NEITHER THEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBY TIDSCERTIFICATENORTHESECURITIESINTO WHICHTHESESECURITIES ARECONVERTIBLEHAVE BEEN REGISTEREDUNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLESTATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,SOLD,TRANSFERRED OR ASSIGNED (I) INTHE ABSENCEOF (A) ANEFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR(B) AN OPINION OF COUNSEL (WIDCHCOUNSEL SHALLBE SELECTED BY THE HOLDER), IN A GENERALLYACCEPTABLEFORM,THATREGISTRATIONIS NOT REQUIREDUNDER SAID ACT OR(II) UNLESS SOLD PURSUANT TO RULE144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITHA BONA FIDEMARGIN ACCOUNT OROTHER LOAN OR FINANCINGARRANGEMENT SECURED BYTHE SECURITIES.
Principal Amount:$42,500.00 | Purchase Price:$42,500.00 |
Issue Date:September4,2014 |
CONVERTIBLEPROMISSORYNOTE
FOR VALUERECEIVED,AL.KAMEHOLDINGS,INC.,aNevada corporation(hereinaftercalledthe''Borrower"),herebypromises topay to theorderof KBM WORLDWIDE, INC., a New Yorkcorporation, or registered assigns(the"Holder") the sum of
$42,500.00 togetherwithanyinterest assetforthherein,onJune8,2015(the"MaturityDate"),andto payinterest on theunpaid principal balance hereofat therate of eight percent (8%) (the"InterestRate") per annum fromthe datehereof (the"IssueDate") until the same becomes due andpayable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principalor interest on this Notewhichis not paid whendue shallbearinterest at the rate of twenty twopercent(22%)per annum from theduedate thereof until thesameispaid("DefaultInterest"). Interest shallcommenceaccruing onthedate thatthe Noteis fully paid and shall becomputed on thebasis of a 365-dayyearand theactual number of days elapsed. All payments due hereunder (to theextentnotconverted into common stock,$0.001 parvalueper share (the"CommonStock") in accordancewith the terms hereof) shall be made in lawful money oftheUnitedStatesof America.All payments shall be made atsuchaddress asthe Holder shall hereafter give to the Borrower by writtennotice madein accordance with the provisionsof this Note. Wheneverany amount expressed tobe dueby theterms of thisNote is due on any daywhichis nota businessday, thesameshallinsteadbe due on the nextsucceeding day whichis a business day and,in the case of anyinterest payment date which is not the date on
which thisNoteispaid infull,theextensionoftheduedatethereofshallnotbetakeninto accountfor purposesof determining theamount of interestdue onsuch date. Asusedin this Note,the term"businessday" shallmean anyday other than a Saturday,Sunday or a dayon which commercial banks in the city of New York, New York are authorized or required by law or executiveorderto remain closed.Eachcapitalized term used herein, andnot otherwise defined,shall have the meaning ascribedthereto in thatcertain Securities Purchase Agreement datedthe date hereof,pursuant to whichthis Note was originally issued (the"PurchaseAgreement").
This Noteisfreefromalltaxes,liens,claims andencumbranceswithrespecttotheissuethereofandshallnotbesubject to preemptive rights or other similarrightsofshareholdersof the Borrower and willnot impose personalliability upon the holder thereof.
The followingtermsshallapplytothisNote:
ARTICLE I.CONVERSIONRIGHTS
1.1 ConversionRight.TheHoldershallhavetherightfromtimetotime,andat anytimeduringtheperiod beginning onthedate which is one hundred eighty (180) days followingthe date of this Note andending onthelater of: (i) the MaturityDate and(ii) thedate of payment of theDefault Amount (asdefined in Article III)pursuantto Section l.6(a)or Article III,each inrespect of theremaining outstanding principal amount ofthis Noteto convert all or any part of the outstanding and unpaid principal amount ofthisNote into fullypaid and non assessable shares of Common Stock, assuch Common Stock exists on the Issue Date, or any shares of capitalstockor other securitiesof the Borrower into which suchCommon Stockshall hereafter be changedorreclassified attheconversion price (the"ConversionPrice") determined as providedherein (a"Conversion");provided,however, that in no eventshallthe Holder be entitledto convertanyportion of this Notein excessof thatportionof this Noteuponconversion of whichthe sum of (1)the number.of shares of Common Stock beneficially owned by theHolder anditsaffiliates (other than shares of Common Stock which may be deemed beneficially owned through theownership of the unconvertedportion of the Notes or the unexercised or unconverted portion of any other securityof the Borrower subjecttoa limitation on conversion or exercise analogousto thelimitationscontained herein) and (2) thenumber of shares of Common Stock issuable upon the conversion of theportion of this Note with respect towhich the determinationof this provisois beingmade,wouldresult in beneficialownership by theHolder and its affiliates ofmorethan 4.99% ofthe outstanding sharesofCommon Stock.For purposes ofthe proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of theSecuritiesExchange Act of 1934, as amended (the"ExchangeAct"),and Regulations130-G thereunder, exceptas otherwise provided inclause(1) of such proviso,provided,further, however, that the limitations on conversion may bewaived bytheHolder upon, at the election ofthe Holder, not less than 61 days' priornotice to the Borrower, andtheprovisions of theconversionlimitation shall continue
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to applyuntilsuch61stday(orsuchlaterdate,asdeterminedbytheHolder,asmaybespecified insuchnotice of waiver). The number of shares of CommonStock to be issued uponeach conversion of this Note shall be determinedby dividing the ConversionAmount (asdefined below) by the applicable Conversion Price then in effect on the date specified in the noticeof conversion, in the formattachedhereto asExhibit A(the''NoticeofConversion"), delivered to the Borrower by the Holder in accordance with Section 1.4below; provided that the Notice of Conversion is submitted by facsimile or e-mail(or byother meansresulting in, or reasonably expected to result in, notice) tothe Borrower before 6:00 p.m., New York, New York timeon such conversiondate (the"ConversionDate"). The term"ConversionAmount" means, with respectto any conversion of this Note, the sumof (1) the principal amount ofthis Note to be converted in such conversion plus (2) attheHolder's option, accrued and unpaid interest, if any, onsuch principal amountatthe interest ratesprovided in this Note tothe Conversion Date, plus
(3) attheHolder'soption,DefaultInterest,ifany,ontheamountsreferredtointheimmediately precedingclauses(1) and/or(2)plus(4)at theHolder's option, any amounts owed to the Holder pursuantto Sections 1.3 and 1.4(g) hereof.
1.2 | Conversion Price. |
(a) CalculationofConversionPrice.Theconversionprice(the"ConversionPrice") shall equaltheVariableConversion Price(as definedherein) (subject toequitable adjustments for stocksplits, stockdividends or rights offerings bytheBorrower relating to the Borrower's securities or the securities of any subsidiary ofthe Borrower,combinations, recapitalization,reclassifications,extraordinarydistributionsand similar events). The "Variable Conversion Price" shallmean58% multipliedby the Market Price(as defined herein) (representing a discount rate of 42%)."MarketPrice" means the average ofthe lowest three (3)Trading Prices (as defined below) fortheCommon Stock during the ten (10) Trading Day periodending on the latest complete Trading Day prior to the ConversionDate."TradingPrice" means, for any securityas of any date,the closing bid priceon the Over-the-Counter Bulletin Board, Pink Sheetselectronic quotation system or applicable trading market (the"OTC")as reported by a reliable reportingservice ("Reporting Service") designated by theHolder (i.e. Bloomberg) or, ifthe OTC isnot theprincipal trading market for suchsecurity, the closing bid price of such security on the principal securitiesexchange or trading market where such security is listed ortraded or, if no closing bidprice of such security is available in any of the foregoingmanners, theaverage of the closing bidprices of any marketmakers for such security that are listedin the"pinksheets". If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for whichthe calculation of the Trading Price is required inorder todetermine theConversion Priceof such Notes."TradingDay" shall mean any day onwhich theCommon Stock istradable for any period onthe OTC, or on theprincipal securities exchange or other securities market onwhich the Common Stockis then beingtraded.
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(b) ConversionPriceDuringMajorAnnouncements.Notwithstanding anythingcontainedinSectionl.2(a)tothecontrary,intheeventtheBorrower(i) makesapublic announcement that it intends to consolidate or mergewith anyother corporation (other than a merger inwhich the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sellor transfer all or substantially all ofthe assetsof the Borrower or (ii) any person,group orentity (including the Borrower) publiclyannounces a tender offerto purchase 50%or moreof theBorrower's Common Stock (orany other takeoverscheme) (the date of the announcement referred to inclause (i)or (ii)is hereinafter referred toas the"Announcement Date"),then the Conversion Price shall,effective upon the Announcement Dateandcontinuing through the Adjusted Conversion Price Termination Date (asdefined below),be equal to the lower of (x) theConversionPrice which would have been applicable fora Conversion occurring onthe Announcement Dateand(y) the ConversionPricethat wouldotherwisebein effect.From andafter the Adjusted Conversion Price Term ination Date,theConversion Price shallbe determ ined as set forth in this Section l.2(a).Forpurposeshereof,"Adjusted Conversion Price TerminationDate"shall mean,with respect to any proposedtransaction or tender offer (or takeover scheme)forwhich apublic announcement ascontemplated by this Section 1.2(b) has been made, the date upon whichthe Borrower (in the case ofclause (i) above) orthe person,group orentity (in the caseof clause (ii) above)consummatesor publicly announces the termination or abandonment of the proposed transaction or tender offer(or takeover scheme) which causedthisSection l .2(b) tobecomeoperative.
1.3 AuthorizedShares.TheBorrowercovenantsthatduringtheperiodthe conversionrightexists,theBorrower willreservefrom itsauthorized andunissued Common Stock asufficientnumber of shares,free frompreemptive rights,to provide for the issuanceof Common Stockupon the full conversionof this Noteissuedpursuantto the Purchase Agreement. The Borrower is requiredatall timesto have authorizedand reserved five times the number of shares thatisactually issuable upon full conversion of the Note (based on the Conversion Price of the Notesin effect from time to time)(the"Reserved Amount").The Reserved Amount shall be increased fromtime to timein accordance with the Borrower's obligations hereunder. The Borrowerrepresents that upon issuance,such shares will beduly andvalidly issued,fully paid and non-assessable. In addition,if theBorrower shall issueany securities or makeany change to its capitalstructure which would changethe number of sharesof CommonStock into which the Notesshall be convertible at the then current Conversion Price,the Borrower shall at thesame time make proper provision so that thereafter thereshall be a sufficient number of shares of Common Stock authorized and reserved,freefrom preemptive rights,for conversionof the outstandingNotes.The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent toissue certificates forthe Common Stock issuable upon conversion of this Note, and(ii)agrees that its issuance ofthisNote shall constitutefull authority to its officers and agentswho are charged with the duty ofexecuting stock certificates to executeand issuethenecessary certificates for sharesof Common Stock in accordance with the terms and conditions ofthis Note.
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If,atany timetheBorrowerdoesnotmaintaintheReserved Amountitwillbe consideredanEvent of Defaultunder Section3.2 of the Note.
1.4 | Method of Conversion. |
(a) MechanicsofConversion.SubjecttoSection1.1,thisNote maybeconvertedbytheHolder in whole or in part at any time from timeto timeafterthe Issue Date,by
(A) submittingtotheBorroweraNoticeofConversion(byfacsimile,e-mailor otherreasonablemeansofcommunication dispatchedon the Conversion Date prior to6:00p.m., New York, New York time) and(B)subjecttoSection 1.4(b),surrenderingthis Noteat theprincipal office of theBorrower.
(b) SurrenderofNoteUponConversion.Notwithstandinganything tothecontrarysetforthherein,uponconversion ofthisNoteinaccordancewith the terms hereof, the Holder shallnot berequired tophysically surrender this Note totheBorrower unless the entire unpaid principal amount of this Noteis so converted.The Holderand the Borrowershallmaintain recordsshowing the principal amount soconverted and thedatesof such conversions or shall use suchothermethod,reasonablysatisfactory to theHolderand the Borrower,so as not to require physicalsurrender of thisNote upon each such conversion. Inthe eventofany disputeor discrepancy,such recordsofthe Borrower shall,prima facie,be controlling and determinative in the absence of manifest error. Notwithstandingthe foregoing,if any portion of this Note isconverted as aforesaid,theHolder may not transferthis Note unless theHolder firstphysically surrenders thisNote to the Borrower, whereupon theBorrower will forthwith issueand deliver upon theorder of theHolder anewNoteof like tenor,registered as the Holder(upon payment by the Holderof any applicable transfer taxes)may request, representingin the aggregate the remaining unpaid principal amount of this Note. The Holder and anyassignee,by acceptance of this Note, acknowledgeand agreethat,by reason of theprovisionsofthis paragraph,following conversionof aportion of this Note,theunpaid andunconverted principal amount of thisNote represented by this Note maybe less thantheamountstated on theface hereof.
(c) PaymentofTaxes.TheBorrowershallnotberequiredtopayanytax whichmaybepayableinrespectofany transfer involved in theissue anddelivery ofshares of Common Stockorothersecurities or property onconversion ofthisNote inaname other than that of theHolder (or in streetname),and theBorrower shallnotbe required to issueordeliver any such sharesor other securities or property unlessanduntil the personor persons (other than the Holder orthe custodian in whose street name such shares areto be held forthe Holder's account)requestingthe issuance thereofshall have paid to the Borrower the amount ofanysuch taxor shall haveestablished to the satisfactionof the Borrowerthat such tax hasbeenpaid.
(d) DeliveryofCommonStockUponConversion.UponreceiptbytheBorrowerfromtheHolderofafacsimiletransmission ore-mail (orother reasonablemeans of communication) of a Noticeof Conversion meeting therequirements forconversion as provided
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in thisSection1.4,theBorrowershallissueanddeliverorcausetobeissuedanddeliveredtoor upontheorderoftheHolder certificates forthe Common Stockissuable upon such conversion within three (3) business days after such receipt (the "Deadline") (and, solely in the case of conversion of the entireunpaid principal amount hereof, surrender ofthis Note) in accordance withthetermshereof and thePurchase Agreement.
(e) ObligationofBorrowertoDeliverCommonStock.Uponreceiptby theBorrowerofaNoticeofConversion,theHolder shall be deemed to bethe holder ofrecord ofthe Common Stock issuable uponsuch conversion, the outstanding principal amount and the amountof accrued andunpaid interest onthisNoteshall be reducedto reflect suchconversion, and, unless the Borrower defaults on its obligationsunder thisArticleI, allrights with respect to theportion ofthisNotebeing so convertedshallforthwith terminate exceptthe right to receive the CommonStock or other securities, cashor other assets,as herein provided, onsuch conversion. If the Holder shall have given a Notice of Conversionas providedherein, the Borrower's obligation to issue anddeliver the certificates forCommon Stockshall be absolute and unconditional, irrespective of the absence of anyaction bythe Holder to enforce thesame, any waiver or consent with respect to any provisionthereof, therecovery of any judgmentagainst any person or anyaction to enforcethe same, any failureordelay in theenforcement of anyother obligation ofthe Borrower to the holderof record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of anyother circumstance which might otherwise limit such obligation oftheBorrower to theHolder in connection with such conversion. The Conversion Datespecified in the Notice of Conversion shall be theConversion Dateso long as the Notice of Conversion is received by theBorrower before 6:00 p.m., New York, New York time, on such date.
(f) DeliveryofCommonStockbyElectronicTransfer.In lieuofdeliveringphysicalcertificatesrepresentingtheCommonStockissuable upon conversion, providedthe Borrower isparticipating in the Depository Trust Company ("DTC")Fast Automated Securities Transfer("FAST")program,uponrequest of the Holderand its compliance withthe provisions contained in Section 1.1and in thisSection 1.4, the Borrower shall useits best efforts to causeits transferagent to electronically transmit theCommon Stock issuable upon conversion to the Holder by creditingtheaccountof Holder'sPrimeBrokerwith DTC throughitsDeposit Withdrawal Agent Commission("DWAC")system.
(g) FailuretoDeliverCommonStockPriortoDeadline.WithoutinanywaylimitingtheHolder'srighttopursueotherremedies,including actualdamages and/orequitable relief, the partiesagree thatif delivery oftheCommon Stockissuable upon conversion of this Note is not deliveredby the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall begoverned by suchSection) the Borrowershall payto the Holder $2,000 per day in cash, for eachday beyondthe Deadline that theBorrower failsto deliver suchCommonStock.Such cash amountshall be paidto Holderbythe
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fifth dayofthemonthfollowingthemonthinwhichithasaccruedor,at theoptionoftheHolder (bywrittennoticetotheBorrower bythe first day of themonth following themonth in which it hasaccrued), shallbe addedto the principal amount of thisNote,in which event interest shall accrue thereon in accordance withthe terms ofthis Note and suchadditional principal amount shall beconvertible into Common Stock in accordance with the terms of this Note.The Borrower agreesthattherightto convert isa valuable right to theHolder.The damagesresulting from afailure,attempt to frustrate,interference with such conversion right are difficult if not impossibleto qualify. Accordingly the partiesacknowledge that theliquidated damages provision contained inthisSection l .4(g)are justified.
1.5 ConcerningtheShares.ThesharesofCommonStockissuableuponconversionofthisNotemaynot besoldortransferred unless (i) such shares are sold pursuant to an effectiveregistration statement under the Act or (ii) theBorrower or itstransfer agent shallhave been furnished with anopinion of counsel (which opinion shall be inform,substance andscope customaryfor opinionsof counsel incomparable transactions) to theeffect that the shares tobe sold ortransferred may besoldor transferred pursuant to anexemption from suchregistration or (iii) such shares aresold or transferred pursuant to Rule 144 under the Act (or a successor rule)("Rule 144") or (iv) such shares are transferredto an"affiliate" (as defined inRule144) of the Borrower whoagrees to sellorotherwise transfer theshares onlyin accordancewith this Section 1.5 andwho is anAccredited Investor (as defined in thePurchase Agreement). Exceptas otherwise providedinthe Purchase Agreement (and subject to the removal provisions set forth below),untilsuch timeasthe shares ofCommon Stockissuable upon conversion ofthis Note have been registered underthe Act or otherwise may be sold pursuant toRule144without any restriction asto the number of securities as of a particular date that can thenbe immediatelysold,each certificatefor shares of Common Stock issuable upon conversion of this Note that hasnot been so included inan effective registrationstatement orthat has not been sold pursuanttoan effective registration statementor an exemption that permitsremoval of thelegend,shall beara legendsubstantially in thefollowing form,as appropriate:
"NEITHER THEISSUANCEANDSALEOFTHESECURITIES REPRESENTEDBYTHISCERTIFICATENORTHESECURITIESINTO WHICHTHESESECURITIESAREEXERCISABLEHAVEBEENREGISTERED UNDER THE SECURITIESACT OF 1933,AS AMENDED, OR APPLICABLESTATESECURITIES LAWS. THESECURITIES MAY NOT BEOFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED(I) INTHEABSENCE OF(A)AN EFFECTIVE REGISTRATIONSTATEMENT FOR THE SECURITIES UNDER THESECURITIESACT OF1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED ..BY THEHOLDER), IN A GENERALLY ACCEPTABLEFORM,THAT REGISTRATIONIS NOT REQUIRED UNDER SAID ACT OR (II) UNLESSSOLD PURSUANT TORULE 144 ORRULE 144AUNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY .BE PLEDGED IN CONNECTION WITHA BONA FIDEMARGIN ACCOUNT OR OTHERLOANOR FINANCING ARRANGEMENT SECUREDBYTHESECURITIES."
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The legendsetforthaboveshallberemovedandtheBorrowershallissuetothe Holderanewcertificatethereforefreeofanytransferlegend if(i)theBorrower or itstransfer agent shall have received anopinion ofcounsel, in form,substanceand scope customary for opinions of counsel in comparabletransactions,to the effect that a publicsale or transfer of such CommonStock may be made without registrationunder the Act, which opinion shall be accepted bytheCompany so that the sale or transfer iseffected or(ii) in thecaseofthe Common Stock issuable uponconversion of this Note,such security is registered for sale by the Holderunder an effective registration statement filed under the Act orotherwisemaybe sold pursuant to Rule 144 without anyrestriction as to the number of securities as of a particular date that can thenbe immediatelysold. 1n the event that the Company does notaccept the opinion of counsel provided by the Holderwith respectto thetransferofSecurities pursuantto an exemption from registration,such as Rule 144 or Regulation S, at the Deadline, it willbeconsidered anEvent of Default pursuant to Section 3.2 of the Note.
1.6 | Effect of CertainEvents. |
(a) EffectofMerger,Consolidation,Etc.AttheoptionoftheHolder,thesale,conveyanceordispositionofallorsubstantiallyallofthe assets of the Borrower, theeffectuationby the Borrower of a transaction or series of related transactions in whichmore than 50%of thevoting power of theBorrower is disposed of, orthe consolidation, merger or other business combinationoftheBorrower with or into any other Person(as defined below) orPersons when theBorrower is not thesurvivor shalleither:(i) be deemed to be an Event of Default (asdefined in ArticleIII) pursuant to whichthe Borrowershall be required to pay to the Holderupontheconsummation of andas acondition tosuch transaction an amountequal to the Default Amount(as defined inArticleIII)or(ii) be treatedpursuant to Section1.6(b)hereof."Person"shall mean any individual, corporation, limited liability company, partnership, association, trust or otherentity or organization.
(b) AdjustmentDuetoMerger,Consolidation,Etc.If,atanytimewhenthisNoteisissuedandoutstandingandprior to conversion of all ofthe Notes, there shallbeany merger, consolidation, exchange ofshares,recapitalization, reorganization, or othersimilar event, as aresult of whichsharesofCommon Stockof the Borrower shall be changed intothe sameor a differentnumber ofshares of another classor classes ofstock or securities of the Borrower or anotherentity, or in case ofany saleor conveyance of all or substantially all of the assets of the Borrowerother than in connectionwith a planof complete liquidation ofthe Borrower,thentheHolderof thisNoteshall thereafter have the right to receiveuponconversion ofthis Note, upon the basisand upontheterms and conditionsspecifiedherein andin lieu of the shares ofCommon Stock immediately theretofore issuable uponconversion, such stock, securities orassets which the Holderwould havebeen entitled to receive insuch transactionhad
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this Notebeenconvertedinfullimmediatelypriortosuchtransaction(withoutregardtoany limitationsonconversionset forthherein),and in anysuch case appropriate provisionsshall be made with respect to therights and interests ofthe Holder ofthis Note to the end that the provisions hereof (including,without limitation,provisions foradjustment of the Conversion Priceandof thenumber of sharesissuable upon conversion ofthe Note) shallthereafter be applicable,as nearly as may be practicable in relation to any securities or assetsthereafterdeliverableupon the conversionhereof. The Borrower shall not affect anytransactiondescribed in thisSection 1.6(b) unless (a) itfirstgives,totheextent practicable,thirty(30) dayspriorwrittennotice (butin any event at least fifteen( 15) days prior writtennotice) ofthe record date of the special meeting ofshareholders to approve, orif thereis no such record date, the consummationof, suchmerger,consolidation,exchange of shares,recapitalization,reorganization or othersimilar eventor sale of assets (during which timetheHoldershallbe entitled to convert thisNote) and (b) the resulting successor oracquiring entity (if not the Borrower) assumes by writteninstrument the obligations of this Section 1.6(b). The above provisions shallsimilarlyapply to successiveconsolidations, mergers, sales, transfers or share exchanges.
(c) AdjustmentDuetoDistribution.IftheBorrowershalldeclareormakeanydistributionofits assets (orrightsto acquireits assets) to holders of Common Stockasadividend,stock repurchase, by wayof returnof capitalorotherwise (including any dividendordistributionto the Borrower'sshareholders incash or shares (or rights to acquire shares)ofcapital stockofa subsidiary (i.e.,a spin-off)) (a"Distribution"),then the Holder of this Note shall be entitled,upon any conversionof this Noteafter thedate of recordfor determining shareholders entitled to such Distribution,to receive theamount of such assetswhichwould have beenpayable to theHolderwithrespect tothe shares ofCommon Stockissuable upon such conversion had such Holder beenthe holder of suchshares of Common Stock on therecorddate for the determination of shareholders entitledtosuch Distribution.
(d) AdjustmentDuetoDilutiveIssuance.If,atanytimewhenanyNotes areissued andoutstanding,theBorrower issuesorsells,orin accordance with thisSection 1.6(d) hereofis deemed to have issued or sold,anyshares of Common Stockfor noconsideration or for a considerationper share (before deductionof reasonable expenses or commissionsor underwriting discounts orallowances in connection therewith) lessthan the Conversion Price in effect on the date ofsuch issuance (or deemed issuance) ofsuch shares of Common Stock (a"Dilutive Issuance"), then immediately upon theDilutiveIssuance,the Conversion Price will be reduced tothe amount of theconsideration per sharereceived bythe Borrower in suchDilutive Issuance.
TheBorrowershall bedeemedtohaveissuedorsoldsharesofCommonStockifthe Borrowerin any manner issues or grants any warrants,rights or options (not including employeestock option plans),whether or not immediatelyexercisable,to subscribe for or to purchase Common Stockor other securitiesconvertibleintoor exchangeablefor Common
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Stock("ConvertibleSecurities")(suchwarrants,rightsandoptionstopurchaseCommonStockorConvertibleSecuritiesarehereinafter referred to as"Options")and theprice per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Pricethen in effect, then the Conversion Price shall be equal to such price per share. For purposes of thepreceding sentence, the"pricepershare for which CommonStockis issuable upon the exercise of such Options" is determinedby dividing (i) the total amount, if any, received or receivable by the Borroweras considerationfor the issuanceor granting of all such Options, plus the m inimum aggregate amount of additional consideration,if any, payableto the Borrower upon the exercise of all such Options, plus, inthe case ofConvertible Securities issuable upon the exercise of such Options, the minimum aggregateamount of additional consideration payable upon theconversion orexchangethereof at the time such Convertible Securities first become convertible or exchangeable,by (ii) the maxim umtotal numberof shares of Common Stock issuable upon the exerciseofall such Options(assumingfull conversion of Convertible Securities, ifapplicable).No further adjustment to theConversion Pricewill be made upon the actual issuance of such Common Stock upon theexercise of such Options or upon the conversionor exchange of Convertible Securities issuable uponexercise of such Options.
Additionally, theBorrowershallbedeemedtohaveissuedorsoldshares ofCommonStockiftheBorrowerin any manner issues or sellsany Convertible Securities, whether or not immediatelyconvertible(otherthan where thesame are issuable upon the exercise ofOptions),and the price pershareforwhich Common Stock is issuableuponsuch conversion or exchange islessthan the Conversion Price then ineffect,then the Conversion Price shall beequal to such priceper share.For thepurposesof the precedingsentence, the"priceper share for which CommonStock is issuable upon such conversion or exchange" is determined bydividing (i) thetotal amount, if any,receivedor receivable bytheBorrowerasconsiderationforthe issuanceor sale of all such Convertible Securities,plus the minimum aggregate amount of additional consideration, if any, payableto the Borrower upon the conversionorexchange thereofat the timesuchConvertible Securitiesfirstbecome convertible or exchangeable, by (ii) themaximum total numberof shares of Common Stock issuableupon the conversion or exchange ofall such Convertible Securities.No furtheradjustment to the Conversion Price willbe made upon the actual issuance of such CommonStock upon conversion or exchange of such Convertible Securities.
(e) PurchaseRights.If,atanytimewhenany Notesareissuedand outstanding,theBorrower issuesanyconvertible securitiesor rightstopurchase stock,warrants,securities or otherproperty (the"PurchaseRights")prorata to the record holders of any class of Common Stock, then theHolderof this Note will beentitled toacquire, uponthe terms applicableto suchPurchase Rights,theaggregate Purchase Rights whichsuchHoldercould have acquiredif such Holder had held the number ofshares of CommonStockacquirable upon complete conversion of this Note (withoutregard to any limitations on conversion contained herein)immediately before the dateon which arecord is taken for thegrant, issuanceor sale of
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such PurchaseRightsor,ifno suchrecordistaken,thedate asofwhichtherecord holders of Common Stock areto be determined forthegrant,issue orsale of suchPurchase Rights.
(f) NoticeofAdjustments.Uponthe occurrenceofeachadjustmentorreadjustmentoftheConversionPriceas a result of theevents describedinthisSection 1.6,the Borrower,atits expense, shallpromptly compute suchadjustment or readjustmentand prepare and furnish to the Holderacertificate settingforth such adjustment or readjustment and showing indetail the factsupon which such adjustment or readjustment is based. The Borrower shall,uponthe written request at any time of the Holder,furnish to suchHolder alike certificatesetting forth (i) suchadjustmentor readjustment, (ii) theConversionPriceat the time ineffect and (iii) thenumber ofsharesof Common Stockand theamount,ifany,of other securities or property which at the time would be received upon conversion of the Note.
1.7 TradingMarketLimitations.Unlesspermittedbytheapplicablerulesandregulationsoftheprincipalsecuritiesmarketonwhich the Common Stockis thenlisted or traded,in no event shall theBorrowerissue upon conversion of or otherwise pursuantto thisNote and the other Notes issuedpursuant to the PurchaseAgreement more than the maximum number of sharesof Common Stock that the Borrower canissue pursuant to any rule of theprincipal United Statessecurities market on which the Common Stockis then traded (the"Maximum Share Amount"),which shall be 4.99% of thetotal sharesoutstanding onthe ClosingDate (asdefined in the PurchaseAgreement),subject to equitable adjustment from time to timefor stocksplits,stock dividends, combinations, capital reorganizations and similar events relatingto the CommonStock occurringafter the datehereof.Once the Maxim umShareAmount has been issued, ifthe Borrower fails to eliminate any prohibitions underapplicable Jaw orthe rules or regulationsofany stockexchange,interdealer quotation system orother self-regulatory organization with jurisdiction over the Borrower or anyof itssecuritieson the Borrower's ability toissue shares of Common Stockin excess of theMaxim um Share Amount,inlieu of any further right toconvert this Note, this will be consideredanEvent of Defaultunder Section 3.3of the Note.
1.8 Status asShareholder.UponsubmissionofaNoticeofConversionbyaHolder,(i)thesharescoveredthereby(other than theshares, if any, which cannot be issued because their issuance would exceed such Holder's allocatedportionof the ReservedAmount or Maxim umShare Amount) shall be deemed converted into shares of Common Stock and(ii) theHolder's rights as a Holderof such convertedportion of this Note shall cease andterminate,exceptingonlythe rightto receive certificatesfor such shares ofCommon Stock and to any remedies provided herein or otherwiseavailable at law or in equity to such Holder because of afailure by the Borrowerto comply with the terms of this Note.Notwithstanding theforegoing,if a Holder has not received certificatesfor all shares ofCommon Stock prior to the tenth (10th)businessday after the expirationof theDeadline withrespect toa conversion of any portion of this Note for any reason, then(unless the Holder otherwise elects toretain its status as a holder ofCommonStockby so notifying the Borrower) theHolder shall regain the rights of aHolder of
11 |
this NotewithrespecttosuchunconvertedportionsofthisNoteandtheBorrowershall,assoon aspracticable,returnsuch unconvertedNotetotheHolderor, if theNote has not been surrendered, adjust its recordsto reflect thatsuch portion of this Note hasnotbeen converted.In all cases,the Holder shall retain allof its rightsandremedies (including,without limitation,(i) the right toreceive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby forsuch Conversion Defaultand anysubsequent Conversion Defaultand (ii) theright to have the Conversion Price withrespect to subsequent conversionsdetermined inaccordancewith Section 1.3)for theBorrower's failure toconvertthis Note.
1.9 Prepayment.NotwithstandinganythingtothecontrarycontainedinthisNote,atany timeduringtheperiodbeginningontheIssue Date and ending onthe datewhich isthirty
(30)daysfollowingtheIssueDate,theBorrowershallhavetheright,exercisableonnotlessthan three(3)Trading Dayspriorwrittennoticeto the Holder of the Note toprepay the outstanding Note(principal andaccruedinterest),in full, in accordance with this Section 1.9. Any notice of prepaymenthereunder(an "OptionalPrepayment Notice")shall bedelivered to theHolderof the Note at its registered addresses and shall state: (I )that the Borrower is exercising its right to prepay theNote,and (2)the dateof prepayment which shall be not morethan three (3)Trading Daysfrom the date ofthe Optional Prepayment Notice. On thedatefixed forprepayment (the"Optional Prepayment Date"), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writingto the Borrower at least one(I)business day priorto the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder ofanamount in cash(the"Optional Prepayment Amount") equal to 115%,multipliedby the sum of: (w) thethen outstanding principal amount ofthis Notepl us(x)accrued and unpaid interest on the unpaid principal amount ofthis Note to the Optional Prepayment Dateplus (y) Default Interest, if any,on the amounts referred to in clauses (w) and (x) plus (z)any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Noticeandfails to paytheOptional Prepayment Amount due to theHolder of the Note withintwo (2)businessdaysfollowing the Optional Prepayment Date,the Borrower shallforeverforfeit itsrightto prepay theNotepursuanttothis Section 1.9.
Notwithstanding anythingtothecontrarycontainedinthisNote,atany timeduringtheperiodbeginningonthe date which is thirty-one (31) daysfollowing the Issue Date and ending on the date which issixty (60)daysfollowing the IssueDate,theBorrower shallhavetheright,exercisableon not less than three (3) Trading Days prior written notice to theHolder of the Note toprepaythe outstanding Note (principal and accruedinterest),infull,in accordancewith this Section 1.9. Any Optional Prepayment Notice shallbedelivered to theHolder of the Note at its registered addresses and shallstate:(1)that the Borrower is exercising its right to prepay theNote,and(2) the dateof prepayment which shall be notmore than three (3) TradingDays fromthe date of the Optional Prepayment Notice. On the Optional Prepayment Date,the Borrower shall make payment of the Second Optional Prepayment Amount (as definedbelow) to orupontheorderof the Holder asspecified by the Holder in writing totheBorrowerat least one
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(I) )businessdaypriortotheOptionalPrepaymentDate.IftheBorrowerexercisesits righttoprepaytheNote,theBorrower shall make payment totheHolder of an amount in cash (the"Second Optional Prepayment Amount")equalto120%, multipliedby the sum of: (w) the then outstanding principal amountof thisNoteplus(x) accrued and unpaid interest onthe unpaid principalamount of this Note to the Optional PrepaymentDateplus(y) DefaultInterest, if any,on the amountsreferred to in clauses (w)and (x)plus(z)any amounts owed to the Holder pursuant to Sections 1.3and l .4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional PrepaymentAmount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date,the Borrower shall forever forfeit its right to prepaythe Note pursuant to thisSection 1.9.
Notwithstanding anythingtothecontrarycontainedinthisNote,atany timeduringtheperiodbeginningonthe datewhichissixty-one (61)daysfollowing the IssueDate and ending on the datewhich is ninety (90) days following the IssueDate, theBorrowershall have the right, exercisable on notlessthan three (3)Trading Days prior written notice tothe Holder of the Note to prepay the outstanding Note (principal and accruedinterest),infull,in accordance with thisSection 1.9.Any Optional Prepayment Notice shall be deliveredtothe Holder ofthe Note at its registered addresses and shallstate: (1) thatthe Borrower is exercising its righttoprepay theNote,and(2) thedate ofprepayment which shallbe not morethan three
(3) TradingDaysfromthedateoftheOptionalPrepaymentNotice.OntheOptionalPrepayment Date,theBorrowershallmake payment of the Third Optional Prepayment Amount (asdefined below) toorupon theorderoftheHolderasspecifiedby theHolder inwritingto theBorrower at least one (1) business day priorto the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to theHolder of an amount in cash (the "Third Optional Prepayment Amount") equal to 125%, multiplied by the sum of: (w) the then outstandingprincipal amount of this Noteplus(x) accruedand unpaid interestonthe unpaid principal amount ofthis Note tothe Optional Prepayment Dateplus(y)Default Interest,if any,on theamounts referred to in clauses (w) and (x)plus(z) any amounts owed to the Holder pursuant to Sections1.3and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay theThird Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date,the Borrower shall forever forfeitits right toprepaythe NotepursuanttothisSection 1.9.
Notwithstanding anytothecontrarystatedelsewhereherein,atanytimeduring theperiodbeginningonthedatethatis ninety-one (91) day from theIssue Date and ending one hundred twenty (120) days following theIssueDate,theBorrowershallhavethe right,exercisable on not less than three (3) Trading Days prior written notice to theHolder of the Note to prepay the outstandingNote(principal and accrued interest), in full,inaccordance withthis Section 1.9. Any Optional PrepaymentNotice shall be delivered to the Holder of the Note at its registered addresses and shallstate:( 1) thatthe Borrower is exercising its right to prepay the Note,and (2)the date of prepaymentwhichshall benot morethan three (3) Trading Days from the date of the OptionalPrepayment Notice. On the Optional Prepayment Date, theBorrower
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shall makepaymentoftheFourthOptionalPrepaymentAmount(asdefinedbelow)toorupon theorderoftheHolderasspecifiedbytheHolder in writingtotheBorrower at least one(1) business day prior to the Optional Prepayment Date. Ifthe Borrower exercisesits right to prepay theNote, theBorrower shallmake payment tothe Holderofan amount incash(the"FourthOptional PrepaymentAmount") equalto 130%, multiplied by the sum of: (w)thethen outstanding principal amount of this Noteplus(x) accrued and unpaidinterest ontheunpaid principal amount of this Noteto the OptionalPrepayment Dateplus(y) DefaultInterest, if any, onthe amounts referred to in clauses (w)and (x)plus(z)anyamounts owed to the Holder pursuant to Sections 1.3 andl.4(g) hereof. If theBorrowerdeliversan Optional Prepayment Noticeand fails to pay the Fourth Optional Prepayment Amountdue tothe Holderof the Note within two (2) businessdaysfollowing the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section1.9.
Notwithstanding anytothecontrarystatedelsewhereherein,atanytimeduring theperiodbeginningonthedatethatis onehundred twenty-one (121) dayfrom the Issue Date and endingone hundred fifty (150) daysfollowing theIssue Date, the Borrowershall have the right,exercisable on not less thanthree (3) Trading Days prior writtennotice to the Holder of the Notetoprepay the outstanding Note(principal andaccrued interest), in full, in accordancewith this Section1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borroweris exercisingits right to prepay the Note, and (2) the date of prepaymentwhichshall be notmore thanthree (3) Trading Daysfrom the date oftheOptional Prepayment Notice. Onthe OptionalPrepayment Date,the Borrower shall make payment of the Fifth Optional Prepayment Amount (as definedbelow)to or upon the order of the Holder as specifiedby the Holder in writing to the Borrower at least one (1) business day prior tothe Optional Prepayment Date. If theBorrower exercises itsright to prepay the Note, the Borrowershallmakepayment to the Holder of an amountin cash (the"FifthOptional Prepayment Amount") equal to135%, multiplied by the sum of: (w) the thenoutstanding principalamount of this Noteplus(x) accrued and unpaidinterest ontheunpaid principal amountof this Note to the Optional Prepayment Dateplus(y) Default Interest, ifany, on the amounts referredto in clauses (w) and (x)plus(z) any amountsowedtothe Holder pursuant to Sections 1.3 and1.4(g) hereof. Ifthe Borrower delivers anOptional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount dueto the Holder of the Note within two (2) businessdays followingthe OptionalPrepayment Date, the Borrowershall forever forfeititsright to prepay the Notepursuant to this Section 1.9.
Notwithstanding anytothecontrarystatedelsewhereherein,atanytimeduring theperiodbeginningonthedatethatis onehundred fifty-one (151) day from theIssue Date and ending onehundredeighty (180)days following the IssueDate, the Borrower shall have the right, exercisable onnot less than three (3) Trading Days prior written noticetotheHolder of the Note to prepaythe outstanding Note (principal and accruedinterest), in full, in accordance with this Section 1.9.Any OptionalPrepaymentNoticeshallbe delivered totheHolderof theNote at its registered addresses and shall state: (1) that the Borroweris exercisingitsrightto prepay the
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Note, and(2)thedateofprepaymentwhichshallbenotmorethanthree(3)TradingDaysfrom the date of the Optional Prepayment Notice. On the Optional Prepayment Date, theBorrower shallmake payment of the Sixth Optional Prepayment Amount (as defined below) to orupon the orderof the Holderas specified by the Holder inwritingto the Borrower at leastone (1)business day prior to the Optional Prepayment Date.If the Borrower exercises its right toprepay the Note, theBorrower shall makepaymentto the Holderof anamount incash(the"SixthOptional Prepayment Amount")equal to 140%, multipliedby the sum of: (w) the then outstandingprincipalamountof this Noteplus(x) accrued and unpaid intereston the unpaidprincipal amount of this Note to the Optional Prepayment Dateplus(y)Default Interest, if any, onthe amounts referredto in clauses (w) and (x)plus(z) anyamounts owedtothe Holder pursuant to Sections 1.3 and1.4(g) hereof. IftheBorrowerdeliversan Optional Prepayment Noticeand fails to pay the Sixth Optional Prepayment Amount dueto the Holder oftheNote within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepaythe Note pursuant to thisSection 1.9.
After theexpirationofonehundredeighty(180)followingthedateoftheNote,theBorrower shall have no rightof prepayment.
ARTICLE II.CERTAINCOVENANTS
2.1DistributionsonCapitalStock.SolongastheBorrowershallhaveanyobligationunderthisNote, the Borrower shallnot withoutthe Holder'swrittenconsent(a) pay, declareorset apartforsuch payment, any dividend or otherdistribution (whether incash,property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely inthe form of additional shares of Common Stock or (b) directly or indirectlyor through anysubsidiarymake anyother payment ordistributionin respect of its capital stock except for distributions pursuant to any shareholders' rights plan which is approvedbya majority of the Borrower's disinteresteddirectors.
2.2 RestrictiononStockRepurchases.SolongastheBorrowershallhaveanyobligationunderthisNote,the Borrower shallnotwithout the Holder's written consentredeem, repurchase or otherwise acquire(whether forcash orin exchange for property or other securities or otherwise)in any one transactionor series of related transactions anyshares of capital stock of the Borrower or any warrants,rights or options to purchaseor acquire any such shares.
2.3Borrowings.SolongastheBorrowershallhaveanyobligationunderthis Note, theBorrowershallnot,withoutthe Holder'swrittenconsent, (a) create,incur, assumeguarantee,endorse, contingentlyagreeto purchaseor otherwisebecome liable uponthe obligationof anyother person, firm,partnership,joint venture orcorporation, exceptby the endorsement of negotiable instruments fordepositor collection,or (b) suffer toexist anyliability
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forborrowedmoney,exceptanyborrowingsthatdoesnotrendertheBorrowera"Shell" companyas definedinRule12b-2undertheSecuritiesExchangeActof 1934.
2.4 SaleofAssets. SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrower shallnot, without theHolder's written consent, sell, leaseor otherwisedispose of any significant portion of itsassets outside the ordinarycourse of business. Any consent to thedisposition of any assets may beconditionedon aspecified useoftheproceeds of disposition.
2.5 AdvancesandLoans.SolongastheBorrowershallhaveanyobligation underthisNote,theBorrowershallnot, without the Holder'swritten consent, lend money,give credit or makeadvances toanyperson,firm,joint ventureor corporation, including, without limitation, officers,directors, employees, subsidiaries and affiliates of the Borrower,exceptloans,credits or advances (a)inexistenceor committed onthe date hereof and which the Borrowerhas informed Holder inwriting priorto thedate hereof, (b)made in the ordinary course ofbusiness or(c)not in excess of $100,000.
ARTICLE III.EVENTSOFDEFAULT
Ifanyofthe followingeventsofdefault(each,an"Eventof Default")shalloccur:
3.1 FailuretoPayPrincipalorInterest. TheBorrowerfails topaytheprincipalhereofor interestthereonwhendue on thisNote,whetherat maturity,upon acceleration or otherwise.
3.2 Conversionandthe Shares.TheBorrowerfailstoissuesharesofCommon StocktotheHolder(orannouncesorthreatensinwritingthatitwillnothonor its obligation to do so)upon exerciseby the Holderof the conversion rightsof the Holder in accordance with the terms of this Note, fails to transfer or cause its transferagentto transfer(issue) (electronically or in certificated form) any certificate for sharesof CommonStock issued to the Holderupon conversion of or otherwise pursuant to this Note as andwhenrequiredbythis Note, the Borrower directsits transfer agentnot to transfer or delays,impairs, and/or hinders its transfer agent in transferring(or issuing)(electronicallyor in certificatedform) any certificatefor shares of Common Stock to be issued tothe Holderuponconversion oforotherwise pursuant to this Noteas and whenreq uiredby this Note, orfails to remove (ordirectsits transfer agent notto remove or impairs,delays,and/or hindersits transfer agent fromremoving) any restrictive legend(or to withdrawany stop transfer instructionsin respect thereof) on any certificate for any sharesofCommonStock issued to the Holder uponconversion of or otherwisepursuant tothis Note as and whenrequired by this Note(or makes any writtenannouncement, statement or threat that it does not intend to honor the obligations describedin this paragraph) and any such failure
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shall continueuncured(oranywrittenannouncement,statementor threatnottohonoritsobligationsshallnot be rescindedin writing) for three (3) business days after the Holder shall have delivereda Noticeof Conversion.It is an obligation of the Borrowerto remain current in its obligations to its transfer agent. It shall be an event of default of this Note,if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the optionof the Holder,the Holder advancesany funds to the Borrower's transfer agent in order to process a conversion,such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.
3.3BreachofCovenants.TheBorrower breachesanymaterialcovenantorothermaterialtermorconditioncontainedin this Note andany collateral documentsincluding butnot limitedto the PurchaseAgreement andsuchbreach continues for a period of ten(10) daysafter written notice thereof to the Borrowerfrom theHolder.
3.4 Breachof RepresentationsandWarranties.AnyrepresentationorwarrantyoftheBorrowermadehereinorinany agreement,statement or certificategiven in writing pursuant heretoor in connection herewith(including, without limitation,thePurchase Agreement), shall befalse ormisleading in anymaterial respectwhen made andthebreach ofwhich has (or with the passage of timewill have) a material adverseeffect ontherightsof the Holder with respectto this Note or the PurchaseAgreement.
3.5Receiveror Trustee.TheBorroweroranysubsidiaryoftheBorrowershall makeanassignmentforthebenefitofcreditors,or apply for orconsent to the appointment of a receiveror trusteefor it or for a substantial part of its property orbusiness,or sucha receiveror trustee shall otherwise be appointed.
3.6 Judgments.Anymoneyjudgment,writ orsimilarprocessshallbeenteredor filedagainsttheBorrowerorany subsidiaryof theBorroweror any of its propertyorother assets for more than $50,000,and shall remainunvacated, unbonded or unstayed for a periodof twenty
(20)daysunlessotherwise consentedtobytheHolder,whichconsent willnotbeunreasonablywithheld.
3.7Bankruptcy.Bankruptcy,insolvency,reorganizationorliquidationproceedingsorotherproceedings,voluntary orinvoluntary, for relief under anybankruptcy law orany law forthe relief of debtors shall beinstituted by or againstthe Borrower orany subsid iaryof the Borrower.
3.8Delistingof CommonStock.TheBorrowershallfailtomaintainthelistingof theCommonStockonatleastoneof the OTC(which specificallyincludes thePink Sheets electronic quotation system) oranequivalent replacementexchange,the NasdaqNational Market,the NasdaqSmallCap Market,theNew York StockExchange,or the American Stock Exchange.
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3.9 FailuretoComply withtheExchangeAct.TheBorrowershallfailtocomply withthereportingrequirementsoftheExchange Act; and/or the Borrower shall cease to be subjectto the reporting requirements of the Exchange Act.
3.10 Liquidation.Anydissolution,liquidation,orwindingupofBorroweror anysubstantialportionofits business.
3.11 CessationofOperations.AnycessationofoperationsbyBorroweror Borroweradmitsitisotherwisegenerally unabletopayits debtsas such debtsbecome due, provided, however, thatany disclosure of the Borrower's ability to continue as a"goingconcern" shall notbeanadmission that the Borrower cannot payitsdebts as they become due.
3.12 MaintenanceofAssets. ThefailurebyBorrowertomaintainany materialintellectualproperty rights,personal,real propertyorotherassetswhichare necessaryto conduct itsbusiness(whether now orin thefuture).
3.13 FinancialStatementRestatement.Therestatement ofanyfinancial statementsfiledbytheBorrowerwiththeSECforanydateorperiodfromtwoyears priorto the Issue Dateof this Note and until this Note is nolongeroutstanding,if the result of such restatement would,bycomparison to theunrestated financialstatement, have constituted a materialadverse effect onthe rights of the Holder with respect to this Note or the Purchase Agreement.
3.14 ReverseSplits. TheBorrower effectuatesareversesplitofitsCommonStock withouttwenty(20)dayspriorwritten notice tothe Holder.
3.15 ReplacementofTransferAgent.Intheevent thattheBorrowerproposesto replaceitstransferagent,theBorrowerfailstoprovide,prior to the effective date of such replacement, a fullyexecuted IrrevocableTransfer AgentInstructions ina formas initially delivered pursuant tothe Purchase Agreement(including but notlimited to the provisionto irrevocably reserve sharesofCommon Stock in theReserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
3.16 Cross-Default.Notwithstandinganythingtothecontrarycontainedinthis Noteortheotherrelatedorcompaniondocuments,a breachordefault bytheBorrower of any covenant or other term orconditioncontained in any of theOther Agreements,after thepassage of all applicable noticeand cure or grace periods, shall, at theoptionof the Holder, be considered a default under this Note and the OtherAgreements, inwhich event theHolder shall beentitled (butin noevent required) to applyall rights and remediesof the Holder under thetermsof this
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Note andtheOtherAgreementsbyreasonofadefaultundersaidOtherAgreementor hereunder."OtherAgreements"means,collectively,allagreements and instruments between, among or by: (1) the Borrower, and, or for thebenefit of,(2) theHolderand any affiliate of the Holder,including, without limitation, promissory notes; provided, however, the term "Other Agreements"shall notincludethe related orcompanion documentstothisNote.Each ofthe loantransactions will be cross-defaulted with eachother loantransaction and with all other existing and future debt of Borrowerto the Holder.
Upon theoccurrenceandduringthecontinuation ofanyEventofDefaultspecifiedin Section3.1(solelywithrespecttofailureto pay theprincipalhereoforinterest thereon whendue at theMaturity Date), the Note shallbecome immediately due andpayable andthe Borrower shall pay to the Holder, in full satisfactionof its obligations hereunder, an amount equal to the Default Sum (as definedherein). UPON THE OCCURRENCE ANDDURINGTHE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALLBECOME IMMEDIATELYDUEAND PAYABLE AND THE BORROWER SHALL PAY TO THEHOLDER, INFULLSATISFACTION OFITS OBLIGATIONS HEREUNDER, ANAMOUNT EQUALTO: (Y) THE DEFAULT SUM (AS DEFINEDHEREIN); MULTIPLIED BY(Z) TWO (2). Upontheoccurrenceand during the continuation of any Event of Defaultspecifiedin Sections 3.1 (solelywith respectto failure to paytheprincipal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant toSection 1.7 or upon acceleration),3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14,and/or 3. 15 exercisable through thedeliveryof writtennotice to the Borrower by suchHolders (the"DefaultNotice"), and upon the occurrence ofanEventofDefault specified the remaining sections of Articles III (other than failure to paythe principal hereof orinterest thereon at the Maturity Date specified in Section 3, 1 hereof), theNote shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction ofits obligations hereunder, an amount equal to the greater of (i) 150%timesthesumof (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the "Mandatory Prepayment Date")plus(y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x)plus(z) any amounts owed to the Holder pursuant to Sections 1.3 and l.4(g) hereof (the then outstanding principal amount of this Note to the date of paymentplusthe amounts referred to in clauses (x), (y) and (z) shall collectively be knownas the"DefaultSum") or (ii) the"parityvalue" of the Default Sum to be prepaid,where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the"ConversionDate" for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a resultof a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date),multiplied by(b) the highest Closing Price for the Common Stock during the periodbeginning on the date of first occurrenceof the Eventof Default and ending one day prior to the Mandatory Prepayment Date(the"DefaultAmount") and all other amounts payable hereunder shall immediately become due and payable,all without demand,
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presentment ornotice,allofwhichherebyareexpresslywaived,togetherwith allcosts,including,withoutlimitation, legal feesandexpenses,of collection,and the Holder shall beentitledtoexercise all other rights and remedies available at lawor inequity.
IftheBorrowerfailstopaytheDefaultAmountwithinfive(5)businessdaysofwrittennoticethatsuchamountis dueand payable,then theHolder shall have theright atany time,so longas the Borrower remains indefault (and so longand to theextent thatthere are sufficient authorized shares),to require the Borrower, upon written notice, to immediately issue,in lieuof the Default Amount,the numberof sharesof CommonStock of the Borrower equal to the Default Amountdivided by the Conversion Price thenineffect.
ARTICLE IV.MISCELLANEOUS
4.1 FailureorIndulgenceNotWaiver.Nofailureordelayonthepartofthe Holderinthe exerciseofany power,rightorprivilege hereunder shalloperate asa waiver thereof, nor shallany singleor partial exercise of anysuch power,rightor privilege preclude other orfurtherexercise thereof orofany other right, power or privileges.All rights andremedies existing hereunder are cumulative to,and not exclusive of,any rights or remedies otherwise available.
4.2 Notices.Allnotices,demands,requests,consents,approvals,and othercommunicationsrequired orpermittedhereundershallbeinwritingand,unless otherwise specified herein, shallbe (i) personally served,(i i) depositedin the mail, registered or certified,return receipt requested, postage prepaid,(iii) delivered by reputable air courier servicewithcharges prepaid,or (iv) transmitted by hand delivery, telegram,orfacsimile,addressedas set forthbelow or tosuch other address as such partyshallhave specified most recently by written notice.Any notice or othercommunication requiredor permittedto be givenhereunder shall be deemed effective (a)upon hand delivery ordelivery by facsimile, with accurate confirmation generated by thetransmitting facsimile machine, atthe address ornumber designatedbelow(if delivered on a business day during normal business hourswheresuch notice is tobe received), or the firstbusiness day followingsuchdelivery (ifdeliveredother thanona business dayduring normal business hours where such noticeis to be received) or(b) on the second business day followingthedate of mailingby express courierservice, fully prepaid, addressedtosuchaddress,orupon actual receipt of suchmailing,whichever shallfirst occur. The addressesfor such communications shall be:
If totheBorrower,to:
ALKAME HOLDINGS,INC.
3651 LindellRoad-SuiteD #356 LasVegas,NV89013
Attn: ROBERTEAKLE,ChiefExecutiveOfficer facsimile:
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With acopybyfaxonly to(whichcopyshallnotconstitutenotice): [enternameoflawfirm]
Attn: [attorneyname] [enteraddressline1] [entercity,state,zip]
facsimile: [enterfaxnumber]
IftotheHolder:
KBMWORLDWIDE,INC.
80 CuttermillRoad-Suite410 GreatNeck,NY11021
Attn: SethKramer,President
e-mail:info@kbmworldwide.com
With acopybyfaxonlyto(whichcopyshallnotconstitutenotice): NaidichWurmanBirnbaum&Maday,LLP
Att: JudahA.Eisner,Esq.
Attn: BernardS.Feldman,Esq.facsimile: 516-466-3555
e-mail:dyork@nwbmlaw.com
4.3 Amendments.ThisNoteandanyprovisionhereof mayonlybeamendedbyaninstrumentinwritingsigned bythe Borrower and the Holder. The term"Note"and all referencethereto,asused throughout thisinstrument,shallmean this instrument(and theother Notes issued pursuant to the PurchaseAgreement)as originallyexecuted,or iflater amended orsupplemented,then as so amended or supplemented.
4.4Assignability.ThisNote shallbebindingupontheBorrowerandits successorsandassigns,andshall inureto be the benefit of the Holderand its successors and assigns. Each transferee ofthis Note mustbe an"accredited investor"(as definedin Rule 501(a) of the 1933 Act). Notwithstanding anything inthis Note tothecontrary,thisNote may be pledged as collateral inconnectionwith abonafidemargin accountor other lending arrangement.
4.5 CostofCollection.If defaultismadeinthepaymentofthisNote,the Borrower shall pay the Holder hereof costs of collection,including reasonable attorneys' fees.
4.6 GoverningLaw.ThisNoteshallbegovernedbyandconstruedinaccordance withthelawsoftheStateof New Yorkwithout regard to principles of conflictsof laws. Any action broughtbyeither partyagainsttheother concerningthetransactions contemplated bythis
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Note shallbebroughtonlyinthestatecourtsofNewYorkorinthefederalcourtslocatedinthe stateand countyof Nassau. The parties to this Note hereby irrevocably waiveanyobjection to jurisdiction and venueofany action instituted hereunder and shall notassert anydefense based onlack of jurisdictionor venueorbased uponforum non conveniens.TheBorrower andHolder waivetrial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In theeventthat any provision of thisNote or any other agreement deliveredin connection herewithis invalid or unenforceableunder any applicable statuteorrule of law,then such provision shall be deemed inoperative tothe extent that itmayconflict therewithand shall be deemed modified to conform with such statute or rule oflaw. Any suchprovision which may prove invalidor unenforceable underany lawshall not affect the validity orenforceability ofany other provision of anyagreement.Each party hereby irrevocably waivespersonal serviceofprocess and consents to processbeing served in any suit,action orproceeding in connection with this Agreement oranyother TransactionDocument by mailing a copy thereof viaregistered or certified mail or overnight delivery (with evidence of delivery)to such party at the addressineffectfornotices to itunder this Agreement andagrees that suchservice shall constitute goodand sufficient service of processand noticethereof. Nothing contained herein shall bedeemed to limit in anywayany right toserve process inany other manner permitted by Jaw.
4.7 CertainAmounts.WheneverpursuanttothisNotetheBorrowerisrequiredto payanamountinexcessof theoutstanding principal amount(or theportion thereof required to be paid at that time)plus accrued andunpaid interest plus DefaultInterest onsuchinterest,the Borrower and the Holder agreethat the actual damagesto the Holder from thereceipt ofcash payment on this Note may be difficultto determine and the amount tobe so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holderinpart forloss ofthe opportunity toconvert this Noteandto earna return from the sale ofshares ofCommon Stock acquired upon conversion of thisNote at aprice in excess of the price paidforsuch sharespursuanttothisNote. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportionate to the possible loss to the Holder from the receipt of acash payment without the opportunity to convert this Noteinto shares of Common Stock.
4.8 PurchaseAgreement. ByitsacceptanceofthisNote,eachparty agreestobeboundbytheapplicabletermsof thePurchaseAgreement.
4.9Noticeof CorporateEvents.Except asotherwiseprovidedbelow,theHolder ofthisNoteshallhaveno rightsasa Holder of Common Stock unless and only to the extent that it converts this Noteinto Common Stock. The Borrower shall provide the Holder with prior notification of any meeting ofthe Borrower's shareholders (and copies of proxy materials and other information sent to shareholders). In the eventofany taking bythe Borrower of arecord of itsshareholders for thepurpose of determiningshareholders who are entitled to receive payment of any dividend orotherdistribution,anyright tosubscribe for, purchaseorotherwise
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acquire (includingbywayofmerger,consolidation,reclassification orrecapitalization)any shareofanyclassor any other securitiesor property,or to receive any otherright, or for the purpose of determining shareholders who are entitled tovote in connection with anyproposed sale,lease or conveyance ofall or substantially all of the assetsofthe Borrower or any proposed liquidation,dissolutionorwinding upof the Borrower,theBorrower shallmaila notice to theHolder,at leasttwenty (20) days prior to the record date specified therein(or thirty (30) days prior to the consummationof the transaction orevent,whichever is earlier),of the date on which any such recordis to be taken for the purpose of suchdividend,distribution,right orotherevent,and a briefstatement regarding the amountand characterof such dividend,distribution,right or other event tothe extent known at suchtime. TheBorrower shall makeapublic announcement ofany event requiring notificationto the Holder hereunder substantially simultaneously with thenotificationto theHolder inaccordance withtheterms of this Section4.9.
4.10 Remedies.TheBorroweracknowledgesthatabreach byitofits obligationshereunderwillcauseirreparableharmtotheHolder, byvitiatingthe intentand purpose of the transaction contemplated hereby. Accordingly, the Borroweracknowledges that theremedy atlaw for a breachofits obligationsunderthis Note willbeinadequateand agrees,in theeventof a breach or threatened breach bytheBorrower of the provisions of this Note,that the Holdershall be entitled,inaddition to all otheravailable remedies at law or in equity,andin addition to the penalties assessableherein,to an injunction orinjunctions restraining, preventing or curingany breach of this Note and to enforce specifically the terms andprovisions thereof,without thenecessity of showing economicloss and without any bondor other security being req uired.
IN WITNESSWHEREOF,BorrowerhascausedthisNotetobesignedinitsnamebyitsdulyauthorizedofficer September 4, 2014.
ALKAME HOLDINGS, INC.
By:/s/ Robert Eakle
Chief Executive Officer
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