SECURITIES PURCHASE AGREEMENT
This
SECURITIES
PURCHASE AGREEMENT (the “Agreement”), dated as of June 12, 2017, by and
between VET
ONLINE SUPPLY, INC., a Florida corporation, with headquarters located at
0000 Xxxxxx Xxxxxx, XXX 000, Xxx Xxxxx, XX 00000 (the “Company”), and AUCTUS
FUND, LLC, a Delaware limited liability company, with its address at 000
Xxxx Xxxxxx, 00xx Xxxxx, Xxxxxx, XX 00000 (the “Buyer”).
WHEREAS:
A. The
Company and the Buyer are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by the rules and
regulations as promulgated by the United States Securities and Exchange
Commission (the “SEC”) under the Securities Act of 1933, as amended (the “1933
Act”);
B. Buyer
desires to purchase and the Company desires to issue and sell, upon the terms
and conditions set forth in this Agreement the 8% convertible note of the
Company, in the form attached hereto as Exhibit A, in the aggregate principal
amount of US$55,000.00 (together with any note(s) issued in replacement thereof
or as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, the “Note”), convertible into shares of common stock, $0.001
par value per share, of the Company (the “Common Stock”), upon the terms and
subject to the limitations and conditions set forth in such Note.
C. The Buyer
wishes to purchase, upon the terms and conditions stated in this Agreement, such
principal amount of Note as is set forth immediately below its name on the
signature pages hereto; and
NOW
THEREFORE, the Company and the Buyer severally (and not jointly) hereby
agree as follows:
1. PURCHASE
AND SALE OF NOTE.
a. Purchase
of Note. On the Closing Date (as defined below), the Company
shall issue and sell to the Buyer and the Buyer agrees to purchase from the
Company such principal amount of Note as is set forth immediately below the
Buyer’s name on the signature pages hereto.
b. Form
of Payment. On the Closing Date (as defined below), (i) the
Buyer shall pay the purchase price for the Note to be issued and sold to it at
the Closing (as defined below) (the “Purchase Price”) by wire transfer of
immediately available funds to the Company, in accordance with the Company’s
written wiring instructions, against delivery of the Note in the principal
amount equal to the Purchase Price as is set forth immediately below the Buyer’s
name on the signature pages hereto, and (ii) the Company shall deliver such
duly executed Note on behalf of the Company, to the Buyer, against delivery of
such Purchase Price.
c. Closing
Date. Subject to the satisfaction (or written waiver) of the
conditions thereto set forth in Section 7 and Section 8 below, the date and time
of the issuance and sale of the Note pursuant to this Agreement (the “Closing
Date”) shall be 12:00 noon, Eastern Standard Time on or about June 12, 2017, or
such other mutually agreed upon time. The closing of the transactions
contemplated by this Agreement (the “Closing”) shall occur on the Closing Date
at such location as may be agreed to by the parties.
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2. REPRESENTATIONS
AND WARRANTIES OF THE BUYER. The Buyer represents and warrants
to the Company that:
a. Investment
Purpose. As of the date hereof, the Buyer is purchasing the
Note and the shares of Common Stock issuable upon conversion of or otherwise
pursuant to the Note (including, without limitation, such additional shares of
Common Stock, if any, as are issuable (i) on account of interest on the
Note (ii) as a result of the events described in Sections 1.3 and 1.4(g) of
the Note or (iii) in payment of the Standard Liquidated Damages Amount (as
defined in Section 2(f) below) pursuant to this Agreement, such shares of Common
Stock being collectively referred to herein as the “Conversion Shares” and,
collectively with the Note, the “Securities”) for its own account and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales registered or exempted from registration under the 1933 Act; provided,
however,
that by making the representations herein, the Buyer does not agree to hold any
of the Securities for any minimum or other specific term and reserves the right
to dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act.
b. Accredited
Investor Status. The Buyer is an “accredited investor” as that
term is defined in Rule 501(a) of Regulation D (an “Accredited
Investor”).
c. Reliance
on Exemptions. The Buyer understands that the Securities are
being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer’s
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information.
The Buyer and its advisors, if any, have been, and for so long as the Note
remains outstanding will continue to be, furnished with all materials relating
to the business, finances and operations of the Company and materials relating
to the offer and sale of the Securities which have been requested by the Buyer
or its advisors. The Buyer and its advisors, if any, have been, and for so
long as the Note remains outstanding will continue to be, afforded the
opportunity to ask questions of the Company. Notwithstanding the
foregoing, the Company has not disclosed to the Buyer any material nonpublic
information and will not disclose such information unless such information is
disclosed to the public prior to or promptly following such disclosure to the
Buyer. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer’s right to rely on the Company’s representations and warranties
contained in Section 3 below. The Buyer understands that its investment in
the Securities involves a significant degree of risk. The Buyer is not aware of
any facts that may constitute a breach of any of the Company’s representations
and warranties made herein.
e. Governmental
Review. The Buyer understands that no United States federal or
state agency or any other government or governmental agency has passed upon or
made any recommendation or endorsement of the Securities.
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f. Transfer
or Re-sale. The Buyer understands that (i) the sale or re-sale
of the Securities has not been and is not being registered under the 1933 Act or
any applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the
Company, at the cost of the Company, an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions to the effect that the Securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration, which
opinion shall be accepted by the Company, (c) the Securities are sold or
transferred to an “affiliate” (as defined in Rule 144 promulgated under the 1933
Act (or a successor rule) (“Rule 144”)) of the Buyer who agrees to sell or
otherwise transfer the Securities only in accordance with this Section 2(f) and
who is an Accredited Investor, (d) the Securities are sold pursuant to Rule
144, or (e) the Securities are sold pursuant to Regulation S under the 1933
Act (or a successor rule) (“Regulation S”), and the Buyer shall have delivered
to the Company, at the cost of the Company, an opinion of counsel that shall be
in form, substance and scope customary for opinions of counsel in corporate
transactions, which opinion shall be accepted by the Company; (ii) any sale of
such Securities made in reliance on Rule 144 may be made only in accordance with
the terms of said Rule and further, if said Rule is not applicable, any re-sale
of such Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the 0000 Xxx) may require compliance with some other exemption
under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder (in each case).
Notwithstanding the foregoing or anything else contained herein to the contrary,
the Securities may be pledged as collateral in connection with a bona
fide margin account or other lending arrangement. In the event
that the Company does not accept the opinion of counsel provided by the Buyer
with respect to the transfer of Securities pursuant to an exemption from
registration, such as Rule 144 or Regulation S, within three (3) business days
of delivery of the opinion to the Company, the Company shall pay to the Buyer
liquidated damages of five percent (5%) of the outstanding amount of the Note
per day plus accrued and unpaid interest on the Note, prorated for partial
months, in cash or shares at the option of the Buyer (“Standard Liquidated
Damages Amount”). If the Buyer elects to be pay the Standard Liquidated
Damages Amount in shares of Common Stock, such shares shall be issued at the
Conversion Price (as defined in the Note) at the time of payment.
g. Legends.
The Buyer understands that the Note and, until such time as the Conversion
Shares have been registered under the 1933 Act may be sold pursuant to Rule 144
or Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, the Conversion Shares may
bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 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 REQUIRED UNDER SAID ACT 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 FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”
The
legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or
Regulation S without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be accepted by the Company so that the sale or
transfer is effected. The Buyer agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any. In
the event that the Company does not accept the opinion of counsel provided by
the Buyer with respect to the transfer of Securities pursuant to an exemption
from registration, such as Rule 144 or Regulation S, at the Deadline, it will be
considered an Event of Default pursuant to Section 3.2 of the Note.
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h. Authorization;
Enforcement. This Agreement has been duly and validly
authorized. This Agreement has been duly executed and delivered on behalf
of the Buyer, and this Agreement constitutes a valid and binding agreement of
the Buyer enforceable in accordance with its terms.
i. Residency.
The Buyer is a resident of the jurisdiction set forth in the
preamble.
3. REPRESENTATIONS
AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Buyer that:
a. Organization
and Qualification. The Company and each of its Subsidiaries (as
defined below), if any, is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction in which it is incorporated,
with full power and authority (corporate and other) to own, lease, use and
operate its properties and to carry on its business as and where now owned,
leased, used, operated and conducted. The Company and each of its
Subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership or use of property or
the nature of the business conducted by it makes such qualification necessary
except where the failure to be so qualified or in good standing would not have a
Material Adverse Effect. “Material Adverse Effect” means any material
adverse effect on the business, operations, assets, financial condition or
prospects of the Company or its Subsidiaries, if any, taken as a whole, or on
the transactions contemplated hereby or by the agreements or instruments to be
entered into in connection herewith. “Subsidiaries” means any corporation
or other organization, whether incorporated or unincorporated, in which the
Company owns, directly or indirectly, any equity or other ownership
interest.
b. Authorization;
Enforcement. (i) The Company has all requisite corporate power
and authority to enter into and perform this Agreement, the Note and to
consummate the transactions contemplated hereby and thereby and to issue the
Securities, in accordance with the terms hereof and thereof, (ii) the execution
and delivery of this Agreement, the Note by the Company and the consummation by
it of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Note and the issuance and reservation for
issuance of the Conversion Shares issuable upon conversion or exercise thereof)
have been duly authorized by the Company’s Board of Directors and no further
consent or authorization of the Company, its Board of Directors, or its
shareholders is required, (iii) this Agreement has been duly executed and
delivered by the Company by its authorized representative, and such authorized
representative is the true and official representative with authority to sign
this Agreement and the other documents executed in connection herewith and bind
the Company accordingly, and (iv) this Agreement constitutes, and upon execution
and delivery by the Company of the Note, each of such instruments will
constitute, a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms.
c. Capitalization.
As of the date hereof, the authorized capital stock of the Company consists of:
(i) 1,000,000,000 shares of Common Stock, of which approximately 193,920,000
shares are issued and outstanding; and (ii) 10,000,000 shares of preferred
stock, of which 0 are issued and outstanding. Except as disclosed in the
SEC Documents, no shares are reserved for issuance pursuant to the Company’s
stock option plans, no shares are reserved for issuance pursuant to securities
(other than the Note and any other convertible promissory note issued to the
Buyer) exercisable for, or convertible into or exchangeable for shares of Common
Stock and 55,000,000 shares are reserved for issuance upon conversion of the
Note. All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and
non-assessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the shareholders of the Company
or any liens or encumbrances imposed through the actions or failure to act of
the Company. Except as disclosed in the SEC Documents, as of the effective
date of this Agreement, (i) there are no outstanding options, warrants, scrip,
rights to subscribe for, puts, calls, rights of first refusal, agreements,
understandings, claims or other commitments or rights of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for any shares of capital stock of the Company or any of its Subsidiaries, or
arrangements by which the Company or any of its Subsidiaries is or may become
bound to issue additional shares of capital stock of the Company or any of its
Subsidiaries, (ii) there are no agreements or arrangements under which the
Company or any of its Subsidiaries is obligated to register the sale of any of
its or their securities under the 1933 Act and (iii) there are no anti-dilution
or price adjustment provisions contained in any security issued by the Company
(or in any agreement providing rights to security holders) that will be
triggered by the issuance of the Note or the Conversion Shares. The
Company has filed in its SEC Documents true and correct copies of the Company’s
Certificate of Incorporation as in effect on the date hereof (“Certificate of
Incorporation”), the Company’s By-laws, as in effect on the date hereof (the
“By-laws”), and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Buyer with a written update
of this representation signed by the Company’s Chief Executive on behalf of the
Company as of the Closing Date.
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d. Issuance
of Shares. The
issuance of the Note is duly authorized and, upon issuance in accordance with
the terms of this Agreement, will be validly issued, fully paid and
non-assessable and free from all preemptive or similar rights, taxes, liens,
charges and other encumbrances with respect to the issue thereof.
The Conversion Shares are duly authorized and reserved for issuance and,
upon conversion of the Note in accordance with its respective terms, will be
validly issued, fully paid and non-assessable, and free from all taxes, liens,
claims and encumbrances with respect to the issue thereof and shall not be
subject to preemptive rights or other similar rights of shareholders of the
Company and will not impose personal liability upon the holder
thereof.
e. Acknowledgment
of Dilution. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock upon the issuance of the
Conversion Shares upon conversion of the Note. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Note in accordance with this Agreement, the Note is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other shareholders of the Company.
f. No
Conflicts. The execution, delivery and performance of this
Agreement and the Note by the Company and the consummation by the Company of the
transactions contemplated hereby and thereby (including, without limitation, the
issuance and reservation for issuance of the Conversion Shares) will not (i)
conflict with or result in a violation of any provision of the Certificate of
Incorporation or By-laws, or (ii) violate or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which with
notice or lapse of time or both could become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in
violation of its Certificate of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its Subsidiaries is in default (and
no event has occurred which with notice or lapse of time or both could put the
Company or any of its Subsidiaries in default) under, and neither the Company
nor any of its Subsidiaries has taken any action or failed to take any action
that would give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as the Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency, regulatory
agency, self-regulatory organization or stock market or any third party in order
for it to execute, deliver or perform any of its obligations under this
Agreement, the Note in accordance with the terms hereof or thereof or to issue
and sell the Note in accordance with the terms hereof and to issue the
Conversion Shares upon conversion of the Note. All consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the
listing requirements of the OTC Pink (the “OTC Pink”), the OTCQB or any similar
quotation system, and does not reasonably anticipate that the Common Stock will
be delisted by the OTC Pink, the OTCQB or any similar quotation system, in the
foreseeable future nor
are the Company’s securities “chilled” by DTC. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
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g. SEC
Documents; Financial Statements. The Company has timely filed
all reports, schedules, forms, statements and other documents required to be
filed by it with the SEC pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the “1934 Act”) (all of the
foregoing filed prior to the date hereof and all exhibits included therein and
financial statements and schedules thereto and documents (other than exhibits to
such documents) incorporated by reference therein, being hereinafter referred to
herein as the “SEC Documents”). The Company has delivered to the Buyer
true and complete copies of the SEC Documents, except for such exhibits and
incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents is,
or has been, required to be amended or updated under applicable law (except for
such statements as have been amended or updated in subsequent filings prior the
date hereof). As of their respective dates, the financial statements of
the Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles, consistently applied, during the periods involved
and fairly present in all material respects the consolidated financial position
of the Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). Except as set forth in the financial statements of the
Company included in the SEC Documents, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to March 31, 2017, and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company. The Company is
subject to the reporting requirements of the 1934 Act. For the avoidance of
doubt, filing of the documents required in this Section 3(g) via the SEC’s
Electronic Data Gathering, Analysis, and Retrieval system (“XXXXX”) shall
satisfy all delivery requirements of this Section 3(g).
h. Absence
of Certain Changes. Since March 31, 2017, there has been no
material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations, prospects or 1934 Act reporting status of the Company or any of its
Subsidiaries.
i. Absence
of Litigation. There is no action, suit, claim, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company
or any of its Subsidiaries, or their officers or directors in their capacity as
such, that could have a Material Adverse Effect. Schedule 3(i) contains a
complete list and summary description of any pending or, to the knowledge of the
Company, threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse
Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
j. Patents,
Copyrights, etc. The Company and each of its Subsidiaries owns
or possesses the requisite licenses or rights to use all patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names and copyrights
(“Intellectual Property”) necessary to enable it to conduct its business as now
operated (and, as presently contemplated to be operated in the future). Except
as disclosed in the SEC Documents, there is no claim or action by any person
pertaining to, or proceeding pending, or to the Company’s knowledge threatened,
which challenges the right of the Company or of a Subsidiary with respect to any
Intellectual Property necessary to enable it to conduct its business as now
operated (and, as presently contemplated to be operated in the future); to the
best of the Company’s knowledge, the Company’s or its Subsidiaries’ current and
intended products, services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual
Property.
k. No
Materially Adverse Contracts, Etc. Neither the Company nor any
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company’s officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is a party to any contract or agreement which in the judgment of the Company’s
officers has or is expected to have a Material Adverse Effect.
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l. Tax
Status. The Company and each of its Subsidiaries has made or
filed all federal, state and foreign income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company and each of its Subsidiaries has set aside
on its books provisions reasonably adequate for the payment of all unpaid and
unreported taxes) and has paid all taxes and other governmental assessments and
charges that are material in amount, shown or determined to be due on such
returns, reports and declarations, except those being contested in good faith
and has set aside on its books provisions reasonably adequate for the payment of
all taxes for periods subsequent to the periods to which such returns, reports
or declarations apply. There are no unpaid taxes in any material amount
claimed to be due by the taxing authority of any jurisdiction, and the officers
of the Company know of no basis for any such claim. The Company has not
executed a waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, state or local tax. None
of the Company’s tax returns is presently being audited by any taxing
authority.
m. Certain
Transactions. Except for arm’s length transactions pursuant to
which the Company or any of its Subsidiaries makes payments in the ordinary
course of business upon terms no less favorable than the Company or any of its
Subsidiaries could obtain from third parties and other than the grant of stock
options disclosed on Schedule 3(c), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company or any of its Subsidiaries (other than for services as employees,
officers and directors), including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
n. Disclosure.
All information relating to or concerning the Company or any of its Subsidiaries
set forth in this Agreement and provided to the Buyer pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect
to the Company or any of its Subsidiaries or its or their business, properties,
prospects, operations or financial conditions, which, under applicable law, rule
or regulation, requires public disclosure or announcement by the Company but
which has not been so publicly announced or disclosed (assuming for this purpose
that the Company’s reports filed under the 1934 Act are being incorporated into
an effective registration statement filed by the Company under the 1933
Act).
o. Acknowledgment
Regarding Buyer’ Purchase of Securities. The
Company acknowledges and agrees that the Buyer is acting solely in the capacity
of arm’s length purchasers with respect to this Agreement and the transactions
contemplated hereby. The Company further acknowledges that the Buyer is
not acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any statement made by the Buyer or any of its respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyer’ purchase of the Securities. The Company further represents
to the Buyer that the Company’s decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
p. No
Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyer. The issuance of
the Securities to the Buyer will not be integrated with any other issuance of
the Company’s securities (past, current or future) for purposes of any
shareholder approval provisions applicable to the Company or its
securities.
7
q. No
Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, transaction fees or
similar payments relating to this Agreement or the transactions contemplated
hereby.
r. Permits;
Compliance. The Company and each of its Subsidiaries is in
possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the “Company Permits”), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits. Neither the
Company nor any of its Subsidiaries is in conflict with, or in default or
violation of, any of the Company Permits, except for any such conflicts,
defaults or violations which, individually or in the aggregate, would not
reasonably be expected to have a Material Adverse Effect. Since March 31,
2017, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
s. Environmental
Matters.
(i) There
are, to the Company’s knowledge, with respect to the Company or any of its
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company’s knowledge, threatened in connection with any of the
foregoing. The term “Environmental Laws” means all federal, state, local
or foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, “Hazardous Materials”) into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) Other
than those that are or were stored, used or disposed of in compliance with
applicable law, no Hazardous Materials are contained on or about any real
property currently owned, leased or used by the Company or any of its
Subsidiaries, and no Hazardous Materials were released on or about any real
property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company’s
or any of its Subsidiaries’ business.
(iii) There are
no underground storage tanks on or under any real property owned, leased or used
by the Company or any of its Subsidiaries that are not in compliance with
applicable law.
t. Title
to Property. Except as disclosed in the SEC Documents the
Company and its Subsidiaries have good and marketable title in fee simple to all
real property and good and marketable title to all personal property owned by
them which is material to the business of the Company and its Subsidiaries, in
each case free and clear of all liens, encumbrances and defects or such as would
not have a Material Adverse Effect. Any real property and facilities held
under lease by the Company and its Subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as would not have a
Material Adverse Effect.
8
u. Internal
Accounting Controls. Except as disclosed in the SEC Documents
the Company and each of its Subsidiaries maintain a system of internal
accounting controls sufficient, in the judgment of the Company’s board of
directors, to provide reasonable assurance that (i) transactions are executed in
accordance with management’s general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability, (iii) access to assets is permitted only in
accordance with management’s general or specific authorization and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
v. Foreign
Corrupt Practices. Neither the Company, nor any of its
Subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any Subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977,
as amended, or made any bribe, rebate, payoff, influence payment, kickback or
other unlawful payment to any foreign or domestic government official or
employee.
w. Solvency.
The Company (after giving effect to the transactions contemplated by this
Agreement) is solvent (i.e.,
its assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and, after giving effect to the transactions contemplated by
this Agreement, does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its current fiscal year. For the
avoidance of doubt any disclosure of the Borrower’s ability to continue as a
“going concern” shall not, by itself, be a violation of this Section
3(w).
x. No
Investment Company. The Company is not, and upon the issuance
and sale of the Securities as contemplated by this Agreement will not be an
“investment company” required to be registered under the Investment Company Act
of 1940 (an “Investment Company”). The Company is not controlled by an
Investment Company.
y. Insurance.
The Company and each of its Subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as
management of the Company believes to be prudent and customary in the businesses
in which the Company and its Subsidiaries are engaged. Neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect. Upon written
request the Company will provide to the Buyer true and correct copies of all
policies relating to directors’ and officers’ liability coverage, errors and
omissions coverage, and commercial general liability coverage.
z. Ba
9
d
Actor. No officer or director of the Company would be
disqualified under Rule 506(d) of the Securities Act as amended on the basis of
being a “bad actor” as that term is established in the September 19, 2013
Small Entity Compliance Guide published by the SEC.
aa. Shell
Status. The Company represents that it is not a “shell” issuer
and has never been a “shell” issuer, or that if it previously has been a “shell”
issuer, that at least twelve (12) months have passed since the Company has
reported Form 10 type information indicating that it is no longer a “shell”
issuer. Further,
the Company will instruct its counsel to either (i) write a 144- 3(a)(9) opinion
to allow for salability of the Conversion Shares or (ii) accept such opinion
from Holder’s counsel.
bb. No-Off
Balance Sheet Arrangements. There is no transaction, arrangement, or other relationship between the Company
or any of its Subsidiaries and an unconsolidated or other off balance sheet
entity that is required to be disclosed by the Company in its 1934 Act filings
and is not so disclosed or that otherwise could be reasonably likely to have a
Material Adverse Effect.
cc. Manipulation
of Price. The Company has not, and to its knowledge no one
acting on its behalf has: (i) taken, directly or indirectly, any action
designed to cause or to result, or that could reasonably be expected to
cause or result, in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the Securities, or (iii) paid or agreed to
pay to any person any compensation for soliciting another to purchase any
other securities of the Company.
dd. Xxxxxxxx-Xxxxx
Act. The Company and each Subsidiary is in material compliance with all
applicable requirements of the Xxxxxxxx-Xxxxx
Act of 2002 that are effective as of the date hereof, and all applicable
rules and regulations promulgated by the SEC thereunder that are effective
as of the date hereof.
ee. Employee
Relations. Neither the Company nor any of its Subsidiaries is a
party to any collective bargaining agreement or employs any member of a
union. The Company believes that its and its Subsidiaries’ relations with
their respective employees are good. No executive officer (as defined in
Rule 501(f) promulgated under the 0000 Xxx) or other key employee of the
Company or any of its Subsidiaries has notified the Company or any such
Subsidiary that such officer intends to leave the Company or any such
Subsidiary or otherwise terminate such officer’s employment with the
Company or any such Subsidiary. To the knowledge of the Company, no
executive officer or other key employee of the Company or any of its
Subsidiaries is, or is now expected to be, in violation of any material
term of any employment contract, confidentiality, disclosure or
proprietary information agreement, non-competition agreement, or any other
contract or agreement or any restrictive covenant, and the continued
employment of each such executive officer or other key employee (as the
case may be) does not subject the Company or any of its Subsidiaries to
any liability with respect to any of the foregoing matters. The Company
and its Subsidiaries are in compliance with all federal, state, local and
foreign laws and regulations respecting labor, employment and employment
practices and benefits, terms and conditions of employment and wages and
hours, except where failure to be in compliance would not, either
individually or in the aggregate, reasonably be expected to result in a
Material Adverse Effect.
ff. Breach
of Representations and Warranties by the Company. The Company
agrees that if the Company breaches any of the representations or warranties set
forth in this Section 3, and in addition to any other remedies available to the
Buyer pursuant to this Agreement and it being considered an Event of Default
under Section 3.5 of the Note, the Company shall pay to the Buyer the Standard
Liquidated Damages Amount in cash or in shares of Common Stock at the option of
the Company, until such breach is cured. If the Company elects to pay the
Standard Liquidated Damages Amounts in shares of Common Stock, such shares shall
be issued at the Conversion Price at the time of payment.
10
4. COVENANTS.
a. Best
Efforts. The parties shall use their commercially reasonable
best efforts to satisfy timely each of the conditions described in Section 7 and
8 of this Agreement.
b. Form
D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to the Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyer at the
applicable closing pursuant to this Agreement under applicable securities or
“blue sky” laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to the Buyer on or prior to the Closing Date.
c. Use of
Proceeds. The Company shall use the proceeds from the sale of
the Note for working capital and other general corporate purposes and shall not,
directly or indirectly, use such proceeds for any loan to or investment in any
other corporation, partnership, enterprise or other person (except in connection
with its currently existing direct or indirect Subsidiaries).
d. Right
of First Refusal. Unless it shall have first delivered to the
Buyer, at least seventy two (72) hours prior to the closing of such Future
Offering (as defined herein), written notice describing the proposed Future
Offering, including the terms and conditions thereof, and providing the Buyer an
option during the seventy two (72) hour period following delivery of such notice
to purchase the securities being offered in the Future Offering on the same
terms as contemplated by such Future Offering (the limitations referred to in
this sentence and the preceding sentence are collectively referred to as the
“Right of First Refusal”) (and subject to the exceptions described below), the
Company will not conduct any equity financing (including debt with an equity
component) (“Future Offerings”) during the period beginning on the Closing Date
and ending twelve (12) months following the Closing Date. In the event the
terms and conditions of a proposed Future Offering are amended in any respect
after delivery of the notice to the Buyer concerning the proposed Future
Offering, the Company shall deliver a new notice to the Buyer describing the
amended terms and conditions of the proposed Future Offering and the Buyer
thereafter shall have an option during the seventy two (72) hour period
following delivery of such new notice to purchase its pro rata share of the
securities being offered on the same terms as contemplated by such proposed
Future Offering, as amended. The foregoing sentence shall apply to
successive amendments to the terms and conditions of any proposed Future
Offering. The Right of First Refusal shall not apply to any transaction
involving (i) issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under the 1933
Act), (ii) issuances to employees, officers, directors, contractors, consultants
or other advisors approved by the Board, (iii) issuances to strategic partners
or other parties in connection with a commercial relationship, or providing the
Company with equipment leases, real property leases or similar transactions
approved by the Board (iv) issuances of securities as consideration for a
merger, consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Right of First Refusal
also shall not apply to the issuance of securities upon exercise or conversion
of the Company’s options, warrants or other convertible securities outstanding
as of the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan approved by the shareholders of the Company.
e. Expenses.
The
Company shall reimburse Buyer for any and all expenses incurred by them in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement and the other agreements to be executed in
connection herewith (“Documents”), including, without limitation, reasonable
attorneys’ and consultants’ fees and expenses, transfer agent fees, fees for
stock quotation services, fees relating to any amendments or modifications of
the Documents or any consents or waivers of provisions in the Documents, fees
for the preparation of opinions of counsel, escrow fees, and costs of
restructuring the transactions contemplated by the Documents. When
possible, the Company must pay these fees directly, including, but not limited
to, any and all wire fees, otherwise the Company must make immediate payment for
reimbursement to the Buyer for all fees and expenses immediately upon written
notice by the Buyer or the submission of an invoice by the Buyer. At
Closing, the Company’s initial obligation with respect to this transaction is to
reimburse Buyer’s legal expenses shall be $2,750.00 plus the cost of wire
fees.
11
f. Financial
Information. The Company agrees to send or make available the
following reports to the Buyer until the Buyer transfers, assigns, or sells all
of the Securities: (i) within ten (10) days after the filing with the SEC,
a copy of its Annual Report on Form 10-K its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its Subsidiaries;
and (iii) contemporaneously with the making available or giving to the
shareholders of the Company, copies of any notices or other information the
Company makes available or gives to such shareholders. For the avoidance
of doubt, filing the documents required in (i) above via XXXXX or releasing any
documents set forth in (ii) above via a recognized wire service shall satisfy
the delivery requirements of this Section 4(f).
g. Listing.
The Company shall promptly secure the listing of the Conversion Shares upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance)
and, so long as the Buyer owns any of the Securities, shall maintain, so long as
any other shares of Common Stock shall be so listed, such listing of all
Conversion Shares from time to time issuable upon conversion of the Note.
The Company will obtain and, so long as the Buyer owns any of the Securities,
maintain the listing and trading of its Common Stock on the OTC Pink, OTCQB or
any equivalent replacement exchange, the Nasdaq National Market (“Nasdaq”), the
Nasdaq SmallCap Market (“Nasdaq SmallCap”), the New York Stock Exchange
(“NYSE”), or the NYSE MKT and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as
applicable. The Company shall promptly provide to the Buyer copies of any
material notices it receives from the OTC Pink, OTCQB and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems. The Company shall pay any and all fees and expenses in
connection with satisfying its obligation under this Section 4(g).
h. Corporate
Existence. So long as the Buyer beneficially owns any Note, the
Company shall maintain its corporate existence and shall not sell all or
substantially all of the Company’s assets, except in the event of a merger or
consolidation or sale of all or substantially all of the Company’s assets, where
the surviving or successor entity in such transaction (i) assumes the Company’s
obligations hereunder and under the agreements and instruments entered into in
connection herewith and (ii) is a publicly traded corporation whose Common Stock
is listed for trading on the OTC Pink, OTCQB, Nasdaq, NasdaqSmallCap, NYSE or
AMEX.
i. No
Integration. The Company shall not make any offers or sales of
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of the Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
j. Failure
to Comply with the 1934 Act. So long as the Buyer beneficially
owns the Note, the Company shall comply with the reporting requirements of the
1934 Act; and the Company shall continue to be subject to the reporting
requirements of the 1934 Act.
k. Trading
Activities. Neither
the Buyer nor its affiliates has an open short position (or other hedging or
similar transactions) in the common stock of the Company and the Buyer agree
that it shall not, and that it will cause its affiliates not to, engage in any
short sales of or hedging transactions with respect to the common stock of the
Company.
12
l. Restriction
on Activities.
Commencing as of the date first above written, and until the sooner of the six
month anniversary of the date first written above or payment of the Note in
full, or full conversion of the Note, the Company shall not, directly or
indirectly, without the Buyer’s prior written consent, which consent shall not
be unreasonably withheld: (a) change the nature of its business; (b) sell,
divest, acquire, change the structure of any material assets other than in the
ordinary course
of business; or (c) solicit any offers for, respond to any unsolicited offers
for, or conduct any negotiations with any other person or entity in respect of
any variable rate debt transactions (i.e., transactions were the conversion or
exercise price of the security issued by the Company varies based on the market
price of the Common Stock) above $500,000, whether a transaction similar to the
one contemplated hereby or any other investment; or (d) file any
registration statements with the SEC.
m. Legal
Counsel Opinions.
Upon the request of the Buyer from to time to time, the Company shall be
responsible (at its cost) for promptly supplying to the Company’s transfer agent
and the Buyer a customary legal opinion letter of its counsel (the “Legal
Counsel Opinion”) to the effect that the sale of Conversion Shares by the Buyer
or its affiliates, successors and assigns is exempt from the
registration requirements of the 1933 Act pursuant to Rule 144 (provided the
requirements of Rule 144 are satisfied and provided the Conversion Shares are
not then registered under the 1933 Act for resale pursuant to an effective
registration statement). Should the Company’s legal counsel fail for any reason
to issue the Legal Counsel Opinion, the Buyer may (at the Company’s cost) secure
another legal counsel to issue the Legal Counsel Opinion, and the Company will
instruct its transfer agent to accept such opinion.
n. Par
Value. If the closing bid price at any time the Note is
outstanding falls below $0.001, the Company shall cause the par value of its
Common Stock to be reduced to $0.0001 or less.
o. Breach
of Covenants. The Company agrees that if the Company breaches
any of the covenants set forth in this Section 4, and in addition
to any other remedies available to the Buyer pursuant to this Agreement, it will
be considered an Event of Default under Section 3.4 of the Note, the Company
shall pay to the Buyer the Standard Liquidated Damages Amount in cash or in
shares of Common Stock at the option of the Buyer, until such breach is cured,
or with respect to Section 4(d) above, the Company shall pay to the Buyer the
Standard Liquidated Damages Amount in cash or shares of Common Stock, at the
option of the Buyer, upon each violation of such provision. If the Company
elects to pay the Standard Liquidated Damages Amounts in shares of Common Stock,
such shares shall be issued at the Conversion Price at the time of
payment.
5. Transaction
Expense Amount. Upon Closing, the Company shall pay Five
Thousand and No/100 United States Dollars (US$5,000.00) to Auctus Fund
Management, LLC (“Auctus Management”) to cover the Holder’s due diligence,
monitoring, and other transaction costs incurred for services rendered in
connection herewith (the “Transaction Expense Amount”). The Transaction
Expense Amount shall be offset against the proceeds of the Note and shall be
paid to Auctus Management upon the execution hereof.
6. Transfer
Agent Instructions. The
Company shall issue irrevocable instructions to its transfer agent to issue
certificates, registered in the name of the Buyer or its nominee, for the
Conversion Shares in such amounts as specified from time to time by the Buyer to
the Company upon conversion of the Note in accordance with the terms thereof
(the “Irrevocable Transfer Agent Instructions”). In the event that the
Borrower proposes to replace its transfer agent, the Borrower shall provide,
prior to the effective date of such replacement, a fully executed Irrevocable
Transfer Agent Instructions in a form as initially delivered pursuant to the
Purchase Agreement (including but not limited to the provision to irrevocably
reserve shares of Common Stock in the Reserved Amount) signed by the successor
transfer agent to Borrower and the Borrower. Prior to registration of the
Conversion Shares under the 1933 Act or the date on which the Conversion Shares
may be sold pursuant to Rule 144 without any restriction as to the number of
Securities as of a particular date that can then be immediately sold, all such
certificates shall bear the restrictive legend specified in Section 2(g) of this
Agreement. The Company warrants that: (i) no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section, and stop
transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares, prior to registration of the Conversion Shares under the 1933
Act or the date on which the Conversion Shares may be sold pursuant to Rule 144
without any restriction as to the
13
number
of Securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Note; (ii) it will not direct
its transfer agent not to transfer or delay, impair, and/or hinder its transfer
agent in transferring (or issuing)(electronically or in certificated form) any
certificate for Conversion Shares to be issued to the Buyer upon conversion of
or otherwise pursuant to the Note as and when required by the Note and this
Agreement; and (iii) it will not fail to remove (or directs its transfer agent
not to remove or impairs, delays, and/or hinders its transfer agent from
removing) any restrictive legend (or to withdraw any stop transfer instructions
in respect thereof) on any certificate for any Conversion Shares issued to the
Buyer upon conversion of or otherwise pursuant to the Note as and when required
by the Note and this Agreement. Nothing in this Section shall affect in
any way the Buyer’s obligations and agreement set forth in Section 2(g) hereof
to comply with all applicable prospectus delivery requirements, if any, upon
re-sale of the Securities. If the Buyer provides the Company, at the cost
of the Company, with (i) an opinion of counsel in form, substance and scope
customary for opinions in comparable transactions, to the effect that a public
sale or transfer of such Securities may be made without registration under the
1933 Act and such sale or transfer is effected or (ii) the Buyer provides
reasonable assurances that the Securities can be sold pursuant to Rule 144, the
Company shall permit the transfer, and, in the case of the Conversion Shares,
promptly instruct its transfer agent to issue one or more certificates, free
from restrictive legend, in such name and in such denominations as specified by
the Buyer. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Buyer, by vitiating the intent and
purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Section may be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Section, that the Buyer shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity
of showing economic loss and without any bond or other security being
required.
7. CONDITIONS
PRECEDENT TO THE COMPANY’S OBLIGATIONS TO SELL. The obligation
of the Company hereunder to issue and sell the Note to the Buyer at the Closing
is subject to the satisfaction, at or before the Closing Date of each of the
following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:
a. The Buyer
shall have executed this Agreement and delivered the same to the
Company.
b. The Buyer
shall have delivered the Purchase Price in accordance with Section 1(b)
above.
c. The
representations and warranties of the Buyer shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at that time (except for representations and warranties that speak as of a
specific date), and the Buyer shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Buyer at or
prior to the Closing Date.
d. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
14
8. CONDITIONS
PRECEDENT TO THE BUYER’S OBLIGATION TO PURCHASE. The obligation
of the Buyer hereunder to purchase the Note at the Closing is subject to the
satisfaction, at or before the Closing Date of each of the following conditions,
provided that these conditions are for the Buyer’s sole benefit and may be
waived by the Buyer at any time in its sole discretion:
a. The
Company shall have executed this Agreement and delivered the same to the
Buyer.
b. The
Company shall have delivered to the Buyer the duly executed Note (in such
denominations as the Buyer shall request) and in accordance with Section 1(b)
above.
c. The
Irrevocable Transfer Agent Instructions, in form and substance satisfactory to a
majority-in-interest of the Buyer, shall have been delivered to and acknowledged
in writing by the Company’s Transfer Agent.
d. The
representations and warranties of the Company shall be true and correct in all
material respects as of the date when made and as of the Closing Date as though
made at such time (except for representations and warranties that speak as of a
specific date) and the Company shall have performed, satisfied and complied in
all material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Company at or
prior to the Closing Date. The Buyer shall have received a certificate or
certificates, executed by the chief executive officer of the Company, dated as
of the Closing Date, to the foregoing effect and as to such other matters as may
be reasonably requested by the Buyer including, but not limited to certificates
with respect to the Company’s Certificate of Incorporation, By-laws and Board of
Directors’ resolutions relating to the transactions contemplated
hereby.
e. No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
f. No event
shall have occurred which could reasonably be expected to have a Material
Adverse Effect on the Company including but not limited to a change in the 1934
Act reporting status of the Company or the failure of the Company to be timely
in its 1934 Act reporting obligations.
g. The
Conversion Shares shall have been authorized for quotation on the OTC Pink,
OTCQB or any similar quotation system and trading in the Common Stock on the OTC
Pink, OTCQB or any similar quotation system shall not have been suspended by the
SEC or the OTC Pink, OTCQB or any similar quotation system.
h. The Buyer
shall have received an officer’s certificate described in Section 3(c) above,
dated as of the Closing Date.
15
|
9. |
GOVERNING
LAW; MISCELLANEOUS. |
a. Governing
Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada without regard to principles of
conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement, the Note or any
other agreement, certificate, instrument or document contemplated hereby shall
be brought only in the state courts of Massachusetts or in the federal courts
located in the state of Massachusetts. The parties to this Agreement
hereby irrevocably waive any objection to jurisdiction and venue of any action
instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum
non conveniens. EACH
PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO
REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR UNDER ANY
OTHER TRANSACTION DOCUMENT OR IN CONNECTION WITH OR ARISING OUT OF THIS
AGREEMENT, ANY OTHER TRANSACTION DOCUMENT OR ANY TRANSACTION CONTEMPLATED HEREBY
OR THEREBY. The prevailing party shall be entitled to recover from
the other party its reasonable attorney’s fees and costs. In the event
that any provision of this Agreement or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the extent that
it may conflict therewith and shall be deemed modified to conform with such
statute or rule of law. Any such provision which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision of any agreement. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
suit, action or proceeding in connection with this Agreement or any other
Transaction Document by mailing a copy thereof via registered or certified mail
or overnight delivery (with evidence of delivery) to such party at the address
in effect for notices to it under this Agreement and agrees that such service
shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any
right to serve process in any other manner permitted by law.
b. Counterparts;
Signatures by Facsimile. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same agreement and shall become effective when
counterparts have been signed by each party and delivered to the other
party. This Agreement, once executed by a party, may be delivered to the
other party hereto by facsimile transmission of a copy of this Agreement bearing
the signature of the party so delivering this Agreement.
c. Construction;
Headings. This Agreement shall be deemed to be jointly drafted
by the Company and the Buyer and shall not be construed against any person as
the drafter hereof. The headings of this Agreement are for convenience of
reference only and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability.
In the event that any provision of this Agreement is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be deemed
inoperative to the extent that it may conflict therewith and shall be deemed
modified to conform with such statute or rule of law. Any provision hereof
which may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof.
e. Entire
Agreement; Amendments. This Agreement, the Note and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the majority in interest of the
Buyer.
f. 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, email, 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 email or 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:
16
If
to the Company, to:
Vet
Online Supply, Inc.
0000
Xxxxxx Xxxxxx, XXX 000
Xxx
Xxxxx, XX 00000
Attn:
Xxxxxx Xxxxx
E-mail:
xxxxxx@xxxxxxxxxxxxxxxxx.xxx
If
to the Buyer:
Auctus
Fund, LLC
000
Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx,
XX 00000
Attn:
Xxx Xxxxxx
Facsimile:
(000) 000-0000
With
a copy to (which copy shall not constitute notice):
Xxxx
Friend, Esq., LL.M.
Legal
& Compliance, LLC
000
Xxxxxxxx Xxxxxx, Xxxxx 000
Xxxx
Xxxx Xxxxx, XX 00000
E-mail:
XXxxxxx@XxxxxxxxXxxxxxxxxx.xxx
Each
party shall provide notice to the other party of any change in address.
g. Successors
and Assigns. This Agreement shall be binding upon and inure to
the benefit of the parties and their successors and assigns. Neither the
Company nor the Buyer shall assign this Agreement or any rights or obligations
hereunder without the prior written consent of the other. Notwithstanding
the foregoing, subject to Section 2(f), the Buyer may assign its rights
hereunder to any person that purchases Securities in a private transaction from
the Buyer or to any of its “affiliates,” as that term is defined under the 1934
Act, without the consent of the Company.
h. Third
Party Beneficiaries. This Agreement is intended for the benefit
of the parties hereto and their respective permitted successors and assigns, and
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.
17
i. Survival.
The representations and warranties of the Company and the agreements and
covenants set forth in this Agreement shall survive the closing hereunder not
withstanding any due diligence investigation conducted by or on behalf of the
Buyer. The Company agrees to indemnify and hold harmless the Buyer and all
their officers, directors, employees and agents for loss or damage arising as a
result of or related to any breach or alleged breach by the Company of any of
its representations, warranties and covenants set forth in this Agreement or any
of its covenants and obligations under this Agreement, including advancement of
expenses as they are incurred.
j. Further
Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
k. No
Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any
party.
l. Remedies.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyer by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Agreement will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Agreement, that the Buyer 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 Agreement and to enforce specifically
the terms and provisions hereof, without the necessity of showing economic loss
and without any bond or other security being required.
m. Publicity.
The Company, and the Buyer shall have the right to review a reasonable period of
time before issuance of any press releases, SEC, OTCQB or FINRA filings, or any
other public statements with respect to the transactions contemplated hereby;
provided,
however,
that the Company shall be entitled, without the prior approval of the Buyer, to
make any press release or SEC, OTCQB (or other applicable trading market) or
FINRA filings with respect to such transactions as is required by applicable law
and regulations (although the Buyer shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof and be given an opportunity to comment
thereon).
n. Indemnification.
In consideration of the Buyer’s execution and delivery of this Agreement and
acquiring the Securities hereunder, and in addition to all of the Company’s
other obligations under this Agreement or the Note, the Company shall defend,
protect, indemnify and hold harmless the Buyer and its stockholders, partners,
members, officers, directors, employees and direct or indirect investors and any
of the foregoing persons’ agents or other representatives (including, without
limitation, those retained in connection with the transactions contemplated by
this Agreement) (collectively, the “Indemnitees”) from and against any and all
actions, causes of action, suits, claims, losses, costs, penalties, fees,
liabilities and damages, and expenses in connection therewith (irrespective of
whether any such Indemnitee is a party to the action for which indemnification
hereunder is sought), and including reasonable attorneys’ fees and disbursements
(the “Indemnified Liabilities”), incurred by any Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation
or breach of any representation or warranty made by the Company in this
Agreement or the Note or any other agreement, certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement or the Note
or any other agreement, certificate, instrument or document contemplated hereby
or thereby or (c) any cause of action, suit or claim brought or made against
such Indemnitee by a third party (including for these purposes a derivative
action brought on behalf of the Company) and arising out of or resulting from
(i) the execution, delivery, performance or enforcement of this Agreement or the
Note or any other agreement, certificate, instrument or document contemplated
hereby or thereby, (ii) any transaction financed or to be financed in whole or
in part, directly or indirectly, with the proceeds of the issuance of the
Securities, or (iii) the status of the Buyer or holder of the Securities as an
investor in the Company pursuant to the transactions contemplated by this
Agreement. To the extent that the foregoing undertaking by the Company may be
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law.
[signature
page follows]
18
IN
WITNESS WHEREOF, the undersigned Buyer and the Company have caused this
Agreement to be duly executed as of the date first above written.
VET
ONLINE SUPPLY, INC.
By:
Xxxxxx Xxxxx
Name:
Xxxxxx Xxxxx
Title:
Chief Executive Officer
AUCTUS
FUND, LLC
By:
Xxx Xxxxxx
Name:
Xxx Xxxxxx
Title:
Managing Director
AGGREGATE
SUBSCRIPTION AMOUNT:
Aggregate
Principal Amount of Note: US$55,000.00
Aggregate
Purchase Price: US$55,000.00
19
NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED
(I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE SECURITIES ACT OF 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 REQUIRED UNDER SAID ACT 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 FIDE MARGIN ACCOUNT OR
OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
| Principal Amount: US$64,000.00 | Issue Date: June 16, 2017 |
| Purchase Price: US$55,000.00 | OID: $9,000.00 |
CONVERTIBLE
PROMISSORY NOTE
FOR
VALUE RECEIVED, VET
ONLINE SUPPLY, INC., a Florida corporation (hereinafter called the
“Borrower”), hereby promises to pay to the order of AUCTUS
FUND, LLC, a Delaware limited liability company, or registered assigns
(the “Holder”) the sum of US$64,000.00 together with any interest as set forth
herein, on March 16, 2018 (the “Maturity Date”), and to pay interest on the
unpaid principal balance hereof at the rate of eight percent (8%) (the
“Interest Rate”) per annum from the date hereof (the “Issue Date”) until the
same becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. This Note may not be prepaid in whole or in part except
as otherwise explicitly set forth herein with the written consent of the Holder
which may be withheld for any reason or for no reason. Any amount of principal
or interest on this Note which is not paid when due shall bear interest at the
rate of the lesser of (i) twenty four percent (24%) per annum or (ii) the
maximum amount allowed by law from the due date thereof until the same is paid
(the “Default Interest”). Interest shall commence accruing on the date that the
Note is fully paid and shall be computed on the basis of a 360-day year and the
actual number of days elapsed. All payments due hereunder (to the extent not
converted into common stock, $0.001 par value per share (the “Common Stock”) in
accordance with the terms hereof) shall be made in lawful money of the United
States of America. All payments shall be made at such address as the Holder
shall hereafter give to the Borrower by written notice made in accordance with
the provisions of this Note. Whenever any amount expressed to be due by the
terms of this Note is due on any day which is not a business day, the same shall
instead be due on the next succeeding day which is a business day and, in the
case of any interest payment date which is not the date on which this Note is
paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date. As
used in this Note, the term “business day” shall mean
20
any
day other than a Saturday, Sunday or a day on which commercial banks in the city
of New York, New York are authorized or required by law or executive order to
remain closed. Each capitalized term used herein, and not otherwise defined,
shall have the meaning ascribed thereto in that certain Securities Purchase
Agreement dated the date hereof, pursuant to which this Note was originally
issued (the “Purchase Agreement”).
This
Note carries an original issue discount of $9,000.00 (the “OID”), to cover the
Holder’s accounting fees, as well as monitoring and/or other transactional costs
incurred in connection with the purchase and sale of the Note, which is included
in the principal balance of this Note. Thus, the purchase price of this Note
shall be $55,000.00, computed as follows: the Principal Amount minus the
OID.
This
Note is free from all taxes, liens, claims and encumbrances with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of shareholders of the Borrower and will not impose personal liability
upon the holder thereof.
The
following terms shall apply to this Note:
ARTICLE I. CONVERSION
RIGHTS
|
1.1 |
Conversion
Right. The Holder shall have the right from time to time, and
at any time following the Issue Date and ending on the later of (i) the
Maturity Date and (ii) the date of payment of the Default Amount (as
defined in Article III) pursuant to Section 1.6(a) or Article III, each in
respect of the remaining outstanding principal amount of this Note to
convert all or any part of the outstanding and unpaid principal amount of
this Note into fully paid and non-assessable shares of Common Stock, as
such Common Stock exists on the Issue Date, or any shares of capital stock
or other securities of the Borrower into which such Common Stock shall
hereafter be changed or reclassified at the Conversion Price (as defined
below) determined as provided herein (a “Conversion”); provided,
however,
that in no event shall the Holder be entitled to convert any portion of
this Note in excess of that portion of this Note upon conversion of which
the sum of (1) the number of shares of Common Stock beneficially owned by
the Holder and its affiliates (other than shares of Common Stock which may
be deemed beneficially owned through the ownership of the unconverted
portion of the Notes or the unexercised or unconverted portion of any
other security of the Borrower subject to a limitation on conversion
or exercise analogous to the limitations contained herein) and (2) the
number of shares of Common Stock issuable upon the conversion of the
portion of this Note with respect to which the determination of this
proviso is being made, would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the proviso 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 (the “Exchange
Act”), 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 (up to a
maximum of 9.99%) upon, at the election of the Holder, not less than 61
days’ prior notice to the Borrower, and the provisions of the conversion
limitation shall continue to apply until such 61st day (or such later
date, as determined by the Holder, as may be specified in such notice of
waiver). The number of shares |
21
of
Common Stock to be issued upon each conversion of this Note shall be determined
by dividing the Conversion Amount (as defined below) by the applicable
Conversion Price then in effect on the date specified in the notice of
conversion, 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 before 6:00 p.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 (1) the principal amount
of this Note to be converted in such conversion plus
(2) at the Holder’s option, accrued and unpaid interest, if any, on such
principal amount at the interest rates provided in this Note to the
Conversion Date, provided however, that the Borrower shall have the right
to pay any or all interest in cash plus
(3) at the Holder’s option, Default Interest, if any, on the amounts referred to
in the immediately preceding clauses (1) and/or (2) plus
(4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections
1.3 and 1.4(g) hereof.
|
1.2 |
Conversion
Price. |
Calculation
of Conversion Price. Subject to the adjustments described herein, the
conversion price (the “Conversion Price”) shall equal the lesser of (i) 58%
multiplied by the lowest Trading Price (as defined below) (representing a
discount rate of 42%) during the previous thirty (30) Trading Day period ending
on the latest complete Trading Day prior to the date of this Note and (ii) the
Variable Conversion Price (as defined herein) (subject to 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 the
Borrower, combinations, recapitalization, reclassifications, extraordinary
distributions and similar events). The “Variable Conversion Price” shall mean
58% multiplied by the Market Price (as defined herein) (representing a discount
rate of 42%). “Market Price” means the lowest closing price for the Common Stock
during the thirty (30) Trading Day period ending on the latest complete Trading
Day prior to the Conversion Date. “Trading Price” means, for any security as of
any date, the lesser of: (i) the lowest trade price on the OTC Pink, OTCQB or
applicable trading market as reported by a reliable reporting service
(“Reporting Service”) designated by the Holder or, if the OTC Pink is not the
principal trading market for such security, the trading price of such security
on the principal securities exchange or trading market where such security is
listed or traded or, if no trading price of such security is available in
any of the foregoing manners, the average of the trading prices of any market
makers for such security that are listed in the “pink sheets” by the National
Quotation Bureau, Inc., or (ii) the closing bid price on the OTC Pink, OTCQB or
applicable trading market as reported by a Reporting Service designated by the
Holder or, if the OTC Pink is not the principal trading market for such
security, the closing bid price of such security on the principal securities
exchange or trading market where such security is listed or traded or, if no
closing bid price of such security is available in any of the foregoing manners,
the average of the closing bid prices of any market makers for such security
that are listed in the “pink sheets” by the National Quotation Bureau, Inc. To
the extent the Conversion Price of the Borrower’s Common Stock closes below the
par value per share, the Borrower will take all steps necessary to solicit the
consent of the stockholders to reduce the par value to the lowest value possible
under law. The Borrower agrees to honor all conversions submitted pending this
adjustment. Furthermore, the Conversion Price may be adjusted downward if,
within three (3)
22
business
days of the transmittal of the Notice of Conversion to the Borrower, the Common
Stock has a closing bid which is 5% or lower than that set forth in the Notice
of Conversion. If the shares of the Borrower’s Common Stock have not been
delivered within three (3) business days to the Borrower, the Notice of
Conversion may be rescinded. At any time after the Closing Date, if in the case
that the Borrower’s Common Stock is not deliverable by DWAC (including if the
Borrower’s transfer agent has a policy prohibiting or limiting delivery of
shares of the Borrower’s Common Stock specified in a Notice of Conversion), an
additional 10% discount will apply for all future conversions under all
Notes. If in the case that the Borrower’s Common Stock is “chilled” for deposit
into the DTC system and only eligible for clearing deposit, an additional 15%
discount shall apply for all future conversions under all Notes while the
“chill” is in effect. If in the case of both of the above, an additional
cumulative 25% discount shall apply. Additionally, if the Company ceases to be a
reporting company pursuant to the 1934 Act or if the Note cannot be converted
into free trading shares after one hundred eighty-one (181) days from the Issue
Date, an additional 30% discount will be attributed to the Conversion Price. If
the Trading Price cannot be calculated for such security on such date in the
manner provided above, the Trading Price shall be the fair market value as
mutually determined by the Borrower and the holders of a majority in interest of
the Notes being converted for which the calculation of the Trading Price is
required in order to 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 Pink, OTCQB or on the principal securities exchange or other securities
market on which the Common Stock is then being traded. The Borrower shall
be responsible for the fees of its transfer agent and all DTC fees
associated with any such issuance. Holder shall be entitled to deduct $500.00
from the conversion amount in each Notice of Conversion to cover Holder’s
deposit fees associated with each Notice of Conversion.
While
this Note is outstanding, each time any 3rd
party has the right to convert monies owed to that 3rd
party (or receive shares pursuant to a settlement or otherwise),
including but not limited to under Section 3(a)(9) and Section 3(a)(10), at a
discount to market greater than the Conversion Price in effect at that time
(prior to all other applicable adjustments in the Note), then the H1older, in
Holder’s sole discretion, may utilize such greater discount percentage (prior to
all applicable adjustments in this Note) until this Note is no longer
outstanding. While this Note is outstanding, each time any 3rd
party has a look back period greater than the look back period in effect
under the Note at that time, including but not limited to under Section 3(a)(9)
and Section 3(a)(10), then the Holder, in Holder’s sole discretion, may utilize
such greater number of look back days until this Note is no longer outstanding.
The Borrower shall give written notice to the Holder within one (1) business day
of becoming aware of any event that could permit the Holder to make any
adjustment described in the two immediately preceding sentences.
|
(a) |
Conversion
Price During Major Announcements. Notwithstanding anything
contained in Section 1.2(a) to the contrary, in the event the Borrower (i)
makes a public announcement that it intends to consolidate or merge with
any other corporation (other than a merger in which the Borrower is the
surviving or continuing 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 or entity (including the Borrower) publicly
announces a tender offer to purchase 50% or more of the Borrower’s Common
Stock (or any other takeover scheme) (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the
“Announcement Date”), then the Conversion Price shall, effective upon the
Announcement Date and continuing |
23
through
the Adjusted Conversion Price Termination Date (as defined below), be equal to
the lower of (x) the Conversion Price which would have been applicable for a
Conversion occurring on the Announcement Date and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion 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 Section
1.2(b) to become operative.
|
(b) |
Pro
Rata Conversion; Disputes. In the event of a dispute as to the
number of shares of Common Stock issuable to the Holder in connection with
a conversion of this Note, the Borrower shall issue to the Holder the
number of shares of Common Stock not in dispute and resolve such dispute
in accordance with Section 4.13. |
|
1.3 |
Authorized
Shares. The Borrower covenants that during the period the
conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares, free from preemptive
rights, to provide for the issuance of Common Stock upon the full
conversion of this Note issued pursuant to the Purchase Agreement. The
Borrower is required at all times to have authorized and reserved 10 times
the number of shares that is actually issuable upon full conversion of the
Note (based on the Conversion Price of the Notes in effect from time
to time) (the “Reserved Amount”). The Reserved Amount shall be increased
from time to time in accordance with the Borrower’s obligations pursuant
to Section 3(d) of the Purchase Agreement. The Borrower represents that
upon issuance, such shares will be duly and validly issued, fully
paid and non-assessable. In addition, if the Borrower shall issue any
securities or make any change to its capital structure which would change
the number of shares of Common Stock into which the Notes shall be
convertible at the then current Conversion Price, the Borrower shall
at the same time make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free
from preemptive rights, for conversion of the outstanding Notes. The
Borrower (i) acknowledges that it has irrevocably instructed its
transfer agent to issue certificates for the Common Stock issuable upon
conversion of this Note, and (ii) agrees that its issuance of this Note
shall constitute full authority to its officers and agents who are charged
with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock in accordance with the
terms and conditions of this Note. Notwithstanding the foregoing, in no
event shall the Reserved Amount be lower than the initial Reserved Amount,
regardless of any prior conversions. |
If,
at any time the Borrower does not maintain or replenish the Reserved Amount
within three (3) business days of the request of the Holder, the principal
amount of the Note shall increase by Five Thousand and No/100 United States
Dollars ($5,000) (under Holder’s and Borrower’s expectation that any principal
amount increase will tack back to the Issue Date) per occurrence.
24
|
1.4 |
Method
of Conversion. |
|
(a) |
Mechanics
of Conversion. Subject to Section 1.1, this Note may be
converted by the Holder in whole or in part at any time from time to time
after the Issue Date, by |
(A)
submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other
reasonable means of communication dispatched on the Conversion Date prior to
5:00 p.m., New York, New York time) and (B) subject to Section 1.4(b),
surrendering this Note at the principal office of the Borrower.
|
(b) |
Surrender
of Note Upon Conversion. Notwithstanding anything to the
contrary set forth herein, upon conversion of this Note in accordance with
the terms hereof, the Holder shall not be required to physically surrender
this Note to the Borrower unless the entire unpaid principal amount of
this Note is so converted. The Holder and the Borrower shall maintain
records showing the principal amount so converted and the dates of such
conversions or shall use such other method, reasonably satisfactory to the
Holder and the Borrower, so as not to require physical surrender of this
Note upon each such conversion. In the event of any dispute or
discrepancy, such records of the Borrower shall, prima
facie, be controlling and determinative in the absence of manifest
error. Notwithstanding the foregoing, if any portion of this Note is
converted as aforesaid, the Holder may not transfer this Note unless the
Holder first physically surrenders this Note to the Borrower, whereupon
the Borrower will forthwith issue and deliver upon the order of the Holder
a new Note of like tenor, registered as the Holder (upon payment by the
Holder of any applicable transfer taxes) may request, representing in the
aggregate the remaining unpaid principal amount of this Note. The Holder
and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of this paragraph, following conversion of a
portion of this Note, the unpaid and unconverted principal amount of this
Note represented by this Note may be less than the amount stated on the
face hereof. |
|
(c) |
Payment
of Taxes. The Borrower shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issue and
delivery of shares of Common Stock or other securities or property on
conversion of this Note in a name other than that of the Holder (or in
street name), and the Borrower shall not be required to issue or deliver
any such shares or other securities or property unless and until the
person or persons (other than the Holder or the custodian in whose street
name such shares are to be held for the Holder’s account) requesting the
issuance thereof shall have paid to the Borrower the amount of any such
tax or shall have established to the satisfaction of the Borrower that
such tax has been paid. |
|
(d) |
Delivery
of Common Stock Upon Conversion. Upon receipt by the Borrower
from the Holder of a facsimile transmission or e-mail (or other reasonable
means of communication) of a Notice of Conversion meeting the requirements
for conversion as provided in this Section 1.4, the Borrower shall issue
and deliver or cause to be issued and delivered to or upon the order of
the Holder certificates for the Common Stock issuable upon such conversion
within three (3) business days after such receipt (the “Deadline”) (and,
solely in the case of conversion of the entire unpaid principal amount
hereof, surrender of this Note) in accordance with the terms hereof and
the Purchase Agreement. |
25
|
(e) |
Obligation
of Borrower to Deliver Common Stock. Upon receipt by the
Borrower of a Notice of Conversion, the Holder shall be deemed to be the
holder of record of the Common Stock issuable upon such conversion, the
outstanding principal amount and the amount of accrued and unpaid interest
on this Note shall be reduced to reflect such conversion, and, unless the
Borrower defaults on its obligations under this Article I, all rights with
respect to the portion of this Note being so converted shall forthwith
terminate except the right to receive the Common Stock or other
securities, cash or other assets, as herein provided, on such conversion.
If the Holder shall have given a Notice of Conversion as provided herein,
the Borrower’s obligation to issue and deliver the certificates for Common
Stock shall be absolute and unconditional, irrespective of the absence of
any action by the Holder to enforce the same, any waiver or consent with
respect to any provision thereof, the recovery of any judgment
against any person or any action to enforce the same, any failure or delay
in the enforcement of any other obligation of the Borrower to the holder
of record, or any setoff, counterclaim, recoupment, limitation or
termination, or any breach or alleged breach by the Holder of any
obligation to the Borrower, and irrespective of any other circumstance
which might otherwise limit such obligation of the Borrower to the Holder
in connection with such conversion. The Conversion Date specified in the
Notice of Conversion shall be the Conversion Date so long as the Notice of
Conversion is received by the Borrower before 5:00 p.m., New York, New
York time, on such date. |
|
(f) |
Delivery
of Common Stock by Electronic Transfer. In lieu of delivering
physical certificates representing the Common Stock issuable upon
conversion, provided the Borrower is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, upon
request of the Holder and its compliance with the provisions contained in
Section 1.1 and in this Section 1.4, the Borrower shall use its
commercially reasonable best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the
Holder by crediting the account of Holder’s Prime Broker with DTC through
its Deposit Withdrawal At Custodian (“DWAC”)
system. |
|
(g) |
DTC
Eligibility & Market Loss. If the Borrower fails to
maintain its status as “DTC Eligible” for any reason, or, if the
Conversion Price is less than $0.01 at any time while this Note is
outstanding, the principal amount of the Note shall increase by Fifteen
Thousand and No/100 United States Dollars ($15,000) (under Holder’s and
Borrower’s expectation that any principal amount increase will tack back
to the Issue Date). In addition, the Variable Conversion Price shall be
redefined to mean forty percent (40%) multiplied by the Market Price,
subject to adjustment as provided in this
Note. |
|
(h) |
Failure
to Deliver Common Stock Prior to Delivery Deadline.
Without in any way limiting the Holder’s right to pursue other remedies,
including actual damages and/or equitable relief, the parties agree that
if delivery of the Common Stock issuable upon conversion of this Note is
not delivered by the Deadline (other than a failure due to the
circumstances described in Section 1.3 above, which failure shall be
governed by such Section) the Borrower shall pay to the Holder $2,000 per
day in cash, for each day beyond the Deadline that the Borrower fails to
deliver such Common Stock until the Borrower issues and delivers a
certificate to the Holder or credit the Holder’s balance account with OTC
for the number of |
26
shares
of Common Stock to which the Holder is entitled upon such Holder’s conversion of
any Conversion Amount (under Holder’s and Borrower’s expectation that any
damages will tack back to the Issue Date).. Such cash amount shall be paid to
Holder by the fifth day of the month following the month in which it has accrued
or, at the option of the Holder (by written notice to the Borrower by the first
day of the month following the month in which it has accrued), shall be added to
the principal amount of this Note, in which event interest shall accrue thereon
in accordance with the terms of this Note and such additional principal amount
shall be convertible into Common Stock in accordance with the terms of this
Note. The Borrower agrees that the right to convert is a valuable right to the
Holder. The damages resulting from a failure, attempt to frustrate,
interference with such conversion right are difficult if not impossible to
qualify. Accordingly the parties acknowledge that the liquidated damages
provision contained in this Section 1.4(h) are justified.
|
(i) |
Rescindment
of a Notice of Conversion. If (i) the Borrower
fails to respond to Holder within one (1) business day from the
Conversion Date confirming the details of Notice of Conversion, (ii)
the Borrower fails to provide any of the shares of the Borrower’s Common
Stock requested in the Notice of Conversion within three (3) business days
from the date of receipt of the Note of Conversion, (iii) the Holder is
unable to procure a legal opinion required to have the shares of the
Borrower’s Common Stock issued unrestricted and/or deposited to sell for
any reason related to the Borrower’s standing, (iv) the Holder is unable
to deposit the shares of the Borrower’s Common Stock requested in the
Notice of Conversion for any reason related to the Borrower’s standing,
(v) at any time after a missed Deadline, at the Holder’s sole discretion,
or (vi) if OTC Markets changes the Borrower’s designation to ‘Limited
Information’ (Yield), ‘No Information’ (Stop Sign), ‘Caveat Emptor’ (Skull
& Crossbones), ‘OTC’, ‘Other OTC’ or ‘Grey Market’ (Exclamation Xxxx
Sign) or other trading restriction on the day of or any day after the
Conversion Date, the Holder maintains the option and sole discretion to
rescind the Notice of Conversion (“Rescindment”) with a “Notice of
Rescindment.” |
|
1.5 |
Concerning
the Shares. The shares of Common Stock issuable upon conversion
of this Note may not be sold or transferred unless (i) such shares are
sold pursuant to an effective registration statement under the Act or (ii)
the Borrower or its transfer agent shall have been furnished with an
opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the
effect that the shares to be sold or transferred may be sold or
transferred pursuant to an exemption from such registration or (iii) such
shares are sold or transferred pursuant to Rule 144 under the Act (or a
successor rule) (“Rule 144”) or (iv) such shares are transferred to an
“affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or
otherwise transfer the shares only in accordance with this Section 1.5 and
who is an Accredited Investor (as defined in the Purchase Agreement).
Except as otherwise provided in the Purchase Agreement (and subject to the
removal provisions set forth below), until such time as the shares of
Common Stock issuable upon conversion of this Note have been registered
under the Act or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that
can then be immediately sold, each certificate for shares of Common Stock
issuable upon conversion of this Note that has not been so included in an
effective registration statement or that has not been sold pursuant
to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the following
form, as appropriate: |
27
“NEITHER
THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 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 REQUIRED UNDER SAID ACT 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 FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE
SECURITIES.”
The
legend set forth above shall be removed and the Borrower shall issue to the
Holder a new certificate therefore free of any transfer legend if (i) the
Borrower or its transfer agent shall have received an opinion of counsel, in
form, substance and scope customary for opinions of counsel in comparable
transactions, to the effect that a public sale or transfer of such Common Stock
may be made without registration under the Act, which opinion shall be
reasonably accepted by the Borrower so that the sale or transfer is effected or
(ii) in the case of the Common Stock issuable upon conversion of this Note, such
security is registered for sale by the Holder under an effective registration
statement filed under the Act or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold. In the event that the Borrower does not
accept the opinion of counsel provided by the Buyer with respect to the transfer
of Securities pursuant to an exemption from registration, such as Rule 144 or
Regulation S, at the Deadline, it will be considered an Event of Default
pursuant to Section 3.2 of the Note.
|
1.6 |
Effect
of Certain Events. |
|
(a) |
Effect
of Merger, Consolidation, Etc. At the option of the Holder, the
sale, conveyance or disposition of all or substantially all of the assets
of the Borrower, the effectuation by the Borrower of a transaction or
series of related transactions in which more than 50% of the voting power
of the Borrower is disposed of, or the consolidation, merger or other
business combination of the Borrower with or into any other Person (as
defined below) or Persons when the Borrower is not the survivor shall
either: (i) be deemed to be an Event of Default (as defined in Article
III) pursuant to which the Borrower shall be required to pay to the Holder
upon the consummation of and as a condition to such transaction an amount
equal to the Default Amount (as defined in Article III) or (ii) be treated
pursuant to Section 1.6(b) hereof. “Person” shall mean any individual,
corporation, limited liability company, partnership, association, trust or
other entity or organization. |
|
(b) |
Adjustment
Due to Merger, Consolidation, Etc. If, at any time when this
Note is issued and outstanding and prior to conversion of all of the
Notes, there shall be any |
28
merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Borrower shall
be changed into the same or a different number of shares of another class or
classes of stock or securities of the Borrower or another entity, or in case of
any sale or 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 and upon the terms and conditions
specified herein and in lieu of the shares of Common Stock immediately
theretofore issuable upon conversion, such stock, securities or assets which the
Holder would have been entitled to receive in such transaction had this Note
been converted in full immediately prior to such transaction (without regard to
any limitations on conversion set forth herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holder of this Note to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price and of the
number of shares issuable 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 the conversion hereof. The Borrower shall not
affect any transaction described in this Section 1.6(b) unless (a) it first
gives, to the extent practicable, thirty (30) days prior written notice (but in
any event at least fifteen (15) days prior written notice) of the record
date of the special meeting of shareholders to approve, or if there is no
such record date, the consummation of, such merger, consolidation, exchange of
shares, recapitalization, reorganization or other similar event or sale of
assets (during which time the Holder shall be entitled to convert this Note) and
(b) the resulting successor or acquiring entity (if not the Borrower) assumes by
written instrument the obligations of this Section 1.6(b). The above provisions
shall similarly apply to successive consolidations, mergers, sales, transfers or
share 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 Stock issuable
upon such conversion had such Holder been the holder of such shares of
Common Stock on the record date for the determination of shareholders
entitled to such Distribution. |
|
(d) |
Adjustment
Due to Dilutive Issuance. If, at any time when any Notes are
issued and outstanding, the Borrower issues or sells, or in accordance
with this Section 1.6(d) hereof is deemed to have issued or sold, except
for shares of Common Stock issued directly to vendors or suppliers of the
Borrower in satisfaction of amounts owed to such vendors or suppliers
(provided, however, that such vendors or suppliers shall not have an
arrangement to transfer, sell or assign such shares of Common Stock prior
to the issuance of such shares), 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 |
29
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 (“Convertible Securities”) (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as “Options”) and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Conversion
Price then in effect, then the Conversion Price shall be equal to such price per
share. For purposes of the preceding sentence, the “price per share for
which Common Stock is issuable upon the exercise of such Options” is determined
by dividing (i) the total amount, if any, received or receivable by the Borrower
as consideration for the issuance or granting of all such Options, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Borrower upon the exercise of all such Options, plus, in the case of Convertible
Securities issuable upon the exercise of such Options, the minimum aggregate
amount of additional consideration payable upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise of all such Options (assuming full conversion of
Convertible Securities, if applicable). No further adjustment to the Conversion
Price will be made upon the actual issuance of such Common Stock upon the
exercise of such Options or upon the conversion or exchange of Convertible
Securities issuable upon exercise of such Options.
Additionally,
the Borrower shall be deemed to have issued or sold shares of Common Stock if
the Borrower in any manner issues or sells any Convertible Securities, whether
or not immediately convertible (other than where the same are issuable
upon the exercise of Options), and the price per share for which Common
Stock is issuable upon such conversion or exchange is less than the Conversion
Price then in effect, then the Conversion Price shall be equal to such
price per share. For the purposes of the preceding sentence, the “price
per share for which Common Stock is issuable upon such conversion or exchange”
is determined by dividing (i) the total amount, if any, received or receivable
by the Borrower as consideration for the issuance or sale of all such
Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Borrower upon the conversion or exchange
thereof at the time such Convertible Securities first become convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities. No
further adjustment to the Conversion Price will be made upon the actual issuance
of such Common Stock upon conversion or exchange of such Convertible
Securities.
|
(e) |
Purchase
Rights. If, at any time when any Notes are issued and
outstanding, the Borrower issues any convertible securities or rights to
purchase stock, warrants, securities or other property (the “Purchase
Rights”) pro rata to the record holders of any class of Common Stock, then
the Holder of this Note will be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which
such Holder could have |
30
acquired
if such Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
|
(f) |
Notice
of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described
in this Section 1.6, the Borrower, at its expense, shall promptly compute
such adjustment or readjustment and prepare and furnish to the Holder a
certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Borrower shall, upon the written request at any time of the Holder,
furnish to such Holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in
effect and (iii) the number of shares of Common Stock and the amount, if
any, of other securities or property which at the time would be received
upon conversion of the Note. |
|
1.7 |
[Intentionally
Omitted]. |
|
1.8 |
Status
as Shareholder. Upon submission of a Notice of Conversion by a
Holder, (i) the shares covered thereby (other than the shares, if any,
which cannot be issued because their issuance would exceed such Holder’s
allocated portion of the Reserved Amount or Maximum Share Amount) shall be
deemed converted into shares of Common Stock and (ii) the Holder’s rights
as a Holder of such converted portion of this Note shall cease and
terminate, excepting only the right to receive certificates for such
shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such Holder because of a failure by the
Borrower to comply with the terms of this Note.
Notwithstanding the foregoing, if a Holder has not received
certificates for all shares of Common Stock prior to the tenth (10th)
business day after the expiration of the Deadline with respect to a
conversion of any portion of this Note for any reason, then (unless the
Holder otherwise elects to retain its status as a holder of Common
Stock by so notifying the Borrower) the Holder shall regain the rights of
a Holder of this Note with respect to such unconverted portions of this
Note and the Borrower shall, as soon as practicable, return such
unconverted Note to the Holder or, if the Note has not been surrendered,
adjust its records to reflect that such portion of this Note has not been
converted. In all cases, the Holder shall retain all of its rights and
remedies (including, without limitation, (i) the right to receive
Conversion Default Payments pursuant to Section 1.3 to the extent required
thereby for such Conversion Default and any subsequent Conversion Default
and (ii) the right to have the Conversion Price with respect to subsequent
conversions determined in accordance with Section 1.3) for the Borrower’s
failure to convert this Note. |
|
1.9 |
Prepayment.
Notwithstanding anything to the contrary contained in this Note, the
Borrower may prepay the amounts outstanding hereunder pursuant to the
following terms and conditions: |
|
(a) |
At any
time during the period beginning on the Issue Date and ending on the date
which is ninety (90) days following the Issue Date, the Borrower shall
have the right, exercisable on not less than three (3) Trading Days prior
written notice to the Holder of the Note |
31
to
prepay the outstanding Note (principal and accrued interest), in full by making
a payment to the Holder of an amount in cash 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
plus
(y) Default Interest, if any.
|
(b) |
At
any time during the period beginning the day which
is ninety one |
(91)
days following the Issue Date and ending on the date which is one hundred eighty
(180) days following the Issue Date, the Borrower shall have the right,
exercisable on not less than three (3) Trading Days prior written notice to the
Holder of the Note to prepay the outstanding Note (principal and accrued
interest), in full by making a payment to the Holder of an amount in cash equal
to 150%, 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
plus
(y) Default Interest, if any.
|
(c) |
After the
expiration of one hundred eighty (180) days following the date of the
Note, the Borrower shall have no right of
prepayment. |
|
1.10 |
Any
notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be
delivered to the Holder of the Note at its registered addresses and shall
state: (1) that the Borrower is exercising its right to prepay the Note,
and (2) the date of prepayment which shall be not more than three (3)
Trading Days from the date of the Optional Prepayment Notice. On the date
fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall
make payment of the applicable prepayment amount to or upon the order of
the Holder as specified by the Holder in writing to the Borrower at least
one (1) business day prior to the Optional Prepayment Date. If the
Borrower delivers an Optional Prepayment Notice and fails to pay the
applicable 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. |
ARTICLE II. CERTAIN
COVENANTS
|
2.1 |
Distributions
on Capital Stock. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the Holder’s
written consent (a) pay, declare or set apart for such payment, any
dividend or other distribution (whether in cash, property or other
securities) on shares of capital stock other than dividends on shares of
Common Stock solely in the form of additional shares of Common Stock or
(b) directly or indirectly or through any subsidiary make any other
payment or distribution in respect of its capital stock except for
distributions pursuant to any shareholders’ rights plan which is approved
by a majority of the Borrower’s disinterested
directors. |
|
2.2 |
Restriction
on Stock Repurchases. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the Holder’s
written consent redeem, repurchase or otherwise acquire (whether for cash
or 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
any such shares. |
32
|
2.3 |
Borrowings.
So long as the Borrower shall have any obligation under this Note, the
Borrower shall not, without the Holder’s written consent, create, incur,
assume guarantee, endorse, contingently agree to purchase or otherwise
become liable upon the obligation of any person, firm, partnership, joint
venture or corporation, except by the endorsement of negotiable
instruments for deposit or collection, or suffer to exist any liability
for borrowed money, except (a) borrowings in existence or committed on the
date hereof and of which the Borrower has informed Holder in writing prior
to the date hereof, (b) indebtedness to trade creditors financial
institutions or other lenders incurred in the ordinary course of
business or (c) borrowings, the proceeds of which shall be used to
repay this Note. |
|
2.4 |
Sale
of Assets. So long as the Borrower shall have any obligation
under this Note, the Borrower shall 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. |
|
2.5 |
Advances
and Loans. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not, without the
Holder’s written consent, 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 the
Borrower, except loans, credits or advances (a) in existence or
committed on the date hereof and which the Borrower has informed Holder in
writing prior to the date hereof, (b) made in the ordinary course of
business or (c) not in excess of $100,000. |
|
2.6 |
Section
3(a)(9) or 3(a)(10) Transaction. So long as this Note is
outstanding, the Borrower shall not enter into any transaction or
arrangement structured in accordance with, based upon, or related or
pursuant to, in whole or in part, either Section 3(a)(9) of the Securities
Act (a “3(a)(9) Transaction”) or Section 3(a)(l0) of the Securities Act (a
“3(a)(l0) Transaction”). In the event that the Borrower does enter into,
or makes any issuance of Common Stock related to a 3(a)(9) Transaction or
a 3(a)(l0) Transaction while this note is outstanding, a liquidated
damages charge of 25% of the outstanding principal balance of this Note,
but not less than Fifteen Thousand Dollars $15,000, will be assessed
and will become immediately due and payable to the Holder at its election
in the form of cash payment or addition to the balance of this
Note. |
|
2.7 |
Preservation
of Existence, etc. The Borrower shall maintain and preserve,
and cause each of its Subsidiaries to maintain and preserve, its
existence, rights and privileges, and become or remain, and cause each of
its Subsidiaries (other than dormant Subsidiaries that have no or minimum
assets) to become or remain, duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by
it or in which the transaction of its business makes such qualification
necessary. |
|
2.8 |
Non-circumvention.
The Borrower hereby covenants and agrees that the Borrower will not, by
amendment of its Certificate or Articles of Incorporation or Bylaws, or
through any reorganization, transfer of assets, consolidation, merger,
scheme of arrangement, dissolution, issue or sale of securities, or any
other voluntary action, avoid or seek to avoid
the |
33
observance
or performance of any of the terms of this Note, and will at all times in good
faith carry out all the provisions of this Note and take all action as may be
required to protect the rights of the Holder.
ARTICLE III. EVENTS OF
DEFAULT
If
any of the following events of default (each, an “Event of Default”) shall
occur:
|
3.1 |
Failure
to Pay Principal or Interest. The Borrower fails to pay the
principal hereof or interest thereon when due on this Note, whether at
maturity, upon acceleration or otherwise. |
|
3.2 |
Conversion
and the Shares. The Borrower (i) fails to issue shares of
Common Stock to the Holder (or announces or threatens in writing that it
will not honor its obligation to do so) upon exercise by the Holder
of the conversion rights of the Holder in accordance with the terms of
this Note, (ii) fails to transfer or cause its transfer agent to transfer
(issue) (electronically or in certificated form) any certificate for
shares of Common Stock issued to the Holder upon conversion of or
otherwise pursuant to this Note as and when required by this Note, (iii)
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 conversion of or otherwise
pursuant to this Note as and when required by this Note, (iv) fails to
remove (or directs its transfer agent not to remove or impairs, delays,
and/or hinders its transfer agent from removing) any restrictive legend
(or to withdraw any stop transfer instructions in respect thereof) on any
certificate for any shares of Common Stock issued to the Holder upon
conversion of or otherwise pursuant to this Note as and when
required by this Note (or makes any written announcement, statement or
threat that it does not intend to honor the obligations described in this
paragraph) and any such failure shall continue uncured (or any written
announcement, statement or threat not to honor its obligations shall not
be rescinded in writing) for three (3) business days after the Holder
shall have delivered a Notice of Conversion, (v) fails to remain current
in its obligations to its transfer agent, (vi) causes a conversion of this
Note is delayed, hindered or frustrated due to a balance owed by the
Borrower to its transfer agent, (vii) fails to repay Holder, within forty
eight (48) hours of a demand from the Holder, any amount of funds advanced
by Holder to Borrower’s transfer agent in order to process a conversion,
and/or (viii) fails to maintain the Reserved
Amount. |
|
3.3 |
Failure
to Deliver Transaction Expense Amount. The Borrower fails
to deliver the Transaction Expense Amount (as defined in the
Purchase Agreement) to the Holder within three (3) business days of the
date such amount is due. |
|
3.4 |
Breach
of Covenants. The Borrower breaches any material covenant or
other material term or condition contained in this Note and any collateral
documents including but not limited to the Purchase Agreement and such
breach continues for a period of ten (10) days after written notice
thereof to the Borrower from the Holder. |
|
3.5 |
Breach
of Representations and Warranties. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant |
34
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.
|
3.6 |
Receiver
or Trustee. The Borrower or any subsidiary of the Borrower
shall make an assignment for the benefit of creditors or commence
proceedings for its dissolution, 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 for the Borrower or for a substantial part of its
property or business without its consent and shall not be discharged
within sixty (60) days after such
appointment. |
|
3.7 |
Judgments.
Any money judgment, writ or similar process shall be entered or filed
against the Borrower or any subsidiary of the 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
twenty (20)
days unless otherwise consented to by the Holder, which consent will not be
unreasonably withheld. |
|
3.8 |
Bankruptcy.
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings, voluntary or involuntary, for relief under any bankruptcy law
or any law for the relief of debtors shall be instituted by or against the
Borrower or any subsidiary of the Borrower, or the Borrower admits in
writing its inability to pay its debts generally as they mature, or have
filed against it an involuntary petition for bankruptcy relief, all under
federal or state laws as applicable or the Borrower admits in writing its
inability to pay its debts generally as they mature, or have filed against
it an involuntary petition for bankruptcy relief, all under international,
federal or state laws as applicable. |
|
3.9 |
Delisting
of Common Stock. The Borrower shall fail to maintain the
listing of the Common Stock on at least one of the OTC Pink, OTCQB, Nasdaq
National Market, Nasdaq Small Cap Market, New York Stock Exchange, NYSE
MKT, or an equivalent replacement exchange |
|
3.10 |
Failure
to Comply with the Exchange Act. The Borrower shall fail to
comply with the reporting requirements of the Exchange Act (including but
not limited to becoming delinquent in its filings); and/or the Borrower
shall cease to be subject to the reporting requirements of the Exchange
Act. |
|
3.11 |
Liquidation.
Any dissolution, liquidation, or winding up of Borrower or any substantial
portion of its business. |
|
3.12 |
Cessation
of Operations. Any cessation of operations by Borrower or
Borrower admits it is otherwise generally unable to pay its debts as such
debts become due, provided, however, that any disclosure of the Borrower’s
ability to continue as a “going concern” shall not be an admission that
the Borrower cannot pay its debts as they become
due. |
35
|
3.13 |
Maintenance
of Assets. The failure by Borrower to maintain any material
intellectual property rights, personal, real property or other assets
which are necessary to conduct its business (whether now or in the
future), or any disposition or conveyance of any material asset of the
Company. |
|
3.14 |
Financial
Statement Restatement. The restatement of any financial
statements filed by the Borrower with 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. |
|
3.15 |
Reverse
Splits. The Borrower effectuates a reverse split of its Common
Stock without twenty (20) days prior written notice to the
Holder. |
|
3.16 |
Replacement
of Transfer Agent. In the event that the Borrower proposes to
replace its transfer agent, the Borrower fails to provide, prior to the
effective date of such replacement, a fully executed Irrevocable Transfer
Agent Instructions in a form as initially delivered pursuant to the
Purchase Agreement (including but not limited to the provision to
irrevocably reserve shares of Common Stock in the Reserved Amount) signed
by the successor transfer agent to Borrower and the
Borrower. |
|
3.17 |
Cessation
of Trading. Any cessation of trading of the Common Stock
on at least one of the OTC Pink, OTCQB, Nasdaq National Market,
Nasdaq Small Cap Market, New York Stock Exchange, NYSE MKT, or an
equivalent replacement exchange, and such cessation of trading shall
continue for a period of five consecutive (5) Trading
Days. |
|
3.18 |
Cross-Default.
Notwithstanding anything to the contrary contained in this Note or the
other related or companion documents, a breach or default by the Borrower
of any covenant or other term or condition contained in any of the Other
Agreements (as defined herein), after the passage of all applicable
notice and cure or grace periods, shall, at the option of the Holder, be
considered a default under this Note and the Other Agreements, in which
event the Holder shall be entitled (but in no event required) to
apply all rights and remedies of the Holder under the terms of this Note
and the Other Agreements by reason of a default under said Other Agreement
or hereunder.
“Other Agreements” means, collectively, all agreements and
instruments between, among or by: (1) the Borrower, and, or for the
benefit of, (2) the Holder (and any affiliate of the Holder) or any other
third party, including, without limitation, 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-defaulted with each other loan transaction and with all other
existing and future debt of Borrower to the
Holder. |
|
3.19 |
Bid
Price. The Borrower shall lose the “bid” price for its Common
Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per Level
2) and/or a market (including the OTC Pink, OTCQB or an equivalent
replacement exchange). |
36
|
3.20 |
OTC
Markets Designation. OTC Markets changes the Borrower’s
designation to ‘No Information’ (Stop Sign), ‘Caveat Emptor’ (Skull and
Crossbones), or ‘OTC’, ‘Other OTC’ or ‘Grey Market’ (Exclamation Xxxx
Sign). |
|
3.21 |
Inside
Information. Any attempt by the Borrower or its officers,
directors, and/or affiliates to transmit, convey, disclose, or any actual
transmittal, conveyance, or disclosure by the Borrower or its
officers, directors, and/or affiliates of, material non-public information
concerning the Borrower, to the Holder or its successors and assigns,
which is not immediately cured by Borrower’s filing of a Form 8-K pursuant
to Regulation FD on that same date. |
Upon
the occurrence and during the continuation of any Event of Default specified in Sections 3.1, 3.2, 3.3, 3.4, 3.5, 3.6, 3.7,
3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16. 3.17, 3.18, 3.19, 3.20, and/or 3.21 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 Article III, 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 (i) 150% (EXCEPT WITH
RESPECT TO SECTION 3.2, IN WHICH CASE 150% SHALL BE REPLACED WITH 200%) 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) at
the option of the Holder, 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 Trading 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.
Further, if a breach of Sections 3.9, 3.10 and/or 3.19 occurs or is continuing after the six (6) month anniversary of this
Note, then the principal amount of the Note shall increase by Fifteen Thousand and No/100 United States Dollars ($15,000)
(under Holder’s and Borrower’s expectation that any principal amount increase will tack back to the Issue Date) and
the Holder shall be entitled to use the lowest Trading Price during the delinquency period as a base price for the conversion
with the Variable Conversion Price shall be redefined to mean forty percent (40%) multiplied by the Market Price (at the
option of the Holder), subject to adjustment as provided in this Note. For example, if the lowest Trading Price during the
delinquency period is $0.01 per share and the conversion discount is 50%, then the Holder may
37
elect
to convert future conversions at $0.005 per share. If this Note is not paid at
Maturity Date, then the outstanding principal due under this Note shall increase
by Fifteen Thousand and No/100 United States Dollars ($15,000).
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. This requirement
by the Borrower shall automatically apply upon the occurrence of an Event of
Default without the need for any party to give any notice or take any other
action.
If
the Holder shall commence an action or proceeding to enforce any provisions of
this Note, including, without limitation, engaging an attorney, then if the
Holder prevails in such action, the Holder shall be reimbursed by the Borrower
for its attorneys’ fees and other costs and expenses incurred in the
investigation, preparation and prosecution of such action or proceeding.
ARTICLE IV.
MISCELLANEOUS
|
4.1 |
Failure
or Indulgence Not Waiver. No failure or delay on the part of
the Holder 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 privileges. All rights
and remedies existing hereunder are cumulative to, and not exclusive
of, any rights or remedies otherwise
available. |
|
4.2 |
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: |
If
to the Borrower, to:
Vet
Online Supply, Inc.
0000
Xxxxxx Xxxxxx, XXX 000 Xxx Xxxxx, XX 00000
Attn:
Xxxxxx Xxxxx
E-mail: xxxxxx@xxxxxxxxxxxxxxxxx.xxx
38
If
to the Holder:
Auctus
Fund, LLC
000
Xxxx Xxxxxx, 00xx Xxxxx Xxxxxx, XX 00000
Attn:
Xxx Xxxxxx Facsimile: (000) 000-0000
With
a copy to (which copy shall not constitute notice): Xxxx Friend, Esq.,
LL.M.
Legal
& Compliance, LLC 000 Xxxxxxxx Xxxxxx, Xxxxx 000 Xxxx Xxxx Xxxxx, XX
00000
e-mail:
XXxxxxx@XxxxxxxxXxxxxxxxxx.xxx
|
4.3 |
Amendments.
This Note and any provision hereof may only be amended by an
instrument in writing signed by the Borrower and the Holder. The term
“Note” and all reference thereto, as used throughout this instrument,
shall mean this instrument (and the other Notes issued pursuant to the
Purchase Agreement) as originally executed, or if later amended or
supplemented, then as so amended or
supplemented. |
|
4.4 |
Assignability.
This Note shall be binding upon the Borrower and its successors and
assigns, and shall inure to be the benefit of the Holder and its
successors and assigns. Each transferee of this Note must be an
“accredited investor” (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Note to the contrary, this Note may be
pledged as collateral in connection with a bona
fide margin account or other lending arrangement. The Holder
and any assignee, by acceptance of this Note, acknowledge and agree that
following conversion of a portion of this Note, the unpaid and unconverted
principal amount of this Note represented by this Note may be less than
the amount stated on the face hereof. |
|
4.5 |
Cost
of Collection. If default is made in the payment of this Note,
the Borrower shall pay the Holder hereof reasonable costs of collection,
including reasonable attorneys’ fees. |
|
4.6 |
Governing
Law. This Note shall be governed by and construed in accordance
with the laws of the State of Nevada without regard to principles of
conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this
Note |
39
shall
be brought only in the state courts of Massachusetts or in the federal courts located in the Commonwealth of Massachusetts.
The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder
and shall not assert any defense based on lack of jurisdiction or venue or based upon forum
non conveniens. THE BORROWER HEREBY
IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION
CONTEMPLATED HEREBY. The prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs. In the event that any provision of this Note or any other agreement delivered in
connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or
enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process
and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other
Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any other manner permitted by law.
|
4.7 |
Certain
Amounts. Whenever pursuant to this Note the Borrower is
required to pay an amount in excess of the outstanding principal amount
(or the portion thereof required to be paid at that time) plus accrued and
unpaid interest plus Default Interest on such interest, the Borrower and
the Holder agree that the actual damages to the Holder from the receipt of
cash payment on this Note may be difficult to determine and the amount to
be so paid by the Borrower represents stipulated damages and not a
penalty and is intended to compensate the Holder in part for loss of the
opportunity to convert this Note and to earn a return from the sale
of shares of Common Stock acquired upon conversion of this Note at a price
in excess of the price paid for such shares pursuant to this Note. The
Borrower and the Holder hereby agree that such amount of stipulated
damages is not plainly disproportionate to the possible loss to the Holder
from the receipt of a cash payment without the opportunity to convert this
Note into shares of Common Stock. |
|
4.8 |
Purchase
Agreement. By its acceptance of this Note, each party agrees to
be bound by the applicable terms of the Purchase
Agreement. |
|
4.9 |
Notice
of Corporate Events. Except as otherwise provided below, the
Holder of this Note shall have no rights as a Holder of Common Stock
unless and only to the extent that it converts this Note into Common
Stock. The Borrower shall provide the Holder with prior notification of
any meeting of the Borrower’s shareholders (and copies of proxy materials
and other information sent to shareholders). In the event of any
taking by the Borrower of a record of its shareholders for the
purpose of determining shareholders who are entitled to receive payment of
any dividend or other distribution, any right to subscribe for, purchase
or otherwise acquire (including by way of merger, consolidation,
reclassification or recapitalization) any
share |
40
of
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 any 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 simultaneously with the notification to the Holder in accordance
with the terms of this Section 4.9 including, but not limited to, name changes,
recapitalizations, etc. as soon as possible under law.
|
4.10 |
Usury.
If it shall be found that any interest or other amount deemed
interest due hereunder violates the applicable law governing usury, the
applicable provision shall automatically be revised to equal the maximum
rate of interest or other amount deemed interest permitted under
applicable law. The Borrower covenants (to the extent that it may lawfully
do so) that it will not seek to claim or take advantage of any law that
would prohibit or forgive the Borrower from paying all or a portion of the
principal or interest on this Note. |
|
4.11 |
Remedies.
The Borrower acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to the Holder, by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, the Borrower
acknowledges that the remedy at law for a breach of its obligations under
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. No provision of this Note shall alter or
impair the obligation of the Borrower, which is absolute and
unconditional, to pay the principal of, and interest on, this Note at the
time, place, and rate, and in the form, herein
prescribed. |
|
4.12 |
Severability.
In the event that any provision of this Note is invalid or unenforceable
under any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and shall
be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law
shall not affect the validity or enforceability of any other provision
hereof. |
|
4.13 |
Dispute
Resolution. In the case of a dispute as to the determination of
the Conversion Price, Conversion Amount, any prepayment amount or Default
Amount, Default Sum, Closing or Maturity Date, the closing bid price, or
fair market value (as the case may be) or the arithmetic calculation of
the Conversion Price or the applicable prepayment amount(s) (as the case
may be), the Borrower or the Holder shall submit the disputed
determinations or arithmetic calculations via facsimile (i) within two (2)
Business Days after receipt of the applicable notice giving rise to such
dispute to the Borrower or the Holder or (ii) if no notice gave rise to
such |
41
dispute,
at any time after the Holder learned of the circumstances giving rise to such
dispute. If the Holder and the Borrower are unable to agree upon such
determination or calculation within two (2) Business Days of such disputed
determination or arithmetic calculation (as the case may be) being submitted to
the Borrower or the Holder, then the Borrower shall, within two (2) Business
Days, submit via facsimile (a) the disputed determination of the Conversion
Price, the closing bid price, the or fair market value (as the case may be) to
an independent, reputable investment bank selected by the Borrower and approved
by the Holder or (b) the disputed arithmetic calculation of the Conversion
Price, Conversion Amount, any prepayment amount or Default Amount, Default Sum
to an independent, outside accountant selected by the Holder that is reasonably
acceptable to the Borrower. The Borrower shall cause at its expense the
investment bank or the accountant to perform the determinations or calculations
and notify the Borrower and the Holder of the results no later than ten (10)
Business Days from the time it receives such disputed determinations or
calculations. Such investment bank’s or accountant’s determination
or calculation shall be binding upon all parties absent demonstrable
error.
|
4.14 |
Terms
of Future Financings. So long as this Note is outstanding, upon
any issuance by the Borrower or any of its subsidiaries of any security
with any term more favorable to the holder of such security or with a term
in favor of the holder of such security that was not similarly provided to
the Holder in this Note, then the Borrower shall notify the Holder of such
additional or more favorable term and such term, at Holder’s option, shall
become a part of the transaction documents with the Holder. The types of
terms contained in another security that may be more favorable to
the holder of such security include, but are not limited to, terms
addressing conversion discounts, prepayment rate, conversion lookback
periods, interest rates, original issue discounts, stock sale price,
private placement price per share, and warrant
coverage. |
|
4.15 |
Piggyback
Registration Rights. The Borrower shall include on the next
registration statement the Borrower files with SEC (or on the subsequent
registration statement if such registration statement is withdrawn) all
shares issuable upon conversion of this Note. Failure to do so will
result in liquidated damages of 25% of the outstanding principal balance
of this Note, but not less than Fifteen Thousand and No/100 United States
Dollars ($15,000), being immediately due and payable to the Holder at its
election in the form of cash payment or addition to the balance of this
Note. |
[signature
page follows]
42
IN
WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its
duly authorized officer as of the date first above written.
| VET ONLINE SUPPLY, INC. |
| By: Name: Xxxxxx Xxxxx | |
| Title: Chief Executive Officer |
43
EXHIBIT
A NOTICE OF CONVERSION
The
undersigned hereby elects to convert $ principal
amount of the Note (defined below) together with $ of
accrued and unpaid interest thereto, totaling $ into
that number of shares of Common Stock to be issued pursuant to the conversion of
the Note (“Common Stock”) as set forth below, of Vet Online Supply, Inc., a
Florida corporation (the “Borrower”), according to the conditions of the
convertible note of the Borrower dated as of June 16, 2017 (the “Note”), as of
the date written below. No fee will be charged to the Holder for any
conversion, except for transfer taxes, if any.
Box
Checked as to applicable instructions:
[
] The Borrower shall electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the account
of the undersigned or its nominee with DTC through its Deposit Withdrawal At
Custodian system (“DWAC Transfer”).
Name
of DTC Prime Broker: Account Number:
[
] The undersigned hereby requests that the Borrower
issue a certificate or certificates for the number of
shares of Common Stock set forth below (which numbers are based on the Holder’s
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:
Name:
[NAME]
Address:
[ADDRESS]
Date
of Conversion:
Applicable
Conversion Price: $
Number of Shares of Common Stock to be Issued
Pursuant
to Conversion of the Notes: Amount
of Principal Balance Due remaining
Under
the Note after this conversion:
Accrued
and unpaid interest remaining:
[HOLDER]
By: Name:
[NAME]
Title:
[TITLE] Date: [DATE]
44
