NEITHERTHEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBY THISCERTIFICATE NORTHESECURITIESINTOWIUCHTHESESECURITIES ARECONVERTIBLE HAVE BEEN REGISTERED UNDER THESECURITIES ACTOF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAYNOT BE OFFERED FOR SALE, SOLD, TRANSFERREDOR ASSIGNED (I) INTHEABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENTFORTHE SECURITIES UNDER THE SECURITIESACTOF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL(WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER),IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIREDUNDERSAID ACT OR (ll) UNLESSSOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.NOTWITHSTANDING THEFOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
PrincipalAmount:US$56,250 PurchasePrice:US$56,250 | IssueDate:September8,2014 |
CONVERTIBLE PROMISSORYNOTE
FORVALUERECEIVED,ALKAMEHOLDINGS,INC.,aNevadacorporation (hereinaftercalledthe"Borrower"),herebypromisestopay to theorderofAUCTUS PRIVATEEQUITY FUND,LLC,a Delaware limitedliabilitycompany,orregisteredassigns (the"Holder") thesumof US$56,250 together withanyinterest asset forthherein, on June8,2015(the"Maturity Date"), and topay intereston theunpaidprincipalbalance hereofat therateof eightpercent (8%)(the"Interest Rate") perannumfromthe datehereof(the "IssueDate")untilthe samebecomes due and payable,whether atmaturityorupon acceleration orby prepaymentorotherwise. ThisNote maynot be prepaid inwhole orinpart except as otherwiseexplicitlysetforth hereinwith the written consent ofthe Holderwhichmay bewithheld for any reason orfor noreason. Any amount ofprincipalor interest onthisNote whichis not paid when due shall bear interestatthe rateof twentytwopercent(22%) perannum fromthedue datethereof until thesameis paid("Default Interest").Interestshall commence accruing onthedate thattheNote isfully paidandshallbecomputed onthe basisof a365-dayyearand the actualnumber ofdayselapsed.Allpayments due hereunder(totheextent not convertedinto common stock,$0.001parvaluepershare(the"Common Stock")in accordancewiththetermshereof)shallbemadein lawful moneyoftheUnitedStatesof America. Allpaymentsshallbemadeatsuchaddressasthe Holdershallhereaftergive tothe Borrowerbywrittennoticemade inaccordancewiththe provisionsofthisNote.Wheneveranyamountexpressed tobe due by theterms of this Noteis dueonany daywhichisnot abusinessday,thesame shallinstead be dueon the next succeedingdaywhichisa business dayand,inthecase ofany interest paymentdatewhich isnotthedateon whichthisNote ispaidin full,the extensionofthe due date thereofshall notbetaken intoaccount forpurposes ofdetermining theamount ofinterest dueon suchdate. As used inthis Note,theterm"business day"shallmean any dayotherthana Saturday,Sundayor a dayon whichcommercialbanksin thecity
ofNewYork,NewYorkareauthorizedorrequiredbylaworexecutiveordertoremainclosed. Each capitalized term usedherein,andnototherwise defined, shall have the meaning ascribed theretoin that certain SecuritiesPurchaseAgreement dated the date hereof, pursuanttowhichthisNotewas originallyissued (the"PurchaseAgreement").
ThisNoteisfreefromalltaxes,liens,claimsandencumbranceswithrespecttotheissue thereofandshallnotbesubjectto preemptive rights or othersimilar rights of shareholders of the Borrower and will notimpose personal liability upon the holder thereof.
ThefollowingtermsshallapplytothisNote:
ARTICLEI.CONVERSIONRIGHTS
1.1Conversion Right.TheHoldershallhavetherightfromtimetotime,andat anytimeduringtheperiodbeginningonthedatewhich is one hundred eighty(180)days following thedateof this Noteandendingon the later of(i) the MaturityDateand (ii)the date ofpayment of the Default Amount(asdefinedin Article III) pursuant to Section 1.6(a) or Article III,each in respect ofthe remaining outstanding principal amountofthis Note to convertallor any part ofthe outstanding and unpaidprincipal amountof this Note intofullypaidand non-assessablesharesofCommonStock, as suchCommonStockexists on the IssueDate,or any shares ofcapitalstock or othersecuritiesof the Borrower into whichsuch CommonStock shall hereafter bechangedor reclassified at the ConversionPrice(asdefinedbelow) determined as provided herein(a "Conversion");provided, however,thatin no eventshallthe Holder beentitledto convertany portionofthisNotein excess of that portion of thisNoteupon conversionof whichthesum of(1) thenumber of sharesof Common Stock beneficiallyowned by the Holder andits affiliates(otherthansharesof Common Stock which may be deemedbeneficiallyownedthrough the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of anyother security of the Borrowersubjectto a limitationon conversion or exercise analogousto the limitationscontained herein) and (2)thenumber ofsharesof Common Stock issuable uponthe conversionofthe portion ofthis Note with respectto which the determinationofthis proviso is being made,wouldresult in beneficialownership by the Holder andits affiliates of more than 4.99% oftheoutstanding shares of Common Stock.Forpurposes of the proviso to the immediately preceding sentence,beneficial ownership shall be determined in accordancewithSection 13(d) of the Securities ExchangeAct of 1934,as amended (the"ExchangeAct"), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon,at the election ofthe Holder, notless than 61 days'prior notice to the Borrower,and the provisions of the conversion limitation shallcontinueto apply until such 61stday (or such later date,as determined by the Holder,as may be specified in such notice ofwaiver). Thenumber ofsharesof Common Stock to be issued upon each conversionofthisNote shallbe determined by dividing theConversionAmount(asdefined below) bythe applicable Conversion Price then in effect on the date specified in the notice ofconversion,in the form attached hereto as Exhibit A (the"Notice of Conversion"), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before6:00 p.m.,NewYork, New York time on such conversion date(the "Conversion Date").The term"Conversion Amount" means,with respect to
anyconversionofthisNote,thesumof(1)theprincipalamountofthisNotetobe converted insuch conversionplus(2)at the Holder'soption,accrued andunpaid interest,if any,on such principalamount at the interest ratesprovidedinthisNoteto theConversionDate,provided however,thattheBorrowershallhavetherightto payany orallinterestincashplus(3) attheHolder's option,Default Interest,if any, onthe amounts referred toin the immediately preceding clauses(1) and/or (2)plus(4)at the Holder'soption,any amountsowed to the Holderpursuantto Sections 1.3 and1.4(g)hereof.
1.2ConversionPrice.
(a)CalculationofConversionPrice. Theconversionprice(the"ConversionPrice") shall equaltheBaseConversionPrice(asdefined herein)(subjecttoequitableadjustments for stock splits, stockdividendsor rights offeringsbythe Borrowerrelatingto the Borrower'ssecurities or the securities of any subsidiaryof theBorrower, combinations,recapitalization,reclassifications, extraordinarydistributionsand similar events). The"Base Conversion Price''shallmean55% multipliedbythe MarketPrice (asdefined herein)(representing adiscount rateof 45%). "MarketPrice"means the average of thelowest two (2)Trading Prices(asdefined below) for theCommon Stock duringthe twenty-five (25)Trading Day periodending on thelatestcompleteTrading Day priortotheConversionDate."TradingPrice"means,for any security asofany date,theclosing bid priceon theOver-the-CounterBulletin Board(the "OTCBB"),OTCQBor applicabletradingmarket asreportedbyareliable reportingservice("ReportingService")designated bytheHolderor,if theOTCBBisnot theprincipaltrading market for such security,theclosingbidprice of such securityontheprincipalsecuritiesexchangeor trading market where such security is listed ortradedor,if noclosingbidprice of such security is available in any oftheforegoing manners, the average of the closingbidprices ofanymarketmakers for such security that are listed in the "pink sheets"bythe NationalQuotationBureau,Inc.TheConversionPrice may beadjusteddownward if,within three (3)business daysof thetransmittalof the Notice ofConversion totheCompany,theCommon Stockhas aclosing bidwhichis5% orlower than thatsetforth intheNotice ofConversion. Iftheshareshave not been deliveredwithin three (3)businessdays to the Company,theNotice of Conversion may be rescinded.Inthe case that theBorrower's Common Stock isnot deliverable by DWAC,anadditional 10%discountwill apply. In thecasethattheBorrower's Common Stock is"chilled"fordepositintothe DTCsystem and only eligibleforclearingdeposit,an additional15%discount shallapply whilethe"chill"isin effect.If theTrading Pricecannotbe calculated forsuch security on suchdatein the mannerprovidedabove,the TradingPriceshall bethefairmarketvalue asmutuallydetermined by theBorrowerand theholdersofamajority ininterestof the Notesbeingconverted for which the calculation ofthe Trading Priceis required inorder todeterminethe ConversionPriceofsuch Notes."Trading Day"shall meanany dayonwhichtheCommonStock is tradablefor anyperiodonthe OTCBB,OTCQBor ontheprincipalsecurities exchange or other securities market on whichtheCommonStockis then being traded.
(b)ConversionPriceDuringMajorAnnouncements.Notwithstanding anythingcontainedinSection1.2(a)tothecontrary,intheeventtheBorrower(i)makesapublicannouncement that it intends toconsolidateormerge with anyother corporation (otherthanamerger inwhich theBorroweris the surviving or continuing corporationanditscapitalstock is unchanged) or sell ortransferallor substantially all of theassetsof theBorroweror (ii) anyperson,
grouporentity(includingtheBorrower)publiclyannouncesatenderoffertopurchase50%or moreoftheBorrower'sCommon Stock(orany othertakeover scheme) (the dateofthe announcementreferredto in clause (i) or(ii)ishereinafterreferredto asthe"Announcement Date"),thenthe ConversionPriceshall,effectiveuponthe Announcement Dateandcontinuing through the Adjusted ConversionPrice TerminationDate(as defined below),beequal tothe lower of (x) the ConversionPrice which wouldhave been applicablefor aConversionoccurringon the Announcement Dateand(y)the ConversionPricethat wouldotherwisebein effect. Fromand after theAdjustedConversion Price Termination Date, the Conversion Priceshallbe determined as set forthinthis Section 1.2(a). Forpurposeshereof, "AdjustedConversionPriceTerminationDate"shall mean,withrespect to any proposedtransactionor tenderoffer(or takeover scheme) forwhich a public announcement as contemplatedby this Section 1.2(b)has beenmade,the dateuponwhich the Borrower(inthecase of clause(i) above)or theperson,group orentity(in the case of clause(ii)above) consummatesor publicly announcesthetermination or abandonmentofthe proposedtransactionor tender offer(ortakeoverscheme) which caused this Section 1.2(b) to become operative.
1.3AuthorizedShares.TheBorrowercovenantsthatduringtheperiodthe conversionrightexists,theBorrowerwillreservefromitsauthorized and unissued CommonStock asufficientnumberof shares,free from preemptive rights,to provide for the issuance of Common Stockuponthe fullconversionofthisNoteissuedpursuanttothePurchaseAgreement. The Borroweris required at all times to have authorized and reserved five times the number ofsharesthatis actually issuable upon full conversion oftheNote(basedonthe Conversion Price oftheNotesin effect from timeto time) (the"ReservedAmount").TheReservedAmount shall be increased fromtimetotimeinaccordancewith the Borrower's obligations pursuanttoSection
3(d) ofthePurchaseAgreement.TheBorrowerrepresentsthat uponissuance,suchshareswillbedulyandvalidlyissued,fullypaidandnon-assessable. In addition,if the Borrowershallissue anysecuritiesor make any change to its capital structure which wouldchangethe numberofshares of Common Stock intowhich theNotes shallbeconvertible at the then currentConversionPrice,the Borrowershallat thesametime make proper provision so that thereafter there shallbea sufficient number ofshares of CommonStock authorizedand reserved,free from preemptive rights,for conversion of the outstandingNotes.TheBorrower(i) acknowledges that it has irrevocably instructeditstransfer agent to issue certificates for the Common Stock issuable upon conversion of this Note,and (ii) agreesthatitsissuanceof this Noteshallconstitute full authority to itsofficersandagentswhoarecharged with the duty of executing stock certificates toexecuteand issuethe necessarycertificates forshares of Common Stockinaccordance th the terms and conditions of thisNote.
If,atanytimetheBorrowerdoesnotmaintaintheReservedAmountitwillbe consideredanEventofDefault under Section3.2of theNote.
1.4MethodofConversion.
(a)MechanicsofConversion.SubjecttoSection1.1,thisNotemaybe convertedbytheHolderinwhole or in part at anytime from timetotime after theIssue Date,by(A) submitting tothe Borrower aNotice ofConversion (byfacsimile,e-mail or other reasonable means ofcommunication dispatchedonthe ConversionDateprior to 5:00 p.m.,New York,New
York time)and(B)subjecttoSection1.4(b), surrenderingthisNoteattheprincipalofficeofthe Borrower.
(b)Surrenderof NoteUponConversion.Notwithstandinganythingto thecontrarysetforthherein,uponconversionofthisNote in accordancewiththe termshereof, the Holdershallnot be required tophysicallysurrenderthisNote tothe Borrower unless theentireunpaid principal amount of thisNoteissoconverted. TheHolder and the Borrowershallmaintain recordsshowingtheprincipal amountsoconverted and thedates of suchconversionsorshallusesuch othermethod,reasonablysatisfactorytotheHolderand the Borrower, so as not to require physicalsurrenderof thisNoteuponeachsuchconversion.Intheevent of any disputeordiscrepancy,suchrecordsof the Borrowershall,prima facie,be controlling and definitivein theabsence of manifesterror. Notwithstandingtheforegoing,if any portion ofthisNoteis convertedasaforesaid,theHolder maynot transfer thisNoteunless theHolder firstphysicallysurrendersthisNoteto the Borrower,whereupontheBorrowerwillforthwith issue and deliver upon theorder ofthe Holder a newNoteof like tenor, registered as the Holder(uponpayment by theHolderofany applicable transfertaxes)may request,representing in theaggregatethe remaining unpaidprincipal amountof thisNote.The Holder and anyassignee,by acceptance ofthis Note,acknowledgeand agree that, by reasonofthe provisions ofthis paragraph, followingconversion ofa portionofthisNote,theunpaid and unconvertedprincipal amount ofthisNoterepresented bythisNotemay be less thantheamountstatedon the face hereof.
(c)PaymentofTaxes.TheBorrowershallnotberequiredtopayany taxwhichmaybepayableinrespectof anytransferinvolved inthe issue and deliveryofshares of CommonStockorothersecuritiesor property on conversionof thisNote inanameother than that ofthe Holder(or instreetname), and the Borrowershallnotbe requiredtoissueordeliver any suchsharesorothersecuritiesor propertyunless and untilthe person or persons(otherthan the Holder or the custodian inwhose streetnamesuch sharesare tobeheldforthe Holder's account) requestingthe issuance thereofshallhave paid to theBorrower the amount of anysuchtaxorshallhave established to thesatisfactionofthe Borrower thatsuchtax has beenpaid.
(d)DeliveryofCommonStockUponConversion.Uponreceiptbythe BorrowerfromtheHolderofa facsimiletransmissionore-mail(orotherreasonable meansofcommunication) of aNoticeof Conversionmeetingthe requirements for conversion asprovided inthisSection1.4,theBorrowershallissueand deliverorcauseto beissued anddelivered toor uponthe orderoftheHolder certificates for theCommonStock issuable uponsuch conversion withinthree (3)businessdays aftersuchreceipt(the"Deadline") (and,solely inthe case ofconversionofthe entire unpaidprincipal amounthereof,surrender of this Note)in accordancewiththetermshereofand the PurchaseAgreement.
(e)ObligationofBorrowertoDeliverCommonStock.UponreceiptbytheBorrowerofaNoticeofConversion,theHoldershallbe deemed to be theholder ofrecordoftheCommonStockissuable uponsuchconversion,the outstandingprincipal amount and the amountof accruedand unpaid interest on thisNoteshallbereduced toreflect such conversion,and, unlesstheBorrower defaultsonitsobligationsunder this ArticleI,all rights withrespect to the portionofthisNotebeingsoconverted shall forthwith terminate excepttherightto receivethe Common Stock or othersecurities,cashor other assets,as herein provided,on suchconversion.
IftheHoldershallhavegivenaNoticeofConversionasprovidedherein,theBorrower's obligation toissue anddeliver thecertificates for CommonStockshall be absolute andunconditional,irrespective of the absence ofany actionbythe Holderto enforce thesame,anywaiver orconsent with respect to any provisionthereof,the recovery of any judgment against any person or any actiontoenforce the same, anyfailureor delay in the enforcement of any other obligation ofthe Borrowertothe holderof record,oranysetoff, counterclaim, recoupment,limitationor termination, oranybreachorallegedbreachbytheHolder ofanyobligationtothe Borrower, and irrespective of any other circumstance whichmightotherwise limit such obligation oftheBorrowerto the Holderinconnection with suchconversion.TheConversionDatespecified in the NoticeofConversion shall betheConversion Datesolongasthe Notice ofConversion is receivedbytheBorrower before5:00p.m., New York, New Yorktime,on suchdate.
(t)DeliveryofCommonStockbyElectronicTransfer.Inlieuof deliveringphysicalcertificatesrepresentingtheCommon Stock issuableuponconversion,provided theBorrowerisparticipating in theDepositoryTrust Company ("DTC") Fast Automated Securities Transfer ("FAST")program,uponrequest oftheHolderanditscompliance with theprovisionscontainedinSection 1.1 andin this Section1.4,theBorrowershalluseits commercially reasonablebesteffortstocauseits transferagenttoelectronically transmit theCommon Stockissuableuponconversion tothe Holderby creditingthe account of Holder'sPrime BrokerwithDTCthroughits DepositWithdrawal At Custodian("DWAC")system.
(g)FailuretoDeliverCommonStockPriortoDelivery Dealdine.Without inanywaylimitingtheHolder'sright to pursue other remedies, including actual damages and/or equitable relief,the parties agreethat ifdelivery of the Common Stockissuableupon conversion of thisNote is notdeliveredby theDeadline(otherthana failureduetothecircumstancesdescribedin Section 1.3 above, whichfailure shallbegoverned by such Section) theBorrowershall pay tothe Holder $2,000 per dayincash, foreachdaybeyondtheDeadline thatthe Borrower fails todeliversuchCommonStock. Such cash amount shall be paid toHolder bythe fifthdayofthemonth followingthe monthin whichit hasaccruedor,atthe option ofthe Holder(bywritten notice totheBorrower bythe first dayofthemonth followingthemonthin which ithasaccrued), shall beadded tothe principalamountofthis Note,inwhich event interest shall accruethereonin accordancewith theterms of this Note and suchadditional principal amount shall be convertibleinto Common Stock in accordance with the terms of thisNote.The Borroweragrees that the rightto convertisa valuable righttothe Holder. The damages resulting from a failure, attempttofrustrate, interferencewith such conversionrightare difficult if not impossible to qualify. Accordingly the partiesacknowledge that theliquidateddamagesprovisioncontained in thisSection 1.4(g) arejustified.
1.5Concerningthe Shares.ThesharesofCommonStockissuableuponconversion ofthisNotemaynotbesoldortransferredunless(i) suchshares aresold pursuanttoaneffectiveregistrationstatementunder theAct or(ii) theBorroweroritstransfer agent shallhave been furnished with an opinion ofcounsel(which opinionshallbe in form, substanceand scope customaryforopinions ofcounsel in comparable transactions) to the effectthat theshares to be sold or transferredmaybesold or transferred pursuant to anexemption from suchregistration or (iii) such shares aresold or transferredpursuant to Rule 144 under the Act (orasuccessor rule) ("Rule 144") or(iv) such shares aretransferredto an "affiliate" (as defined inRule 144)of the
Borrowerwho agrees tosellorotherwisetransfertheshares onlyinaccordance withthisSection 1.5andwhoisan AccreditedInvestor(as defined in thePurchase Agreement).Exceptasotherwiseprovided inthePurchase Agreement(and subjecttothe removal provisionssetforth below),until suchtime as the sharesof Common Stock issuable uponconversionof thisNote havebeenregisteredunder theAct orotherwise may besoldpursuant to Rule144without anyrestriction as tothenumber ofsecuritiesas ofa particulardatethat can then beimmediatelysold,eachcertificatefor sharesofCommonStockissuable uponconversionof thisNote that hasnot been soincluded inaneffectiveregistrationstatement orthat hasnot beensoldpursuant to an effective registrationstatementoran exemptionthat permits removal of the legend,shallbear a legendsubstantiallyin thefollowing form,asappropriate:
"NEITHERTHEISSUANCEANDSALEOFTHESECURITIESREPRESENTED BYTHISCERTIFICATENORTHESECURITIESINTOWHICH THESE SECURITIES AREEXERCISABLEHAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF1933,ASAMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE,SOLD, TRANSFERRED OR ASSIGNED (I) IN THEABSENCE OF (A) AN EFFECTIVE REGISTRATIONSTATEMENTFOR THE SECURITIES UNDER THESECURITIES ACT OF 1933, AS AMENDED,OR (B) AN OPINION OF COUNSEL(WHICH COUNSEL SHALL BE SELECTEDBY THEHOLDER),IN A GENERALLY ACCEPTABLE FORM,THAT REGISTRATION ISNOT REQUIRED UNDERSAID ACT OR (II)UNLESS SOLD PURSUANT TORULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING,THE SECURITIES MAY BEPLEDGED INCONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOANORFINANCING
ARRANGEMENTSECUREDBYTHESECURITIES."
Thelegendsetforthabove shallberemoved andtheBorrowershallissuetothe Holderanewcertificatethereforefreeofany transferlegendif(i)the Borroweroritstransferagentshallhave received anopinionof counsel,in form,substanceandscope customaryforopinionsofcounselincomparabletransactions,totheeffectthatapublicsale ortransferofsuch CommonStockmaybe madewithoutregistration under the Act,whichopinionshallbe reasonably acceptedby the Borrowersothat thesaleortransferis effectedor (ii)inthecase oftheCommonStock issuable upon conversionof thisNote,suchsecurityisregistered forsaleby the Holder under an effective registrationstatementfiled underthe Act orotherwise may besoldpursuant to Rule 144 without any restrictionastothe numberof securities as ofaparticular date thatcanthenbeimmediatelysold.In theeventthat the Borrower does not accept the opinion ofcounselprovidedby theBuyerwithrespect tothe transfer ofSecuritiespursuanttoan exemption from registration,suchasRule144orRegulation S,at theDeadline,itwillbe consideredanEventofDefault pursuant to Section3.2 oftheNote.
1.6Effectof CertainEvents.
(a)EffectofMerger.Consolidation.Etc.AttheoptionoftheHolder,thesale,conveyanceordispositionofallor substantiallyall of theassets ofthe Borrower,theeffectuationby the Borrowerofa transactionorseries ofrelatedtransactionsinwhichmorethan 50% ofthevotingpoweroftheBorrowerisdisposedof,ortheconsolidation,mergerorotherbusiness combination of theBorrowerwithorinto anyotherPerson(as definedbelow)or Persons
whentheBorrowerisnotthesurvivorshalleither:(i)bedeemedtobeanEventofDefault(as definedinArticleIII)pursuant to whichthe Borrowershallbe requiredto pay to theHolderupon the consummation of and as a conditionto such transaction an amountequal to the Default Amount (as defined in Article ill) or (ii) be treated pursuanttoSection1.6(b)hereof."Person"shall mean any individual, corporation,limited liability company,partnership,association,trust or other entity or organization.
(b)AdjustmentDuetoMerger,Consolidation,Etc.If,atanytimewhen thisNoteisissuedand outstanding and prior toconversion of all of theNotes,there shall be any merger,consolidation,exchangeof shares,recapitalization,reorganization, or other similar event,as a resultof which sharesof Common Stock of the Borrowershall be changedinto the sameor a different number of shares of another class or classes of stock orsecurities ofthe Borrower or another entity,or in caseof anysale or conveyance of all or substantially all oftheassetsofthe Borrowerother thanin connectionwith aplan of complete liquidation ofthe Borrower, then the Holder of thisNoteshall thereafter havethe right to receive upon conversion of this Note,upon the basis and upon the terms and conditionsspecified herein andin lieuofthe shares of Common Stock immediately theretofore issuable upon conversion, such stock,securities or assetswhich the Holder would havebeenentitled to receive in such transaction had thisNote been converted in full immediately prior to such transaction(without regard toany limitations on conversionset forth herein),andin anysuch case appropriateprovisions shall be made withrespect to the rights and interests of the Holder of this Note to the end that the provisions hereof(including,withoutlimitation,provisions for adjustment of the Conversion Priceand ofthenumber of sharesissuable upon conversion oftheNote) shall thereafter be applicable,as nearly as may bepracticable in relation to any securities or assets thereafter deliverable upon theconversion hereof.The Borrower shallnotaffect any transaction described in this Section 1.6(b) unless (a) it frrstgives, to the extent practicable,thirty (30)days priorwrittennotice (butin anyeventatleast fifteen (15)days prior writtennotice) of the record dateof the special meeting ofshareholders toapprove, orif there is nosuch record date, the consummation of, such merger,consolidation,exchangeof shares, recapitalization,reorganizationor othersimilar event or sale of assets (during which time the Holder shall be entitled to convertthis Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument theobligationsof thisSection 1.6(b). Theabove provisions shall similarlyapply to successive consolidations, mergers, sales,transfers or share exchanges.
(c)AdjustmentDuetoDistribution.IftheBorrowershalldeclareor makeanydistributionofitsassets(or rightsto acquire its assets) toholders of Common Stock as a dividend, stockrepurchase,by way of returnofcapital or otherwise (including any dividend or distribution totheBorrower's shareholders in cashorshares(or rights to acquire shares) of capital stock ofa subsidiary (i.e.,a spin-off)) (a"Distribution"), then the Holder of thisNoteshall be entitled,upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution,toreceive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon suchconversion bad such Holder been the holder of such shares of Common Stock on therecord date for thedetermination of shareholders entitled tosuch Distribution.
(d)PurchaseRights.If,atanytimewhenanyNotesareissuedand outstanding,theBorrowerissuesany convertiblesecuritiesor rights to purchase stock, warrants,securitiesor otherproperty (the"PurchaseRights")pro ratatotherecordholdersofany classof CommonStock,thenthe HolderofthisNote willbeentitled to acquire,uponthe termsapplicableto suchPurchase Rights,the aggregatePurchaseRights which such Holdercouldhave acquiredifsuch Holder had held thenumber of shares of Common Stock acquirableuponcomplete conversion ofthis Note(withoutregardto anylimitationsonconversion containedherein) immediately before the date onwhich a record istakenfor the grant,issuanceorsaleofsuchPurchaseRightsor,if no such record is taken,the dateas of which the recordholdersof Common Stockaretobe determined forthegrant, issue orsaleof suchPurchase Rights.
(e)NoticeofAdjustments.UpontheoccurrenceofeachadjustmentorreadjustmentoftheConversionPriceasa resultoftheeventsdescribedinthisSection 1.6,the Borrower, atitsexpense, shallpromptlycomputesuchadjustmentor readjustmentandprepareand furnish totheHolderacertificate setting forthsuch adjustmentorreadjustmentand showing in detail thefactsuponwhichsuchadjustment orreadjustment isbased.TheBorrowershall,upon thewrittenrequestat any time of the Holder, furnishtosuchHoldera like certificate settingforth(i)such adjustmentor readjustment,(li)the ConversionPriceat the time in effect and(lii) thenumberof sharesof CommonStock and theamount,ifany,of other securitiesorpropertywhich atthetime wouldbereceived uponconversion of theNote.
1.7TradingMarketLimitations.Unlesspermittedbytheapplicablerulesandregulationsoftheprincipalsecuritiesmarket on which theCommonStockis thenlisted ortraded,in no event shall theBorrowerissueuponconversion oforotherwisepursuant to this Noteandthe otherNotesissued pursuant to thePurchaseAgreementmore thanthe maximum number of shares of CommonStockthatthe Borrower can issuepursuanttoanyruleofthe principalUnitedStates securities marketon whichthe Common Stockisthen traded(the"MaximumShare Amount"),which shall be 4.99%of the total shares outstanding ontheClosingDate(asdefmedin thePurchaseAgreement),subject to equitableadjustment from time to time for stock splits, stock dividends,combinations,capitalreorganizationsand similar eventsrelating totheCommon Stock occurringafterthedatehereof. Oncethe Maximum Share Amounthasbeenissued,if the Borrowerfailsto eliminate anyprohibitionsunderapplicable laworthe rules or regulationsof anystockexchange,interdealerquotation systemor otherself-regulatoryorganization with jurisdictionovertheBorroweror anyofits securities on theBorrower'sabilitytoissueshares ofCommon Stock inexcessofthe MaximumShare Amount, in lieu ofany further right toconvertthisNote, this will be considered anEvent ofDefaultunder Section3.2oftheNote.
1.8StatusasShareholder.UponsubmissionofaNotice of ConversionbyaHolder,(i)theshares coveredthereby(otherthan theshares,if any,which cannotbeissuedbecausetheirissuancewould exceed suchHolder'sallocated portion oftheReserved Amountor Maximum ShareAmount) shall bedeemedconverted intosharesof CommonStockand(ii) the Holder'srights asaHolderof such converted portion ofthisNoteshall cease and terminate,excepting onlytheright to receivecertificatesfor suchsharesofCommonStock and to anyremediesprovided herein or otherwise availableat laworinequitytosuchHolderbecauseof afailure bythe Borrowerto comply withthetermsof thisNote.Notwithstandingtheforegoing,if a Holderhasnot received certificates for allsharesof Common Stock prior tothe tenth(10th)businessday after the
expirationoftheDeadlinewithrespecttoaconversionofanyportionofthisNoteforanyreason,then(unlesstheHolder otherwise elects to retain itsstatusasa holder ofCommonStock byso notifyingtheBorrower) theHoldershallregainthe rights ofa Holder of thisNotewithrespect tosuchunconverted portionsofthisNoteand theBorrowershall, assoonaspracticable,returnsuchunconvertedNote tothe Holderor,ifthe Notehas not beensurrendered,adjustits recordstoreflect thatsuchportion of thisNote hasnot beenconverted. In all cases,theHoldershallretain allofits rights and remedies(including,withoutlimitation,(i)theright to receiveConversion Default PaymentspursuanttoSection 1.3 totheextent requiredtherebyfor such Conversion Defaultand anysubsequentConversionDefaultand(ii)the righttohave theConversion Pricewithrespectto subsequentconversions determined inaccordancewithSection1.3)fortheBorrower'sfailuretoconvertthisNote.
1.9Prepayment.NotwithstandinganythingtothecontrarycontainedinthisNote,theBorrowermayprepaythe amountsoutstandinghereunder pursuanttothe following termsand conditions:
(a)AtanytimeduringtheperiodbeginningontheIssueDateand endingonthedatewhich is thirty(30)daysfollowingtheIssueDate,the Borrowershallhave the right,exercisableon not less thanthree(3)TradingDays priorwrittennotice to the Holderofthe Note toprepaytheoutstandingNote(principal and accrued interest),in full by makingapayment to theHolder ofanamountin cashequalto 125%,multipliedbythe sumof:(w)the thenoutstandingprincipal amountofthisNote(x) accruedandunpaidinterest on the unpaid principal amountofthisNoteplus(y)Default Interest.
(b)Atanytimeduringtheperiodbeginningthedaywhichisthirtyone (31)daysfollowingtheIssueDate andendingonthedate which is sixty (60) daysfollowingthe Issue Date,theBorrowershallhavethe right,exercisableon not less than three (3) Trading Days priorwrittennoticetotheHolderoftheNoteto prepay theoutstanding Note(principal andaccruedinterest),infullby makingapaymenttothe Holderofanamountincashequalto 130%,multiplied bythesumof: (w)the then outstanding principalamountofthisNoteplus (x) accrued andunpaid interestontheunpaidprincipalamount of thisNoteplus (y) Default Interest.
(c)Atanytimeduringtheperiodbeginningthedaywhichissixtyone(61)daysfollowingtheIssue Date andendingon the datewhichisninety (90)daysfollowing the Issue Date,the Borrowershallhavethe right,exercisable on notless than three(3)TradingDays prior written notice to theHolderoftheNotetoprepaythe outstandingNote(principalandaccruedinterest), infullbymakinga payment totheHolderofan amount incashequalto 135%,multiplied bythesumof:(w)thethenoutstandingprincipal amount ofthisNoteplus(x)accruedandunpaid interest on the unpaid principal amountofthisNoteplus (y)Default Interest.
(d)Atanytimeduringtheperiodbeginningthedaywhichisninetyone(91)daysfollowingtheIssueDateandendingonthedatewhichisonehundredtwenty (120)daysfollowingthe Issue Date, theBorrowershall havethe right,exercisableon notlessthanthree (3) TradingDays priorwrittennoticetotheHolderof theNotetoprepaythe outstanding Note(principal andaccruedinterest),in full by makingapayment to the Holderof anamount incashequal to 140%, multiplied by the sum of:(w)thethen outstandingprincipal amount ofthis Note
plus(x)accruedandunpaidinterestontheunpaidprincipalamountofthisNoteplus(y)Default Interest.
(e)Atanytimeduringtheperiodbeginningthedaywhichisone hundredtwentyone(121)days following the Issue Date and ending on the date which isonehundred fifty(150)days followingtheIssue Date,theBorrowershallhave theright,exercisableonnot less than three(3)Trading Daysprior written notice to the Holderof theNotetoprepay theoutstanding Note(principal and accrued interest),infull by making a payment to theHolderofan amount incashequalto145%,multiplied by thesum of: (w)thethenoutstandingprincipalamount of thisNoteplus (x)accrued andunpaidinterest on the unpaidprincipal amountof thisNoteplus(y)Default Interest.
(f)Atanytimeduringtheperiodbeginningthedaywhichisone hundredfiftyone(151)days following the Issue Date and ending on thedate whichisone hundredeighty(180)days following the Issue Date, the Borrowershallhave the right, exercisable onnot less thanthree(3)TradingDays prior written notice to the Holder oftheNotetoprepay theoutstandingNote (principal and accrued interest), infullbymakingapaymenttothe Holderofan amountincashequalto 150%, multiplied by thesumof:(w)the then outstanding principalamount of this Note plus(x)accruedandunpaid interestontheunpaid principal amountofthisNoteplus(y)Default Interest.
(g)Aftertheexpirationofonehundredeighty(180)daysfollowingthe dateoftheNote,theBorrowershallhavenorightofprepayment.
Anynoticeofprepaymenthereunder(an"OptionalPrepaymentNotice")shallbedeliveredtothe HolderoftheNoteat its registeredaddressesandshall state: (1)that theBorrower isexercisingitsrightto prepay theNote,and(2)thedateofprepayment whichshallbenot morethan three(3)TradingDaysfrom the dateofthe OptionalPrepaymentNotice.On the date fixedforprepayment(the"Optional Prepayment Date"),the Borrowershallmakepaymentoftheapplicable prepaymentamount to or upontheorderof theHolder as specified bythe Holder inwritingto the Borrowerat leastone(1)business day prior to the Optional Prepayment Date.If the Borrower delivers an Optional PrepaymentNoticeand fails to paythe applicableprepayment amount duetotheHolder oftheNote within two (2)business days following the Optional Prepayment Date,theBorrowershallforever forfeit its right to prepay theNotepursuant tothis Section1.9.
ARTICLEll.CERTAINCOVENANTS
2.1DistributionsonCapitalStock.SolongastheBorrowershallhaveany obligationunderthisNote,the Borrowershallnotwithoutthe Holder'swrittenconsent (a)pay,declareor set apartforsuchpayment, any dividendor otherdistribution(whetherincash,propertyorother securities) onsharesof capitalstock otherthan dividends onshares ofCommon Stocksolelyin theformof additionalshares ofCommon Stock or (b) directly or indirectly or throughany subsidiarymakeanyotherpayment or distribution inrespectof its capitalstockexceptfor distributions pursuant to any shareholders' rights planwhichis approved byamajority of the Borrower's disinterested directors.
obligationunderthisNote,theBorrowershallnotwithouttheHolder'swritten consent redeem,repurchase orotherwise acquire (whether for cash orinexchange forproperty orothersecurities or otherwise)in any one transaction or series of relatedtransactionsany sharesof capitalstockof the Borroweror any warrants,rights or optionsto purchase or acquire any such shares.
2.3IntentionallyDeleted.
2.4SaleofAssets.SolongastheBorrowershallhaveanyobligationunderthisNote,the Borrowershall not,withoutthe Holder's written consent,sell,leaseor otherwise dispose of anysignificantportion of its assets outsidethe ordinarycourse of business.Anyconsent to the disposition of any assets maybe conditioned on aspecified use of the proceeds of disposition.
2.5AdvancesandLoans.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershall not,without the Holder's writtenconsent,lend money,give credit or make advances to any person,firm, joint venture or corporation,including,without limitation, officers, directors,employees,subsidiaries and affiliates of theBorrower,except loans,credits or advances (a)in existence orcommitted onthe date hereofand which theBorrower has informed Holder inwritingpriorto the datehereof,(b) madeintheordinary course of business or(c)not in excess of$100,000.
ARTICLEIII.EVENTSOFDEFAULT
Ifanyofthefollowingeventsofdefault(each,an"EventofDefault'') shall occur:
3.1FailuretoPayPrincipalorInterest.TheBorrowerfailstopaytheprincipal hereoforinterestthereon when dueon thisNote,whether atmaturity,upon acceleration or otherwise.
3.2ConversionandtheShares.TheBorrowerfailstoissuesharesofCommon StocktotheHolder(or announces or threatens inwritingthatit will not honoritsobligationto do so) uponexercise by theHolder of the conversion rights of the Holder in accordance with theterms of thisNote,failstotransfer or causeits transfer agent to transfer (issue) (electronically or in certificated form)any certificate for shares ofCommon Stock issued totheHolderupon conversion of or otherwise pursuantto this Note asand when required by this Note,theBorrower directs itstransfer agent not totransfer ordelays, impairs,and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificatedform)any certificate for sharesof CommonStock tobe issued tothe Holder upon conversion oforotherwise pursuant tothisNote as and when required bythisNote,or fails to remove(or directs its transfer agent not to remove or impairs, delays, and/or hinders its transferagent from removing)any restrictivelegend (or to withdraw anystop transfer instructionsinrespect thereof) onany certificate forany sharesof CommonStock issued to the Holderuponconversion of or otherwisepursuant tothisNote asand when required by thisNote (or makesany written announcement,statementor threat thatit does not intend to honor the obligations described in this paragraph)and anysuchfailure shallcontinue uncured (orany written announcement,statementor threatnot to honorits obligations shallnotbe rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an eventof default of thisNote,if a conversion of this Noteis delayed,hindered or frustrated due toa balance owed bythe Borrower toits transferagent.If at the option ofthe Holder,the Holder advancesanyfunds to theBorrower's transfer agentin ordertoprocess a conversion,such advanced funds shallbe paid by the Borrowerto the Holder within forty eight(48)hours of a demandfromthe Holder.
3.3Failure to Deliver Advance Fee.The Borrower failstodelivertheAdvanceFee(asdefined in thePurchase Agreement) to the Holder within three(3) business days of the date suchfeeisdue.
3.4Breach of Covenants.TheBorrowerbreachesanymaterialcovenantorother materialtermorcondition containedinthisNoteand anycollateral documentsincluding butnot limited tothePurchaseAgreementand suchbreach continues for a period often (10)days after written noticethereof to theBorrower
fromtheHolder.
3.5 Breach of Representations and Warranties.Any representationorwarrantyof theBorrowermadehereinorin anyagreement,statement or certificate given in writing pursuant heretoor inconnection herewith(including,without limitation,the PurchaseAgreement),shallbe false ormisleading inanymaterialrespectwhen madeand thebreachof which has(orwiththe passageoftimewillhave)a material adverseeffect ontherightsoftheHolderwithrespect to thisNoteor thePurchaseAgreement.
3.6ReceiverorTrustee.TheBorroweroranysubsidiaryoftheBorrowershall makeanassignmentforthebenefitofcreditors,or applyfor or consentto theappointment of a receiver or trustee foritor for asubstantial partof its propertyorbusiness,or sucha receiver or trustee shallotherwisebe appointed.
3.7Judgments.Anymoneyjudgment,writorsimilarprocessshallbeenteredor fliedagainsttheBorroweror anysubsidiary ofthe Borroweroranyof itspropertyor other assets formore than $50,000,andshallremain unvacated,unbondedor unstayed for a period oftwenty (20)daysunless otherwise consented tobytheHolder,whichconsentwillnotbeunreasonably withheld.
3.8Bankruptcy.Bankruptcy,insolvency,reorganizationorliquidationproceedings orotherproceedings,voluntaryorinvoluntary,forreliefunderanybankruptcylawor anylaw for the relief ofdebtorsshallbe instituted by or againsttheBorrower orany subsidiaryoftheBorrower.
3.9DelistingofCommonStock.TheBorrowershallfailtomaintainthelistingof theCommonStock on at least oneoftheOTCBB. OTCQB oran equivalent replacement exchange, theNasdaqNationalMarket, theNasdaqSmall Cap Market, theNewYork StockExchange,or the NYSE MKT.
complywiththereportingrequirementsoftheExchangeAct;and/ortheBorrowershallceaseto
be subjectto thereporting requirementsoftheExchangeAct.
3.11Liquidation.Anydissolution,liquidation,orwindingupofBorroweror anysubstantialportionofitsbusiness.
3.12CessationofOperations.Any cessationofoperationsby BorrowerorBorroweradmitsitisotherwisegenerallyunabletopayitsdebtsas suchdebts become due, provided,however,that anydisclosureof theBorrower's ability to continueasa "going concern" shall notbe an admission that the Borrowercannotpay itsdebts as theybecome due.
3.13MaintenanceofAssets.ThefailurebyBorrowertomaintainanymaterial intellectualpropertyrights,personal,realpropertyorotherassets whichare necessaryto conduct itsbusiness(whethernoworinthefuture).
3.14FinancialStatementRestatement.TherestatementofanyfinancialstatementsfiledbytheBorrowerwiththeSECfor anydateorperiod fromtwo yearspriortothe IssueDateofthis Noteanduntil thisNote isnolongeroutstanding,if theresult of suchrestatementwould, bycomparison tothe unrestated financialstatement,have constituteda material adverseeffect on the rightsoftheHolderwithrespect tothis Noteorthe PurchaseAgreement.
3.15ReverseSplits. TheBorrowereffectuatesareversesplitofitsCommon
Stockwithouttwenty(20)dayspriorwrittennoticeto theHolder.
3.16ReplacementofTransferAgent. In theeventthattheBorrowerproposesto replaceitstransferagent,the Borrowerfailstoprovide,priorto the effectivedateof suchreplacement,afullyexecutedIrrevocableTransfer AgentInstructionsinaform as initiallydelivered pursuanttothe Purchase Agreement(includingbut not limitedtothe provisiontoirrevocably reservesharesofCommonStock in the Reserved Amount)signedbythesuccessortransferagent toBorrower and theBorrower.
3.17CessationofTrading.AnycessationoftradingoftheCommonStockonatleastoneoftheOTCBB, OTCQBoranequivalentreplacementexchange,theNasdaq NationalMarket,theNasdaqSmall CapMarket, theNew York StockExchange, or the NYSEMKT,and such cessation oftrading shall continue for aperiodof five consecutive (5)TradingDays.
3.18Cross-Default.Notwithstandinganything tothecontrary containedinthis Noteortheotherrelatedorcompaniondocuments,abreach ordefaultbythe Borrowerof any covenantorotherterm or conditioncontainedinany of theOtherAgreements,after thepassage of all applicablenoticeandcure or graceperiods,shall,at the optionoftheHolder,beconsidereda defaultunderthis NoteandtheOtherAgreements,inwhich event theHoldershallbeentitled (but innoeventrequired)to applyallrightsand remedies of theHolderunderthetermsof this Note andtheOtherAgreementsbyreason of adefault undersaidOtherAgreement orhereunder."Other Agreements"means,collectively,all agreements and instrumentsbetween, amongorby:(I)the Borrower, and,orfor the benefitof,(2)the Holderand anyaffiliate ofthe Holder, including,withoutlimitation, promissory notes; provided, however, the term "Other Agreements" shall not include the agreements and instruments defined as the Documents. Each of the loan transactions will be cross-defaultedwith each otherloan transactionand with allother existing andfuturedebt of Borrower to the Holder.
UpontheoccurrenceandduringthecontinuationofanyEventofDefaultspecifiedinSection3.1 (solelywithrespecttofailureto pay the principalhereof or interest thereonwhen due attheMaturityDate),theNoteshallbecome immediatelydueandpayableandtheBorrowershall pay to the Holder,infull satisfaction of its obligationshereunder,an amount equalto the Default Sum (as defined herein).UPON THEOCCURRENCEANDDURING THECONTINUATION OF ANY EVENT OFDEFAULTSPECIFIEDINSECTION 3.2,THE NOTE SHALL BECOME IMMEDIATELYDUEANDPAYABLEANDTHEBORROWERSHALLPAY TO THE HOLDER,INFULLSATISFACTION
OFITSOBLIGATIONSHEREUNDER,ANAMOUNT EQUALTO:(Y)THEDEFAULTSUM(ASDEFINEDHEREIN);MULTIPLIEDBY(Z) TWO (2).Uponthe occurrence and during the continuation of any Event of Default specifiedin Sections 3.1 (solely withrespect to failure to paytheprincipal hereof or interest thereon whendueon this Noteuponacceleration), 3.3,3.4, 3.6,3.8,3.9,3.11,3.12,3.13,3.14,3.15, 3.16. 3.17and/or 3.18 exercisable throughthedelivery of written notice to the Borrower by such Holders (the"DefaultNotice"), anduponthe occurrence of an Event of Default specifiedtheremaining sections of ArticleIII(otherthanfailure to pay the principalhereofor interest thereon at the MaturityDatespecifiedinSection 3,1hereof),theNote shallbecomeimmediatelydueand payable andtheBorrowershall pay to theHolder,infull satisfaction ofits obligationshereunder,anamountequal to (i)150%times the sum of (w) the then outstandingprincipalamount ofthisNoteplus(x)accruedandunpaid interestontheunpaid principal amountof this Note tothe dateofpayment (the"MandatoryPrepaymentDate")plus(y)DefaultInterest, if any, on the amounts referredtoin clauses(w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections1.3and1.4(g) hereof (the thenoutstandingprincipalamount ofthisNote to the date ofpaymentplusthe amounts referred to in clauses (x), (y) and (z) shall collectively be known as the"DefaultSum") or(ii)at the option of the Holder, the "parity value" of theDefaultSum to be prepaid, where parity value means(a)the highest numberof shares of Common Stockissuableuponconversion of or otherwisepursuantto suchDefaultSuminaccordance with Article I,treating the TradingDayimmediately precedingtheMandatoryPrepayment Dateas the "ConversionDate"forpurposesof determiningthelowest applicable ConversionPrice,unless the DefaultEvent arises asa result ofa breachin respectof a specific ConversionDatein whichcase suchConversionDateshall be the ConversionDate),multiplied by(b) thehighestClosingPricefor the CommonStockduring the period beginning onthe dateoffirst occurrence of the Event of Default and ending one day prior to the MandatoryPrepayment Date(the"Default Amount")and all otheramountspayablehereundershallimmediatelybecome dueand payable,all without demand,presentmentor notice, all of whichherebyare expressly waived, together with all costs, including,withoutlimitation,legalfees and expenses, of collection, and the Holder shallbeentitled to exercise allother rights and remedies available at laworinequity.
IftheBorrowerfailstopaytheDefaultAmountwithinfive(5)businessdaysofwrittennoticethat such amountisdue andpayable,then theHoldershallhave therightat any time, so long asthe Borrowerremains indefault(and solongand totheextentthatthereare sufficient authorized shares), torequire theBorrower,uponwritten notice,toimmediatelyissue,inlieuoftheDefault
Amount,thenumberofsharesofCommonStockoftheBorrowerequaltotheDefaultAmount dividedbytheConversionPricethen ineffect.
ARTICLEIV.MISCELLANEOUS
4.1FailureorIndulgenceNotWaiver.NofailureordelayonthepartoftheHolder inthe exercise of any power, right or privilegehereundershalloperate as awaiver thereof,nor shall any singleor partial exercise ofany such power,rightorprivilegepreclude otheror furtherexercise thereof or of any other right, power orprivileges.Allrightsandremedies existing hereunder are cumulative to,and notexclusive of, any rights orremedies otherwise available.
4.2Notices.Allnotices,demands,requests,consents,approvals,andother communicationsrequiredorpermittedhereundershallbeinwriting and,unlessotherwise specifiedherein,shallbe(i)personally served,(ii)deposited inthe mail,registeredor certified, returnreceipt requested,postage prepaid,(iii) delivered by reputable aircourier servicewith chargesprepaid,or (iv) transmittedbyhand delivery,telegram,or facsimile,addressedas setforth below or to such otheraddress as such partyshallhave specifiedmostrecentlybywrittennotice.Anynoticeorother communicationrequired or permitted tobegivenhereundershallbe deemedeffective(a)uponhand deliveryordeliveryby facsimile, with accurate confirmation generatedby thetransmitting facsimile machine,atthe addressor number designatedbelow(ifdeliveredona businessday during normalbusiness hours where suchnoticeistobe received),orthefirstbusinessdayfollowing suchdelivery (ifdeliveredother than on abusinessday duringnormal business hours wheresuchnotice is to be received) or (b) on the secondbusiness dayfollowingthedateof mailingby expresscourier service,fully prepaid, addressedto such address, orupon actualreceiptof suchmailing,whichevershallfirst occur. The addressesforsuch communications shall be:
IftotheBorrower,to: AlkameHoldings,Inc.
3651LindellRoad,SuiteD#356
LasVegas,NV89103
Attention:RobertEakle
Facsimile:(702)943-0233
IftotheHolder:
AuctusPrivateEquityFund,LLC
101ArchStreet,20thFloor
Boston,MA02110
Attn:LouPosner
Facsimile:(617)532-6420
Withacopybyfaxonlyto(whichcopyshallnotconstitutenotice):
LucoskyBrookmanLLP
101WoodAvenueSouth,5thFloor
Woodbridge,NJ08830
Attn:JosephM.Lucosky,Esq. Facsimile:(732)395-4401
4.3Amendments.ThisNoteandanyprovisionhereofmayonlybeamendedbyan instrumentinwritingsignedby theBorrowerand theHolder.The term''Note" and allreference thereto,as usedthroughout thisinstrument, shallmean thisinstrument (andtheother Notes issued pursuanttothePurchase Agreement) asoriginally executed,or iflateramended orsupplemented,then as so amended orsupplemented.
4.4Assignability.ThisNoteshallbebindingupontheBorroweranditssuccessors andassigns,andshallinureto be the benefit of theHolder and its successors and assigns. Each transferee of thisNote must be an "accredited investor" (asdefined in Rule 50l(a) of the1933
Act).NotwithstandinganythinginthisNotetothecontrary,thisNotemaybepledgedascollateral inconnectionwithabonafidemarginaccountorotherlending arrangement.
4.5CostofCollection.If defaultismadeinthepaymentofthisNote,theBorrower shallpaytheHolderhereofreasonable costs of collection,including reasonable attorneys'fees.
4.6Governing Law. ThisNoteshallbegovernedbyand construedinaccordance withthelawsof theStateofNevadawithout regard toprinciples of conflicts of laws. Any action broughtby eitherpartyagainstthe other concerning the transactions contemplated bythis Note shall bebrought only in the state courts of Massachusettsorin the federal courtslocated in the Commonwealthof Massachusetts. Thepartiesto this Note hereby irrevocably waiveany objection to jurisdiction and venueofanyactioninstituted hereunder andshall notassert anydefensebased onlackofjurisdiction or venue orbased uponforum non conveniens.The Borrower and Holder waive trial by jury. The prevailing partyshall be entitled to recoverfrom theother partyits reasonableattorney's fees and costs. In the event that anyprovisionof this Note or any other agreementdelivered inconnection herewith is invalid or unenforceable under any applicable statute orrule of law,then suchprovision shall bedeemedinoperative tothe extent that itmay conflicttherewithand shall be deemed modified to conform withsuchstatuteorrule oflaw.Any suchprovision which may prove invalid or unenforceable under anylawshallnot affect the validity or enforceability ofany otherprovision of anyagreement.Each partyhereby irrevocably waives personalservice of process and consents to processbeingserved in any suit,action or proceeding inconnection with this Agreement or anyother TransactionDocument by mailing a copy thereof viaregistered or certifiedmail or overnight delivery (with evidenceof delivery)to such party at the address in effect for notices to it underthis Agreement and agrees that such service shall constitutegood andsufficient service of processandnotice thereof. Nothing contained herein shall be deemed to limit in any way any rightto serve processinanyothermanner permitted by law.
4.7CertainAmounts.Wheneverpursuantto thisNotetheBorrowerisrequiredto payanamountinexcessofthe outstanding principal amount(or theportion thereof required to be
paidatthattime)plusaccruedandunpaidinterestplusDefaultInterestonsuchinterest,theBorrowerandthe Holder agreethattheactualdamages totheHolderfromthereceiptofcashpaymentonthisNotemaybe difficultto determine andtheamounttobe sopaid bythe Borrower represents stipulateddamagesandnotapenalty andisintendedto compensatetheHolderinpartforloss ofthe opportunity toconvertthis Note andto earn areturnfromthesale of sharesof Common Stock acquiredupon conversion ofthisNote at apricein excessofthe pricepaidfor such sharespursuanttothisNote.The Borrower andtheHolderherebyagree that suchamount of stipulated damages is notplainly disproportionateto thepossibleloss to theHolder fromthereceiptofa cashpaymentwithouttheopportunityto convertthisNoteintoshares of Common Stock.
4.8PurchaseAgreement.ByitsacceptanceofthisNote,eachpartyagreestobe boundbytheapplicable termsof thePurchaseAgreement.
4.9NoticeofCorporateEvents.Exceptasotherwiseprovidedbelow,theHolder ofthisNoteshallhavenorights asa Holder of Common Stockunlessandonlytothe extent that it convertsthisNote into CommonStock.TheBorrowershall providethe Holder with prior notification of anymeetingoftheBorrower'sshareholders (and copies of proxymaterialsand otherinformationsent to shareholders).Inthe event of any takingbythe Borrower of a record of its shareholdersforthepurpose ofdeterminingshareholders whoare entitled toreceive paymentof any dividend or other distribution,any right tosubscribe for,purchaseor otherwise acquire (including by way of merger,consolidation, reclassification orrecapitalization)any shareof any classor any other securities orproperty,orto receive anyother right, or for thepurposeofdeterminingshareholders who areentitledtovoteinconnection withanyproposedsale, lease or conveyanceofall or substantiallyallof the assetsoftheBorroweroranyproposedliquidation,dissolution orwindingupof theBorrower, the Borrowershallmail a notice tothe Holder,atleast twenty(20) dayspriorto therecorddatespecified therein (or thirty(30)dayspriorto the consummation ofthetransaction or event,whichever is earlier),of thedateon which any such recordis tobetaken for thepurpose of such dividend, distribution, rightor otherevent,andabriefstatementregardingthe amountandcharacterof such dividend,distribution,rightor otherevent totheextentknown at suchtime.TheBorrower shall makeapublicannouncement of anyeventrequiringnotificationto the Holder hereundersubstantiallysimultaneously with thenotificationto the Holderinaccordance with the terms ofthisSection4.9.
4.10Remedies.TheBorroweracknowledges thatabreachbyitofitsobligationshereunderwillcauseirreparableharmtotheHolder,by vitiating theintentandpurposeof the transaction contemplatedhereby.Accordingly,theBorroweracknowledgesthattheremedy at lawfor abreachof itsobligationsunderthis Notewillbe inadequateand agrees,intheevent of a breach or threatened breach bythe Borrowerof the provisions ofthisNote, that theHolder shall be entitled,inaddition to all other availableremedies atlawor in equity,and in addition to the penalties assessable herein,toan injunction or injunctionsrestraining,preventingor curingany breach of this Noteandtoenforce specifically the termsand provisions thereof,without the necessity ofshowingeconomicloss and withoutanybondor other securitybeingrequired.
[signaturepagefollows]
INWITNESSWHEREOF,BorrowerhascausedthisNotetobesignedinitsnamebyitsdu1yauthorizedofficeras of thedatefirstabove written.
ALKAME HOLDINGS, INC.
By:/s/ Robert Eakle
Name: Robert Eakle
Title: Chief Executive Officer
EXHIBITANOTICEOFCONVERSION
Theundersignedherebyelectstoconvert$_____________ principalamount oftheNote(defmedbelow)togetherwith$_____________ofaccruedandunpaidinterest thereto,totaling$ _____________into that number of shares of CommonStock tobeissuedpursuantto theconversionoftheNote ("CommonStock")assetforthbelow,of Alkame Holdings,Inc.,aNevadacorporation(the"Borrower") according to the conditionsofthe convertible note ofthe Borrower dated asofSeptember8, 2014(the"Note"),as of the date writtenbelow.Nofee will be charged to theHolderfor any conversion,exceptfortransfer taxes,ifany.
BoxCheckedastoapplicableinstructions:
[ ]TheBorrowershallelectronicallytransmittheCommonStockissuablepursuantto thisNoticeofConversion to theaccount ofthe undersignedor itsnomineewithDTCthroughitsDepositWithdrawal At Custodiansystem ("DWACTransfer").
NameofDTCPrimeBroker:AccountNumber:
[]TheundersignedherebyrequeststhattheBorrowerissueacertificateorcertificates forthenumberof shares of Common Stock set forth below(which numbers arebasedon theHolder'scalculation attachedhereto) in the name(s)specified immediately below or, ifadditionalspaceis necessary,on an attachmenthereto:
Name:[NAME]Address:[ADDRESS]
DateofConversion: _____________
ApplicableConversionPrice: $_____________
NumberofSharesofCommonStocktobeIssued
PursuanttoConversionoftheNotes: _____________
AmountofPrincipalBalanceDueremaining
UndertheNoteafterthisconversion: _____________
Accruedandunpaidinterestremaining:_____________
[HOLDER]
Name: [NAME]
Title: [TITLE]
Date: [DATE]
