexpected toresult in,notice)to theBorrowerbefore 6:00 p.m.,NewYork,New York time onsuchconversiondate (the“ConversionDate”). Theterm “ConversionAmount” means,withrespecttoanyconversionof thisNote,the sumof(1) theprincipalamountof thisNotetobe
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convertedinsuchconversionplus(2) attheHolder’soption,accruedandunpaid interest,ifany,onsuchprincipalamountattheinterestratesprovidedinthisNotetotheConversionDate,plus
(3) attheHolder’soption,DefaultInterest,ifany,ontheamountsreferredtointheimmediately precedingclauses(1)and/or(2)plus(4)attheHolder’soption,anyamountsowedtotheHolderpursuant toSections 1.3and 1.4(g) hereof.
| 1.2 | Conversion Price. |
(a) Calculationof ConversionPrice. Theconversionprice(the “ConversionPrice”)shallequaltheVariableConversionPrice(asdefinedherein)(subjecttoequitableadjustmentsforstocksplits,stockdividendsorrightsofferings bytheBorrowerrelatingto theBorrower’s securities or thesecurities ofany subsidiary of theBorrower,combinations,recapitalization,reclassifications,extraordinarydistributionsand similarevents).The"VariableConversionPrice"shallmean58%multipliedby theMarketPrice(asdefinedherein)(representing adiscountrateof42%).“Market Price”meanstheaverageofthelowest three(3)TradingPrices(asdefinedbelow)fortheCommonStockduringtheten (10)Trading Dayperiodending onthelatestcomplete Trading Day priortotheConversionDate.“TradingPrice”means,forany securityasofanydate,theclosingbidpriceon theOver-the-CounterBulletinBoard,orapplicable tradingmarket(the“OTCBB”) asreportedby areliable reportingservice(“ReportingService”)designatedby theHolder (i.e.Bloomberg)or, if theOTCBBis nottheprincipal tradingmarketfor suchsecurity, theclosingbid priceofsuch security on theprincipalsecurities exchangeor tradingmarketwhere such security is listed ortraded or, ifnoclosingbidpriceofsuchsecurity isavailableinanyof theforegoingmanners, theaverageof theclosingbidpricesofanymarket makersforsuch security that arelistedin the“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 theConversionPriceofsuchNotes.“Trading Day”shallmeanany dayonwhichtheCommonStockistradableforanyperiodontheOTCBB, or ontheprincipalsecuritiesexchange or othersecuritiesmarket onwhich theCommonStock isthenbeing traded.
(b) ConversionPriceDuringMajorAnnouncements.Notwithstanding anythingcontainedinSection1.2(a)tothecontrary,intheeventtheBorrower(i)makesapublicannouncement thatitintendstoconsolidateormergewithanyothercorporation (otherthanamerger inwhich theBorroweris thesurviving orcontinuing corporationand itscapitalstockisunchanged) orsell ortransfer all orsubstantiallyall of theassets of theBorrower 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“Announcement Date”),then the ConversionPrice shall,effective upon theAnnouncement DateandcontinuingthroughtheAdjusted ConversionPrice TerminationDate(asdefined below), beequal to thelowerof (x)theConversionPrice whichwould havebeenapplicablefor aConversionoccurring ontheAnnouncement Dateand(y)theConversionPricethat wouldotherwisebeineffect. FromandaftertheAdjustedConversionPriceTerminationDate,theConversion Priceshall bedeterminedasset forthinthisSection1.2(a). Forpurposeshereof, “AdjustedConversionPriceTerminationDate”shallmean,withrespectto any proposed transaction ortenderoffer(or
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takeoverscheme)forwhichapublicannouncementascontemplatedbythisSection1.2(b)has beenmade,thedateuponwhichtheBorrower(inthecaseofclause(i)above)ortheperson, grouporentity(inthecaseofclause(ii)above)consummatesorpubliclyannouncestheterminationorabandonment of theproposedtransaction or tender offer(ortakeoverscheme)whichcaused this Section1.2(b)tobecomeoperative.
1.3 AuthorizedShares.TheBorrowercovenantsthatduringtheperiodtheconversionrightexists,theBorrowerwillreserve fromitsauthorizedandunissuedCommonStockasufficientnumberofshares,free frompreemptiverights,toprovidefortheissuanceofCommonStock upon the fullconversion ofthis Note issuedpursuant to thePurchase Agreement.TheBorrowerisrequiredat all times tohaveauthorizedandreservedfivetimes the numberofsharesthat is actuallyissuableuponfull conversion of theNote(based ontheConversion Price of theNotes ineffect from time totime)(the“ReservedAmount”). TheReservedAmount shall beincreasedfrom timeto time inaccordance with theBorrower’sobligationshereunder.TheBorrowerrepresentsthatuponissuance, suchshareswillbedulyandvalidlyissued, fullypaidandnon-assessable.Inaddition, iftheBorrowershall issue anysecurities ormakeany changeto itscapital structurewhichwouldchangethenumber ofshares of CommonStock intowhich theNotes shallbeconvertibleatthethencurrentConversionPrice,theBorrowershall atthesametimemakeproperprovisionsothatthereafterthereshallbeasufficientnumberofsharesofCommonStock authorizedandreserved,freefrompreemptiverights, forconversionof theoutstandingNotes.The Borrower(i)acknowledgesthatithas irrevocablyinstructed itstransferagenttoissuecertificates fortheCommonStockissuableuponconversionofthisNote,and
(ii) agreesthatitsissuanceofthisNote shallconstitutefullauthoritytoitsofficers andagentswhoare chargedwiththedutyofexecutingstockcertificatestoexecuteandissuethenecessarycertificates forsharesof CommonStockinaccordancewiththetermsandconditionsofthisNote.
If, atanytimetheBorrower doesnotmaintaintheReserved Amountitwillbeconsideredan Event of DefaultunderSection 3.2 ofthe Note.
| 1.4 | Methodof Conversion. |
(a) Mechanicsof Conversion.SubjecttoSection1.1,thisNotemaybeconverted bytheHolderinwholeorinpart atany timefromtimetotimeaftertheIssueDate, by
(A) submittingtotheBorroweraNoticeofConversion(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,suchrecords oftheBorrower shall,primafacie,becontrollingand determinative in
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theabsenceofmanifesterror. Notwithstandingtheforegoing,ifanyportionofthisNoteisconvertedas aforesaid,theHoldermaynottransferthisNoteunlesstheHolderfirstphysicallysurrendersthisNotetotheBorrower, whereupontheBorrower willforthwithissueanddeliverupon theorderoftheHolderanewNoteofliketenor,registered astheHolder(uponpaymentbytheHolderofanyapplicable transfer taxes) mayrequest, representing in theaggregate theremaining unpaidprincipalamount of thisNote.TheHolderandanyassignee,byacceptance of thisNote,acknowledge andagreethat, by reason of theprovisions of thisparagraph, followingconversionof aportionof thisNote,the unpaidandunconverted principalamount ofthisNote represented by thisNotemaybelessthan theamountstated on the face hereof.
(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 suchtax or shallhave established to the satisfaction oftheBorrowerthatsuch taxhas beenpaid.
(d) DeliveryofCommonStockUponConversion. UponreceiptbytheBorrowerfromtheHolderofafacsimiletransmissionore-mail (orotherreasonablemeansofcommunication)ofaNoticeofConversionmeeting therequirementsforconversion asprovided in thisSection1.4, theBorrowershall issueand deliver orcausetobe issuedanddeliveredto or upon theorderof the Holdercertificates for the CommonStockissuableuponsuchconversionwithin three(3) businessdaysafter such receipt(the“Deadline”) (and, solely in thecase ofconversionoftheentire unpaidprincipalamount hereof,surrenderofthisNote)in accordancewith the termshereof andthe Purchase Agreement.
(e) ObligationofBorrowertoDeliverCommonStock. UponreceiptbytheBorrowerofaNoticeofConversion,theHoldershallbedeemedtobetheholderofrecordoftheCommonStockissuableuponsuchconversion,theoutstandingprincipalamountandtheamount ofaccruedandunpaidinterest on thisNoteshall bereduced toreflect suchconversion,and,unlesstheBorrowerdefaults on itsobligationsunderthisArticleI,allrightswith respect to theportion of thisNote being soconverted shallforthwithterminate except theright 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 againstany personor any action toenforce the same,anyfailureor delay in theenforcement of any 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.
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(f) DeliveryofCommonStockbyElectronic Transfer.Inlieuofdeliveringphysical certificatesrepresentingtheCommonStock issuableuponconversion, providedtheBorrower isparticipatinginthe Depository Trust Company(“DTC”) FastAutomatedSecurities Transfer(“FAST”)program,uponrequestof theHolderanditscompliancewith the provisionscontained in Section 1.1and in this Section 1.4, theBorrowershall use itsbestefforts tocause itstransferagent toelectronically transmit theCommonStockissuableuponconversiontotheHolderbycrediting theaccount ofHolder’sPrimeBroker withDTCthrough itsDeposit WithdrawalAgent Commission(“DWAC”) system.
(g) FailuretoDeliverCommonStockPriortoDeadline.WithoutinanywaylimitingtheHolder’sright topursueotherremedies, includingactualdamages and/orequitablerelief,thepartiesagreethatifdeliveryoftheCommonStock issuableuponconversionof thisNote is notdelivered by theDeadline (otherthan afailuredue to thecircumstancesdescribedinSection 1.3above,whichfailure shall begovernedbysuchSection)theBorrowershallpayto the Holder $2,000per day in cash,for each daybeyondtheDeadlinethat theBorrowerfailstodeliver suchCommonStock. SuchcashamountshallbepaidtoHolderby thefifth day of the monthfollowingthe month inwhich ithasaccrued or,at the option of theHolder(bywrittennoticeto theBorrower bythefirstdayof the monthfollowing the month inwhich ithasaccrued),shallbe addedtotheprincipalamountofthisNote,inwhicheventinterestshallaccrue thereoninaccordance withthetermsof thisNoteand suchadditional principalamountshall beconvertibleinto CommonStock inaccordancewith theterms of thisNote. TheBorroweragreesthattheright toconvert is avaluable right to theHolder.The damagesresultingfromafailure,attempt tofrustrate, interferencewithsuchconversion rightaredifficult if not impossible toqualify.Accordinglythe partiesacknowledgethattheliquidateddamagesprovision contained in thisSection1.4(g)arejustified.
1.5 ConcerningtheShares.ThesharesofCommonStock issuableuponconversionofthisNotemaynotbesoldortransferred unless(i)suchsharesaresoldpursuanttoaneffectiveregistration statementundertheAct or(ii)theBorroweroritstransferagentshallhavebeenfurnishedwithanopinion ofcounsel(whichopinionshall be inform,substance andscope customaryforopinions ofcounsel incomparable transactions)to theeffectthat thesharestobesoldortransferredmay besoldortransferredpursuanttoanexemptionfromsuchregistrationor(iii) suchsharesaresoldortransferredpursuantto Rule 144under theAct(orasuccessorrule)(“Rule 144”)or(iv)such sharesaretransferredtoan“affiliate”(asdefinedin Rule 144) of theBorrowerwhoagreestosellorotherwise transfer thesharesonly inaccordancewith thisSection 1.5andwho isanAccredited Investor(asdefinedin thePurchase Agreement).Exceptasotherwise provided in thePurchaseAgreement(andsubject to theremoval provisionssetforth below),untilsuchtimeasthesharesofCommonStock issuableuponconversionofthisNotehave beenregisteredunder theActorotherwisemaybe sold pursuant to Rule 144without anyrestrictionas to thenumberofsecuritiesas of aparticular datethat canthen beimmediatelysold,eachcertificateforsharesofCommonStockissuableuponconversionofthisNotethathas notbeensoincluded inaneffective registrationstatement orthathas notbeen soldpursuanttoaneffective registrationstatementoranexemptionthatpermits removalof thelegend, shallbear a legend substantially in the followingform,as appropriate:
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“NEITHERTHEISSUANCE ANDSALEOFTHESECURITIESREPRESENTEDBYTHISCERTIFICATE NORTHESECURITIES INTOWHICHTHESESECURITIES AREEXERCISABLEHAVEBEENREGISTEREDUNDERTHESECURITIESACTOF1933,AS AMENDED,ORAPPLICABLE STATESECURITIESLAWS. THESECURITIES MAYNOTBEOFFEREDFORSALE,SOLD,TRANSFERREDORASSIGNED(I)INTHEABSENCEOF(A) ANEFFECTIVEREGISTRATION STATEMENT FOR THESECURITIESUNDER THESECURITIESACTOF 1933,ASAMENDED, OR(B)AN OPINIONOFCOUNSEL(WHICHCOUNSELSHALLBESELECTEDBYTHEHOLDER), IN AGENERALLYACCEPTABLE FORM,THATREGISTRATION ISNOT REQUIREDUNDERSAIDACTOR (II)UNLESSSOLDPURSUANTTORULE 144 ORRULE144AUNDERSAIDACT.NOTWITHSTANDING THEFOREGOING,THESECURITIESMAYBEPLEDGED INCONNECTION WITH A BONAFIDEMARGINACCOUNTOROTHERLOANORFINANCINGARRANGEMENTSECUREDBYTHESECURITIES.”
The legendsetforthaboveshallberemovedandtheBorrowershallissuetotheHolderanewcertificate thereforefreeofanytransferlegendif(i)theBorroweroritstransfer agentshallhavereceivedanopinionofcounsel,inform,substance andscopecustomaryfor opinions ofcounsel incomparable transactions, to theeffectthat a public sale ortransferofsuch CommonStock may bemade withoutregistrationundertheAct, which opinionshall be acceptedby theCompany sothatthesaleortransferiseffectedor(ii)inthecaseofthe CommonStock issuable uponconversion of thisNote,such security isregisteredforsaleby the Holder underan effectiveregistrationstatementfiledunder the Act orotherwisemaybe soldpursuantto Rule144withoutanyrestrictionas to thenumber ofsecuritiesas of a particulardate that canthen beimmediately sold. In theeventthat theCompany does notaccept the opinion ofcounsel provided by the Holderwithrespectto thetransfer ofSecurities pursuant toan exemptionfromregistration, suchas Rule 144 orRegulation S,at theDeadline, itwillbeconsideredanEventofDefaultpursuant toSection3.2 ofthe Note.
| 1.6 | EffectofCertain Events. |
(a) EffectofMerger,Consolidation,Etc. Atthe optionoftheHolder,thesale,conveyanceordispositionofallorsubstantiallyalloftheassetsoftheBorrower,theeffectuationby theBorrowerof atransactionorseries ofrelatedtransactions inwhichmorethan 50% of the votingpower of theBorrower is disposedof,or the consolidation,merger orotherbusinesscombinationof theBorrowerwith or into anyotherPerson(asdefined below) orPersonswhen theBorrower is 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,orothersimilar
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event, asa resultofwhichsharesofCommonStockoftheBorrowershallbechangedintothesameoradifferent numberofsharesofanotherclassorclassesofstockorsecuritiesoftheBorroweroranotherentity,orincaseofanysaleorconveyanceofallorsubstantiallyalloftheassets of theBorrower otherthan inconnectionwithaplan ofcompleteliquidationof theBorrower, then the Holder of thisNoteshallthereafterhave therighttoreceive uponconversion of thisNote, upon the basisand upon thetermsandconditionsspecifiedhereinandinlieu of theshares of CommonStock immediatelytheretoforeissuableupon conversion,suchstock,securitiesorassets which theHolderwouldhavebeenentitledtoreceive insuch transactionhad thisNote beenconverted infull immediately prior tosuchtransaction(withoutregardto anylimitationsonconversionsetforth herein),and in anysuchcaseappropriateprovisionsshallbemadewithrespectto therightsandinterestsof theHolder of this Note to theend that theprovisionshereof(including, withoutlimitation,provisionsforadjustment of theConversion Priceand of the number ofsharesissuable uponconversion of theNote) shallthereafter beapplicable,asnearlyasmay bepracticable inrelationto any securities orassetsthereafter deliverable upontheconversionhereof. TheBorrower shallnotaffectanytransactiondescribedinthisSection 1.6(b)unless(a)itfirstgives,totheextentpracticable, thirty(30)daysprior writtennotice(butinanyeventat leastfifteen (15)days priorwrittennotice)oftherecorddate of thespecial meeting ofshareholdersto approve, or if there is nosuchrecorddate, theconsummationof, suchmerger, consolidation,exchange ofshares, recapitalization,reorganization orothersimilarevent orsale ofassets(during which time theHolder shall beentitled toconvert thisNote)and(b)the resultingsuccessor oracquiringentity(if not theBorrower)assumes bywritteninstrumenttheobligations of thisSection1.6(b).Theaboveprovisionsshallsimilarlyapply tosuccessive consolidations,mergers,sales,transfers or shareexchanges.
(c) AdjustmentDuetoDistribution.IftheBorrowershall declareormakeanydistributionofitsassets (orrightstoacquireitsassets)toholdersofCommonStock asadividend, stockrepurchase,bywayofreturnofcapitalorotherwise(includinganydividendordistribution to theBorrower’s shareholders incash orshares (or rights toacquireshares) ofcapital stockof 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,orinaccordancewiththisSection1.6(d)hereofisdeemedtohaveissuedorsold,anysharesofCommonStockfornoconsiderationorforaconsideration per share (beforededuction ofreasonable expenses orcommissions orunderwriting discountsorallowancesinconnectiontherewith)lessthantheConversionPriceineffecton thedate ofsuchissuance (ordeemedissuance) ofsuch shares of CommonStock(a“Dilutive Issuance”),thenimmediatelyupontheDilutive Issuance,the ConversionPrice will bereduced to theamountoftheconsideration persharereceivedbytheBorrowerin suchDilutive Issuance.
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The BorrowershallbedeemedtohaveissuedorsoldsharesofCommonStockiftheBorrowerinanymannerissuesorgrantsanywarrants, rightsoroptions(notincluding employeestockoptionplans),whetherornotimmediatelyexercisable,tosubscribeforortopurchase CommonStockorothersecurities convertibleintoorexchangeableforCommonStock(“Convertible Securities”)(such warrants,rightsandoptionstopurchaseCommonStock orConvertible Securitiesarehereinafterreferredtoas“Options”)and theprice 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,receivedorreceivableby theBorroweras considerationfor the issuanceorgrantingofall suchOptions, plus theminimumaggregateamount ofadditional consideration, ifany,payable to theBorrowerupon the exercise ofallsuchOptions,plus, in thecaseofConvertible Securitiesissuable upon the exercise ofsuch Options, the minimumaggregateamountofadditionalconsiderationpayableupon theconversion orexchange thereofat the timesuchConvertible Securitiesfirst becomeconvertibleor 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 ConversionPriceshall beequal to suchprice pershare.For thepurposes of the precedingsentence,the“price per shareforwhich CommonStock isissuableuponsuchconversion orexchange”isdeterminedbydividing(i) thetotalamount,ifany,receivedorreceivableby theBorroweras considerationfor the issuance or sale ofall suchConvertibleSecurities, plus theminimumaggregateamountof additionalconsideration, ifany, payable to theBorrower upon theconversionorexchangethereof at the timesuchConvertible Securities firstbecomeconvertibleorexchangeable,by(ii)the maximumtotalnumber ofsharesof CommonStockissuable upon theconversionorexchangeofallsuchConvertibleSecurities.No furtheradjustmenttotheConversionPricewillbemadeupontheactualissuanceofsuchCommonStockuponconversion or exchangeofsuchConvertible Securities.
(e) PurchaseRights.If,atanytimewhenanyNotesareissuedand outstanding,theBorrower issuesanyconvertible securitiesorrightstopurchasestock,warrants, securitiesorotherproperty(the“PurchaseRights”) proratatotherecord holdersofanyclassofCommonStock,thenthe Holder of thisNotewillbeentitledtoacquire,uponthetermsapplicabletosuchPurchaseRights,theaggregatePurchase RightswhichsuchHolder couldhaveacquiredifsuchHolder hadheld thenumber ofsharesof CommonStockacquirable uponcompleteconversion of thisNote (withoutregard to anylimitations onconversioncontainedherein)immediatelybefore thedateonwhich a recordistakenfor the grant,issuanceorsale ofsuch PurchaseRightsor, if nosuch record istaken, thedateasofwhich therecordholdersof CommonStockareto be determinedforthegrant,issueor saleof such Purchase Rights.
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(f) NoticeofAdjustments. Upontheoccurrenceofeach adjustmentorreadjustmentoftheConversion Priceasaresultoftheevents describedinthisSection1.6,theBorrower, atitsexpense,shallpromptlycomputesuchadjustmentorreadjustmentand prepareandfurnish to theHolderacertificate settingforthsuch adjustment orreadjustmentand showing indetail thefacts uponwhich suchadjustment orreadjustmentisbased.TheBorrower shall, upon thewrittenrequestat any time of theHolder,furnishtosuch Holder a likecertificatesettingforth (i)suchadjustmentorreadjustment,(ii)theConversionPrice atthetimeineffectand (iii)thenumberofsharesofCommonStock andtheamount,ifany, ofothersecuritiesor propertywhichat thetime would be received uponconversionoftheNote.
1.7 TradingMarket Limitations.Unless permittedbytheapplicablerulesand regulationsoftheprincipalsecurities marketonwhichtheCommonStockisthenlistedortraded,inno eventshall theBorrowerissue uponconversion oforotherwisepursuant tothisNoteandthe other Notesissuedpursuantto thePurchaseAgreement morethanthe maximumnumberofsharesof CommonStockthattheBorrowercanissue pursuant toanyrule of theprincipal UnitedStatessecuritiesmarketon which theCommonStock isthen traded (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 anyofitssecuritieson theBorrower’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,whichcannotbeissuedbecause theirissuance wouldexceedsuchHolder’s allocatedportion of theReservedAmount or MaximumShareAmount) shall bedeemedconverted intoshares ofCommonStock and(ii) theHolder’srightsasaHolder ofsuchconvertedportionof thisNoteshallcease andterminate,exceptingonly therighttoreceivecertificatesforsuchsharesofCommonStockandtoanyremediesprovided herein orotherwiseavailableat law or in equity to suchHolderbecauseof afailure by theBorrower to complywith theterms of thisNote. Notwithstanding theforegoing, if aHolder has notreceivedcertificatesforallsharesof CommonStockprior to thetenth(10th)businessdayafter theexpiration of theDeadlinewithrespectto a conversion of anyportion of thisNote for anyreason,then(unlesstheHolderotherwiseelectstoretain itsstatusasa holder of CommonStock by sonotifyingtheBorrower) theHolder shallregain therights of aHolderofthisNotewith respect tosuchunconverted portions of thisNoteand theBorrower shall,as soonaspracticable, returnsuchunconverted Note to theHolder or, if theNote has not beensurrendered,adjust itsrecordstoreflect thatsuchportionof thisNotehas notbeen converted. Inallcases, theHolder shallretainallof itsrightsandremedies (including,withoutlimitation,(i) theright to receiveConversion DefaultPaymentspursuant toSection 1.3 to the extentrequired therebyforsuch ConversionDefault and any subsequentConversion Defaultand (ii) theright to
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havetheConversion Pricewithrespecttosubsequentconversions determinedinaccordance withSection 1.3) fortheBorrower’sfailuretoconvertthisNote.
1.9 Prepayment.NotwithstandinganythingtothecontrarycontainedinthisNote,atanytimeduringtheperiodbeginningontheIssue Dateandendingonthedatewhichisonehundredtwenty(120)daysfollowingtheIssueDate,theBorrowershall havetheright, exercisableonnotlessthanthree(3)TradingDayspriorwrittennoticetotheHolderoftheNote toprepaytheoutstandingNote(principaland accruedinterest),infull,inaccordancewiththisSection 1.9. Anynoticeofprepayment hereunder(an“Optional PrepaymentNotice”)shall bedeliveredto the Holder of theNote atitsregistered addressesandshallstate:(1) thattheBorroweris exercising itsrightto prepay the Note,and (2)thedateof prepaymentwhichshall benotmore thanthree(3)Trading Daysfrom thedate of theOptional PrepaymentNotice.On thedatefixed forprepayment(the“Optional PrepaymentDate”), theBorrower shall makepayment of theOptionalPrepaymentAmount(as definedbelow) to or upon theorderof theHolderasspecifiedby the Holder inwriting to theBorroweratleastone(1) business day prior to theOptional PrepaymentDate.If theBorrower exercisesitsrighttoprepaytheNote,theBorrowershallmake payment to theHolder ofanamountincash (the“OptionalPrepaymentAmount”)equalto140%,multipliedbythe sumof:(w) thethen outstandingprincipalamount of thisNoteplus(x) accruedand unpaidinterest on theunpaidprincipalamountof thisNote to theOptionalPrepaymentDateplus(y)Default Interest,ifany,ontheamounts referredtoinclauses(w)and
(x)plus(z)anyamountsowedtotheHolderpursuanttoSections1.3and1.4(g) hereof.IftheBorrowerdeliversanOptionalPrepaymentNoticeand failstopaytheOptionalPrepaymentAmountduetotheHolderoftheNotewithin two(2)businessdaysfollowingtheOptional PrepaymentDate,theBorrowershallforeverforfeititsrighttoprepay theNote pursuanttothis Section 1.9.
Notwithstanding anythingto thecontrarycontainedinthisNote, atanytimeduringtheperiodbeginningonthedatewhichisonehundredtwenty-one(121) daysfollowingtheIssueDateandendingon the datewhich is one hundred eighty(180) daysfollowing theIssue Date, theBorrowershallhavetheright,exercisable on notlessthan three (3)Trading Dayspriorwrittennoticeto theHolder of theNote toprepay theoutstandingNote(principaland accruedinterest),infull,inaccordancewiththisSection1.9.AnyOptional PrepaymentNoticeshallbedeliveredto theHolderoftheNoteatitsregisteredaddressesandshallstate:(1)thattheBorroweris exercisingitsright to prepay theNote,and (2)thedateof prepaymentwhichshall be notmorethan three(3)TradingDays fromthedateoftheOptional PrepaymentNotice.OntheOptionalPrepaymentDate,theBorrower shallmakepaymentof theSecondOptionalPrepayment Amount(asdefinedbelow)to or upon theorder of the Holderas specifiedby theHolder in writing to theBorroweratleastone(1)businessdayprior to theOptionalPrepayment Date. IftheBorrowerexercisesitsright to prepay theNote,theBorrowershallmakepayment to theHolder ofan amount incash(the“SecondOptionalPrepayment Amount”)equalto150%,multipliedby thesumof: (w)thethen outstandingprincipal amount ofthisNoteplus(x) accruedandunpaid interest on theunpaidprincipalamount of thisNote to theOptional PrepaymentDateplus(y)DefaultInterest, ifany,on theamountsreferred toinclauses(w)and (x)plus(z)anyamountsowed to theHolder pursuant toSections 1.3and1.4(g)hereof.If theBorrowerdeliversan OptionalPrepaymentNoticeandfails topay theSecondOptional PrepaymentAmount due to
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theHolderofthe Notewithintwo (2) businessdaysfollowing theOptionalPrepayment Date,theBorrowershallforever forfeit itsright to prepaythe Note pursuant to thisSection 1.9.
Aftertheexpirationofonehundredeighty(180)followingthedateoftheNote,the Borrowershallhavenoright of prepayment.
ARTICLEII.CERTAIN COVENANTS
2.1 DistributionsonCapitalStock.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrower shallnotwithouttheHolder’swrittenconsent (a)pay,declareorsetapartfor suchpayment,anydividendorotherdistribution(whetherincash,propertyorothersecurities)onsharesofcapitalstockotherthandividends onsharesofCommonStock solely in theform ofadditionalshares of CommonStockor(b) directly or indirectly orthroughany subsidiarymakeanyotherpayment ordistribution inrespect of itscapitalstock exceptfor distributionspursuant toanyshareholders’ rightsplanwhich isapprovedby amajority ofthe Borrower’sdisinteresteddirectors.
2.2 RestrictiononStockRepurchases.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnotwithouttheHolder’swritten consentredeem,repurchaseorotherwiseacquire(whetherforcashorinexchange forpropertyorothersecuritiesor otherwise)inany onetransaction orseriesofrelatedtransactionsanysharesofcapital stock of the Borroweroranywarrants,rightsoroptions topurchaseoracquireany suchshares.
2.3 Borrowings.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder’swrittenconsent,(a)create,incur,assume guarantee,endorse, contingentlyagree topurchase orotherwisebecomeliable upontheobligationofanyother person,firm, partnership, jointventureorcorporation,except bytheendorsement ofnegotiable instrumentsfordepositorcollection, or(b)suffertoexist any liabilityforborrowed money, except anyborrowings thatdoesnotrender theBorrower a"Shell"companyasdefined in Rule 12b-2undertheSecuritiesExchangeAct of1934.
2.4 SaleofAssets.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.
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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 theconversionrightsof theHolderinaccordancewiththetermsof thisNote,fails totransfer or 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)(electronically or incertificated form) anycertificate forshares of CommonStock to beissued to theHolder uponconversion of orotherwisepursuant to thisNoteas andwhen required by thisNote, orfails toremove(or directs itstransfer agent not toremoveorimpairs,delays,and/orhinders itstransferagentfromremoving)anyrestrictivelegend(or towithdraw any stoptransfer instructions inrespect thereof) on anycertificate for anysharesofCommonStock issuedtotheHolderuponconversionoforotherwisepursuanttothisNote asandwhen required by thisNote(or makes anywrittenannouncement,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 itstransfer agent. Itshall beanevent ofdefault of thisNote, if aconversion of thisNoteisdelayed,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.TheBorrower breachesanymaterial covenantorother materialtermorconditioncontainedinthisNoteandanycollateraldocumentsincludingbutnotlimitedtothePurchase Agreementandsuchbreachcontinuesforaperiodoften(10) daysafterwrittennotice thereofto theBorrower from the Holder.
3.4 BreachofRepresentationsand Warranties.AnyrepresentationorwarrantyoftheBorrowermadehereinorinanyagreement,statementorcertificategiveninwritingpursuantheretoorinconnection herewith(including,withoutlimitation,thePurchaseAgreement),shallbefalse or misleadingin anymaterial respect whenmadeand thebreachofwhichhas(or with the passageoftime willhave)a materialadverse effecton the rights oftheHolder withrespect to thisNoteorthe PurchaseAgreement.
3.5 ReceiverorTrustee.TheBorroweroranysubsidiaryoftheBorrowershallmakeanassignment forthebenefitofcreditors,orapplyfororconsenttotheappointmentofa
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receiverortrusteeforitorforasubstantialpartofitspropertyorbusiness,orsuchareceiverortrustee shallotherwisebeappointed.
3.6 Judgments.Anymoneyjudgment,writorsimilarprocess shallbeenteredorfiledagainsttheBorroweroranysubsidiaryoftheBorroweror anyofitspropertyorotherassets formorethan$50,000,andshallremainunvacated,unbondedorunstayedforaperiodoftwenty
(20) daysunless otherwiseconsentedtobytheHolder,whichconsentwillnotbeunreasonablywithheld.
3.7 Bankruptcy.Bankruptcy, insolvency,reorganizationorliquidationproceedingsorotherproceedings,voluntaryorinvoluntary,for reliefunderanybankruptcylaworanylawforthereliefofdebtorsshallbeinstitutedbyoragainst theBorrowerorany subsidiary ofthe Borrower.
3.8 DelistingofCommonStock. TheBorrower shallfailto maintain thelistingoftheCommonStockonatleastoneoftheOTCBB, OTCMarketsoranequivalentreplacement exchange,theNasdaq NationalMarket,theNasdaqSmallCapMarket,theNewYorkStockExchange,orthe AmericanStockExchange.
3.9 FailuretoComplywiththeExchangeAct.TheBorrowershallfailtocomplywiththereportingrequirementsoftheExchangeAct; and/ortheBorrower shallceasetobesubjectto the reportingrequirementsofthe ExchangeAct.
3.10 Liquidation.Anydissolution,liquidation,orwindingupofBorroweroranysubstantial portion ofitsbusiness.
3.11 Cessation of Operations.AnycessationofoperationsbyBorrowerorBorroweradmitsitisotherwisegenerallyunabletopayitsdebtsas suchdebtsbecomedue,provided,however,thatanydisclosureoftheBorrower’sabilityto continue as a“goingconcern”shallnot be anadmissionthatthe Borrowercannotpayitsdebtsastheybecome due.
3.12 Maintenanceof Assets. ThefailurebyBorrowertomaintainanymaterialintellectualpropertyrights,personal, realpropertyorotherassets which arenecessarytoconduct itsbusiness(whethernoworin thefuture).
3.13 FinancialStatement Restatement.The restatementofanyfinancialstatements filedby theBorrowerwiththeSECforany dateorperiodfromtwoyears priortotheIssueDateofthisNote anduntilthisNoteis nolongeroutstanding,iftheresultofsuchrestatement would,bycomparisontotheunrestated financialstatement,haveconstitutedamaterialadverseeffecton therights of theHolderwith respect to thisNote or thePurchase Agreement.
3.14 ReverseSplits.The Borrower effectuatesareversesplitofitsCommonStockwithouttwenty(20) days prior writtennoticeto the Holder.
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3.15 Replacement ofTransfer Agent.Intheeventthatthe Borrower proposes toreplaceitstransferagent,theBorrower failstoprovide, priortotheeffectivedateofsuchreplacement,afullyexecutedIrrevocableTransferAgentInstructionsinaform asinitiallydeliveredpursuant tothePurchaseAgreement(including but notlimitedto theprovisiontoirrevocablyreserveshares of CommonStock intheReservedAmount) signedby thesuccessortransfer agenttoBorrower and theBorrower.
3.16 Cross-Default.Notwithstanding anythingtothecontrarycontainedinthisNoteortheother relatedorcompaniondocuments,abreachordefaultbytheBorrowerofanycovenantorothertermorcondition containedin anyoftheOtherAgreements, after thepassage of allapplicablenoticeandcureorgraceperiods,shall,at theoption oftheHolder,beconsidered adefaultunder thisNoteand the Other Agreements, inwhich event theHoldershall beentitled(but in noevent required) to applyallrights andremediesofthe Holder under the terms of thisNoteandtheOtherAgreementsbyreasonofadefaultunder saidOtherAgreementorhereunder.“OtherAgreements” means,collectively,allagreements andinstrumentsbetween,amongorby:(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 theloan transactionswill becross-defaulted witheachotherloantransactionandwithall other existingandfuture debtof Borrowerto the Holder.
UpontheoccurrenceandduringthecontinuationofanyEventofDefaultspecifiedinSection3.1(solelywith respecttofailuretopaytheprincipalhereoforinterestthereonwhendueattheMaturityDate),theNoteshallbecomeimmediatelydueandpayableandtheBorrowershallpaytotheHolder, infullsatisfactionof itsobligationshereunder,anamountequaltotheDefaultSum(asdefinedherein).UPONTHEOCCURRENCEAND DURING THECONTINUATION OFANYEVENT OFDEFAULTSPECIFIEDINSECTION 3.2,THENOTESHALLBECOME IMMEDIATELYDUEANDPAYABLE ANDTHEBORROWERSHALL PAYTOTHEHOLDER,INFULL SATISFACTION OF ITSOBLIGATIONSHEREUNDER, ANAMOUNT EQUALTO:(Y)THEDEFAULTSUM(AS DEFINED
HEREIN); MULTIPLIEDBY (Z)TWO(2).Upontheoccurrence andduring thecontinuationofanyEventofDefaultspecifiedinSections3.1(solelywith respecttofailuretopaytheprincipalhereoforinterestthereonwhendueonthisNoteuponaTrading MarketPrepaymentEventpursuanttoSection1.7oruponacceleration),3.3,3.4,3.6,3.8,3.9,3.11,3.12,3.13,3.14,and/or
3. 15exercisablethroughthedeliveryofwrittennoticetotheBorrowerbysuch Holders(the“DefaultNotice”), andupontheoccurrenceofanEventofDefaultspecifiedtheremainingsectionsofArticlesIII(otherthanfailuretopay theprincipalhereoforinterestthereonatthe MaturityDatespecifiedinSection 3,1hereof),theNoteshallbecome immediately dueandpayableandtheBorrower shall pay to theHolder, infull satisfaction ofitsobligations hereunder,anamountequalto thegreater of(i) 150%timesthesumof(w) thethenoutstandingprincipalamountof thisNoteplus(x)accrued andunpaidinterest on theunpaid principalamount of thisNoteto thedateofpayment(the“MandatoryPrepaymentDate”)plus(y)Default Interest, ifany, ontheamountsreferred toinclauses(w) and/or (x)plus(z)anyamountsowedtotheHolder pursuant toSections 1.3and1.4(g) hereof(thethen outstandingprincipalamount of thisNote to thedateofpaymentplustheamountsreferred to inclauses (x),(y) and (z)shall collectively beknown as the“DefaultSum”) or(ii) the“parity value” of theDefault Sum to beprepaid,where
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parity valuemeans(a)thehighest numberofsharesofCommonStockissuableuponconversionoforotherwisepursuanttosuchDefaultSuminaccordance withArticleI,treatingtheTradingDayimmediatelyprecedingthe MandatoryPrepaymentDateas the“ConversionDate”forpurposes ofdetermining thelowestapplicable ConversionPrice, unless theDefaultEventarises as aresult of abreach inrespectof aspecific Conversion Date in whichcasesuch ConversionDateshall be the ConversionDate),multipliedby(b) thehighestClosingPricefor the CommonStockduring theperiod beginning on thedate offirstoccurrenceof theEventofDefaultandendingonedayprior to the MandatoryPrepaymentDate(the “DefaultAmount”)andallotheramounts payable hereundershallimmediatelybecome dueandpayable,all withoutdemand,presentment ornotice,allofwhich herebyare expresslywaived,togetherwith allcosts,including,without limitation,legalfeesand expenses, ofcollection, and theHolder shall beentitled toexercise allother rightsandremedies available atlaworinequity.
IftheBorrower failstopaytheDefaultAmountwithin five(5)businessdaysofwritten noticethatsuchamountisdueand payable,thentheHoldershallhavetherightatanytime,solongastheBorrowerremainsindefault(andso longandtotheextentthat therearesufficientauthorizedshares),torequiretheBorrower,uponwrittennotice,toimmediatelyissue,inlieuof theDefault Amount, thenumber ofsharesof CommonStock of theBorrower equal to theDefaultAmountdividedby theConversionPricethen ineffect.
ARTICLEIV.MISCELLANEOUS
4.1 FailureorIndulgenceNotWaiver.NofailureordelayonthepartoftheHolderintheexerciseofanypower, rightorprivilegehereundershalloperateasawaiverthereof,norshallanysingleorpartialexerciseofanysuchpower,right or privilege precludeother orfurtherexercisethereof or ofanyotherright, power orprivileges. Allrightsand remediesexistinghereunderarecumulativeto,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 setforth belowortosuchotheraddressassuchparty shallhavespecifiedmostrecentlybywrittennotice.Anynotice orothercommunication requiredorpermittedtobegivenhereundershallbedeemedeffective (a) uponhanddeliveryor delivery byfacsimile,withaccurate confirmationgeneratedbythe transmittingfacsimilemachine, attheaddressornumberdesignatedbelow(ifdelivered on a businessday duringnormal businesshourswhere such noticeis to bereceived),or thefirst businessdayfollowingsuchdelivery(ifdeliveredotherthanonabusinessdayduringnormalbusinesshours wheresuch notice is to bereceived)or(b) on thesecondbusinessdayfollowing thedateofmailingbyexpresscourierservice,fully prepaid,addressed tosuchaddress,oruponactualreceipt ofsuch mailing,whichevershallfirst occur.Theaddressesfor suchcommunicationsshallbe:
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Ifto the Borrower, to:
RICH PHARMACEUTICALS,INC.
9595 Wilshire Boulevard-Suite900BeverlyHills,CA90212
Attn: BEN CHANG, Chief Executive Officerfacsimile:
With acopybyfaxonlyto(whichcopyshall notconstitute notice):[enter nameof lawfirm]
Attn:[attorneyname] [enter address line1][enter city,state, zip]
facsimile: [enter faxnumber]
Ifto the Holder:
ASHER ENTERPRISES,INC.
1Linden Pl., Suite207GreatNeck, NY. 11021Attn:CurtKramer, Presidentfacsimile:516-498-9894
With acopybyfaxonlyto(whichcopyshall notconstitute notice):NaidichWurman Birnbaum &Maday,LLP
80Cuttermill Road,Suite410Great Neck, NY11021
Attn: Bernard S.Feldman,Esq. facsimile:516-466-3555
4.3 Amendments.This NoteandanyprovisionhereofmayonlybeamendedbyaninstrumentinwritingsignedbytheBorrowerandtheHolder.Theterm“Note”and allreferencethereto,asusedthroughout thisinstrument, shallmeanthisinstrument(andtheotherNotesissuedpursuanttothePurchaseAgreement) asoriginallyexecuted,or iflateramendedorsupplemented, thenas soamended or supplemented.
4.4 Assignability.ThisNoteshallbebindingupontheBorroweranditssuccessorsand assigns,andshallinuretobethebenefitoftheHolderanditssuccessorsand assigns.Eachtransferee of thisNote must bean“accreditedinvestor” (asdefined in Rule 501(a) of the 1933Act).Notwithstanding anything in thisNote to the contrary, thisNotemay bepledgedascollateralinconnectionwith abonafidemargin account orother lendingarrangement.
4.5 Cost ofCollection.Ifdefaultismadein thepayment ofthisNote,theBorrowershallpaytheHolder hereof costs ofcollection,includingreasonable attorneys’ fees.
4.6 GoverningLaw.ThisNote shallbegovernedbyand construedinaccordance withthelawsoftheStateofNewYorkwithoutregardtoprinciplesofconflictsoflaws.Anyactionbroughtbyeitherpartyagainst theotherconcerningthetransactionscontemplatedbythis
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Note shallbebroughtonlyinthestate courtsofNew Yorkorinthefederalcourtslocatedinthestate andcountyofNassau.The partiestothisNoteherebyirrevocablywaiveanyobjectiontojurisdictionandvenueofany actioninstitutedhereunder andshallnotassertany defensebased onlackofjurisdictionorvenueorbaseduponforumnonconveniens.TheBorrower andHolderwaive trialbyjury.Theprevailingpartyshallbeentitledtorecover from theother party itsreasonableattorney's feesand costs. In the eventthat any provision of thisNoteor anyotheragreementdeliveredinconnectionherewith isinvalidorunenforceableunder anyapplicable statuteorruleoflaw,thensuchprovisionshallbedeemedinoperativeto theextentthatitmayconflict therewithandshall bedeemedmodifiedtoconformwith suchstatute orruleoflaw.Anysuch provision whichmay prove invalid orunenforceableunderanylawshallnotaffect the validity orenforceabilityofanyotherprovisionofanyagreement. Eachpartyherebyirrevocably waives personalserviceofprocess andconsents toprocessbeingserved inanysuit,action orproceedinginconnectionwith thisAgreementorany otherTransactionDocumentbymailinga copy thereof viaregisteredorcertifiedmail orovernightdelivery(withevidence ofdelivery)tosuchpartyattheaddressineffectfornoticestoitunderthisAgreement andagrees thatsuchserviceshall constitutegoodandsufficient service of processandnoticethereof.Nothingcontainedhereinshallbedeemedtolimitinanywayanyrighttoserveprocessinanyother manner permittedbylaw.
4.7 CertainAmounts. WheneverpursuanttothisNotetheBorrowerisrequiredtopayanamountinexcessoftheoutstandingprincipalamount (ortheportion thereofrequiredtobepaid atthattime)plus accruedandunpaidinterestplusDefaultInterestonsuchinterest,theBorrowerandthe Holderagreethat theactual damages to theHolderfrom thereceipt ofcashpaymenton thisNote may bedifficult todetermineand theamountto be sopaidby theBorrower representsstipulateddamagesand not a penaltyand isintendedtocompensate theHolder inpartfor lossof the opportunity toconvertthisNoteandtoearnareturnfromthesale ofshares of CommonStockacquired uponconversionof this Noteat aprice inexcessof thepricepaidfor such sharespursuant to thisNote.TheBorrowerandthe Holder herebyagreethat suchamount ofstipulateddamagesis not plainlydisproportionate to the possible loss to theHolder from thereceipt of acashpayment without the opportunity toconvert thisNoteintoshares ofCommonStock.
4.8 PurchaseAgreement.ByitsacceptanceofthisNote, eachpartyagreestobeboundbytheapplicableterms ofthe Purchase Agreement.
4.9 NoticeofCorporateEvents.Exceptas otherwiseprovidedbelow,theHolderofthisNoteshallhavenorightsasaHolderofCommonStockunless andonly totheextentthatitconvertsthisNoteintoCommonStock.The BorrowershallprovidetheHolderwith priornotification of any meetingof theBorrower’sshareholders(and copies of proxymaterialsandother information sent toshareholders). In the event ofanytakingby theBorrower of arecord of itsshareholdersfor thepurposeof determiningshareholderswho areentitled toreceivepaymentofanydividendorotherdistribution,any right tosubscribefor,purchaseorotherwiseacquire(including by wayof merger, consolidation,reclassification orrecapitalization)any share ofanyclass or any othersecurities orproperty, ortoreceiveany otherright,orforthepurposeofdeterminingshareholders whoareentitledtovote inconnection withanyproposedsale,leaseorconveyance ofallor substantiallyall of theassetsof theBorrower oranyproposed liquidation, dissolution orwinding up of theBorrower,theBorrowershallmailanotice to theHolder,at
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leasttwenty(20)dayspriortotherecorddatespecified therein(orthirty(30)dayspriortotheconsummationofthetransactionorevent,whicheverisearlier),ofthedateonwhichanysuchrecordistobetakenforthepurposeofsuchdividend,distribution,rightorotherevent, andabrief statementregardingtheamount and character ofsuchdividend,distribution,rightor othereventto the extentknownatsuch time.TheBorrowershall make a publicannouncementofanyeventrequiring notificationtotheHolder hereundersubstantially simultaneouslywiththenotification to the Holderinaccordancewiththe terms ofthisSection4.9.
4.10 Remedies.The BorroweracknowledgesthatabreachbyitofitsobligationshereunderwillcauseirreparableharmtotheHolder,byvitiatingtheintentandpurpose of the transactioncontemplatedhereby.Accordingly,theBorroweracknowledgesthattheremedyatlawforabreachofitsobligations underthisNote will beinadequateandagrees,in the eventofabreach orthreatened breach by theBorroweroftheprovisions ofthisNote,thattheHoldershallbeentitled,inadditiontoallotheravailable remediesatlaworinequity,andinaddition to thepenaltiesassessableherein, toan injunction orinjunctionsrestraining, preventing or curinganybreachof thisNoteandtoenforcespecifically the terms andprovisionsthereof,withoutthenecessityofshowing economiclossandwithoutanybondorothersecuritybeingrequired.
INWITNESSWHEREOF,BorrowerhascausedthisNotetobesignedinitsnameby itsdulyauthorizedofficerthisMarch11, 2014.
RICH PHARMACEUTICALS,INC.
By:/s/ Ben Chang
BEN CHANG
Chief Executive Officer
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EXHIBITA --NOTICEOFCONVERSION
The undersignedherebyelectstoconvert$principal amountoftheNote(definedbelow)intothat numberofsharesofCommonStocktobeissued pursuanttotheconversionoftheNote(“CommonStock”) assetforthbelow,ofRICHPHARMACEUTICALS,INC.,aNevada corporation(the “Borrower”) according totheconditionsof theconvertible note of theBorrower datedas ofMarch 11, 2014(the “Note”),as of thedate written below.No feewill becharged to the Holderfor anyconversion, except fortransfertaxes, if any.
Box Checkedas toapplicable instructions:
[ ]TheBorrowershall electronicallytransmittheCommonStock issuablepursuanttothisNoticeofConversiontotheaccountoftheundersignedoritsnominee withDTCthroughitsDepositWithdrawal AgentCommissionsystem(“DWACTransfer”).
Nameof DTCPrime Broker:AccountNumber:
[ ]TheundersignedherebyrequeststhattheBorrowerissueacertificateorcertificatesforthenumberofsharesofCommonStocksetforthbelow(whichnumbers arebasedontheHolder’s calculationattachedhereto)inthename(s)specifiedimmediately belowor, ifadditionalspaceisnecessary, onan attachmenthereto:
ASHER ENTERPRISES,INC.
1Linden Pl., Suite207GreatNeck, NY, 11021
Attention: CertificateDelivery(516) 498-9890
DateofConversion:
Applicable ConversionPrice:$__________
Numberof Shares ofCommonStock to beIssued
PursuanttoConversion ofthe Notes:
Amountof PrincipalBalanceDue remainingUnderthe Note afterthisconversion:
ASHER ENTERPRISES,INC.
By:
Name: CurtKramer
Title:President
Date:1LindenPl., Suite207Great Neck, NY, 11021
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