Exhibit 10.37(a)

 

SECURED CONVERTIBLE PROMISSORY NOTE

 

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 TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY
ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
(II) UNLESS SOLD OR ELIGIBLE TO BE 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. ANY TRANSFEREE OF THIS SECURED
CONVERTIBLE PROMISSORY NOTE SHOULD CAREFULLY REVIEW THE TERMS OF THIS SECURED
CONVERTIBLE PROMISSORY NOTE. THE PRINCIPAL AMOUNT REPRESENTED BY THIS SECURED
CONVERTIBLE PROMISSORY NOTE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF MAY BE DIFFERENT THAN THE AMOUNTS SET FORTH ON THE FACE
HEREOF.

 

HELIX TCS, INC.

CONVERTIBLE PROMISSORY NOTE DUE MARCH 1, 2020

 

Issuance Date: March 1, 2019   Principal Amount: $450,000

 

FOR VALUE RECEIVED, Helix TCS, Inc., a Delaware corporation (the “Company”),
hereby promises to pay to the order of Diamond Rock, LLC, or its registered
assigns (the “Holder”) the amount set forth above as the original principal
amount (as reduced pursuant to the terms hereof pursuant to prepayment,
conversion or otherwise, the “Principal”) when due, whether upon March 1, 2020
(the “Maturity Date”), or upon acceleration, prepayment or otherwise (in each
case in accordance with the terms hereof) and to pay interest (“Interest”) on
any outstanding Principal at the applicable Interest Rate (as defined below)
from the date set forth above as the Issuance Date (the “Issuance Date”) until
the same becomes due and payable, whether upon the Maturity Date or upon
acceleration, conversion, prepayment or otherwise (in each case in accordance
with the terms hereof). This Secured Convertible Promissory Note (this “Note”)
is issued to the Holder as of the Issuance Date by the Company. Certain
capitalized terms used herein are defined in Section 30; each capitalized term
used but not defined herein shall have the meaning ascribed to it in that
certain Securities Purchase Agreement dated as of the date hereof, among the
Company and the Purchasers party thereto.

 

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1. PAYMENTS OF PRINCIPAL.

 

(a) On the Maturity Date, the Company shall pay to the Holder an amount in cash
representing all outstanding Principal, accrued and unpaid Interest through and
including the Maturity Date (collectively, the “Outstanding Amount”); provided
that, if the Company’s consolidated balance sheet as of the end of each of the
three months ended immediately prior to the Maturity Date reflects an average
balance less than $750,000 in unrestricted cash and the Company is unable to pay
the entire Outstanding Amount in cash (the “Conversion Trigger Event”), then the
Holder shall convert all or a portion of the Outstanding Amount, such converted
amount being mutually agreed upon between the Company and the Holder (and each
party agrees that such agreement will not be unreasonably withheld), into Common
Stock of the Company in accordance with Section 3.

 

(b) No later than five (5) Business Days after the closing of Qualified Offering
by the Company, the Company shall use the proceeds thereof to prepay the
Outstanding Amount of this Note in accordance with Section 8 hereof. “Qualified
Offering” means any offering by the Company of any equity or debt securities to
any third party (other than the Holder), in one or a series of related
transactions, resulting in net proceeds of new money of at least $5,000,000 in
the aggregate.

 

(c) The Company may voluntarily prepay the Principal in cash, along with
Interest accrued to and including the date of such prepayment, in whole or in
part at any time and from time to time without penalty, premium or fee, except
as expressly set forth in Section 8 hereof.

 

2. INTEREST; INTEREST RATE.

 

(a) Simple interest on this Note shall commence accruing on the Issuance Date at
an aggregate rate of 25% per annum (together with any increases under Section
2(d) hereof, the “Aggregate Interest Rate”) subject to adjustment in accordance
with the terms of this Section 2 (the “Interest Rate”), and shall be computed on
the basis of a 360-day year and twelve 30-day months. The Aggregate Interest
Rate is comprised of (i) interest at a rate of 12.5% per annum (together with
any increases under Section 2(d) hereof, the “Cash Interest Rate”) accruing with
respect to the Principal outstanding from the Issuance Date or immediately
preceding Cash Interest Payment Date, as applicable, to and including the
applicable Cash Interest Payment Date (the “Cash Interest”), which amount shall
be payable in cash as set forth in Section 2(b) hereof, and (ii) interest at a
rate of 12.5% per annum (together with any increases under Section 2(d) hereof,
the “PIK Interest Rate”) accruing with respect to the Principal outstanding from
the Issuance Date or immediately preceding PIK Interest Payment Date, as
applicable, to and including the applicable PIK Interest Payment Date (the “PIK
Interest”), which amount shall be payable in Common Stock of the Company as set
forth in Section 2(c) hereof.

 

(b) Cash Interest shall be payable by the Company to the Holder, in cash, on the
day that is 5 Business Days after the last Business Day of each calendar quarter
while this Note remains outstanding (each, a “Cash Interest Payment Date”). All
accrued and unpaid Cash Interest not otherwise paid on a Cash Interest Payment
Date shall be due on the Maturity Date or upon acceleration, prepayment or
otherwise (in each case in accordance with the terms hereof).

 

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(c) PIK Interest shall be payable by the Company to the Holder, in shares of
Common Stock of the Company, on the day that is 5 Business Days after the last
Business Day of each calendar quarter while this Note remains outstanding (each,
a “PIK Interest Payment Date”), with the number of shares of Common Stock
issuable upon each PIK Interest Payment Date equal to the quotient obtained by
dividing (i) the dollar value of the interest payment by either (ii) a per share
price equal to the lower of $0.90 and the 30-day VWAP as of the Trading Day
immediately prior to the PIK Interest Payment Date or (iii) the fair market
value of the shares on such date; in each case at the discretion of the Holder.
All accrued and unpaid PIK Interest not otherwise paid on a PIK Interest Payment
Date shall be due on the Maturity Date or upon acceleration, prepayment or
otherwise (in each case in accordance with the terms hereof).

 

(d) From and after the occurrence and during the continuance of any Event of
Default, each of the Cash Interest Rate and the PIK Interest Rate shall
automatically be increased to 15.0% per annum, and the Aggregate Interest Rate
shall be 30% per annum, or the highest amount permitted by law (the “Default
Rate”), shall compound monthly, and shall be due and payable on the first
Trading Day of each calendar month during the continuance of such Event of
Default (a “Default Interest Payment Date”). In the event that such Event of
Default is subsequently cured (and no other Event of Default then exists
(including, without limitation, for the Company’s failure to pay such Interest
at the Default Rate on the applicable Default Interest Payment Date), the
adjustment referred to in the preceding sentence shall cease to be effective as
of the day immediately following the date of such cure; provided that the
Interest as calculated and unpaid at such increased rate during the continuance
of such Event of Default shall continue to apply to the extent relating to the
days after the occurrence of such Event of Default through and including the
date of such cure of such Event of Default.

 

3. CONVERSION OF NOTE. Upon the Conversion Trigger Event, this Note shall be
convertible into validly issued, fully paid and non-assessable shares of Common
Stock (as defined below), on the terms and conditions set forth in this Section
3 (the “Conversion”).

 

(a) Conversion Right. Upon the Conversion Trigger Event, pursuant to the terms
of Section 1 hereof, the Company and the holder of this Note may convert any
portion of the outstanding and unpaid Conversion Amount (as defined below) into
validly issued, fully paid and non-assessable shares of Common Stock in
accordance with Section 3(b), at the Conversion Rate (as defined below). The
Company shall not issue any fraction of a share of Common Stock upon any
conversion. If the issuance would result in the issuance of a fraction of a
share of Common Stock, the Company shall round such fraction of a share of
Common Stock up to the nearest whole share. The Company shall pay any and all
transfer, stamp, issuance and similar taxes, costs and expenses (including,
without limitation, fees and expenses of the Transfer Agent (as defined below))
that may be payable with respect to the issuance and delivery of Common Stock
upon conversion of any Conversion Amount.

 

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(b) Conversion Rate. The number of shares of Common Stock issuable upon
conversion of any Conversion Amount pursuant to Section 3(a) shall be determined
by dividing (x) such Conversion Amount by (y) the Conversion Price (the
“Conversion Rate”).

 

(i) “Conversion Amount” means the sum of (x) portion of the Principal to be
converted, prepaid or otherwise with respect to which this determination is
being made and (y) all accrued and unpaid Interest with respect to such portion
of the Principal amount as provided in Section 2(b) with respect to such portion
of such Principal and such Interest, if any.

 

(ii) “Conversion Price” means, as of any Conversion Date, the share price of
Common Stock of the Company equal to the lesser of (1) $0.90 and (2) a 30%
discount to the Company’s VWAP during the 30-day period ending on the Trading
Day immediately prior to the Conversion Date, subject in each case to equitable
adjustments resulting from any stock splits, stock dividends, combinations,
recapitalizations or similar events. The Company shall issue irrevocable
instructions to its Transfer Agent regarding conversions such that the transfer
agent shall be authorized and instructed to issue shares of Common Stock to the
Holder in accordance with this Note without further approval or authorization
from the Company. The Conversion Price shall be rounded down to the nearest
$.01.

 

(c) Mechanics of Conversion.

 

(i) Upon Conversion Trigger Event. To convert any Conversion Amount into shares
of Common Stock on any date (a “Conversion Date”), within four (4) Trading Days
after the occurrence of the Conversion Trigger Event, the Company shall transmit
by facsimile or electronic mail an acknowledgment of confirmation and
representation as to whether such shares of Common Stock may then be resold
pursuant to Rule 144 or an effective and available registration statement, in
the form attached hereto as Exhibit II, to the Holder and the Transfer Agent
which confirmation shall constitute an instruction to the Transfer Agent to
process the Conversion in accordance with the terms herein. On or before the
fifth Trading Day following the occurrence of the Conversion Trigger Event (or
such earlier date as required pursuant to the 1934 Act or other applicable law,
rule or regulation for the settlement of a trade initiated on the applicable
Conversion Date of such shares of Common Stock issuable pursuant upon the
Conversion Trigger Event) (the “Share Delivery Deadline”), the Company shall (1)
provided that the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled pursuant to such conversion to the
Holder’s or its designee’s balance account with DTC through its
Deposit/Withdrawal at Custodian system or (2) if the Transfer Agent is not
participating in the DTC Fast Automated Securities Transfer Program, upon the
request of the Holder, issue and deliver (via reputable overnight courier) to
the address specified in writing by the Holder, a certificate, registered in the
name of the Holder or its designee, for the number of shares of Common Stock to
which the Holder shall be entitled pursuant to such conversion. The Person or
Persons entitled to receive the shares of Common Stock issuable upon a
conversion of this Note shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.
Notwithstanding anything to the contrary contained in this Note, after the
effective date of a registration statement registering the resale of the shares
of Common Stock issuable upon a conversion of this Note and prior to the
Holder’s receipt of a notice that such registration statement is not available
with respect thereto, the Company shall cause the Transfer Agent to deliver
unlegended shares of Common Stock to the Holder (or its designee) in connection
with any sale of shares of Common Stock issuable upon a conversion of this Note
with respect to which the Holder has entered into a contract for sale, and
delivered a copy of the prospectus included as part of the particular
registration statement to the extent applicable, and for which the Holder has
not yet settled.

 

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(ii) The Company’s Failure to Timely Convert. If the Company shall fail, through
fault of its own, on or prior to the applicable Share Delivery Deadline, if the
Transfer Agent is not participating in the DTC Fast Automated Securities
Transfer Program, to issue and deliver to the Holder (or its designee) a
certificate for the number of shares of Common Stock to which the Holder is
entitled and register such shares of Common Stock on the Company’s share
register or, if the Transfer Agent is participating in the DTC Fast Automated
Securities Transfer Program, to credit the balance account of the Holder or the
Holder’s designee with DTC for such number of shares of Common Stock to which
the Holder is entitled upon the Holder’s conversion of this Note (as the case
may be) (a “Conversion Failure”), then, in addition to all other remedies
available to the Holder, the Company shall pay in cash to the Holder on each day
after such Share Delivery Deadline that the issuance of such shares of Common
Stock is not timely effected an amount equal to 1% of the product of (A) the sum
of the number of shares of Common Stock not issued to the Holder on or prior to
the Share Delivery Deadline and to which the Holder is entitled, multiplied by
(B) the VWAP of the Common Stock during the period beginning on the applicable
Conversion Date and ending on the applicable Share Delivery Deadline.

 

(iii) Registration; Book-Entry. The Company shall maintain a register (the
“Register”) for the recordation of the names and addresses of the Holder of the
Note and the principal amount of the Note. The entries in the Register shall be
conclusive and binding for all purposes absent manifest error. The Company and
the holder or holders of the Note shall treat each Person whose name is recorded
in the Register as the owner of a Note for all purposes (including, without
limitation, the right to receive payments of Principal and Interest hereunder)
notwithstanding notice to the contrary. The Note may be assigned, transferred or
sold in whole or in part only by registration of such assignment or sale on the
Register. Upon its receipt of a written request to assign, transfer or sell all
or part of the Note by the holder thereof, the Company shall record the
information contained therein in the Register and issue one or more new Notes in
the same aggregate principal amount as the principal amount of the surrendered
Note to the designated assignee or transferee pursuant to Section 17, provided
that if the Company does not so record an assignment, transfer or sale (as the
case may be) of all or part of any Note within two Trading Days of such a
request, then the Register shall be automatically deemed updated to reflect such
assignment, transfer or sale (as the case may be). Notwithstanding anything to
the contrary set forth in this Section 3, following conversion of any portion of
this Note in accordance with the terms hereof, the Holder shall not be required
to physically surrender this Note to the Company unless (A) the full Conversion
Amount represented by this Note is being converted (in which event this Note
shall be delivered to the Company following conversion thereof) or (B) the
Holder has provided the Company with prior written notice requesting reissuance
of this Note upon physical surrender of this Note. The Holder and the Company
shall maintain records showing the Principal and Interest converted and/or paid
(as the case may be) and the dates of such conversions, and/or payments (as the
case may be) or shall use such other method, reasonably satisfactory to the
Holder and the Company, so as not to require physical surrender of this Note
upon conversion. If the Company does not update the Register to record such
Principal and Interest converted and/or paid (as the case may be) and the dates
of such conversions, and/or payments (as the case may be) within two Trading
Days of such occurrence, then the Register shall be automatically deemed updated
to reflect such occurrence.

 

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(iv) Pro Rata Conversion; Disputes. In the event that the Company is obligated
to perform a Conversion hereunder and, on the same date, any holders of Options
or other Convertible Securities desire to exercise or convert such Options
and/or Securities, and the Company can issue securities with respect to some,
but not all, of such Notes, Options or other Convertible Securities submitted
for conversion or exercise, the Company shall first convert the entire
Conversion Amount submitted for conversion on such date by the Holders of Notes
on a pro rata basis based upon the Principal of the Conversion amounts of all
Notes being converted, and shall thereafter issue securities in connection with
the exercise or conversion, as applicable, by each holder of Options or other
Convertible Securities electing to have Options or other Convertible Securities
converted on such date (other than the Notes) a pro rata amount of such holder’s
portion of its Options or other Convertible Securities submitted for conversion
based on the aggregate number of shares of Common Stock issuable upon exercise
(or conversion) of all Options or other Convertible Securities submitted for
conversion on such date (not including the Notes).

 

(d) Limitations on Conversions. The Company shall not effect the conversion of
any portion of the Note and the Holder shall not have the right to convert any
portion of the Note and any such conversion shall be null and void and treated
as if never made, to the extent that after giving effect to such conversion, the
Holder would beneficially own in excess of 4.99% of the shares of Common Stock
outstanding immediately after giving effect to such conversion (the “Maximum
Percentage”) (which provision may be waived by the Holder by written notice from
the Holder to the Company, which notice shall be effective 61 days after the
date of such notice). For purposes of the foregoing sentence, the aggregate
number of shares of Common Stock beneficially owned by the Holder shall include
the number of shares of Common Stock held by the Holder plus the number of
shares of Common Stock issuable upon conversion of the Note and all other
convertible securities with respect to which the determination of such sentence
is being made subject to a limitation on conversion or exercise analogous to the
limitation contained in this Section 3(d). For purposes of this Section 3(d),
beneficial ownership shall be calculated in accordance with Section 13(d) of the
1934 Act. For purposes of determining the number of outstanding shares of Common
Stock the Holder may acquire upon the conversion of the Note without exceeding
the Maximum Percentage, the Holder may rely on the number of outstanding shares
of Common Stock as reflected in (x) the Company’s most recent Annual Report on
Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other
public filing with the Securities and Exchange Commission (the “SEC”), as the
case may be, (y) a more recent public announcement by the Company or (z) any
other written notice by the Company or the Transfer Agent, if any, setting forth
the number of shares of Common Stock outstanding (the “Reported Outstanding
Share Number”). If the Company receives a Notice of Conversion from the Holder
at a time when the actual number of outstanding shares of Common Stock is less
than the Reported Outstanding Share Number, the Company shall notify the Holder
in writing of the number of shares of Common Stock then outstanding and, to the
extent that such Notice of Conversion would otherwise cause the Holder’s
beneficial ownership, as determined pursuant to this Section 3(d), to exceed the
Maximum Percentage, the Company must notify the Holder of a reduced number of
shares of Common Stock to be purchased pursuant to such Notice of Conversion.
For any reason at any time, upon the written or oral request of the Holder, the
Company shall within one Trading Day confirm orally and in writing or by
electronic mail to the Holder the number of shares of Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to the conversion or exercise of securities of
the Company, including such Note, by the Holder since the date as of which the
Reported Outstanding Share Number was reported. In the event that the issuance
of shares of Common Stock to the Holder upon conversion of such portion of the
Note results in the Holder being deemed to beneficially own, in the aggregate,
more than the Maximum Percentage of the number of outstanding shares of Common
Stock (as determined under Section 13(d) of the 1934 Act and Rule 13b-3
thereunder), the number of conversion shares so issued by which the Holder’s
beneficial ownership exceeds the Maximum Percentage (the “Excess Shares”) shall
be deemed null and void and shall be cancelled ab initio, and the Holder shall
not have the power to vote, sell, or to transfer the Excess Shares. For purposes
of clarity, the shares of Common Stock issuable to the Holder pursuant to the
terms of this Note in excess of the Maximum Percentage shall not be deemed to be
beneficially owned by the Holder for any purpose including for purposes of
Section 13(d) or Rule 16a-1(a)(1) of the 1934 Act. No prior inability to convert
the Note pursuant to this Section 3(d) shall have any effect on the
applicability of the provisions of this Section 3(d) with respect to any
subsequent determination of convertibility. The provisions of this Section 3(d)
shall be construed and implemented in a manner otherwise than in strict
conformity with the terms of this Section 3(d) to the extent necessary to
correct any portion of this Section 3(d) which may be defective or inconsistent
with the intended beneficial ownership limitation contained in this Section 3(d)
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The provisions of this Section 3(d) shall be of no further
force or effect if the Holder participates in a subsequent transaction with the
Company and acquires Common Stock and/or securities convertible into Common
Stock which do not contain a beneficial ownership limitation. In such event, the
Maximum Percentage limitation shall be (i) deemed modified to be identical to
any limitation on beneficial ownership contained in the subsequent transaction
or (ii) eliminated if there is no such limitation on beneficial ownership.

 

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(e) Alternate Conversion.

 

(i) General. At any time after the occurrence of an Event of Default and during
any Event of Default Prepayment Right Period (as defined below), the Holder may,
at the Holder’s sole discretion, convert (each, an “Alternate Conversion”, and
the date of such Alternate Conversion, each, an “Alternate Conversion Date”)
all, or any part of, in one or several times, the entire Conversion Amount under
the outstanding amount of the Note (such portion of the Conversion Amount
subject to such Alternate Conversion, the “Alternate Conversion Amount”) into
shares of Common Stock at the Alternate Conversion Price in accordance with
Section 3(e)(ii) below. For the avoidance of doubt, during any Event of Default
Prepayment Right Period, the Holder may, in lieu of a conversion pursuant to
Section 3(a) hereof, voluntarily convert all, or any part of, the entire
Conversion Amount, and shall not be limited with respect to the number of times
the Holder may convert the Conversion Amount or value of the Conversion Amount
so converted.

 

(ii) Mechanics of Default Alternate Conversion. On any Alternate Conversion
Date, the Holder may voluntarily convert any Alternate Conversion Amount
pursuant to Section 3(b) (with “Alternate Conversion Price” replacing
“Conversion Price” for all purposes hereunder with respect to such Alternate
Conversion and, with the “Event of Default Prepayment Price” replacing
“Conversion Amount” in clause (x) of the definition of Conversion Rate above
with respect to such Alternate Conversion) by designating in a Notice to the
Company delivered pursuant to this Section 3(e)(ii) of this Note that the Holder
is electing to use the Alternate Conversion Price for such conversion.

 

4. RIGHTS UPON EVENT OF DEFAULT.

 

(a) Event of Default. Each of the following events shall constitute an “Event of
Default” and each of the events in clauses (vii), (viii) and (ix) shall
constitute a “Bankruptcy Event of Default”:

 

(i) the suspension from trading or the failure of the Common Stock to be trading
or listed (as applicable) on a Principal Market for a period of five consecutive
Trading Days;

 

(ii) the Company’s (A) failure to cure a Conversion Failure by delivery of the
required number of shares of Common Stock within five Trading Days after the
applicable Conversion Date or (B) notice, written or oral, to any holder of the
Note, including, without limitation, by way of public announcement or through
any of its agents, at any time, of its intention not to comply, as required,
with a request for conversion of the Note into shares of Common Stock that is
requested in accordance with the provisions of the Note;

 

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(iii) except to the extent the Company is in compliance with Section 10 below,
at any time following the 10th consecutive day that the Holder’s Required
Reserve Amount (as defined in Section 10(a) below) is less than the number of
shares of Common Stock that the Holder would be entitled to receive upon a
conversion of the full Conversion Amount of this Note and the Warrants in
accordance with Section 10(a) hereof (without regard to any limitations on
conversion set forth herein);

 

(iv) the Company’s or any Subsidiary’s failure to pay to the Holder any amount
of Principal (subject to the terms of Sections 1 and 3), Interest or other
amounts when and as due under this Note (including, without limitation, the
Company’s or any Subsidiary’s failure to pay any prepayment payments or amounts
hereunder) or any other agreement, document, certificate or other instrument
delivered in connection with the transactions contemplated hereby and thereby,
except, in the case of a failure to pay Interest when and as due, in which case
only if such failure remains uncured for a period of at least ten Trading Days;

 

(v) the Company fails to remove any restrictive legend on any certificate or any
shares of Common Stock issued to the Holder upon conversion of this Note as and
when required by this Note, unless otherwise then prohibited by applicable
federal securities laws, and any such failure remains uncured for at least five
days;

 

(vi) the occurrence of any default under, - or acceleration prior to maturity of
at least an aggregate of $100,000 of Indebtedness of the Company or any of its
Subsidiaries;

 

(vii) bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings for the relief of debtors shall be instituted by or against the
Company or any Subsidiary and, if instituted against the Company or any
Subsidiary by a third party, shall not be dismissed within 30 days of their
initiation;

 

(viii) the commencement by the Company or any Subsidiary of a voluntary case or
proceeding under any applicable federal, state or foreign bankruptcy,
insolvency, reorganization or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent, or the consent by it to
the entry of a decree, order, judgment or other similar document in respect of
the Company or any Subsidiary in an involuntary case or proceeding under any
applicable federal, state or foreign bankruptcy, insolvency, reorganization or
other similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against it, or the filing by it of a petition or answer or consent
seeking reorganization or relief under any applicable federal, state or foreign
law, or the consent by it to the filing of such petition or to the appointment
of or taking possession by a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or the making by it of an assignment for
the benefit of creditors, or the execution of a composition of debts, or the
occurrence of any other similar federal, state or foreign proceeding, or the
admission by it in writing of its inability to pay its debts generally as they
become due, the taking of corporate action by the Company or any Subsidiary in
furtherance of any such action or the taking of any action by any Person to
commence a Uniform Commercial Code foreclosure sale or any other similar action
under federal, state or foreign law;

 

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(ix) the entry by a court of (i) a decree, order, judgment or other similar
document in respect of the Company or any Subsidiary of a voluntary or
involuntary case or proceeding under any applicable federal, state or foreign
bankruptcy, insolvency, reorganization or other similar law or (ii) a decree,
order, judgment or other similar document adjudging the Company or any
Subsidiary as bankrupt or insolvent, or approving as properly filed a petition
seeking liquidation, reorganization, arrangement, adjustment or composition of
or in respect of the Company or any Subsidiary under any applicable federal,
state or foreign law or (iii) a decree, order, judgment or other similar
document appointing a custodian, receiver, liquidator, assignee, trustee,
sequestrator or other similar official of the Company or any Subsidiary or of
any substantial part of its property, or ordering the winding up or liquidation
of its affairs, and the continuance of any such decree, order, judgment or other
similar document or any such other decree, order, judgment or other similar
document unstayed and in effect for a period of 30 consecutive days;

 

(x) a final judgment or judgments for the payment of money aggregating in excess
of $250,000 are rendered against the Company and/or any of its Subsidiaries and
which judgment(s) is(are) not, within 30 days of when due pursuant to the terms
of such judgement, or within any applicable grace period, bonded, discharged,
settled or stayed pending appeal, or are not discharged within 10 days after the
expiration of such stay; provided, however, any judgment which is covered by
insurance or an indemnity from a credit worthy party shall not be included in
calculating the $250,000 amount set forth above so long as the Company provides
the Holder a written statement from such insurer or indemnity provider (which
written statement shall be reasonably satisfactory to the Holder) to the effect
that such judgment is covered by insurance or an indemnity and the Company or
such Subsidiary (as the case may be) will receive the proceeds of such insurance
or indemnity within 10 days of the issuance of such judgment;

 

(xi) the Company and/or any Subsidiary, individually or in the aggregate, either
(i) fails to pay, when due, or within any applicable grace period, any payment
with respect to any Indebtedness in excess of $100,000 due to any third party
(other than, with respect to unsecured Indebtedness only, payments contested by
the Company and/or such Subsidiary (as the case may be) in good faith by proper
proceedings and with respect to which adequate reserves have been set aside for
the payment thereof in accordance with GAAP) or is otherwise in breach or
violation of any agreement for monies owed or owing in an amount in excess of
$100,000, which breach or violation permits the other party thereto to declare a
default or otherwise accelerate amounts due thereunder, or (ii) suffer to exist
any other circumstance or event that would, with or without the passage of time
or the giving of notice, result in a default or event of default under any
agreement binding the Company or any Subsidiary, which default or event of
default would or is likely to have a Material Adverse Effect on the business,
assets, operations (including results thereof), liabilities, properties,
condition (including financial condition) or prospects of the Company or any of
its Subsidiaries, individually or in the aggregate;

 

9

 

 

(xii) other than as specifically set forth in another clause of this Section
4(a), the Company or any Subsidiary breaches any representation or warranty in
any material respect (other than representations or warranties subject to
materiality limitations, which may not be breached in any respect) or any
covenant or other term or condition of any Transaction Document, except, in the
case of a breach of a covenant or other term or condition that is curable, only
if such breach remains uncured for a period of five consecutive Trading Days;

 

(xiii) a false or inaccurate certification (including a false or inaccurate
deemed certification) by the Company as to whether any Event of Default has
occurred;

 

(xiv) any breach or failure in any respect by the Company or any Subsidiary to
comply with any provision of Section 12 of this Note;

 

(xv) any Material Adverse Effect occurs;

 

(xvi) any provision of any Transaction Document shall at any time for any reason
(other than pursuant to the express terms thereof) cease to be valid and binding
on or enforceable against the parties thereto, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall be
commenced by the Company or any Subsidiary or any governmental authority having
jurisdiction over any of them, seeking to establish the invalidity or
unenforceability thereof, or the Company or any Subsidiary shall deny in writing
that it has any liability or obligation purported to be created under any
Transaction Document; or

 

(xvii) The Company breaches any Transaction Document or any other notes or other
documents evidencing the indebtedness of the Company (regardless of whether such
breach would constitute an Event of Default under any Transaction Document), and
the Company fails to remedy such breach within thirty days after becoming aware
of such breach.

 

(xviii) Failure to satisfy any Equity Condition, except for Equity Conditions
(a), (b), (k), (m) or (n).

 

10

 

 

(b) Notice of an Event of Default; Prepayment Right. Upon the occurrence of an
Event of Default with respect to this Note, the Company shall within one Trading
Day deliver written notice thereof via facsimile or electronic mail and
overnight courier (with next day delivery specified) (an “Event of Default
Notice”) to the Holder. At any time after the earlier of the Holder’s receipt of
an Event of Default Notice and the Holder becoming aware of an Event of Default
(such earlier date, the “Event of Default Right Commencement Date”) and ending
(such ending date, the “Event of Default Right Expiration Date”, and each such
period, an “Event of Default Prepayment Right Period”) on the 20th Trading Day
after the later of (x) the date such Event of Default is cured and (y) the
Holder’s receipt of an Event of Default Notice that includes a reasonable
description of the applicable Event of Default, the Holder may require the
Company to prepay (regardless of whether such Event of Default has been cured on
or prior to the Event of Default Right Expiration Date) all or any portion of
this Note by delivering written notice thereof (the “Event of Default Prepayment
Notice”) to the Company, which Event of Default Prepayment Notice shall indicate
the portion of this Note the Holder is electing to have prepaid. Each portion of
this Note subject to prepayment by the Company pursuant to this Section 4(b)
shall be prepaid by the Company at a price equal to the greater of (i) the
product of (A) the Conversion Amount to be prepaid multiplied by (B) the
Prepayment Premium and (ii) the product of (X) the Conversion Rate with respect
to the Conversion Amount in effect at such time as the Holder delivers an Event
of Default Prepayment Notice multiplied by (Y) the product of (1) the Prepayment
Premium multiplied by (2) the greatest Closing Sale Price of the Common Stock on
any Trading Day during the period commencing on the date immediately preceding
such Event of Default and ending on the date the Company makes the entire
payment required to be made under this Section 4(b) (the “Event of Default
Prepayment Price”). Prepayments required by this Section 4(b) shall be made in
accordance with the provisions of Section 11. To the extent prepayments required
by this Section 4(b) are deemed or determined by a court of competent
jurisdiction to be prepayments of this Note by the Company, such prepayments
shall be deemed to be voluntary prepayments. Notwithstanding anything to the
contrary in this Section 4(b), the Conversion Amount submitted for prepayment
under this Section 4(b) may be converted, in whole or in part, into Common Stock
pursuant to the terms of Sections 1 and 3 of this Note. In the event of the
Company’s prepayment of any portion of this Note under this Section 4(b), the
Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any prepayment premium due under this Section 4(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty. Any prepayment
upon an Event of Default shall not constitute an election of remedies by the
Holder, and all other rights and remedies of the Holder shall be preserved.

 

(c) Mandatory Prepayment upon Bankruptcy Event of Default. Notwithstanding
anything to the contrary herein, and notwithstanding any conversion that is then
required or in process, upon any Bankruptcy Event of Default, whether occurring
prior to or following the Maturity Date, the Company shall immediately pay to
the Holder an amount in cash representing (i) all outstanding Principal and
accrued and unpaid Interest, multiplied by (ii) the Prepayment Premium, in
addition to any and all other amounts due hereunder, without the requirement for
any notice or demand or other action by the Holder or any other person or
entity, provided that the Holder may, in its sole discretion, waive such right
to receive payment upon a Bankruptcy Event of Default, in whole or in part, and
any such waiver shall not affect any other rights of the Holder hereunder,
including any other rights in respect of such Bankruptcy Event of Default, any
right to conversion, and any right to payment of the Event of Default Prepayment
Price or any other Prepayment Price, as applicable.

 

5. RIGHTS UPON FUNDAMENTAL TRANSACTION.

 

(a) Repay or Convert. In the event of a Fundamental Transaction, the Holder will
convert this Note or accept prepayment as provided for herein. In the event this
Note is not converted or prepayment is not accepted, the Company will have no
further liability to Holder under this Note.

 

11

 

 

(b) Notice of a Change of Control; Prepayment Right. No sooner than 20 Trading
Days nor later than 10 Trading Days prior to the consummation of a Change of
Control (the “Change of Control Date”), but not prior to the public announcement
of such Change of Control, the Company shall deliver written notice thereof via
facsimile or electronic mail and overnight courier to the Holder (a “Change of
Control Notice”). At any time during the period beginning after the Holder’s
receipt of a Change of Control Notice or the Holder becoming aware of a Change
of Control if a Change of Control Notice is not delivered to the Holder in
accordance with the immediately preceding sentence (as applicable) and ending on
the later of 20 Trading Days after (A) consummation of such Change of Control or
(B) the date of receipt of such Change of Control Notice, the Holder may require
the Company to prepay all or any portion of this Note by delivering written
notice thereof (“Change of Control Prepayment Notice”) to the Company, which
Change of Control Prepayment Notice shall indicate the Conversion Amount the
Holder is electing to prepay. The portion of this Note subject to prepayment
pursuant to this Section 5(b) shall be prepaid by the Company in cash at a price
equal to the product of (w) the Prepayment Premium multiplied by (y) the
Conversion Amount being prepaid (the “Change of Control Prepayment Price”).
Prepayments required by this Section 5(b) shall be made in accordance with the
provisions of Section 11 and shall have priority to payments to stockholders in
connection with such Change of Control. To the extent prepayments required by
this Section 5(b) are deemed or determined by a court of competent jurisdiction
to be prepayments of this Note by the Company, such prepayments shall be deemed
to be voluntary prepayments. Notwithstanding anything to the contrary in this
Section 5(b), but subject to Section 5(a), until the Change of Control
Prepayment Price is paid in full, the Conversion Amount submitted for prepayment
under this Section 5(b) may be converted, in whole or in part, by the Holder
into Common Stock pursuant to Sections 1 and 3. In the event of the Company’s
prepayment of any portion of this Note under this Section 5(b), the Holder’s
damages would be uncertain and difficult to estimate because of the parties’
inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any prepayment premium due under this Section 5(b) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty.

 

12

 

 

6. RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

 

(a) Purchase Rights. In addition to any adjustments pursuant to Section 7 below,
if at any time the Company grants, issues or sells any Options, Convertible
Securities or rights to purchase stock, warrants, securities or other property
pro rata to all or substantially all of the record holders of any class of
Common Stock (the “Purchase Rights”), then the Holder will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which the Holder could have acquired if the Holder had held the
number of shares of Common Stock acquirable upon complete conversion of this
Note (without taking into account any limitations or restrictions on the
convertibility of this Note and assuming for such purpose that the Note was
converted at the Alternate Conversion Price as of the applicable record date)
immediately prior to 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 shares of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights (provided, however, that to the
extent that the Holder’s right to participate in any such Purchase Right would
result in the Holder and the other Attribution Parties exceeding the Maximum
Percentage, then the Holder shall not be entitled to participate in such
Purchase Right to the extent of the Maximum Percentage (and shall not be
entitled to beneficial ownership of such shares of Common Stock as a result of
such Purchase Right (and beneficial ownership) to the extent of any such excess)
and such Purchase Right to such extent shall be held in abeyance (and, if such
Purchase Right has an expiration date, maturity date or other similar provision,
such term shall be extended by such number of days held in abeyance, if
applicable) for the benefit of the Holder until such time or times, if ever, as
its right thereto would not result in the Holder and the other Attribution
Parties exceeding the Maximum Percentage, at which time or times the Holder
shall be granted such right (and any Purchase Right granted, issued or sold on
such initial Purchase Right or on any subsequent Purchase Right held similarly
in abeyance (and, if such Purchase Right has an expiration date, maturity date
or other similar provision, such term shall be extended by such number of days
held in abeyance, if applicable)) to the same extent as if there had been no
such limitation).

 

(b) Other Corporate Events. In addition to and not in substitution for any other
rights hereunder, prior to the consummation of any Fundamental Transaction
pursuant to which holders of shares of Common Stock are entitled to receive
securities or other assets with respect to or in exchange for shares of Common
Stock (a “Corporate Event”), the Company shall make appropriate provision to
ensure that the Holder will thereafter have the right to receive upon a
conversion of this Note, at the Holder’s option (i) in addition to the shares of
Common Stock receivable upon such conversion, such securities or other assets to
which the Holder would have been entitled with respect to such shares of Common
Stock had such shares of Common Stock been held by the Holder upon the
consummation of such Corporate Event (without taking into account any
limitations or restrictions on the convertibility of this Note) or (ii) in lieu
of the shares of Common Stock otherwise receivable upon such conversion, such
securities or other assets received by the holders of shares of Common Stock in
connection with the consummation of such Corporate Event in such amounts as the
Holder would have been entitled to receive had this Note initially been issued
with conversion rights for the form of such consideration (as opposed to shares
of Common Stock) at a conversion rate for such consideration commensurate with
the Conversion Rate. Provision made pursuant to the preceding sentence shall be
in a form and substance satisfactory to the Holder. The provisions of this
Section 6 shall apply similarly and equally to successive Corporate Events and
shall be applied without regard to any limitations on the conversion or
prepayment of this Note.

 

13

 

 

7. RIGHTS UPON ISSUANCE OF OTHER SECURITIES.

 

The provisions of this Section 7 shall apply each time the Company, while this
Warrant or the Note is outstanding, shall issue any securities with a Dilutive
Issuance Price.  Notwithstanding the foregoing, no adjustment shall be made
pursuant to this Section 7 with respect to an Exempt Issuance (as defined in the
Purchase Agreement).

 

(a) Adjustment of Conversion Price upon Issuance of Common Stock. If the Company
at any time while this Note is outstanding, issues or sells any additional
shares of Common Stock or Common Stock Equivalents (hereafter defined)
(“Additional Shares of Common Stock”) at a price per share less than the
Conversion Price then in effect or without consideration (a “Dilutive Issuance”
based on a “Dilutive Issuance Price”), then the Conversion Price upon each such
issuance shall be adjusted to equal the Dilutive Issuance Price.

 

(b) Record Date. If the Company takes a record of the holders of shares of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in shares of Common Stock, Options or in Convertible
Securities or (B) to subscribe for or purchase shares of Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issuance or sale of the shares of Common Stock deemed to have been issued
or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase (as the case may be).

 

(c) Adjustment of Conversion Price upon Subdivision or Combination of Common
Stock. Without limiting any other provisions of this Section 7, if the Company
at any time on or after the Issuance Date subdivides (by any stock split, stock
dividend, recapitalization or other similar transaction) one or more classes of
its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. Without limiting any other provisions of this Section
7, if the Company at any time on or after the Issuance Date combines (by any
reverse stock split, or stock combination, recapitalization or other similar
transaction) one or more classes of its outstanding shares of Common Stock into
a smaller number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased. Any adjustment pursuant to
this Section 7(c) shall become effective immediately after the effective date of
such subdivision or combination. If any event requiring an adjustment under this
Section 7(c) occurs during the period that a Conversion Price is calculated
hereunder, then the calculation of such Conversion Price shall be adjusted
appropriately to reflect such event.

 

(d) The Holder’s Right of Adjusted Conversion Price. In addition to and not in
limitation of the other provisions of this Section 7, if the Company in any
manner issues or sells or enters into any agreement to issue or sell, any Common
Stock, Options or Convertible Securities (any such securities, “Variable Price
Securities”), after the Issuance Date that are issuable pursuant to such
agreement or convertible into or exchangeable or exercisable for shares of
Common Stock at a price which varies or may vary with the market price of the
shares of Common Stock, including by way of one or more reset(s) to a fixed
price, but exclusive of such formulations reflecting customary anti-dilution
provisions (such as share splits, share combinations, share dividends and
similar transactions) (each of the formulations for such variable price being
herein referred to as, the “Variable Price”), the Company shall provide written
notice thereof via facsimile or email to the Holder on the date of such
agreement and the issuance of such Convertible Securities or Options. From and
after the date the Company enters into such agreement or issues any such
Variable Price Securities, the Holder shall have the right, but not the
obligation, in its sole discretion to substitute the Variable Price for the
Conversion Price upon conversion of this Note by designating in a notice
delivered upon any conversion of this Note that solely for purposes of such
conversion the Holder is relying on the Variable Price rather than the
Conversion Price then in effect. The Holder’s election to rely on a Variable
Price for a particular conversion of this Note shall not obligate the Holder to
rely on a Variable Price for any future conversion of this Note.

 

14

 

 

(e) Stock Combination Event Adjustments. If at any time and from time to time on
or after the Issuance Date there occurs any stock split, stock dividend, stock
combination, reverse split, recapitalization or other similar transaction
involving the Common Stock (each, a “Stock Combination Event”, and such date
thereof, the “Stock Combination Event Date”) and the Event Market Price is
different than the Conversion Price then in effect (after giving effect to the
adjustment in Section 7(c) above), then the Conversion Price shall be equal to
the Event Market Price.

 

(f) Other Events. In the event that the Company (or any Subsidiary) shall take
any action to which the provisions hereof are not strictly applicable, or, if
applicable, would not operate to protect the Holder from dilution or if any
event occurs of the type contemplated by the provisions of this Section 7 but
not expressly provided for by such provisions (including, without limitation,
the granting of stock appreciation rights, phantom stock rights or other rights
with equity features), then the Company’s board of directors shall in good faith
determine and implement an appropriate adjustment in the Conversion Price so as
to protect the rights of the Holder, provided that no such adjustment pursuant
to this Section 7(f) will increase the Conversion Price as otherwise determined
pursuant to this Section 7, provided further that if the Holder does not accept
such adjustments as appropriately protecting its interests hereunder against
such dilution, then the Company’s board of directors and the Holder shall agree,
in good faith, upon an independent investment bank of nationally recognized
standing to make such appropriate adjustments, whose determination shall be
final and binding absent manifest error and whose fees and expenses shall be
borne by the Company.

 

(g) Calculations. All calculations under this Section 7 shall be made by
rounding to the nearest cent or the nearest 1/100th of a share, as applicable.
The number of shares of Common Stock outstanding at any given time shall not
include shares owned or held by or for the account of the Company, and the
disposition of any such shares shall be considered an issue or sale of Common
Stock.

 

(h) Voluntary Adjustment by the Company. The Company may at any time during the
term of this Note, with the prior written consent of the Holder, reduce the then
current Conversion Price of the Note to any amount and for any period of time
deemed appropriate by the board of directors of the Company.

 

15

 

 

8. PREPAYMENT.

 

(a) Prepayment By the Company. At any time after the Issuance Date, the Company
shall have the right to prepay all or a portion of the Principal then remaining
under this Note, together with all Interest as set forth in Section 2(b) (each,
a “Company Optional Prepayment Amount”) on the Company Optional Prepayment Date
(as defined below) (a “Company Optional Prepayment”) in cash at a price (the
“Company Optional Prepayment Price”) equal to (i) if the Company Optional
Prepayment Date occurs during the first 6 months this Note is outstanding, the
product equal to the Prepayment Premium multiplied by the amount of Principal
being prepaid plus all Interest accrued through such date, and (ii) if the
Company Optional Prepayment Date occurs after the first 6 months this Note is
outstanding, 100% of the amount of Principal being prepaid plus all Interest
accrued through such date. The Company may exercise its right to prepay the Note
under this Section 8(a) by delivering a written notice thereof by facsimile or
electronic mail and overnight courier to the Holder (the “Company Optional
Prepayment Notice” and the date the Holder receives such notice is referred to
as the “Company Optional Prepayment Notice Date”). Each Company Optional
Prepayment Notice delivered by the Company to the Holder shall be irrevocable.
Each Company Optional Prepayment Notice shall (x) state the date on which the
Company Optional Prepayment shall occur (the “Company Optional Prepayment Date”)
which date shall not be less than 10 Trading Days and nor more than 30 days
following the Company Optional Prepayment Notice Date; (y) state the aggregate
Principal of the Note which is being prepaid in such Company Optional Prepayment
pursuant to this Section 8(a) on the Company Optional Prepayment Date; and (z)
state the aggregate Interest of the Note which is being prepaid in such Company
Optional Prepayment pursuant to this Section 8(a) on the Company Optional
Prepayment Date. Upon receipt of a Company Optional Prepayment Notice, the
Holder shall have the right, but not the obligation, to convert all or a portion
of the Principal then remaining under this Note in accordance with Section 3
hereof prior to the Company Optional Prepayment Date. To the extent the amount
converted by the Holder reduces the Company Optional Prepayment Amount required
to be prepaid by the Company on the Company Optional Prepayment Date, the
Company Optional Prepayment Amount shall be reduced accordingly. Prepayments
made pursuant to this Section 8(a) shall be made in accordance with Section 11.
In the event of the Company’s prepayment of this Note under this Section 8(a),
the Holder’s damages would be uncertain and difficult to estimate because of the
parties’ inability to predict future interest rates and the uncertainty of the
availability of a suitable substitute investment opportunity for the Holder.
Accordingly, any prepayment premium due under this Section 8(a) is intended by
the parties to be, and shall be deemed, a reasonable estimate of the Holder’s
actual loss of its investment opportunity and not as a penalty. Notwithstanding
the foregoing, the Company shall have no right to effect a Company Optional
Prepayment if any Event of Default has occurred and continuing, but any Event of
Default shall have no effect upon the Holder’s right to convert this Note in its
discretion.

 

(b) Equal Treatment of the Notes. Any prepayment by the Company under Section
8(a) shall require the Company to treat all Holders of the Notes issues on the
Issuance Date in a similar manner on a pro rata basis based on the Principal of
all outstanding Notes.

 

16

 

 

9. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company
will not, by amendment of the Company’s Articles of Incorporation or other
charter documents, Bylaws or through any reorganization, transfer of assets,
consolidation, merger, scheme of arrangement, dissolution, issue or sale of
securities, or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Note, and will at all times in good
faith carry out all of the provisions of this Note and take all action as may be
required to protect the rights of the Holder of this Note. Without limiting the
generality of the foregoing or any other provision of this Note or the other
Transaction Documents, the Company (a) shall not increase the par value of any
shares of Common Stock receivable upon conversion of this Note above the
Conversion Price then in effect, and (b) shall take all such actions as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable shares of Common Stock upon the conversion of this
Note. Notwithstanding anything herein to the contrary, if after the 60 day
anniversary of the Issuance Date, the Holder is not permitted to convert this
Note in full for any reason, the Company shall use its best efforts to promptly
remedy such failure, including, without limitation, obtaining such consents or
approvals as necessary to permit such conversion into shares of Common Stock.

 

10. RESERVATION OF AUTHORIZED SHARES.

 

(a) Reservation. So long as the Note remains outstanding, the Company shall at
all times reserve 500% of the maximum number of shares of Common Stock issued
pursuant to the Transaction Documents issuable upon (1) conversion of the Note
(assuming for purposes hereof that (x) the Note is convertible at the lower of:
(A) the Alternate Conversion Price (assuming an Alternate Conversion Date as of
such date of determination) or (B) 70% of the lowest daily VWAP after the
Issuance Date, (y) Interest on the Note shall accrue through the 12 month
anniversary of the Issuance Date and will be converted into shares of Common
Stock at a conversion price equal to: the lower of: (A) the Alternate Conversion
Price (assuming an Alternate Conversion Date as of such date of determination)
or (B) 70% of the lowest daily VWAP after the Issuance Date and (z) any such
conversion shall not take into account any limitations on the conversion of the
Note set forth in the Note); and (2) exercise of the Warrants (the “Required
Reserve Amount”).

 

(b) Insufficient Authorized Shares. If, notwithstanding Section 10(a), and not
in limitation thereof, at any time while any of the Note remains outstanding the
Company does not have a sufficient number of authorized and unreserved shares of
Common Stock to satisfy its obligation to reserve for issuance as provided in
Section 10(a) at least a number of shares of Common Stock equal to the Required
Reserve Amount (an “Authorized Share Failure”), then the Company shall
immediately take all action necessary to increase the Company’s authorized
shares of Common Stock to an amount sufficient to allow the Company to reserve
the Required Reserve Amount. Without limiting the generality of the foregoing
sentence, as soon as practicable after the date of the occurrence of an
Authorized Share Failure, but in no event later than 60 days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its stockholders (or obtain approval by written consent) for the approval of an
increase in the number of authorized shares of Common Stock. In connection with
such meeting, the Company shall comply with the 1934 Act and shall use its best
efforts to solicit its stockholders’ approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal. In the event that the Company is
prohibited from issuing shares of Common Stock pursuant to the terms of this
Note due to the failure by the Company to have sufficient shares of Common Stock
available out of the authorized but unissued shares of Common Stock (such
unavailable number of shares of Common Stock, the “Authorized Failure Shares”),
in lieu of delivering such Authorized Failure Shares to the Holder, the Company
shall pay cash in exchange for the prepayment of such portion of the Conversion
Amount convertible into such Authorized Failure Shares at a price equal to the
sum of (i) the product of (x) such number of Authorized Failure Shares and (y)
the greatest Closing Sale Price of the Common Stock on any Trading Day during
the period commencing on the earlier of the date the Conversion Trigger Event
occurs and the date the Holder delivers the applicable notice with respect to
such Authorized Failure Shares to the Company and ending on the date of such
issuance and payment under this Section 10(b); and (ii) to the extent the Holder
purchases (in an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by the Holder of Authorized Failure Shares,
any brokerage commissions and other out-of-pocket expenses, if any, of the
Holder incurred in connection therewith.

 

17

 

 

11. PREPAYMENTS MECHANICS.

 

(a) The Company shall deliver the applicable Event of Default Prepayment Price
to the Holder in cash within five Trading Days after the Company’s receipt of
the Holder’s Event of Default Prepayment Notice.

 

(b) If the Holder has submitted a Change of Control Prepayment Notice in
accordance with Section 5(b), the Company shall deliver the applicable Change of
Control Prepayment Price to the Holder in cash concurrently with the
consummation of such Change of Control if such notice is received prior to the
consummation of such Change of Control and within five Trading Days after the
Company’s receipt of such notice otherwise.

 

(c) The Company shall deliver the applicable Company Optional Prepayment Price
to the Holder in cash on the applicable Company Optional Prepayment Date.

 

(d) The Company shall deliver the applicable Prepayment Amount to the Holder in
cash on the fifth Trading Day immediately following the day a Prepayment Notice
is delivered.

 

12. RESERVED.

 

13. COVENANTS. Until all of the Note has been converted, prepaid or otherwise
satisfied in accordance with their terms:

 

(a) Rank. All payments due under this Note shall rank senior to all other
Indebtedness of the Company and its Subsidiaries.

 

(b) Incurrence of Indebtedness. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, incur or
guarantee, assume or suffer to exist any Indebtedness (other than (i) the
Indebtedness evidenced by this Note, (ii) the RedDiamond Note and (ii) other
Permitted Indebtedness).

 

(c) Existence of Liens. The Company shall not, and the Company shall cause each
of its Subsidiaries to not, directly or indirectly, allow or suffer to exist any
mortgage, lien, pledge, charge, security interest, deed of trust, or other
encumbrance upon or in any property or assets (including accounts and contract
rights) owned by the Company or any of its Subsidiaries (collectively, “Liens”)
other than Permitted Liens.

 

18

 

 

(d) Restricted Payments. Except for the RD Note, the Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
prepay, defease, repurchase, repay or make any payments in respect of, by the
payment of cash or cash equivalents (in whole or in part, whether by way of open
market purchases, tender offers, private transactions or otherwise), all or any
portion of any Indebtedness (other than the Note) whether by way of payment in
respect of principal of (or premium, if any) or interest on, such Indebtedness
if at the time such payment is due or is otherwise made or, after giving effect
to such payment, (i) an event constituting an Event of Default has occurred and
is continuing or (ii) an event that with the passage of time and without being
cured would constitute an Event of Default has occurred and is continuing.

 

(e) Restriction on Prepayment and Cash Dividends. The Company shall not, and the
Company shall cause each of its Subsidiaries to not, directly or indirectly,
prepay, repurchase or declare or pay any cash dividend or distribution on any of
its capital stock.

 

(f) Restriction on Transfer of Assets. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, sell,
lease, license, assign, transfer, spin-off, split-off, close, convey or
otherwise dispose of any assets or rights of the Company or any Subsidiary owned
or hereafter acquired whether in a single transaction or a series of related
transactions, other than (i) sales, leases, licenses, assignments, transfers,
conveyances and other dispositions of such assets or rights by the Company and
its Subsidiaries in the ordinary course of business consistent with its past
practice and (ii) sales of inventory and products in the ordinary course of
business.

 

(g) Maturity of Indebtedness. The Company shall not, and the Company shall cause
each of its Subsidiaries to not, directly or indirectly, permit any Indebtedness
of the Company or any of its Subsidiaries to mature or accelerate prior to the
Maturity Date.

 

(h) Change in Nature of Business. The Company shall not, and the Company shall
cause each of its Subsidiaries to not, directly or indirectly, engage in any
material line of business substantially different from providing products and
services to the legal cannabis industry. The Company shall not, and the Company
shall cause each of its Subsidiaries to not, directly or indirectly, modify its
or their corporate structure or purpose.

 

(i) Preservation of Existence, Etc. The Company shall maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, its existence, rights
and privileges, and become or remain, and cause each of its Subsidiaries to
become or remain, duly qualified and in good standing in each jurisdiction in
which the character of the properties owned or leased by it or in which the
transaction of its business makes such qualification necessary.

 

(j) Maintenance of Properties, Etc. The Company shall maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, all of its properties
which are necessary or useful in the proper conduct of its business in good
working order and condition, ordinary wear and tear excepted, and comply, and
cause each of its Subsidiaries to comply, at all times with the provisions of
all leases to which it is a party as lessee or under which it occupies property,
so as to prevent any loss or forfeiture thereof or thereunder.

 

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(k) Maintenance of Intellectual Property. The Company will, and will cause each
of its Subsidiaries to, take all action necessary or advisable to maintain all
of the rights or licenses to use all trademarks, trade names, service marks,
service mark registrations, service names, original works of authorship,
patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets and other intellectual property
rights and all applications and registrations therefor of the Company and/or any
of its Subsidiaries that are necessary or material to the conduct of its
business in full force and effect.

 

(l) Maintenance of Insurance. The Company shall maintain, and cause each of its
Subsidiaries to maintain, insurance where available with responsible and
reputable insurance companies or associations (including, without limitation,
comprehensive general liability, hazard, rent and business interruption
insurance) with respect to its properties (including all real properties leased
or owned by it) and business, in such amounts and covering such risks as is
required by any governmental authority having jurisdiction with respect thereto
or as is carried generally in accordance with sound business practice by
companies in similar businesses similarly situated.

 

(m) Transactions with Affiliates. The Company shall not, nor shall it permit any
of its Subsidiaries to, enter into, renew, extend or be a party to, any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease, transfer or exchange of property or assets of any
kind or the rendering of services of any kind) with any Affiliate, except in the
ordinary course of business in a manner and to an extent consistent with past
practice and necessary or desirable for the prudent operation of its business,
for fair consideration and on terms no less favorable to it or its Subsidiaries
than would be obtainable in a comparable arm’s length transaction with a Person
that is not an Affiliate thereof.

 

14. DISTRIBUTION OF ASSETS. In addition to any adjustments pursuant to Section
7, if the Company shall declare or make any dividend or other distributions of
its assets (or rights to acquire its assets) to any or all holders of shares of
Common Stock, by way of return of capital or otherwise (including without
limitation, any distribution of cash, stock or other securities, property or
options by way of a dividend, spin off, reclassification, corporate
rearrangement, scheme of arrangement or other similar transaction) (the
“Distributions”), then the Holder will be entitled to such Distributions as if
the Holder had held the number of shares of Common Stock acquirable upon
complete conversion of this Note (without taking into account any limitations or
restrictions on the convertibility of this Note and assuming for such purpose
that the Note was converted at the lower of (a) the Alternate Conversion Price
or (b) 70% of the lowest daily VWAP after the Issuance Date) on the date
immediately prior to the date on which a record is taken for such Distribution
or, if no such record is taken, the date as of which the record holders of
Common Stock are to be determined for such Distributions (provided, however,
that to the extent that the Holder’s right to participate in any such
Distribution would result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, then the Holder shall not be entitled to
participate in such Distribution to the extent of the Maximum Percentage (and
shall not be entitled to beneficial ownership of such shares of Common Stock as
a result of such Distribution (and beneficial ownership) to the extent of any
such excess) and the portion of such Distribution shall be held in abeyance for
the benefit of the Holder until such time or times, if ever, as its right
thereto would not result in the Holder and the other Attribution Parties
exceeding the Maximum Percentage, at which time or times the Holder shall be
granted such Distribution (and any Distributions declared or made on such
initial Distribution or on any subsequent Distribution held similarly in
abeyance) to the same extent as if there had been no such limitation).

 

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15. AMENDING THE TERMS OF THIS NOTE. The prior written consent of the Holder
shall be required for any change, waiver or amendment to this Note. Any change,
waiver or amendment so approved shall be binding upon all existing and future
holders of this Note; provided, however, that no such change, waiver or, as
applied to the Note held by any particular holder of the Note, shall, without
the written consent of that particular holder, (i) reduce the amount of
Principal, reduce the amount of accrued and unpaid Interest, or extend the
Maturity Date, of the Note, (ii) disproportionally and adversely affect any
rights under the Note of any holder of any other portion of the Note; or (iii)
modify any of the provisions of, or impair the right of any holder of the Note
under this Section 15.

 

16. TRANSFER. This Note and any shares of Common Stock issued upon conversion of
this Note may be offered, sold, assigned or transferred by the Holder without
the consent of the Company.

 

17. REISSUANCE OF THIS NOTE.

 

(a) Transfer. If this Note is to be transferred, the Holder shall surrender this
Note to the Company, whereupon the Company will forthwith issue and deliver upon
the order of the Holder a new Note (in accordance with Section 17(d)),
registered as the Holder may request, representing the outstanding Principal
being transferred by the Holder and, if less than the entire outstanding
Principal is being transferred, a new Note (in accordance with Section 17(d)) to
the Holder representing the outstanding Principal not being transferred. The
Holder and any assignee, by acceptance of this Note, acknowledge and agree that,
by reason of the provisions of Section 3(c)(iii) following conversion or
prepayment of any portion of this Note, the outstanding Principal represented by
this Note may be less than the Principal stated on the face of this Note.

 

(b) Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Note (as to which a written certification and the
indemnification contemplated below shall suffice as such evidence), and, in the
case of loss, theft or destruction, of any indemnification undertaking by the
Holder to the Company in customary and reasonable form and, in the case of
mutilation, upon surrender and cancellation of this Note, the Company shall
execute and deliver to the Holder a new Note (in accordance with Section 17(d))
representing the outstanding Principal. In no event shall a bond or other
security be required to be delivered by the Holder.

 

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(c) Note Exchangeable for Different Denominations. This Note is exchangeable,
upon the surrender hereof by the Holder at the principal office of the Company,
for a new Note or Notes (in accordance with Section 17(d) and in principal
amounts of at least $100,000) representing in the aggregate the outstanding
Principal of this Note, and each such new Note will represent such portion of
such outstanding Principal as is designated by the Holder at the time of such
surrender.

 

(d) Issuance of New Notes. Whenever the Company is required to issue a new Note
pursuant to the terms of this Note, such new Note (i) shall be of like tenor
with this Note, (ii) shall represent, as indicated on the face of such new Note,
the Principal remaining outstanding (or in the case of a new Note being issued
pursuant to Section 17(a) or Section 17(c), the Principal designated by the
Holder which does not exceed the Principal remaining outstanding under this Note
immediately prior to such issuance of a new Note), (iii) shall have an issuance
date, as indicated on the face of such new Note, which is the same as the
Issuance Date of this Note, (iv) shall have the same rights and conditions as
this Note, and (v) shall represent accrued and unpaid Interest on the Principal
and Interest of this Note, from the Issuance Date.

 

18. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE
RELIEF. The remedies provided in this Note shall be cumulative and in addition
to all other remedies available under this Note and any of the other Transaction
Documents at law or in equity (including a decree of specific performance and/or
other injunctive relief), and nothing herein shall limit the Holder’s right to
pursue actual and consequential damages for any failure by the Company to comply
with the terms of this Note. The Company covenants to the Holder that there
shall be no characterization concerning this instrument other than as expressly
provided herein. Amounts set forth or provided for herein with respect to
payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Company (or the performance
thereof). The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Company therefore agrees that, in the
event of any such breach or threatened breach, the Holder shall be entitled, in
addition to all other available remedies, to specific performance and/or
temporary, preliminary and permanent injunctive or other equitable relief from
any court of competent jurisdiction in any such case without the necessity of
proving actual damages and without posting a bond or other security. The Company
shall provide all information and documentation to the Holder that is requested
by the Holder to enable the Holder to confirm the Company’s compliance with the
terms and conditions of this Note (including, without limitation, compliance
with Section 7).

 

19. PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Note is
placed in the hands of an attorney for collection or enforcement or is collected
or enforced through any legal proceeding or the Holder otherwise takes action to
collect amounts due under this Note or to enforce the provisions of this Note or
(b) there occurs any bankruptcy, reorganization, receivership of the Company or
other proceedings affecting the Company creditors’ rights and involving a claim
under this Note, then the Company shall pay the costs incurred by the Holder for
such collection, enforcement or action or in connection with such bankruptcy,
reorganization, receivership or other proceeding, including, without limitation,
attorneys’ fees and disbursements. The Company expressly acknowledges and agrees
that no amounts due under this Note shall be affected, or limited, by the fact
that the purchase price paid for this Note was less than the original Principal
amount hereof.

 

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20. CONSTRUCTION; HEADINGS. This Note shall be deemed to be jointly drafted by
the Company and the initial the Holder and shall not be construed against any
such Person as the drafter hereof. The headings of this Note are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Note. Unless the context clearly indicates otherwise, each pronoun herein shall
be deemed to include the masculine, feminine, neuter, singular and plural forms
thereof. The terms “including,” “includes,” “include” and words of like import
shall be construed broadly as if followed by the words “without limitation.” The
terms “herein,” “hereunder,” “hereof” and words of like import refer to this
entire Note instead of just the provision in which they are found. Unless
expressly indicated otherwise, all section references are to sections of this
Note. Terms used in this Note and not otherwise defined herein, but defined in
the other Transaction Documents, shall have the meanings ascribed to such terms
on the Issuance Date in such other Transaction Documents unless otherwise
consented to in writing by the Holder.

 

21. 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 privilege. No waiver shall be effective unless it is in writing
and signed by an authorized representative of the waiving party.

 

22. DISPUTE RESOLUTION.

 

(a) Submission to Dispute Resolution.

 

(i) In the case of a dispute relating to a Closing Sale Price, a Conversion
Price, an Alternate Conversion Price, a Prepayment Conversion Price, an Equity
Conditions Failure, a Black-Scholes Consideration Value, a VWAP or a fair market
value or the arithmetic calculation of a Conversion Rate, or the applicable
Prepayment Price (as the case may be) (including, without limitation, a dispute
relating to the determination of any of the foregoing), the Company or the
Holder (as the case may be) shall submit the dispute to the other party via
facsimile or electronic mail (A) if by the Company, within two Trading Days
after the occurrence of the circumstances giving rise to such dispute or (B) if
by the Holder at any time after the Holder learned of the circumstances giving
rise to such dispute. If the Holder and the Company are unable to promptly
resolve such dispute relating to such Closing Sale Price, such Conversion Price,
such Alternate Conversion Price, such Prepayment Conversion Price, such
Black-Scholes Consideration Value, such VWAP or such fair market value, or the
arithmetic calculation of such Conversion Rate or such applicable Prepayment
Price (as the case may be), at any time after the second Trading Day following
such initial notice by the Company or the Holder (as the case may be) of such
dispute to the Company or the Holder (as the case may be), then the Holder may,
at its sole option, select an independent, reputable investment bank to resolve
such dispute.

 

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(ii) The Holder and the Company shall each deliver to such investment bank (A) a
copy of the initial dispute submission so delivered in accordance with the first
sentence of this Section 22 and (B) written documentation supporting its
position with respect to such dispute, in each case, no later than 5:00 p.m.
(New York time) by the fifth Trading Day immediately following the date on which
the Holder selected such investment bank (the “Dispute Submission Deadline”)
(the documents referred to in the immediately preceding clauses (A) and (B) are
collectively referred to herein as the “Required Dispute Documentation”) (it
being understood and agreed that if either the Holder or the Company fails to so
deliver all of the Required Dispute Documentation by the Dispute Submission
Deadline, then the party who fails to so submit all of the Required Dispute
Documentation shall no longer be entitled to (and hereby waives its right to)
deliver or submit any written documentation or other support to such investment
bank with respect to such dispute and such investment bank shall resolve such
dispute based solely on the Required Dispute Documentation that was delivered to
such investment bank prior to the Dispute Submission Deadline). Unless otherwise
agreed to in writing by both the Company and the Holder or otherwise requested
by such investment bank, neither the Company nor the Holder shall be entitled to
deliver or submit any written documentation or other support to such investment
bank in connection with such dispute (other than the Required Dispute
Documentation).

 

(iii) The Company and the Holder shall cause such investment bank to determine
the resolution of such dispute and notify the Company and the Holder of such
resolution no later than 10 Trading Days immediately following the Dispute
Submission Deadline. The fees and expenses of such investment bank shall be
borne solely by the Company, and such investment bank’s resolution of such
dispute shall be final and binding upon all parties absent manifest error.

 

(b) Miscellaneous. The Company expressly acknowledges and agrees that (i) this
Section 22 constitutes an agreement to arbitrate between the Company and the
Holder (and constitutes an arbitration agreement) under the New York  Civil
Practice Law and Rules, as amended, (ii) a dispute relating to a Conversion
Price includes, without limitation, disputes as to (A) whether an issuance or
sale or deemed issuance or sale of Common Stock occurred under Section 7, (B)
the consideration per share at which an issuance or deemed issuance of Common
Stock occurred, (C) whether any issuance or sale or deemed issuance or sale of
Common Stock was an issuance or sale or deemed issuance or sale of Excluded
Securities, (D) whether an agreement, instrument, security or the like
constitutes and Option or Convertible Security and (E) whether a Dilutive
Issuance occurred, (iii) the terms of this Note and each other applicable
Transaction Document shall serve as the basis for the selected investment bank’s
resolution of the applicable dispute, such investment bank shall be entitled
(and is hereby expressly authorized) to make all findings, determinations and
the like that such investment bank determines are required to be made by such
investment bank in connection with its resolution of such dispute and in
resolving such dispute such investment bank shall apply such findings,
determinations and the like to the terms of this Note and any other applicable
Transaction Documents, (iv) the Holder (and only the Holder), in its sole
discretion, shall have the right to submit any dispute described in this Section
22 to any state or federal court sitting in New York County, New York in lieu of
utilizing the procedures set forth in this Section 22 and (v) nothing in this
Section 22 shall limit the Holder from obtaining any injunctive relief or other
equitable remedies (including, without limitation, with respect to any matters
described in this Section 22).

 

24

 

 

23. NOTICES. Whenever notice is required to be given under this Note, unless
otherwise provided herein, such notice shall be given in writing with an e-mail
copy to the last address provided by the Holder or its agents in writing to the
Company. The Company shall provide the Holder with prompt written notice of all
actions taken pursuant to this Note, including in reasonable detail a
description of such action and the reason therefore. Without limiting the
generality of the foregoing, the Company will give written notice to the Holder
(i) immediately upon any adjustment of the Conversion Price, setting forth in
reasonable detail, and certifying, the calculation of such adjustment and (ii)
at least 15 days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any grant, issuances, or sales of any Options,
Convertible Securities or rights to purchase stock, warrants, securities or
other property to holders of shares of Common Stock or (C) for determining
rights to vote with respect to any Fundamental Transaction, dissolution or
liquidation, provided in each case that such information shall be made known to
the public prior to or in conjunction with such notice being provided to the
Holder.

 

24. CANCELLATION. After all Principal, accrued Interest and other amounts at any
time owed on this Note have been paid in full, this Note shall automatically be
deemed canceled, shall be surrendered to the Company for cancellation and shall
not be reissued.

 

25. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby
irrevocably waives demand, notice, presentment, protest and all other demands
and notices in connection with the delivery, acceptance, performance, default or
enforcement of this Note.

 

26. GOVERNING LAW. This Note shall be construed and enforced in accordance with,
and all questions concerning the construction, validity, interpretation and
performance of this Note shall be governed by, the internal laws of the State of
New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Except as otherwise required by Section 22 above, the Company
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in New York County, New York, for the adjudication of any
dispute hereunder or in connection herewith or with any transaction contemplated
hereby or discussed herein, and hereby irrevocably waives, and agrees not to
assert in any suit, action or proceeding, any claim that it is not personally
subject to the jurisdiction of any such court, that such suit, action or
proceeding is brought in an inconvenient forum or that the venue of such suit,
action or proceeding is improper. Nothing contained herein shall be deemed to
limit in any way any right to serve process in any manner permitted by law.
Nothing contained herein shall be deemed to limit in any way any right to serve
process in any manner permitted by law. Nothing contained herein (i) shall be
deemed or operate to preclude the Holder from bringing suit or taking other
legal action against the Company in any other jurisdiction to collect on the
Company’s obligations to the Holder, to realize on any collateral or any other
security for such obligations, or to enforce a judgment or other court ruling in
favor of the Holder or (ii) shall limit, or shall be deemed or construed to
limit, any provision of Section 22. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY
RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE
ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF
THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

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27. SEVERABILITY. If any provision of this Note is prohibited by law or
otherwise determined to be invalid or unenforceable by a court of competent
jurisdiction, the provision that would otherwise be prohibited, invalid or
unenforceable shall be deemed amended to apply to the broadest extent that it
would be valid and enforceable, and the invalidity or unenforceability of such
provision shall not affect the validity of the remaining provisions of this Note
so long as this Note as so modified continues to express, without material
change, the original intentions of the parties as to the subject matter hereof
and the prohibited nature, invalidity or unenforceability of the provision(s) in
question does not substantially impair the respective expectations or reciprocal
obligations of the parties or the practical realization of the benefits that
would otherwise be conferred upon the parties. The parties will endeavor in good
faith negotiations to replace the prohibited, invalid or unenforceable
provision(s) with a valid provision(s), the effect of which comes as close as
possible to that of the prohibited, invalid or unenforceable provision(s).

 

28. MAXIMUM PAYMENTS. Nothing contained herein shall be deemed to establish or
require the payment of a rate of interest or other charges in excess of the
maximum permitted by applicable law. In the event that the rate of interest
required to be paid or other charges hereunder exceed the maximum permitted by
such law, any payments in excess of such maximum shall be credited against
amounts owed by the Company to the Holder and thus refunded to the Company.

 

29. PAYMENTS UNDER THE NOTES. Any payment to Holder under this Note for
principal or interest shall not be subject to any deduction, withholding or
offset for any reason whatsoever except to the extent required by law, and the
Company represents that to its best knowledge no deduction, withholding or
offset is so required for any tax or any other reason. Notwithstanding any term
or provision of this Note, the Purchase Agreement, the Warrant or the Guaranty
Agreement (each is a “Transaction Agreement”), to the contrary, if it shall be
determined that any payment (other than a payment with respect to
indemnification by the Company to or for the benefit of the Holder pursuant to
the terms of any Transaction Agreement), whether for principal, interest or
otherwise and whether paid or payable or distributed or distributable, actual or
deemed (a “Payment”) would be or is subject to any deduction, withholding or
offset due to any duty or tax (such duty or tax, together with any interest
and/or penalties related thereto, hereinafter collectively referred to as the
“Payment Tax”), and the Holder has not changed its domicile for tax purposes to
a non-U.S. jurisdiction, then the Company shall, in addition to all sums
otherwise payable, pay to the Holder an additional payment in cash (a “Gross-Up
Payment”) in an amount such that after all such Payment Taxes (whether by
deduction, withholding, offset or payment), including any interest or penalties
with respect to such taxes or any Payment Taxes (and any interest and penalties
imposed with respect thereto) imposed upon any Gross-Up Payment, Holder actually
receives an amount of Gross-Up Payment equal to the Payment Tax imposed upon the
Payment (i.e., the Holder receives a net amount equal to the Payment). The
Company shall timely remit such Payment Tax to the applicable governmental
authority and shall provide evidence of such payment to Holder within 30 days of
making such payment. Notwithstanding anything herein to the contrary, Holder
agrees to repay to the Company the full amount of the Gross-Up Payment within 45
days of filing its federal tax return covering the period where the Gross-Up
Payment was made.

 

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30. CERTAIN DEFINITIONS. For purposes of this Note, the following words and
terms shall have the following meanings:

 

(a) “1933 Act” means the Securities Act of 1933, as amended, and the rules and
regulations thereunder.

 

(b) “1934 Act” means the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder.

 

(c) “Adjustment Right” means any right granted with respect to any securities
issued in connection with, or with respect to, any issuance or sale (or deemed
issuance or sale in accordance with Section 7) of shares of Common Stock (other
than rights of the type described in Section 6(a) hereof) that could result in a
decrease in the net consideration received by the Company in connection with, or
with respect to, such securities (including, without limitation, any cash
settlement rights, cash adjustment or other similar rights).

 

(d) “Affiliate” means, with respect to any Person, any other Person that
directly or indirectly controls, is controlled by, or is under common control
with, such Person, it being understood for purposes of this definition that
“control” of a Person means the power directly or indirectly either to vote 10%
or more of the stock having ordinary voting power for the election of directors
of such Person or direct or cause the direction of the management and policies
of such Person whether by contract or otherwise.

 

(e) “Alternate Conversion Price” means, with respect to any Alternate
Conversion, that price which shall be the lowest of (i) the applicable
Conversion Price as in effect on the applicable Conversion Date of the
applicable Alternate Conversion, (ii) 70% of the lowest Closing Price of the
Common Stock during the 20 consecutive Trading Day period ending and including
the earlier of the date the Conversion Trigger Event occurs and date of delivery
or deemed delivery of the applicable notice of conversion (such period, the
“Alternate Conversion Measuring Period”). All such determinations to be
appropriately adjusted for any stock dividend, stock split, stock combination,
reclassification or similar transaction that proportionately decreases or
increases the Common Stock during such Alternate Conversion Measuring Period.

 

(f) “Approved Stock Plan” means any employee benefit plan which has been
approved by the board of directors of the Company prior to or subsequent to the
Issuance Date pursuant to which shares of Common Stock and standard options to
purchase Common Stock may be issued to any employee, officer or director for
services provided to the Company in their capacity as such.

 

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(g) “Attribution Parties” means, collectively, the following Persons and
entities: (i) any investment vehicle, including, any funds, feeder funds or
managed accounts, currently, or from time to time after the Issuance Date,
directly or indirectly managed or advised by the Holder’s investment manager or
any of its Affiliates or principals, (ii) any direct or indirect Affiliates of
the Holder or any of the foregoing, (iii) any Person acting or who could be
deemed to be acting as a Group together with the Holder or any of the foregoing
and (iv) any other Persons whose beneficial ownership of the Company’s Common
Stock would or could be aggregated with the Holder’s and the other Attribution
Parties for purposes of Section 13(d) of the 1934 Act. For clarity, the purpose
of the foregoing is to subject collectively the Holder and all other Attribution
Parties to the Maximum Percentage.

 

(h) “Black Scholes Consideration Value” means the value of the applicable
Option, Convertible Security or Adjustment Right (as the case may be) as of the
date of issuance thereof calculated using the Black Scholes Option Pricing Model
obtained from the “OV” function on Bloomberg utilizing (i) an underlying price
per share equal to the Closing Sale Price of the Common Stock on the Trading Day
immediately preceding the public announcement of the execution of definitive
documents with respect to the issuance of such Option, Convertible Security or
Adjustment Right (as the case may be), (ii) a risk-free interest rate
corresponding to the U.S. Treasury rate for a period equal to the remaining term
of such Option, Convertible Security or Adjustment Right (as the case may be) as
of the date of issuance of such Option, Convertible Security or Adjustment Right
(as the case may be), (iii) a zero cost of borrow and (iv) an expected
volatility equal to the greater of 100% and the 100 day volatility obtained from
the “HVT” function on Bloomberg (determined utilizing a 365 day annualization
factor) as of the Trading Day immediately following the date of issuance of such
Option, Convertible Security or Adjustment Right (as the case may be).

 

(i) “Bloomberg” means Bloomberg, L.P., or any successor.

 

(j)  “Change of Control” means any Fundamental Transaction other than (i) any
merger of the Company or any of its, direct or indirect, wholly-owned
Subsidiaries with or into any of the foregoing Persons, (ii) any reorganization,
recapitalization or reclassification of the shares of Common Stock in which
holders of the Company’s voting power immediately prior to such reorganization,
recapitalization or reclassification continue after such reorganization,
recapitalization or reclassification to hold publicly traded securities and,
directly or indirectly, are, in all material respects, the holders of the voting
power of the surviving entity (or entities with the authority or voting power to
elect the members of the board of directors (or their equivalent if other than a
corporation) of such entity or entities) after such reorganization,
recapitalization or reclassification, or (iii) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Company or any of its Subsidiaries.

 

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(k) “Closing Sale Price” means, for any security as of any date, the last
closing trade price, respectively, for such security on a Principal Market, as
reported by Bloomberg, or, if the applicable Principal Market begins to operate
on an extended hours basis and does not designate the closing trade price then
the last trade price of such security prior to 4:00 p.m., New York time, as
reported by Bloomberg, or, if a Principal Market is not the principal securities
exchange or trading market for such security, the last trade price, of such
security on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the foregoing do
not apply, the last trade price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg, or,
if no last trade price is reported for such security by Bloomberg, the average
of the bid prices, or the ask prices, respectively, of any market makers for
such security as reported by OTC Markets Group Inc. or any successor. If the
Closing Sale Price cannot be calculated for a security on a particular date on
any of the foregoing bases, the Closing Sale Price (as the case may be) of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 22. All such determinations shall
be appropriately adjusted for any stock splits, stock dividends, stock
combinations, recapitalizations or other similar transactions during such
period.

 

(l) “Common Stock” means (i) the Company’s shares of common stock, $0.001 par
value per share, and (ii) any capital stock into which such common stock shall
have been changed or any share capital resulting from a reclassification of such
common stock.

 

(m) “Convertible Securities” means any stock or other security (other than
Options) that is at any time and under any circumstances, directly or
indirectly, convertible into, exercisable or exchangeable for, or which
otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

(n) “Current Subsidiary” means any Person in which the Company on the Issuance
Date, directly or indirectly, (i) owns any of the outstanding capital stock or
holds any equity or similar interest of such Person or (ii) controls or operates
all or any part of the business, operations or administration of such Person,
and all of the foregoing, collectively, “Current Subsidiaries”.

 

29

 

 

(o) “Equity Conditions” means with respect to the applicable date of
determination, (a) reserved; (b) the Common Stock issuable upon conversion of
the Note and exercise of the Warrants may be publicly sold pursuant to an
effective registration statement, if filed, and in compliance with Section 5(b)
of the 1933 Act; (c) on each day during the period beginning one month prior to
the applicable date of determination and ending on such applicable date of
determination (the “Equity Conditions Measuring Period”), the Common Stock is
listed or designated for quotation (as applicable) on a Principal Market and
shall not have been suspended from trading on any such Principal Market, nor
shall delisting or suspension by a Principal Market have been threatened (with a
reasonable prospect of delisting occurring after giving effect to all applicable
notice, appeal, compliance and hearing periods) or reasonably likely to occur or
pending as evidenced by (A) a writing by such Principal Market or (B) the
Company falling below the minimum listing maintenance requirements of the
Principal Market on which the Common Stock is then listed or designated for
quotation (as applicable); (d) on each day during the Equity Conditions
Measuring Period, the Company shall have delivered all shares of Common Stock
issuable upon conversion of this Note and each other Transaction Document on a
timely basis; (e) [reserved]; (f) any shares of Common Stock to be issued in
connection with the provisions of any Transaction Document may be issued in full
without violating the rules or regulations of the Principal Market on which the
Common Stock is then listed or designated for quotation (as applicable);
(g) reserved; (h) reserved; (i) on each day during the Equity Conditions
Measuring Period, the Company otherwise shall have been in material compliance
with each, and shall not have breached any, material term, provision, covenant,
representation or warranty of any Transaction Document; (j)  on each day during
the Equity Conditions Measuring Period, there shall not have occurred an Event
of Default or an event that with the passage of time or giving of notice would
constitute an Event of Default; (k) reserved; (l) the Common Stock shall be DWAC
Eligible as of each day a Prepayment Notice is delivered to the Company or other
date of determination; (m) reserved; (n) reserved; (o) the Company or the
Transfer Agent, as applicable, does not deliver to the applicable Holder freely
tradable shares within five days following the date such shares were required to
be delivered to the applicable Holder as set forth herein; (p) reserved; (q) on
the applicable date of determination (1) no Authorized Share Failure shall exist
or be continuing, (2) the number of Common Stock available under the certificate
of incorporation of the Company and reserved by the Company to be issued
pursuant to the Notes shall be greater than the Required Reserve Amount, and (3)
all shares of Common Stock to be issued in connection with the event requiring
this determination may be issued in full without resulting in an Authorized
Share Failure; (r) no bone fide dispute shall exist, by and between any of
holder of Notes or Warrants, the Company, a Principal Market and/or the
Financial Industry Regulatory Authority with respect to any term or provision of
any Note or any other Transaction Document, and (s) the shares of Common Stock
issuable pursuant the event requiring the satisfaction of the Equity
Conditions (or issuable upon conversion of the Conversion Amount being redeemed
in the event requiring this determination at the Conversion Price then in effect
(without regard to any limitations on conversion set forth herein)) are duly
authorized. The Holder agrees and acknowledges that this provision governing
Equity Conditions shall not apply until the earlier to occur of: (i) the
expiration of six months from the date of this Note, or (ii) the Common Stock
issuable upon conversion of the Note may be publicly sold pursuant to an
effective registration statement in compliance with Section 5(b) of the 1933
Act. Notwithstanding the foregoing or anything contained herein to the contrary,
Equity Conditions (q) contained in this definition shall apply beginning on the
Issuance Date and at all times thereafter.

 

(p) “Equity Conditions Failure” means that any of the Equity Conditions was not
satisfied at all times during an applicable Equity Conditions Measuring Period
or on the day a Prepayment Notice is delivered to the Company.

 

(q) “Event Market Price” means, with respect to any Stock Combination Event
Date, the per share price of the Common Stock on the Trading Day of such Stock
Combination Event Date, after giving effect to such Stock Combination Event.

 

(r) “Excluded Securities” means (i) shares of Common Stock or standard options
to purchase Common Stock issued to directors, officers or employees of the
Company for services rendered to the Company in their capacity as such pursuant
to an Approved Stock Plan (as defined above), provided that (A) all such
issuances (taking into account the shares of Common Stock issuable upon exercise
of such options) after the Issuance Date pursuant to this clause (i) do not, in
the aggregate, exceed more than 5% of the Common Stock issued and outstanding
immediately prior to the Issuance Date and (B) the exercise price of any such
options is not lowered, none of such options are amended to increase the number
of shares issuable thereunder and none of the terms or conditions of any such
options are otherwise materially changed in any manner that adversely affects
the Holder.

 

30

 

 

(s) “Fundamental Transaction” means (A) that the Company shall, directly or
indirectly, including through subsidiaries, Affiliates or otherwise, in one or
more related transactions, (i) consolidate or merge with or into (whether or not
the Company is the surviving corporation) another Subject Entity, or (ii) sell,
assign, transfer, convey or otherwise dispose of all or substantially all of the
properties or assets of the Company or any of its “significant subsidiaries” (as
defined in Rule 1-02 of Regulation S-X) to one or more Subject Entities, or
(iii) make, or allow one or more Subject Entities to make, or allow the Company
to be subject to or have its Common Stock be subject to or party to one or more
Subject Entities making, a purchase, tender or exchange offer that is accepted
by the holders of at least either (x) 50% of the outstanding shares of Common
Stock, (y) 50% of the outstanding shares of Common Stock calculated as if any
shares of Common Stock held by all Subject Entities making or party to, or
Affiliated with any Subject Entities making or party to, such purchase, tender
or exchange offer were not outstanding; or (z) such number of shares of Common
Stock such that all Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such purchase, tender or exchange offer,
become collectively the beneficial owners (as defined in Rule 13d-3 under the
1934 Act) of at least 50% of the outstanding shares of Common Stock, or (iv)
consummate a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with one or more Subject Entities whereby all such
Subject Entities, individually or in the aggregate, acquire, either (x) at least
50% of the outstanding shares of Common Stock, (y) at least 50% of the
outstanding shares of Common Stock calculated as if any shares of Common Stock
held by all the Subject Entities making or party to, or Affiliated with any
Subject Entity making or party to, such stock purchase agreement or other
business combination were not outstanding; or (z) such number of shares of
Common Stock such that the Subject Entities become collectively the beneficial
owners (as defined in Rule 13d-3 under the 1934 Act) of at least 50% of the
outstanding shares of Common Stock, or (v) reorganize, recapitalize or
reclassify its Common Stock, (B) that the Company shall, directly or indirectly,
including through subsidiaries, Affiliates or otherwise, in one or more related
transactions, allow any Subject Entity individually or the Subject Entities in
the aggregate to be or become the “beneficial owner” (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, whether through acquisition,
purchase, assignment, conveyance, tender, tender offer, exchange, reduction in
outstanding shares of Common Stock, merger, consolidation, business combination,
reorganization, recapitalization, spin-off, scheme of arrangement,
reorganization, recapitalization or reclassification or otherwise in any manner
whatsoever, of either (x) at least 50% of the aggregate ordinary voting power
represented by issued and outstanding Common Stock, (y) at least 50% of the
aggregate ordinary voting power represented by issued and outstanding Common
Stock not held by all such Subject Entities as of the date of this Note
calculated as if any shares of Common Stock held by all such Subject Entities
were not outstanding, or (z) a percentage of the aggregate ordinary voting power
represented by issued and outstanding shares of Common Stock or other equity
securities of the Company sufficient to allow such Subject Entities to effect a
statutory short form merger or other transaction requiring other shareholders of
the Company to surrender their shares of Common Stock without approval of the
shareholders of the Company or (C) directly or indirectly, including through
subsidiaries, Affiliates or otherwise, in one or more related transactions, the
issuance of or the entering into any other instrument or transaction structured
in a manner to circumvent, or that circumvents, the intent of this definition in
which case this definition shall be construed and implemented in a manner
otherwise than in strict conformity with the terms of this definition to the
extent necessary to correct this definition or any portion of this definition
which may be defective or inconsistent with the intended treatment of such
instrument or transaction.

 

31

 

 

(t) “GAAP” means United States generally accepted accounting principles,
consistently applied.

 

(u) “Group” means a “group” as that term is used in Section 13(d) of the 1934
Act and as defined in Rule 13d-5 thereunder.

 

(v)  “Indebtedness” means (A) all indebtedness for borrowed money, (B) all
obligations issued, undertaken or assumed as the deferred purchase price of
property or services (including, without limitation, “capital leases” in
accordance with GAAP) (other than trade payables entered into in the ordinary
course of business consistent with past practice which have been past due less
than 90 days), (C) all reimbursement or payment obligations with respect to
letters of credit, surety bonds and other similar instruments, (D) all
obligations evidenced by notes, bonds, debentures or similar instruments,
including obligations so evidenced incurred in connection with the acquisition
of property, assets or businesses, (E) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to any property or assets acquired with
the proceeds of such indebtedness (even though the rights and remedies of the
seller or bank under such agreement in the event of default are limited to
repossession or sale of such property), (F) all monetary obligations under any
leasing or similar arrangement which, in connection with GAAP, consistently
applied for the periods covered thereby, is classified as a capital lease, (G)
all indebtedness referred to in clauses (A) through (F) above secured by (or for
which the holder of such Indebtedness has an existing right, contingent or
otherwise, to be secured by) any Lien upon or in any property or assets
(including accounts and contract rights) owned by any Person, even though the
Person that owns such assets or property has not assumed or become liable for
the payment of such indebtedness, and (H) all Contingent Obligations in respect
of indebtedness or obligations of others of the kinds referred to in clauses (A)
through (G) above; and “Contingent Obligation” means, as to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any Indebtedness, lease, dividend or other obligation of another
Person if the primary purpose or intent of the Person incurring such liability,
or the primary effect thereof, is to provide assurance to the obligee of such
liability that such liability will be paid or discharged, or that any agreements
relating thereto will be complied with, or that the holders of such liability
will be protected (in whole or in part) against loss with respect thereto.

 

32

 

 

(w) “Material Adverse Effect” means any material adverse effect on (i) the
business, properties, assets, liabilities, operations (including results
thereof), growth opportunities which are known, obtainable and material to the
Company and not capable of being mitigated by other opportunities available to
the Company, or condition (financial or otherwise) of the Company or any
Subsidiary, individually or taken as a whole, (ii) the transactions contemplated
hereby or in any of the other Transaction Documents or any other agreements or
instruments to be entered into in connection herewith or therewith or (iii) the
authority or ability of the Company or any of its Subsidiaries to perform any of
their respective obligations under any of the Transaction Documents (as defined
below).

 

(x) “Maturity Date” shall mean the date listed in the preamble hereto as the
Maturity Date; provided, however, the Maturity Date may be extended at the
option of the Holder (i) in the event that, and for so long as, an Event of
Default shall have occurred and be continuing or any event shall have occurred
and be continuing that with the passage of time and the failure to cure would
result in an Event of Default or (ii) through the date that is 20 Trading Days
after the consummation of a Fundamental Transaction in the event that a
Fundamental Transaction is publicly announced or a Change of Control Notice is
delivered prior to the Maturity Date.

 

(y) “New Subsidiary” means, as of any date of determination, any Person in which
the Company after the Issuance Date, directly or indirectly, (i) owns or
acquires any of the outstanding capital stock or holds any equity or similar
interest of such Person or (ii) controls or operates all or any part of the
business, operations or administration of such Person, and all of the foregoing,
collectively, “New Subsidiaries”.

 

(z) “Options” means any rights, warrants or options to subscribe for or purchase
shares of Common Stock or Convertible Securities.

 

(aa) “Parent Entity” of a Person means an entity that, directly or indirectly,
controls the applicable Person and whose common stock or equivalent equity
security is quoted or listed on a Principal Market, or, if there is more than
one such Person or Parent Entity, the Person or Parent Entity with the largest
public market capitalization as of the date of consummation of the Fundamental
Transaction.

 

(bb) “Permitted Indebtedness” means (i) Indebtedness evidenced by this Note and,
(ii) Indebtedness set forth on Schedule 29(dd) hereto, as in effect as of the
Issuance Date and (iii) Indebtedness secured by Permitted Liens.

 

(cc) “Permitted Liens” means (i) any Lien for taxes not yet due or delinquent or
being contested in good faith by appropriate proceedings for which adequate
reserves have been established in accordance with GAAP, (ii) any statutory Lien
arising in the ordinary course of business by operation of law with respect to a
liability that is not yet due or delinquent, (iii) any Lien created by operation
of law, such as materialmen’s liens, mechanics’ liens and other similar liens,
arising in the ordinary course of business with respect to a liability that is
not yet due or delinquent or that are being contested in good faith by
appropriate proceedings, (iv) purchase money equipment Liens in an aggregate
amount not to exceed $50,000, (v) Liens incurred in connection with the
extension, renewal or refinancing of the Indebtedness secured by Liens of the
type described in clause (iv) above, provided that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase, (vi) Liens in favor of customs and revenue
authorities arising as a matter of law to secure payments of custom duties in
connection with the importation of goods, and (vii) Liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Section 4(a)(x).

 

33

 

 

(dd) “Person” means an individual, a limited liability company, a partnership, a
joint venture, a corporation, a trust, an unincorporated organization, any other
entity or a government or any department or agency thereof.

 

(ee) “Principal Market” means any of The New York Stock Exchange, the NYSE
American, the Nasdaq Capital Market, the Nasdaq Global Select Market, the Nasdaq
Global Market, the Canadian Securities Exchange, the OTCQB, the OTCQX, the OTC
Pink or any other market operated by the OTC Markets Group Inc. or any
successors of any of these exchanges or markets.

 

(ff) “Prepayment Notices” means, collectively, the Event of Default Prepayment
Notices, the Company Optional Prepayment Notices and the Change of Control
Prepayment Notices, and each of the foregoing, individually, a “Prepayment
Notice.”

 

(gg) “Prepayment Premium” means 112.5%.

 

(hh) “Prepayment Prices” means, collectively, Event of Default Prepayment
Prices, the Change of Control Prepayment Prices, the Prepayment Conversion Price
and the Company Optional Prepayment Prices, and each of the foregoing,
individually, a “Prepayment Price.”

 

(ii) “SEC” means the United States Securities and Exchange Commission or the
successor thereto.

 

(jj) “SPA” means that certain Securities Purchase Agreement (as amended,
restated, modified and/or supplemented from time to time) by and between the
Company and the Holder, dated March 1, 2019.

 

(kk) “Subsidiaries” means, as of any date of determination, collectively, all
Current Subsidiaries and all New Subsidiaries, and each of the foregoing,
individually, a “Subsidiary.”

 

(ll) “Subject Entity” means any Person, Persons or Group or any Affiliate or
associate of any such Person, Persons or Group.

 

(mm) “Successor Entity” means the Person (or, if so elected by the Holder, the
Parent Entity) formed by, resulting from or surviving any Fundamental
Transaction or the Person (or, if so elected by the Holder, the Parent Entity)
with which such Fundamental Transaction shall have been entered into.

 

34

 

 

(nn) “Trading Day” means, as applicable, (x) with respect to all price or
trading volume determinations relating to the Common Stock, any day on which the
Common Stock is traded on a Principal Market, or, if a Principal Market is not
the principal trading market for the Common Stock, then on the principal
securities exchange or securities market on which the Common Stock is then
traded, provided that “Trading Day” shall not include any day on which the
Common Stock is scheduled to trade on such exchange or market for less than 4.5
hours or any day that the Common Stock is suspended from trading during the
final hour of trading on such exchange or market (or if such exchange or market
does not designate in advance the closing time of trading on such exchange or
market, then during the hour ending at 4:00 p.m., New York time) unless such day
is otherwise designated as a Trading Day in writing by the Holder or (y) with
respect to all determinations other than price determinations relating to the
Common Stock, any day on which The New York Stock Exchange (or any successor
thereto) is open for trading of securities.

 

(oo) “Transaction Documents” means this Note, the SPA, the Warrant, the Security
Agreement, and any other documents relating to the issuance of the Note by the
Company to the Holder.

 

(pp) “VWAP” means, for any security as of any date, the dollar volume-weighted
average price for such security on a Principal Market (or, if a Principal Market
is not the principal trading market for such security, then on the principal
securities exchange or securities market on which such security is then traded)
during the period beginning at 9:30 a.m., New York time, and ending at 4:00
p.m., New York time, as reported by Bloomberg through its “HP” function (set to
weighted average) or, if the foregoing does not apply, the dollar
volume-weighted average price of such security in the over-the-counter market on
the electronic bulletin board for such security during the period beginning at
9:30 a.m., New York time, and ending at 4:00 p.m., New York time, as reported by
Bloomberg, or, if no dollar volume-weighted average price is reported for such
security by Bloomberg for such hours, the average of the highest closing bid
price and the lowest closing ask price of any of the market makers for such
security as reported by OTC Markets Group Inc. If the VWAP cannot be calculated
for such security on such date on any of the foregoing bases, the VWAP of such
security on such date shall be the fair market value as mutually determined by
the Company and the Holder. If the Company and the Holder are unable to agree
upon the fair market value of such security, then such dispute shall be resolved
in accordance with the procedures in Section 22. All such determinations shall
be appropriately adjusted for any stock dividend, stock split, stock
combination, recapitalization or other similar transaction during such period.

 

(qq) “Warrant” means that certain Common Stock Purchase Warrant dated as of the
Issuance Date, substantially in the form attached hereto as Exhibit IV.

 

35

 

 

31. DISCLOSURE. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
non-public information relating to the Company or any of its Subsidiaries, the
Company shall within one Trading Day after any such receipt or delivery publicly
disclose such material, non-public information on a Current Report on Form 8-K
or otherwise. In the event that the Company believes that a notice contains
material, non-public information relating to the Company or any of its
Subsidiaries, the Company so shall indicate to the Holder contemporaneously with
delivery of such notice, and in the absence of any such indication, the Holder
shall be allowed to presume that all matters relating to such notice do not
constitute material, non-public information relating to the Company or any of
its Subsidiaries. If the Company or any of its Subsidiaries provides material
non-public information to the Holder that is not simultaneously filed in a
Current Report on Form 8-K and the Holder has not agreed to receive such
material non-public information, the Company hereby covenants and agrees that
the Holder shall not have any duty of confidentiality to the Company, any of its
Subsidiaries or any of their respective officers, directors, employees,
Affiliates or agents with respect to, or a duty to any of the foregoing not to
trade on the basis of, such material non-public information.

 

32. Senior Security Interest. Holder, as Collateral Agent (as defined in the
SPA), for the ratable benefit of the Holder and its assigns, has been granted a
senior security interest in certain assets of the Company and its Subsidiaries
as more fully described in that certain Security Agreement by and among the
Company, its Subsidiaries and the Holder, dated of even date herewith (the
“Security Agreement”), and the other Transaction Documents.

 

[signature page follows]

 

36

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed as of
the Issuance Date set out above.

 

 

HELIX TCS, INC.

      By:    

Name:

Title:

 

 

37

 

 

EXHIBIT I

 

HELIX TCS, INC.

 

CONVERSION NOTICE

 

Reference is made to the Secured Convertible Promissory Note (the “Note”) issued
to the undersigned by Helix TCS, Inc., a Delaware corporation (the “Company”).
In accordance with and pursuant to the Note, the undersigned hereby elects to
convert the Conversion Amount (as defined in the Note) of the Note indicated
below into shares of Common Stock, $0.001 par value per share (the “Common
Stock”), of the Company, as of the date specified below. Capitalized terms not
defined herein shall have the meaning as set forth in the Note.

 

Date of Conversion:   Aggregate Principal to be converted:   Aggregate accrued
and unpaid Interest and accrued with respect to such portion of the Aggregate
Principal and such Aggregate Interest to be converted:   AGGREGATE CONVERSION
AMOUNT TO BE CONVERTED:   Please confirm the following information: Conversion
Price:   Number of shares of Common Stock to be issued:  

 

☐       If this Conversion Notice is being delivered with respect to an
Alternate Conversion, check here if the Holder is electing to use the following
Alternate Conversion Price:____________

 

Please issue the Common Stock into which the Note is being converted to the
Holder, or for its benefit, as follows:

 

☐       Check here if requesting delivery as a certificate to the following name
and to the following address:

Issue to:               ☐ Check here if requesting delivery by
Deposit/Withdrawal at Custodian as follows: DTC Participant:   DTC Number:  
Account Number:                

Date: _____________ __,

Name of Registered Holder

 

 

By:                                            
Name:
Title:

Tax ID:_____________________

 

Facsimile:___________________

 

E-mail Address:

 

 

 

 

EXHIBIT II

ACKNOWLEDGMENT

 

The Company hereby (a) acknowledges this Conversion Notice, (b) certifies that
the above indicated number of shares of Common Stock [are][are not] eligible to
be resold by the Holder either (i) pursuant to Rule 144 (subject to the Holder’s
execution and delivery to the Company of a customary 144 representation letter)
or (ii) an effective and available registration statement and (c) hereby directs
_________________ to issue the above indicated number of shares of Common Stock
in accordance with the Transfer Agent Instructions dated _____________, 20__
from the Company and acknowledged and agreed to by ________________________.

 

 

HELIX TCS, INC.

      By:    

Name:

Title:

 

 

 

 

 

EXHIBIT III

 

[Name and address] Date: __________________

  

PREPAYMENT NOTICE

 

The above-captioned Company hereby gives notice to Helix TCS, Inc., a Delaware
corporation (the “Company”), pursuant to that certain Secured Convertible
Promissory Note made by Company in favor of the Holder on March 1, 2019 (the
“Note”), that Company elects to prepay a portion of the Note in conversion
shares or in cash as set forth below. In the event of a conflict between this
Prepayment Notice and the Note, the Note shall govern, or, in the alternative,
at the election of the Company in its sole discretion, the Company may provide a
new form of Prepayment Notice to conform to the Note. Capitalized terms used in
this notice without definition shall have the meanings given to them in the
Note.

 

PREPAYMENT INFORMATION

 

A.Prepayment Date: ____________, 201__

B.Prepayment Amount: ____________

C.Portion of Prepayment Amount to be Paid in Cash: ____________

D.Portion of Prepayment Amount to be Converted into Common Stock: ____________
(B minus C)

E.Prepayment Conversion Price: _______________

F.Prepayment Conversion Shares: _______________ (D divided by E)

G.Remaining Outstanding Principal of Note: ____________ *

 

* Subject to adjustments for corrections, defaults, interest and other
adjustments permitted by the Transaction Documents, the terms of which shall
control in the event of any dispute between the terms of this Prepayment Notice
and such Transaction Documents.

 

2. EQUITY CONDITIONS CERTIFICATION (Section to be completed by the Company)

 

A.Market Capitalization:________________

 

(Check One)

 

B._________ Company herby certifies that no Equity Conditions Failure exists as
of the day the applicable Prepayment Notice was delivered to the Company.

 

C._________ Company hereby gives notice that an Equity Conditions Failure has
occurred and requests a waiver from Company with respect thereto. The Equity
Conditions Failure is as follows:

 

____________________________________________________________________________________________

____________________________________________________________________________________________

____________________________________________________________________________________________

________________________________________________

 

Please transfer the Prepayment Conversion Shares, if applicable, electronically
(via DWAC) to the following account:

 

Broker: _______________________   Address:   DTC#: _______________________      
Account #: ____________________       Account Name: _________________          
   

 

To the extent the Prepayment Conversion Shares are not able to be delivered to
the Company electronically via the DWAC system, deliver all such certificated
shares to the Company via reputable overnight courier after receipt of this
Prepayment Notice (by facsimile transmission or otherwise) to:

_____________________________________

_____________________________________

_____________________________________

 

Sincerely,

 

Company:

 

 

 

 

EXHIBIT IV

FORM OF WARRANT

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCHEDULE 29(dd)

PERMITTED INDEBTEDNESS