NEITHER THEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBY THISCERTIFICATENORTHESECURITIESINTOWHICHTHESESECURITIES ARE CONVERTIBLEHAVE BEENREGISTEREDUNDER THE SECURITIES ACT OF 1933, ASAMENDED, OR APPLICABLE STATE SECURITIES LAWS.THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERREDOR ASSIGNED(I) INTHEABSENCE OF (A)AN EFFECTIVE REGISTRATION STATEMENT FORTHE SECURITIES UNDER THE SECURITIES ACT OF 1933,AS AMENDED, OR (B) AN OPINIONOFCOUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), INA GENERALLY ACCEPTABLE FORM, THAT REGISTRATION ISNOT REQUIRED UNDERSAIDACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDEMARGIN ACCOUNT OROTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal Amount:$42,500.00 Purchase Price:$42,500.00 | Issue Date:September4,2014 |
CONVERTIBLE PROMISSORYNOTE
FORVALUERECEIVED,ALKAMEHOLDINGS,INC.,aNevadacorporation (hereinaftercalledthe"Borrower"), hereby promisesto pay to the order ofKBM WORLDWIDE, INC., a New York corporation, orregistered assigns (the"Holder") the sum of $42,500.00together with any interest asset forthherein, onJune8, 2015 (the"Maturity Date"), and to pay interest on the unpaid principal balance hereofatthe rate of eight percent (8%) (the "Interest Rate") perannum fromthe date hereof (the"Issue Date") until the same becomes due and payable,whether at maturity or upon acceleration or byprepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitlyset forth herein. Any amount of principalor intereston this Note whichis not paid when due shallbear interest at the rate of twenty twopercent(22%) perannum from the duedate thereof until the same is paid ("DefaultInterest"). Interest shall commence accruing on thedatethatthe Note is fully paid and shall be computed onthe basis of a 365-day year and the actual number of days elapsed.All payments due hereunder (tothe extent notconverted intocommon stock, $0.001 par value per share (the "Common Stock") in accordance withthe terms hereof)shall be made in lawful money of the United States of America.AJI payments shall be made at such address as the Holder shallhereafter give to the Borrower by written notice madein accordance with the provisions of this Note. Whenever anyamount expressed to be due by theterms ofthis Note is due on any day which is not a businessday, the same shallinstead be dueon the next succeeding day which is abusiness dayand, in the caseof any interest payment date whichis not the date on
which thisNoteispaidinfull, theextensionoftheduedatethereofshallnotbe takeninto account for purposes of determining the amount of interest due on such date.As used in this Note,the term "business day" shallmean any day other than a Saturday, Sunday or a day on whichcommercial banks in the city of New York, New York are authorized or required by law or executive order toremain closed. Each capitalized term usedherein, and nototherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated thedate hereof,pursuant to which thisNote was originally issued (the "Purchase Agreement").
This Noteisfreefromalltaxes, liens,claimsandencumbranceswithrespecttothe issue thereofandshall notbesubjecttopreemptive rightsorothersimilarrightsof shareholdersof the Borrowerand willnotimpose personal liability upon the holder thereof.
The following termsshallapplytothisNote:
ARTICLE I.CONVERSION RIGHTS
1.1ConversionRight.TheHoldershallhavetherightfromtimetotime,andat anytimeduringtheperiod beginning onthe date whichis onehundred eighty (180) days following thedateof thisNote and ending on thelaterof: (i) the Maturity Dateand (ii) the date of paymentof the DefaultAmount(asdefined in Article UI) pursuant to Section l.6(a)orArticle III, each inrespect ofthe remaining outstanding principalamountof this Note toconvert allor anypartof the outstanding and unpaidprincipal amount of thisNote intofully paidand non assessable shares ofCommon Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock orothersecurities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the "Conversion Price") determined asprovided herein (a"Conversion");provided, however, that innoevent shall theHolderbe entitled to convert any portion of this Notein excess ofthat portion of thisNote upon conversion of which the sum of (1) the number of shares of Common Stockbeneficially owned by the Holderand itsaffiliates (other than shares of CommonStock which may be deemedbeneficially owned through the ownership of the unconvertedportion of the Notesor the unexercisedor unconverted portionofanyother security of the Borrower subject to a limitationon conversion or exercise analogousto the limitations containedherein) and (2) thenumber ofshares of Common Stock issuable upon the conversionof the portionof this Note withrespect to which thedetermination of this proviso isbeing made, would result in beneficial ownershipby the Holder and its affiliates ofmore than4.99% oftheoutstanding shares ofCommon Stock. For purposes of the provisoto the immediately preceding sentence, beneficial ownership shall be determined in accordance withSection13(d)of the SecuritiesExchange Act of 1934, as amended (the "Exchange Act"), and Regulations 130-Gthereunder, exceptas otherwise provided in clause (1) of such proviso,provided,further, however,that the limitations on conversion may bewaived bythe Holder upon, at theelection of the Holder,not less than 61 days'prior notice tothe Borrower, and the provisionsof the conversionlimitationshall continue
to applyuntilsuch6lstday(orsuchlaterdate,asdeterminedbytheHolder,asmay bespecified in such notice ofwaiver).The number ofshares of CommonStockto beissued uponeach conversion of this Note shallbe determinedby dividing the Conversion Amount (as defined below) bythe applicable Conversion Price then in effecton the date specifiedinthe notice of conversion,inthe form attached heretoasExhibitA(the ''Notice of Conversion"), delivered to theBorrower bythe Holder in accordance with Section 1 .4below; provided that the Notice of Conversionissubmittedby facsimile or e-mail(or by other means resultingin,or reasonably expected to result in, notice) to the Borrower before6:00p.m., New York,New York time on such conversion date (the "Conversion Date"). The term "Conversion Amount'' means, with respect to any conversion of this Note, the sum of (l) the principal amount of this Notetobe convertedinsuchconversion plus (2)at theHolder's option,accrued and unpaid interest, if any, on such principal amount at the interest ratesprovided inthisNote to theConversion Date, plus (3)at theHolder's option, Default Interest, if any, ontheamounts referred to inthe immediately preceding clauses (1)and/or (2)plus(4) at the Holder's option,anyamounts owed to the Holder pursuantto Sections 1.3 and1.4(g)hereof.
1.2Conversion Price.
(a) CalculationofConversionPrice. Theconversionprice(the"ConversionPrice") shall equalthe Variable Conversion Price (as defined herein) (subjectto equitable adjustments for stock splits,stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of theBorrower, combinations, recapitalization, reclassifications, extraordinarydistributions andsimilar events). The "Variable Conversion Price" shall mean 58% multiplied by the Market Price(as defined herein) (representing a discount rateof 42%). "Market Price" means the average of the lowest three (3)Trading Prices (as defined below) for the CommonStock during the ten (10) Trading Day period ending onthe latest complete Trading Day prior to the Conversion Date. ''Trading Price"means, for any security asof any date, the closing bid price on the Over-the-Counter Bulletin Board, Pink Sheets electronicquotation system or applicable trading market (the "OTC")as reported by a reliable reporting service ("ReportingService") designatedbythe Holder (i.e. Bloomberg) or, if the OTC isnot the principal trading market for such security,theclosing bid price of such security on the principal securities exchange or tradingmarket where such security is listed or traded or, if no closing bid price of such securityis available in any of the foregoing manners, the averageof the closing bid prices of anymarket makersfor such security that are listed in the "pink sheets". If the Trading Price cannot be calculated for such security onsuch date in the manner provided above, the TradingPriceshall be the fair market value asmutually determinedby the Borrower and the holders of a majorityin interestof the Notes being converted for which the calculation of the Trading Price is required in orderto determine the Conversion Price of such Notes. "Trading Day" shall mean any day on which the Common Stock is tradable for any period on the OTC, or on the principalsecurities exchange or other securities marketon which the Common Stock isthen being traded.
(b)ConversionPriceDuringMajorAnnouncements.Notwithstanding anythingcontainedin Section1.2(a)tothecontrary,inthe event the Borrower (i)makes a public announcement that it intends to consolidate or mergewith any other corporation (otherthan a merger in whichtheBorrower is thesurviving orcontinuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group orentity (including the Borrower) publicly announces a tender offer to purchase 50% ormore of the Borrower'sCommonStock (orany other takeover scheme) (the dateof the announcementreferred to in clause (i) or (ii) ishereinafter referred toas the "Announcement Date"), thenthe Conversion Priceshall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), beequal to the lower of (x) the Conversion Price which would havebeen applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and afterthe AdjustedConversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, "Adjusted Conversion Price Termination Date" shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section1.2(b) to become operative.
1.3AuthorizedShares.TheBorrowercovenantsthat duringtheperiodthe conversionrightexists,theBorrowerwillreservefromits authorized and unissuedCommon Stock asufficient number of shares, free frompreemptive rights, to providefor the issuanceof CommonStock uponthefull conversionof thisNote issued pursuant tothe Purchase Agreement. The Borroweris requiredataJI times to have authorized and reserved five times the number of shares that isactually issuableupon full conversion of the Note (based on theConversion Price of the Notes in effect from time to time)(the"Reserved Amount"). The ReservedAmount shall be increased from time to time inaccordance with the Borrower's obligations hereunder. The Borrower represents that upon issuance, such shares will beduly and validly issued, fullypaid andnon-assessable. In addition,if the Borrower shall issue any securities or make any changeto its capital structure which would change the number of sharesof Common Stock into which the Notes shall be convertible at thethen current Conversion Price,theBorrower shallat the same time makeproperprovision sothat thereafterthere shall be a sufficient numberof shares of Common Stockauthorized and reserved, free from preemptive rights, forconversion ofthe outstanding Notes. The Borrower (i) acknowledges that it hasirrevocably instructed its transfer agent to issuecertificatesfor the CommonStock issuable upon conversion of this Note, and (ii) agrees that itsissuance of this Note shall constitutefull authorityto itsofficers and agents who are charged with the duty of executing stock certificates toexecute and issuethe necessary certificatesfor shares of CommonStock in accordance with theterms and conditions of this Note.
If, atanytimetheBorrowerdoesnotmaintaintheReservedAmountitwillbe considered anEventof Defaultunder Section 3.2of the Note.
1.4Method ofConversion.
(a) MechanicsofConversion.SubjecttoSection1.1,thisNotemaybe convertedbythe Holder in whole or inpart at any time from time to time after the Issue Date,by (A) submitting tothe Borrower aNotice of Conversion(by facsimile, e-mail or other reasonable means of communicationdispatched on theConversion Date priorto 6:00p.m., New York, New Yorktime) and (B)subject to Section 1.4(b), surrendering this Noteat the principal office of the Borrower.
(b)SurrenderofNoteUponConversion.Notwithstanding anythingtothe contrarysetforthherein,uponconversion ofthis Notein accordancewiththe terms hereof,the Holder shall notbe requiredto physically surrender this Noteto theBorrowerunless the entire unpaid principalamountof thisNoteissoconverted.The Holder and the Borrower shall maintain recordsshowingthe principal amount so convertedand the datesof such conversionsor shall use such othermethod, reasonablysatisfactory to the Holder andtheBorrower, so as not to require physical surrender of this Note upon each such conversion.Inthe event of any dispute or discrepancy,such recordsofthe Borrowershall,primafacie,be controllingand determinative in the absenceofmanifest error. Notwithstanding the foregoing,if anyportion ofthis Note is converted as aforesaid,the Holder may nottransferthisNoteunless the Holder first physically surrenders this Noteto the Borrower, whereupon theBorrower will forthwith issue anddeliver upon the order of the Holder a new Note of like tenor, registered as theHolder (uponpaymentby the Holder ofany applicable transfer taxes) may request, representingin the aggregate the remaining unpaidprincipal amount ofthis Note. The Holder and any assignee, byacceptance of this Note,acknowledgeand agree that, byreason oftheprovisions ofthis paragraph, following conversion of aportion ofthis Note, theunpaid and unconverted principal amount ofthis Noterepresented by thisNote may be less than the amount stated on the face hereof.
(c) Paymentof Taxes.TheBorrowershallnotberequiredtopayanytax whichmaybepayableinrespectofanytransfer involved in the issue and deliveryofshares of Common Stock orother securities or property on conversion ofthis Noteina nameother than that of the Holder(or in streetname),and theBorrower shall notberequiredto issue ordeliver any such shares or othersecuritiesor property unless and until theperson orpersons (otherthan the Holder or thecustodian in whose streetname such shares are to beheld forthe Holder's account) requesting theissuance thereofshall have paidto the Borrower the amountof any such tax or shall have established tothe satisfactionof the Borrowerthat such tax has been paid.
(d) DeliveryofCommonStockUponConversion.Uponreceiptby the BorrowerfromtheHolderofafacsimiletransmissionor e-mail(or otherreasonable means of communication)of a Notice of Conversion meeting the requirements for conversion asprovided
in thisSection1.4, theBorrowershallissueanddeliverorcause tobe issuedand deliveredtoor upon the order of the Holder certificatesfor the Common Stock issuable uponsuch conversion withinthree (3)business days aftersuch receipt (the"Deadline") (and, solelyin the case of conversion of theentire unpaid principal amount hereof,surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.
(e) ObligationofBorrowertoDeliverCommonStock.Uponreceiptby theBorrowerofaNotice ofConversion, the Holder shall be deemed to be theholderof record of the Common Stock issuable uponsuch conversion, the outstandingprincipal amountand the amount of accrued and unpaid interest on this Note shall bereduced toreflect such conversion, and, unless theBorrower defaults on its obligations under this Article I, all rightswith respect to the portion of thisNote beingso converted shall forthwith terminate except the right toreceive theCommon Stock orother securities, cash or other assets, as herein provided,on such conversion.If the Holder shall have given a Notice of Conversionas providedherein, the Borrower's obligation toissue and deliver the certificates for CommonStock shall be absolute andunconditional, irrespective of theabsence ofany actionby the Holderto enforce the same, any waiver orconsent with respect toanyprovision thereof, the recovery of any judgment against any personorany action to enforcethe same, any failure ordelayinthe enforcement of anyother obligation ofthe Borrowertothe holder of record, orany setoff,counterclaim, recoupment, limitation or termination, orany breach or allegedbreach by the Holder of any obligationto the Borrower, and irrespectiveof anyothercircumstance whichmight otherwise limit such obligation of the Borrowerto the Holder in connection withsuchconversion.The Conversion Date specified inthe NoticeofConversion shallbe theConversion Date so longas theNotice of Conversion is received by the Borrower before6:00p.m., New York, New York time, onsuch date.
(f)DeliveryofCommonStockbyElectronicTransfer.Inlieuof deliveringphysicalcertificatesrepresentingthe Common Stock issuable upon conversion, providedtheBorrower is participating in theDepositoryTrust Company ("DTC") Fast Automated SecuritiesTransfer ("FAST")program,upon request of the Holder and its compliance with the provisions contained in Section 1.1 and inthis Section 1.4, the Borrower shall use its besteffortsto cause its transfer agentto electronically transmit the Common Stockissuable upon conversion to the Holderby crediting the accountof Holder's Prime Brokerwith DTC throughits Deposit Withdrawal Agent Commission ("DWAC") system.
(g) FailuretoDeliverCommonStockPriortoDeadline.Withoutinany waylimitingtheHolder's right to pursue otherremedies, including actualdamagesand/or equitable relief, the partiesagree thatif delivery ofthe Common Stock issuable upon conversion ofthis Noteis not deliveredby the Deadline (otherthan a failure due to thecircumstances described in Section 1.3 above, whichfailure shall be governed bysuch Section) the Borrower shall pay to theHolder$2,000 perdayin cash, foreach daybeyond the Deadline that the Borrower fails todeliversuch Common Stock. Suchcash amountshall be paid to Holder by the
fifth dayofthemonthfollowingthemonthinwhichithasaccruedor,attheoption of the Holder (bywritten noticeto theBorrower by thefirst day of the monthfollowing the monthinwhich it hasaccrued), shall beadded to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the termsof this Note and such additional principal amount shall be convertible into Common Stock in accordance withthetermsofthisNote. The Borrower agrees thattheright to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate,interference with such conversion right are difficultif not impossibleto qualify. Accordingly the parties acknowledge that the liquidated damages provision contained inthis Section 1.4(g) are justified.
1.5Concerning the Shares. ThesharesofCommonStockissuableupon conversionofthisNotemaynotbesoldor transferred unless (i) such sharesare sold pursuant to aneffective registration statement under the Act or (ii) the Borrower or itstransfer agent shall have been furnishedwith an opinion of counsel (which opinionshall be in form, substance and scope customary for opinions of counselin comparable transactions) tothe effect that the shares to besoldortransferredmaybesold or transferred pursuant to anexemption from such registration or (iii) such shares are sold or transferred pursuant toRule 144 under the Act (or a successor rule) ("Rule144")or (iv) suchshares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower whoagrees to sell orotherwise transfer the sharesonly in accordance withthis Section 1.5and who is an AccreditedInvestor(as defined in the Purchase Agreement). Except asotherwise provided in thePurchase Agreement (andsubject to the removalprovisions set forth below),until such time as the shares of CommonStock issuable upon conversionof this Notehave been registered under the Actor otherwisemay be sold pursuantto Rule 144 without any restriction as to the numberof securities asofa particular datethat can then be immediately sold,each certificate for shares of CommonStock issuableupon conversionof this Notethathas not been so included in an effective registration statement or that basnot been soldpursuantto an effective registration statementoran exemption that permitsremoval of the legend, shall bear a legendsubstantially in thefollowing form, asappropriate:
"NEITHER THEISSUANCE ANDSALEOFTHESECURITIES REPRESENTED BYTHISCERTIFICATENORTHESECURITIESINTO WHICHTHESESECURITIESARE EXERCISABLEHAVE BEEN REGISTEREDUNDER THE SECURITIES ACT OF1933, ASAMENDED, OR APPLICABLE STATESECURITIES LAWS. THE SECURITIESMAY NOT BE OFFEREDFOR SALE, SOLD,TRANSFERRED ORASSIGNED (I) INTHE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENTFOR THE SECURITIESUNDER THE SECURITIES ACT OF1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN AGENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II)UNLESS SOLD PURSUANTTO RULE144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED INCONNECTION WITHA BONA FIDEMARGIN ACCOUNT OR OTHERLOANORFINANCINGARRANGEMENTSECUREDBYTHE SECURITIES."
The legendsetforthaboveshallberemovedandtheBorrowershall issuetotheHolder a new certificate therefore free ofany transfer legendif(i)theBorrower or itstransfer agent shall have received anopinion ofcounsel, inform, substance and scope customary for opinions of counselin comparabletransactions, to the effect that apublic sale or transfer of such CommonStock may be made without registration under the Act, which opinion shall be accepted by theCompany so that the sale ortransfer is effected or(ii)in the caseofthe Common Stock issuable upon conversion of thisNote, such securityis registeredfor sale by the Holder under an effective registrationstatement filed under the Actorotherwise maybe sold pursuant toRule
144 withoutanyrestriction astothenumberofsecuritiesasofaparticulardatethatcanthen be immediately sold.In the eventthat the Company doesnot accept the opinion of counsel provided bythe Holderwith respect tothe transfer of Securities pursuant to anexemption from registration, such as Rule 144 or RegulationS, atthe Deadline, it will be considered an Eventof Default pursuantto Section3.2 of the Note.
1.6Effect ofCertainEvents.
(a) EffectofMerger,Consolidation,Etc.Atthe optionof theHolder, the sale, conveyanceordispositionofall or substantially all of the assets ofthe Borrower, the effectuationby the Borrowerofatransaction or seriesof related transactions in whichmore than
50% ofthevoting poweroftheBorrowerisdisposedof,ortheconsolidation,mergerorother
business combinationoftheBorrowerwithorintoanyotherPerson(asdefinedbelow) or Persons when the Borrower is not the survivor shall either:(i) be deemed to be an Event of Default (as defined in Article Ill) pursuant to whichtheBorrower shall be required topay to the Holder upon the consummation of and asaconditionto such transaction an amount equal to the Default Amount (as defined inArticle III) or (ii) be treated pursuant to Sectionl.6(b)hereof. "Person" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity ororganization.
(b)AdjustmentDuetoMerger,Consolidation,Etc.If,atanytimewhen thisNoteisissuedand outstanding andpriorto conversion ofallof the Notes, there shall be any merger, consolidation,exchangeof shares,recapitalization, reorganization, or othersimilar event,as aresult of whichshares of CommonStockofthe Borrower shall be changed into the same ora differentnumber of shares of another classor classes of stock or securities of the Borrower oranotherentity, or in caseofanysaleor conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note,upon the basis anduponthe terms and conditions specified herein and in lieu oftheshares of Common Stock immediately theretofore issuableupon conversion, such stock, securities or assets which the Holder would have been entitled to receive insuch transaction had
this Notebeenconvertedinfullimmediatelypriortosuchtransaction(withoutregardto any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respectto the rightsandinterests ofthe Holderof this Noteto theend thatthe provisions hereof (including, without limitation, provisionsfor adjustment of the Conversion Price and of the number of sharesissuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon theconversionhereof. The Borrower shall notaffect any transaction described in this Section l.6(b) unless (a)itfirst gives, totheextent practicable, thirty (30) daysprior written notice(but in any event at least fifteen (15) days priorwritten notice) of the record date ofthe special meeting ofshareholders toapprove, orif there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization, reorganization or othersimilareventor sale ofassets (during which time the Holdershall be entitled to convert this Note)and (b) the resulting successor or acquiring entity (if not theBorrower)assumes by written instrumenttheobligations of this Section 1.6(b).The above provisions shallsimilarly apply tosuccessive consolidations, mergers,sales, transfers orshare exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stockissuable uponsuch conversionhad suchHolder beentheholderofsuch shares ofCommonStock on therecord date for the determination of shareholders entitled tosuch Distribution.
(d)AdjustmentDuetoDilutiveIssuance.If,atanytimewhenanyNotes are issued and outstanding, theBorrowerissues or sells, orin accordancewiththisSection1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.
The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common
Stock ("ConvertibleSecurities") (suchwarrants,rightsandoptionstopurchaseCommonStock orConvertibleSecuritiesare hereinafter referredto as"Options") and thepriceper share for which CommonStock isissuable upontheexerciseofsuch Options is lessthan theConversion Price then in effect, then theConversion Price shall beequal to such price per share. For purposes of the preceding sentence, the"price per sharefor whichCommon Stock is issuable upon the exercise ofsuch Options" isdeterminedby dividing (i)the total amount,if any, received orreceivable bythe Borrower asconsideration for the issuance or granting of all such Options, plusthe minimum aggregateamountof additional consideration,if any,payable to the Borrower uponthe exercise of allsuch Options, plus, in the case of Convertible Securities issuable upon theexerciseof such Options, the minimumaggregate amountof additional considerationpayable upon the conversion orexchange thereof atthe time suchConvertible Securities firstbecomeconvertible or exchangeable, by(ii) the maximumtotal numberof shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment totheConversion Price will be madeupon the actual issuance of suchCommon Stockupon theexercise of such Optionsorupon theconversion or exchange of Convertible Securitiesissuable upon exerciseof such Options.
Additionally, theBorrowershall bedeemedtohaveissuedorsoldshares ofCommon Stockifthe Borrower in any manner issues or sells any Convertible Securities, whether or notimmediatelyconvertible(otherthan where thesame are issuableupon the exercise of Options), and the priceper share forwhich Common Stockisissuable uponsuch conversion or exchangeis less than theConversion Price then in effect, then theConversion Priceshall be equal to such price per share. For the purposes of the precedingsentence, the "price pershare for which Common Stockis issuable upon such con version orexchange" is determinedby dividing(i) the totalamount, if any,received or receivable bythe Borrower as consideration for theissuance or sale of all such ConvertibleSecurities, plus the minimum aggregate amount of additional consideration,i fany, payable to the Borrower upon the conversion or exchange thereof at thetime suchConvertibleSecurities first become convertible or exchangeable, by(ii) the maximumtotal number ofshares of Common Stockissuable upon the conversion orexchange of allsuch ConvertibleSecurities. Nofurther adjustment to the ConversionPrice will be madeupon theactual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.
(e)PurchaseRights.If,atanytimewhenanyNotesareissuedand outstanding,theBorrowerissuesany convertiblesecurities or rights topurchasestock,warrants, securities or other property(the"Purchase Rights") prorata to the record holdersof any class of Common Stock,then the Holder ofthis Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holdercould have acquired if such Holderhad held the number of shares of Common Stock acquirable upon complete conversion of this Note (withoutregard to any limitations onconversion contained herein) immediately beforethedate on which a record is taken forthe grant, issuance or sale of
such PurchaseRightsor, ifnosuchrecordistaken, thedateasofwhich the recordholdersof Common Stockare to be determined for the grant,issue or sale of such PurchaseRights.
(f) NoticeofAdjustments.Uponthe occurrence ofeachadjustmentor readjustmentoftheConversionPriceasaresultoftheeventsdescribed in this Section 1.6, the Borrower, at its expense, shall promptlycompute such adjustment orreadjustmentandprepare and furnish to the Holder a certificate settingforth such adjustment orreadjustment and showing indetailthefacts upon which such adjustment or readjustment is based. The Borrower shall, upon the written requestat any time ofthe Holder, furnish to such Holder a like certificate settingforth (i)such adjustmentorreadjustment,(ii) theConversionPriceat the time in effect and (iii) the numberofshares of Common Stock and the amount, ifany, of other securitiesor property which at the time wouldbe receivedupon conversion of the Note.
1.7TradingMarketLimitations. Unless permittedbytheapplicablerulesand regulations oftheprincipalsecuritiesmarketonwhichtheCommonStock is then listedor traded, in no eventshall the Borrowerissue upon conversion of or otherwisepursuant to this Note and the otherNotesissued pursuant tothe Purchase Agreementmore than the maximum numberofshares ofCommonStockthat the Borrowercanissue pursuant to any rule of the principalUnited States securities market on which the Common Stock isthen traded (the "Maxim um Share Amount"), which shall be 4.99% ofthetotalshares outstanding ontheClosing Date(as defined in the Purchase Agreement), subject toequitable adjustment fromtime to time forstock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the datehereof.Oncethe Maxim um Share Amount has been issued,ifthe Borrower fails toeliminate anyprohibitions underapplicable law or the rules or regulationsofany stock exchange, interdealer quotation system or other self-regulatoryorganizationwithjurisdiction over the Borroweror any of its securities onthe Borrower's ability toissue shares ofCommonStockin excess of the Maximum ShareAmount, in lieu of any further right to convert this Note,this will be considered an Event of Default under Section 3.3 of the Note.
1.8Status as Shareholder.UponsubmissionofaNoticeofConversionbya Holder,(i)thesharescoveredthereby(otherthan the shares, if any,which cannot be issued because theirissuance would exceedsuch Holder's allocated portion of the ReservedAmount or Maximum ShareAmount) shall bedeemed converted into sharesof CommonStock and(ii)the Holder's rights as a Holder of such converted portion of this Noteshall cease and terminate, excepting onlythe right toreceive certificates for suchshares ofCommon Stockand to any remedies provided herein or otherwise available at law or inequity to suchHolderbecause of a failureby theBorrower tocomply with the termsof thisNote.Notwithstanding the foregoing, if a Holder has not received certificates forall sharesof Common Stock prior to the tenth (10th) businessday after the expiration of theDeadline with respect to a conversion of any portionof this Note foranyreason, then (unless the Holder otherwiseelects to retain its status as aholder of Common Stock bysonotifying the Borrower)the Holder shall regainthe rights of aHolder of
this Notewithrespect tosuchunconvertedportionsofthisNoteandtheBorrower shall, assoon as practicable, returnsuch unconvertedNote totheHolder or, if the Note has notbeen surrendered, adjust its records toreflect thatsuch portion ofthis Note has not been converted.In allcases, the Holdershallretainall of its rights and remedies (including, withoutlimitation,(i) the rightto receiveConversion Default Payments pursuantto Section 1.3 to the extentrequired thereby forsuch Conversion Default and any subsequentConversion Default and (ii) theright to have the ConversionPrice withrespect tosubsequentconversionsdetermined in accordancewith Section 1.3) for theBorrower's failure to convertthis Note.
1.9Prepayment.Notwithstanding anythingtothecontrarycontainedinthisNote, atanytime duringthe periodbeginning on the Issue Dateand endingon the date which is thirty (30) days followingthe Issue Date, theBorrowershallhavethe right,exercisable onnotJess than three (3)Trading Days prior written notice to the Holder of the Note toprepay the outstanding Note (principal andaccrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an"Optional PrepaymentNotice") shall bedelivered to theHolderof the Note atits registered addresses and shall state:(1) that the Borrower isexercising its right to prepay the Note, and(2) the dateof prepayment whichshall be not morethanthree(3)Trading Daysfrom thedate of the Optional Prepayment Notice. On the date fixed forprepayment(the "Optional Prepayment Date"),the Borrower shall make paymentof the Optional Prepayment Amount (as definedbelow) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at leastone (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note,the Borrower shall make payment to the Holder of an amount in cash (the "Optional PrepaymentAmount") equal to 115%, multiplied by the sum of: (w)the thenoutstanding principal amount of this Noteplus (x)accrued and unpaid interest on the unpaid principal amount of this Noteto the Optional PrepaymentDate plus(y) DefaultInterest,ifany, on the amounts referred to in clauses(w) and (x) plus(z)any amounts owedto the Holder pursuant to Sections1.3 and 1.4(g) hereof. Ifthe Borrower delivers an OptionalPrepayment Notice and fails topay the Optional Prepayment Amountdue tothe Holder of the Notewithintwo (2)businessdays following the Optional Prepayment Date, the Borrower shallforeverforfeitits right to prepay the Notepursuant to this Section 1.9.
NotwithstandinganythingtothecontrarycontainedinthisNote,at any time during the period beginning on thedate which isthirty-one(31) days following theIssue Date and ending on thedate which is sixty (60)days following theIssue Date, theBorrower shall have the right,exercisableon not less thanthree (3) TradingDays prior written noticeto the Holderof the Note to prepay theoutstandingNote (principal andaccrued interest),infull, in accordance with thisSection 1.9. AnyOptional Prepayment Notice shall be delivered to the Holderofthe Note atits registered addresses and shall state:(1) that the Borrower is exercising its right to prepay the Note,and (2) the dateof prepayment which shall be not more than three (3) Trading Daysfromthe date of the OptionalPrepayment Notice.On the Optional Prepayment Date, the Borrowershall make paymentof the SecondOptional Prepayment Amount (as defined below) to or upon the order ofthe Holder as specified by the Holder in writingtothe Borrower at least one
(I)business daypriortotheOptionalPrepaymentDate.IftheBorrowerexercisesitsrightto prepaythe Note, theBorrower shall makepayment to the Holder ofan amountincash (the "Second Optional PrepaymentAmount'') equal to120%, multipliedby thesum of:(w) the then outstandingprincipalamount ofthis Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note tothe Optional PrepaymentDatepl us (y)Default Interest, if any, on theamounts referred to in clauses(w) and (x) plus (z) any amounts owedto theHolder pursuant to Sections 1.3and 1.4(g) hereof. IftheBorrowerdeliversan Optional Prepayment Notice and failstopaythe Second Optional Prepayment Amount due to theHolder of the Note within two (2)business days following theOptionalPrepaymentDate,the Borrower shall forever forfeit its right to prepaythe Notepursuant to this Section 1.9.
NotwithstandinganythingtothecontrarycontainedinthisNote,atanytime duringtheperiodbeginning onthe datewhich is sixty-one (61) days following the IssueDate and endingon the date which is ninety (90) days following the IssueDate, the Borrowershall have the right, exercisableon not less than three (3)TradingDays prior written notice tothe Holder of the Note to prepaythe outstanding Note(principal and accrued interest), infull, in accordance with this Section1.9. Any Optional PrepaymentNotice shall be deliveredto the Holder of the Note at its registered addresses and shallstate:(1) thatthe Borrower is exercising its rightto prepay theNote, and(2) thedateof prepaymentwhich shall be notmore thanthree (3) Trading Days fromthedateof the Optional Prepayment Notice. On theOptional Prepayment Date, the Borrower shall makepayment of theThird Optional Prepayment Amount (as defined below) to or upon the order of the Holderas specifiedby the Holder in writingtothe Borrowerat least one(I) business dayprior to theOptional Prepayment Date.If the Borrower exercises its rightto prepay the Note, the Borrower shall make payment to the Holder of an amount incash (the ''Third OptionalPrepayment Amount") equal to 125%,multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid intereston the unpaid principal amountof this Note to the Optional Prepayment Dateplus (y) Default Interest, ifany, onthe amounts referredto in clauses (w) and (x)plus (z) any amounts owed tothe Holder pursuant to Sections 1 .3 and 1.4(g)hereof. If the Borrower deliversan Optional Prepayment Noticeand tails to pay the Third Optional Prepayment Amount due to the Holder of the Note withintwo(2) businessdays followingtheOptional Prepayment Date, theBorrower shall foreverforfeit its right to prepaythe Note pursuant to this Section1 .9.
Notwithstanding anytothecontrarystatedelsewhereherein,atanytimeduring theperiodbeginningonthedatethatis ninety-one (91 ) day from the Issue Dateand ending one hundred twenty (1 20) days followingtheIssue Date. the Borrower shall have theright, exercisable on not less than three(3) Trading Days priorwritten notice to the Holder of the Note to prepay theoutstanding Note (principal andaccrued interest),infull, inaccordance withthisSection 1 .9. Any Optional Prepayment Notice shallbe deliveredtothe Holder of the Note at its registered addresses and shall state: (I) that the Borrowerisexercising its rightto prepay the Note, and (2)the date of prepaymentwhich shall be notmorethan three (3) Trading Days from the date of the Optional Prepayment Notice. OntheOptional Prepayment Date, theBorrower
shallmakepaymentoftheFourthOptionalPrepaymentAmount(asdefinedbelow)toorupon the order oftheHolder as specified bytheHolder in writing to theBorrower at leastone(1) business day prior to the OptionalPrepayment Date. If the Borrower exercises its right to prepay the Note, theBorrower shall make payment to theHolder of an amount in cash(the"Fourth OptionalPrepayment Amount") equal to 130%, multipliedby the sum of:(w)the then outstanding principal amount ofthisNoteplus(x)accrued and unpaid interest onthe unpaid principalamountof this Noteto the Optional Prepayment Dateplus (y) Default Interest,if any, on theamountsreferred to in clauses(w)and (x)plus(z) any amountsowed to the Holder pursuant to Sections 1.3 andl.4(g) hereof.IftheBorrower delivers an Optional Prepayment Notice andfailsto pay the Fourth Optional PrepaymentAmount due to the Holder of the Note within two (2) businessdays following the Optional Prepayment Date,the Borrower shall foreverforfeit its right to prepay the Note pursuant to this Section 1.9.
Notwithstanding anytothecontrarystatedelsewhere herein,atanytimeduring theperiodbeginningon the date thatis one hundred twenty-one (121) day from the Issue Date andending one hundred fifty (150)days followingthe Issue Date, theBorrower shall have the right, exercisable on not lessthan three (3) Trading Days prior written noticeto the Holder of the Noteto prepay the outstanding Note(principal and accruedinterest),in full, inaccordance with this Section 1.9. Any OptionalPrepayment Noticeshallbe deliveredtothe Holderof the Note at its registeredaddressesand shall state: (I) that theBorrower is exercising its right to prepay the Note, and (2) the date of prepaymentwhich shall benot more than three (3) TradingDays from
the date oftheOptionalPrepaymentNotice.OntheOptionalPrepaymentDate, theBorrowershallmakepaymentof theFifthOptional PrepaymentAmount (as defined below) to or uponthe orderof theHolder as specified by the Holderin writing to theBorrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the "Fifth Optional Prepayment Amount") equal to 135%, multiplied by the sum of: (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 Optional Prepayment Date plus (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 Notice and fails to pay the Fifth Optional Prepayment Amount 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 prepay the Note pursuant to this Section 1.9.
Notwithstanding any tothecontrarystatedelsewhereherein,atanytimeduring theperiodbeginningonthedate that is one hundredfifty-one(151) day fromtheIssue Date and endingone hundred eighty(180) daysfollowing the Issue Date, the Borrower shallhavethe right, exercisable on not less than three (3)Trading Days prior writtennotice tothe Holderof the Noteto prepay the outstanding Note (principal and accruedinterest), in full,in accordance with thisSection 1.9. AnyOptional PrepaymentNotice shall be delivered to theHolder of the Note at its registered addresses and shall state: (1)that the Borrower isexercising itsright toprepay the
Note, and(2)thedateofprepaymentwhichshallbenotmorethanthree(3)TradingDaysfrom thedate of theOptional PrepaymentNotice.On the Optional Prepayment Date, the Borrower shall makepaymentof the SixthOptional PrepaymentAmount (asdefined below) to or uponthe order of the Holderas specified by the Holder in writing to the Borrower atleast one(1) business day priorto the Optional Prepayment Date.If the Borrower exercises itsright to prepaythe Note, the Borrower shallmake payment to the Holderof an amountincash (the"Sixth Optional Prepayment Amount") equalto 140%,multiplied by thesumof:(w) the then outstanding principal amount of this Noteplus(x)accruedandunpaidintereston theunpaidprincipal amount of this Note to theOptionalPrepayment Dateplus (y) Default Interest, ifany, on the amounts referredto in clauses (w)and (x)plus (z) any amounts owed to theHolderpursuant to Sections 1.3and 1.4(g)hereofIf the Borrowerdelivers an Optional Prepayment Notice andfails to pay the Sixth Optional Prepayment Amount due to the Holder of the Note within two(2) business days following the OptionalPrepayment Date, the Borrower shall forever forfeitits right toprepay the Note pursuant to thisSection 1.9.
After theexpirationofonehundredeighty(180)followingthedateoftheNote, theBorrowershall have no right of prepayment.
ARTICLE II. CERTAINCOVENANTS
2.1DistributionsonCapitalStock.SolongastheBorrowershallhave any obligationunderthisNote, the Borrower shall not without theHolder'swritten consent (a) pay, declare orset apart for suchpayment, anydividend or other distribution(whetherin cash, property orothersecurities)on shares of capital stock other than dividends onshares of Common Stock solely in the form ofadditional shares ofCommon Stockor(b) directlyor indirectly or through any subsidiary make any other payment ordistributionin respect of itscapital stock except fordistributions pursuant toany shareholders'rightsplan which is approved by a majority of theBorrower's disinterested directors.
2.2RestrictiononStockRepurchases.SolongastheBorrowershallhaveany obligationunderthisNote,theBorrower shall not without the Holder's written consent redeem, repurchase orotherwise acquire (whether for cashor in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire anysuch shares.
2.3Borrowings. SolongastheBorrowershallhaveanyobligationunderthis Note,theBorrower shallnot, without the Holder'swritten consent,(a) create, incur, assume guarantee, endorse,contingently agree topurchase or otherwise become liableupon the obligation of any other person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for depositor collection, or (b)suffer to exist any liability
forborrowedmoney,exceptanyborrowingsthatdoesnotrendertheBorrowera"Shell" company asdefined in Rule 12b-2 under theSecurities Exchange Act of1934.
2.4Sale of Assets.Solongas theBorrowershallhaveanyobligationunderthis Note,theBorrowershall not,without the Holder's written consent, sell,lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
2.5Advances andLoans.SolongastheBorrowershallhaveanyobligation underthis Note, the Borrowershall not,withoutthe Holder's writtenconsent, lend money, give credit ormake advances to any person, firm, joint ventureor corporation, including,without limitation,officers, directors, employees, subsidiaries and affiliates of the Borrower,except loans,credits or advances (a) in existence or committed on thedatehereof and whichthe Borrower has informed Holder in writing priorto thedatehereof, (b) made in the ordinary course of business or (c) not in excess of$100,000.
ARTICLEIII.EVENTSOFDEFAULT
Ifanyofthefollowing eventsofdefault (each,an "Eventof Default") shall occur:
3.1FailuretoPayPrincipalorInterest.TheBorrowerfailstopay theprincipal hereof or interest thereon when dueon this Note, whetherat maturity, upon accelerationor otherwise.
3.2Conversionand theShares.TheBorrowerfailstoissuesharesofCommon StocktotheHolder(or announces orthreatens in writing thatit willnothonorits obligation to do so) upon exerciseby the Holder of the con versionrights of the Holder in accordance with the termsofthis Note,fails to transfer or cause its transferagenttotransfer (issue) (electronicallyor in certificatedform) any certificate for shares of Common Stock issued to the Holder upon con version of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon con version of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) an y restrictive legend (or to withdraw any stop transfer instructions in respectthereof) on any certificatefor any sharesofCommonStockissued totheHolder uponconversion oforotherwise pursuant to th is Note as andwhen required by this Note (or makesany writtenannouncement, statement or threat that itdoes not intend tohonorthe obligations described in this paragraph) and anysuch failure
shallcontinueuncured(oranywrittenannouncement,statementorthreatnottohonorits obligations shallnotberescinded in writing) for three (3) business days after theHolder shall have delivered aNotice ofConversion. Itis an obligation of theBorrowerto remain current in its obligations to its transfer agent.It shall be anevent of default of this Note, if aconversion of thisNoteis delayed, hinderedorfrustrateddueto a balance owed bythe Borrower to its transfer agent. Ifat theoption of the Holder, theHolderadvances anyfunds tothe Borrower's transfer agentin ordertoprocessaconversion, such advanced fundsshall bepaid by the Borrowerto the Holder within forty eight (48) hours of a demandfromthe Holder.
3.3BreachofCovenants.TheBorrowerbreachesanymaterialcovenantorother materialtermorconditioncontainedinthis Noteandanycollateral documents including but not limited tothe Purchase Agreement and such breach continuesfor a periodof ten (10) days after writtennotice thereof to the Borrowerfrom the Holder.
3.4Breachof RepresentationsandWarranties.Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.5ReceiverorTrustee. TheBorroweroranysubsidiaryoftheBorrowershall makeanassignmentfor the benefit ofcreditors, or apply for or consentto theappointmentof a receiver ortrustee for it or for a substantial part ofits propertyorbusiness, or such a receiver or trustee shall otherwisebe appointed.
3.6Judgments.Anymoneyjudgment,writorsimilarprocessshallbeenteredor filedagainstthe Borrower or any subsidiary ofthe Borrower or any ofits propertyor other assets formore than$50,000, andshallremain unvacated, unbonded or unstayedfor aperiod of twenty (20) days unless otherwise consentedto by the Holder,which consent will not be unreasonably withheld.
3.7Bankruptcy.Bankruptcy,insolvency,reorganizationorliquidation proceedingsor otherproceedings,voluntaryorinvoluntary, forreliefunderanybankruptcy law or any law for the relief of debtors shall be instituted byor against the Borrowerorany subsidiary of the Borrower.
3.8DelistingofCommon Stock.TheBorrowershallfail tomaintainthelisting of theCommon Stockonat leastone of the OTC (which specifically includes the Pink Sheets electronic quotation system) or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small Cap Market,the New York Stock Exchange, or theAmerican Stock Exchange.
3.9FailuretoComplywiththeExchangeAct.TheBorrowershallfailtocomply withthereporting requirements of the ExchangeAct; and/or the Borrower shall cease to be subject to the reportingrequirements of the ExchangeAct.
3.10Liquidation.Anydissolution, liquidation,orwindingupofBorroweror anysubstantialportion ofitsbusiness.
3.11CessationofOperations.AnycessationofoperationsbyBorroweror Borroweradmitsitisotherwisegenerally unableto pay its debts as such debts becomedue, provided, however, that any disclosureof the Borrower's abil ity to continue as a "going concern" shall notbe an admission that the Borrower cannot pay its debts as they become due.
3.12MaintenanceofAssets.ThefailurebyBorrowertomaintainany materialintellectual propertyrights,personal,realpropertyor otherassetswhich are necessary to conduct its business (whethernow or inthe future).
3.13Financial StatementRestatement.Therestatementofanyfinancial statementsfiledbythe Borrowerwith the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.14Reverse Splits. TheBorrowereffectuatesareversesplitofits
Common Stock withouttwenty(20)dayspriorwrittennoticetotheHolder.
3.15ReplacementofTransferAgent.IntheeventthattheBorrowerproposesto replaceitstransferagent, theBorrower fails to provide, prior tothe effectivedate of such replacement,a fully executed Irrevocable TransferAgentInstructionsin aform as initially delivered pursuant to the PurchaseAgreement(including but not limited totheprovision to irrevocably reserve shares ofCommon Stock in the Reserved Amount) signed bythesuccessor transferagentto Borrower and the Borrower.
3.16Cross-Default.Notwithstanding anythingtothecontrarycontainedinthis Noteortheother related orcompanion documents, abreach or default by theBorrower of any covenant or otherterm or conditioncontainedin any oftheOther Agreements, after the passage of allapplicable notice andcure orgraceperiods,shall, atthe option oftheHolder,be considered a default under this Note and the Other Agreements, inwhich eventthe Holdershall be entitled (but inno event required) to apply all rights andremedies of the Holder underthe termsof this
NoteandtheOtherAgreementsbyreasonofadefault undersaidOtherAgreementor hereunder. "Other Agreements" means, collectively, allagreements and instrumentsbetween, amongor by: (1)the Borrower, and, or for the benefit of, (2) theHolder and any affiliate of the Holder, including, without limitation, promissory notes;provided, however,the term "Other Agreements" shallnot include the relatedor companion documents to thisNote.Eachof the loan transactions will be cross-defaultedwith each other loan transaction and with all other existing and future debtof Borrower to the Holder.
Upon theoccurrenceandduringthecontinuation ofanyEventofDefaultspecified in Section3.1(solely with respectto failureto pay the principalhereof or interest thereon when due atthe MaturityDate),theNote shall becomeimmediately due and payableandthe Borrower shall pay to the Holder, infull satisfaction ofitsobligations hereunder, an amount equal tothe Default Sum (as definedherein). UPON THEOCCURRENCE AND DURING THE CONTINUATIONOF ANY EVENT OF DEFAULT SPECIFIEDIN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE ANDTHE BORROWER SHALLPAY TO THE HOLDER, IN FULL SATISFACTION OF ITSOBLIGATIONS HEREUNDER, ANAMOUNT EQUAL TO: (Y)THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIEDBY (Z) TWO (2).Upon theoccurrence and duringthe continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.1 3, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the "Default Notice"), and upon the occurrence of an Event of Default specified the remaining sections of Articles ill (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) l 50% times the sum of (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 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "Default Sum") or (ii) the "parity value" 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 "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of 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 period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "Default Amount") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in Lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. MISCELLANEOUS
4.1FailureorIndulgenceNotWaiver.Nofailureor delay on the part of the Holder in
the exerciseofany power,rightorprivilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2Notices.Allnotices,demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (i i) deposited i n the mail, registered or certified, return receipt requested, postage prepaid, (ii i) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. A n y notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or deli very by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such deli very (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, full y prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to theBorrower, to:
ALKAME HOLDINGS, INC.
3651 Lindell Road-Suite D#356
Las Vegas, NV89013
Attn: ROBERT EAKLE,Chief ExecutiveOfficer facsimile:
With acopybyfaxonlyto(whichcopyshallnotconstitutenotice): [enternameoflawfirm]
Attn: [attorneyname]
[enter addressline1][entercity,state,zip]facsimile:[enterfaxnumber]
If tothe Holder:
KBM WORLDWIDE,INC.
80 CuttermillRoad-Suite410
Great Neck,NY11021
Attn: SethKramer,President
e-mail: info@kbmworldwide.com
With acopybyfaxonlyto(whichcopyshall notconstitute notice): NaidichWurmanBirnbaum& Maday, LLP
Att: JudahA.Eisner, Esq.
Attn: BernardS.Feldman,Esq. facsimile:516-466-3555
e-mail: dyork@nwbmlaw.com
4.3Amendments. ThisNoteandanyprovisionhereof mayonlybeamendedby aninstrumentinwritingsignedbythe Borrower and the Holder. Theterm"Note" and all referencethereto, as used throughout this instrument, shall meanthis instrument (and the other Notes issued pursuant to the Purchase Agreement) asoriginally executed, or iflater amended or supplemented,then assoamendedorsupplemented.
4.4Assignability.ThisNoteshallbe bindingupontheBorrowerandits successorsand assigns, and shall inure to be thebenefit of the Holder and its successors and assigns. Each transferee of this Notemust bean "accredited investor" (as defined in Rule 50l(a) of the 1933 Act). Notwithstanding anything in this Note tothe contrary, this Note may be pledged as collateral inconnection with a bona fide margin account or otherlending arrangement.
4.5CostofCollection. If default ismadeinthepaymentofthisNote, the
Borrower shallpaytheHolderhereofcostsofcollection, includingreasonableattorneys' fees.
4.6GoverningLaw.ThisNoteshallbegovernedbyandconstruedin accordance withtheJawsofthe State of New Yorkwithout regardto principles of conflicts of laws.Any action brought by either party againstthe other concerningthe transactionscontemplated by this
Note shallbebroughtonlyinthestatecourtsofNewYorkorinthefederalcourts locatedin the state and countyof Nassau. The parties tothis Notehereby irrevocably waiveany objection to jurisdiction and venueof any action instituted hereunder and shall notassertany defense based on lack of jurisdictionor venue or basedupon forum non conveniens.The BorrowerandHolder waive trial byjury.The prevailingpartyshall beentitled to recover from the otherparty its reasonableattorney's fees and costs. Intheevent that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceableunder any applicable statute or rule of law, thensuch provisionshall bedeemed inoperative to theextent that it may conflicttherewith and shallbedeemed modified to conformwith such statute or ruleof law. Anysuch provision which mayprove in valid or unenforceable under any law shall not affect the validity or enforceability of anyother provisionof anyagreement.Each party hereby irrevocably waives personalservice of process andconsents to process being served in any suit, action or proceeding in connection with this Agreementor any other Transaction Document by mailinga copy thereof via registered or certifiedmail or overnight delivery (with evidence of delivery) tosuch party atthe address ineffect for noticesto itunder thisAgreementand agrees that such serviceshallconstitutegoodand sufficient service ofprocess and noticethereof. Nothingcontained hereinshall bedeemed to limitinanyway anyright toserveprocess in any other mannerpermitted by law.
4.7CertainAmounts.Wheneverpursuanttothis NotetheBorrowerisrequiredto payanamountinexcessofthe outstanding principal amount (or the portion thereof required to be paid at that time) plusaccruedand unpaid interest plus DefaultInterest on such interest, the Borrower andthe Holder agree thatthe actual damages to the Holder from the receipt of cash payment on thisNotemaybedifficultto determine and theamount tobe so paid by the Borrower represents stipulated damagesand not a penalty andis intended to compensatethe Holder in part for lossof the opportunity to convert this Noteand to earn a return from the sale
of sharesofCommonStock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.TheBorrowerandtheHolderhereby agreethat such amount of stipulated damages is not plainlydisproportionate to the possible lossto the Holder from the receipt ofa cash payment withoutthe opportunity toconvert this Noteinto shares ofCommon Stock.
4.8PurchaseAgreement.ByitsacceptanceofthisNote,eachpartyagreestobe boundbythe applicable terms ofthe PurchaseAgreement.
4.9NoticeofCorporateEvents.Exceptasotherwiseprovidedbelow, theHolder ofthisNoteshall have no rights asa HolderofCommon Stock unless andonly tothe extent that it convertsthis Noteinto Common Stock.The Borrower shall provide theHolderwithprior notification ofany meetingof the Borrower'sshareholders (andcopies of proxy materials and other informationsent to shareholders). In theevent ofanytaking by theBorrower ofa record ofitsshareholders for the purpose of determiningshareholderswho are entitledtoreceive paymentofany dividend or otherdistribution, any right to subscribe for, purchaseorotherwise
acquire (includingbywayofmerger,consolidation,reclassificationorrecapitalization) anyshareof any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with an y proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneouslywiththe notification to theHolder in accordance with theterms ofthis Section 4.9.
4.10Remedies.TheBorroweracknowledgesthatabreachbyitofits obligationshereunder will causeirreparable harm tothe Holder, by vitiatingthe intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that theremedy at law for a breach of its obligationsunder this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
IN WITNESSWHEREOF,Borrowerhascaused this Notetobesignedinits name by its duly authorizedofficer September 4, 2014.
ALKAME HOLDINGS, INC.
By:/s/ Robert Eakle
Robert Eakle
Chief Executive Officer
