SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): January 29, 2015
Well Power, Inc.
(Exact name of registrant as specified in its charter)
Nevada |
000-53985 |
N/A |
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
11111 Katy Freeway-Suite #910
Houston, Texas |
77079 |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (713)
973-5738
________________________________________________
(Former name or former address, if changed since
last report) |
Check the appropriate box below if the Form 8-K filing is intended
to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] |
Written communications pursuant to Rule 425 under the Securities Act (17CFR 230.425) |
[ ] |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
[ ] |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
[ ] |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
SECTION 1 - REGISTRANT'S BUSINESS AND OPERATIONS
ITEM 1.01 - ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
KBM
On January 29, 2015, we entered into a securities purchase agreement
(the “KBM SPA”) with KBM Worldwide, Inc. (“KBM”) pursuant to which we borrowed $54,000 under the terms
of a convertible promissory note (the “KBM Note”). After payment of legal fees of $4,000 to KBM’s counsel, we
are using the net proceeds for working capital.
Interest under the convertible promissory note is 8% per annum,
and the principal and all accrued but unpaid interest is due on November 2, 2015. The note is convertible at any time following
180 days after the issuance date at KBM’s option into shares of our common stock at a variable conversion price of 60% of
the lowest average three day market price of our common stock during the 10 trading days prior to the notice of conversion, subject
to adjustment as described in the note. The holder’s ability to convert the note, however, is limited in that it will not
be permitted to convert any portion of the note if the number of shares of our common stock beneficially owned by the holder and
its affiliates, together with the number of shares of our common stock issuable upon any full or partial conversion, would exceed
9.99% of our outstanding shares of common stock. The holder has the right to waive this term upon 61 days’ notice to us.
During the first 180 days following the date of the note we have
the right to prepay the principal and accrued but unpaid interest due under the note, together with any other amounts we may owe
the holder under the terms of the note, at a graduating premium ranging from 115% to 140%. After this initial 180 day period, we
do not have a right to prepay the note.
There are certain covenants we agreed to, including without limitation,
a restriction on stock repurchases, a prohibition on borrowing under certain circumstances and the sale of our assets outside of
the ordinary course of business.
All amounts due under the note become immediately due and payable
by us upon the occurrence of an event of default, which includes (i) our failure to pay the amounts due at maturity, (ii) our failure
to deliver shares of our common stock upon any conversion of the note, (iii) a breach of the covenants, representations or warranties
under the note or the Securities Purchase Agreement, (iv) the appointment of a trustee, a judgment against us in excess of $50,000
(subject to a cure period), a liquidation of our company or the filing of a bankruptcy petition, (v) failure to remain current
in our reporting obligations under the Securities Exchange Act of 1934 or the removal of our common stock from quotation on the
OTC markets, (vi) any restatement of our financial statements, or (vii) a reverse stock split without notice to the lender, as
well as certain other provisions as set forth in the note.
The foregoing description of KBM SPA and the KBM Note does not purport
to be complete and is qualified in its entirety by reference to the complete text of the foregoing documents, which are filed as
Exhibits 10.1 and 10.2 hereto, all of which are incorporated herein by this reference.
Magna
On March 10, 2015, we entered into a securities purchase agreement
(the “Magna SPA”), with Magna Equities II, LLC, an accredited investor (“Magna”), pursuant to which we
issued and sold to Magna a convertible promissory note, bearing interest at 12% annual interest, compounded monthly, in the principal
amount of $50,000 (the “Magna Note”). The principal and all accrued but unpaid interest is due on March 10, 2016. In
accordance with the terms of the Magna SPA, we agreed to pay Magna’s expenses associated with the transaction in the amount
of $10,000. As a result, we realized net proceeds from the sale of the Note in the amount of $40,000, which is to be used for general
corporate purposes.
Twenty days after execution, Magna will invest another $50,000 less
expenses of $2,000, unless, among other things, we are in default on the Magna Note.
During the first 90 days following the date of the note we have the right to prepay the principal and accrued but unpaid interest
due under the note, together with any other amounts we may owe the holder under the terms of the note, at a premium of 135%.
The Magna Note can be prepaid, at a redemption premium of
135%. The Magna Note is convertible at a price per share equal to the lesser of (i) $0.04 per share or (ii) 60% of the VWAP in
the 10 trading days prior to conversion. The holder’s ability to convert the note, however, is limited in that it will not
be permitted to convert any portion of the note if the number of shares of our common stock beneficially owned by the holder and
its affiliates, together with the number of shares of our common stock issuable upon any full or partial conversion, would exceed
4.99% of our outstanding shares of common stock. The holder has the right to waive this term upon 61 days’ notice to us.
If, at any time when the Magna Note is outstanding, the Company
issues or sells, or is deemed to have issued or sold, any shares of its common stock in connection with a subsequent placement
for no consideration or for a consideration per share that is less than the conversion price on the date of issuance that is more
favorable to Magna than the foregoing variable conversion price formula, then the conversion price will be reduced to the amount
of the consideration per share received for such issuance.
The Magna Note contains certain covenants and restrictions including,
among others, that for so long as the Magna Note is outstanding the Company will not pay dividends or dispose of certain assets,
and that the Company will maintain its listing on an over-the-counter market. In addition, Magna has a right of first refusal on
future offerings. Events of default under the note include, among others, failure to pay principal or interest on the note or comply
with certain covenants under the note.
Also, on March 2, 2015, we entered into a securities exchange agreement
(the “Magna EA”) with Magna to retire certain of our outstanding debt in exchange for another convertible promissory
note (the “Manga II Note”) with Magna in the principal amount of $121,000. The terms of the Magna II Note are akin
to terms of the Magna Note, set forth above, except as provided below.
The principal and all accrued but unpaid interest is due on March
2, 2016.
During the first 90 days following the date of the note we have
the right to prepay the principal and accrued but unpaid interest due under the note, together with any other amounts we may owe
the holder under the terms of the note, at a premium of 150%. After this initial 90 day period, we do not have a right to prepay
the note.
The foregoing description of Magna SPA, Manga Note, Magna EA and
Magna II Note does not purport to be complete and is qualified in its entirety by reference to the complete text of the foregoing
documents, which are filed as Exhibits 10.3 to 10.6 hereto, all of which are incorporated herein by this reference.
SECTION 2 - FINANCIAL INFORMATION
ITEM 2.03 - CREATION OF A DIRECT FINANCIAL OBLIGATION
The information provided in Item 1.01 of this Current Report on
Form 8-K is incorporated herein by reference.
SECTION 3 - SECURITIES AND TRADING MARKETS
ITEM 3.02 - UNREGISTERED SALES OF EQUITY SECURITIES
The information provided in Item 1.01 of this Current Report on
Form 8-K is incorporated herein by reference.
The above securities were issued pursuant to the exemption from
registration set forth in Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506 of Regulation D promulgated
thereunder. The investors represented to us that they are accredited investors. We believe that the investors had adequate information
about us as well as the opportunity to ask questions and receive responses from our management.
Section 9 – Financial
Statements and Exhibits
Item 9.01 Financial Statements
and Exhibits
10.1 KBM SPA
10.2 KBM Note
10.3 Magna SPA
10.4 Magna Note
10.5 Magna EA
10.6 Magna II Note
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Well Power, Inc.
/s/ Dan Patience
Dan Patience
President
Date: March 10, 2015
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE
AGREEMENT (the "Agreement"), dated as of January 29, 2015, by and between WELL POWER, INC., a Nevada corporation, with
headquarters located at 1 1 111 Katy Freeway _ Suite 910, Houston, TX 77079 (the "Company"), and KBM WORLDWIDE, INC.,
a New York corporation, with its address at 111 Great Neck Road - Suite 216, Great Neck, NY 11021 (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 an 8% convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal
amount of $54,000.00 (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 6 and Section 7 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 February 2, 2015, 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.
| 2. | Buyer's Representations and Warranties. 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 l .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 50l(a) of Regulation D (an "Accredited Investor").
c.
Reliance on Exemption s. 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 representation s, warranties,
agreements, acknowledgments and under standings 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 remain
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 remain 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.
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 Buyer, 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 Buyer, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel
in corporate transaction s, 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 1933 Act) 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
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.
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 immediately below the Buyer's
name on the signature pages hereto.
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. Schedule 3(a) sets forth a list of all of the Subsidiaries
of the Company and the jurisdiction in which each is incorporated. 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" mean s 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 Com pany 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) 4,500,000,000 authorized shares of Common Stock, $0.001 par value per share, of which 111,861,934 shares are issued and
outstanding; and (ii) there are no authorized shares of Preferred Stock; 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) exercisable for, or convertible
into or exchangeable for shares of Common Stock and 21,000,000 shares are reserved for issuance upon conversion of the Note. All
of such outstanding shares of capital stock are, or upon issuance wi.11 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. 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 (ii i) there are no antidilution 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 furnished to the Buyer 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.
d.
Issuance of Shares. 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, 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 (i
ii) 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 i n 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 registration s which the Company is required to obtain pursuant to the preceding sentence have been obtained
or effected on or prior to the date hereof. If the Company is listed on the OTCQB, the Company is not in violation of the listing
requirements of the OTCQB (the "OTCQB") and does not reasonably anticipate that the Common Stock will be delisted by
the OTCQB in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give
rise to any of the foregoing.
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"). Upon written request the Company
will deliver 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 regulation s 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 mislead ing. None of the statements made i n 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 requirement s 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 period s 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 i n the SEC Documents, the Company has no liabilities, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business subsequent to October 31, 2014, and (ii) obligations under
contracts and commitments incurred i n 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.
h.
Absence of Certain Changes. Since October 31, 2014, 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); there is no claim or
action by any person pertaining to, or proceed ing 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 i n 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.
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 Jess 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 Jaw, 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 provision s applicable to the Company or its securities.
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
Perm its"), 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 October 31, 2014, 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. The Company and its Subsidiaries have good and marketable title in fee
simple to all real property and good and marketable title to al l 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 except such as are described
in Schedule 3(t) 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.
u.
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.
v.
Internal Accounting Control s. 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.
w.
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.
x.
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.
y.
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.
z.
Breach of Representation s and Warranties by the Company. 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, it will be considered an Event of default under Section 3.4 of the Note.
a.
Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions
described in Section 6 and 7 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 for general working capital purposes.
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 ("ROFR Notice"), including the terms and conditions thereof, identity of the proposed purchaser and proposed
definitive documentation to be entered into in connection therewith , 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 (or debt with an equity component) financing in an amount less than $100,000 ("Future Offering(s)") during
the period beginning on the Closing Date and ending six (6) months following the Closing Date. Notwithstanding anything contained
herein to the contrary, the Company shall not consummate any Future Offering with an investor, or an affiliate of such investor
(collectively "Prospective Investor"), identified on an ROFR Notice whereby the Buyer exercised its Right of First Refusal
for a period of forty (45) days following such exercise; and any subsequent offer by a Prospective Investor is subject to this
Section 4(d) and the Right of First Refusal. 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) or (ii) 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. At the Closing, the Company shall reimburse Buyer for 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, 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. The Company's obligation with respect to this transaction
is to reimburse Buyer' expenses shall be $4,000.00.
f.
Financial Information. Upon written request 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.
g.
INTENTIONALL Y DELETED]
h.
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 OTCQB or any equivalent replacement exchange or electronic quotation system (including but not limited to the Pink Sheets
electronic quotation system) and will comply i n 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 notices it receives from the OTCQB and any other exchanges or electronic quotation
systems on which the Common Stock is then traded regarding the continued eligibility of the Common Stock for listing on such exchanges
and quotation systems.
i.
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 al l 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 Pink Sheets, OTCQX, OTCQB, Nasdaq, Nasdaq
SmallCap, NYSE or AMEX.
j.
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.
k.
Breach of Covenants. 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.
l.
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.
m.
Trading Activities. Neither the Buyer nor its affiliates has an open short position 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.
5.
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 5, 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 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 i n 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 Buyer, with (i) an
opinion of counsel i n 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
5 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.
6.
Conditions to the Company's Obligation 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 l(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.
7.
Conditions 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) 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
respect s 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 OTCQB and trading in
the Common Stock on the OTCQB shall not have been suspended by the SEC or the OTCQB.
h.
The Buyer shall have received an officer's certificate described in Section 3(c) above, dated
as of the Closing Date.
8.
Governing Law; Miscellaneous.
a.
Governing Law. This Agreement shall be governed by and construed in accordance with the laws
of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other
concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal
courts located in the state and county of Nassau . 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. The Company and Buyer waive trial by jury. 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. This Agreement may be executed i n 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.
c.
Headings. 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 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 , 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 Company, to:
WELL POWER, INC.
11111 Katy Freeway Suite 910
Houston, TX 77079
Attn: DAN PATIENCE, Chief Financial Officer
facsimile: [enter fax number]
With a copy by fax only to (which copy shall
not constitute notice): [enter name of law firm]
Attn: [attorney name]
[enter address line l]
[enter city, state, zip]
facsimile: [enter fax number]
If to the Buyer:
KBM WORLDWIDE, INC.
111 Great Neck Road -Suite 216,Great Neck,
NY 11021
Attn: Seth Kramer, President
e-mail: info@kwbmlaw.com
With a copy by fax only to (which copy shall
not constitute notice):
Naidich Wurman LLP
111 Great Neck Road -Suite 214 Great Neck,
NY 11021
Att: Judah A. Eisner, Esq. facsimile: 516-466-3555
e-mail: rnaidich@nwlaw.com
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.
i.
Survival. The representations and warranties of the Company and the agreements and covenants
set forth in this Agreement shall survive the closing hereunder notwithstanding 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.
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 FJNRA 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).
k.
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.
l.
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.
m.
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.
IN WITNESS WHEREOF, the undersigned Buyer and
the Company have caused this Agreement to be duly executed as of the date first above written.
WELL POWER, INC.
By: /s/ Dan Patience
DAN PATIENCE
Chief Financial Officer
KBM WORLDWIDE, INC.
By: /s/ Seth Kramer
Name: Seth Kramer Title: President
111 Great Neck Road - Suite 216, Great Neck,
NY 11021
AGGREGATE SUBSCRIPTION AMOUNT: |
|
Aggregate Principal Amount of Note: |
$54,000.00 |
Aggregate Purchase Price: |
$54,000.00 |
Tranche # I K-1574 (WPWR)
January 29, 2015
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: $54,000.00 |
Issue
Date: January 29, 2015 |
Purchase
Price: $54,000.00 |
|
CONVERTIBLE
PROMISSORY NOTE
FOR VALUE
RECEIVED, WELL POWER, INC., a Nevada corporation (hereinafter called the “Borrower”), hereby promises
to pay to the order of KBM WORLDWIDE, INC., a New York corporation, or registered assigns (the “Holder”) the
sum of $54,000.00 together with any interest as set forth herein, on November 2, 2015 (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. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty
two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall
commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-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 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 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 during the period beginning
on the date which is one hundred eighty (180) days following the date of this Note 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 (the “Conversion Price”) 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 9.99% 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 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 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, 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.
(a)
Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall equal 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 60% multiplied
by the Market Price (as defined herein) (representing a discount rate of 40%). “Market Price” means the average of
the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) 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 closing bid price on the Over-the-Counter Bulletin Board, Pink Sheets electronic quotation system or applicable trading market
(the “OTC”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder
(i.e. Bloomberg) or, if the OTC 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”. 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, or on the principal securities exchange or other securities market on which the Common
Stock is then being traded.
(b)
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 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.
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 five 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
hereunder. 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.
If,
at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of
the Note.
(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 6:00 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.
(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 6:00 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 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 Agent Commission (“DWAC”) system.
(g)
Failure to Deliver Common Stock Prior to 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. 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(g) are justified.
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:
“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 accepted by the Company 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 Company does not
accept the opinion of counsel provided by the Holder 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 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, any shares of Common Stock for no
consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts
or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance)
of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion
Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.
The
Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants,
rights or options (not including employee stock option plans or the issuance of shares to employees or consultants for compensation
or the issuance of shares in consideration for patents or other intellectual
property),
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 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
Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities
market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise
pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of
Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common
Stock is then traded (the “Maximum Share Amount”), which shall be 9.99% of the total shares outstanding on the Closing
Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends,
combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the
Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or
regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the
Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share
Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the
Note.
1.8
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, at any time during the periods set forth on the table
immediately following this paragraph (the “Prepayment Periods”), 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, in accordance with this Section 1.9. 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 Optional Prepayment Amount (as defined below)
to Holder, 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 exercises its right to prepay the Note, the Borrower shall make
payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to the percentage
(“Prepayment Percentage”) as set forth in the table immediately following this paragraph opposite the applicable
Prepayment Period, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued
and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default
Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant
to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional
Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the
Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
Prepayment
Period |
Prepayment
Percentage |
1. The
period beginning on the Issue Date and ending on the date which is thirty (30) days following the Issue Date. |
115% |
2.
The period beginning on the date which is thirty-one (31) days following the Issue Date and ending on the date which is sixty
(60) days following the Issue Date |
120% |
3.
The period beginning on the date which is sixty-one (61) days following the Issue Date and ending on the date which is ninety
(90) days following the Issue Date |
125% |
4.
The period beginning on the date which is ninety-one (91) days following the Issue Date and ending on the date which is one
hundred twenty (120) days following the Issue Date |
130% |
5.
The period beginning on the date which is one hundred twenty-one (121) days following the Issue Date and ending on the date
which is one hundred fifty (150) days following the Issue Date |
135% |
6.
The period beginning on the date which is one hundred fifty-one (151) days following the Issue Date and ending on the date
which is one hundred eighty (180) days following the Issue Date |
140% |
After
the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.
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.
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, (a) create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become
liable upon the obligation of any other person, firm, partnership, joint venture or corporation, except by the endorsement of
negotiable instruments for deposit or collection, or (b) suffer to exist any liability for borrowed money, except any borrowings
that does not render the Borrower a "Shell" company as defined in Rule 12b-2 under the Securities Exchange Act of 1934.
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.
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 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, 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, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or
hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of
Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note,
or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing)
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. It is an
obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this
Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent.
If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to process a conversion,
such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from the Holder.
3.3
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.
3.4
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 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.
3.5
Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of
creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property
or business, or such a receiver or trustee shall otherwise be appointed.
3.6
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.
3.7
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.
3.8
Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of
the OTCBB, OTC Markets or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New
York Stock Exchange, or the American Stock Exchange.
3.9
Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the
Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.10
Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.11
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.
3.12
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).
3.13
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.
3.14
Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written
notice to the Holder.
3.15
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.
3.16
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,
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, including, without limitation, promissory
notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this
Note. 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.
Upon
the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to
pay the principal hereof or interest thereon when due
at
the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction
of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION
OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, 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: (Y) THE DEFAULT SUM (AS DEFINED HEREIN);
MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default
specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note
upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13,
3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default
Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure
to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately
due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to
the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x)
accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment
Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any
amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the
date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default
Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest
number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article
I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes
of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a
specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest
Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending
one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall
immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together
with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise
all other rights and remedies available at law or in equity.
If
the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable,
then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that
there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then
in effect.
ARTICLE
IV. MISCELLANEOUS
4.1
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:
WELL
POWER, INC.
911111 Katy
Freeway - Suite 910
Houston,
TX 77079
Attn: DAN PATIENCE,
Chief Executive Officer
facsimile:
With
a copy by fax only to (which copy shall not constitute notice):
[enter name of law firm]
Attn:
[attorney name] [enter address line 1] [enter city, state, zip]
facsimile:
[enter fax number]
If to the Holder:
KBM
WORLDWIDE, INC.
111 Great Neck
Road– Suite 126
Great Neck, NY 11021
Attn: Seth Kramer, President
e-mail: info@kbmworldwide.com
With
a copy by fax only to (which copy shall not constitute notice):
Naidich Wurman LLP
111 Great Neck Road -
Suite 214
Great Neck, NY 11021
Att: Judah A. Eisner,
Esq.
facsimile: 516-466-3555
e-mail: rnaidich@nwlaw.com
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.
4.5
Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof 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 New York
without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions
contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state
and county of Nassau. 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 and Holder waive trial by jury. 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
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.
4.10
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.
IN WITNESS
WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this January 9, 2015.
WELL POWER,
INC.
By:
/s/ Dan Patience
DAN PATIENCE
Chief Financial Officer
Funding date _______
Time: _______
DISBURSEMENT AUTHORIZATION
TO: KBM WORLDWIDE, INC.
FROM: WELL POWER, INC.
Tranche #1 K-1574 (WPWR)
11111 Katy Freeway _ Suite 910
Houston, TX 77079
DATE: January 29, 2015
RE: Disbursement of Funds
In connection with the funding of an aggregate
of $54,000.00 pursuant to that certain Securities Purchase Agreement dated as of January 29, 2015 (the "Agreement"),
you are hereby directed to disburse such funds as follows:
1.
. $50,000.00 to WELL POWER, INC. m accordance with the wire transfer instructions attached as Schedule A hereto;
and
2.
$4,000.00 to Naidich Worman LLP m accordance with the wire transfer instructions attached as Schedule B hereto;
Upon receipt of such funds, you may release
from escrow the Note, the Purchase Agreement and the instructions to Transfer Agent (each as defined in the Agreement).
/s/ Dan Patience
DAN PATIENCE
Chief Financial Officer
SECURITIES
PURCHASE AGREEMENT
This
SECURITIES PURCHASE AGREEMENT (the “Agreement”), dated as of March 10, 2015, by and between WELL POWER,
INC., a NEVADA corporation, with headquarters located at 11111 KATY FREEWAY SUITE #910, HOUSTON, TX 77079 (the “Company”),
and MAGNA EQUITIES II, LLC, a New York corporation, with its address at 5 Hanover Square, New York, New York 10004 (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
an 12% convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of $50,000
(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 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 initial 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. The Buyer shall purchase an additional $50,000 of additional principal amount of Notes as mutually
agreed between the Buyer and the Company within twenty Trading Days after the date of this Agreement, assuming all of the Purchase
Conditions (as defined below), shall have met, together with the conditions set forth in Section 7 hereof. Purchase Conditions
shall mean:
(i)
The Company is not in breach of any terms or conditions of this Agreement and no Event of Default exists under any Notes;
(ii)
The Company is current with all of its Exchange Act filings;
(iii) The
Common Stock has not been delisted or suspended from trading on the Trading Market for a period of more than 14 days:
(iv) The
Company has a sufficient number of shares of Common Stock available to satisfy the Reserved Amount (as defined in the Note):
(v)
The Depository Trust Company has not placed a chill on new deposits of Common Stock; and
(vi) The
bid price of the Common Stock is at least $01.
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 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 6 and Section 7
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 March 10, 2015, 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.
2.
Buyer’s Repesentations and Warranties. 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 remain 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 remain 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.
f.
Transfer or Re-sale. The Buyer understands that (i) the sale or resale 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 Buyer, 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 Buyer, 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 1933 Act) 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.
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.
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 immediately below the Buyer’s name on the signature pages hereto.
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. Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is
incorporated. 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) shares of Common Stock, of which shares are
issued and outstanding; 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) exercisable for, or convertible into or exchangeable for shares
of Common Stock and a suitable amount of shares are reserved for issuance upon conversion of the Note (subject to adjustment pursuant
to the Company’s covenant set forth in Section 4(g) below). All of such outstanding shares of capital stock are, or upon
issuance will be, duly authorized, validly issued, fully paid and non-assessable and have been issued in compliance with all federal
and state securities laws. 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.
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 furnished
to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate
of Incorporation”), the Company’s Bylaws, 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.
d.
Issuance of Shares. 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, 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 a 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 Over-the-Counter Bulletin Board (the “OTCQB”) and does not
reasonably anticipate that the Common Stock will be delisted by the OTCQB in the foreseeable future. The Company and its Subsidiaries
are unaware of any facts or circumstances which might give rise to any of the foregoing.
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 four months prior to the date hereof 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.
h.
Absence of Certain Changes. Since the date of the latest financial statements included in the SEC reports: (i) there has
been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect,
(ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses
incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in
the Company’s financial statements pursuant to generally accepted accounting principles (“GAAP”) or disclosed
in filings made with the SEC, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or
made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements
to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer,
director or affiliate, except pursuant to existing Company equity incentive plans. The Company does not have pending before the
SEC any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement,
no event, liability or development has occurred or exists with respect to the Company or its Subsidiaries or their respective
business, properties, operations or financial condition, that would be required to be disclosed by the Company under applicable
securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one trading
day prior to the date that this representation is made.
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); 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. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws
that affect the environment, except in each of the foregoing cases as could not have or reasonably be expected to result in a
Material Adverse Effect.
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’s 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 no Buyer is 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 any Buyer or any of
their 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 behalf of the Company
or such affiliate, will sell, offer for sale, or solicit offers to buy or otherwise negotiate with respect to any security (as
defined in the 1933 Act) which will be integrated with the sale of the securities in a manner which would require the registration
of the securities under the Securities Act of 1933, or require stockholder approval, under the rules and regulations of the trading
market for the common stock. The Company will take all action that is appropriate or necessary to assure that its offerings of
other securities will not be integrated for purposes of the Securities Act of 1933 or the rules and regulations of the trading
market, with the issuance of securities contemplated hereby.
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. In the prior four months to the date hereof, 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. 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 except such as are described in Schedule 3(t) 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.
u.
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. The Company
has provided to Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage,
errors and omissions coverage, and commercial general liability coverage.
v. Internal
Accounting Controls. Except as set forth in the SEC Reports, the Company is in material compliance with all provisions of
the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain a
system of internal accounting controls sufficient 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 GAAP 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. The Company
has established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company
and designed such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the
reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified
in the Commission’s rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s
disclosure controls and procedures as of the end of the period covered by the Company’s most recently filed periodic report
under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed
periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls
and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in
the Company’s internal control over financial reporting (as such term is defined in the Exchange Act) that has materially
affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
w. 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.
x.
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.
y.
Application of Takeover Protections. The Company and the Board of Directors have taken all necessary action, if any, in
order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under
a rights agreement) or other similar anti-takeover provision under the Company’s certificate of incorporation (or similar
charter documents) or the laws of its state of incorporation that is or could become applicable to the Buyer as a result of the
Buyer and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without
limitation as a result of the Company’s issuance of the Securities and the Buyer’ ownership of the Securities.
z.
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.
aa.
No Disagreements with Accountants and Lawyers; Outstanding SEC Comments. There are no disagreements of any kind presently
existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently
employed by the Company and the Company is or immediately after the Closing Date will be current with respect to any fees owed
to its accountants which could affect the Company’s ability to perform any of its obligations under any of the Transaction
Documents. There are no unresolved comments or inquiries received by the Company or its Affiliates from the SEC which remain unresolved
as of the date hereof.
bb.
Bad Actor Disqualification.
(i)
No Disqualification Events. With respect to Securities to be offered and sold hereunder in reliance on Rule 506 under the
Securities Act ("Regulation D Securities"), none of the Company, any of its predecessors, any affiliated issuer, any
director, executive officer, other officer of the Company participating in the offering, any beneficial owner of 20% or more of
the Company's outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is
defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an "Issuer
Covered Person" and, together, "Issuer Covered Persons") is subject to any of the "Bad Actor" disqualifications
described in Rule 506(d)(1)(i) to (viii) under the Securities Act (a "Disqualification Event"), except for a Disqualification
Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person
is subject to a Disqualification Event. The Company has complied, to the extent applicable, with its disclosure obligations under
Rule 506(e), and has furnished to the Placement Agent and the Purchaser a copy of any disclosures provided thereunder.
(ii)
Other Covered Persons. The Company is not aware of any person that (i) has been or will be paid (directly or indirectly)
remuneration for solicitation of Purchaser in connection with the sale of the Securities and (ii) who is subject to a Disqualification
Event.
(iii)
Notice of Disqualification Events. The Company will notify the Purchaser in writing of (i) any Disqualification Event relating
to any Issuer Covered Person and (ii) any event that would, with the passage of time, become a Disqualification Event relating
to any Issuer Covered Person, prior to any Closing of this Offering.
cc.
Breach of Representations and Warranties by the Company. 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, it will
be considered an Event of default under Section 3.4 of the Note.
4.
COVENANTS.
a.
Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6
and 7 of this Agreement.
b.
Form D; Blue Sky Laws; Form 8-K. 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. The Company shall file a Current Report on Form 8-K disclosing this transaction
not later than one business day after the Closing Date.
c. Use
of Proceeds. The Company shall use the proceeds for general working capital purposes.
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 proposed definitive documentation to be entered into in connection therewith, 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 two (two) years 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) or (ii) 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.
At the Closing, the Company shall reimburse Buyer for 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, 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 Notwithstanding anything herein to the contrary, the Company’s obligation to reimburse Buyer’s
expenses shall be $1,500.
f.
Financial Information. Upon written request 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 two (2) 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.
g. Authorization
and Reservation of Shares. The Company shall at all times have authorized, and reserved for the purpose of issuance, a sufficient
number of shares of Common Stock to provide for the full conversion or exercise of the outstanding Note and issuance of the Conversion
Shares in connection therewith (based on the Conversion Price of the Note in effect from time to time) and as otherwise required
by the Note. The Company shall not reduce the number of shares of Common Stock reserved for issuance upon conversion of Note without
the consent of the Buyer. The Company shall at all times maintain the number of shares of Common Stock so reserved for issuance
at an amount (“Reserved Amount”) equal to five times the number that is then actually issuable upon full conversion
of the Note and Additional Note (based on the Conversion Price of the Note in effect from time to time). If at any time the number
of shares of Common Stock authorized and reserved for issuance (“Authorized and Reserved Shares”) is below the Reserved
Amount, the Company will promptly take all corporate action necessary to authorize and reserve a sufficient number of shares,
including, without limitation, calling a special meeting of shareholders to authorize additional shares to meet the Company’s
obligations under this Section 4(g), in the case of an insufficient number of authorized shares, obtain shareholder approval of
an increase in such authorized number of shares, and voting the management shares of the Company in favor of an increase in the
authorized shares of the Company to ensure that the number of authorized shares is sufficient to meet the Reserved Amount. If
the Company fails to obtain such shareholder approval within thirty (30) days following the date on which the number of Reserved
Amount exceeds the Authorized and Reserved Shares, it will be considered an Event of default under Section 3.4 of the Note.
h. 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 any
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 any
Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the 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 American Stock Exchange (“AMEX”) 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
notices it receives from the 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. If the market price of the
Company’s Common Stock shall at any time fall below the price required to continue to be quoted on the Company’s then
principal exchange or automated quotation system, the Company shall as soon as practicable take all actions necessary to effect
a reverse split of the Company’s Common Stock, such that the price would then be at least fifty percent (50%) above the
required price, post-split. If the Company fails to achieve the required reverse split within thirty (30) days following the date
on which the price fell below the required minimum trading price, it will be considered an Event of default under Section 3.4
of the Note.
i.
Corporate Existence. So long as a 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 OTCQB, Nasdaq, Nasdaq SmallCap, NYSE
or AMEX.
j.
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.
k. Breach
of Covenants. 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.
l. 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. Notwithstanding
anything contained herein and for the avoidance of any doubt, this covenant shall include the continued public disclosure by the
Company of the Company’s Common Stock in the public domain upon any material change in its shares outstanding.
m. Trading
Activities. Neither the Buyer nor their affiliates has an open short position in the common stock of the Company and the Buyer
agree that they shall not, and that they will cause their affiliates not to, engage in any short sales of or hedging transactions
with respect to the common stock of the Company.
n.
Omitted Intentionally.
o.
Non-Frustration of Purpose. So long as the Buyer or its affiliates hold any Securities, neither the Company nor any of
its affiliates or subsidiaries, nor any of its or their respective officers, employees, directors, agents or other representatives,
will effect, enter into, announce or recommend to its stockholders any agreement, plan, arrangement or transaction the terms of
which would or would reasonably be expected to (i) have a material adverse effect on the Buyer’s investment in the Note
or Conversion Shares or (ii) restrict, delay, conflict with or impair the ability or right of the Company to timely perform its
obligations under this Agreement or the Notes, including, without limitation, the obligation of the Company to timely deliver
shares of Common Stock to the Buyer or its affiliates in accordance with this Agreement or the Note.
p.
Restricted Transactions. From the period beginning the date of this Agreement and ending 180 Trading Days after the date
of this Agreement, neither the Company nor any of its affiliates or subsidiaries, nor any of its or their respective officers,
employees, directors, agents or other representatives, will, without the prior written consent of the Investor, directly or indirectly,
solicit, accept, enter into, announce, or otherwise cooperate in any way, assist or participate in or facilitate or encourage,
any exchange (i) of any security of the Company or any of its subsidiaries for any other security of the Company or any of its
subsidiaries, except to the extent (x) consummated pursuant to an exchange registered under a registration statement of the Company
filed pursuant to the 1933 Act and declared effective by the SEC or (y) such exchange is exempt from registration pursuant to
an exemption provided under the 1933 Act (other than Section 3(a)(10) of the 1933 Act) or (ii) of any indebtedness or other securities
of the Company or any of its subsidiaries relying on the exemption provided by Section 3(a)(10) of the 1933 Act. Notwithstanding
the foregoing or anything contained herein to the contrary, neither the Company nor any of its affiliates or subsidiaries, nor
any of its or their respective officers, employees, directors, agents or other representatives, will, without the prior written
consent of the Investor (which consent may be withheld, delayed or conditioned in the Investor’s sole discretion), directly
or indirectly, cooperate in any way, assist or participate in, facilitate or encourage any effort or attempt by any third party
to effect any acquisition of securities of the Company by such third party from an existing holder of such securities in connection
with a proposed exchange of such securities of the Company (whether pursuant to Section 3(a)(9) or 3(a)(10) of the 1933 Act or
otherwise)..
q.
Omitted Intentionally.
r. Non-Public
Information. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction
Documents, the Company covenants and agrees that after the Closing Date neither it, nor any other person acting on its behalf,
will provide Buyer or its agents or counsel with any information that the Company believes constitutes material non-public information,
unless prior thereto the Buyer shall have executed a written agreement regarding the confidentiality and use of such information.
The Company understands and confirms that the Buyer shall be relying on the foregoing covenant in effecting transactions in securities
of the Company. Each Buyer acknowledges that it is aware that the United States securities laws prohibit any person who has material
non-public information about a company from purchasing or selling securities of such company, or from communicating such information
to any other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such
securities, and the Buyer agrees not to engage in any unlawful trading in securities of the Company or unlawful misuse or misappropriation
of any such information. Buyer agrees to maintain the confidentiality of and not disclose or use (except for purposes relating
to the transactions contemplated by this Agreement) any confidential, proprietary or non-public information disclosed by the Company
to Buyer.
5.
Transfer Agent Instructions. The Company covenants and agrees that it will at all times while any Securities remain outstanding
maintain a duly qualified independent transfer agent. On or prior to the initial Closing Date, the Company shall provide a copy
of its agreement with the transfer agent to the Buyer. If a new transfer agent is appointed at any time, the Company shall provide
the Buyer with a copy of the new agreement within three (3) business days of its execution. 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
5, 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 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 a Buyer provides the Company, at the cost of the Buyer, 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 5 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.
6. Conditions
to the Company’s Obligation to Sell . The obligation of the Company hereunder to issue and sell the Note to a 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 applicable 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 applicable 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 applicable 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.
7. Conditions
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 duly executed Note (in such denominations as the Buyer shall request) 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, or in the sole discretion of Buyer, the transaction’s risk profile, market pricing or implied
volatility substantially changes, due diligence concerns arise, or any other conditions material to the successful closing of
the transaction are not acceptable to the Buyer.
g. The
Conversion Shares shall have been authorized for quotation on the OTCQB and trading in the Common Stock on the OTCQB or such equivalent
exchange and shall not have been suspended by the SEC or the OTCQB or such equivalent exchange.
h.
The Buyer shall have received an officer’s certificate described in Section 3(c) above, dated as of the Closing Date.
i. The
Buyer shall have received an opinion of counsel for the Company, in form and substance satisfactory to the Buyer.
8. Governing
Law; Miscellaneous.
a. Governing
Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard
to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county
of New York.
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. The Company
and Buyer waive trial by jury. 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 agreement or document executed in connection with this transaction (each a “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.
IN
ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND
INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY
WAIVES FOREVER TRIAL BY JURY.
b.
Counterparts; Signatures by Facsimile. This Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event
that any signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with
the same force and effect as if such facsimile or “.pdf” signature page were an original thereof.
c. Headings.
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. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention
of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.
e.
Entire Agreement; Amendments. This Agreement 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, 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 Company, to: WELL POWER, INC.
11111
KATY FREEWAY SUITE #910
HOUSTON,
TX 77079
Attn:
Cristan Neagoe, CEO, CTO
If
to the Buyer: MAGNA GROUP
5
HANOVER SQUARE NEW YORK, NY 10004
Attn:
Joshua Sason, Managing Member facsimile: 646-737-9948
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 any 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), any Buyer may assign its rights hereunder
to any person that purchases Securities in a private transaction from a 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.
i.
Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement
shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The
Company agrees to indemnify and hold harmless each of 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.
Publicity. The Company, and each of 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 each 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 each of 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).
k.
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.
l. 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.
m.
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.
n.
Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar
provisions of) any of the other Transaction Documents, whenever Buyer exercises a right, election, demand or option under a Transaction
Document and the Company does not timely perform its related obligations within the periods therein provided, then the Buyer may
rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand
or election in whole or in part without prejudice to its future actions and rights; provided, however, that in the
case of a rescission of a conversion of a Note, the Buyer shall be required to return any shares of Common Stock subject to any
such rescinded conversion or exercise notice.
o. Usury.
To the extent it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim,
and will resist any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at
any time hereafter in force, in connection with any claim, action or proceeding that may be brought by Buyer in order to enforce
any right or remedy under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction
Document, it is expressly agreed and provided that the total liability of the Company under the Transaction Documents for payments
in the nature of interest shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”),
and, without limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated
with any other sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed
such Maximum Rate. It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction
Documents is increased or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum
contract rate of interest allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date
forward, unless such application is precluded by applicable law. If under any circumstances whatsoever, interest in excess of
the Maximum Rate is paid by the Company to Buyer with respect to indebtedness evidenced by the Transaction Documents, such excess
shall be applied by the Buyer to the unpaid principal balance of any such indebtedness or be refunded to the Company, the manner
of handling such excess to be at the Buyer’s election.
p.
Fees and Expenses. The Company has agreed to reimburse the Buyer the non-accountable sum of $10,000 for legal fees. Except
as expressly set forth in the Transaction Documents to the contrary, each party shall pay the fees and expenses of its advisers,
counsel, accountants and other experts, if any, and all other expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement. The Company shall pay all transfer agent fees, stamp taxes and other taxes
and duties levied in connection with the delivery of any Securities to the Buyer.
IN
WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above
written.
WELL
POWER, INC.
By:
/s/ Cristian Neagoe
Cristan
Neagoe
CEO,
CTO
MAGNA
EQUITIES II, LLC
By:
/s/ Joshua Sason
Joshua
Sason
Managing
Member
5
Hanover Square New York, NY 10004
AGGREGATE
SUBSCRIPTION AMOUNT: |
Aggregate
Principal Amount of Note: |
$50,000 |
Aggregate
Purchase Price: |
$50,000 |
NEITHER
THE ISSUANCE NOR 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:
$50,000 |
Issue
Date: March 10, 2015 |
Purchase Price: $50,000 |
|
CONVERTIBLE
PROMISSORY NOTE
FOR
VALUE RECEIVED, WELL POWER, INC., a NEVADA corporation (hereinafter called the “Borrower”), hereby promises
to pay to the order of MAGNA EQUITIES II, LLC, a New York corporation, or registered assigns (the “Holder”)
the sum of Fifty Thousand Dollars ($50,000), on March 10, 2016 (the “Maturity Date”), and to pay interest on the
unpaid principal balance hereof at the rate of twelve percent (12%) (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, compounded on a monthly basis. This Note may not be prepaid in whole or in part except as otherwise explicitly set
forth in Section 1.9 hereof. Any amount of principal or interest on this Note which is not paid when due shall bear interest at
the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”).
Interest shall commence accruing on the Issue Date, shall be computed on the basis of a 365-day year and the actual number of
days elapsed. All payments due hereunder (to the extent not converted into common stock, (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 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 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 during the period beginning on the date of this
Note 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 (the “Conversion Price”)
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 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 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 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 Borrower’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 Company shall have the right to pay any or all interest in cash plus (3) at the Borrower’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.
(a) Calculation
of Conversion Price. The conversion price (the “Conversion Price”) shall be 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 the lower of i) a 40%
discount from the lowest daily VWAP in the ten (10) Trading Days prior to conversion and ii) $0.04. “Trading Price”
means, for any security as of any date, the lowest trading price on the Over-the-Counter Bulletin Board, or applicable trading
market (the “OTCQB”) as reported by a reliable reporting service (“Reporting Service”) mutually acceptable
to Borrower and Holder (i.e. Bloomberg). 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 traded for any period
on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.
If the Issuer’s Common stock is chilled for deposit at DTC and/or becomes chilled at any point while this Agreement remains
outstanding, an additional 8% discount will be attributed to the Conversion Price defined hereof. If the Borrower is unable to
issue any shares under this provision due to the fact that there is an insufficient number of authorized and unissued shares available,
the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided that Borrower takes
immediate steps required to get the appropriate level of approval from shareholders or the board
(b)
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 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.
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 five 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 4(g) of the Purchase
Agreement. Commencing on the expiration of the first month from the issue date of this Note, the Reserved Amount shall be recalculated
each month based upon the Variable Conversion Price and the Company shall notify the Transfer Agent and the Holder in writing
by the fifth day of the following month of the new Reserved Amount. In the event the Company does not notify the Transfer Agent
of the new Reserved Amount in a timely manner, the Holder shall have the absolute right to notify the Transfer Agent, without
any further action by the Company. Notwithstanding the foregoing, in no event shall the Reserved Amount be lower than the initial
Reserved Amount, regardless of any prior conversions. 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.
If,
at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of
the Note.
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 6:00 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 ( but in any
event the fifth (5th) business day being hereinafter referred to as the “Deadline”) (and, solely in the case of conversion
of the entire unpaid principal amount hereof, surrender of the this Note) in accordance with the terms hereof and the Purchase
Agreement.
(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 6:00 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’s transfer agent 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 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 Agent Commission (“DWAC”) system.
(g)
Failure to Deliver Common Stock Prior to 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. 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(g) are justified.
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:
“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 accepted by the Company 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 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 Regulations 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 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, any shares of Common Stock for no consideration
or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances
in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares
of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be
reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance, but in no event shall
the Conversion Price be above the original Conversion Price.
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 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 of 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 Trading
Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the
Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note
and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the
Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded
(the “Maximum Share Amount”), which shall be 9.99% of the total shares outstanding on the Closing Date (as defined
in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations,
capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share
Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system or other self- regulatory organization with jurisdiction over the Borrower or
any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in
lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.
1.8
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, so long as the Borrower has not received a
Notice of Conversion from the Holder, then 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 to prepay the outstanding Note (principal and accrued interest), in full,
in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be
delivered to the Holder of the Note at its registered address 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 Optional Prepayment Amount (as defined below) 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 exercises its right to prepay
the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal
to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest
on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts
referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
If the Borrower delivers and Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the
Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay
the Note pursuant to this Section 1.9.
ARTICLE
II. CERTAIN COVENANTS
2.1
Negative Covenants. As long as any portion of this Note remains outstanding, unless the holders of all of the outstanding
Notes shall have otherwise given prior written consent, the Borrower shall not, and shall not permit any of its subsidiaries (whether
or not a subsidiary on the Issue Date) to, directly or indirectly:
(a)
other than indebtedness existing as of the Initial Date or incurred in the ordinary course of business for trade expenses (not
borrowed money) (“Permitted Indebtedness”), enter into, create, incur, assume, guarantee or suffer to exist any indebtedness
for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets
now owned or hereafter acquired or any interest therein or any income or profits therefrom, which indebtedness shall be senior
is respect to security to this Note;
(b)
other than Permitted Liens (as defined below), enter into, create, incur, assume or suffer to exist any liens, charges or encumbrances
of any kind or nature (“Liens”), on or with respect to any of its property or assets now owned or hereafter acquired
or any interest therein or any income or profits therefrom. “Permitted Lien” means the individual and collective reference
to the following: (a) Liens for taxes, assessments and other governmental charges or levies not yet due or Liens for taxes, assessments
and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves
(in the good faith judgment of the management of the Borrower) have been established in accordance with GAAP; (b) Liens imposed
by law which were incurred in the ordinary course of the Borrower’s business, such as carriers’, warehousemen’s
and mechanics’ Liens, statutory landlords’ Liens, and other similar Liens arising in the ordinary course of the Borrower’s
business, and which (x) do not individually or in the aggregate materially detract from the value of such property or assets or
materially impair the use thereof in the operation of the business of the Borrower and its consolidated subsidiaries or (y) are
being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing for the foreseeable
future the forfeiture or sale of the property or asset subject to such Lien; (c) Liens incurred in connection with Permitted Indebtedness
under clauses (a), and (b) thereunder; and (d) Liens incurred in connection with Permitted Indebtedness under clause (c) thereunder,
provided that such Liens are not secured by assets of the Borrower or its subsidiaries other than the assets so acquired or leased.
(c)
amend its charter documents, including, without limitation, its certificate of incorporation and bylaws, in any manner that materially
and adversely affects any rights of the Holder;
(d)
repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of shares of its Common Stock
or Common Stock equivalents;
(e) repay,
repurchase or offer to repay, repurchase or otherwise acquire any indebtedness, other than the Notes if on a pro-rata basis, other
than regularly scheduled principal and interest payments as such terms are in effect as of the Issue Date, provided that such
payments shall not be permitted if, at such time, or after giving effect to such payment, any Event of Default exist or occur;
(f)
pay cash dividends or distributions on any equity securities of the Borrower;
(g)
sell, lease or otherwise dispose of any portion of its assets outside the ordinary course of business, other than de minimis sales.
Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition;
(h)
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 $1,000;
(i)
enter into any transaction with any affiliate of the Borrower which would be required to be disclosed in any public filing with
the Commission, unless such transaction is made on an arm’s length basis and expressly approved by a majority of the disinterested
directors of the Borrower (even if less than a quorum otherwise required for board approval); or
(j) enter
into any agreement with respect to any of the foregoing.
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 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, 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, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or
hinders its transfer agent in transferring (or issuing( electronically or in certificated form) any certificate for shares of
Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note,
or fails to remove ( or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing)
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.
3.3 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;
3.4 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 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;
3.5
Bankruptcy, Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall commence, or there shall be commenced
against the Borrower or any subsidiary of the Borrower under any applicable bankruptcy or insolvency laws as now or hereafter
in effect or any successor thereto, or the Borrower or any subsidiary of the Borrower commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Borrower or any subsidiary of the Borrower or there is commenced
against the Borrower or any subsidiary of the Borrower any such bankruptcy, insolvency or other proceeding which remains undismissed
for a period of 61 days; or the Borrower or any subsidiary of the Borrower is adjudicated insolvent or bankrupt; or any order
of relief or other order approving any such case or proceeding is entered; or the Borrower or any subsidiary of the Borrower suffers
any appointment of any custodian, private or court appointed receiver or the like for it or any substantial part of its property
which continues undischarged or unstayed for a period of sixty one (61) days; or the Borrower or any subsidiary of the Borrower
makes a general assignment for the benefit of creditors; or the Borrower or any subsidiary of the Borrower shall fail to pay,
or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Borrower or
any subsidiary of the Borrower shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring
of its debts; or the Borrower or any subsidiary of the Borrower shall by any act or failure to act expressly indicate its consent
to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Borrower or any subsidiary
of the Borrower for the purpose of effecting any of the foregoing;
3.6
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;
3.7
Indebtedness Default. The Borrower or any subsidiary of the Borrower shall default in any of its obligations under any
other Note or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under
which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under
any long term leasing or factoring arrangement of the Borrower or any subsidiary of the Borrower in an amount exceeding $25,000,
whether such indebtedness now exists or shall hereafter be created and such default shall result in such indebtedness becoming
or being declared due and payable prior to the date on which it would otherwise become due and payable;
3.8
Delisting of Common Stock; DTC Chill. The Borrower shall fail to maintain the listing of the Common Stock on at least one
of the OTCQB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock
Exchange, or the American Stock Exchange or there shall be no bid price for the stock for a period of one business day OR the
Depository Trust Company places a chill on new deposits of Common Stock, which is not removed within ten (10) trading days;
3.9
Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange
Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.
3.10
Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.11
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.
3.12
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).
3.13
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.
3.14
Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice
to the Holder.
3.15
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, 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 irrevocable reserve shares
of Common Stock in the Reserved Amount) signed by the successor transfer agent to Holder and the Borrower.
3.16
Failure to Pay Post-Closing Expenses. The failure by Borrower to pay any and all Post-Closing Expenses as defined in section
4.6.
3.17
Delisting. From and after the initial trading, listing or quotation of the Common Stock on a Principal Market, an event
resulting in the Common Stock no longer being traded, listed or quoted on a Principal Market; failure to comply with the requirements
for continued quotation on a Principal Market; or notification from a Principal Market that the Borrower is not in compliance
with the conditions for such continued quotation and such non-compliance continues for seven
(7)
trading days following such notification.
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, after
the passage of all applicable notice and cure or grace periods, shall, at the option of the Borrower, 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, including, without limitation, promissory
notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this
Note. 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 Consecutive
Late Filings. If the Company files a late notification (NT 10-Q or NT 10-K) for any quarterly or annual report for any two
(2) consecutive periods.
Upon
the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to
pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable
and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum
(as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, 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: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation
of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon
when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8,
3.9, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16, 3.17, 3.18, 3.19, and/or 3.20 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 in the remaining
sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in
Section 3.1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction
of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding
principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date
of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to
in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then
outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z)
shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be
prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant
to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date
as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event
arises as a result of such breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion
Date, multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first
occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”)
and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all
of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection,
and the Holder shall be entitled to exercise all other rights and remedies available at low or in equity.
If
the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable,
then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that
there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default
Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then
in effect.
ARTICLE
IV. MISCELLANEOUS
4.1
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: WELL POWER, INC.
11111
KATY FREEWAY SUITE #910
HOUSTON,
TX 77079
Attn:
Mr. Cristan Neagoe, CEO, CTO
If
to the Holder: MAGNA GROUP
5
HANOVER SQUARE NEW YORK, NY 10004
Attn:
Joshua Sason, Managing Member
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.
4.5
Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys’ fees.
4.6
Post-Closing Expenses. The Issuer will bear any and all miscellaneous expenses that may arise as a result of this Agreement
post-closing. These expenses include, but are not limited to, the cost of legal opinion production, transfer agent fees, equity
issuance fees, etc. The failure to pay any and all Post-Closing Expenses will be deemed a default as described in Section 2.6.10
herein.
4.6
Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated
by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of
New York. 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
and Holder waive trial by jury. 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 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.
4.10
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.
4.11
Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain
in effect, and if any provision is inapplicable to any person or circumstance, it shall nevertheless remain applicable to all
other persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder shall violate
applicable laws governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum
permitted rate of interest. The Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other
law which would prohibit or forgive the Borrower from paying all or any portion of the principal of or interest on this Note as
contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance
of this indenture, and the Borrower (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of
any such law, and covenants that it will not, by resort to any such law, hinder, delay or impeded the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
(Signature
Pages Follow)
IN
WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this March 10,
2015.
WELL
POWER, INC.
By:
/s/ Cristian Neagoe
Cristan
Neagoe, CEO, CTO
Exhibit
A.
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert $ of the principal amount of the Note (defined below) into Shares of Common
Stock of WELL POWER, INC., a(n) NEVADA Corporation (the “Borrower”) according to the conditions of the
Convertible Note of the Borrower dated as of march 10, 2015 (the “Note”). No fee will be charged to the
Holder or Holder’s Custodian 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 Agent Commission 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:
Magna
Equities II, LLC EIN #: 45-2043511
Date
of Conversion: _______________ |
Conversion
Price: _______________ |
Shares
to Be Delivered: _______________ |
Remaining
Principal Balance Due
After
This Conversion: _______________ |
Signature _______________ |
Print
Name: |
Joshua
Sason |
SECURITIES EXCHANGE AGREEMENT
This
SECURITIES EXCHANGE AGREEMENT (the “Agreement”), dated as of March 2, 2015, by and between WELL
POWER, INC., a NEVADA corporation, with headquarters located at 11111 KATY FREEWAY SUITE #910, HOUSTON, TX 77079 (the
“Company”), and MAGNA EQUITIES I, LLC, a New York corporation, with its address at 5 Hanover Square, New York,
New York 10004 (the “Buyer”).
WHEREAS:
| A. | Pursuant to a certain Purchase Agreement set forth on Schedule A attached hereto (the “Purchase
Agreement”), as supplemented from time to time, the Buyer will acquire certain debts of the Company (the “Purchased
Debt”) from third parties (the “Third Parties”); |
| B. | Subject to the terms and conditions set forth in this Agreement, the Company desires to exchange
with the Buyer, and the Buyer desires to exchange with the Company from time to time, securities of the Company as more fully described
in this Agreement. |
| C. | Company and Buyer wish to provide for the exchange of the Purchased Debts upon consummation of
the transactions contemplated by the Purchase Agreement, for a Note of the Company, which Note shall constitute securities under
the Securities Act of 1933 (the “1933 Act”); |
NOW
THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:
1.
Exchange of Debt.
a.
Exchange. On the initial Closing Date (as defined below), the Company shall issue to the Buyer and the Buyer agrees to acquire
from the Company, in exchange for the Purchased Debt, such principal amount of Note as is set forth immediately below the Buyer’s
name on the signature pages hereto.
b.
Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section
7 below, the date and time of the issuance and exchange of the Note pursuant to this Agreement (the “Closing Date”)
shall be 12:00 noon, Eastern Standard Time on March 2, 2015, 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.
2.
Buyer’s Representations and Warranties. The Buyer represents and warrants to the Company that:
a.
Investment Purpose. As of the date hereof, the Buyer is acquiring 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 1(g) of the Note) 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 delivered 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 remain 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 remain 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.
f.
Transfer or Re-sale. The Buyer understands that (i) the exchange, sale or resale 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 Buyer, 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 Buyer,
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
1933 Act) 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.
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.
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 immediately below the Buyer’s name on the signature pages hereto.
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. Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and the
jurisdiction in which each is incorporated. 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) shares of Common Stock,
of which shares are issued and outstanding; 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) exercisable for, or convertible into or exchangeable
for shares of Common Stock and a suitable amount of shares are reserved for issuance upon conversion of the Note (subject to adjustment
pursuant to the Company’s covenant set forth in Section 4(g) below). All of such outstanding shares of capital stock are,
or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable and have been issued in compliance with
all federal and state securities laws. 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. 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 furnished
to the Buyer true and correct copies of the Company’s Certificate of Incorporation as in effect on the date hereof (“Certificate
of Incorporation”), the Company’s Bylaws, 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.
d.
Issuance of Shares. 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, 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 a 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 [Over-the-Counter
Bulletin Board (the “OTCQB”) and does not reasonably anticipate that the Common Stock will be delisted by the OTCQB]
in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
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 four months prior to the date hereof 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.
h. Absence of Certain Changes.
Since the date of the latest financial statements included in the SEC reports: (i) there has been no event, occurrence or development
that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any
liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business
consistent with past practice and (B) liabilities not required to be reflected in the Company’s financial statements pursuant
to generally accepted accounting principles (“GAAP”) or disclosed in filings made with the SEC, (iii) the Company has
not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property
to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v)
the Company has not issued any equity securities to any officer, director or affiliate, except pursuant to existing Company equity
incentive plans. The Company does not have pending before the SEC any request for confidential treatment of information. Except
for the issuance of the Securities contemplated by this Agreement, no event, liability or development has occurred or exists with
respect to the Company or its Subsidiaries or their respective business, properties, operations or financial condition, that would
be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made
that has not been publicly disclosed at least one trading day prior to the date that this representation is made.
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); 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. Neither the Company nor any Subsidiary: (i) is in default under or in violation of (and no event has occurred that has
not been waived that, with notice or lapse of time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other material agreement or instrument to which it is a party or by which it or any
of its properties is bound (whether or not such default or violation has been waived), (ii) is in violation of any order of any
court, arbitrator or governmental body or (iii) is or has been in violation of any statute, rule or regulation of any governmental
authority, including without limitation all foreign, federal, state and local laws applicable to its business and all such laws
that affect the environment, except in each of the foregoing cases as could not have or reasonably be expected to result in a Material
Adverse Effect.
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 no Buyer is 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 any Buyer or any of
their 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 behalf of the Company or
such affiliate, will sell, offer for sale, or solicit offers to buy or otherwise negotiate with respect to any security (as defined
in the 1933 Act) which will be integrated with the sale of the securities in a manner which would require the registration of the
securities under the Securities Act of 1933, or require stockholder approval, under the rules and regulations of the trading market
for the common stock. The Company will take all action that is appropriate or necessary to assure that its offerings of other securities
will not be integrated for purposes of the Securities Act of 1933 or the rules and regulations of the trading market, with the
issuance of securities contemplated hereby.
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. In the prior four months to the date hereof, 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. 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 except such as are described in Schedule 3(t) 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.
u.
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. The Company
has provided to Buyer true and correct copies of all policies relating to directors’ and officers’ liability coverage,
errors and omissions coverage, and commercial general liability coverage.
v.
Internal Accounting Controls. Except as set forth in the SEC Reports, the Company is in material compliance with all provisions
of the Sarbanes-Oxley Act of 2002 which are applicable to it as of the Closing Date. The Company and the Subsidiaries maintain
a system of internal accounting controls sufficient 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 GAAP 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. The Company has
established disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed
such disclosure controls and procedures to ensure that information required to be disclosed by the Company in the reports it files
or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s
rules and forms. The Company’s certifying officers have evaluated the effectiveness of the Company’s disclosure controls
and procedures as of the end of the period covered by the Company’s most recently filed periodic report under the Exchange
Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under
the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based
on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no changes in the Company’s internal
control over financial reporting (as such term is defined in the Exchange Act) that has materially affected, or is reasonably likely
to materially affect, the Company’s internal control over financial reporting.
w.
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.
x.
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.
y. Application of Takeover Protections.
The Company and the Board of Directors have taken all necessary action, if any, in order to render inapplicable any control share
acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover
provision under the Company’s certificate of incorporation (or similar charter documents) or the laws of its state of incorporation
that is or could become applicable to the Buyer as a result of the Buyer and the Company fulfilling their obligations or exercising
their rights under the Transaction Documents, including without limitation as a result of the Company’s issuance of the Securities
and the Buyer’ ownership of the Securities.
z.
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.
aa. No Disagreements with Accountants
and Lawyers; Outstanding SEC Comments. There are no disagreements of any kind presently existing, or reasonably anticipated
by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company and
the Company is or immediately after the Closing Date will be current with respect to any fees owed to its accountants which could
affect the Company’s ability to perform any of its obligations under any of the Transaction Documents. There are no unresolved
comments or inquiries received by the Company or its Affiliates from the SEC which remain unresolved as of the date hereof.
bb. Bad Actor Disqualification.
(i) No Disqualification Events.
With respect to Securities to be offered and sold hereunder in reliance on Rule 506 under the Securities Act ("Regulation
D Securities"), none of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other
officer of the Company participating in the offering, any beneficial owner of 20% or more of the Company's outstanding voting equity
securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities
Act) connected with the Company in any capacity at the time of sale (each, an "Issuer Covered Person" and, together,
"Issuer Covered Persons") is subject to any of the "Bad Actor" disqualifications described in Rule 506(d)(1)(i)
to (viii) under the Securities Act (a "Disqualification Event"), except for a Disqualification Event covered by Rule
506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification
Event. The Company has complied, to the extent applicable, with its disclosure obligations under Rule 506(e), and has furnished
to the Placement Agent and the Purchaser a copy of any disclosures provided thereunder.
(ii) Other Covered Persons. The
Company is not aware of any person that (i) has been or will be paid (directly or indirectly) remuneration for solicitation of
Purchaser in connection with the sale of the Securities and (ii) who is subject to a Disqualification Event.
(iii) Notice of Disqualification
Events. The Company will notify the Purchaser in writing of (i) any Disqualification Event relating to any Issuer Covered Person
and (ii) any event that would, with the passage of time, become a Disqualification Event relating to any Issuer Covered Person,
prior to any Closing of this Offering.
cc.
Breach of Representations and Warranties by the Company. 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, it will be
considered an Event of default under Section 3.4 of the Note.
4.
COVENANTS.
a.
Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and
7 of this Agreement.
b.
Form D; Blue Sky Laws; Form 8-K. 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. The Company shall file a Current Report on Form 8-K disclosing this transaction not later than one business
day after the Closing Date.
c.
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 proposed definitive documentation to be entered into in connection therewith, 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 two (two) years 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) or (ii) 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.
d.
Expenses. At the Closing, the Company shall reimburse Buyer for 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, 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.
f.
Financial Information. Upon written request 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 two (2) 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.
g.
Authorization and Reservation of Shares. The Company shall at all times have authorized, and reserved for the purpose of
issuance, a sufficient number of shares of Common Stock to provide for the full conversion or exercise of the outstanding Note
and issuance of the Conversion Shares in connection therewith (based on the Conversion Price of the Note in effect from time to
time) and as otherwise required by the Note. The Company shall not reduce the number of shares of Common Stock reserved for issuance
upon conversion of Note without the consent of the Buyer. The Company shall at all times maintain the number of shares of Common
Stock so reserved for issuance at an amount (“Reserved Amount”) equal to five times the number that is then actually
issuable upon full conversion of the Note and any additional Notes (based on the Conversion Price of the Note in effect from time
to time). If at any time the number of shares of Common Stock authorized and reserved for issuance (“Authorized and Reserved
Shares”) is below the Reserved Amount, the Company will promptly take all corporate action necessary to authorize and reserve
a sufficient number of shares, including, without limitation, calling a special meeting of shareholders to authorize additional
shares to meet the Company’s obligations under this Section 4(g), in the case of an insufficient number of authorized shares,
obtain shareholder approval of an increase in such authorized number of shares, and voting the management shares of the Company
in favor of an increase in the authorized shares of the Company to ensure that the number of authorized shares is sufficient to
meet the Reserved Amount. If the Company fails to obtain such shareholder approval within thirty (30) days following the date on
which the number of Reserved Amount exceeds the Authorized and Reserved Shares, it will be considered an Event of default under
Section 3.4 of the Note.
h.
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 any 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 any Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the 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 American Stock Exchange (“AMEX”) 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 notices
it receives from the 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. If the market price of the Company’s
Common Stock shall at any time fall below the price required to continue to be quoted on the Company’s then principal exchange
or automated quotation system, the Company shall as soon as practicable take all actions necessary to effect a reverse split of
the Company’s Common Stock, such that the price would then be at least fifty percent (50%) above the required price, post-split.
If the Company fails to achieve the required reverse split within thirty (30) days following the date on which the price fell below
the required minimum trading price, it will be considered an Event of default under Section 3.4 of the Note.
i.
Corporate Existence. So long as a 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 OTCQB, Nasdaq, Nasdaq SmallCap, NYSE or AMEX.
j.
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.
k.
Breach of Covenants. 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.
l.
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. Notwithstanding anything contained herein and for the avoidance of any doubt, this covenant shall include the continued public
disclosure by the Company of the Company’s Common Stock in the public domain upon any material change in its shares outstanding.
m.
Trading Activities. Neither the Buyer nor their affiliates has an open short position in the common stock of the Company
and the Buyer agree that they shall not, and that they will cause their affiliates not to, engage in any short sales of or hedging
transactions with respect to the common stock of the Company.
n. Omitted Intentionally.
o. Non-Frustration of Purpose.
So long as the Buyer or its affiliates hold any Securities, neither the Company nor any of its affiliates or subsidiaries, nor
any of its or their respective officers, employees, directors, agents or other representatives, will effect, enter into, announce
or recommend to its stockholders any agreement, plan, arrangement or transaction the terms of which would or would reasonably be
expected to (i) have a material adverse effect on the Buyer’s investment in the Note or Conversion Shares or (ii) restrict,
delay, conflict with or impair the ability or right of the Company to timely perform its obligations under this Agreement or the
Notes, including, without limitation, the obligation of the Company to timely deliver shares of Common Stock to the
Buyer or its affiliates in accordance with this Agreement or the Note.
p. Restricted Transactions.
So long as any of the Securities being sold to the Buyer in this offering remain outstanding, including Conversion Shares, neither
the Company nor any of its affiliates or subsidiaries, nor any of its or their respective officers, employees, directors, agents
or other representatives, will, without the prior written consent of the Investor, directly or indirectly, solicit, accept, enter
into, announce, or otherwise cooperate in any way, assist or participate in or facilitate or encourage, any exchange (i) of any
security of the Company or any of its subsidiaries for any other security of the Company or any of its subsidiaries, except to
the extent (x) consummated pursuant to an exchange registered under a registration statement of the Company filed pursuant to the
1933 Act and declared effective by the SEC or (y) such exchange is exempt from registration pursuant to an exemption provided under
the 1933 Act (other than Section 3(a)(10) of the 1933 Act) or (ii) of any indebtedness or other securities of the Company or any
of its subsidiaries relying on the exemption provided by Section 3(a)(10) of the 1933 Act. Notwithstanding the foregoing or anything
contained herein to the contrary, neither the Company nor any of its affiliates or subsidiaries, nor any of its or their respective
officers, employees, directors, agents or other representatives, will, without the prior written consent of the Investor (which
consent may be withheld, delayed or conditioned in the Investor’s sole discretion), directly or indirectly, cooperate in
any way, assist or participate in, facilitate or encourage any effort or attempt by any third party to effect any acquisition of
securities of the Company by such third party from an existing holder of such securities in connection with a proposed exchange
of such securities of the Company (whether pursuant to Section 3(a)(9) or 3(a)(10) of the 1933 Act or otherwise)..
q. Omitted Intentionally.
r. Non-Public Information.
Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company
covenants and agrees that after the Closing Date neither it, nor any other person acting on its behalf, will provide Buyer or its
agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto
the Buyer shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands
and confirms that the Buyer shall be relying on the foregoing covenant in effecting transactions in securities of the Company.
Each Buyer acknowledges that it is aware that the United States securities laws prohibit any person who has material non-public
information about a company from purchasing or selling securities of such company, or from communicating such information to any
other person under circumstances in which it is reasonably foreseeable that such person is likely to purchase or sell such securities,
and the Buyer agrees not to engage in any unlawful trading in securities of the Company or unlawful misuse or misappropriation
of any such information. Buyer agrees to maintain the confidentiality of and not disclose or use (except for purposes relating
to the transactions contemplated by this Agreement) any confidential, proprietary or non-public information disclosed by the Company
to Buyer.
5.
Transfer Agent Instructions. The Company covenants and agrees that it will at all times while any Securities remain outstanding
maintain a duly qualified independent transfer agent. On or prior to the initial Closing Date, the Company shall provide a copy
of its agreement with the transfer agent to the Buyer. If a new transfer agent is appointed at any time, the Company shall provide
the Buyer with a copy of the new agreement within three (3) business days of its execution. 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 Exchange 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 5, 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 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 a Buyer provides the Company, at the cost of the Buyer, 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 5 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.
6.
Conditions to the Company’s Obligation to Exchange. The obligation of the Company hereunder to issue 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 Purchased Debt in accordance with Section 1 above.
c.
The representations and warranties of the applicable 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 applicable 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 applicable 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.
7.
Conditions to The Buyer’s Obligation to Exchange. The obligation of the Buyer hereunder to exchange the Note for the
Purchased Debt 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 duly executed Note (in such denominations as the Buyer shall request) in accordance
with Section 1 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, or in the sole discretion of Buyer, the transaction’s risk profile, market pricing or implied
volatility substantially changes, due diligence concerns arise, or any other conditions material to the successful closing of the
transaction are not acceptable to the Buyer.
g.
The Conversion Shares shall have been authorized for quotation on the OTCQB and trading in the Common Stock on the OTCQB or such
equivalent exchange and shall not have been suspended by the SEC or the OTCQB or such equivalent exchange.
h.
The Buyer shall have received an officer’s certificate described in Section 3(c) above, dated as of the Closing Date.
i.
The Buyer shall have received an opinion of counsel for the Company, in form and substance
satisfactory to the Buyer.
8.
Governing Law; Miscellaneous.
a.
Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without
regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated
by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county
of New York.
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. The Company and Buyer waive trial by jury. 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 agreement or document executed in connection with this transaction (each a “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.
IN ANY ACTION, SUIT, OR PROCEEDING IN ANY JURISDICTION
BROUGHT BY ANY PARTY AGAINST ANY OTHER PARTY, THE PARTIES EACH KNOWINGLY AND INTENTIONALLY, TO THE GREATEST EXTENT PERMITTED BY
APPLICABLE LAW, HEREBY ABSOLUTELY, UNCONDITIONALLY, IRREVOCABLY AND EXPRESSLY WAIVES FOREVER TRIAL BY JURY.
b.
Counterparts; Signatures by Facsimile. This Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party
and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any
signature is delivered by facsimile transmission or by e-mail delivery of a “.pdf” format data file, such signature
shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same
force and effect as if such facsimile or “.pdf” signature page were an original thereof.
c.
Headings. 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. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction
to be invalid, illegal, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions set forth herein
shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use
their commercially reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result
as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention
of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any
of such that may be hereafter declared invalid, illegal, void or unenforceable.
e.
Entire Agreement; Amendments. This Agreement 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, 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 Company, to: |
|
WELL POWER, INC. |
|
11111 KATY FREEWAY SUITE #910 |
|
HOUSTON, TX 77079 |
|
Attn: Cristan Neagoe, CEO, CTO |
|
|
|
|
|
If to the Buyer: |
|
Magna Equities I, LLC |
|
5 Hanover Square |
|
New York, NY 10004 |
|
Attn: Joshua Sason, Managing Member |
|
facsimile: 646-737-9948 |
|
|
|
|
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 any 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), any Buyer may assign its rights hereunder
to any person that purchases Securities in a private transaction from a 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.
i.
Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement
shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The
Company agrees to indemnify and hold harmless each of 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.
Publicity. The Company, and each of 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 each 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 each of 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).
k.
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.
l.
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.
m.
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.
n. Rescission and Withdrawal
Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) any of the other
Transaction Documents, whenever Buyer exercises a right, election, demand or option under a Transaction Document and the Company
does not timely perform its related obligations within the periods therein provided, then the Buyer may rescind or withdraw, in
its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in
part without prejudice to its future actions and rights; provided, however, that in the case of a rescission of a
conversion of a Note, the Buyer shall be required to return any shares of Common Stock subject to any such rescinded conversion
or exercise notice.
o. Usury. To the extent
it may lawfully do so, the Company hereby agrees not to insist upon or plead or in any manner whatsoever claim, and will resist
any and all efforts to be compelled to take the benefit or advantage of, usury laws wherever enacted, now or at any time hereafter
in force, in connection with any claim, action or proceeding that may be brought by Buyer in order to enforce any right or remedy
under any Transaction Document. Notwithstanding any provision to the contrary contained in any Transaction Document, it is expressly
agreed and provided that the total liability of the Company under the Transaction Documents for payments in the nature of interest
shall not exceed the maximum lawful rate authorized under applicable law (the “Maximum Rate”), and, without
limiting the foregoing, in no event shall any rate of interest or default interest, or both of them, when aggregated with any other
sums in the nature of interest that the Company may be obligated to pay under the Transaction Documents exceed such Maximum Rate.
It is agreed that if the maximum contract rate of interest allowed by law and applicable to the Transaction Documents is increased
or decreased by statute or any official governmental action subsequent to the date hereof, the new maximum contract rate of interest
allowed by law will be the Maximum Rate applicable to the Transaction Documents from the effective date forward, unless such application
is precluded by applicable law. If under any circumstances whatsoever, interest in excess of the Maximum Rate is paid by the Company
to Buyer with respect to indebtedness evidenced by the Transaction Documents, such excess shall be applied by the Buyer to the
unpaid principal balance of any such indebtedness or be refunded to the Company, the manner of handling such excess to be at the
Buyer’s election.
IN WITNESS WHEREOF, the undersigned
Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
WELL POWER, INC. |
|
By: /s/ Cristan Neagoe |
Cristan Neagoe |
CEO, CTO |
|
MAGNA EQUITIES I, LLC |
|
|
By: /s/ Joshua Sason |
Joshua Sason |
Managing Member |
5 Hanover Square
New York, NY 10004
AGGREGATE EXCHANGE AMOUNT: |
|
|
|
Aggregate Principal Amount of Note: |
|
$121,000 |
|
Aggregate Amount of Purchased Debt: |
|
$121,000 |
|
NEITHER
THE ISSUANCE
NOR 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 EFFECTNE 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 (ll) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.
NOTWITHSTANDING THE FOREGOING, THE SECURJTIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOU NT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.
Principal
Amount: $121,000
Purchase
Price: $121,000 |
Issue
Date: March
2, 2015
|
CONVERTIBLE
PROMISSORY NOTE
FOR
VALU E RECEIVED,
WELL POWER, INC.,
a NEVADA
corporation (hereinafter
called the "Borrower"), hereby
promises to pay to the order of
MAGNA EQUITIES I, LLC, a New York corporation, or registered assigns (the "Holder")
the sum of One Hundred Twenty One Thousand
Dollars ($12 I ,000), on March 2, 2016 (the "Maturity Date"), and to pay
interest on the unpaid principal balance
hereof at the rate of twelve percent (12%) (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, compounded on
a monthly basis.
This Note may not be prepaid in
whole or in part except as otherwise explicitly set forth in Section
1.9 hereof. Any amount of principal or interest on this
Note which is not paid when due shall bear interest at the rate
of twenty two percent (22%) per
annum from the due date thereof until the
same is paid ("Default Interest"). Interest shall commence accruing on
the Issue Date, shall be computed on the basis of a 365-day year and the actual
number of days elapsed. All payments due
hereunder (to the extent not converted into common
stock, (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
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
Exchange Agreement dated the date hereof, pursuant to which this Note was originally
issued (the "Exchange Agreement").
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 during
the period beginning on the date of
this Note 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 l.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 (the "Conversion Price") 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 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 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 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 Borrower'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 Company shall
have the right to pay any or
all interest in cash plus (3) at the Borrower' s option, Default Interest, if any,
on the amounts referred to in the immediately
preceding clauses (I) and/or (2) (4) at the Holder 's option, any amounts owed to
the Holder pursuant to Sections 1.3 and l.4(g) hereof.
The
Holder agrees, unless
otherwise mutually agreed
upon,
that the Holder
shall not sell
Common Shares received through conversion
of the Note,
in any one given Trading
day, that in
aggregate shall sum to more
than the greater of i) $4,000
or ii) 20% of the specific Trading
Day's number of common shares traded on the applicable
trading market.
1.2
Conversion Price.
(a)
Calculation of
Conversion Price. The
conversion price
(the "Conversion
Price") shall be
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 the lower
of i)
a 40% discount from the lowest daily VWAP
in the ten (10) Trading Days prior to
conversion and ii) $0.04. "Trading Price"
means, for any security as of any
date, the lowest trading price on the Over-the-Counter Bulletin Board, or
applicable trading market
(the "OTCQB") as reported by
a reliable reporting service ("Reporting Service") mutually acceptable to
Borrower and Holder (i.e. Bloomberg). I
f 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 traded for any period on the OTCQB,
or on the principal securities exchange or other securities
market on which the Common Stock is then being traded. If the Issuer's Common
stock is chilled for deposit at DTC and/or becomes
chilled at any point while this Agreement remains outstanding,
an additional 8% discount
will be attributed to the Conversion Price
defined hereof. If the Borrower is unable
to issue any shares under this provision due
to the fact that there is
an insufficient number of authorized and unissued shares
available, the Holder promises not to force the Borrower to issue these shares or trigger an Event of Default, provided
that Borrower takes immediate steps required to get the appropriate level of
approval from shareholders or the board of directors, where applicable to raise
the number of authorized shares to
satisfy the Notice of Conversion.
(b)
Conversion Price
During Major Announcements.
Notwithstanding anything
contained in
Section I.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
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 I.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 l.2(b) to
become operative.
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 Exchange
Agreement. The Borrower is required
at all times to have authorized and reserved
five 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
obligation s pursuant
to Section 4(g) of the Exchange Agreement. Commencing on
the expiration of
the first month from the issue
date of this Note, the Reserved
Amount shall be recalculated each
month based upon the Variable
Conversion Price and the Company shall notify
the Transfer Agent and the Holder
in writing by the
fifth day of the following month
of the
new Reserved Amount. In the event
the Company does not notify the Transfer Agent
of the new Reserved Amount in a
timely manner,
the
Holder shall have
the absolute
right to
notify the Transfer Agent,
without any further action by the
Company. Notwithstanding
the foregoing, in no event
shall the
Reserved Amount be lower than
the initial Reserved Amount,
regardless of any prior conversions.
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.
If,
at any
time the Borrower
does not
maintain
the Reserved Amount it will be
considered an Event of Default under Section 3.2 of the Note.
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
6:00, New York, New York time) and (B) subject to Section l.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 with in three (3) business days after such
receipt ( but in any event the fifth (5th) business day being hereinafter referred to as
the "Deadline") (and, solely
in the case of conversion of the entire
unpaid principal amount hereof, surrender
of the this Note) in accordance with the terms hereof and the Exchange Agreement.
(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 jud gment
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, l imitation
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 6:00 p.m., New York, New
York time, on such
date.
(t) De
livery of Common Stock
by Electronic Transfer.
In lieu
of delivering physical
certificates representing the
Common Stock issuable upon
conversion, provided the Borrower's
transfer agent is participating in the
Depository Trust Company ("OTC")
Fast Automated Securities Transfer ("FAST')
program, upon request of the Holder and its compliance
with the provisions contained in Section
I .I and in this Section
1.4, the Borrower shall use its
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 OTC through its Deposit Withdrawal Agent Commission ("DWAC")
system.
(g) Failure
to Deliver Common
Stock Prior to
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. 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
th is 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 l.4(g) are
justified.
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 Exchange Agreement).
Except as otherwise provided
in the Exchange 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:
"NEITHER
THE ISSUA NCE
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 ACCOU NT 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 accepted by the Company 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
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 Ru le 144 or Regulations 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 l.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
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 I.6(b) unless 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 sim ilar 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 l.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 bolder
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, any shares of Common
Stock for no consideration or for a consideration per share (before deduction
of reasonable expenses or commissions or
underwriting discounts or allowances in
connection therewith) less
than the Conversion Price in effect on
the date of such issuance (or deemed issuance) of such shares of Common
Stock (a "Dilutive Issuance"), then immediately upon the
Dilutive Issuance, the Conversion
Price will be reduced to the amount of the
consideration per share
received by the Borrower in such
Dilutive Issuance, but in no
event shall the Conversion
Price be above the
original Conversion Price.
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 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 of 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
Trading Market
Limitations. Unless permitted
by the applicable
rules and regulations
of the principal securities
market on which
the Common Stock
is then listed or traded,
in no event shall the Borrower issue upon
conversion of or otherwise pursuant to
this Note and the other Notes issued pursuant
to the Exchange Agreement
more than the maximum number of shares
of Common Stock that the Borrower can issue pursuant to any rule of the principal United States
securities market on which the Common
Stock is then traded (the "Maxim um
Share Amount''), which shall be 9.99% of
the total shares outstanding on the Closing Date
(as defined in the Exchange
Agreement), subject to equitable adjustment
from time to time for stock
splits, stock dividends, combinations,
capital reorganizations and
similar events relating to the Common Stock
occurring after the date hereof. Once the
Maximum Share Amount has been issued, if
the Borrower fails to eliminate any prohibitions
under applicable law or the rules or
regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction
over the Borrower or any of its securities on the Borrower's ability
to issue shares of Common Stock in excess of the Maximum Share
Amount, in lieu of any further right
to convert this Note, this will
be considered an Event of Default under
Section 3.3 of the Note.
1.8
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, so
long as the
Borrower has not
received a Notice of
Conversion from the Holder, then
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
to prepay the outstanding Note (principal and accrued interest), in
full, in accordance
with this Section 1.9. Any notice of prepayment hereunder (an "Optional
Prepayment Notice") shall be delivered
to the Holder of the Note
at its registered address 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 Optional Prepayment Amount (as defined below) 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 exercises its right to prepay the Note, the Borrower shall make
payment to the Holder of an amount in cash (the "Optional
Prepayment Amount") equal to 150%,
multiplied by the sum of: (w)
the then outstanding principal amount of
this Note (x) accrued and unpaid interest on the unpaid principal amount of
this Note to the Optional Prepayment
Date plus (y)
Default Interest, if any, on the amounts referred to in clauses (w) and
(x) plus
(z) any amounts owed to the Holder pursuant
to Sections 1.3 and 1.4(g)
hereof. If the Borrower delivers and
Optional Prepayment Notice and fails to
pay the Optional Prepayment Amount due to the
Holder of the Note within two (2)
business days following
the Optional Prepayment Date, the Borrower shall forever forfeit
its right to prepay the Note pursuant
to this Section 1.9.
ARTICLE
II. CERTAIN COVENANTS
2.1 Negative
Covenants As long
as any portion
of this
Note remains outstanding,
unless the holders of all
of the outstanding Notes shall
have otherwise given prior written consent,
the Borrower shall not, and shall not permit
any of its subsidiaries
(whether or not a subsidiary on
the Issue Date) to, directly or indirectly:
(a)
other than
indebtedness existing
as of the
Initial Date or
incurred in the
ordinary course of
business for trade expenses
(not borrowed money) ("Permitted
Indebtedness"), enter into, create,
incur, assume, guarantee or suffer to
exjst any indebtedness for borrowed money
of any kind, including, but not
limited to, a guarantee, on or with respect
to any of its property or assets now owned
or hereafter acquired or any interest therein or any income or profits therefrom,
which indebtedness shall
be senior is respect
to security to this Note;
(b)
other than
Permitted Liens (as
defined below), enter
into, create, incur,
assume or suffer
to exist any
liens,
charges or encumbrances of any kind or nature
("Liens"), on or with
respect to any of its property or assets
now owned or hereafter acquired
or any interest therein or any
income or profits therefrom . "Permitted Lien" means
the individual and collective reference
to the following: (a) Liens
for taxes, assessments and
other governmental charges or levies
not yet due or Liens
for taxes, assessments and
other governmental charges or levies being contested in good faith and by appropriate proceedings for which
adequate reserves (in the good
faith judgment of the management of the
Borrower) have been established in accordance
with GAAP; (b) Liens
imposed by
law which were incurred in the ordinary
course of the Borrower 's business, such as carriers',
warehousemen 's and mechanics' Liens, statutory
landlords' Liens, and
other similar Liens
arising in the ordinary course
of the Borrower's business, and which (x) do
not individually or
in the aggregate
materially detract from the value
of such property or
assets or materially impair the use
thereof in the operation of the business
of the Borrower and its consolidated
subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing for the foreseeable
future the forfeiture or sale of the property or asset subject to
such Lien; (c) Liens incurred in connection
with Permitted Indebtedness under clauses
(a), and (b) thereunder; and
(d) Liens incurred in connection with Permitted Indebtedness under
clause (c) thereunder, provided that such
Liens are not secured by assets
of the Borrower or its
subsidiaries other than the assets
so acquired or
leased.
(c)
amend its
charter documents, including, without
limitation , its
certificate of incorporation
and bylaws, in
any manner that
materially and adversely affects any rights of the Holder;
(d)
repay, repurchase
or offer to
repay, repurchase
or otherwise acquire more
than a de
minimis number
of shares of
its Common Stock or Common
Stock equivalents;
(e)
repay, repurchase
or offer to
repay, repurchase
or otherwise acquire
any indebtedness, other
than the Notes
if on a
pro-rata basis, other
than regularly scheduled principal and interest payments as
such terms are in
effect as of the Issue Date, provided
that such payments shall not be permitted
if, at such time, or after giving effect
to such payment, any Event of Default
exist or occur;
(f)
pay cash
dividends or distributions
on any equity
securities of the
Borrower;
(g)
sell, lease
or otherwise dispose
of any portion
of its
assets outside the
ordinary course of business, other
than de minimis sales. Any consent to the disposition of any assets
may be conditioned on a specified use
of the proceeds of disposition ;
(h)
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 $1,000;
(i) enter into any transaction with any affiliate of the Borrower which would be required to be disclosed
in any public filing with the Commission, unless such transaction is made on an arm's
length basis and expressly approved
by a majority of the disinterested
directors of the Borrower (even if
less than a quorum otherwise required for
board approval); or
(j) enter
into any agreement with
respect to any
of the foregoing.
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
fails to issue
shares of Common
Stock to the
Holder (or allowances 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, 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, the Borrower directs its
transfer agent not to transfer or delays,
impairs, and/or hinders its transfer
agent in transferring (or issuing( electronically
or in certificated form) any
certificate for shares of
Common Stock to be issued to the Holder
upon conversion of or otherwise pursuant to this
Note as and when required by this
Note, or fails to remove (
or directs its transfer agent not
to remove or impairs, delays, and/or hinders
its transfer agent from removing) 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.
3.3
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
Exchange Agreement and such breach continues
for a period of ten
(10) days after written notice
thereof to the Borrower from the
Holder;
3.4
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 hereto or in connection herewith
(including, without l imitation, the Exchange 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 Exchange Agreement;
3.5
Bankruptcy, Receiver or
Trustee. The Borrower
or any subsidiary
of the
Borrower shall commence,
or there shall be commenced against the Borrower or any subsidiary
of the Borrower under any applicable
bankruptcy or insolvency laws as now or hereafter in effect or
any successor thereto, or the Borrower
or any subsidiary of the Borrower commences
any other
proceeding under any reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or
liquidation or similar
law of any jurisdiction whether
now or hereafter in effect
relating to the Borrower
or any subsidiary of
the Borrower or there is
commenced against the Borrower or
any subsidiary of the Borrower
any such bankruptcy, insolvency or other
proceeding which remains undismissed for a
period of 61 days; or the Borrower
or any subsidiary of
the Borrower is
adjudicated insolvent or bankrupt;
or any order of relief or other order approving
any such case or proceeding is entered;
or the Borrower or any subsidiary of the Borrower suffers any
appointment of any custodian,
private or court appointed receiver or
the like for it or any
substantial part of its property which
continues undischarged
or unstayed for a period of sixty one (61) days; or the Borrower or any subsidiary
of the Borrower
makes a general assignment for the
benefit of creditors; or the Borrower
or any subsidiary of the Borrower
shall fail to pay, or shall
state that it is unable to pay, or
shall be unable to pay, its debts generally as they become
due; or the
Borrower or any subsidiary of
the Borrower shall call
a meeting of its creditors with a view to arranging
a composition, adjustment or restructuring of its debts; or the Borrower or any subsidiary
of the Borrower shall by any act or
failure to act expressly indicate its consent
to, approval of or acquiescence in any
of the foregoing; or any
corporate or other action is taken by
the Borrower or any subsidiary of the Borrower for the purpose of
effecting any of the foregoing;
3.6
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;
3.7
Indebtedness Default.
The Borrower or
any subsidiary of
the Borrower shall
default
in any of its obligations under any
other Note or any mortgage, credit agreement or other facility,
indenture agreement, factoring agreement or other instrument
under which there may be issued, or
by which there may be
secured or evidenced any indebtedness for borrowed
money or money due under any long
term leasing or factoring arrangement of
the Borrower or any subsidiary of the Borrower
in an amount exceeding $25,000, whether such
indebtedness now exists or shall hereafter
be created and such default shall result in such
indebtedness becoming
or being declared due
and payable prior to the date on
which it would otherwise become due and payable;
3.8
Delisting of Common
Stock; OTC
Chill.
The Borrower shall
fail to
maintain the listing
of the Common Stock on at
least one of the OTCQB
or an equivalent
replacement exchange, the Nasdaq National
Market, the Nasdaq SmaUCap
Market, the New York
Stock Exchange, or the American
Stock Exchange or there
shall be no bid price for the stock for a period of one business
day OR the Depository Trust Company places a chill on new deposits
of Common Stock, which is not removed within ten
(10) trading days;
3.9
Failure to Comply
with the Exchange
Act. The Borrower
shall fail
to comply
with the reporting requirements of
the Exchange Act; and/or the Borrower shall cease to be subject to the reporting
requirements of the Exchange Act.
3.10
Liquidation. Any dissolution,
Liquidation, or winding
up of Borrower
or any substantial
portion of its business.
3.11
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.
3.12
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).
3.13
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 Exchange Agreement.
3.14
Reverse Splits. The Borrower
effectuates a reverse
split
of its Common
Stock without twenty
(20) days prior
written notice to
the Holder.
3.15
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, fully executed Irrevocable
Transfer Agent
Instructions in a form as initially
delivered pursuant to the Exchange Agreement
(including but not limited
to the provision to irrevocable reserve shares of Common Stock in the Reserved
Amount) signed by the successor transfer agent to Holder and
the Borrower.
3.16
Failure to Pay
Post-Closing Expenses. The
failure by Borrower
to pay any
and all Post-Closing
Expenses as defined
in section 4.6.
3.17
Delisting. From and after
the initial trading,
listing or quotation
of the Common
Stock on a
Principal Market,
an event resulting in the Common
Stock no longer being traded, listed
or quoted on a Principal Market; failure
to comply with the requirements for continued quotation on a Principal
Market; or notification from a Principal Market
that the Borrower is not in compliance
with the conditions
for such continued quotation
and such non-compliance continues for seven
(7) trading days following such notification.
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,
after the passage of all applicable notice and cure or grace periods,
shall, at the option of the Borrower,
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, including, without limitation,
promissory notes; provided , however, the term "Other Agreements" shall
not include the related or
companion documents to this Note.
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
Consecutive Late Filings.
If the Company
files a
late notification (NT
10-Q or NT
10-K) for any quarterly or annual
report for any
two (2) consecutive periods.
Upon
the occurrence and
during the continuation
of any Event
of Default specified
in Section 3.1
(solely with
respect to failure
to pay the principal hereof or interest thereon when due at the Maturity Date),
the Note shall become immediately due and payable and the Borrower shall
pay to the Holder, in full satisfaction of its
obligations hereunder, an amount
equal to the Default Sum (as defined
herein). UPON THE OCCURRENCE AND DURING THE CONTJNUATION OF ANY EVENT OF DEFAULT
SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN
FULL SATISFACTION OF ITS OBLIGTATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT
SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during
the continuation of any Event of Default specified in Sections 3.1 (solely
with respect to failure to pay the
principal hereof or interest thereon
when due
on this Note upon a Trading Market
Prepayment Event pursuant to Section
1.7 or upon acceleration), 3.3,
3.4, 3.6, 3.8, 3.9,
3.11, 3.12, 3.13, 3.14, 3.15,
3.16, 3.17, 3.18, 3.19, and/or 3.20 exercisable through the delivery
of written notice to the Borrower by such Holders
(the "Default Not ice"), and
upon the occurrence of an Event of Default specified in the remaining sections of
Articles III (other than failure to pay
the principal hereof or interest thereon at the Maturity
Date specified in Section 3.1
hereof), the Note shall
become immediately due and payable
and the Borrower shall pay to the Holder,
in full satisfaction of its obligations
hereunder, an amount equal to the greater
of (i) 150% 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 l .4(g) hereof (the then outstanding
principal amount of th.is Note to the date of payment plus the amounts referred to in clauses (x),
(y) and (z) shall collectively
be known as the "Default Sum")
or (ii) the "parity value" of the Default Sum
to be prepaid,
where parity
value means
(a) the highest
number of shares of Common Stock issuable
upon conversion of or otherwise pursuant to such Default Sum in accordance
with Article II 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 such
breach in respect of a specific Conversion Date in which
case such Conversion Date shall be the Conversion
Date, multiplied by (b) the highest Closing Price for the Common Stock during
the period beginning on the date of first occurrence of
the Event of
Default and ending
one day prior to the
Mandatory Prepayment Date (the "Default Amount") and all other amounts
payable hereunder shall immediately become due and payable, all without demand,
presentment or notice, all of which
hereby are expressly waived,
together with all costs, including, without limitation,
legal fees
and expenses, of collection, and the Holder shall be entitled to exercise all
other rights and remedies available at low or in
equity.
If
the Borrower fails
to pay the
Default
Amount within five
(5) business
days of written
notice that such amount is due and
payable , then the Holder shall
have the right at any time,
so long as
the Borrower remains in default (and so
long and to the extent that there are sufficient authorized shares), to require
the Borrower,
upon written notice, to immediately
issue, in lieu of the Default
Amount, the number
of shares of Common Stock of the Borrower equal
to the Default Amount divided by the
Conversion Price then in effect.
ARTICLE
IV. MISCELLANEOUS
4.1
Fai lure
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:
WELL
POWER, INC.
11111 KATY FREEWAY SUITE #9 10
HOUSTON,
TX 77079
Attn:
Mr. Dan Patience,
President, CFO
If
to the Holder:
MAGNA
EQUITIES I, LLC
5
HANOVER SQUARE NEW YORK,
NY I 0004
Attn:
Joshua
Sason, Managing
Member
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 Exchange 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
th is Note must
be an "accredited investor" (as
defined in Rule 50l(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.
4.5
Cost of
Collection. If default is
made in the
payment of this
Note, the Borrower
shall pay the
Holder hereof costs of collection,
including reasonable attorneys' fees.
4.6
Post-Closing Expenses.
The Issuer
will bear any
and all miscellaneous
expenses that may
arise as a
result of this Agreement post-closing.
These expenses include, but are not limited
to, the cost of legal opinion production,
transfer agent fees, equity
issuance fees, etc.
The failure
to pay any and all Post-Closing
Expenses will be deemed a default as described
in Section 2.6.10 herein.
4.6 Governing
Law. This Note
shall
be governed by
and construed in
accordance with
the laws of
the State of New York without regard
to principles of conflicts of laws. Any
action brought by either party against
the other concerning the transactions
contemplated by
this Note shall be brought only
in the state courts
of New York or in the
federal courts located in the state and county of
New York. 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 uponforum
non conveniens. The Borrower and
Holder waive trial by jury. 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 Jaw, 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
Exchange Agreement.
By its
acceptance of this
Note, each party
agrees
to be bound by the applicable
terms of the Exchange 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 material s 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 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.
4.10
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.
4.11
Severability. If
any provision
of this Note
is
invalid,
illegal or unenforceable,
the balance of
this Note shall remain in effect,
and if any provision is inapplicable
to any person or circumstance,
it shall
nevertheless remain applicable
to all other persons and circumstances.
If it shall be found that any interest
or other amount deemed interest
due hereunder shall violate applicable
laws govern ing usury, the applicable
rate of interest
due hereunder
shall
automatically be lowered to equal the
maximum permitted rate of interest.
The Borrower covenants (to the extent that it may lawfully do so) that it
shall not
at any time insist upon, plead,
or in any manner whatsoever claim
or take the benefit or advantage
of, any stay, extension or usury law
or other law which
would prohibit or forgive the Borrower from paying all
or any portion of the principal of or
interest on this
Note as contemplated
herein, wherever enacted, now or at
any time hereafter in force, or
which may affect the covenants or the
performance of this indenture, and
the Borrower (to the
extent it may lawfully
do so) hereby expressly waives
all
benefits or advantage of any
such law, and covenants that it
will not, by resort to any such
law, hinder, delay
or impeded
the execution of any power herein
granted to the Holder, but will
suffer and permit
the execution of every such
as though no such law has been
enacted.
(Signature
Pages Follow)
IN
WITNESS WHEREOF,
Borrower has caused
this Note
to be
signed in its
name
by its duly authorized officer
this March
2, 20 15.
WELL
POWER, INC.
/s/
Dan Patience
Dan
Patience, President,
CFO
Exhibit
A.
NOTICE
OF CONVERSION
The
undersigned hereby elects to convert $_________ of the principal amount of the Note (defined below) into Shares of Common Stock
of WELL POWER, INC., a(n) NEVADA Corporation (the "Borrower") according to the conditions of the Convertible Note of
the Borrower dated as of March 2, 20 15 (the "Note"). No fee will be charged to the Holder or Holder's Custodian 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 Agent Commission 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:
Magna Equities
I, LLC
EIN #: 45-2043511
Date of
Conversion: _________
Conversion
Price: _________
Shares to
Be Delivered: _________
Remaining
Principal Balance Due
After This
Conversion: _________
Signature
_________
Print Name:
Joshua Sason
FORM
OF LEGAL OPINION
1.
The Company is a corporation duly organized, validly existing and in good standing under the laws of [_________]. The Company
has all requisite power and authority, and all material governmental licenses, authorizations, consents and approvals, that are
required to own and operate its properties and assets and to carry on its business as now conducted and as proposed to be conducted
(all as described in the Company's filings with the SEC). The Company is duly qualified to transact business and is in good standing
in each jurisdiction in which the failure to qualify could have a Material Adverse Effect on the Company.
2.
Each of the following subsidiaries of the Company (the "Subsidiaries") is a corporation, duly organized and in good
standing under the laws of its state of organization, as noted: [_________].
3.
The Company has all requisite power and authority (i) to execute, deliver and perform the Transaction Documents, (ii) to issue,
sell and deliver the Notes, and the Underlying Shares pursuant to the Transaction Documents and (iii) to carry out and perform
its obligations under, and to consummate the transactions contemplated by, tbe Transaction Documents.
4.
All action on the part of the Company, its directors and its stockholders necessary for the authorization, execution and delivery
by the Company of the Transaction Documents, the authorization, issuance, sale and delivery of the Notes pursuant to the Agreement,
the issuance and delivery the Underlying Shares and the consummation by the Company of the transactions contemplated by the Transaction
Documents bas been duly taken. The Transaction Documents have been duly and validly executed and delivered by the Company and
constitute the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with their terms,
except that (a) such enforceability may be limited by bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights in general and (b) the remedies of specific performance and injunctive and other forms of injunctive relief
may be subject to equitable defenses.
5.
To our knowledge, the Company has filed all reports (the "SEC Reports") required to be filed by it under Sections I
3(a) and l5(d) of the Exchange Act of 1934, as amended (the "Exchange Act"). As of their respective filing dates, the
SEC Reports complied in all material respects as to form with the requirements of the Exchange Act and the rules and regulations
of the Commission promulgated thereunder.
6.
Based in part upon the representations of the Purchasers contained in the Agreement, the Notes and the Underlying Shares may be
issued to the Purchasers without registration under the Securities Act of 1933, as amended.
7.
The execution, delivery and performance by the Company of, and the compliance by the Company with the terms of, the Transaction
Documents and the issuance, sale and delivery of the Notes and the Underlying Shares pursuant to the Agreement do not (a) conflict
with or result in a violation of any provision of law, rule or regulation applicable to the Company or its Subsidiaries or of
the certificate of incorporation or by-laws or other similar organizational documents of the Company or its Subsidiaries, (b)
conflict with, result in a breach of or constitute a default (or an event which with notice or lapse of time or both would become
a default) under, or result in or permit the termination or modification of, any agreement, instrument, order, writ, judgment
or decree known to us to which the Company of its Subsidiaries is a party or is subject or (c) result in the creation or imposition
of any lien, claim or encumbrance on any of the assets or properties of the Company or its Subsidiaries.
8.
To our knowledge, except as set forth in the Agreement, there is no claim, action, suit, proceeding, arbitration , investigation
or inquiry, pending or threatened, before any court or governmental or administrative body or agency, or any private arbitration
tribunal, against the Company or its Subsidiaries, or any of the officers, directors or employees (in connection with the discharge
of their duties as officers, directors and employees) of the Company or its Subsidiaries, or affecting any of its properties or
assets.
9.
In connection with the valid execution, delivery and performance by the Company of the Transaction Documents, or the offer, sale,
issuance or delivery of the Notes and the Underlying Shares or the consummation of the transactions contemplated thereby, no consent,
license, permit, waiver, approval or authorization of, or designation, declaration, registration or filing with, any court, governmental
or regulatory authority, or self-regulatory organization, is required.