NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS NOTE, NOR
THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE, HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED,
OR ASSIGNED (i) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE ACT, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL
BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS
NOT REQUIRED UNDER SAID ACT; OR, (ii) UNLESS SOLD PURSUANT TO RULE 144 OR RULE
144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE
PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING
ARRANGEMENT SECURED BY THE SECURITIES.

 

Principal Amount: Up to US $500,000.00 Issue Date: __ April 2018

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, FUQUAN FINANCIAL COMPANY, a Nevada corporation (“Borrower”
or “Company”), hereby promises to pay to the order of HOUYU HUANG, an individual
residing in the People’s Republic of China, or his registered assigns (“Holder”)
the sum of up to US $500,000.00, together with any interest as set forth herein,
on or before __ April 2020 (the “Maturity Date”), and to pay interest on the
unpaid principal balance hereof at the rate of ten percent (10%) (the “Interest
Rate”) per annum from the date of each Advance, until the same becomes due and
payable, whether at maturity or upon acceleration or by prepayment or otherwise.

 

This Convertible Promissory Note (the “Note”) may not be prepaid in whole or in
part except as otherwise explicitly set forth herein. Any amount of principal or
interest on this Note which is not paid when due shall bear an additional
interest at the rate of ten percent (10%) per annum from the due date thereof
until the same is paid (the “Default Interest”). All interest charged hereunder
shall be computed on the basis of a 360-day year and the actual number of days
elapsed. All payments due hereunder, to the extent not converted into Company
common stock, $0.001 par value per share (the “Common Stock”) in accordance with
the terms hereof, shall be made in lawful money of the United States of America.

 

All payments shall be made at such address as Holder shall hereafter give to
Borrower by written notice made in accordance with the provisions of this Note.
Whenever any amount expressed to be due by the terms of this Note is due on any
day which is not a business day, the same shall instead be due on the next
succeeding day which is a business day and, in the case of any interest payment
date which is not the date on which this Note is paid in full, the extension of
the due date thereof shall not be taken into account for purposes of determining
the amount of interest due on such date. As used in this Note, the term
“business day” shall mean any day other than a Saturday, Sunday or a day on
which commercial banks in the city of New York, New York are authorized or
required by law or executive order to remain closed. Each capitalized term used
herein, and not otherwise defined, shall have the meaning ascribed thereto in
that certain Convertible Loan Agreement dated the date hereof, pursuant to which
this Note was originally issued (the “Loan Agreement”). This Note is subject to
all terms and conditions of the Loan Agreement.

 

This Note is free from all taxes, liens, claims, and encumbrances with respect
to the issue thereof and shall not be subject to preemptive rights or other
similar rights of shareholders of Borrower and will not impose personal
liability upon the holder thereof.

 

 1 

 

The following additional terms and conditions shall apply to this Note:

 

Article I. CONVERSION RIGHTS

 

1.1 Conversion Right. Holder shall have the right, in its sole and absolute
discretion, from time to time, and at any time following 90-days after the Issue
Date, to convert all or any part of the outstanding and unpaid principal amount
of this Note into fully paid and non-assessable shares of Common Stock, as such
Common Stock exists on the Issue Date, or any shares of capital stock or other
securities of Borrower into which such Common Stock shall hereafter be changed
or reclassified at the Conversion Price (as defined below) determined as
provided herein (a “Conversion”). The number of shares of Common Stock to be
issued upon each conversion of this Note shall be determined by dividing the
Conversion Amount (as defined below) by the applicable Conversion Price then in
effect on the date specified in the Notice of Conversion, in the form attached
hereto as Exhibit “A” (the “Notice of Conversion”), delivered to Borrower by
Holder in accordance with Section 1.4 below; provided that the Notice of
Conversion is submitted by Fax or E-Mail (or by other means resulting in, or
reasonably expected to result in, notice) to Borrower before 11:59 p.m., New
York, New York time on such conversion date (the “Conversion Date”).

 

The term “Conversion Amount” means, with respect to any conversion of this Note,
the sum of (1) the principal amount of this Note to be converted in such
conversion, plus (2) at Holder’s option, accrued and unpaid interest, if any, on
such principal amount at the interest rates provided in this Note to the
Conversion Date, provided however, that Borrower shall have the right to pay any
or all interest in cash, plus (3) at Holder’s option, Default Interest, if any,
on the amounts referred to in the immediately preceding clauses (1) and/or (2),
plus (4) any Additional Principal for such Conversions, plus (5) at Holder’s
option, any amounts owed to Holder pursuant to any other provision of this Note.

 

1.2 Conversion Price.

 

(a) Calculation of Conversion Price. Subject to the adjustments described
herein, the conversion price (the “Conversion Price”) shall equal the lesser of
(i) 80% multiplied by the lowest Trading Price (as defined below) (representing
a discount rate of 20%) during the previous twenty (20) Trading Day period
ending on the latest complete Trading Day prior to the Issue Date; and, (ii) the
Alternate Conversion Price (as defined herein)(subject to equitable adjustments
for stock splits, stock dividends or rights offerings by Borrower relating to
Borrower’s securities or the securities of any subsidiary of Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions
and similar events). The “Alternate Conversion Price” shall mean 80% multiplied
by the Market Price (as defined herein) (representing a discount rate of 20%).
“Market Price” means the lowest Trading Price (as defined below) for the Common
Stock during the twenty (20) Trading Day period ending on the latest complete
Trading Day prior to the Conversion Date. “Trading Price” means, for any
security as of any date, the lesser of: (i) the lowest trade price on the OTC
Pink, OTCQB, or applicable trading market (the “OTC Market”) as reported by a
reliable reporting service (“Reporting Service”) designated by Holder or, if the
OTC Market is not the principal trading market for such security, the trading
price of such security on the principal securities exchange or trading market
where such security is listed or traded or, if no trading price of such security
is available in any of the foregoing manners, the average of the trading prices
of any market makers for such security that are listed in the “pink sheets” by
the National Quotation Bureau, Inc.; or, (ii) the lowest closing bid price on
the OTC Market as reported by a Reporting Service designated by Holder or, if
the OTC Market is not the principal trading market for such security, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded or, if no closing bid
price of such security is available in any of the foregoing manners, the average
of the closing bid prices of any market makers for such security that are listed
in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price
cannot be calculated for such security on such date in the manner provided
above, the Trading Price shall be the fair market value as mutually determined
by Borrower and the holders of a majority in interest of the Notes being
converted for which the calculation of the Trading Price is required in order to
determine the Conversion Price of such Notes. “Trading Day” shall mean any day
on which the Common Stock is tradable for any period on the OTC Market or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded. Borrower shall be responsible for the fees of its
transfer agent and all DTC fees associated with any such issuance. In the event
of any dispute or discrepancy, the records of Holder shall be controlling and
determinative in the absence of manifest error.

 

 2 

 

 

(b) Adjustment to Conversion Price. At any time after the Issue Date, (i) if in
the case that Borrower’s Common Stock is not deliverable by DWAC (including if
Borrower’s transfer agent has a policy prohibiting or limiting delivery of
shares of Borrower’s Common Stock specified in a Notice of Conversion) within
90-days after the Issue Date; (ii) if Borrower ceases to be a reporting company
pursuant or subject to the Exchange Act; (iii) if Borrower loses a market
(including the OTCBB, OTCQB or an equivalent replacement exchange) for its
Common Stock; (iv) if Borrower fails to maintain its status as “DTC Eligible”
for any reason within 90-days after the Issue Date; (v) if the Note cannot be
converted into free trading shares on or after six months from the Issue Date;
(vi) if at any time Borrower does not maintain or replenish the Reserved Amount
within three (3) business days of the request of Holder; (vii) if Borrower fails
to maintain the listing of the Common Stock on at least one of the OTC Markets
or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq
Small Cap Market, the New York Stock Exchange, or the NYSE MKT; (viii) if
Borrower fails to comply with the reporting requirements necessary to satisfy
the availability of Rule 144 to Holder or its assigns, including but not limited
to the timely fulfillment of its filing requirements as a fully-reporting issuer
registered with the SEC, the requirements for XBRL filings and , the
requirements for disclosure of financial statements on its website, within
90-days after the Issue Date; (ix) if Borrower effectuates a reverse split of
its Common Stock without ten (10) days prior written notice to Holder; (x) the
restatement of any financial statements filed by Borrower with the SEC for any
date or period from two years prior to the Issue Date of this Note and until
this Note is no longer outstanding, if the result of such restatement would, by
comparison to the unrestated financial statement, have constituted a material
adverse effect on the rights of Holder with respect to this Note or the Loan
Agreement; (xi) any cessation of trading of the Common Stock on at least one of
the OTC Markets or an equivalent replacement exchange, the Nasdaq National
Market, the Nasdaq Small Cap Market, the New York Stock Exchange, or the NYSE
MKT, and such cessation of trading shall continue for a period of five
consecutive (5) Trading Days; and/or, (xii) Borrower loses the “bid” price for
its Common Stock ($0.0001 on the “Ask” with zero market makers on the “Bid” per
Level 2), then Holder shall be entitled to increase, by 10% for each occurrence,
cumulative or otherwise, the discount to the Conversion Price for all future
conversions under the Note. Holder maintains the option and sole discretion to
increase by Five Thousand and No/100 United States Dollars ($5,000) per each
occurrence described above (under Holder’s and Borrower’s expectation that any
principal amount increase will tack back to the Issue Date) the principal amount
of the Note instead of applying further discounts to the Conversion Price. Under
no circumstances shall the principal amount exceed an additional Twenty Five
Thousand and No/100 United States Dollars ($25,000) or the Conversion Price be
less than 30% multiplied by the Market Price due to cumulative effect.

 

(c) DTC Chill. If in the case that the Common Stock is “chilled” for deposit
into the DTC system and only eligible for clearing deposit, then an additional
15% discount to the Conversion Price shall apply for all future conversions
under all Notes while the “chill” is in effect.

 

(d) Certain Other Conversions. Each time, while this Note is outstanding, and
with regard only to any transaction entered into by Borrower after the Issue
Date, Borrower enters into a Section 3(a)(9) transaction (including but not
limited to the issuance of new promissory notes or of a replacement promissory
note), or Section 3(a)(10) transaction, in which any 3rd party has the right to
convert monies owed to that 3rd party (or receive shares pursuant to a
settlement or otherwise) at a discount to market greater than the Alternate
Conversion Price in effect at that time (prior to all other applicable
adjustments in the Note), then the Alternate Conversion Price shall be
automatically adjusted to such greater discount percentage (prior to all
applicable adjustments in this Note) until this Note is no longer outstanding.
Each time, while this Note is outstanding, Borrower enters into a Section
3(a)(9) transaction (including but not limited to the issuance of new promissory
notes or of a replacement promissory note), or Section 3(a)(10) transaction, in
which any 3rd party has a look back period greater than the look back period in
effect under the Note at that time (a fifteen (15) Trading Day look back period
is contained in Section 1.2(a)), then Holder’s look back period shall
automatically be adjusted to such greater number of days until this Note is no
longer outstanding. Borrower shall give written notice to Holder, with the
adjusted Alternate Conversion Price and/or adjusted look back period (each
adjustment that is applicable due to the triggering event), within one (1)
business day of an event that requires any adjustment described in the two
immediately preceding sentences.

 

 3 

 

 

(e) Par Value Adjustments. To the extent the Conversion Price of Borrower’s
Common Stock closes below the par value per share, Borrower will take all steps
necessary to solicit the consent of the stockholders to reduce the par value to
the lowest value possible under law. Borrower agrees to honor all conversions
submitted pending this adjustment unless Holder, in its sole and absolute
discretion elects instead to set the Conversion Price to par value for such
Conversion(s) and the Conversion Amount for such Conversion(s) shall be
increased to include Additional Principal, where “Additional Principal” means
such additional amount to be added to the Conversion Amount to the extent
necessary to cause the number of Conversion Shares issuable upon such
Conversion(s) to equal the same number of Conversion Shares as would have been
issued had the Conversion Price not been subject to the minimum price set forth
in this Section 1.2(e).

 

(f) Conversion Price During Major Announcements. Notwithstanding anything
contained in the preceding section to the contrary, in the event Borrower (i)
makes a public announcement that it intends to consolidate or merge with any
other corporation (other than a merger in which Borrower is the surviving or
continuing corporation and its capital stock is unchanged) or sell or transfer
all or substantially all of the assets of Borrower or (ii) any person, group or
entity (including Borrower) publicly announces a tender offer to purchase 50% or
more of Borrower’s Common Stock (or any other takeover scheme) (the date of the
announcement referred to in clause (i) or (ii) is hereinafter referred to as the
“Announcement Date”), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal to the lower of (x) the Conversion
Price which would have been applicable for a Conversion occurring on the
Announcement Date and (y) the Conversion Price that would otherwise be in
effect. From and after the Adjusted Conversion Price Termination Date, the
Conversion Price shall be determined as set forth in this Section. For purposes
hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to
any proposed transaction or tender offer (or takeover scheme) for which a public
announcement as contemplated by this Section has been made, the date upon which
Borrower (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) consummates or publicly announces the termination
or abandonment of the proposed transaction or tender offer (or takeover scheme)
which caused this Section 1.2(f) to become operative.

 

(g) Pro Rata Conversion; Disputes. In the event of a dispute as to the number of
shares of Common Stock issuable to Holder in connection with a conversion of
this Note, Borrower shall issue to Holder the number of shares of Common Stock
not in dispute and resolve such dispute in accordance with Section 4.13.

 

1.3 Authorized Shares. Borrower covenants that during the period the conversion
right exists, Borrower will reserve from its authorized and unissued Common
Stock a sufficient number of shares, free from preemptive rights, to provide for
the issuance of Common Stock upon the full conversion of this Note. Borrower is
required at all times to have authorized and reserved three (3) times the number
of shares that is actually issuable upon full conversion of the Note (based on
the Conversion Price of the Notes in effect from time to time) (the “Reserved
Amount”). Borrower represents that upon issuance, such shares will be duly and
validly issued, fully paid and non-assessable. In addition, if Borrower shall
issue any securities or make any change to its capital structure which would
change the number of shares of Common Stock into which the Notes shall be
convertible at the then current Conversion Price, Borrower shall at the same
time make proper provision so that thereafter there shall be a sufficient number
of shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding Notes.

 

Borrower (i) acknowledges that it has irrevocably instructed its transfer agent
to issue certificates for the Common Stock issuable upon conversion of this
Note, and (ii) agrees that its issuance of this Note shall constitute full
authority to its officers and agents who are charged with the duty of executing
stock certificates to execute and issue the necessary certificates for shares of
Common Stock in accordance with the terms and conditions of this Note.
Notwithstanding the foregoing, in no event shall the Reserved Amount be lower
than the initial Reserved Amount, regardless of any prior conversions.

 

 4 

 

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted
by Holder in whole or in part at any time following 90-days after the Issue
Date, by (A) submitting to Borrower a Notice of Conversion (by Fax, E-Mail, or
other reasonable means of communication dispatched on the Conversion Date prior
to 11:59 p.m., New York, New York time) and (B) subject to Section 1.4(b),
surrendering this Note at the principal office of Borrower.

 

(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary
set forth herein, upon conversion of this Note in accordance with the terms
hereof, Holder shall not be required to physically surrender this Note to
Borrower unless the entire unpaid principal amount of this Note is so converted.
Holder and Borrower shall maintain records showing the principal amount so
converted and the dates of such conversions or shall use such other method,
reasonably satisfactory to Holder and Borrower, so as not to require physical
surrender of this Note upon each such conversion. In the event of any dispute or
discrepancy, such records of Borrower shall, prima facie, be controlling and
determinative in the absence of manifest error. Notwithstanding the foregoing,
if any portion of this Note is converted as aforesaid, Holder may not transfer
this Note unless Holder first physically surrenders this Note to Borrower,
whereupon Borrower will forthwith issue and deliver upon the order of Holder a
new Note of like tenor, registered as Holder (upon payment by Holder of any
applicable transfer taxes) may request, representing in the aggregate the
remaining unpaid principal amount of this Note. Holder and any assignee, by
acceptance of this Note, acknowledge and agree that, by reason of the provisions
of this paragraph, following conversion of a portion of this Note, the unpaid
and unconverted principal amount of this Note represented by this Note may be
less than the amount stated on the face hereof.

 

(c) Payment of Taxes. Borrower shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue and delivery of shares
of Common Stock or other securities or property on conversion of this Note in a
name other than that of Holder (or in street name), and Borrower shall not be
required to issue or deliver any such shares or other securities or property
unless and until the person or persons (other than Holder or the custodian in
whose street name such shares are to be held for Holder’s account) requesting
the issuance thereof shall have paid to Borrower the amount of any such tax or
shall have established to the satisfaction of Borrower that such tax has been
paid.

 

(d) Delivery of Common Stock Upon Conversion. Upon receipt by Borrower from
Holder of a Fax or E-Mail (or other reasonable means of communication) of a
Notice of Conversion meeting the requirements for conversion as provided in this
Section 1.4, Borrower shall issue and deliver or cause to be issued and
delivered to or upon the order of Holder certificates for the Common Stock
issuable upon such conversion within three (3) business days after such receipt
(the “Deadline”) (and, solely in the case of conversion of the entire unpaid
principal amount hereof, surrender of this Note) in accordance with the terms
hereof and the Loan Agreement.

 

(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by Borrower of
a Notice of Conversion, Holder shall be deemed to be the holder of record of the
Common Stock issuable upon such conversion, the outstanding principal amount and
the amount of accrued and unpaid interest on this Note shall be reduced to
reflect such conversion, and, unless Borrower defaults on its obligations under
this Article I, all rights with respect to the portion of this Note being so
converted shall forthwith terminate except the right to receive the Common Stock
or other securities, cash or other assets, as herein provided, on such
conversion. If Holder shall have given a Notice of Conversion as provided
herein, Borrower’s obligation to issue and deliver the certificates for Common
Stock shall be absolute and unconditional, irrespective of the absence of any
action by Holder to enforce the same, any waiver or consent with respect to any
provision thereof, the recovery of any judgment against any person or any action
to enforce the same, any failure or delay in the enforcement of any other
obligation of Borrower to the holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by Holder
of any obligation to Borrower, and irrespective of any other circumstance which
might otherwise limit such obligation of Borrower to Holder in connection with
such conversion. The Conversion Date specified in the Notice of Conversion shall
be the Conversion Date so long as the Notice of Conversion is received by
Borrower before 11:59 p.m., New York, New York time, on such date.

 

 5 

 

 

(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering
physical certificates representing the Common Stock issuable upon conversion,
provided Borrower is participating in the Depository Trust Company (“DTC”) Fast
Automated Securities Transfer (“FAST”) program, upon request of Holder and its
compliance with the provisions contained in Section 1.1 and in this Section 1.4,
Borrower shall use its commercially reasonable best efforts to cause its
transfer agent to electronically transmit the Common Stock issuable upon
conversion to Holder by crediting the account of Holder’s Prime Broker with DTC
through its Deposit Withdrawal At Custodian (“DWAC”) system.

 

(g) Failure to Deliver Common Stock Prior to the Deadline. Without in any way
limiting Holder’s right to pursue other remedies, including actual damages
and/or equitable relief, the parties agree that if delivery of the Common Stock
issuable upon conversion of this Note is not delivered by the Deadline Borrower
shall pay to Holder $2,000 per day in cash, for each day beyond the Deadline
that Borrower fails to deliver such Common Stock until Borrower issues and
delivers a certificate to Holder or credit Holder’s balance account with OTC for
the number of shares of Common Stock to which Holder is entitled upon such
Holder’s conversion of any Conversion Amount (under Holder’s and Borrower’s
expectation that any damages will tack back to the Issue Date). Such cash amount
shall be paid to Holder by the fifth day of the month following the month in
which it has accrued or, at the option of Holder (by written notice to Borrower
by the first day of the month following the month in which it has accrued),
shall be added to the principal amount of this Note, in which event interest
shall accrue thereon in accordance with the terms of this Note and such
additional principal amount shall be convertible into Common Stock in accordance
with the terms of this Note. Borrower agrees that the right to convert is a
valuable right to Holder. The damages resulting from a failure, attempt to
frustrate, and interference with such conversion right are difficult if not
impossible to qualify. Accordingly the parties acknowledge that the liquidated
damages provision contained in this Section 1.4(g) are justified.

 

(h) Rescindment of a Notice of Conversion. If (i) Borrower fails to respond to
Holder within one (1) business day from the Conversion Date confirming the
details of Notice of Conversion; (ii) Borrower fails to provide any of the
shares of Borrower’s Common Stock requested in the Notice of Conversion within
three (3) business days from the Conversion Date specified therein; (iii) Holder
is unable to procure a legal opinion required to have the shares of Borrower’s
Common Stock issued unrestricted and/or deposited to sell for any reason related
to Borrower’s standing; (iv) Holder is unable to deposit the shares of
Borrower’s Common Stock requested in the Notice of Conversion for any reason
related to Borrower’s standing; (v) at any time after a missed Deadline, at
Holder’s sole discretion; or, (vi) if, within three (3) business days of the
transmittal of the Notice of Conversion to Borrower, the Common Stock has a
closing bid which is 5% or lower than that set forth in the Notice of
Conversion, then Holder maintains the option and sole discretion to rescind the
applicable Notice of Conversion (“Rescindment”) pursuant to which such
Conversion Shares were issuable with a “Notice of Rescindment”. This Note shall
remain convertible before and after the Maturity Date hereof until this Note is
repaid or converted in full.

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion
of this Note may not be sold or transferred unless (i) such shares are sold
pursuant to an effective registration statement under the Act or (ii) Borrower
or its transfer agent shall have been furnished with an opinion of counsel
(which opinion shall be in form, substance and scope customary for opinions of
counsel in comparable transactions) to the effect that the shares to be sold or
transferred may be sold or transferred pursuant to an exemption from such
registration or (iii) such shares are sold or transferred pursuant to Rule 144
under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are
transferred to an “affiliate” (as defined in Rule 144) of Borrower who agrees to
sell or otherwise transfer the shares only in accordance with this Section 1.5
and who is an accredited investor, as defined under the Act. Except as otherwise
provided in the Loan Agreement (and subject to the removal provisions set forth
below), until such time as the shares of Common Stock issuable upon conversion
of this Note have been registered under the Act or otherwise may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, each certificate for
shares of Common Stock issuable upon conversion of this Note that has not been
so included in an effective registration statement or that has not been sold
pursuant to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the following form,
as appropriate:

 

 6 

 

 

“NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE
NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR
THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION
OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS
SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE
FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.”

 

The legend set forth above shall be removed and Borrower shall issue to Holder a
new certificate therefore free of any transfer legend if (i) Borrower or its
transfer agent shall have received an opinion of counsel, in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that a public sale or transfer of such Common Stock may be made without
registration under the Act, which opinion shall be reasonably accepted by
Borrower so that the sale or transfer is effected or (ii) in the case of the
Common Stock issuable upon conversion of this Note, such security is registered
for sale by Holder under an effective registration statement filed under the Act
or otherwise may be sold pursuant to Rule 144 without any restriction as to the
number of securities as of a particular date that can then be immediately sold.
In the event that Borrower does not accept the opinion of counsel provided by
the Buyer with respect to the transfer of Securities pursuant to an exemption
from registration, such as Rule 144 or Regulation S, at the Deadline, it will be
considered an Event of Default pursuant to Section 3.1 of the Note.

 

1.6 Effect of Certain Events.

 

(a) Effect of Merger, Consolidation, Etc. At the option of Holder, the sale,
conveyance or disposition of all or substantially all of the assets of Borrower,
the effectuation by Borrower of a transaction or series of related transactions
in which more than 50% of the voting power of Borrower is disposed of, or the
consolidation, merger or other business combination of Borrower with or into any
other Person (as defined below) or Persons when Borrower is not the survivor
shall either: (i) be deemed to be an Event of Default (as defined in Article
III) pursuant to which Borrower shall be required to pay to Holder upon the
consummation of and as a condition to such transaction an amount equal to the
Default Amount (as defined in Article III) or (ii) be treated pursuant to
Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited
liability company, partnership, association, trust or other entity or
organization.

 

(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note
is issued and outstanding and prior to conversion of all amounts owed under the
Note, there shall be any merger, consolidation, exchange of shares,
recapitalization, reorganization, or other similar event, as a result of which
shares of Common Stock of Borrower shall be changed into the same or a different
number of shares of another class or classes of stock or securities of Borrower
or another entity, or in case of any sale or conveyance of all or substantially
all of the assets of Borrower other than in connection with a plan of complete
liquidation of Borrower, then Holder of this Note shall thereafter have the
right to receive upon conversion of this Note, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which Holder would have been entitled to receive in such transaction had
this Note been converted in full immediately prior to such transaction (without
regard to any limitations on conversion set forth herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of
Holder of this Note to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and of the number
of shares issuable upon conversion of the Note) shall thereafter be applicable,
as nearly as may be practicable in relation to any securities or assets
thereafter deliverable upon the conversion hereof. Borrower shall not affect any
transaction described in this Section 1.6(b) unless (a) it first gives, to the
extent practicable, thirty (30) days prior written notice (but in any event at
least fifteen (15) days prior written notice) of the record date of the special
meeting of shareholders to approve, or if there is no such record date, the
consummation of, such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event or sale of assets
(during which time Holder shall be entitled to convert this Note) and (b) the
resulting successor or acquiring entity (if not Borrower) assumes by written
instrument the obligations of this Section 1.6(b). The above provisions shall
similarly apply to successive consolidations, mergers, sales, transfers, or
share exchanges.

 

 7 

 

 

(c) Adjustment Due to Distribution. If Borrower shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of
Common Stock as a dividend, stock repurchase, by way of return of capital or
otherwise (including any dividend or distribution to Borrower’s shareholders in
cash or shares (or rights to acquire shares) of capital stock of a subsidiary
(i.e., a spin-off)) (a “Distribution”), then Holder of this Note shall be
entitled, upon any conversion of this Note after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to Holder with respect to the shares
of Common Stock issuable upon such conversion had such Holder been the holder of
such shares of Common Stock on the record date for the determination of
shareholders entitled to such Distribution.

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are
issued and outstanding, Borrower issues or sells, or in accordance with this
Section 1.6(d) hereof is deemed to have issued or sold, except for shares of
Common Stock issued directly to vendors or suppliers of Borrower in satisfaction
of amounts owed to such vendors or suppliers (provided, however, that such
vendors or suppliers shall not have an arrangement to transfer, sell or assign
such shares of Common Stock prior to the issuance of such shares), any shares of
Common Stock for no consideration or for a consideration per share (before
deduction of reasonable expenses or commissions or underwriting discounts or
allowances in connection therewith) less than the Conversion Price in effect on
the date of such issuance (or deemed issuance) of such shares of Common Stock (a
“Dilutive Issuance”), then immediately upon the Dilutive Issuance, the
Conversion Price will be reduced to the amount of the consideration per share
received by Borrower in such Dilutive Issuance.

 

Borrower shall be deemed to have issued or sold shares of Common Stock if
Borrower in any manner issues or grants any warrants, rights or options (not
including employee stock option plans), whether or not immediately exercisable,
to subscribe for or to purchase Common Stock or other securities convertible
into or exchangeable for Common Stock (“Convertible Securities”) (such warrants,
rights and options to purchase Common Stock or Convertible Securities are
hereinafter referred to as “Options”) and the price per share for which Common
Stock is issuable upon the exercise of such Options is less than the Conversion
Price then in effect, then the Conversion Price shall be equal to such price per
share. For purposes of the preceding sentence, the “price per share for which
Common Stock is issuable upon the exercise of such Options” is determined by
dividing (i) the total amount, if any, received or receivable by Borrower as
consideration for the issuance or granting of all such Options, plus the minimum
aggregate amount of additional consideration, if any, payable to Borrower upon
the exercise of all such Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Options, the minimum aggregate amount of
additional consideration payable upon the conversion or exchange thereof at the
time such Convertible Securities first become convertible or exchangeable, by
(ii) the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options (assuming full conversion of Convertible
Securities, if applicable). No further adjustment to the Conversion Price will
be made upon the actual issuance of such Common Stock upon the exercise of such
Options or upon the conversion or exchange of Convertible Securities issuable
upon exercise of such Options.

 

 8 

 

 

Additionally, Borrower shall be deemed to have issued or sold shares of Common
Stock if Borrower in any manner issues or sells any Convertible Securities,
whether or not immediately convertible (other than where the same are issuable
upon the exercise of Options), and the price per share for which Common Stock is
issuable upon such conversion or exchange is less than the Conversion Price then
in effect, then the Conversion Price shall be equal to such price per share. For
the purposes of the preceding sentence, the “price per share for which Common
Stock is issuable upon such conversion or exchange” is determined by dividing
(i) the total amount, if any, received or receivable by Borrower as
consideration for the issuance or sale of all such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any, payable to
Borrower upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No further adjustment to the Conversion Price will
be made upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.

 

(e) Purchase Rights. If, at any time when this Note remains issued and
outstanding, Borrower issues any convertible securities or rights to purchase
stock, warrants, securities or other property (the “Purchase Rights”) pro rata
to the record holders of any class of Common Stock, then Holder of this Note
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such Holder could have acquired if such
Holder had held the number of shares of Common Stock acquirable upon complete
conversion of this Note (without regard to any limitations on conversion
contained herein) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.

 

(f) Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price as a result of the events described in this
Section 1.6, Borrower, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to Holder a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. Borrower shall, upon the written request at
any time of Holder, furnish to such Holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of
the Note.

 

1.7 Status as Shareholder. Upon submission of a Notice of Conversion by Holder,
(i) the shares covered thereby (other than the shares, if any, which cannot be
issued because their issuance would exceed such Holder’s allocated portion of
the Reserved Amount or Maximum Share Amount) shall be deemed converted into
shares of Common Stock and (ii) Holder’s rights as a Holder of such converted
portion of this Note shall cease and terminate, excepting only the right to
receive certificates for such shares of Common Stock and to any remedies
provided herein or otherwise available at law or in equity to such Holder
because of a failure by Borrower to comply with the terms of this Note.
Notwithstanding the foregoing, if a Holder has not received certificates for all
shares of Common Stock prior to the third (3rd) business day after the
expiration of the Deadline with respect to a conversion of any portion of this
Note for any reason, then (unless Holder otherwise elects to retain its status
as a holder of Common Stock by so notifying Borrower) Holder shall regain the
rights of a Holder of this Note with respect to such unconverted portions of
this Note and Borrower shall, as soon as practicable, return such unconverted
Note to Holder or, if the Note has not been surrendered, adjust its records to
reflect that such portion of this Note has not been converted. In all cases,
Holder shall retain all of its rights and remedies (including, without
limitation, (i) the right to receive Conversion Default Payments pursuant to
Section 1.3 to the extent required thereby for such Conversion Default and any
subsequent Conversion Default and (ii) the right to have the Conversion Price
with respect to subsequent conversions determined in accordance with Section
1.3) for Borrower’s failure to convert this Note.

 

 9 

 

 

1.8 Repayment. Notwithstanding anything to the contrary contained in this Note,
subject to the terms of this Section 1.8, at any time Borrower shall have the
right, exercisable on not less than five (5) Trading Days prior written notice
to the Holder of this Note, to repay the outstanding balance on this Note
(principal, accrued interest, and all other amounts due hereunder), in full. Any
notice of repayment hereunder (a “Repayment Notice”) shall be delivered to the
Holder and shall state: (1) that the Borrower is exercising its right to repay
the Note; and (2) the date of repayment which shall be not more than ten (10)
Trading Days from the date of the Repayment Notice. On the date fixed for
repayment (the “Repayment Date”), the Borrower shall make payment of the
Repayment Amount (as defined below) to or upon the order of the Holder as
specified by the Holder in writing to the Borrower at least one (1) business day
prior to the Repayment Date. If the Borrower exercises its right to repay the
Note, the Borrower shall make payment to the Holder of an amount in cash (the
“Repayment Amount”) equal to the Repayment Factor (as defined below), multiplied
by the sum of: (i) the then outstanding principal amount of this Note; (ii)
accrued and unpaid interest on the unpaid principal amount of this Note to the
Repayment Date; (iii) Default Interest, if any, on the amounts referred to in
clauses (i) and (ii); and, (iv) all other amounts owed to Holder under this
Note. For purposes hereof, the “Repayment Factor” shall equal the percentage set
forth below with respect to each Repayment Date beside such Repayment Factor:

 

The Repayment Factor is:   If the Optional Repayment Date occurs: 100%   1-360
days after the Issue Date 110%   361 days and beyond after the Issue Date

 

Article II. CERTAIN COVENANTS

 

2.1 Distributions on Capital Stock. So long as Borrower shall have any
obligation under this Note, Borrower shall not without Holder’s written consent
(a) pay, declare or set apart for such payment, any dividend or other
distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock; or, (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock except for distributions pursuant to any shareholders’ rights plan which
is approved by a majority of Borrower’s disinterested directors.

 

2.2 Restriction on Stock Repurchases. So long as Borrower shall have any
obligation under this Note, Borrower shall not without Holder’s written consent
redeem, repurchase or otherwise acquire (whether for cash or in exchange for
property or other securities or otherwise) in any one transaction or series of
related transactions any shares of Common Stock or any warrants, rights or
options to purchase or acquire any such shares.

 

2.3 Borrowings; Liens. So long as Borrower shall have any obligation under this
Note, Borrower shall not, without Holder’s written consent, create, incur,
assume guarantee, endorse, contingently agree to purchase or otherwise become
liable upon the obligation of any person, firm, partnership, joint venture or
corporation, except by the endorsement of negotiable instruments for deposit or
collection, or suffer to exist any liability for borrowed money, except (a)
borrowings in existence or committed on the date hereof; (b) indebtedness to
trade creditors financial institutions or other lenders incurred in the ordinary
course of business; (c) borrowings, the proceeds of which shall be used to repay
this Note; or, (d) enter into, create or incur any liens, claims or encumbrances
of any kind, on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits therefrom,
securing any indebtedness occurring after the date hereof.

 

2.4 Sale of Assets. So long as Borrower shall have any obligation under this
Note, Borrower shall not, without Holder’s written consent, sell, lease, or
otherwise dispose of any significant portion of its assets outside the ordinary
course of business. Any consent to the disposition of any assets may be
conditioned on a specified use of the proceeds of disposition.

 

2.5 Advances and Loans. So long as Borrower shall have any obligation under this
Note, Borrower shall not, without Holder’s written consent, lend money, give
credit or make advances to any person, firm, joint venture or corporation,
including, without limitation, officers, directors, employees, subsidiaries and
affiliates of Borrower, except loans, credits or advances (a) in existence or
committed on the date hereof; (b) made in the ordinary course of business; or,
(c) not in excess of $10,000.

 

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2.6 Preservation of Existence, etc. Borrower shall maintain and preserve, and
cause each of its Subsidiaries to maintain and preserve, its existence, rights
and privileges, and become or remain, and cause each of its Subsidiaries (other
than dormant Subsidiaries that have no or minimum assets) to become or remain,
duly qualified and in good standing in each jurisdiction in which the character
of the properties owned or leased by it or in which the transaction of its
business makes such qualification necessary.

 

2.7 Non-circumvention. Borrower hereby covenants and agrees that Borrower will
not, by amendment of its Articles of Incorporation or Bylaws, or through any
reorganization, transfer of assets, consolidation, merger, scheme of
arrangement, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Note, and will at all times in good faith carry out all the provisions
of this Note and take all action as may be required to protect the rights of
Holder.

 

2.8 Charter. So long as Borrower shall have any obligations under this Note,
Borrower shall not amend its charter documents, including without limitation its
certificate of incorporation and bylaws, in any manner that materially and
adversely affects any rights of Holder hereunder.

 

Article III. EVENTS OF DEFAULT

 

3.1 Event of Default. Any of the following events shall constitute an event of
default hereunder (each, an “Event of Default”):

 

(a) Failure to Pay Principal or Interest. Borrower fails to pay the principal
hereof or interest thereon when due on this Note, whether at maturity, upon
acceleration or otherwise. Any amount of principal on this Note which is not
paid when due shall bear additional interest at the Default Interest rate.

 

(b) Conversion and the Shares. Borrower fails to reserve the Reserved Amount
required for Holder at all times, issue shares of Common Stock to Holder (or
announces or threatens in writing that it will not honor its obligation to do
so) upon exercise by Holder of the conversion rights of Holder in accordance
with the terms of this Note, fails to transfer or cause its transfer agent to
transfer (issue) (electronically or in certificated form) any certificate for
shares of Common Stock issued to Holder upon conversion of or otherwise pursuant
to this Note as and when required by this Note, Borrower directs its transfer
agent not to transfer or delays, impairs, and/or hinders its transfer agent in
transferring (or issuing) (electronically or in certificated form) any
certificate for shares of Common Stock to be issued to Holder upon conversion of
or otherwise pursuant to this Note as and when required by this Note, or fails
to remove (or directs its transfer agent not to remove or impairs, delays,
and/or hinders its transfer agent from removing) any restrictive legend (or to
withdraw any stop transfer instructions in respect thereof) on any certificate
for any shares of Common Stock issued to Holder upon conversion of or otherwise
pursuant to this Note as and when required by this Note (or makes any written
announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any written announcement, statement or threat not to honor its
obligations shall not be rescinded in writing) for three (3) business days after
Holder shall have delivered a Notice of Conversion. It is an obligation of
Borrower to remain current in its obligations to its transfer agent. It shall be
an event of default of this Note, if a conversion of this Note is delayed,
hindered, or frustrated due to a balance owed by Borrower to its transfer agent.
If at the option of Holder, Holder advances any funds to Borrower’s transfer
agent in order to process a conversion, such advanced funds shall be paid by
Borrower to Holder within forty eight (48) hours of a demand from Holder.

 

(c) Breach of Covenants. Borrower breaches any material covenant or other
material term or condition contained in this Note and any collateral documents
including but not limited to the Loan Agreement.

 

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(d) Breach of Representations and Warranties. Any representation or warranty of
Borrower made herein or in any agreement, statement or certificate given in
writing pursuant hereto or in connection herewith (including, without
limitation, the Loan Agreement), shall be false or misleading in any material
respect when made and the breach of which has (or with the passage of time will
have) a material adverse effect on the rights of Holder with respect to this
Note or the Loan Agreement.

 

(e) Receiver or Trustee. Borrower or any subsidiary of Borrower shall make an
assignment for the benefit of creditors or commence proceedings for its
dissolution, or apply for or consent to the appointment of a receiver or trustee
for it or for a substantial part of its property or business, or such a receiver
or trustee shall otherwise be appointed for Borrower or for a substantial part
of its property or business without its consent and shall not be discharged
within sixty (60) days after such appointment.

 

(f) Bankruptcy. Bankruptcy, insolvency, reorganization, or liquidation
proceedings or other proceedings, voluntary or involuntary, for relief under any
bankruptcy law or any law for the relief of debtors shall be instituted by or
against Borrower or any subsidiary of Borrower, or Borrower admits in writing
its inability to pay its debts generally as they mature, or have filed against
it an involuntary petition for bankruptcy relief, all under federal or state
laws as applicable or Borrower admits in writing its inability to pay its debts
generally as they mature, or have filed against it an involuntary petition for
bankruptcy relief, all under international, federal or state laws as applicable.

 

(g) Liquidation. Any dissolution, liquidation, or winding up of Borrower or any
substantial portion of its business.

 

(h) Maintenance of Assets. The failure by Borrower to maintain any material
intellectual property rights, personal, real property or other assets which are
necessary to conduct its business (whether now or in the future).

 

(i) Cross-Default. Notwithstanding anything to the contrary contained in this
Note or the other related or companion documents, a breach or default by
Borrower of any covenant or other term or condition contained in any of the
Other Agreements (as defined herein), after the passage of all applicable notice
and cure or grace periods, shall, at the option of Holder, be considered a
default under this Note and the Other Agreements, in which event Holder shall be
entitled (but in no event required) to apply all rights and remedies of Holder
under the terms of this Note and the Other Agreements by reason of a default
under said Other Agreement or hereunder. “Other Agreements” means, collectively,
all agreements and instruments between, among or by: (i) Borrower, and (ii)
Holder or any other third party, including, without limitation, promissory
notes; provided, however, the term “Other Agreements” shall not include this
Note. Each of the loan transactions will be cross-defaulted with each other loan
transaction and with all other existing and future debt of Borrower to Holder.

 

(j) Judgments. Any money judgment, writ or similar process shall be entered or
filed against Borrower or any subsidiary of Borrower or any of its property or
other assets for more than $100,000.00, and shall remain unvacated, unbonded or
unstayed for a period of twenty (20) days unless otherwise consented to by
Holder, which consent will not be unreasonably withheld.

 

(k) Replacement of Transfer Agent. In the event that Borrower proposes to
replace its transfer agent and Borrower fails to provide, prior to the effective
date of such replacement, a fully executed Irrevocable Transfer Agent
Instructions in a form as initially delivered pursuant to the Loan Agreement
(including but not limited to the provision to irrevocably reserve shares of
Common Stock in the Reserved Amount) signed by the successor transfer agent to
Borrower and Borrower.

 

(l) Bid Price. If Borrower loses the “bid” price for its Common Stock ($0.0001
on the “Ask” with zero market makers on the “Bid” per Level 2) and/or a market
(including the OTCBB, OTCQB or an equivalent replacement exchange) for its
Common Stock.

 

 12 

 

 

(m) SEC Filing Obligations. If at any time after the Issue Date Borrower, for
any reason, is delinquent in its filing obligations with SEC.

 

3.2 Result of Event of Default. Upon the occurrence and during the continuation
of any Event of Default specified in Section 3.1, above:

 

(a) Amount Due. The Note shall become immediately due and payable, and Borrower
shall pay to Holder, in full satisfaction of its obligations hereunder, an
amount equal to one hundred fifty percent (150%) times the sum of (i) the then
outstanding principal amount of this Note; (ii) accrued and unpaid interest on
the unpaid principal amount of this Note to the date of payment (the “Mandatory
Prepayment Date”); (iii) Default Interest, if any, on the amounts referred to in
clauses (i) and/or (ii); (iv) and, all costs, including, without limitation,
legal fees and expenses, of collection; and, (v) any and all other amounts owed
to Holder hereunder, collectively referred to herein as “Default Amount”. All
amounts shall be due without demand, presentment, or notice, all of which hereby
are expressly waived.

 

(b) Conversion Price. If Borrower fails to pay the Default Amount within two (2)
business days of written notice that such amount is due and payable, then Holder
shall have the right at any time, so long as Borrower remains in default to
require Borrower, upon written notice, to immediately issue, in lieu of the
Default Amount, the number of shares of Common Stock of Borrower equal to the
Default Amount divided by the Conversion Price or Alternate Conversion Price, as
chosen by Holder, by applying a discount rate of eighty percent (80%).

 

(c) Other Remedies. Holder shall be entitled to exercise all other rights and
remedies available at law or in equity.

 

Article IV. MISCELLANEOUS

 

4.1 Failure or Indulgence Not a Waiver. No failure or delay on the part of
Holder in the exercise of any power, right or privilege hereunder shall operate
as a waiver thereof, nor shall any single or partial exercise of any such power,
right or privilege preclude other or further exercise thereof or of any other
right, power or privileges. All rights and remedies existing hereunder are
cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2 Notices.

 

(a) Method and Delivery. All notices, requests and demands hereunder shall be in
writing and delivered by hand, by Electronic Transmission, by mail, or by
recognized commercial over-night delivery service (such as Federal Express or
UPS), and shall be deemed given (a) if by hand delivery, upon such delivery; (b)
if by Electronic Transmission, twenty-four (24) hours after transmission; (c) if
by mail, forty-eight (48) hours after deposit in the United States mail, first
class, registered or certified mail, postage prepaid; or, (d) if by recognized
commercial over-night delivery service, upon such delivery.

 

(b) Consent to Electronic Transmission. Each party hereby expressly consents to
the use of Electronic Transmission for communications and notices under this
Note. For purposes of this Note, “Electronic Transmission” means a communication
(i) delivered by Fax or E-Mail when directed to the Fax number or E-Mail
address, respectively, for that recipient on record with the sending party; and,
(ii) that creates a record that is capable of retention, retrieval, and review,
and that may thereafter be rendered into clearly legible tangible form.

 

(c) Address Changes. Any Party may alter the Fax number, E-Mail address,
physical address, or postage address to which communications or copies are to be
sent by giving notice of such change of address to the other party in accordance
with the provisions of this Section 4.2.

 

 13 

 

 

4.3 Amendments. This Note and any provision hereof may only be amended by an
instrument in writing signed by Borrower and Holder.

 

4.4 Assignability. Holder may assign or transfer this Note to any transferee at
its sole discretion. This Note shall be binding upon Borrower and its successors
and assigns, and shall inure to be the benefit of Holder and its successors and
assigns. Each transferee of this Note must be an “accredited investor” (as
defined in Rule 501(a) of the Act). Notwithstanding anything in this Note to the
contrary, this Note may be pledged as collateral in connection with a bona fide
margin account or other lending arrangement. Holder and any assignee, by
acceptance of this Note, acknowledge and agree that following conversion of a
portion of this Note, the unpaid and unconverted principal amount of this Note
represented by this Note may be less than the amount stated on the face hereof.

 

4.5 Cost of Collection. Upon an Event of Default, Borrower shall pay Holder
hereof reasonable costs of collection, including reasonable attorneys’ fees.

 

4.6 Governing Law. This Note shall be governed by and construed in accordance
with the laws of the State of Nevada without regard to principles of conflicts
of laws. The parties hereby warrant and represent that the selection of Nevada
law as governing under this Note (i) has a reasonable nexus to each of the
parties and to the transactions contemplated by the Note; and (ii) does not
offend any public policy of Nevada. Any action brought by either party against
the other arising out of or related to this Note, or any other agreements
between the parties, shall be commenced only in the state or federal courts of
general jurisdiction located in Orange County, California. The parties to this
Note hereby irrevocably waive any objection to jurisdiction and venue of any
action instituted hereunder and shall not assert any defense based on lack of
jurisdiction or venue or based upon forum non conveniens.

 

BORROWER AND HOLDER EACH HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND
AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE
HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION
CONTEMPLATED HEREBY.

 

The prevailing party shall be entitled to recover from the other party its
reasonable attorney’s fees and costs. In the event that any provision of this
Note or any other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any such
provision which may prove invalid or unenforceable under any law shall not
affect the validity or enforceability of any other provision of any agreement.
Each party hereby irrevocably waives personal service of process and consents to
process being served in any suit, action or proceeding in connection with this
Note or any other related transaction document by mailing a copy thereof via
registered or certified mail or overnight delivery (with evidence of delivery)
to such party at the address in effect for notices to it under this Note and
agrees that such service shall constitute good and sufficient service of process
and notice thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law.

 

4.7 Certain Amounts. Whenever pursuant to this Note Borrower is required to pay
an amount in excess of the outstanding principal amount (or the portion thereof
required to be paid at that time) plus accrued and unpaid interest plus Default
Interest on such interest, Borrower and Holder agree that the actual damages to
Holder from the receipt of cash payment on this Note may be difficult to
determine and the amount to be so paid by Borrower represents stipulated damages
and not a penalty and is intended to compensate Holder in part for loss of the
opportunity to convert this Note and to earn a return from the sale of shares of
Common Stock acquired upon conversion of this Note at a price in excess of the
price paid for such shares pursuant to this Note. Borrower and Holder hereby
agree that such amount of stipulated damages is not plainly disproportionate to
the possible loss to Holder from the receipt of a cash payment without the
opportunity to convert this Note into shares of Common Stock.

 

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4.8 Loan Agreement. By its acceptance of this Note, each party agrees to be
bound by all terms and conditions of the Loan Agreement.

 

4.9 Notice of Corporate Events. Except as otherwise provided below, Holder shall
have no rights as a shareholder of Borrower unless and only to the extent that
it converts this Note into Common Stock. Borrower shall provide Holder with
prior notification of any meeting of Borrower’s shareholders (and copies of
proxy materials and other information sent to shareholders). In the event of any
taking by Borrower of a record of its shareholders for the purpose of
determining shareholders who are entitled to receive payment of any dividend or
other distribution, any right to subscribe for, purchase or otherwise acquire
(including by way of merger, consolidation, reclassification or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of Borrower or any proposed
liquidation, dissolution or winding up of Borrower, Borrower shall mail a notice
to Holder, at least twenty (20) days prior to the record date specified therein
(or thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such record is to be taken for
the purpose of such dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such dividend, distribution,
right or other event to the extent known at such time. Borrower shall make a
public announcement of any event requiring notification to Holder hereunder
substantially simultaneously with the notification to Holder in accordance with
the terms of this Section 4.9 including, but not limited to, name changes,
recapitalizations, etc. as soon as possible under law.

 

4.10 Usury. Notwithstanding any provision in this Note or the related
transaction documents to the contrary, 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 due hereunder immediately upon receipt of such
sums by 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
the principal balance then outstanding, and Holder hereof had agreed to accept
such sums as a penalty-free payment of principal; provided, however, that Holder
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 principal balance then outstanding. It is the intention of the
parties that the Company does not intend or expect to pay, nor does 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.

 

4.11 Remedies. Borrower acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to Holder, by vitiating the intent and
purpose of the transaction contemplated hereby. Accordingly, Borrower
acknowledges that the remedy at law for a breach of its obligations under this
Note will be inadequate and agrees, in the event of a breach or threatened
breach by Borrower of the provisions of this Note, that Holder shall be
entitled, in addition to all other available remedies at law or in equity, and
in addition to the penalties assessable herein, to an injunction or injunctions
restraining, preventing or curing any breach of this Note and to enforce
specifically the terms and provisions thereof, without the necessity of showing
economic loss and without any bond or other security being required. No
provision of this Note shall alter or impair the obligation of Borrower, which
is absolute and unconditional, to pay the principal of, and interest on, this
Note at the time, place, and rate, and in the form, herein prescribed.

 

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4.12 Severability. In the event that any provision of this Note is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform to such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.

 

4.13 Specific Dispute Resolution. In the case of a dispute as to the
determination of the Conversion Price, Conversion Amount, any prepayment amount
or Default Amount, Default Sum, Issue, Closing or Maturity Date, the closing bid
price, or fair market value (as the case may be) or the arithmetic calculation
of the Conversion Price or the applicable prepayment amount(s) (as the case may
be), Borrower or Holder shall submit the disputed determinations or arithmetic
calculations via Fax or E-Mail (i) within two (2) Business Days after receipt of
the applicable notice giving rise to such dispute to Borrower or Holder or (ii)
if no notice gave rise to such dispute, at any time after Holder learned of the
circumstances giving rise to such dispute. If Holder and Borrower are unable to
agree upon such determination or calculation within two (2) Business Days of
such disputed determination or arithmetic calculation (as the case may be) being
submitted to Borrower or Holder, then Borrower shall, within two (2) Business
Days, submit via Fax or E-Mail (a) the disputed determination of the Conversion
Price, the closing bid price, the or fair market value (as the case may be) to
an independent, reputable investment bank selected by Borrower and approved by
Holder or (b) the disputed arithmetic calculation of the Conversion Price,
Conversion Amount, any prepayment amount or Default Amount, Default Sum to an
independent, outside accountant selected by Holder that is reasonably acceptable
to Borrower. Borrower shall cause at its expense the investment bank or the
accountant to perform the determinations or calculations and notify Borrower and
Holder of the results no later than ten (10) Business Days from the time it
receives such disputed determinations or calculations. Such investment bank’s or
accountant’s determination or calculation shall be binding upon all parties
absent demonstrable error.

 

4.14 Terms of Future Financings. So long as this Note is outstanding, upon any
issuance by Borrower or any of its subsidiaries of any security with any term
more favorable to the holder of such security or with a term in favor of the
holder of such security that was not similarly provided to Holder in this Note,
then Borrower shall notify Holder of such additional or more favorable term and
such term, at Holder’s option, shall become a part of the transaction documents
with Holder. The types of terms contained in another security that may be more
favorable to the holder of such security include, but are not limited to, terms
addressing conversion discounts, prepayment rate, conversion lookback periods,
interest rates, original issue discounts, stock sale price, private placement
price per share, and warrant coverage.

 

4.15 Disclosure. Upon receipt or delivery by the Company of any notice in
accordance with the terms of this Note, unless the Company has in good faith
determined that the matters relating to such notice do not constitute material,
non-public information relating to the Company or any of its Subsidiaries, the
Company shall within one (1) Trading Day after any such receipt or delivery,
publicly disclose such material, non-public information on a Current Report on
Form 8-K or otherwise. In the event that the Company believes that a notice
contains material, non-public information relating to the Company or any of its
Subsidiaries, the Company so shall indicate to such Holder contemporaneously
with delivery of such notice, and in the absence of any such indication, Holder
shall be allowed to presume that all matters relating to such notice do not
constitute material, non-public information relating to the Company or its
Subsidiaries.

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by
its duly authorized officer as of the date first above written.

 

  FUQUAN FINANCIAL COMPANY                   By:     Name:     Title:  

 

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EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $_________________principal amount of
the Note (defined below) together with $________________ of accrued and unpaid
interest thereto, totaling $_____________ into that number of shares of Common
Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as
set forth below, of Waterside Capital Corporation, a Nevada corporation (the
“Borrower”), according to the conditions of the convertible note of Borrower
dated as of 19 September 2017 (the “Note”), as of the date written below. No fee
will be charged to Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

[  ] Borrower shall electronically transmit the Common Stock issuable pursuant
to this Notice of Conversion to the account of the undersigned or its nominee
with DTC through its Deposit Withdrawal At Custodian system (“DWAC Transfer”).  
    Name of DTC Prime Broker:     Account Number:         [  ] The undersigned
hereby requests that Borrower issue a certificate or certificates for the number
of shares of Common Stock set forth below (which numbers are based on Holder’s
calculation attached hereto) in the name(s) specified immediately below or, if
additional space is necessary, on an attachment hereto:

 

  Name:       Address:            

 

  Date of Conversion:               Applicable Conversion Price: $            
Shares of Common Stock to be Issued:               Amount of Principal Balance
Remaining after conversion:               Accrued and unpaid interest remaining:
              Default Amounts & Penalties remaining:               HOUYU HUANG  
 

 

        Date:    

 

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