--------------------------------------------------------------------------------

Exhibit 10.1
 
 
NEITHER THIS NOTE NOR THE SECURITIES THAT ARE ISSUABLE TO THE HOLDER UPON
CONVERSION HEREOF (COLLECTIVELY, THE “SECURITIES”) HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “1933 ACT”), OR THE SECURITIES LAWS
OF ANY STATE OR OTHER JURISDICTION. NEITHER THE SECURITIES NOR ANY INTEREST OR
PARTICIPATION THEREIN MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED:
(I) IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES
UNDER THE 1933 ACT OR APPLICABLE STATE SECURITIES LAWS; OR (II) IN THE ABSENCE
OF AN OPINION OF COUNSEL, IN A FORM REASONABLY ACCEPTABLE TO THE ISSUER, THAT
REGISTRATION IS NOT REQUIRED UNDER THE 1933 ACT OR; (III) UNLESS SOLD,
TRANSFERRED OR ASSIGNED PURSUANT TO RULE 144 UNDER THE 1933 ACT.

BY ACCEPTING THIS OBLIGATION, THE HOLDER REPRESENTS AND WARRANTS THAT IT IS NOT
A UNITED STATES PERSON (OTHER THAN AN EXEMPT RECIPIENT DESCRIBED IN SEC
6049(B)(4) OF THE INTERNAL REVENUE CODE AND REGULATIONS THEREUNDER) AND THAT IT
IS NOT ACTING FOR OR ON BEHALF OF A UNITES STATES PERSON (OTHER THAN AN EXEMPT
RECIPIENT DESCRIBED IN SEC. 6049(B)(4) OF THE INTERNAL REVENUE CODE AND THE
REGULATIONS THEREUNDER).
 

CONVERTIBLE PROMISSORY NOTE
 
 
Issuance Date as of May 31, 2012
 
Garden City, New York
      Effective Date: June 12, 2012   $350,000.00

 
 
FOR VALUE RECEIVED, Ace Marketing & Promotions, Inc., a corporation incorporated
under the laws of the State of New York and with an office located at 600 Old
Country Road, Suite 541, Garden City, New York 11530 (the “Company”), hereby
promises to pay to the order of TCA Global Credit Master Fund, LP, a Cayman
Islands limited partnership located at 1404 Rodman Street, Hollywood, FL 33020,
and its successors or assigns (the “Holder”), the principal amount of Three
Hundred Fifty Thousand and 00/100 United States Dollars (US$350,000.00) on or
prior to December 12, 2013 (the “Maturity Date”), as such Maturity Date may be
extended as provided below, and to pay interest on the unpaid principal balance
hereof at the rate of twelve percent (12%) per annum (the “Applicable Rate”)
commencing as of the date the proceeds hereunder are funded to the Company (the
“Funding Date”), in accordance with the terms hereof.  This Convertible
Promissory Note (this note, and all modifications, extensions, future advances,
supplements, and renewals thereof, and any substitutions therefor, hereinafter
referred to as the “Note”) shall be payable in accordance with the terms set
forth below.
 
Company Initials__________
 
1

--------------------------------------------------------------------------------

 
 
1. Payments of Principal and Interest.

(a) Payment of Principal. The principal amount of this Note, together with all
accrued and unpaid interest and all other sums due and payable hereunder and/or
under the “Security Agreement” or any other “Transaction Documents” (as both
terms are hereinafter defined), shall be due and payable in full to the Holder
on or prior to the Maturity Date.

(b) Payment of Interest. Interest on the unpaid principal balance of this Note
shall accrue at the Applicable Rate commencing on the Funding Date.  In
addition, commencing on July 12, 2012, and on the twelfth (12th) day of each and
every consecutive calendar month thereafter during the term hereof, the Company
shall pay to Holder payments of interest accrued under this Note in the amount
of Three Thousand Five Hundred and No/100 Dollars ($3,500.00) per
month.  Interest shall be computed on the basis of a 360-day year and paid for
the actual number of days elapsed.  Accrued and unpaid interest under this Note
shall be paid in full on the Maturity Date.  Any accrued but unpaid interest
shall, at the option of the Holder, be included, from time to time, in
the Conversion Amount (as defined herein).

(c) Payment of Default Interest.  Any amount of principal or interest on this
Note which is not paid when due shall bear interest from the date due until such
past due amount is paid at a rate of interest equal to the lesser of: (i)
eighteen percent (18%) per annum; or (ii)  the highest non-usurious rate
permitted by applicable law (the “Default Rate”).  Any accrued but unpaid
interest at the Default Rate shall, at the option of the Holder, be included,
from time to time, in the Conversion Amount.

(d) General Payment Provisions. All payments of principal and interest on this
Note shall be made in lawful money of the United States of America by wire
transfer to the Holder’s wire instructions set forth below, or such other
account as the Holder may designate by written notice to the Company from time
to time in accordance with the provisions of this Note.  Whenever any amount
expressed to be due by the terms of this Note is due on any day which is not a
Business Day, the same shall instead be due on the next succeeding Business Day.
For purposes of this Note, “Business Day” shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the State of Florida are
authorized or required by law or executive order to remain closed.  All payments
hereunder shall be applied first towards costs and expenses due under this Note
and any other Transaction Documents, second towards the payment of accrued and
unpaid interest under this Note, and third towards the principal outstanding
hereunder.  Wire Instructions for all sums due and payable hereunder are as
follows:

TCA Global Credit Master Fund, LP (US Dollars)
Correspondent Bank:
Bank of New York
1 Wall Street
New York, New York 10286
ABA# 021-0000-18
SWIFT: IRVTUS3N
 
Company Initials__________
 
 
2

--------------------------------------------------------------------------------

 
Beneficiary Bank:
Caledonian Bank Limited
A/C Number: 89-000-50977
SWIFT: CBTLKYKY

For Final Credit:
Account Name: Caledonian Fund Services (Cayman) Limited – Client Bank Account
Account Number: 0201420308681001

Beneficiary Reference: TCA Global Credit Master Fund, LP A/C # 0201420310849001

(e) Optional Prepayment.  At any time prior to the Maturity Date and/or the
Conversion Date, the Company may pre-pay this Note in full or in part, without
penalty.  Upon prepayment of this Note in full, the Holder shall have no further
rights under this Note (except for such rights that may specifically survive the
payment of the Note), including no rights of conversion.

(f) Extension of Maturity Date.  On the Maturity Date, or a date that is no
earlier than ten (10) days prior to the Maturity Date, the Company shall have
the option to request an extension of the Maturity Date for one (1) additional
six (6) month period.  To make such request, the Company shall give written
notice to Holder of the Company’s request to extend the Maturity Date within the
time frame set forth in this Section 1(f).  Provided that no default or “Event
of Default” (as such terms is defined herein or in any other Transaction
Documents) has occurred and is continuing, and provided that no event has
occurred, that, with the passage of time or the giving of notice, or both, would
result in any such default or Event of Default, then Holder shall accept the
Company’s request for extension of the Maturity Date and the Maturity Date
hereunder shall be extended for one (1) additional six (6) month period, and the
Maturity Date hereunder shall be revised to a date that is six (6) months from
the previous Maturity Date.  During such extension period, the Company shall
continue to make payments of interest hereunder in accordance with Section 1(b)
above, on the same monthly date as set forth in such Section 1(b) above.

2.           Conversion of Note.  At any time and from time to time while this
Note is outstanding on or after the Funding Date, this Note may be, at the sole
option of the Holder, convertible into shares of the Company’s common stock, par
value $0.0001 per share (the “Common Stock”), in accordance with the terms and
conditions set forth in this Section 2.

(a)           Voluntary Conversion.  At any time while this Note is outstanding
on or after the Funding Date, the Holder may convert all or any portion of the
outstanding principal, accrued and unpaid interest, and any other sums due and
payable hereunder or under any of the other Transaction Documents (such total
amount, the “Conversion Amount”) into shares of Common Stock of the Company (the
“Conversion Shares”) at a price equal to: (i) the Conversion Amount (the
numerator); divided by (ii) ninety-five percent (95%) of the average daily
volume weighted average price of the Company’s Common Stock during the five (5)
trading days immediately prior to the Conversion Date (as defined below) as
indicated in the conversion notice (in the form attached hereto as Exhibit “A”,
the “Conversion Notice”) (the denominator) (the “Conversion Price”).  The Holder
shall submit a Conversion Notice indicating the amount of the Note being
converted, the number of Conversion Shares issuable upon such conversion, and
where the Conversion Shares should be delivered.
 
Company Initials__________
 
 
3

--------------------------------------------------------------------------------

 
(b)           The Holder’s Conversion Limitations.

(1)           The Company shall not affect any conversion of this Note, and the
Holder shall not have the right to convert any portion of this Note, to the
extent that after giving effect to the conversion set forth on the Conversion
Notice submitted by the Holder, the Holder (together with the Holder’s
affiliates (as defined herein) and any Persons acting as a group together with
the Holder or any of the Holder’s affiliates) would beneficially own in excess
of the Beneficial Ownership Limitation (as defined herein).  To ensure
compliance with this restriction, prior to delivery of any Conversion Notice,
the Holder shall have the right to request that the Company provide to the
Holder a written statement of the percentage ownership of the Company’s Common
Stock that would by beneficially owned by the Holder and its affiliates in the
Company if the Holder converted such portion of this Note then intended to be
converted by Holder.  The Company shall, within two (2) Business Days of such
request, provide Holder with the requested information in a written statement,
and the Holder shall be entitled to rely on such written statement from the
Company in issuing its Conversion Notice and ensuring that its ownership of the
Company’s Common Stock is not in excess of the Beneficial Ownership
Limitation.  The restriction described in this Section may be waived by Holder,
in whole or in part, upon sixty-one (61) days’ prior notice from the Holder to
the Company to increase such percentage.

For purposes of this Note, the “Beneficial Ownership Limitation” shall be 4.99%
of the number of shares of Common Stock outstanding immediately after giving
effect to the issuance of shares of Common Stock issuable upon conversion of
this Note.  The limitations contained in this Section shall apply to a successor
holder of this Note.  For purposes of this Note, “Person” means an individual, a
limited liability company, a partnership, a joint venture, a corporation, a
trust, an unincorporated organization or a government or any department or
agency thereof.

(2)           The Company shall not affect any conversion of this Note, and the
Holder shall not have the right to convert any portion of this Note, to the
extent that the average daily volume weighted average price of the Company’s
Common Stock during the five (5) trading days immediately prior to the
Conversion Date is below $0.25 per share of Common Stock; provided, however, the
limitation in this Section 2(b)(2) shall not apply to the extent that an Event
of Default has occurred and is continuing as of the date the Conversion Notice
is delivered, and further provided, however, that the Company shall have the
right to waive this limitation at any time upon written notice to the Holder.

(c)           Mechanics of Conversion.  The conversion of this Note shall be
conducted in the following manner:

(1)           Holder's Delivery Requirements.  To convert this Note into shares
of Common Stock on any date set forth in the Conversion Notice by the Holder
(the “Conversion Date”), the Holder shall: (A) transmit by facsimile or
electronic mail (or otherwise deliver) a copy of the fully executed Conversion
Notice to the Company (or, under certain circumstances as set forth below, by
delivery of the Conversion Notice to the Company’s transfer agent); and (B) upon
receipt by the Holder of the Conversion Shares, surrender the original Note to a
nationally recognized overnight courier for delivery to the Company.
 
Company Initials__________
 
 
4

--------------------------------------------------------------------------------

 

(2)           Company’s Response.  Upon receipt by the Company of a copy of a
Conversion Notice, the Company shall as soon as practicable, but in no event
later than two (2) Business Days after receipt of such Conversion Notice, send,
via facsimile or electronic mail (or otherwise deliver) a confirmation of
receipt of such Conversion Notice (the “Conversion Confirmation”) to the Holder
indicating that the Company will process such Conversion Notice in accordance
with the terms herein. In the event the Company fails to issue its Conversion
Confirmation within said two (2) Business Day time period, the Holder shall have
the absolute and irrevocable right and authority to deliver the fully executed
Conversion Notice to the Company’s transfer agent, and pursuant to the terms of
Section 2(g) below, the Company’s transfer agent shall issue the applicable
Conversion Shares to Holder as hereby provided.  Within five (5) Business Days
after the date of the Conversion Confirmation (or the date of the Conversion
Notice, if the Company fails to issue the Conversion Confirmation), provided
that the Company’s transfer agent is participating in the Depository Trust
Company (“DTC”) Fast Automated Securities Transfer (“FAST”) program, the Company
shall cause the transfer agent to (or, if for any reason the Company fails to
instruct or cause its transfer agent to so act, then pursuant to Section 2(g)
below, the Holder may request and require the Company’s transfer agent to)
electronically transmit the applicable Conversion Shares to which the Holder
shall be entitled by crediting the account of the Holder’s prime broker with DTC
through its Deposit Withdrawal Agent Commission (“DWAC”) system, and provide
proof satisfactory to the Holder of such delivery.  In the event that the
Company’s transfer agent is not participating in the DTC FAST program and is not
otherwise DWAC eligible, within five (5) Business Days after the date of the
Conversion Confirmation (or the date of the Conversion Notice, if the Company
fails to issue the Conversion Confirmation), the Company shall instruct and
cause its transfer agent to (or, if for any reason the Company fails to instruct
or cause its transfer agent to so act, then pursuant to Section 2(g) below, the
Holder may request and require the Company’s transfer agent to) issue and
surrender to a nationally recognized overnight courier for delivery to the
address specified in the Conversion Notice, a certificate, registered in the
name of the Holder, for the number of Conversion Shares to which the Holder
shall be entitled.  To effect conversions hereunder, the Holder shall not be
required to physically surrender this Note to the Company unless the entire
principal amount of this Note, plus all accrued and unpaid interest thereon, has
been so converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Note in an amount equal to the applicable
conversion.  The Holder and the Company shall maintain records showing the
principal amount(s) converted and the date of such conversion(s).  The Holder,
and any assignee by acceptance of this Note, acknowledge and agree that, by
reason of the provisions of this paragraph, following conversion of a portion of
this Note, the unpaid and unconverted principal amount of this Note may be less
than the amount stated on the face hereof.

(3)           Record Holder.  The Person(s) 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(s) of such shares of Common Stock as of the
Conversion Date.
 
 
Company Initials__________
 
 
5

--------------------------------------------------------------------------------

 
(4)           Failure to Deliver Certificates. If in the case of any Conversion
Notice, the certificate or certificates are not delivered to or as directed by
the Holder by the date required hereby, the Holder shall be entitled to elect by
written notice to the Company at any time on or before its receipt of such
certificate or certificates, to rescind such Conversion Notice, in which event
the Company shall promptly return to the Holder any original Note delivered to
the Company and the Holder shall promptly return to the Company the Common Stock
certificates representing the principal amount of this Note unsuccessfully
tendered for conversion to the Company.

(5)           Obligation Absolute; Partial Liquidated Damages. The Company’s
obligations to issue and deliver the Conversion Shares upon conversion of this
Note in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any person or entity or any action to enforce the same, or any
setoff, counterclaim, recoupment, limitation or termination, or any breach or
alleged breach by the Holder or any other person or entity of any obligation to
the Company or any violation or alleged violation of law by the Holder or any
other person or entity, and irrespective of any other circumstance which might
otherwise limit such obligation of the Company to the Holder in connection with
the issuance of such Conversion Shares; provided, however, that such delivery
shall not operate as a waiver by the Company of any such action the Company may
have against the Holder. In the event the Holder of this Note shall elect to
convert any or all of the outstanding principal amount hereof and accrued but
unpaid interest thereon in accordance with the terms of this Note, the Company
may not refuse conversion based on any claim that the Holder or anyone
associated or affiliated with the Holder has been engaged in any violation of
law, agreement or for any other reason, unless an injunction from a court, on
notice to Holder, restraining and or enjoining conversion of all or part of this
Note shall have been sought and obtained, and the Company posts a surety bond
for the benefit of the Holder in the amount of 150% of the outstanding principal
amount of this Note, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the underlying
dispute and the proceeds of which shall be payable to such Holder to the extent
it obtains judgment. In the absence of such injunction, the Company shall issue
Conversion Shares upon a properly noticed conversion. If the Company fails for
any reason to deliver to the Holder such certificate or certificates
representing Conversion Shares pursuant to timing and delivery requirements of
this Note, the Company shall pay to such Holder, in cash, as liquidated damages
and not as a penalty, for each $1,000 of principal amount being converted, $1.00
per day for each day after the date by which such certificates should have been
delivered until such certificates are delivered.  Nothing herein shall limit a
Holder’s right to pursue actual damages or declare an Event of Default pursuant
this Note or any agreement securing the indebtedness under this Note for the
Company’s failure to deliver Conversion Shares within the period specified
herein and such Holder shall have the right to pursue all remedies available to
it hereunder, at law or in equity, including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.  Nothing herein shall prevent the
Holder from having the Conversion Shares issued directly by the Company’s
transfer agent in accordance with Section 2(g) below, in the event for any
reason the Company fails to issue or deliver, or cause its transfer agent to
issue and deliver, the Conversion Shares to the Holder upon exercise of Holder’s
conversion rights hereunder.  Notwithstanding anything contained in this Section
2(c)(5) to the contrary, the foregoing penalty shall not apply in the event the
failure to deliver the certificates representing the Conversion Shares is the
direct result of any strike, lock-out, civil commotion, warlike operation,
invasion, rebellion, hostilities, military or usurped power, sabotage, or
through an act of God (each an “Event of Force Majeure”), provided, however, if
an Event of Force Majeure occurs, the certificates representing the Conversion
Shares shall nonetheless be delivered within ten (10) Business Days after the
date of the Conversion Confirmation (or the date of the Conversion Notice, if
the Company fails to issue the Conversion Confirmation), regardless of the
occurrence of an Event of Force Majeure, failure of which shall result in the
imposition of the penalties and other remedies provided in this Section 2(c)(5).
 
 
Company Initials__________
 
 
6

--------------------------------------------------------------------------------

 

(6)           Transfer Taxes. The issuance of certificates for shares of the
Common Stock on conversion of this Note shall be made without charge to the
Holder hereof for any documentary stamp or similar taxes, or any other issuance
or transfer fees of any nature or kind that may be payable in respect of the
issue or delivery of such certificates, any such taxes or fees, if payable, to
be paid by the Company.

(d)           Adjustments to Conversion Price.

(1)           Stock Dividends and Stock Splits.  If the Company, at any time
while this Note is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on outstanding
shares of Common Stock, (ii) subdivides outstanding shares of Common Stock into
a larger number of shares, (iii) combines (including by way of a reverse stock
split) outstanding shares of Common Stock into a smaller number of shares, or
(iv) issues, in the event of a reclassification of shares of Common Stock, any
shares of capital stock of the Company, then the Conversion Price shall be
multiplied by a fraction, the numerator of which shall be the number of shares
of Common Stock (excluding any treasury shares of the Company) outstanding
immediately before such event, and the denominator of which shall be the number
of shares of Common Stock outstanding immediately after such event.  Any
adjustment made pursuant to this Section shall become effective immediately
after the record date for the determination of stockholders entitled to receive
such dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination, or re-classification.

(2)           Fundamental Transaction. If, at any time while this Note is
outstanding: (i) the Company effects any merger or consolidation of the Company
with or into another Person, (ii) the Company effects any sale of all or
substantially all of its assets in one transaction or a series of related
transactions, (iii) any tender offer or exchange offer (whether by the Company
or another Person) is completed pursuant to which holders of Common Stock are
permitted to tender or exchange their shares for other securities, cash or
property, or (iv) the Company effects any reclassification of the Common Stock
or any compulsory share exchange pursuant to which the Common Stock is
effectively converted into or exchanged for other securities, cash or property
(in any such case, a “Fundamental Transaction”), then upon any subsequent
conversion of this Note, the Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion immediately
prior to the occurrence of such Fundamental Transaction, the same kind and
amount of securities, cash or property as it would have been entitled to receive
upon the occurrence of such Fundamental Transaction if it had been, immediately
prior to such Fundamental Transaction, the holder of one (1) share of Common
Stock (the “Alternate Consideration”).  For purposes of any such conversion, the
determination of the Conversion Price shall be appropriately adjusted to apply
to such Alternate Consideration based on the amount of Alternate Consideration
issuable in respect of one (1) share of Common Stock in such Fundamental
Transaction, and the Company shall apportion the Conversion Price among the
Alternate Consideration in a reasonable manner reflecting the relative value of
any different components of the Alternate Consideration.  If holders of Common
Stock are given any choice as to the securities, cash or property to be received
in a Fundamental Transaction, then the Holder shall be given the same choice as
to the Alternate Consideration it receives upon any conversion of this Note
following such Fundamental Transaction.  To the extent necessary to effectuate
the foregoing provisions, any successor to the Company or surviving entity in
such Fundamental Transaction shall issue to the Holder a new note consistent
with the foregoing provisions and evidencing the Holder’s right to convert such
note into Alternate Consideration. The terms of any agreement pursuant to which
a Fundamental Transaction is effected shall include terms requiring any such
successor or surviving entity to comply with the provisions of this Section and
insuring that this Note (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
 
Company Initials__________
 
 
7

--------------------------------------------------------------------------------

 
(3)           Adjustment to Conversion Price.  Whenever the Conversion Price is
adjusted pursuant to any provision of this Note, the Company shall promptly
deliver to Holder a notice setting forth the Conversion Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment.

(4)           Notice to Allow Conversion by Holder.  If: (A) the Company shall
declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Company shall declare a special nonrecurring cash dividend on or
a redemption of the Common Stock, (C) the Company shall authorize the granting
to all holders of the Common Stock of rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any rights, (D) the
approval of any stockholders of the Company shall be required in connection with
any reclassification of the Common Stock, any consolidation or merger to which
the Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property, or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company, then, in each case, the Company shall cause to be
filed at each office or agency maintained for the purpose of conversion of this
Note, and shall cause to be delivered to the Holder at its last address as it
shall appear upon the Company’s records, at least twenty (20) calendar days
prior to the applicable record or effective date hereinafter specified, a notice
stating: (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of the Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined, or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of the Common Stock
of record shall be entitled to exchange their shares of the Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer or share exchange, provided that the
failure to deliver such notice or any defect therein or in the delivery thereof
shall not affect the validity of the corporate action required to be specified
in such notice.  The Holder is entitled to convert this Note during the 10-day
period commencing on the date of such notice through the effective date of the
event triggering such notice.
 
Company Initials__________

 
 
8

--------------------------------------------------------------------------------

 
(e)           Reservation of Common Stock.  The Company shall reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of this Note, such number of shares of
Common Stock as shall from time to time be sufficient to effect such conversion,
based upon the Conversion Price.  If at any time the Company does not have a
sufficient number of Conversion Shares authorized and available, the Company
shall immediately take such action as is required to increase the number of
Conversion Shares authorized and available to allow for the Holder to effectuate
a full conversion of this Note at the Conversion Price.  Specifically, if the
Company does not have sufficient authorized and unissued shares of Common Stock
available to allow for the Holder to effectuate a full conversion of this Note
at the Conversion Price, the Company shall call and hold a special meeting of
the shareholders within ten (10) Business Days of such occurrence, for the sole
purpose of increasing the number of shares authorized. The Company’s management
shall recommend to the shareholders to vote in favor of increasing the number of
shares of Common Stock authorized.

(f)           Mandatory Conversion.  In the event that the average daily volume
weighted average price of the Company’s Common Stock for a trading day,
multiplied by the number of shares of the Company’s Common Stock traded on that
trading day, exceeds $75,000 for fifteen (15) consecutive trading days (such an
event referred to as a “Mandatory Conversion Event”), then provided the Company
notifies the Holder in writing of the occurrence of such Mandatory Conversion
Event (the “Mandatory Conversion Notice”), which Mandatory Conversion Notice
shall include evidence reasonably acceptable to the Holder evidencing the
occurrence of the Mandatory Conversion Event, then the Holder shall issue a
Conversion Notice and convert the entire Conversion Amount hereunder within five
(5) Business Days from the date Holder receives the Mandatory Conversion
Notice.  Notwithstanding anything contained in this Section 2(f) to the
contrary, the foregoing mandatory conversion shall only apply if the Holder
receives an opinion of counsel reasonably acceptable to the Holder, from the
Company’s counsel, confirming that the Conversion Shares to be received by the
Holder from the mandatory conversion under this section 2(f) can be freely
traded without restriction or limitation under Rule 144 of the Securities Act of
1933, as amended (the “Securities Act”).

(g)           Matters With Respect to Securities.

(i) Issuance of Conversion Shares.  In the event, for any reason, the Company
fails to issue, or cause its transfer agent (the “Transfer Agent”) to issue, any
portion of the Conversion Shares to the Holder in connection with the exercise
by Holder of any of its conversion rights hereunder, then the parties hereto
acknowledge that Holder shall irrevocably be entitled to deliver to the Transfer
Agent, on behalf of itself and the Company, a Conversion Notice requesting the
issuance of the Conversion Shares then issuable in accordance with the terms
hereof, and the Transfer Agent, provided they are the acting transfer agent for
the Company at the time, shall, and the Company hereby irrevocably authorizes
and directs the Transfer Agent to, without any further confirmation or
instructions from the Company, issue the Conversion Shares applicable to the
Conversion Notice then being exercised, and surrender to a nationally recognized
overnight courier for delivery to Holder at the address specified in the
Conversion Notice, a certificate of the Common Stock of the Company, registered
in the name of Holder, for the number of Conversion Shares to which Holder shall
be then entitled hereunder, as set forth in the Conversion Notice.
 
Company Initials__________

 
 
9

--------------------------------------------------------------------------------

 
(ii) Removal of Restrictive Legends.  In the event that Holder has any shares of
the Company’s Common Stock bearing any restrictive legends, and Holder, through
its counsel or other representatives, submits to the Transfer Agent any such
shares for the removal of the restrictive legends thereon, whether in connection
with a sale of such shares pursuant to any exemption to the registration
requirements under the Securities Act, or otherwise, and the Company and or its
counsel refuses or fails for any reason to render an opinion of counsel or any
other documents or certificates required for the removal of the restrictive
legends, then the Company hereby agrees and acknowledges that Holder is hereby
irrevocably and expressly authorized to have counsel to Holder render any and
all opinions and other certificates or instruments which may be required for
purposes of removing such restrictive legends, and the Company hereby
irrevocably authorizes and directs the Transfer Agent to, without any further
confirmation or instructions from the Company, issue any such shares without
restrictive legends as instructed by Holder, and surrender to a common carrier
for overnight delivery to the address as specified by Holder, certificates,
registered in the name of Holder or its designees, representing the shares of
Common Stock to which Holder is entitled, without any restrictive legends and
otherwise freely transferable on the books and records of the Company.

(iii) Authorized Agent of the Company.  The Company hereby irrevocably appoints
the Holder and its counsel and its representatives, each as the Company’s duly
authorized agent and attorney-in-fact for the Company for the purposes of
authorizing and instructing the Transfer Agent to process issuances, transfers
and legend removals upon instructions from Holder, or any counsel or
representatives of Holder, as specifically contemplated herein.  The
authorization and power of attorney granted hereby is coupled with an interest
and is irrevocable so long as any obligations of the Company under this Note or
any other Transaction Documents remain outstanding, and so long as the Holder
owns or has the right to receive, any shares of the Company’s Common Stock
hereunder.  In this regard, the Company hereby confirms to the Transfer Agent
and the Holder that it can NOT and will NOT give instructions, including stop
orders or otherwise, inconsistent with the terms of this Section 2(g) with
regard to the matters contemplated herein, and that the Holder shall have the
absolute right to provide a copy of this Note to the Transfer Agent as evidence
of the Company’s irrevocable authority for Holder and Transfer Agent to process
issuances, transfers and legend removals upon instructions from Holder, or any
counsel or representatives of Holder, as specifically contemplated herein,
without any further instructions, orders or confirmations from the Company.
 
Company Initials__________

 
 
10

--------------------------------------------------------------------------------

 
(iv) Injunction and Specific Performance.  The Company specifically acknowledges
and agrees that in the event of a breach or threatened breach by the Company of
any provision of this Section 2(g), the Holder will be irreparably damaged and
that damages at law would be an inadequate remedy if the provisions in this
Section 2(g) were not specifically enforced.  Therefore, in the event of a
breach or threatened breach of any provision of this Section 2(g) by the
Company, the Holder shall be entitled to obtain, in addition to all other rights
or remedies Holder may have, at law or in equity, an injunction restraining such
breach, without being required to show any actual damage or to post any bond or
other security, and/or to a decree for specific performance of the provisions of
this Section 2(g).

3.           Voting Rights.  The Holder shall have no voting rights under this
Note, except as required by applicable law, including, but not limited to, the
New York Corporations Law, and as expressly provided in this Note.

4.           Short Sales.  Holder represents and agrees, as applicable: (i)
Holder has not prior to the Effective Date, entered into or effected any Short
Sales; and (ii) so long as the Note remains outstanding, Holder will not enter
into or effect any Short Sales.  The Company acknowledges and agrees that upon
submission of a Conversion Notice as set forth herein, Holder immediately owns
the Common Stock described in the Conversion Notice and any sale of that Common
Stock issuable under such Conversion Notice would not be considered Short
Sales.  For purposes herein, “Short Sales” shall mean entering into any short
sale or other hedging transaction which establishes a net short position with
respect to the Company’s Common Stock.

5.           Secured Nature of Note.  The indebtedness evidenced by this Note is
secured by all of the assets and property of the Company pursuant to that
certain Security Agreement by and between the Company and Holder made as of the
Effective Date (the “Security Agreement”), that certain Guaranty executed by
Mobiquity Networks, Inc., a New York corporation (“Mobiquity”), the Company’s
wholly owned subsidiary (the “Guaranty”), and all of the assets and property of
Mobiquity pursuant to that certain Security Agreement by and between the Company
and Mobiquity made as of the Effective Date (the “Mobiquity Security
Agreement”). This Note, the Security Agreement, the Guaranty, the Mobiquity
Security Agreement, and all other documents and instruments heretofore or
hereafter executed in connection with the indebtedness evidenced by this Note
(whether by the Company or any other guarantor, or obligor of the indebtedness
evidenced hereby), and all modifications, extensions, future advances, and
renewals thereof, and any substitutions therefor, being herein collectively
referred as the “Transaction Documents.” All of the agreements, conditions,
covenants, provisions, representations, warranties and stipulations contained in
any of the Transaction Documents which are to be kept and performed by the
Company are hereby made a part of this Note to the same extent and with the same
force and effect as if they were fully set forth herein, and the Company
covenants and agrees to keep and perform them, or cause them to be kept or
performed, strictly in accordance with their terms.
 
 
Company Initials__________

 
 
11

--------------------------------------------------------------------------------

 
6.           Defaults and Remedies.

(a) Events of Default.  The occurrence of any of the following events shall
constitute an “Event of Default” hereunder: (i) the Company shall fail to pay
any installment of interest, principal or other sums due under this Note or any
other Transaction Document within one (1) Business Day of when any such payment
shall be due and payable; (ii) the Company makes an assignment for the benefit
of creditors; (iii) any order or decree is rendered by a court which appoints or
requires the appointment of a receiver, liquidator or trustee for the Company,
and the order or decree is not vacated within thirty (30) days from the date of
entry thereof; (iv) any order or decree is rendered by a court adjudicating the
Company insolvent, and the order or decree is not vacated within thirty (30)
days from the date of entry thereof; (v) the Company files a petition in
bankruptcy under the provisions of any bankruptcy law or any insolvency act;
(vi) the Company admits, in writing, its inability to pay its debts as they
become due (provided, however, that receipt by the Company of an audit letter
from its accountants questioning the viability of the Company as a going concern
shall not, in and of itself, be construed as an admission by the Company of its
inability to pay its debts as they become due; further provided, however, that
receipt of any such letter shall not preclude the Holder from declaring any
other default that may be applicable as a result of such a letter or the
financial state of the Company giving rise to such a latter, either under this
Note or any other Transaction Documents); (vii) a proceeding or petition in
bankruptcy is filed against the Company and such proceeding or  petition is not
dismissed within forty-five (45) days from the date it is filed; (viii) the
Company files a petition or answer seeking reorganization or arrangement under
the bankruptcy laws or any law or statute of the United States or any other
foreign country or state; or (ix) the Company shall fail to perform, comply with
or abide by any of the material stipulations, agreements, conditions and/or
covenants contained in this Note or any other Transaction Documents on the part
of the Company to be performed complied with or abided by, and such failure is
not cured within ten (10) days after written notice of such failure is delivered
by Holder to the Company.

(b) Remedies.  Upon the occurrence of one or more Events of Default, the Holder,
at its option and without further notice, demand or presentment for payment to
the Company or others, may declare the then outstanding principal balance of
this Note, together with all other sums due under the Note and the other
Transaction Documents, immediately due and payable, together with all accrued
and unpaid interest thereon and thereafter all such sums shall bear interest at
the Default Rate, together with all reasonable attorneys’ fees, paralegals’ fees
and costs and expenses incurred by the Holder in collecting or enforcing payment
thereof (whether such fees, costs or expenses are incurred in negotiations, all
trial and appellate levels, administrative proceedings, bankruptcy proceedings
or otherwise), and all other sums due by the Company hereunder and under the
Transaction Documents, all without any relief whatsoever from any valuation or
appraisement laws and payment thereof may be enforced and recovered in whole or
in part at any time by one or more of the remedies provided to the Holder at
law, in equity, or under this Note or the other Transaction Documents.  Any
accrued but unpaid interest and other sums due by the Company hereunder and
under the Transaction Documents shall, at the option of the Holder, be included,
from time to time, in the Conversion Amount.
 
7.           Lost or Stolen Note.  Upon notice to the Company of the loss,
theft, destruction or mutilation of this Note, and, in the case of loss, theft
or destruction, of an indemnification undertaking by the Holder to the Company
in a form reasonably acceptable to the Company and customary for similar
circumstances in commercial lender/borrower circumstances, and, in the case of
mutilation, upon surrender and cancellation of the Note, the Company shall
execute and deliver a new Note of like tenor and date and in substantially the
same form as this Note; provided, however, the Company shall not be obligated to
re-issue a Note if the Holder contemporaneously requests the Company to convert
such remaining principal amount and interest into Common Stock.
 
 
 
Company Initials__________

 
 
12

--------------------------------------------------------------------------------

 

8.           Cancellation.  After all principal, accrued interest and all other
sums at any time owed on this Note or any other Transaction Documents have been
paid in full, this Note shall automatically be deemed canceled, shall be
surrendered to the Company for cancellation and shall not be re-issued.

9.           Waivers.  The Company hereby waives and releases all benefit that
might accrue to the Company by virtue of any present or future laws exempting
any property that may serve as security for this Note, or any other property,
real or personal, or any part of the proceeds arising from any sale of any such
property, from attachment, levy, or sale under execution, exemption from civil
process, or extension of time for payment, including, without limitation, any
and all homestead exemption rights of the Company; and the Company agrees that
any property that may be levied upon pursuant to a judgment obtained by virtue
hereof, on any writ of execution issued thereon, may be sold upon any such writ
in whole or in part in any order or manner desired by Holder.  In addition, the
Company and all others who are, or may become liable for the payment hereof: (i)
severally waive presentment for payment, demand, notice of nonpayment or
dishonor, protest and notice of protest of this Note or the other Transaction
Documents, and all other notices in connection with the delivery, acceptance,
performance, default, or enforcement of the payment of this Note or the other
Transaction Documents; (ii) expressly consent to all extensions of time,
renewals or postponements of time of payment of this Note or the other
Transaction Documents from time to time prior to or after the maturity of this
Note without notice, consent or further consideration to any of the foregoing;
(iii) expressly agree that the Holder shall not be required first to institute
any suit, or to exhaust its remedies against the Company or any other person or
party to become liable hereunder or against any collateral that may secure this
Note in order to enforce the payment of this Note; and (iv) expressly agree
that, notwithstanding the occurrence of any of the foregoing (except the express
written release by the Holder of any such person), the undersigned shall be and
remain, directly and primarily liable for all sums due under this Note.

10.           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 laws of
the State of Nevada, without giving effect to provisions thereof regarding
conflict of laws.  Each party hereto hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in Clark
County, Nevada 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, provided, however, nothing contained herein shall limit the Holder’s
ability to bring suit or enforce this Note in any other jurisdiction.  Each
party hereto hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by sending by
certified mail or overnight courier a copy thereof to such party at the address
indicated in the preamble hereto and agrees that such service shall constitute
good and sufficient service of process and notice thereof.  Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.  EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ANY RIGHT
IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY
DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR ARISING OUT OF THIS NOTE OR ANY
TRANSACTION CONTEMPLATED HEREBY.
 
Company Initials__________

 
 
13

--------------------------------------------------------------------------------

 
11.           Indemnity and Expenses.  The Company agrees:

(a)           To indemnify and hold harmless the Holder and each of its
partners, employees, agents and affiliates from and against any and all claims,
damages, demands, losses, obligations, judgments, suits, actions, threats and
liabilities (including, without limitation, attorneys’ fees and expenses) in any
way arising out of or in connection with this Note; and

(b)           To pay and reimburse the Holder upon demand for all costs and
expenses (including, without limitation, attorneys’ fees and expenses) that the
Holder may incur in connection with (i) the exercise or enforcement of any
rights or remedies (including, but not limited to, collection) granted hereunder
or otherwise available to it (whether at law, in equity or otherwise), or (ii)
the failure by the Company to perform or observe any of the provisions
hereof.  The provisions of this Section 11 shall survive the execution and
delivery of this Note, the repayment of any or all of the principal or interest
owed pursuant hereto, and the termination of this Note.

12.           Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief.  The remedies of the Holder as provided herein, or the other
Transaction Documents, shall be cumulative and concurrent and may be pursued
singly, successively or together, at the sole discretion of the Holder, and may
be exercised as often as occasion therefor shall occur; and the failure to
exercise any such right or remedy shall in no event be construed as a waiver or
release thereof.

13.           Specific Shall Not Limit General; Construction.  No specific
provision contained in this Note shall limit or modify any more general
provision contained herein.  This Note shall be deemed to be jointly drafted by
the Company and the Holder and shall not be construed against any person as the
drafter hereof.

14.           Failure or Indulgence Not Waiver.  Holder shall not be deemed, by
any act of omission or commission, to have waived any of its rights or remedies
hereunder or under any Transaction Documents, unless such waiver is in writing
and signed by Holder, and then only to the extent specifically set forth in the
writing.  A waiver on one event shall not be construed as continuing or as a bar
to or waiver of any right or remedy to a subsequent event.

15.           Notice.  Notice shall be given to each party at the address
indicated in the preamble hereto or at such other address as provided to the
other party in writing, and such notice shall be deemed properly given in
accordance with the notice provisions set forth in the Security Agreement
securing this Note.
 
Company Initials__________

 
 
14

--------------------------------------------------------------------------------

 
16.           Usury Savings Clause.  Notwithstanding any provision in this Note
or the other Transaction Documents, the total liability for payments of interest
and payments in the nature of interest, including, without limitation, all
charges, fees, exactions, or other sums which may at any time be deemed to be
interest, shall not exceed the limit imposed by the usury laws of the
jurisdiction governing this Note or any other applicable law.  In the event the
total liability of payments of interest and payments in the nature of interest,
including, without limitation, all charges, fees, exactions or other sums which
may at any time be deemed to be interest, shall, for any reason whatsoever,
result in an effective rate of interest, which for any month or other interest
payment period exceeds the limit imposed by the usury laws of the jurisdiction
governing this Note, all sums in excess of those lawfully collectible as
interest for the period in question shall, without further agreement or notice
by, between, or to any party hereto, be applied to the reduction of the
outstanding principal balance of this Note immediately upon receipt of such sums
by the Holder hereof, with the same force and effect as though the Company had
specifically designated such excess sums to be so applied to the reduction of
such outstanding principal balance and the Holder hereof had agreed to accept
such sums as a penalty-free payment of principal; provided, however, that the
Holder of this Note may, at any time and from time to time, elect, by notice in
writing to the Company, to waive, reduce, or limit the collection of any sums in
excess of those lawfully collectible as interest rather than accept such sums as
a prepayment of the outstanding principal balance.  It is the intention of the
parties that the Company does not intend or expect to pay nor does the Holder
intend or expect to charge or collect any interest under this Note greater than
the highest non-usurious rate of interest which may be charged under applicable
law.

17.           Binding Effect.  This Note shall be binding upon the Company and
the successors and assigns of the Company and shall inure to the benefit of
Holder and the successors and assigns of Holder.

18.           Severability.  In the event any one or more of the provisions of
this Note shall for any reason be held to be invalid, illegal, or unenforceable,
in whole or in part, in any respect, or in the event that any one or more of the
provisions of this Note operates or would prospectively operate to invalidate
this Note, then and in any of those events, only such provision or provisions
shall be deemed null and void and shall not affect any other provision of this
Note.  The remaining provisions of this Note shall remain operative and in full
force and effect and shall in no way be affected, prejudiced, or disturbed
thereby.

19.           Participations.  Holder may from time to time sell or assign, in
whole or in part, or grant participations in this Note and/or the obligations
evidenced hereby, subject, however, to first obtaining the Company’s written
consent, which consent shall not be unreasonably withheld, conditioned or
delayed.  The holder of any such sale, assignment or participation, if the
applicable agreement between Holder and such holder so provides, shall be: (a)
entitled to all of the rights, obligations and benefits of Holder (to the extent
of such holder’s interest or participation); and (b) deemed to hold and may
exercise the rights of setoff or banker’s lien with respect to any and all
obligations of such holder to the Company (to the extent of such holder’s
interest or participation), in each case as fully as though the Company was
directly indebted to such holder.  Holder may in its discretion give notice to
the Company of such sale, assignment or participation; however, the failure to
give such notice shall not affect any of Holder’s or such holder’s rights
hereunder.
 
 
Company Initials__________

 
 
15

--------------------------------------------------------------------------------

 
20.           Fees.  The Company agrees to pay to Holder a funding fee equal to
five percent (5.0%) of the original face amount of this Note, due and payable
upon the execution of this Note.  Such fee may be withheld and deducted by
Holder from the proceeds of this Note otherwise payable to the Company.  In
addition, the Company agrees to pay to its counsel, Lucosky Brookman LLP, a fee
pursuant to a separate agreement in connection with such firm’s work in
connection with such firm’s preparation and filing of an S-1 registration
statement for the Company, which fees the Company agrees may be withheld and
deducted by Holder from the proceeds of this Note otherwise payable to the
Company, and paid directly to such law firm.

21.           Amendments.  The provisions of this Note may be changed only by a
written agreement executed by the Company and Holder.

22.           Non-U.S. Status.  THE HOLDER IS A NON-U.S. PERSON AS THAT TERM IS
DEFINED IN THE UNITED STATES INTERNAL REVENUE CODE.  IT IS HEREBY AGREED AND
UNDERSTOOD THAT THE OBLIGATIONS HEREUNDER MAY BE SOLD OR RESOLD ONLY TO NON-U.S.
PERSONS.  THE INTEREST PAYABLE HEREUNDER IS PAYABLE ONLY OUTSIDE THE UNITED
STATES.  ANY U.S. PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAW.

[Signature page follows]
 
 
 
 
 
 
 
 
 
Company Initials__________
 
 
 
16

--------------------------------------------------------------------------------

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

 
 

 
ACE MARKETING & PROMOTIONS, INC.
         
 
By:
/s/ Dean Julia     Name: 
Dean Julia
    Title:  Chief Executive Officer  

 
 
 

 

[ signature page to Promissory Note ]

 
17

--------------------------------------------------------------------------------

 

 

EXHIBIT A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal and/or interest under the
Convertible Promissory Note (the “Note”) of Ace Marketing & Promotions, Inc., a
corporation incorporated under the laws of the State of New York (the
“Company”), into shares of common stock, par value $0.0001 per share (the
“Common Shares”), of the Company in accordance with the conditions of the Note,
as of the date written below.  

Based solely on information provided by the Company to Holder, the undersigned
represents and warrants to the Company that its ownership of the Common Shares
does not exceed the amounts determined in accordance with Section 13(d) of the
Exchange Act of 1934, as amended, specified under Section 2(b) of the Note.
 

 
 
Conversion calculations
          Effective Date of Conversion:            Principal Amount and/or
Interest to be Converted:            Number of Common Shares to be Issued:     

 
 
[HOLDER]
          By:           Name:            Title:           Address              
 

 
                                                                                                          
 

18 

--------------------------------------------------------------------------------