Attached files
Exhibit 4.3
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: $9,250 Issue Date: August 29, 2014
Purchase Price: $9,250
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, TUNGSTEN CORP., 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
Nine Thousand Two Hundred Fifty Dollars ($9,250), on August 29, 2015 (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:
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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 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
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 a 35% Discount from the Lowest Trading Price in the Three (3) Trading
Days prior to the day that the Holder requests conversion. "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 of directors, where applicable to raise the number of authorized shares to
satisfy the Notice of Conversion.
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(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
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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
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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
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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
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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
7
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 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
8
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
9
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.
10
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
11
(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 OBLIGTAIONS 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:
12
If to the Borrower, to:
TUNGSTEN CORP.
1671 SW 105 LANE
DAVIE, FL 33324
Attn: Mr. Guy Martin, CEO
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.
13
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)
14
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name
by its duly authorized officer this August 29, 2014.
TUNGSTEN CORP.
By: ________________________________
Guy Martin, CEO
15
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 TUNGSTEN
CORP., a(n) NEVADA Corporation (the "BORROWER") according to the conditions of
the Convertible Note of the Borrower dated as of August 29, 2014 (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
------------------------------------
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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, the 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 has 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 13(a) and 15(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.
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