TIDS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE
REASONABLY SATISFACTORY TO THE COMPANY THAT THIS NOTE MAY BE SOLD, TRANSFERRED,
OR OTHERWISE DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND
SUCH STATE SECURITIES LAWS.

 

WELL POWER, INC.

 

10% OID Convertible Promissory Note due February 5, 2016 (the "Note")

 

Original Issue Date:  February 5, 2015 Principal Amount:  Up to USD$550,000,
subject   to adjustment as described herein.       Purchase Price: Up to
USD$500,000

 

For value received, Well Power, Inc., a Nevada corporation (the "Company"),
hereby promises to pay to the order of JDF Capital Inc. (together with its
successors, representatives, and permitted assigns, the "Holder''), in
accordance with the terms hereinafter provided, up to an aggregate of $550,000
(Five Hundred Fifty Thousand Dollars) (the "Principal Amount"). The Principal
Amount outstanding shall be due and payable on February 5, 2016 (the "Maturity
Date").

 

All payments under or pursuant to this Note refer to and shall be made in United
States Dollars in immediately available funds to the Holder at the address of
the Holder set forth in the Purchase Agreement or at such other place as the
Holder may designate from time to time in writing to the Company or by wire
transfer of funds to the Holder's account, instructions for which are attached
hereto as Exhibit A.

 

ARTICLE I

 

Section 1.1 Purchase Agreement. This Note has been executed and delivered
pursuant to that certain Security Purchase Agreement dated as of February 5,
2015 (the "Purchase Agreement") by and among the Company and the Holder.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth for such terms in the Purchase Agreement.

 

Section 1.2 Loan Funding. At the request of the Company, this Note shall be
funded as follows: (i) the Company will receive an advance of Fifty Thousand
Dollars ($50,000) (the "Initial Advance"), less attorney's fees in the amount of
Six Thousand Dollars ($6,000) and a fee in the amount of Three Thousand Five
Hundred Dollars ($3,500) payable to Valerie Emanuel and Associates, on the
original issue date (the "Issuance Date") and (ii) further advances of the
Principal Amount, up to the amount of Four Hundred Fifty Thousand Dollars
($450,000), may be made in the sole and absolute discretion of the Holder at any
time prior to the Maturity Date. Subject to Section 1.3 below, if the Holder
fails to make any advance beyond the Initial Advance, then the Principal Amount
of this Note shall equal Fifty-Five Thousand Dollars ($55,000). Subject to
Section 1 .3 below, if the Holder continues to make advances to, for example,
Two Hundred Fifty Thousand Dollars ($250,000), then the Principal Amount of this
Note shall equal Two Hundred Seventy Five Thousand Dollars ($275,000).

 

Section 1.3 Payment of Iconic Note. Within ten days of the Issuance Date, the
Company shall repay in full that certain 10% Convertible Promissory Note in the
principal amount of $275,000 issued by the Company on August 6, 2014 to Iconic
Holdings, LLC. (the "Iconic Note"). Failure by the Company to repay the Iconic
Note in full on or before the tenth day following the Issuance Date shall be an
Event of Default under this Note and shall result in an increase to the
Principal Amount of this Note in the amount of Fifty Thousand Dollars ($50,000)
(the "Default Principal Amount"). The Default Principal Amount shall become a
part of the Principal Amount and all references in this Note to the Principal
Amount shall include the Default Principal Amount, and interest on the Default
Principal Amount from the Issuance Date shall become part of the interest
accrued on the Principal Amount and all references in this Note to interest
accrued on the Principal Amount shall include the interest accrued on the
Default Principal Amount.

 

 

Section 1.4 Interest. Beginning on the Issuance Date, the outstanding principal
balance of this Note shall bear interest, in arrears, at a rate per annum equal
to 10%.Interest shall be paid on the Maturity Date in cash or restricted shares
of the Company's common stock, $0.001 par value per share (the "Common Stock")
at the option of the Holder.

 

Section 1.5 Payment on Non-Business Days. Whenever any payment to be made shall
be due on a Saturday, Sunday or a public holiday under the laws of the State of
New York, such payment may be due on the next succeeding business day and such
next succeeding day shall be included in the calculation of the amount of
accrued interest payable on such date.

 

Section 1.6 Transfer. This Note may be transferred or sold, subject to the
provisions of Section 4.8 of this Note, or pledged, hypothecated or otherwise
granted as security by the Holder.

 

Section 1.7 Replacement. Upon receipt of a duly executed, notarized and
unsecured written statement from the Holder with respect to the loss, theft or
destruction of this Note (or any replacement hereof), and without requiring an
indemnity bond or other security, or, in the case of a mutilation of this Note,
upon surrender and cancellation of such Note, the Company shall issue a new
Note, of like tenor and amount, in lieu of such lost, stolen, destroyed or
mutilated Note.

 

 

ARTICLE II

 

EVENTS OF DEFAULT;

REMEDIES

 

Section 2.1 Events of Default. The occurrence of any of the following events
shall be an "Event of Default" under this Note:

 

(a)                 the Company shall fail to make the payment of any amount of
principal outstanding on the date such payment is due hereunder;

 

(b)                 the Company shall fail to make any payment of interest on
the date such payment is due hereunder, provided, however, that if the payment
of interest is made i n shares of the Company's common stock, it shall be an
Event of Default if the common stock is not delivered to the Holder with 3 days
after the date such interest is due;

 

(c)                 the Company shall fail to repay the Iconic Note in full in
accordance with the terms set forth at Section 1.3 above;

 

(d)                 the Company's Common Stock is suspended from listing or
fails to be quoted or listed on at least one of the OTC Markets, OTC Bulletin
Board, Nasdaq Capital Market, NYSE MKT or The New York Stock Exchange, Inc. for
a period of 5 consecutive Trading Days;

 

(e)                 the Company's notice to the Holder, including by way of
public announcement, at any time, of its inability to comply, or its intention
not to comply, with proper requests from the Holder for conversion of this Note
into shares of Common Stock;

 

(f)                  the Company shall fail to (i) timely deliver the shares of
Common Stock upon conversion of the Note or any accrued and unpaid interest, or
(ii) make the payment of any fees and/or liquidated damages under this Note or
the Purchase Agreement, which failure in the case of items (i) and (ii) of this
Section 2.l (f) is not remedied within 3 business days after the incurrence
thereof;

 

(g)                 default shall be made in the performance or observance of
(i) any material covenant, condition or agreement contained in this Note (other
than as set forth in clauses (c) and (e) of this Section 2.1) and such default
is not fully cured within 5 business days after the occurrence thereof or (ii)
any material covenant, condition or agreement contained in the Purchase
Agreement or any other Transaction Documents which is not covered by any other
provisions of this Section 2.1 and such default is not fully cured within 5
business days after the occurrence thereof

 

(h)                 any material representation or warranty made by the Company
herein or in the Purchase Agreement or any other Transaction Documents shall
prove to have been false or incorrect or breached in a material respect on the
date as of which made;

 

(i)                   the Company shall (A) default in any payment of any amount
or amounts of principal or interest on any indebtedness (other than the
indebtedness hereunder) the aggregate principal amount of which Indebtedness is
in excess of $50,000 or (B) default in the observance or performance of any
other agreement or condition relating to any indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any other
event shall occur or condition exist, the effect of which default or other event
or condition is to cause, or to permit the holder or holders or beneficiary or
beneficiaries of such Indebtedness to cause, with the giving of notice if
required, such Indebtedness to become due prior to its stated maturity;

 

(j)                  the Company shall (i) apply for or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or
assets, (ii) make a general assignment for the benefit of its creditors, (iii)
commence a voluntary case under the United States Bankruptcy Code (as now or
hereafter in effect) or under the comparable laws of any jurisdiction (foreign
or domestic), (iv) file a petition seeking to take advantage of any bankruptcy,
insolvency, moratorium, reorganization or other similar law affecting the
enforcement of creditors' rights generally, (v) acquiesce in writing to any
petition filed against it in an involuntary case under United States Bankruptcy
Code (as now or hereafter in effect) or under the comparable laws of any
jurisdiction (foreign or domestic), (vi) issue a notice of bankruptcy or winding
down of its operations or issue a press release regarding same, or (vii) take
any action under the laws of any jurisdiction (foreign or domestic) analogous to
any of the foregoing;

 

(k)                 a proceeding or case shall be commenced in respect of the
Company, without its application or consent, in any court of competent
jurisdiction, seeking (i) the liquidation, reorganization , moratorium,
dissolution, winding up, or composition or readjustment of its debts, (ii) the
appointment of a trustee, receiver, custodian, liquidator or the like of it or
of all or any substantial part of its assets in connection with the liquidation
or dissolution of the Company or (iii) similar relief in respect of it under any
law providing for the relief of debtors, and such proceeding or case described
in clause (i), (ii) or (iii) shall continue undismissed, or unstayed and in
effect, for a period of 60 days or any order for relief shall be entered in an
involuntary case under United States Bankruptcy Code (as now or hereafter in
effect) or under the comparable laws of any jurisdiction (foreign or domestic)
against the Company or action under the laws of any jurisdiction (foreign or
domestic) analogous to any of the foregoing shall be taken with respect to the
Company and shall continue undismissed, or unstayed and in effect for a period
of 60 days; or

2

 

 

(l)                   the failure of the Company to instruct its transfer agent
to remove any legends from shares of Common Stock eligible to be sold under Rule
144 of the Securities Act and issue such unlegended certificates to the Holder
within 5 business days of the Holder's request so long as the Holder has
provided reasonable assurances and opinions of counsel to the Company that such
shares of Common Stock can be resold pursuant to Rule 144; or

 

(m)               the failure of the Company to pay any amounts due to the
Holder herein within 3 business days of receipt of notice to the Company.

 

Section 2.2 Remedies Upon An Event of Default. If an Event of Default (with the
exception of an Event of Default pursuant to Section 2.l(c) above) shall have
occurred and shall be continuing, the Holder of this Note may at any time at its
option, (a) declare the entire unpaid principal balance of this Note, together
with all interest accrued hereon, due and payable in cash, and thereupon, the
same shall be accelerated and so due and payable, without presentment, demand,
protest, or notice, all of which are hereby expressly unconditionally and
irrevocably waived by the Company, subject to Section 3.4 hereof, demand that
the Principal Amount of this Note then outstanding shall be converted into
shares of Common Stock at a Conversion Price (as defined in Section 3.2 below)
per share calculated pursuant to Section 3.1(b) below, assuming that the date
that the Event of Default occurs is the Conversion Date and demand that all
accrued and unpaid interest under this Note shall be converted into shares of
Common Stock in accordance with Section 3.1(b) below, or (c) exercise or
otherwise enforce any one or more of the Holder's rights, powers, privileges,
remedies and interests under this Note, the Purchase Agreement, other
Transaction Documents or applicable law. No course of delay on the part of the
Holder shall operate as a waiver thereof or otherwise prejudice the right of the
Holder. No remedy conferred hereby shall be exclusive of any other remedy
referred to herein or now or hereafter available at law, in equity, by statute
or otherwise. In addition to the remedies set forth herein, if the Company fails
to pay in full the Iconic Note as described in Section 1.3 above, the Principal
Amount shall be increased by the Default Principal Amount, which Default
Principal Amount shall become all due and owing, together with interest from the
Issuance Date, in accordance with Section 1.3 above.

 

Section 2.3 Default Interest. In addition to the remedies set forth in Section
2.2 above, to the extent permitted by law, the Company will pay interest to the
Holder, payable on demand, on the outstanding Principal Amount of the Note from
the date of the Event of Default until such Event of Default is cured, at the
rate of the lesser of 15% and the maximum applicable legal rate per annum.

 

ARTICLE III

 

CONVERSION; ANTIDILUTION; PREPAYMENT

 

Section 3.1 Conversion Option.

 

(a)                 Manner of Conversion. At any time on or after the Issuance
Date, this Note shall be convertible (in whole or in part), at the option of the
Holder (the "Conversion Option"), into fully paid and non-assessable shares of
the Company's Common Stock on the date on which the Holder faxes a notice of
conversion (the "Conversion Notice"), duly executed , to the Company (the
''Voluntary Conversion Date"), provided , however, that the Conversion Price
shall be subject to adjustment as described in Section 3.5 below. The Holder
shall deliver this Note to the Company at the address designated in the Purchase
Agreement at such time that this Note is fully converted. With respect to
partial conversions of this Note, the Company shall keep written records of the
amount of this Note converted as of each Conversion Date.

3

 

 

(b)                 Calculation of Number of Shares to be Issued. On any
Voluntary Conversion Date, the Holder may cause any outstanding Principal Amount
of this Note plus all accrued and unpaid interest to convert into a number of
fully paid and nonassessable shares of Common Stock equal to the quotient of the
elected outstanding Principal Amount of this Note plus all interest accrued
thereon as of the Voluntary Conversion Date divided by the Conversion Price as
computed in accordance with Section 3.2 below.

 

(c)                 Conversion Limitations; Holder's Restriction on Conversion.
The Company shall not effect 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 such conversion, the Holder (together with the Holder's
affiliates), as set forth on the applicable Conversion Notice, would
beneficially own in excess of 4.99% of the number of shares of the Company's
Common Stock outstanding immediately after giving effect to such conversion. For
purposes of the foregoing sentence, the number of shares of Common Stock
beneficially owned by the Holder and its affiliates shall include the number of
shares of Common Stock issuable upon conversion of this Note with respect to
which the determination is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (A) conversion of the remaining,
non-converted portion of this Note beneficially owned by the Holder or any of
its affiliates and (B) exercise or conversion of the unexercised or
non-converted portion of any other securities of the Company (including, without
limitation, any other Notes or the Warrants) subject to a limitation on
conversion or exercise analogous to the limitation contained herein beneficially
owned by the Holder or any of its affiliates. Except as set forth in the
preceding sentence, for purposes of this Section, beneficial ownership shall be
calculated in accordance with Section 13(d) of the Exchange Act. To the extent
that the limitation contained in this Section applies, the determination of
whether this Note is convertible (in relation to other securities owned by the
Holder) and of which a portion of this Note is convertible shall be in the sole
discretion of such Holder. To ensure compliance with this restriction , the
Holder will be deemed to represent to the Company each time it delivers a
Conversion Notice that such Conversion Notice has not violated the restrictions
set forth in this Section and the Company shall have no obligation to verify or
confirm the accuracy of such determination. For purposes of this Section, in
determining the number of outstanding shares of Common Stock, the Holder may
rely on the number of outstanding shares of Common Stock as reflected in (x) the
Company's most recent Form 10-Q or Form 10-K (or such related form), as the case
may be, (y) a more recent public announcement by the Company or (z) any other
notice by the Company or the Company's Transfer Agent setting forth the number
of shares of Common Stock outstanding. Upon the written or oral request of the
Holder, the Company shall within two Trading Days confirm orally and in writing
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 this Note, by the Holder or its affiliates since the date as of which
such number of outstanding shares of Common Stock was reported. The provisions
of this Section may be waived by the Holder upon, at the election of the Holder,
not less than 61 days' prior notice to the Company, and the provisions of this
Section shall continue to apply until such 61st day (or such later date, as
determined by the Holder, as may be specified in such notice of waiver).

4

 

 

Section 3.2 Conversion Price. The term "Conversion Price" shall mean the lower
of (i) 50% of the lowest reported sale price of the Common Stock for the 20
trading days immediately prior to the Issuance Date or (ii) 50% of the lowest
reported sale price for the 20 days prior to the Voluntary Conversion Date,
which method of calculation shall be chosen in the sole discretion of the
Holder. If the Common Stock cannot be delivered by DWAC, the Conversion Price
shall be reduced by 10%. If the Common Stock is ineligible for DTC's FAST
system, the Conversion Price shall be reduced by 5%. If the Common Stock cannot
be delivered by DWAC and is ineligible for DTC's FAST system, the Conversion
Price shall be reduced by 15%.

 

Section 3.3 Mechanics of Conversion.

 

(a)                 Delivery of Common Stock. Not later than 3 Trading Days
after any Conversion Date, the Company or its designated transfer agent, as
applicable, shall issue and deliver to the Depository Trust Company ("DTC")
account on the Holder's behalf via the Deposit Withdrawal Agent Commission
System ("DWAC") as specified in the Conversion Notice, 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. In the alternative, not later than 3 Trading Days
after any Conversion Date, the Company shall deliver to the applicable Holder by
express courier a certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required by Section 4 of the
Purchase Agreement) representing the number of shares of Common Stock being
acquired upon the conversion of this Note (the "Delivery Date"). Notwithstanding
the foregoing to the contrary, the Company or its transfer agent shall only be
obligated to issue and deliver the shares to OTC on the Holder's behalf via DWAC
(or certificates free of restrictive legends) if such conversion is in
connection with a sale and the Holder has complied with the applicable
requirements of federal and state securities laws. If in the case of any
Conversion Notice such certificate or certificates are not delivered to or as
directed by the applicable Holder by the Delivery Date, the Holder shall be
entitled by written notice to the Company at any time on or before its receipt
of such certificate or certificates thereafter, to rescind such conversion, in
which event the Company shall immediately return this Note if tendered for
conversion, whereupon the Company and the Holder shall each be restored to their
respective positions immediately prior to the delivery of such notice of
revocation, except that any amounts described in Sections 3.3(b) and (c) shall
be payable through the date notice of rescission is given to the Company.

 

(b)                 Penalty for Failure to Deliver Common Stock. The Company
understands that a delay in the delivery of the shares of Common Stock upon
conversion of this Note beyond the Delivery Date could result in economic loss
to the Holder. With the exception of events beyond the control of the Company,
if the Company fails to deliver to the Holder such shares via DWAC or a
certificate or certificates pursuant to Section 3.3(a) above by the Delivery
Date, the Company shall pay to the Holder, in cash, an amount per Trading Day
for each Trading Day until such shares are delivered via DWAC or certificates
are delivered, together with interest on such amount at a rate of 10% per annum,
accruing until such amount and any accrued interest thereon is paid in full,
equal to (i) 1% of the aggregate principal amount of the Note requested to be
converted for the first 5 Trading Days after the Delivery Date and (ii) 2% of
the aggregate principal amount of the Note requested to be converted for each
Trading Day thereafter. Nothing herein shall limit the Holder's right to pursue
actual damages for the Company's failure to deliver certificates representing
shares of Common Stock upon conversion within the period specified herein and
the Holder shall have the right to pursue all remedies available to it at law or
in equity (including, without limitation, a decree of specific performance
and/or injunctive relief). Notwithstanding anything to the contrary contained
herein, the Holder shall be entitled to withdraw a Conversion Notice, and upon
such withdrawal the Company shall only be obligated to pay the liquidated
damages accrued in accordance with this Section 3.3(b) through the date the
Conversion Notice is withdrawn.

5

 

 

(c)                 Penalty in the Event of a Buy-In. In addition to any other
rights available to the Holder, if the Company fails to cause its transfer agent
to transmit to the Holder a certificate or certificates representing the shares
of Common Stock issuable upon conversion of this Note on or before the Delivery
Date, and if after such date the Holder is required by its broker to purchase
(in an open market transaction or otherwise) shares of Common Stock to deliver
in satisfaction of a sale by the Holder of the shares of Common Stock issuable
upon full or partial conversion of this Note (a "Buy- In"), then the Company
shall (1) pay in cash to the Holder the amount by which (x) the Holder's total
purchase price (including brokerage commissions, if any) for the shares of
Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the
number of shares of Common Stock issuable upon conversion of this Note that the
Company was required to deliver to the Holder in connection with the conversion
at issue times (B) the price at which the sell order giving rise to such
purchase obligation was executed, and (2) at the option of the Holder, either
reinstate the portion of the Note and equivalent number of shares of Common
Stock for which such conversion was not honored or deliver to the Holder the
number of shares of Common Stock that would have been issued had the Company
timely complied with its conversion and delivery obligations hereunder. For
example, if the Holder purchases 20,000 shares of Common Stock having a total
purchase price of $11,000 (or $0.55 per share) to cover a Buy-In with respect to
an attempted conversion of shares of Common Stock with an aggregate sale price
giving rise to such purchase obligation of $10,000 (or $0.50 per share), under
clause (1) of the immediately preceding sentence, the Company shall be required
to pay the Holder $1,000. The Holder shall provide written notice to the Company
indicating the amounts payable to the Holder in respect of the Buy-In, together
with applicable confirmations and other evidence reasonably requested by the
Company. Nothing in this Note shall limit the Holder's right to pursue any other
remedies available to it hereunder, at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief with
respect to the Company's failure to timely deliver certificates representing
shares of Common Stock upon conversion of this Note as required pursuant to the
terms hereof.

 

Section 3.4 Ownership Cap and Certain Conversion Restrictions. Notwithstanding
anything to the contrary set forth in Section 3 of this Note, at no time may the
Holder convert all or a portion of this Note if the number of shares of Common
Stock to be issued pursuant to such conversion would exceed, when aggregated
with all other shares of Common Stock owned by the Holder at such time, the
number of shares of Common Stock which would result in the Holder beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules thereunder) more than 9.9% of all of the Common Stock outstanding at
such time; provided, however, that upon the Holder providing the Company with
sixty-one (61) days notice (pursuant to Section 4.1 hereof) (the "Waiver
Notice") that the Holder would like to waive this Section 3.4 with regard to any
or all shares of Common Stock issuable upon conversion of this Note, this
Section 3.4 will be of no force or effect with regard to all or a portion of the
Note referenced in the Waiver Notice; provided, further, that this provision
shall be of no further force or effect during the sixty-one days immediately
preceding the Maturity Date.

 

Section 3.5 Adjustment of Conversion Price.

 

(a)                 The Conversion Price shall be subject to adjustment from
time to time as follows:

 

(i)                   Adjustments for Stock Splits and Combinations. If the
Company shall at any time or from time to time after the Issuance Date, effect a
stock split of the outstanding Common Stock, the applicable Conversion Price in
effect immediately prior to the stock split shall be proportionately decreased.
If the Company shall at any time or from time to time after the Issuance Date,
combine the outstanding shares of Common Stock, the applicable Conversion Price
in effect immediately prior to the combination shall be proportionately
increased. Any adjustments under this Section 3.5(a)(i) shall be effective at
the close of business on the date the stock split or combination occurs.

6

 

 

(ii)                 Adjustments for Certain Dividends and Distributions. If the
Company shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in shares of Common
Stock, then, and in each event, the applicable Conversion Price in effect
immediately prior to such event shall be decreased as of the time of such
issuance or, in the event such record date shall have been fixed, as of the
close of business on such record date, by multiplying, the applicable Conversion
Price then in effect by a fraction:

 

(1)         the numerator of which shall be the total number of shares of Common
Stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date; and

(2)         the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of shares
of Common Stock issuable in payment of such dividend or distribution.

 

(iii)                Adjustment for Other Dividends and Distributions. If the
Company shall at any time or from time to time after the Issuance Date, make or
issue or set a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution payable in other than
shares of Common Stock, then, and in each event, an appropriate revision to the
applicable Conversion Price shall be made and provision shall be made (by
adjustments of the Conversion Price or otherwise) so that the Holder of this
Note shall receive upon conversions thereof, in addition to the number of shares
of Common Stock receivable thereon, the number of securities of the Company
which the Holder would have received had this Note been converted into Common
Stock on the date of such event and bad thereafter, during the period from the
date of such event to and including the Conversion Date, retained such
securities (together with any distributions payable thereon during such period),
giving application to all adjustments called for during such period under this
Section 3.5(a)(iii) with respect to the rights of the Holder of this Note;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be adjusted pursuant to this
paragraph as of the time of actual payment of such dividends or distributions.

 

(iv)               Adjustments for Reclassification, Exchange or Substitution.
If the Common Stock issuable upon conversion of this Note at any time or from
time to time after the Issuance Date shall be changed to the same or different
number of shares of any class or classes of stock, whether by reclassification,
exchange, substitution or otherwise (other than by way of a stock split or
combination of shares or stock dividends provided for in Sections 3.5(a)(i),
(ii) and (iii), or a reorganization, merger, consolidation , or sale of assets
provided for in Section 3.5(a)(v)), then, and in each event, an appropriate
revision to the Conversion Price shall be made and provisions shall be made (by
adjustments of the Conversion Price or otherwise) so that the Holder shall have
the right thereafter to convert this Note into the kind and amount of shares of
stock and other securities receivable upon such reclassification , exchange,
substitution or other change, all subject to further adjustment as provided
herein.

7

 

 

(v)                 Adjustments for Reorganization, Merger, Consolidation or
Sales of Assets. If at any time or from time to time after the Issuance Date
there shall be a capital reorganization of the Company (other than by way of a
stock split or combination of shares or stock dividends or distributions
provided for in Section 3.5(a)(i), (ii) and (iii), or a reclassification,
exchange or substitution of shares provided for in Section 3.5(a)(iv)), or a
merger or consolidation of the Company with or into another corporation where
the holders of outstanding voting securities prior to such merger or
consolidation do not own over 50% of the outstanding voting securities of the
merged or consolidated entity, immediately after such merger or consolidation,
or the sale of all or substantially all of the Company's properties or assets to
any other person (an "Organic Change"), then as a part of such Organic Change an
appropriate revision to the Conversion Price shall be made and provision shall
be made (by adjustments of the Conversion Price or otherwise) so that the Holder
shall have the right thereafter to convert such Note into the kind and amount of
shares of stock and other securities or property of the Company or any successor
corporation resulting from such Organic Change. In any such case, appropriate
adjustment shall be made in the application of the provisions of this Section
3.5(a)(v) with respect to the rights of the Holder after the Organic Change to
the end that the provisions of this Section 3.5(a)(v) (including any adjustment
in the applicable Conversion Price then in effect and the number of shares of
stock or other securities deliverable upon conversion of this Note) shall be
applied after that event in as nearly an equivalent manner as may be
practicable.

 

(vi)               Issuance of Common Stock and Common Stock Equivalents. If the
Company at any time while this Note is outstanding, shall issue shares of Common
Stock or Common Stock Equivalents (as defined in the Purchase Agreement)
entitling any person to acquire shares of Common Stock at a price per share less
than the applicable Conversion Price (if the holder of the Common Stock or
Common Stock Equivalent so issued shall at any time, whether by operation of
purchase price adjustments, reset provisions, floating conversion, exercise or
exchange prices or otherwise, or due to warrants, options or rights per share
which are issued in connection with such issuance, be entitled to receive shares
of Common Stock at a price per share which is less than the applicable
Conversion Price, such issuance shall be deemed to have occurred for less than
the applicable Conversion Price), then, at the sole option of the Holder, the
Conversion Price shall be adjusted to mirror the conversion, exchange or
purchase price for such Common Stock or Common Stock Equivalents (including any
reset provisions thereof) at issue. Such adjustment shall be made whenever such
Common Stock or Common Stock Equivalents are issued. The Company shall notify
the Holder in writing, no later than 1 business day following the issuance of
any Common Stock or Common Stock Equivalent subject to this Section, indicating
therein the applicable issuance price, or of applicable reset price, exchange
price, conversion price and other pricing terms.

 

(vii)              Consideration for Stock. In case any shares of Common Stock
or any Common Stock Equivalents shall be issued or sold:

 

(1)         in connection with any merger or consolidation in which the Company
is the surviving corporation (other than any consolidation or merger in which
the previously outstanding shares of Common Stock of the Company shall be
changed to or exchanged for the stock or other securities of another
corporation), the amount of consideration therefor shall be deemed to be the
fair value, as determined reasonably and in good faith by the Board of Directors
of the Company, of such portion of the assets and business of the non-surviving
corporation as such Board may determine to be attributable to such shares of
Common Stock, Convertible Securities, rights or warrants or options, as the case
may be; or

 

(2)         in the event of any consolidation or merger of the Company in which
the Company is not the surviving corporation or in which the previously
outstanding shares of Common Stock of the Company shall be changed into or
exchanged for the stock or other securities of another corporation, or in the
event of any sale of all or substantially all of the assets of the Company for
stock or other securities of any corporation , the Company shall be deemed to
have issued a number of shares of its Common Stock for stock or securities or
other property of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated, and for a consideration
equal to the fair market value on the date of such transaction of all such stock
or securities or other property of the other corporation.

8

 

 

If any such calculation results in adjustment of (i) the applicable Conversion
Price or (ii) the number of shares of Common Stock issuable upon conversion of
the Note, the determination of the applicable Conversion Price or the number of
shares of Common Stock issuable upon conversion of the Note immediately prior to
such merger, consolidation or sale, shall be made after giving effect to such
adjustment of the number of shares of Common Stock issuable upon conversion of
the Note. In the event Common Stock is issued with other shares or securities
and/or other assets of the Company for consideration, the consideration computed
as provided in this Section 3.5(vii) shall be allocated among such securities
and assets as determined in good faith by the Board of Directors of the Company.

 

(b)                 Record Date. In case the Company shall take record of the
holders of its Common Stock for the purpose of entitling them to subscribe for
or purchase Common Stock or Convertible Securities, then the date of the issue
or sale of the shares of Common Stock shall be deemed to be such record date.

 

(c)                 Certain Issues Excepted. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment to the
Conversion Price in connection with (i) securities issued (other than for cash)
in connection with a merger, acquisition, or consolidation, (ii) securities
issued pursuant to a bona fide firm underwritten public offering of the
Company's securities, (iii) securities issued pursuant to the conversion or
exercise of convertible or exercisable securities issued or outstanding on or
prior to the date hereof or issued pursuant to the Purchase Agreement, (iv) the
shares of Common Stock issuable upon the exercise of Warrants, (v) securities
issued in connection with strategic license agreements or other partnering
arrangements so long as such issuances are not for the purpose of raising
capital, (vi) Common Stock issued or options to purchase Common Stock granted or
issued pursuant to the Company's stock option plans and employee stock purchase
plans as they now exist, (vii) private sales of restricted common stock at a
fixed price, which price may be a discount to market value, and (viii) the
payment of any accrued interest in shares of Common Stock pursuant to this Note.

 

(d)                 No Impairment. The Company shall not, by amendment of its
Certificate of Incorporation or through any reorganization transfer of assets,
consolidation, merger, 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 to be observed or performed hereunder by the Company, but will at all
times in good faith, assist in the carrying out of all the provision s of this
Section 3.5 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the Holder against
impairment. In the event the Holder shall elect to convert the Note as provided
herein, the Company cannot refuse conversion based on any claim that the Holder
or any one associated or affiliated with the Holder has been engaged in any
violation of law, violation of an agreement to which the Holder is a party or
for any reason whatsoever, unless an injunction from a court, or notice,
restraining and/ or adjoining conversion of all or of part of the Note shall
have issued.

9

 

 

(e)                 Certificates as to Adjustments. Upon occurrence of each
adjustment or readjustment of the Conversion Price or number of shares of Common
Stock issuable upon conversion of this Note pursuant to this Section 3.5, the
Company at its expense shall promptly compute such adjustment or readjustment in
accordance with the terms hereof and furnish to the Holder a certificate setting
forth such adjustment and readjustment, showing in detail the facts upon which
such adjustment or readjustment is based. The Company shall, upon written
request of the Holder, at any time, furnish or cause to be furnished to the
Holder a like certificate setting forth such adjustments and readjustments, the
applicable Conversion Price in effect at the time, and the number of shares of
Common Stock and the amount, if any, of other securities or property which at
the time would be received upon the conversion of this Note. Notwithstanding the
foregoing, the Company shall not be obligated to deliver a certificate unless
such certificate would reflect an increase or decrease of at least 1% of such
adjusted amount.

 

(f)                  Issue Taxes. The Company shall pay any and all issue and
other taxes, excluding federal, state or local income taxes, that may be payable
in respect of any issue or delivery of shares of Common Stock on conversion of
this Note pursuant thereto; provided, however, that the Company shall not be
obligated to pay any transfer taxes resulting from any transfer requested by the
Holder in connection with any such conversion

 

(g)                 Fractional Shares. No fractional shares of Common Stock
shall be issued upon conversion of this Note. In lieu of any fractional shares
to which the Holder would otherwise be entitled, the Company shall pay cash
equal to the product of such fraction multiplied by the average of the closing
bid prices of the Common Stock for the 5 consecutive Trading Days immediately
preceding the Conversion Date.

 

(h)                 Reservation of Common Stock. The Company shall at all times
when this Note shall be outstanding, reserve and keep available out of its
authorized but unissued Common Stock, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of this Note and
all interest accrued thereon; provided that the number of shares of Common Stock
so reserved shall at no time be less than 400% of the number of shares of Common
Stock for which the Principal Amount of this Note are at any time convertible
(the "Reserved Amount"). The Company shall, from time to time in accordance with
Nevada corporate law, increase the authorized number of shares of Common Stock
if at any time the unissued number of authorized shares shall not be sufficient
to satisfy the Company's obligations under this Section 3.5(h). The Company
acknowledges that (i) it has irrevocably instructed its transfer agent to issue
certificates for the Common Stock issuable upon conversion of this Note, and
(ii) agrees that its issuance of this Note shall constitute full authority to
its officers and agents who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for shares of Com
mon Stock in accordance with the terms and conditions of this Note. If, at any
time the Company does not maintain the Reserved Amount it will be considered an
Event of Default under Section 2.1 of this Note.

 

(i)                   Regulatory Compliance. If any shares of Common Stock to be
reserved for the purpose of conversion of this Note or any interest accrued
thereon require registration or listing with or approval of any governmental
authority, stock exchange or other regulatory body under any federal or state
law or regulation or otherwise before such shares may be validly issued or
delivered upon conversion, the Company shall, at its sole cost and expense, in
good faith and as expeditiously as possible, endeavor to secure such
registration, listing or approval, as the case may be.

10

 

 

Section 3.6 Prepayment.

 

(a)                 Prepayment by the Company. Notwithstanding anything to the
contrary contained herein, during the 90 days following the issuance of this
Note (the "Prepayment Period") the Company shall have the right, at the
Company's option, to prepay in cash all or a portion of this Note as follows:
(i) during the first 30 days of the Prepayment Period, the amount to prepay the
Note shall equal 130% of the aggregate principal amount of the Note plus all
accrued and unpaid interest applicable at the time of such request; (ii) during
the next 30 days of the Prepayment Period, the amount to prepay the Note shall
equal 140% of the aggregate principal amount of the Note plus all accrued and
unpaid interest applicable at the time of such request; and (iii) during the
next 30 days of the Prepayment Period, the amount to prepay the Note shall equal
150% of the aggregate principal amount of the Note plus all accrued and unpaid
interest applicable at the time of such request.

 

(b)                 Prepayment Upon an Event of Default. Notwithstanding
anything to the contrary contained herein, upon the occurrence of an Event of
Default described in Sections 2.l(a), (b) and (d) through (m) hereof, the Holder
shall have the right, at such Holder's option, to require the Company to prepay
i n cash all or a portion of this Note at a price equal to one hundred twenty
percent (120%) of the aggregate principal amount of this Note plus all accrued
and unpaid interest applicable at the time of such request (the "Event of
Default Prepayment Price"). Nothing in this Section 3.6(b) shall limit the
Holder's rights under Section 2.2 hereof.

 

(c)                 Prepayment Option Upon Major Transaction. In addition to all
other rights of the Holder contained herein, simultaneous with the occurrence of
a Major Transaction (as defined in Section 3.6(e) hereof), the Holder shall have
the right, at the Holder's option, to require the Company to prepay all or a
portion of the Holder's Note at a price equal to one hundred ten percent (110%)
of the aggregate principal amount of this Note plus all accrued and unpaid
interest (the ''Major Transact ion Prepayment Price").

 

(d)                 Prepayment Option Upon Triggering Event. In addition to all
other rights of the Holder contained herein, after a Triggering Event (as
defined below), the Holder shall have the right, at the Holder's option, to
require the Company to prepay all or a portion of this Note in cash at a price
equal to the sum of (i) the greater of (A) one hundred twenty percent (120%) of
the aggregate principal amount of this Note plus all accrued and unpaid interest
and (B) in the event at such time the Holder is unable to obtain the benefit of
its conversion rights through the conversion of this Note and resale of the
shares of Common Stock issuable upon conversion hereof in accordance with the
terms of this Note and the other Transaction Documents, the aggregate principal
amount of this Note plus all accrued but unpaid interest hereon, divided by the
Conversion Price on (x) the date the Prepayment Price (as defined below) is
demanded or otherwise due or (y) the date the Prepayment Price is paid in full,
whichever is less, multiplied by the VWAP on (x) the date the Prepayment Price
is demanded or otherwise due, and (y) the date the Prepayment Price is paid in
full, whichever is greater, and (ii) all other amounts, costs, expenses and
liquidated damages due in respect of this Note and the other Transaction
Documents (the "Triggering Event Prepayment Price," and, collectively with the
"Major Transaction Prepayment Price," the "Prepayment Price").

 

(e)                 Major Transaction. A "Major Transaction" shall be deemed to
have occurred at such time as any of the following events:

 

(i)                   the consolidation, merger or other business combination of
the Company with or into another Person (other than (A) pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or (B) a consolidation, merger or other business
combination in which holders of the Company's voting power immediately prior to
the transaction continue after the transaction to hold, directly or indirectly,
the voting power of the surviving entity or entities necessary to elect a
majority of the members of the board of directors (or their equivalent if other
than a corporation) of such entity or entities); or

11

 

 

(ii)                 the sale or transfer of more than fifty percent (50%) of
the Company's assets (based on the fair market value as determined in good faith
by the Company's Board of Directors) other than inventory in the ordinary course
of business in one or a related series of transaction s; o

 

(iii)                closing of a purchase, tender or exchange offer made to the
holders of more than fifty percent (50%) of the outstanding shares of Common
Stock in which more than fifty percent (50%) of the outstanding shares of Common
Stock were tendered and accepted.

 

(f)                  Triggering Event. A "Triggering Event" shall be deemed to
have occurred at such time as any of the following events:

 

(i)                   the suspension from listing, without subsequent listing on
any one of, or the failure of the Common Stock to be listed on at least one of
the OTC Markets, OTC Bulletin Board, Nasdaq Capital Market, NYSE MKT or The New
York Stock Exchange, Inc. for a period of five (5) consecutive Trading Days;

 

(ii)                 the Company's notice to any holder of the Note, including
by way of public announcement, at any time, of its inability to comply
(including for any of the reasons described in Section 3.8) or its intention not
to comply with proper requests for conversion of any Note into shares of Common
Stock; o

 

(iii)                the Company's failure to comply with a Conversion Notice
tendered in accordance with the provisions of this Note within ten business days
after the receipt by the Company of the Conversion Notice; or

 

(iv)               the Company deregisters its shares of Common Stock and as a
result such shares of Common Stock are no longer publicly traded; or

 

(v)                 the Company consummates a "going private" transaction and as
a result the Common Stock is no longer registered under Sections 12(b) or 12(g)
of the Exchange Act.

 

(g)                 Mechanics of Prepayment at Option of Holder Upon Major
Transaction. No sooner than fifteen (15) days nor later than ten (10) days prior
to the consummation of a Major Transaction, but not prior to the public
announcement of such Major Transaction, the Company shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
the Holder of this Note. At any time after receipt of a Notice of Major
Transaction (or, in the event a Notice of Major Transaction is not delivered at
least ten (10) days prior to a Major Transaction, at any time within ten (10)
days prior to a Major Transaction), any holder of the Notes then outstanding may
require the Company to prepay, effective immediately prior to the consummation
of such Major Transaction, all of the holder 's Notes then outstanding by
delivering written notice thereof via facsimile and overnight courier (''Notice
of Prepayment at Option of Holder Upon Major Transaction") to the Company, which
Notice of Prepayment at Option of Holder Upon Major Transaction shall indicate
(i) the number of Notes that such holder is electing to prepay and (ii) the
applicable Major Transaction Prepayment Price, as calculated pursuant to Section
3.6(c) above.

12

 

 

(h)                 Mechanics of Prepayment at Option of Holder Upon Triggering
Event. Within one (1) business day after the occurrence of a Triggering Event,
the Company shal1 deliver written notice thereof via facsimile and overnight
courier ("Notice of Triggering Event") to each holder of the Notes. At any time
after the earlier of the Holder's receipt of a Notice of Triggering Event and
such holder becoming aware of a Triggering Event, any holder of this Note may
require the Company to prepay all of the Notes on a pro rata basis by delivering
written notice thereof via facsimile and overnight courier ("Notice of
Prepayment at Option of Holder Upon Triggering Event") to the Company, which
Notice of Prepayment at Option of Holder Upon Triggering Event shall indicate
(i) the amount of the Note that such holder is electing to have prepaid and (ii)
the applicable Triggering Event Prepayment Price, as calculated pursuant to
Section 3.6(d) above. The Holder shall only be permitted to require the Company
to prepay the Note pursuant to Section 3.6 hereof for the greater of a period of
ten (10) days after receipt by such holder of a Notice of Triggering Event or
for so long as such Triggering Event is continuing.

 

(i)                   Payment of Prepayment Price. Upon the Company's receipt of
a Notice(s) of Prepayment at Option of Holder Upon Triggering Event or a
Notice(s) of Prepayment at Option of Holder Upon Major Transaction from any
holder of the Notes, the Company shall immediately notify each holder of the
Notes by facsimile of the Company's receipt of such Notice(s) of Prepayment at
Option of Holder Upon Triggering Event or Notice(s) of Prepayment at Option of
Holder Upon Major Transaction and each holder which has sent such a notice shall
promptly submit to the Company such holder's certificates representing the Notes
which such holder has elected to have prepaid. The Company shall deliver the
applicable Triggering Event Prepayment Price, in the case of a prepayment
pursuant to Section 3.6(d), to such holder within five (5) business days after
the Company's receipt of a Notice of Prepayment at Option of Holder Upon
Triggering Event and, in the case of a prepayment pursuant to Section 3.(e), the
Company shall deliver the applicable Major Transaction Prepayment Price
immediately prior to the consummation of the Major Transaction; provided that
the Holder's original Note shall have been so delivered to the Company; provided
further that if the Company is unable to prepay all of the Notes to be prepaid,
the Company shall prepay an amount from each holder of the Notes being prepaid
equal to such holder's pro-rata amount (based on the number of Notes held by
such holder relative to the number of Notes outstanding) of all Notes being
prepaid. If the Company shall fail to prepay all of the Notes submitted for
prepayment (other than pursuant to a dispute as to the arithmetic calculation of
the Prepayment Price), in addition to any remedy such holder of the Notes may
have under this Note and the Purchase Agreement, the applicable Prepayment Price
payable in respect of such Notes not prepaid shall bear interest at the rate of
two percent (2%) per month (prorated for partial months) until paid in full.
Until the Company pays such unpaid applicable Prepayment Price in full to the
Holder of the Notes submitted for prepayment, such holder shall have the option
(the "Void Optional Prepayment Option") to, in lieu of prepayment, require the
Company to promptly return to such holder(s) all of the Notes that were
submitted for prepayment by such holder(s) under this Section 3.6 and for which
the applicable Prepayment Price has not been paid, by sending written notice
thereof to the Company via facsimile (the "Void Optional Prepayment Notice").
Upon the Company's receipt of such Void Optional Prepayment Notice(s) and prior
to payment of the full applicable Prepayment Price to such bolder, (i) the
Notice(s) of Prepayment at Option of Holder Upon Triggering Event or the
Notice(s) of Prepayment at Option of Holder Upon Major Transaction, as the case
may be, shall be null and void with respect to those Notes submitted for
prepayment and for which the applicable Prepayment Price has not been paid, (ii)
the Company shall immediately return any Notes submitted to the Company by each
holder for prepayment under this Section 3.6(i) and for which the applicable
Prepayment Price has not been paid and (iii) the Conversion Price of such
returned Notes shall be adjusted to the lesser of (A) the Conversion Price as in
effect on the date on which the Void Optional Prepayment Notice(s) is delivered
to the Company and (B) the lowest Closing Bid Price during the period beginning
on the date on which the Notice(s) of Prepayment of Option of Holder Upon Major
Transaction or the Notice(s) of Prepayment at Option of Holder Upon Triggering
Event, as the case may be, is delivered to the Company and ending on the date on
which the Void Optional Prepayment Notice(s) is delivered to the Company;
provided that no adjustment shall be made if such adjustment would result in an
increase of the Conversion Price then in effect. The Holder's delivery of a Void
Optional Prepayment Notice and exercise of its rights following such notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice. Payments provided for in this Section
3.6 shall have priority to payments to other stockholders in connection with a
Major Transaction.

13

 

 

(j)                  Company Prepayment Option upon Major Transaction. Upon the
consummation of a Major Transaction, the Company may prepay in cash all or any
portion of the outstanding principal amount of this Note together with all
accrued and unpaid interest thereon upon at least thirty (30) days prior written
notice to the Holder (the "Company's Prepayment Notice") at a price equal to one
hundred twenty percent (120%) of the aggregate principal amount of this Note
plus any accrued but unpaid interest (the "Company ' s Prepayment Price");
provided, however, that if the Holder has delivered a Conversion Notice to the
Company or delivers a Conversion Notice within such thirty (30) day period
following delivery of the Company's Prepayment Notice, the principal amount of
the Notes plus any accrued but unpaid interest designated to be converted may
not be prepaid by the Company and shall be converted in accordance with Section
3.3 hereof; provided further that if during the period between delivery of the
Company's Prepayment Notice and the Company's Prepayment Date (as defined
below), the Holder shall become entitled and elects to deliver a Notice of
Prepayment at Option of Holder Upon Major Transaction or Notice of Prepayment at
Option of Holder upon Triggering Event, then such rights of the holders shall
take precedence over the previously delivered Company Prepayment Notice if the
holder so elects. The Company's Prepayment Notice shall state the date of
prepayment which date shalt be the date of the consummation of the Major
Transaction (the "Company's Prepayment Date"), the Company's Prepayment Price
and the principal amount of Notes plus any accrued but unpaid interest to be
prepaid by the Company. The Company shall deliver the Company's Prepayment Price
on the Company's Prepayment Date, provided, that if the holder(s) delivers a
Conversion Notice before the Company's Prepayment Date, then the portion of the
Company's Prepayment Price which would be paid to prepay the Notes covered by
such Conversion Notice shall be returned to the Company upon delivery of the
Common Stock issuable in connection with such Conversion Notice to the
holder(s). On the Company's Prepayment Date, the Company shall pay the Company's
Prepayment Price, subject to any adjustment pursuant to the immediately
preceding sentence, to the holder(s) on a pro rata basis. ff the Company fails
to pay the Company's Prepayment Price by the third (3rd) business day after the
Company's Prepayment Date, the prepayment will be declared null and void and the
Company shall lose its right to serve a Company's Prepayment Notice pursuant to
this Section 3.6U) in the future. Notwithstanding the foregoing to the contrary,
the Company may effect a prepayment pursuant to this Section 3.6(j) only if
trading in the Common Stock shall not have been suspended by the Securities and
Exchange Commission or any other exchange or market on which the Common Stock is
trading, and the Company is in material compliance with the terms and conditions
of this Note and the other Transaction Documents.

 

Section 3.7 Inability to Fully Convert.

 

(a)                 Holder's Option if Company Cannot Fully Convert. If, upon
the Company's receipt of a Conversion Notice, the Company cannot issue shares of
Common Stock for any reason, including, without limitation, because the Company
(w) does not have a sufficient number of shares of Common Stock authorized and
available, or (x) is otherwise prohibited by applicable law or by the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or any of its
securities from issuing all of the Common Stock which is to be issued to the
Holder pursuant to a Conversion Notice, then the Company shall issue as many
shares of Common Stock as it is able to issue in accordance with the Holder's
Conversion Notice and, with respect to the unconverted portion of this Note, the
Holder, solely at Holder's option, can elect to:

14

 

 

(i)                   require the Company to prepay that portion of this Note
for which the Company is unable to issue Common Stock in accordance with the
Holder's Conversion Notice (the "Mandatory Prepayment") at a price per share
equal to the Conversion Price as of such Conversion Date (the "Mandatory
Prepayment Price"); or

(ii)                 void its Conversion Notice and retain or have returned, as
the case may be, this Note (provided that the Holder's voiding its Conversion
Notice shall not effect the Company's obligations to make any payments which
have accrued prior to the date of such notice).

 

In the event the Holder shall elect to convert any portion of the Note as
provided herein, the Company cannot refuse conversion based on any claim that
the Holder or any one associated or affiliated with the Holder has been engaged
in any violation of law, violation of an agreement to which the Holder is a
party or for any reason whatsoever, unless, an injunction from a court, on
notice, restraining and or adjoining conversion of all or part of the Note shall
have been issued and the Company posts a surety bond for the benefit of the
Holder in an amount equal to 130% of the principal amount of the Note, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such Holder in the
event it obtains judgment.

 

(b)                 Mechanics of Fulfilling Holder's Election. The Company shall
immediately send via facsimile to the Holder, upon receipt of a facsimile copy
of a Conversion Notice from the Holder which cannot be fully satisfied as
described in Section 3.7(a) above, a notice of the Company's inability to fully
satisfy the Conversion Notice (the "Inability to Fully Convert Notice"). Such
Inability to Fully Convert Notice shall indicate (i) the reason why the Company
is unable to fully satisfy such holder's Conversion Notice, (ii) the amount of
this Note which cannot be converted and (iii) the applicable Mandatory
Prepayment Price. The Holder shall notify the Company of its election pursuant
to Section 3.7(a) above by delivering written notice via facsimile to the
Company (''Notice in Response to Inability to Convert").

 

(c)                 Payment of Prepayment Price. If the Holder shall elect to
have the Note prepaid pursuant to Section 3.7(a)(i) above, the Company shall pay
the Mandatory Prepayment Price to the Holder within 30 days of the Company's
receipt of the Holder's Notice in Response to Inability to Convert, provided
that prior to the Company's receipt of the Holder's Notice in Response to
Inability to Convert the Company has not delivered a notice to the Holder
stating, to the satisfaction of the Holder, that the event or condition
resulting in the Mandatory Prepayment has been cured and all Conversion Shares
issuable to the Holder can and will be delivered to the Holder in accordance
with the terms of this Note. If the Company shall fail to pay the applicable
Mandatory Prepayment Price to the Holder on a timely basis as described in this
Section 3.7(c) (other than pursuant to a dispute as to the determination of the
arithmetic calculation of the Prepayment Price), in addition to any remedy the
Holder may have under this Note and the Purchase Agreement, such unpaid amount
shall bear interest at the rate of 2% per month (prorated for partial months)
until paid in full. Until the full Mandatory Prepayment Price is paid in full to
the Holder, the Holder may (i) void the Mandatory Prepayment with respect to
that portion of the Note for which the full Mandatory Prepayment Price has not
been paid, (ii) receive back such Note, and (iii) require that the Conversion
Price of such returned Note be adjusted to the lesser of (A) the Conversion
Price as in effect on the date on which the Holder voided the Mandatory
Prepayment and (B) the lowest closing bid price during the period beginning on
the Conversion Date and ending on the date the Holder voided the Mandatory
Prepayment.

15

 

 

Section 3.8 No Rights as Shareholder. Nothing contained in this Note shall be
construed as conferring upon the Holder, prior to the conversion of this Note,
the right to vote or to receive dividends or to consent or to receive notice as
a shareholder in respect of any meeting of shareholders for the election of
directors of the Company or of any other matter, or any other rights as a
shareholder of the Company.

 

ARTICLE IV

 

MISCELLANEOUS

 

Section 4.1 Notices. Any notice, demand, request, waiver or other communication
required or permitted to be given hereunder shall be in writing and shall be
effective (a) upon hand delivery by telex (with correct answer back received),
telecopy or facsimile at the address or number designated in the Purchase
Agreement (if delivered on a business day during normal business hours where
such notice is to be received), or the first business day following such
delivery (if delivered other than on a business day during normal business hours
where such notice is to be received ) or (b) on the second business day
following the date of mailing by express courier service, fully prepaid,
addressed to such address, or upon actual receipt of such mailing, whichever
shall first occur. The Company will give written notice to the Holder at least l
0 days prior to the date on which the Company takes a record (x) with respect to
any dividend or distribution upon the Common Stock, (y) with respect to any pro
rata subscription offer to holders of Common Stock or (z) for determining rights
to vote with respect to any Organic Change, dissolution, liquidation or
winding-up and in no event shall such notice be provided to the Holder prior to
such information being made known to the public. The Company will also give
written notice to the Holder at least 10 days prior to the date on which any
Organic Change, dissolution, liquidation or winding-up will take place and in no
event shall such notice be provided to the Holder prior to such information
being made known to the public.

 

Section 4.2 Governing Law. This Note shall be governed by and construed in
accordance with the internal laws of the State of Nevada, without giving effect
to any of the conflicts of law principles which would result in the application
of the substantive law of another jurisdiction. This Note shall not be
interpreted or construed with any presumption against the party causing this
Note to be drafted.

 

Section 4.3 Headings. Article and section headings in this Note are included
herein for purposes of convenience of reference only and shall not constitute a
part of this Note for any other purpose.

 

Section 4.4 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, at Jaw or in equity
(including, without limitation, a decree of specific performance and/or other
injunctive relief), no remedy contained herein shall be deemed a waiver of
compliance with the provisions giving rise to such remedy and nothing herein
shall limit the Holder's right to pursue actual damages for any failure by the
Company to comply with the terms of this Note. 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 and material harm to the Holder
and that the remedy at law for any such breach may be inadequate. Therefore the
Company agrees that, in the event of any such breach or threatened breach, the
Holder shall be entitled, in addition to all other available rights and
remedies, at law or in equity, to seek and obtain such equitable relief,
including but not limited to an injunction restraining any such breach or
threatened breach, without the necessity of showing economic loss and without
any bond or other security being required.

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Section 4.5 Enforcement Expenses. The Company agrees to pay all costs and
expenses of enforcement of this Note, including, without limitation, reasonable
attorneys' fees and expenses.

 

Section 4.6 Binding Effect. The obligations of the Company and the Holder set
forth herein shall be binding upon the successors and assigns of each such
party, whether or not such successors or assigns are permitted by the terms
hereof.

 

Section 4.7 Amendments. This Note may not be modified or amended in any manner
except in writing executed by the Company and the Holder.

 

Section 4.8 Compliance with Securities Laws. The Holder of this Note
acknowledges that this Note is being acquired solely for the Holder's own
account and not as a nominee for any other party, and for investment, and that
the Holder shall not offer, sell or otherwise dispose of this Note. This Note
and any Note issued in substitution or replacement therefor shall be stamped or
imprinted with a legend in substantially the following form:

 

"TIDS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR RECEIPT BY THE COMPANY OF AN
OPINION OF COUNSEL IN THE FORM, SUBSTANCE AND SCOPE REASONABLY SATISFACTORY TO
THE COMPANY THAT THIS NOTE MAY BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE
DISPOSED OF, UNDER AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE
SECURITIES LAWS."

 

Section 4.9 Consent to Jurisdiction. Each of the Company and the Holder (i)
hereby irrevocably submits to the exclusive jurisdiction of the State of New
York for the purposes of any suit, action or proceeding arising out of or
relating to this Note and (ii) hereby waives, and agrees not to assert in any
such suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of such court, that the suit, action or proceeding is brought
in an inconvenient forum or that the venue of the suit, action or proceeding is
improper . Each of the Company and the Holder consents to process being served
in any such suit, action or proceeding by mailing a copy thereof to such party
at the address in effect for notices to it under the Purchase Agreement and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing in this Section 4.9 shall affect or limit any right
to serve process in any other manner permitted by law. Each of the Company and
the Holder hereby agree that the prevailing party in any suit, action or
proceeding arising out of or relating to this Note shall be entitled to
reimbursement for reasonable legal fees from the nonprevailing party.

17

 

 

Section 4.10 Parties in Interest. This Note shall be binding upon, inure to the
benefit of and be enforceable by the Company, the Holder and their respective
successors and permitted assigns.

 

Section 4.11 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.

 

Section 4.12 Company Waivers. Except as otherwise specifically provided herein,
the Company and all others that may become liable for all or any part of the
obligations evidenced by this Note, hereby waive presentment, demand, notice of
nonpayment, protest and all other demands' and notices in connection with the
delivery, acceptance, performance and enforcement of this Note, and do hereby
consent to any number of renewals of extensions of the time or payment hereof
and agree that any such renewals or extensions may be made without notice to any
such persons and without affecting their liability herein and do further consent
to the release of any person liable hereon, all without affecting the liability
of the other persons, firms or Company liable for the payment of this Note, AND
DO HEREBY WAIVE TRIAL BY JURY.

 

(a)                 No delay or omission on the part of the Holder in exercising
its rights under this Note, or course of conduct relating hereto, shall operate
as a waiver of such rights or any other right of the Holder, nor shall any
waiver by the Holder of any such right or rights on any one occasion be deemed a
waiver of the same right or rights on any future occasion.

 

(b)                 THE COMPANY ACKNOWLEDGES THAT THE TRANSACTION OF WHJCH THIS
NOTE IS A PART IS A COMMERCIAL TRANSACTION , AND TO THE EXTENT ALLOWED BY
APPLICABLE LAW, HEREBY WAIVES ITS RIGHT TO NOTICE AND HEARING WITH RESPECT TO
ANY PREJUDGMENT REMEDY WHICH THE HOLDER OR ITS SUCCESSORS OR ASSIGNS MAY DESIRE
TO USE.

 

WELL POWER INC.   By: /s/ Dan Patience Dan Patience, President and Chief
Financial Officer  

 

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EXHIBIT A

 

WIRE INSTRUCTIONS

 

19

 

 

FORM OF

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Note)

 

The undersigned hereby irrevocably elects to convert $ _________ of the
principal amount of the above Note into shares of Common Stock of Well Power,
Inc. according to the conditions hereof, as of the date written below.

 

Date of Conversion:

Applicable Conversion Price:

Number of shares of Common Stock beneficially owned or deemed beneficially owned
by the Holder on the Date of Conversion:

 

Signature:

Print Name:

Address:

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