THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE COMMON
SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT AS TO THIS NOTE UNDER
SAID ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
DATASCENSION, INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
PRINCIPAL AMOUNT $ 571,429.00 ISSUE DATE: JUNE 7, 2006
PURCHASE PRICE $ 500,000.00
SECURED CONVERTIBLE NOTE
FOR VALUE RECEIVED, DATASCENSION, INC., a Nevada corporation (hereinafter
called "Borrower"), hereby promises to pay to ALPHA CAPITAL AKTIENGESELLSCHAFT
(the "Holder") or order, without demand, the sum of five hundred seventy-one
thousand four hundred twenty nine Dollars ($571,429), with interest accruing
thereon, on June 7, 2008 (the "Maturity Date"), if not retired sooner.
This Note has been entered into pursuant to the terms of a subscription
agreement between the Borrower and the Holder, dated of even date herewith (the
"Subscription Agreement"), and shall be governed by the terms of such
Subscription Agreement. Unless otherwise separately defined herein, all
capitalized terms used in this Note shall have the same meaning as is set forth
in the Subscription Agreement. The following terms shall apply to this Note:
ARTICLE I
GENERAL PROVISIONS
1.1 Interest Rate. Interest payable on this Note shall accrue at the
annual rate of six percent (6%) and be payable September 30, 2006, on the last
day of each calendar quarter thereafter, at the request of the Holder upon or
after each conversion of principal pursuant to Article II, and on the Maturity
Date, accelerated or otherwise, when the principal and remaining accrued but
unpaid interest shall be due and payable, or sooner as described below.
1.2 Payment Grace Period. The Borrower shall have a five (5) day grace
period to pay any monetary amounts due under this Note, after which grace
period a default interest rate of ten percent (10%) per annum.
1.3 Conversion Privileges. The Conversion Privileges set forth in
Article II shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the occurrence of an
Event of Default. The Note shall be payable in full on the Maturity Date,
unless previously converted into Common Stock in accordance with Article II
hereof; provided, that if an Event of Default has occurred, the Borrower may
not pay this Note, without the consent of the Holder, until one year after the
later of the date the Event of Default has been cured or one year after the
Maturity Date.
ARTICLE II
CONVERSION RIGHTS
The Holder shall have the right to convert the principal and any interest
due under this Note into Shares of the Borrower's Common Stock, $.001 par value
per share ("Common Stock") as set forth below.
2.1. Conversion into the Borrower's Common Stock.
(a) The Holder shall have the right from and after the date of
the issuance of this Note and then at any time until this Note is fully paid,
to convert any outstanding and unpaid principal portion of this Note, and
accrued interest, at the election of the Holder (the date of giving of such
notice of conversion being a "Conversion Date") into fully paid and
nonassessable shares of Common Stock as such stock exists on the date of
issuance of this Note, or any shares of capital stock of Borrower into which
such Common Stock shall hereafter be changed or reclassified, at the conversion
price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined
as provided herein. Upon delivery to the Borrower of a completed Notice of
Conversion, a form of which is annexed hereto, Borrower shall issue and deliver
to the Holder within three (3) business days after the Conversion Date (such
third day being the "Delivery Date") that number of shares of Common Stock for
the portion of the Note converted in accordance with the foregoing. At the
election of the Holder, the Borrower will deliver accrued but unpaid interest
on the Note, if any, through the Conversion Date directly to the Holder on or
before the Delivery Date (as defined in the Subscription Agreement). The
number of shares of Common Stock to be issued upon each conversion of this Note
shall be determined by dividing that portion of the principal of the Note and
interest, if any, to be converted, by the Conversion Price.
(b) Subject to adjustment as provided in Section 2.1(c) hereof, the
Conversion Price per share shall be $0.35. In the event the Borrower does
not timely file an annual report on Form 10-KSB with the Securities and
Exchange Commission for the year ended December 31, 2006 containing
certified audited financial statements showing net revenues of not less than
$12,000,000 for the 2006 calendar year with EBITDA of not less than $500,000,
the Conversion Price then in effect shall be reduced by one-third from and
after the actual filing date of the above described Form 10-KSB or if not
filed by April 15, 2007, then from and after April 15, 2007.
(c) The Conversion Price and number and kind of shares or other
securities to be issued upon conversion determined pursuant to Section 2.1(a),
shall be subject to adjustment from time to time upon the happening of certain
events while this conversion right remains outstanding, as follows:
A. Merger, Sale of Assets, etc. If the Borrower at any
time shall consolidate with or merge into or sell or convey all or
substantially all its assets to any other corporation, this Note, as to the
unpaid principal portion thereof and accrued interest thereon, shall thereafter
be deemed to evidence the right to purchase such number and kind of shares or
other securities and property as would have been issuable or distributable on
account of such consolidation, merger, sale or conveyance, upon or with respect
to the securities subject to the conversion or purchase right immediately prior
to such consolidation, merger, sale or conveyance. The foregoing provision
shall similarly apply to successive transactions of a similar nature by any
such successor or purchaser. Without limiting the generality of the foregoing,
the anti-dilution provisions of this Section shall apply to such securities of
such successor or purchaser after any such consolidation, merger, sale or
conveyance.
B. Reclassification, etc. If the Borrower at any time
shall, by reclassification or otherwise, change the Common Stock into the same
or a different number of securities of any class or classes that may be issued
or outstanding, this Note, as to the unpaid principal portion thereof and
accrued interest thereon, shall thereafter be deemed to evidence the right to
purchase an adjusted number of such securities and kind of securities as would
have been issuable as the result of such change with respect to the Common
Stock immediately prior to such reclassification or other change.
C. Stock Splits, Combinations and Dividends. If the
shares of Common Stock are subdivided or combined into a greater or smaller
number of shares of Common Stock, or if a dividend is paid on the Common Stock
in shares of Common Stock, the Conversion Price shall be proportionately
reduced in case of subdivision of shares or stock dividend or proportionately
increased in the case of combination of shares, in each such case by the ratio
which the total number of shares of Common Stock outstanding immediately after
such event bears to the total number of shares of Common Stock outstanding
immediately prior to such event..
D. Share Issuance. So long as this Note is outstanding,
if the Borrower shall issue or agree to issue any shares of Common Stock except
for the Excepted Issuances (as defined in the Subscription Agreement) for a
consideration less than the Conversion Price in effect at the time of such
issue, then, and thereafter successively upon each such issue, the Conversion
Price shall be reduced to such other lower issue price. For purposes of this
adjustment, the issuance of any security carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price
upon the issuance of the above-described security and again upon the issuance
of shares of Common Stock upon exercise of such conversion or purchase rights
if such issuance is at a price lower than the then applicable Conversion Price.
The reduction of the Conversion Price described in this paragraph is in
addition to other rights of the Holder described in this Note and the
Subscription Agreement.
(d) Whenever the Conversion Price is adjusted pursuant to Section
2.1(c) above, the Borrower shall promptly mail to the Holder a notice setting
forth the Conversion Price after such adjustment and setting forth a statement
of the facts requiring such adjustment.
(e) During the period the conversion right exists, Borrower will
reserve from its authorized and unissued Common Stock not less than an amount
of Common Stock equal to 150% of the amount of shares of Common Stock issuable
upon the full conversion of this Note. Borrower represents that upon issuance,
such shares will be duly and validly issued, fully paid and non-assessable.
Borrower agrees that its issuance of this Note shall constitute full authority
to its officers, agents, and transfer agents who are charged with the duty of
executing and issuing stock certificates to execute and issue the necessary
certificates for shares of Common Stock upon the conversion of this Note.
2.2 Method of Conversion. This Note may be converted by the
Holder in whole or in part as described in Section 2.1(a) hereof and the
Subscription Agreement. Upon partial conversion of this Note, a new Note
containing the same date and provisions of this Note shall, at the request of
the Holder, be issued by the Borrower to the Holder for the principal balance
of this Note and interest which shall not have been converted or paid.
2.3 Maximum Conversion. The Holder shall not be entitled to
convert on a Conversion Date that amount of the Note in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Holder and its
affiliates on a Conversion Date, (ii) any Common Stock issuable in connection
with the unconverted portion of the Note, and (iii) the number of shares of
Common Stock issuable upon the conversion of the Note with respect to which the
determination of this provision is being made on a Conversion Date, which would
result in beneficial ownership by the Holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock of the Borrower on such
Conversion Date. For the purposes of the provision to the immediately
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and
Regulation 13d-3 thereunder. Subject to the foregoing, the Holder shall not be
limited to aggregate conversions of only 4.99% and aggregate conversion by the
Holder may exceed 4.99%. The Holder shall have the authority and obligation to
determine whether the restriction contained in this Section 2.3 will limit any
conversion hereunder and to the extent that the Holder determines that the
limitation contained in this Section applies, the determination of which
portion of the Notes are convertible shall be the responsibility and obligation
of the Holder. The Holder may waive the conversion limitation described in
this Section 2.3, in whole or in part, upon and effective after 61 days prior
written notice to the Borrower to increase such percentage to up to 9.99%.
ARTICLE III
EVENT OF DEFAULT
The occurrence of any of the following events of default ("Event of
Default") shall, at the option of the Holder hereof, make all sums of principal
and interest then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
below:
3.1 Failure to Pay Principal or Interest. The Borrower fails to
pay any installment of principal, interest or other sum due under this Note
when due and such failure continues for a period of ten (10) days after the due
date. The five (5) day period described in this Section 3.1 is the same ten
(10) day period described in Section 1.2 hereof.
3.2 Breach of Covenant. The Borrower breaches any material
covenant or other term or condition of the Subscription Agreement or this Note
in any material respect and such breach, if subject to cure, continues for a
period of ten (10) business days after written notice to the Borrower from the
Holder.
3.3 Breach of Representations and Warranties. Any material
representation or warranty of the Borrower made herein, in the Subscription
Agreement, or in any agreement, statement or certificate given in writing
pursuant hereto or in connection therewith shall be false or misleading in any
material respect as of the date made and the Closing Date.
3.4 Receiver or Trustee. The Borrower shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for a substantial part of its property or
business; or such a receiver or trustee shall otherwise be appointed.
3.5 Judgments. Any money judgment, writ or similar final process
shall be entered or filed against Borrower or any of its property or other
assets for more than $50,000, and shall remain unvacated, unbonded or unstayed
for a period of forty-five (45) days.
3.6 Bankruptcy. Bankruptcy, insolvency, reorganization or
liquidation proceedings or other proceedings or relief under any bankruptcy law
or any law, or the issuance of any notice in relation to such event, for the
relief of debtors shall be instituted by or against the Borrower and if
instituted against Borrower are not dismissed within 45 days of initiation.
3.7 Delisting. Delisting of the Common Stock from the OTC
Bulletin Board ("Bulletin Board") or any Principal Market; failure to comply
with the requirements for continued listing on the Bulletin Board or other
Principal Market for a period of seven consecutive trading days; or
notification from the Bulletin Board or any Principal Market that the
Borrower is not in compliance with the conditions for such continued
listing on the Bulletin Board or other Principal Market.
3.8 Non-Payment. A default by the Borrower under any one or
more obligations in an aggregate monetary amount in excess of $100,000 for more
than twenty days after the due date, unless the Borrower is contesting the
validity of such obligation in good faith.
3.9 Stop Trade. An SEC or judicial stop trade order or Principal
Market trading suspension that lasts for five or more consecutive trading days.
3.10 Failure to Deliver Common Stock or Replacement Note.
Borrower's failure to timely deliver Common Stock to the Holder pursuant to and
in the form required by this Note and Sections 7 and 11 of the Subscription
Agreement, or, if required, a replacement Note.
3.11 Non-Registration Event. The occurrence of a Non-Registration
Event as described in Section 11.4 of the Subscription Agreement.
3.12 Reservation Default. Failure by the Borrower to have
reserved for issuance upon conversion of the Note the amount of Common stock as
set forth in this Note and the Subscription Agreement.
3.13 Cross Default. A default by the Borrower of a material term,
covenant, warranty or undertaking of any other agreement to which the Borrower
and Holder are parties, or the occurrence of a material event of default under
any such other agreement which is not cured after any required notice and/or
cure period.
ARTICLE IV
SECURITY INTEREST
4. Security Interest/Waiver of Automatic Stay. This Note is
secured by a security interest granted to the Collateral Agent for the benefit
of the Holder pursuant to a Security Agreement, as delivered by Borrower to
Holder. The Borrower acknowledges and agrees that should a proceeding under
any bankruptcy or insolvency law be commenced by or against the Borrower, or if
any of the Collateral (as defined in the Security Agreement) should become the
subject of any bankruptcy or insolvency proceeding, then the Holder should be
entitled to, among other relief to which the Holder may be entitled under the
Transaction Documents and any other agreement to which the Borrower and Holder
are parties (collectively, "Loan Documents") and/or applicable law, an order
from the court granting immediate relief from the automatic stay pursuant to 11
U.S.C. Section 362 to permit the Holder to exercise all of its rights and
remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER
EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER
11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER
STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL
STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE
HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS
AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief
from stay that may be filed by the Holder in any bankruptcy or insolvency
proceeding initiated by or against the Borrower and, further, agrees not to
file any opposition to any motion for relief from stay filed by the Holder.
The Borrower represents, acknowledges and agrees that this provision is a
specific and material aspect of the Loan Documents, and that the Holder would
not agree to the terms of the Loan Documents if this waiver were not a part of
this Note. The Borrower further represents, acknowledges and agrees that this
waiver is knowingly, intelligently and voluntarily made, that neither the
Holder nor any person acting on behalf of the Holder has made any
representations to induce this waiver, that the Borrower has been represented
(or has had the opportunity to he represented) in the signing of this Note and
the Loan Documents and in the making of this waiver by independent legal
counsel selected by the Borrower and that the Borrower has discussed this
waiver with counsel.
ARTICLE V
MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of Holder hereof in the exercise of any power, right or privilege
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 privilege. All rights and
remedies existing hereunder are cumulative to, and not exclusive of, any rights
or remedies otherwise available.
5.2 Notices. All notices, 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,
(ii) deposited in the mail, registered or certified, return receipt requested,
postage prepaid, (iii) 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. Any notice or other communication
required or permitted to be given hereunder shall be deemed effective (a) upon
hand delivery or delivery 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 delivery (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, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be: (i) if to the Borrower to:
Datascension, Inc., 145 S. State College Blvd., Suite 350, Brea, CA 92821,
Attn: Scott Kincer, President and CEO, telecopier: (714) 482-9751, with a copy
by telecopier only to: Owen M. Naccarato, Esq., Naccarato & Associates, 18301
Von Karman Ave., Suite 430, Irvine, CA 92612, telecopier: (949) 851-9262, and
(ii) if to the Holder, to the name, address and telecopy number set forth on
the front page of this Note, with a copy by telecopier only to Grushko &
Mittman, P.C., 551 Fifth Avenue, Suite 1601, New York, New York 10176,
telecopier number: (212) 697-3575.
5.3 Amendment Provision. The term "Note" and all reference
thereto, as used throughout this instrument, shall mean this instrument as
originally executed, or if later amended or supplemented, then as so amended or
supplemented.
5.4 Assignability. This Note shall be binding upon the Borrower
and its successors and assigns, and shall inure to the benefit of the Holder
and its successors and assigns.
5.5 Cost of Collection. If default is made in the payment of
this Note, Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys' fees.
54.6 Governing Law. This Note shall be governed by and construed
in accordance with the laws of the State of New York. Any action brought by
either party against the other concerning the transactions contemplated by this
Agreement shall be brought only in the state courts of New York or in the
federal courts located in the state of New York. Both parties and the
individual signing this Agreement on behalf of the Borrower agree to submit to
the jurisdiction of such courts. The prevailing party shall be entitled to
recover from the other party its reasonable attorney's fees and costs.
5.7 Maximum Payments. Nothing contained herein shall be deemed
to establish or require the payment of a rate of interest or other charges in
excess of the maximum permitted by applicable law. In the event that the rate
of interest required to be paid or other charges hereunder exceed the maximum
permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by the Borrower to the Holder and thus refunded to the
Borrower.
5.8 Shareholder Status. The Holder shall not have rights as a
shareholder of the Borrower with respect to unconverted portions of this Note.
However, the Holder will have all the rights of a shareholder of the Borrower
with respect to the shares of Common Stock to be received by Holder after
delivery by the Holder of a Conversion Notice to the Borrower.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its
name by an authorized officer as of the 7th day of June, 2006.
DATASCENSION, INC.
By: /s/ Scott Kincer
-----------------------
Name:
Title:
WITNESS:
______________________________________
NOTICE OF CONVERSION
(To be executed by the Registered Holder in order to convert the Note)
The undersigned hereby elects to convert $_________ of the principal and
$_________ of the interest due on the Note issued by Datascension, Inc. on May
31, 2006 into Shares of Common Stock of Datascension, Inc. (the "Borrower")
according to the conditions set forth in such Note, as of the date written
below.
Date of
Conversion:____________________________________________________________________
Conversion
Price:_________________________________________________________________________
Shares To Be
Delivered:_____________________________________________________________________
Signature:_____________________________________________________________________
Print
Name:__________________________________________________________________________
Address:_______________________________________________________________________