THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
THIS NOTE IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 3 OF
THIS NOTE.

HIGHLAND BUSINESS SERVICES, INC.

Convertible Promissory Note Due December 31, 2011

 

 

 

 

 

 

$450,000.00

 

August 1, 2011

  

For value received, Highland Business Services, Inc., a Nevada corporation (the
"Company"), for value received, hereby promises to pay to John P. Norton,
Trustee of The Norton Family Living Trust (the "Lender" or “Holder”), or
registered assigns, the principal sum of Four Hundred Fifty Thousand Dollars
($450,000.00) on or before December 31, 2011 (the "Maturity Date"), along with
interest at the rate of 0.37% per annum, such interest to be due and payable on
the Maturity Date, in each such case subject to earlier conversion pursuant to
the provisions of Section 2 of this Note.  

 

1. Terms. For value received, the Company hereby absolutely and unconditionally
promises to pay to the order of Lender, on or before the Maturity Date, the
principal sum of Four Hundred Fifty Thousand Dollars ($450,000) along with
interest at the rate of 0.37% per annum, such interest to be due and payable on
the Maturity Date, in each such case subject to earlier conversion pursuant to
the provisions of Section 2 of this Note.  Interest shall be computed on the
basis of the actual number of days elapsed divided by 360. Principal and
interest shall be payable in lawful money of the United States of America, at
the address of the Lender set forth herein or at such other place as the Lender
may have designated from time to time in writing to the Company.

2. Conversion. This Note shall be subject to conversion as set forth below:

(a)

Optional Conversion.  The Company shall have the right, at its option, to
convert the entire outstanding principal amount of this Note and accrued
interest thereon into fully-paid and non-assessable shares of Common Stock,
$0.001 par value per share ("Common Stock"), of the Company at the Conversion
Price, at any time before the Maturity Date by providing five (5) days’ notice
to Lender.  The "Conversion Price" shall be determined by the fourteen (14) day
average closing price based on the Company’s notice of conversion to Lender.
Upon such conversion, subject to the provisions of Section 2(c) below, the
Holder of this Note shall be entitled to a number of shares of Common Stock
determined by dividing (x) the then outstanding principal amount of this Note
and accrued interest thereon by (y) the Conversion Price. In order to finalize
the Company’s exercise of this optional conversion, Lender shall surrender this
Note to the Company during usual business hours at the Company's principal
executive office in exchange for delivery to Lender of the Common Stock
certificate. A partial optional conversion of this Note shall not be permitted.
Consistent with Rule 144(d), in the event of a conversion at Company’s

 option, Holder’s holding period for the Note can be tacked on to satisfy the
six (6) month restriction on Company’s common stock.

(b)

Mechanics of Conversion.

i.

As promptly as practicable after the surrender of this Note for conversion, the
Company shall deliver or cause to be delivered at its principal executive office
to the Holder, or on the Holder's written order, a certificate or certificates
for the number of full shares issuable upon the conversion of this Note in
accordance with the provisions hereof.

ii.

Immediately upon delivery of the certificate or certificates representing the
capital stock to Holder, this Note shall no longer be deemed to be outstanding
and all rights with respect to this Note shall immediately cease and terminate
and the Note shall be cancelled.

(c)

Fractional Shares. No fractional shares of capital stock shall be issuable upon
conversion of this Note. In lieu of any fractional shares to which the Holder
would otherwise be entitled, the Company shall pay cash equal to such fraction
multiplied by the Conversion Price.

3. Requirements for Transfer.

(a)

This Note shall not be assigned or transferred, voluntarily or by operation of
law, unless expressly authorized by the Company in a writing for that specific
purpose. Any attempted assignment or transfer not in direct compliance herewith
shall be void.

4. Prepayment of Principal. The principal indebtedness represented by this Note,
together with all unpaid accrued interest thereon, may be prepaid in whole or in
part, without the consent of the Holder of this Note.

5. Default. The entire unpaid principal of this Note and the interest then
accrued on this Note shall become and be immediately due and payable upon
written demand of the Holder of this Note, without any other notice or demand of
any kind or any presentment or protest, if any one of the following events
(each, an "Event of Default") shall occur and be continuing at the time of such
demand, whether voluntarily or involuntarily, or, without limitation, occurring
or brought about by operation of law or pursuant to or in compliance with any
judgment, decree or order of any court or any order, rule or regulation of any
governmental body:

 

(a)

If default shall be made in the payment of any installment of principal on this
Note, or of any installment of interest on this Note, and if any such default
shall remain unremedied for ten (10) days; or

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(b)

 If the Company (i) makes a composition or an assignment for the benefit of
creditors, (ii) applies for, consents to, acquiesces in, or files a petition
seeking or admits (by answer, default or otherwise) the material allegations of
a petition filed against it seeking the appointment of a trustee, receiver or
liquidator, in bankruptcy or otherwise, of itself or of all or a substantial
portion of its assets, or a reorganization, arrangement with creditors or other
remedy, relief or adjudication available to or against a bankrupt, insolvent or
debtor under any bankruptcy or insolvency law or any law affecting the rights of
creditors generally, or (iii) admits in writing its inability to pay its debts
generally as they become due; or

(c)

If an order for relief shall have been entered by a bankruptcy court or if a
decree, order or judgment shall have been entered adjudging the Company
insolvent, or appointing a receiver, liquidator, custodian or trustee, in
bankruptcy or otherwise, for it or for all or a substantial portion of its
assets, or approving the winding-up or liquidation of its affairs on the grounds
of insolvency or nonpayment of debts, and such order for relief, decree, order
or judgment shall remain undischarged or unstayed for a period of sixty
(60) days; or if any substantial part of the property of the Company is
sequestered or attached and shall not be returned to the possession of the
Company or such subsidiary or released from such attachment within sixty
(60) days; or

(d)

If the Company shall fail to perform any covenant, condition or agreement under
this Note; or

(e)

If there shall be an occurrence of a breach or default by the Company under any
agreement, instrument or obligation to which the Company is a party or by which
it is bound involving any obligation of the Company which singly or in the
aggregate is greater than $500,000; or  

(f)

If any material adverse change shall have occurred in (i) the business,
operations, properties, assets or condition (financial or otherwise) of the
Company, (ii) the ability of the Company to perform its obligations under this
Note, or (iii) the ability of the Lender to enforce any of its rights or
remedies with respect to the obligations of the Company under this Note.

6. Representations and Warranties. The Company represents and warrants to the
Lender that:

(a)

the Company is duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation and is duly qualified and in good
standing in every other jurisdiction where the nature of its business or the
location or ownership of its properties requires such qualification and where
the failure to be so qualified could reasonably be expected to have a material
adverse effect on the Debtor's business, operations, properties, assets,
prospects or condition (financial or otherwise);

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(b)

the Company has the full corporate power and authority to execute and deliver
this Note and to perform all of the obligations hereunder, and all necessary
corporate action has been taken to execute and deliver this Note and to make the
borrowings hereunder;

(c)

this Note constitutes the legal, valid, and binding obligations of the Company,
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization or similar laws generally
affecting the enforcement of the rights of creditors; and

(d)

the execution, delivery and performance by the Company of this Note do not
(i) violate any provisions of the Company's Certificate of Incorporation, bylaws
or any contract, agreement, law, regulation, order, decree or writ to which the
Company or any of its properties are subject, or (ii) require the consent or
approval of any person, entity or authority that has not been obtained,
including, without limitation, any regulatory authority or governmental body or
any political subdivision of any of the foregoing.

7. General.

(a)

Successors and Assigns. This Note, and the obligations and rights of the Company
hereunder, shall be binding upon and inure to the benefit of the Company, the
Holder of this Note, and their respective heirs, successors and permitted
assigns.

(b)

Changes. Changes in or additions to this Note may be made or compliance with any
term, covenant, agreement, condition or provision set forth herein may be
omitted or waived (either generally or in a particular instance and either
retroactively or prospectively), upon written consent of the Company and the
Holder of this Note.

(c)

Currency. All payments shall be made in such coin or currency of the United
States of America as at the time of payment shall be legal tender therein for
the payment of public and private debts.

(d)

Notices. All notices, requests, consents and demands shall be made in writing
and shall be mailed postage prepaid, or delivered by hand, to the Company or to
the Holder hereof at their respective addresses set forth on the signature page
or to such other address as may be furnished in writing to the other party
hereto.

 

(e)

Saturdays, Sundays, Holidays. If any date that may at any time be specified in
this Note as a date for the making of any payment of principal or interest under
this Note shall fall on Saturday, Sunday or on a day which in the State of
Nevada shall be a legal holiday, then the date for the making of that payment
shall be the next subsequent day which is not a Saturday, Sunday or legal
holiday.

(f)

No Rights as Stockholder. Until the conversion of this Note, the Holder of this
Note shall not have or exercise any rights by virtue hereof as a stockholder of
the Company.

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(g)

Governing Law. This Note shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the laws of the State of Nevada.

(h)

Headings. The headings in this Note are for purposes of reference only and shall
not limit or otherwise affect the meaning of any provision hereof.

(i)

Corporate Approvals. Upon conversion by the Company pursuant to Section 2 of
this Note, the Company covenants and agrees to take such actions as shall be
necessary to properly authorize such number of shares of Common Stock as shall
be necessary to give full effect to the conversion privileges of  Holder.

Remainder of Page Intentionally Blank; Signature Page to Follow

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     IN WITNESS WHEREOF, this Note has been executed and delivered as a sealed
instrument on the date first above written by the duly authorized representative
of the Company.

 

 

 

 

 

 

 

 

 

Highland Business Services, Inc.

 

 

  

 

 

 

 

 

 

  

 

By:

 

/S/ Wright W. Thurston

 

 

  

 

 

 

 

 

 

  

 

 

 

Name: Wright W. Thurston

 

 

  

 

 

 

Title: Chief Executive Officer

 

 

  

 

 

 

 

 

 

 

 

Address:  201 Avenida Fabricante, Ste 100

                San Clemente, CA 92672

                Attn: CEO

 

 

  

 

 

 

 

 

 

 

 

The Norton Family Living Trust

 

 

  

 

 

 

 

 

 

  

 

By:

 

/S/ John P. Norton

 

 

  

 

 

 

 

 

 

  

 

 

 

Name: John P. Norton

 

 

  

 

 

 

Title: Trustee

 

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

  

 

Physical  

Address:

Mailing

Address:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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