Exhibit 10.7

 

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE
HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES
ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO
SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE
COMPANIES. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.

 

Original Issue Date: ______________ Principal Amount: $

 

10% SENIOR SECURED

CONVERTIBLE PROMISSORY NOTE

DUE ______________

 

THIS 10% SENIOR SECURED CONVERTIBLE PROMISSORY NOTE is a duly authorized and
validly issued 10% Senior Secured Convertible Promissory Note of Notis Global,
Inc., a Nevada corporation, (the “Company”) having its principal place of
business at ______________________________________, and Pueblo Agriculture
Supply and Equipment, LLC, a Delaware limited liability company (“PASE” and
together with Notis sometimes collectively referred to as the “Companies”),
having its principal place of business at ____________________________,
designated as its 10% Senior Secured Convertible Promissory Note, due
_______________ (this Note, the “Note” and, collectively with the other Notes of
such series, the “Notes”).

 

FOR VALUE RECEIVED, the Companies, severally and jointly promise, to pay to
Redwood Management, LLC or its registered assigns (the “Holder”), or shall have
paid pursuant to the terms hereunder, the principal sum of $___________ on
_________________ (the “Maturity Date”) or such earlier date as this Note is
required or permitted to be repaid as provided hereunder, and to pay interest to
the Holder on the aggregate unconverted and then outstanding principal amount of
this Note in accordance with the provisions hereof. This Note is subject to the
following additional provisions:

 

Section 1.          Definitions. For the purposes hereof, in addition to the
terms defined elsewhere in this Note, (a) capitalized terms not otherwise
defined herein shall have the meanings set forth in the Purchase Agreement and
(b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

1 

 

 

 

“Bankruptcy Event” means any of the following events: (a) the Companies or any
Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof
commences a case or other proceeding under any bankruptcy, reorganization,
arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction relating to the Companies or any
Subsidiary thereof, (b) there is commenced against the Companies or any
Subsidiary thereof any such case or proceeding that is not dismissed within 60
days after commencement, (c) the Companies or any Subsidiary thereof is
adjudicated insolvent or bankrupt or any order of relief or other order
approving any such case or proceeding is entered, (d) the Companies or any
Subsidiary thereof suffers any appointment of any custodian or the like for it
or any substantial part of its property that is not discharged or stayed within
60 calendar days after such appointment, (e) the Companies or any Subsidiary
thereof makes a general assignment for the benefit of creditors, (f) the
Companies or any Subsidiary thereof calls a meeting of its creditors with a view
to arranging a composition, adjustment or restructuring of its debts or (g) the
Companies or any Subsidiary thereof, by any act or failure to act, expressly
indicates its consent to, approval of or acquiescence in any of the foregoing or
takes any corporate or other action for the purpose of effecting any of the
foregoing.

 

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

 

“Beneficial Ownership Limitation” shall have the meaning set forth in Section
4(d).

 

“Buy-In” shall have the meaning set forth in Section 4(b)(v).

 

“Change of Control Transaction” means the occurrence after the date hereof of
any of (a) an acquisition after the date hereof by an individual or legal entity
or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act)
of effective control (whether through legal or beneficial ownership of capital
stock of the Companies, by contract or otherwise) of in excess of thirty-three
percent (33%) of the voting securities of the Companies (other than by means of
conversion or exercise of the Notes and the Securities issued together with the
Notes); (b) the Companies merges into or consolidates with any other Person, or
any Person merges into or consolidates with the Companies and, after giving
effect to such transaction, the stockholders of the Companies immediately prior
to such transaction own less than sixty-six percent (66%) of the aggregate
voting power of the Companies or the successor entity of such transaction; (c)
the Companies sell or transfer all or substantially all of its assets to another
Person and the stockholders of the Companies immediately prior to such
transaction own less than sixty-six percent (66%) of the aggregate voting power
of the acquiring entity immediately after the transaction; (d) a replacement at
one time or within a three year period of more than one-half of the members of
the Board of Directors which is not approved by a majority of those individuals
who are members of the Board of Directors on the Original Issue Date (or by
those individuals who are serving as members of the Board of Directors on any
date whose nomination to the Board of Directors was approved by a majority of
the members of the Board of Directors who are members on the date hereof); or
(e) the execution by the Companies of an agreement to which the Companies is a
party or by which it is bound, providing for any of the events set forth in
clauses (a) through (d) above.

 

2 

 

 

“Common Stock” means the common stock of the Company, par value $0.0001 per
share, and any other class of securities into which such securities may
hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Companies or the
Subsidiaries which would entitle the holder thereof to acquire at any time
Common Stock, including, without limitation, any debt, preferred stock, right,
option, warrant or other instrument that is at any time convertible into or
exercisable or exchangeable for, or otherwise entitles the holder thereof to
receive, Common Stock.

 

“Conversion” shall have the meaning ascribed to such term in Section 4.

 

“Conversion Date” shall have the meaning set forth in Section 4(a).

 

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1
attached hereto.

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable
upon conversion of this Note in accordance with the terms hereof.

 

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

 

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

 

“DTC” means the Depository Trust Company.

 

“DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer Program.

 

“DWAC Eligible” means that (a) the Common Stock is eligible at DTC for full
services pursuant to DTC’s Operational Arrangements, including without
limitation transfer through DTC’s DWAC system, (b) the Companies have been
approved (without revocation) by the DTC’s underwriting department, (c) the
Transfer Agent is approved as an agent in the DTC/FAST Program, (d) the
Conversion Shares are otherwise eligible for delivery via DWAC, and (e) the
Transfer Agent does not have a policy prohibiting or limiting delivery of the
Conversion Shares via DWAC.

 

“Equity Conditions” means, during the period in question, (a) no Event of
Default shall have occurred, (b) the Companies have timely filed (or obtained
extensions in respect thereof and filed within the applicable grace period) all
reports other than Form 8-K reports required to be filed by the Companies after
the date hereof pursuant to the Exchange Act and the Company has met the current
public information requirements of Rule 144(c) under the Securities Act as of
the end of the period in question, (c) on any date that the Company desires to
make a payment of interest and/or principal in shares of Common Stock instead of
cash, the average daily dollar volume of the Company’s common stock for the
previous twenty (20) trading days must be greater than $10,000, and (d) the
Company’s shares of common stock must be DWAC Eligible and not subject to a “DTC
chill”.

 

3 

 

 

“Event of Default” shall have the meaning set forth in Section 6(a).

 

“Fixed Conversion Price” shall have the meaning set forth in Section 4(b).

 

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

 

“Late Fees” shall have the meaning set forth in Section 2(c).

 

“Mandatory Default Amount” means the payment of 150% of the outstanding
principal amount of this Note and accrued and unpaid interest hereon, in
addition to the payment of all other amounts, costs, expenses and liquidated
damages due in respect of this Note.

 

“New York Courts” shall have the meaning set forth in Section 7(d).

 

“Note Register” shall have the meaning set forth in Section 2(b).

 

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

 

“Original Issue Date” means the date of the first issuance of this Note,
regardless of any transfers of any Note and regardless of the number of
instruments which may be issued to evidence such Notes.

 

“Person” means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.

 

“Purchase Agreement” means the Convertible Note Purchase Agreement, dated as of
______________, between the Companies (as well the Co-Obligors) and the original
Holder, as amended, modified or supplemented from time to time in accordance
with its terms.

 

“Required Minimum” means, as of any date, the maximum aggregate number of shares
of Common Stock then issued or potentially issuable in the future pursuant to
this Note, including any Conversion Shares issuable upon conversion in full of
this Note (including Conversion Shares issuable as payment of interest on this
Note), ignoring any conversion limits set forth therein, and assuming that the
Fixed Conversion Price is at all times on and after the date of determination
100% of the then Fixed Conversion Price on the Trading Day immediately prior to
the date of determination.

 

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

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

4 

 

 

“Variable Rate Transaction” means, collectively, an “Equity Line of Credit” or
similar agreement, or a Variable Priced Equity Linked Instrument. For purposes
hereof, “Equity Line of Credit” means any transaction involving a written
agreement between the Companies and an investor or underwriter whereby the
Companies have the right to “put” its securities to the investor or underwriter
over an agreed period of time and at future determined price or price formula
(other than customary “preemptive” or “participation” rights or “weighted
average” or “full-ratchet” anti-dilution provisions or in connection with
fixed-price rights offerings and similar transactions that are not Variable
Priced Equity Linked Instruments), and “Variable Priced Equity Linked
Instruments” means: (A) any debt or equity securities which are convertible
into, exercisable or exchangeable for, or carry the right to receive additional
shares of Common Stock either (1) at any conversion, exercise or exchange rate
or other price that is based upon and/or varies with the trading prices of or
quotations for Common Stock at any time after the initial issuance of such debt
or equity security, or (2) with a conversion, exercise or exchange price that is
subject to being reset on more than one occasion at some future date at any time
after the initial issuance of such debt or equity security due to a change in
the market price of the Company’s Common Stock since date of initial issuance
(other than customary “preemptive” or “participation” rights or “weighted
average” or “full-ratchet” anti-dilution provisions or in connection with
fixed-price rights offerings and similar transactions), and (B) any amortizing
convertible security which amortizes prior to its maturity date, where the
Companies is required or has the option to (or any investor in such transaction
has the option to require the Companies to) make such amortization payments in
shares of Common Stock which are valued at a price that is based upon and/or
varies with the trading prices of or quotations for Common Stock at any time
after the initial issuance of such debt or equity security (whether or not such
payments in stock are subject to certain equity conditions).

 

“VWAP” means, for or as of any date, the dollar volume-weighted average price
for such security on the Trading Market (or, if the Trading Market is not the
principal trading market for such security, then on the principal securities
exchange or securities market on which such security is then traded) during the
period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New
York time, as reported by Bloomberg through its “HP” function (set to weighted
average) or, if the foregoing does not apply, the dollar volume-weighted average
price of such security in the over-the-counter market on the electronic bulletin
board for such security during the period beginning at 9:30:01 a.m., New York
time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or,
if no dollar volume-weighted average price is reported for such security by
Bloomberg for such hours, the average of the highest closing bid price and the
lowest closing ask price of any of the market makers for such security as
reported in the “pink sheets” by OTC Markets Group Inc. (formerly Pink Sheets
LLC). If the VWAP cannot be calculated for such security on such date on any of
the foregoing bases, the VWAP of such security on such date shall be the fair
market value as mutually determined by the Companies and the Holder. All such
determinations shall be appropriately adjusted for any stock dividend, stock
split, stock combination, recapitalization or other similar transaction during
such period.

 

5 

 

 

Section 2.          Interest.

 

a)        Payment of Interest in Cash or Kind. The Companies shall pay interest
to the Holder on the aggregate unconverted and then outstanding principal amount
of this Note at the rate of 10% per annum. All interest payments hereunder will
be payable in cash, or subject to the Equity Conditions, in cash or Common Stock
in the Companies’ discretion. Accrued and unpaid interest shall be due on
payable on each Conversion Date, prepayment date, and on the Maturity Date, or
as otherwise set forth herein.

 

b)       Interest Calculations. Interest shall be calculated on the basis of a
360-day year, consisting of twelve (12) thirty (30) calendar day periods, and
shall accrue daily commencing on the Original Issue Date until payment in full
of the outstanding principal, together with all accrued and unpaid interest,
liquidated damages and other amounts which may become due hereunder, has been
made. Interest hereunder will be paid to the Person in whose name this Note is
registered on the records of the Companies regarding registration and transfers
of this Note (the “Note Register”).

 

c)        Late Fee. All overdue accrued and unpaid interest to be paid hereunder
shall entail a late fee at an interest rate equal to the lesser of 18% per annum
or the maximum rate permitted by applicable law (the “Late Fees”) which shall
accrue daily from the date such interest is due hereunder through and including
the date of actual payment in full.

 

d)       Prepayment. At any time upon ten (10) days written notice to the
Holder, but subject to the Holder’s conversion rights set forth herein, the
Companies may prepay any portion of the principal amount of this Note and any
accrued and unpaid interest. If the Companies exercises its right to prepay the
Note, the Companies shall make payment to the Holder of an amount in cash equal
to the sum of the then outstanding principal amount of this Note and interest
multiplied by 130%. The Holder may continue to convert the Note from the date
notice of the prepayment is given until the date of prepayment.

 

Section 3.          Registration of Transfers and Exchanges.

 

a)        Different Denominations. This Note is exchangeable for an equal
aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be payable
for such registration of transfer or exchange.

 

b)       Investment Representations. This Note has been issued subject to
certain investment representations of the original Holder and may be transferred
or exchanged only in compliance with applicable federal and state securities
laws and regulations.

 

c)        Reliance on Note Register. Prior to due presentment for transfer to
the Companies of this Note, the Companies and any agent of the Companies may
treat the Person in whose name this Note is duly registered on the Note Register
as the owner hereof for the purpose of receiving payment as herein provided and
for all other purposes, whether or not this Note is overdue, and neither the
Companies nor any such agent shall be affected by notice to the contrary.

 

6 

 

 

Section 4.          Conversion.

 

a)        Voluntary Conversion. At any time after the Original Issue Date until
this Note is no longer outstanding, this Note shall be convertible, in whole or
in part, into shares of Common Stock at the option of the Holder, at any time
and from time to time (subject to the conversion limitations set forth in
Section 4(d) hereof). The Holder shall effect conversions by delivering to the
Companies a Notice of Conversion, the form of which is attached hereto as Annex
A (each, a “Notice of Conversion”), specifying therein the principal amount of
this Note to be converted and the date on which such conversion shall be
effected (such date, the “Conversion Date”). If no Conversion Date is specified
in a Notice of Conversion, the Conversion Date shall be the date that such
Notice of Conversion is deemed delivered hereunder. No ink-original Notice of
Conversion shall be required, nor shall any medallion guarantee (or other type
of guarantee or notarization) of any Notice of Conversion form be required. To
effect conversions hereunder, the Holder shall not be required to physically
surrender this Note to the Companies unless the entire principal amount of this
Note, plus all accrued and unpaid interest thereon, has been so converted.
Conversions hereunder shall have the effect of lowering the outstanding
principal amount of this Note in an amount equal to the applicable conversion.
The Holder and the Companies shall maintain a Conversion Schedule showing the
principal amount(s) converted and the date of such conversion(s). The Companies
may deliver an objection to any Notice of Conversion within one (1) Business Day
of delivery of such Notice of Conversion. In the event of any dispute or
discrepancy, the records of the Holder shall be controlling and determinative in
the absence of manifest error. The Holder, and any assignee by acceptance of
this Note, acknowledge and agree that, by reason of the provisions of this
paragraph, following conversion of a portion of this Note, the unpaid and
unconverted principal amount of this Note may be less than the amount stated on
the face hereof.

 

b)        Conversion Price. The conversion price in effect on any Conversion
Date shall be equal to $0.0001 (the “Fixed Conversion Price”). Notwithstanding
anything herein to the contrary, at any time after the occurrence of any Event
of Default, the Holder may require the Companies to, at such Holder’s option and
otherwise in accordance with the provisions for conversion herein, convert all
or any part of this Note into Common Stock at the Alternate Conversion Price.
All such foregoing determinations will be appropriately adjusted for any stock
dividend, stock split, stock combination, reclassification or similar
transaction that proportionately decreases or increases the Common Stock during
such measuring period. Nothing herein shall limit a Holder’s right to pursue
actual damages or declare an Event of Default pursuant to Section 6 hereof and
the Holder shall have the right to pursue all remedies available to it
hereunder, at law or in equity including, without limitation, a decree of
specific performance and/or injunctive relief. The exercise of any such rights
shall not prohibit the Holder from seeking to enforce damages pursuant to any
other Section hereof or under applicable law.

 

c)Mechanics of Conversion.

i.          Conversion Shares Issuable Upon Conversion of Principal Amount. The
number of Conversion Shares issuable upon a conversion hereunder shall be
determined by the quotient obtained by dividing (x) the outstanding principal
amount of this Note to be converted and any accrued and unpaid interest to be
converted by (y) the Fixed Conversion Price.

 

7 

 

 

ii.         Delivery of Certificate Upon Conversion. Not later than two (2)
Trading Days after each Conversion Date (the “Share Delivery Date”), the
Companies shall deliver, or cause to be delivered, to the Holder (A) a
certificate or certificates representing the Conversion Shares which, on or
after the date on which such Conversion Shares are eligible to be sold under
Rule 144 without the need for current public information and the Companies have
received an opinion of counsel to such effect reasonably acceptable to the
Companies (which opinion the Companies will be responsible for obtaining at the
cost of the Holder) shall be free of restrictive legends and trading
restrictions, representing the number of Conversion Shares being acquired upon
the conversion of this Note. All certificate or certificates required to be
delivered by the Companies under this Section 4(d) shall be delivered
electronically through the Depository Trust Companies or another established
clearing corporation performing similar functions. If the Conversion Date is
prior to the date on which such Conversion Shares are eligible to be sold under
Rule 144 without the need for current public information the Conversion Shares
shall bear a restrictive legend in the following form, as appropriate:

 

“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.”

 

Notwithstanding the foregoing, commencing on such date that the Conversion
Shares are eligible for sale under Rule 144 subject to current public
information requirements, the Companies, upon request and at the expense of the
Companies, shall obtain a legal opinion to allow for such sales under Rule 144.

 

iii.        Failure to Deliver Certificates. If, in the case of any Notice of
Conversion, such certificate or certificates are not delivered to or as directed
by the applicable Holder by the Share Delivery Date, the Holder shall be
entitled to elect by written notice to the Companies at any time on or before
its receipt of such certificate or certificates, to rescind such Conversion, in
which event the Companies shall promptly return to the Holder any original Note
delivered to the Companies and the Holder shall promptly return to the Companies
the Common Stock certificates issued to such Holder pursuant to the rescinded
Conversion Notice.

 

8 

 

 

iv.        Obligation Absolute; Partial Liquidated Damages. The Companies’
obligations to issue and deliver the Conversion Shares upon conversion of this
Note in accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the recovery of any
judgment against any Person or any action to enforce the same, or any setoff,
counterclaim, recoupment, limitation or termination, or any breach or alleged
breach by the Holder or any other Person of any obligation to the Companies or
any violation or alleged violation of law by the Holder or any other Person, and
irrespective of any other circumstance which might otherwise limit such
obligation of the Companies to the Holder in connection with the issuance of
such Conversion Shares; provided, however, that such delivery shall not operate
as a waiver by the Companies of any such action the Companies may have against
the Holder. In the event the Holder of this Note shall elect to convert any or
all of the outstanding principal or interest amount hereof, the Companies may
not refuse conversion based on any claim that the Holder or anyone associated or
affiliated with the Holder has been engaged in any violation of law, agreement
or for any other reason, unless an injunction from a court, on notice to Holder,
restraining and or enjoining conversion of all or part of this Note shall have
been sought. If the injunction is not granted, the Companies shall promptly
comply with all conversion obligations herein. If the injunction is obtained,
the Companies must post a surety bond for the benefit of the Holder in the
amount of 150% of the outstanding principal amount of this Note, which is
subject to the injunction, which bond shall remain in effect until the
completion of arbitration/litigation of the underlying dispute and the proceeds
of which shall be payable to the Holder to the extent it obtains judgment. In
the absence of seeking such injunction, the Companies shall issue Conversion
Shares or, if applicable, cash, upon a properly noticed conversion. If the
Companies fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the
Companies shall pay to the Holder, in cash, as liquidated damages and not as a
penalty, $1,000 per Trading Day for each Trading Day after such Share Delivery
Date until such certificates are delivered or Holder rescinds such conversion.
Nothing herein shall limit a Holder’s right to pursue actual damages or declare
an Event of Default pursuant to Section 6 hereof for the Companies’ failure to
deliver Conversion Shares within the period specified herein and the Holder
shall have the right to pursue all remedies available to it hereunder, at law or
in equity including, without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not prohibit the Holder
from seeking to enforce damages pursuant to any other Section hereof or under
applicable law.

 

9 

 

 

v.         Compensation for Buy-In on Failure to Timely Deliver Certificates
Upon Conversion. In addition to any other rights available to the Holder, if the
Companies fails for any reason to deliver to the Holder such certificate or
certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if
after such Share Delivery Date the Holder is required by its brokerage firm to
purchase (in an open market transaction or otherwise), or the Holder’s brokerage
firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a
sale by the Holder of the Conversion Shares which the Holder was entitled to
receive upon the conversion relating to such Share Delivery Date (a “Buy-In”),
then the Companies shall (A) pay in cash to the Holder (in addition to any other
remedies available to or elected by the Holder) the amount, if any, by which (x)
the Holder’s total purchase price (including any brokerage commissions) for the
Common Stock so purchased exceeds (y) the product of (1) the aggregate number of
shares of Common Stock that the Holder was entitled to receive from the
conversion at issue multiplied by (2) the actual sale price at which the sell
order giving rise to such purchase obligation was executed (including any
brokerage commissions) and (B) at the option of the Holder, either reissue (if
surrendered) this Note in a principal amount equal to the principal amount of
the attempted conversion (in which case such conversion shall be deemed
rescinded) or deliver to the Holder the number of shares of Common Stock that
would have been issued if the Companies had timely complied with its delivery
requirements under Section 4(c)(ii). For example, if the Holder purchases Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of this Note with respect to which the actual sale price
of the Conversion Shares (including any brokerage commissions) giving rise to
such purchase obligation was a total of $10,000 under clause (A) of the
immediately preceding sentence, the Companies shall be required to pay the
Holder $1,000. The Holder shall provide the Companies written notice indicating
the amounts payable to the Holder in respect of the Buy-In and, upon request of
the Companies, evidence of the amount of such loss. Nothing herein shall limit a
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 Companies’ failure to timely deliver
certificates representing shares of Common Stock upon conversion of this Note as
required pursuant to the terms hereof.

 

vi.        Reservation of Shares Issuable Upon Conversion. The Companies
covenants that it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock a number of shares of Common
Stock at least equal to 200% of the Required Minimum (the “Reserve Amount”) for
the sole purpose of issuance upon conversion of this Note and payment of
interest on this Note, each as herein provided, free from preemptive rights or
any other actual contingent purchase rights of Persons other than the Holder
(and the other holders of the Notes). The Companies covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly authorized,
validly issued, fully paid and nonassessable.

 

vii.       Fractional Shares. No fractional shares or scrip representing
fractional shares shall be issued upon the conversion of this Note. As to any
fraction of a share which the Holder would otherwise be entitled to purchase
upon such conversion, the Companies shall at its election, either pay a cash
adjustment in respect of such final fraction in an amount equal to such fraction
multiplied by the Fixed Conversion Price or round up to the next whole share.

 

10 

 

 

viii.      Transfer Taxes and Expenses. The issuance of certificates for shares
of the Common Stock on conversion of this Note shall be made without charge to
the Holder hereof for any documentary stamp or similar taxes that may be payable
in respect of the issue or delivery of such certificates, provided that, the
Companies shall not be required to pay any tax that may be payable in respect of
any transfer involved in the issuance and delivery of any such certificate upon
conversion in a name other than that of the Holder of this Note so converted and
the Companies shall not be required to issue or deliver such certificates unless
or until the Person or Persons requesting the issuance thereof shall have paid
to the Companies the amount of such tax or shall have established to the
satisfaction of the Companies that such tax has been paid. The Companies shall
pay all Transfer Agent fees required for same-day processing of any Notice of
Conversion.

 

d)       Holder’s Conversion Limitations. The Companies shall not effect any
conversion of principal and/or interest of this Note, and a Holder shall not
have the right to convert any principal and/or interest of this Note, to the
extent that after giving effect to the conversion set forth on the applicable
Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any
Persons acting as a group together with the Holder or any of the Holder’s
Affiliates) would beneficially own in excess of the Beneficial Ownership
Limitation (as defined below). 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 such determination is being made,
but shall exclude the number of shares of Common Stock which are issuable upon
(i) conversion of the remaining, unconverted principal amount of this Note
beneficially owned by the Holder or any of its Affiliates and (ii) exercise or
conversion of the unexercised or unconverted portion of any other securities of
the Companies subject to a limitation on conversion or exercise analogous to the
limitation contained herein (including, without limitation, any other Notes)
beneficially owned by the Holder or any of its Affiliates. Except as set forth
in the preceding sentence, for purposes of this Section 4(e), beneficial
ownership shall be calculated in accordance with Section 13(d) of the Exchange
Act and the rules and regulations promulgated thereunder. To the extent that the
limitation contained in this Section 4(d) applies, the determination of whether
this Note is convertible (in relation to other securities owned by the Holder
together with any Affiliates) and of which principal amount of this Note is
convertible shall be in the sole discretion of the Holder, and the submission of
a Notice of Conversion shall be deemed to be the Holder’s determination of
whether this Note may be converted (in relation to other securities owned by the
Holder together with any Affiliates) and which principal amount of this Note is
convertible, in each case subject to the Beneficial Ownership Limitation. To
ensure compliance with this restriction, the Holder will be deemed to represent
to the Companies each time it delivers a Notice of Conversion that such Notice
of Conversion has not violated the restrictions set forth in this paragraph and
the Companies shall have no obligation to verify or confirm the accuracy of such
determination. In addition, a determination as to any group status as
contemplated above shall be determined in accordance with Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder. For purposes
of this Section 4(e), in determining the number of outstanding shares of Common
Stock, the Holder may rely on the number of outstanding shares of Common Stock
as stated in the most recent of the following: (i) the Companies’ most recent
periodic or annual report filed with the Commission, as the case may be, (ii) a
more recent public announcement by the Companies, or (iii) a more recent written
notice by the Companies or the Companies’ transfer agent setting forth the
number of shares of Common Stock outstanding. Upon the written or oral request
of a Holder, the Companies 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
Companies, 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
“Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the
Common Stock outstanding immediately after giving effect to the issuance of
shares of Common Stock issuable upon conversion of this Note held by the Holder.
The Holder, upon not less than sixty-one (61) days’ prior notice to the
Companies, may increase or decrease the Beneficial Ownership Limitation
provisions of this Section 4(e), provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the number of shares of the Common Stock
outstanding immediately after giving effect to the issuance of shares of Common
Stock upon conversion of this Note held by the Holder and the Beneficial
Ownership Limitation provisions of this Section 4(e) shall continue to apply.
Any such increase or decrease will not be effective until the sixty-first (61st)
day after such notice is delivered to the Companies. The Beneficial Ownership
Limitation provisions of this paragraph shall be construed and implemented in a
manner otherwise than in strict conformity with the terms of this Section 4(d)
to correct this paragraph (or any portion hereof) which may be defective or
inconsistent with the intended Beneficial Ownership Limitation contained herein
or to make changes or supplements necessary or desirable to properly give effect
to such limitation. The limitations contained in this paragraph shall apply to a
successor holder of this Note.

 

11 

 

 

Section 5.         Certain Adjustments.

 

a)       Stock Dividends and Stock Splits. If the Companies, at any time while
this Note is outstanding: (i) pays a stock dividend or otherwise makes a
distribution or distributions payable in shares of Common Stock on shares of
Common Stock or any Common Stock Equivalents (which, for avoidance of doubt,
shall not include any shares of Common Stock issued by the Companies upon
conversion of, or payment of interest on, the Notes), (ii) subdivides
outstanding shares of Common Stock into a larger number of shares, (iii)
combines (including by way of a reverse stock split) outstanding shares of
Common Stock into a smaller number of shares or (iv) issues, in the event of a
reclassification of shares of the Common Stock, any shares of capital stock of
the Companies, then the Fixed Conversion Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
any treasury shares of the Companies) outstanding immediately before such event,
and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event. Any adjustment made pursuant to this
Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.

 

b)       Dilution. The Company specifically acknowledges that its obligation to
issue the Common Stock is binding upon the Company and enforceable regardless of
the dilution such issuance may have on the ownership interests of other
shareholders of the Company. The Common Stock owned by the Holder will be
subject to a full ratchet adjustment in the event that the Company issues
additional equity securities at a purchase price less than the applicable
purchase price per share (the “Share Price”). In the event of an issuance of
equity involving tranches or other multiple closings, the antidilution
adjustment shall be calculated as if all equity was issued at the first closing.
The Share Price will also be subject to proportional adjustment for stock
splits, stock dividends, combinations, recapitalizations and the like.

 

12 

 

 

c)       Subsequent Equity Sales. If, at any time while this Note is
outstanding, the Companies or any Subsidiary, as applicable, enters into
(without the prior written consent of the Holder) a Variable Rate Transaction
involving the sale or grant of any option to purchase or sells or grants any
right to reprice, or otherwise disposes of or issues (or announces any sale,
grant or any option to purchase or other disposition), any Common Stock or
Common Stock Equivalents entitling any Person to acquire shares of Common Stock
at a determinable effective price per share that is lower than the then Fixed
Conversion Price (such lower price, the “Base Conversion Price” and such
issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common
Stock or Common Stock Equivalents so issued as part of such Variable Rate
Transaction 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 determinable effective price per share that is lower than the Fixed
Conversion Price, such issuance shall be deemed to have occurred for less than
the Fixed Conversion Price on such date of the Dilutive Issuance), then the
Fixed Conversion Price shall be reduced to equal the Base Conversion Price. Such
adjustment shall be made whenever such Common Stock or Common Stock Equivalents
are issued and the Base Conversion Price is determinable. Notwithstanding the
foregoing, no adjustment will be made under this Section 5(b) in respect of an
Exempt Issuance. The Companies shall notify the Holder in writing, no later than
the Trading Day following the issuance of any Common Stock or Common Stock
Equivalents subject to this Section 5(b), indicating therein the applicable
issuance price, or applicable reset price, exchange price, conversion price and
other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes
of clarification, whether or not the Companies provides a Dilutive Issuance
Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive
Issuance, the Holder is entitled to receive a number of Conversion Shares based
upon the Base Conversion Price on or after the date of such Dilutive Issuance,
regardless of whether the Holder accurately refers to the Base Conversion Price
in the Notice of Conversion.

 

d)       Subsequent Rights Offerings. In addition to any adjustments pursuant to
Section 5(a) above, if at any time the Companies grants, issues or sells any
Common Stock Equivalents or rights to purchase stock, warrants, securities or
other property pro rata to the record holders of any class of shares of Common
Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon
the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which the Holder could have acquired if the Holder had held the number of shares
of Common Stock acquirable upon complete conversion of this Note (without regard
to any limitations on exercise hereof, including without limitation, the
Beneficial Ownership Limitation) 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 shares of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights
(provided, however, to the extent that the Holder’s right to participate in any
such Purchase Right would result in the Holder exceeding the Beneficial
Ownership Limitation, then the Holder shall not be entitled to participate in
such Purchase Right to such extent (or beneficial ownership of such shares of
Common Stock as a result of such Purchase Right to such extent) and such
Purchase Right to such extent shall be held in abeyance for the Holder until
such time, if ever, as its right thereto would not result in the Holder
exceeding the Beneficial Ownership Limitation).

 

13 

 

 

e)       Pro Rata Distributions. During such time as this Note is outstanding,
if the Companies shall declare or make any dividend or other distribution of its
assets (or rights to acquire its assets) to holders of shares of Common Stock,
by way of return of capital or otherwise (including, without limitation, any
distribution of cash, stock or other securities, property or options by way of a
dividend, spin off, reclassification, corporate rearrangement, scheme of
arrangement or other similar transaction) (a “Distribution”), at any time after
the issuance of this Note, then, in each such case, the Holder shall be entitled
to participate in such Distribution to the same extent that the Holder would
have participated therein if the Holder had held the number of shares of Common
Stock acquirable upon complete exercise of this Note (without regard to any
limitations on exercise hereof, including without limitation, the Beneficial
Ownership Limitation) immediately before the date of which a record is taken for
such Distribution, or, if no such record is taken, the date as of which the
record holders of shares of Common Stock are to be determined for the
participation in such Distribution (provided, however, to the extent that the
Holder’s right to participate in any such Distribution would result in the
Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not
be entitled to participate in such Distribution to such extent (or in the
beneficial ownership of any shares of Common Stock as a result of such
Distribution to such extent) and the portion of such Distribution shall be held
in abeyance for the benefit of the Holder until such time, if ever, as its right
thereto would not result in the Holder exceeding the Beneficial Ownership
Limitation).

 

14 

 

 

f)        Fundamental Transaction. If, at any time while this Note is
outstanding, (i) the Companies, directly or indirectly, in one or more related
transactions effects any merger or consolidation of the Companies with or into
another Person, (ii) the Companies, directly or indirectly, effects any sale,
lease, license, assignment, transfer, conveyance or other disposition of all or
substantially all of its assets in one or a series of related transactions,
(iii) any, direct or indirect, purchase offer, tender offer or exchange offer
(whether by the Companies or another Person) is completed pursuant to which
holders of Common Stock are permitted to sell, tender or exchange their shares
for other securities, cash or property and has been accepted by the holders of
fifty percent (50%) or more of the outstanding Common Stock, (iv) the Companies,
directly or indirectly, in one or more related transactions effects any
reclassification, reorganization or recapitalization of the Common Stock or any
compulsory share exchange pursuant to which the Common Stock is effectively
converted into or exchanged for other securities, cash or property, (v) the
Companies, directly or indirectly, in one or more related transactions
consummates a stock or share purchase agreement or other business combination
(including, without limitation, a reorganization, recapitalization, spin-off or
scheme of arrangement) with another Person whereby such other Person acquires
more than fifty percent (50%) of the outstanding shares of Common Stock (not
including any shares of Common Stock held by the other Person or other Persons
making or party to, or associated or affiliated with the other Persons making or
party to, such stock or share purchase agreement or other business combination)
(each a “Fundamental Transaction”), then, upon any subsequent conversion of this
Note, the Holder shall have the right to receive, for each Conversion Share that
would have been issuable upon such conversion immediately prior to the
occurrence of such Fundamental Transaction (without regard to any limitation in
Section 4(e) on the conversion of this Note), the number of shares of Common
Stock of the successor or acquiring corporation or of the Companies, if it is
the surviving corporation, and any additional consideration (the “Alternate
Consideration”) receivable as a result of such Fundamental Transaction by a
holder of the number of shares of Common Stock for which this Note is
convertible immediately prior to such Fundamental Transaction (without regard to
any limitation in Section 4(d) on the conversion of this Note). For purposes of
any such conversion, the determination of the Fixed Conversion Price shall be
appropriately adjusted to apply to such Alternate Consideration based on the
amount of Alternate Consideration issuable in respect of one (1) share of Common
Stock in such Fundamental Transaction, and the Companies shall apportion the
Fixed Conversion Price among the Alternate Consideration in a reasonable manner
reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the
securities, cash or property to be received in a Fundamental Transaction, then
the Holder shall be given the same choice as to the Alternate Consideration it
receives upon any conversion of this Note following such Fundamental
Transaction. The Companies shall cause any successor entity in a Fundamental
Transaction in which the Companies is not the survivor (the “Successor Entity”)
to assume in writing all of the obligations of the Companies under this Note and
any document ancillary hereto, in accordance with the provisions of this Section
5(e) pursuant to written agreements in form and substance reasonably
satisfactory to the Holder and approved by the Holder (without unreasonable
delay) prior to such Fundamental Transaction and shall, at the option of the
holder of this Note, deliver to the Holder in exchange for this Note a security
of the Successor Entity evidenced by a written instrument substantially similar
in form and substance to this Note which is convertible for a corresponding
number of shares of capital stock of such Successor Entity (or its parent
entity) equivalent to the shares of Common Stock acquirable and receivable upon
conversion of this Note (without regard to any limitations on the conversion of
this Note) prior to such Fundamental Transaction, and with a conversion price
which applies the conversion price hereunder to such shares of capital stock
(but taking into account the relative value of the shares of Common Stock
pursuant to such Fundamental Transaction and the value of such shares of capital
stock, such number of shares of capital stock and such conversion price being
for the purpose of protecting the economic value of this Note immediately prior
to the consummation of such Fundamental Transaction), and which is reasonably
satisfactory in form and substance to the Holder. Upon the occurrence of any
such Fundamental Transaction, the Successor Entity shall succeed to, and be
substituted for (so that from and after the date of such Fundamental
Transaction, the provisions of this Note and the other Transaction Documents
referring to the “Companies” shall refer instead to the Successor Entity), and
may exercise every right and power of the Companies and shall assume all of the
obligations of the Companies under this Note and the other Transaction Documents
with the same effect as if such Successor Entity had been named as the Companies
herein.

 

g)       Calculations. All calculations under this Section 5 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be. For
purposes of this Section 5, the number of shares of Common Stock deemed to be
issued and outstanding as of a given date shall be the sum of the number of
shares of Common Stock (excluding any treasury shares of the Companies) issued
and outstanding.

 

15 

 

 

h)       Notice to the Holder.

 

i.          Adjustment to Fixed Conversion Price. Whenever the Fixed Conversion
Price is adjusted pursuant to any provision of this Section 5, the Companies
shall promptly deliver to each Holder a notice setting forth the Fixed
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment.

 

ii.         Notice to Allow Conversion by Holder. If (A) the Companies shall
declare a dividend (or any other distribution in whatever form) on the Common
Stock, (B) the Companies shall declare a special nonrecurring cash dividend on
or a redemption of the Common Stock, (C) the Companies shall authorize the
granting to all holders of the Common Stock of rights or warrants to subscribe
for or purchase any shares of capital stock of any class or of any rights, (D)
the approval of any stockholders of the Companies shall be required in
connection with any reclassification of the Common Stock, any consolidation or
merger to which the Companies is a party, any sale or transfer of all or
substantially all of the assets of the Companies, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
property or (E) the Companies shall authorize the voluntary or involuntary
dissolution, liquidation or winding up of the affairs of the Companies, then, in
each case, the Companies shall cause to be filed at each office or agency
maintained for the purpose of conversion of this Note, and shall cause to be
delivered to the Holder at its last address as it shall appear upon the Note
Register, at least twenty (20) calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange, provided that the failure to deliver such
notice or any defect therein or in the delivery thereof shall not affect the
validity of the corporate action required to be specified in such notice. To the
extent that any notice provided hereunder constitutes, or contains, material,
non-public information regarding the Companies or any of the Subsidiaries, the
Companies shall simultaneously file such notice with the Commission pursuant to
a Current Report on Form 8-K. The Holder shall remain entitled to convert this
Note during the 20-day period commencing on the date of such notice through the
effective date of the event triggering such notice except as may otherwise be
expressly set forth herein.

 

16 

 

  

Section 6.        Events of Default.

 

a)       “Event of Default” means, wherever used herein, any of the following
events (whatever the reason for such event and whether such event shall be
voluntary or involuntary or effected by operation of law or pursuant to any
judgment, decree or order of any court, or any order, rule or regulation of any
administrative or governmental body):

 

i.          any default in the payment of (A) the principal amount of any Note
or (B) interest, liquidated damages and other amounts owing to a Holder on any
Note, as and when the same shall become due and payable (whether on a Conversion
Date or the Maturity Date or by acceleration or otherwise) which default, solely
in the case of an interest payment or other default under clause (B) above, is
not cured within three (3) Trading Days;

 

ii.         the Companies shall fail to observe or perform any other covenant,
provision, or agreement contained in this Note (and other than a breach by the
Companies of its obligations to deliver shares of Common Stock to the Holder
upon conversion, which breach is addressed in clause (x) below) which failure is
not cured, if possible to cure, within the earlier to occur of (A) three (3)
Trading Days after notice of such failure sent by the Holder or by any other
Holder to the Companies and (B) five (5) Trading Days after the Companies have
become or should have become aware of such failure;

 

iii.        a default or event of default (subject to any grace or cure period
provided in the applicable agreement, document or instrument) shall occur under
(A) any of the Transaction Documents or (B) any other material agreement, lease,
document or instrument to which the Companies or any Subsidiary is obligated
(and not covered by clause (vi) below);

 

iv.        any representation or warranty made in this Note, any other
Transaction Documents, any written statement pursuant hereto or thereto or any
other report, financial statement or certificate made or delivered to the Holder
or any other Holder shall be untrue or incorrect in any material respect as of
the date when made or deemed made; provided, however, if any representation or
warranty made in the disclosure schedules of the Transaction Document set forth
a matter that constitutes an event of default, the Company shall have one
hundred twenty (120) days from the Original Issue Date to (i) obtain a waiver of
such disclosed default or (ii) cure such disclosed default;

 

v.         the Companies or any Subsidiary (as such term is defined in Rule
1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi.        the Companies or any Subsidiary shall default on any of its
obligations under any mortgage, credit agreement or other facility, indenture
agreement, factoring agreement or other instrument under which there may be
issued, or by which there may be secured or evidenced, any indebtedness for
borrowed money or money due under any long term leasing or factoring arrangement
that (a) involves an obligation greater than $100,000 whether such indebtedness
now exists or shall hereafter be created, and (b) results in such indebtedness
becoming or being declared due and payable prior to the date on which it would
otherwise become due and payable;

 

17 

 

 

vii.       the Common Stock shall not be eligible for listing or quotation for
trading on a Trading Market and shall not be eligible to resume listing or
quotation for trading thereon within five (5) Trading Days or the transfer of
shares of Common Stock through the Depository Trust Companies System is no
longer available or “chilled”;

 

viii.      the Companies shall be a party to any Change of Control Transaction
or Fundamental Transaction (A) without first giving the Holder ten (10) days’
prior written notice of the closing of such Change of Control Transaction or
Fundamental Transaction and (B) prior to or simultaneous with the closing of
such Change of Control Transaction or Fundamental Transaction, the Holder is not
repaid in accordance with Section 2(d) herein;

 

ix.         the Companies does not meet the current public information
requirements under Rule 144;

 

x.         the Companies shall fail for any reason to deliver certificates to a
Holder prior to the third (3rd) Trading Day after a Conversion Date pursuant to
Section 4(c) or the Companies shall provide at any time notice to the Holder,
including by way of public announcement, of the Companies’ intention to not
honor requests for conversions of this Note in accordance with the terms hereof;

 

xi.        the Companies fails to file with the Commission any required reports
under Section 13 or 15(d) of the Exchange Act such that it is not in compliance
with Rule 144(c)(1) (or Rule 144(i)(2), if applicable);

 

xii.       the Companies or any Subsidiary shall: (i) apply for or consent to
the appointment of a receiver, trustee, custodian or liquidator of it or any of
its properties; (ii) admit in writing its inability to pay its debts as they
mature; (iii) make a general assignment for the benefit of creditors; (iv) be
adjudicated a bankrupt or insolvent or be the subject of an order for relief
under Title 11 of the United States Code or any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute of
any other jurisdiction or foreign country; or (v) file a voluntary petition in
bankruptcy, or a petition or an answer seeking reorganization or an arrangement
with creditors or to take advantage or any bankruptcy, reorganization,
insolvency, readjustment of debt, dissolution or liquidation law or statute, or
an answer admitting the material allegations of a petition filed against it in
any proceeding under any such law, or (vi) take or permit to be taken any action
in furtherance of or for the purpose of effecting any of the foregoing;

 

xiii.      if any order, judgment or decree shall be entered, without the
application, approval or consent of the Companies or any Subsidiary, by any
court of competent jurisdiction, approving a petition seeking liquidation or
reorganization of the Companies or any Subsidiary, or appointing a receiver,
trustee, custodian or liquidator of the Companies or any Subsidiary, or of all
or any substantial part of its assets, and such order, judgment or decree shall
continue unstayed and in effect for any period of sixty (60) days;

 

18 

 

 

xiv.      the occurrence of any levy upon or seizure or attachment of, or any
uninsured loss of or damage to, any property of the Companies or any Subsidiary
having an aggregate fair value or repair cost (as the case may be) in excess of
$100,000 individually or in the aggregate, and any such levy, seizure or
attachment shall not be set aside, bonded or discharged within thirty (30) days
after the date thereof;

 

xv.       the Companies shall fail to maintain the Reserve Amount;

 

xvi.      any monetary judgment, writ or similar final process shall be entered
or filed against the Companies, any subsidiary or any of their respective
property or other assets for more than $100,000, and such judgment, writ or
similar final process shall remain unvacated, unbonded or unstayed for a period
of forty-five (45) calendar days;

 

xvii.     The Companies shall fail to comply with the “use of proceeds” of this
Note as set forth in Section 7(k); or

 

xviii.    The Companies fails, or fails to cause the requisite Person(s) to meet
the following conditions:

 

1.the Companies shall allow the Holder to complete due diligence satisfactory to
Holder and the Companies shall comply with all requests made by Holder in
connection therewith;

 

2.within thirty (30) days from the Original Issue Date, the Board of Directors
of the Company shall consist of seven (7) directors, which shall include two (3)
members of management and four (4) independent directors (“independent
directors” shall be determined using the definition of “independent director”
contained in Rule 5605(a)(2) of the Marketplace Rules of the NASDAQ Stock
Market);

 

3.within ninety (90) days of the Original Issue Date, the Companies shall not
make any cash or equity compensation payments to any member of the Board of
Directors (or thereafter) without the prior written consent of the Holder (which
such consent shall not be unreasonably withheld);

 

4.the Companies shall allow the Holder to exchange, at any time, all debt
instruments in Holder’s favor and warrants held by Holder, for shares of
convertible preferred stock of the Companies that is convertible into shares of
Common Stock of the Company.

 

19 

 

 

b)       Remedies Upon Event of Default. Subject to the Beneficial Ownership
Limitation as set forth in Section 4(d), if any Event of Default occurs, then
the outstanding principal amount of this Note, plus accrued but unpaid interest,
liquidated damages and other amounts owing in respect thereof through the date
of acceleration, shall become, at the Holder’s election, immediately due and
payable at the Holder’s option, in cash or in shares of Common Stock (subject to
the Equity Conditions), at the Mandatory Default Amount. After the occurrence of
any Event of Default that results in the eventual acceleration of this Note, the
interest rate on this Note shall accrue at an additional interest rate equal to
the lesser of two percent (2%) per month (twenty-four percent (24%) per annum)
or the maximum rate permitted under applicable law. Upon the payment in full of
the Mandatory Default Amount in cash or in shares of Common, the Holder shall
promptly surrender this Note to or as directed by the Companies. In connection
with such acceleration described herein, the Holder need not provide, and the
Companies hereby waives, any presentment, demand, protest or other notice of any
kind (other than the Holder’s election to declare such acceleration), and the
Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to
it under applicable law. Such acceleration may be rescinded and annulled by
Holder at any time prior to payment hereunder and the Holder shall have all
rights as a holder of the Note until such time, if any, as the Holder receives
full payment pursuant to this Section 6(b). No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent
thereon.

 

Section 7.         Miscellaneous.

 

a)       Notices. Any and all notices or other communications or deliveries to
be provided by the Holder hereunder, including, without limitation, any Notice
of Conversion, shall be in writing and delivered personally, by email or
facsimile, or sent by a nationally recognized overnight courier service,
addressed to the Companies, at 633 West 5th Street, 28th Floor, Los Angeles,
California 90071, or such other email address, facsimile number, or address as
the Companies may specify for such purposes by notice to the Holder delivered in
accordance with this Section 7(a). Any and all notices or other communications
or deliveries to be provided by the Companies hereunder shall be in writing and
delivered personally, by email or facsimile, or sent by a nationally recognized
overnight courier service addressed to each Holder at the email address,
facsimile number, or address of the Holder appearing on the books of the
Companies, or if no such email address, facsimile number, or address appears on
the books of the Companies, at the principal place of business of such Holder.
Any notice or other communication or deliveries hereunder shall be deemed given
and effective on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 12:00 p.m. (New York City time) on
any date, (ii) the next Trading Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Trading Day
or later than 12:00 p.m. (New York City time) on any Trading Day, (iii) the
second Trading Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (iv) upon actual receipt by the party to
whom such notice is required to be given.

 

20 

 

 

b)       Absolute Obligation. Except as expressly provided herein, no provision
of this Note shall alter or impair the obligation of the Companies, which is
absolute and unconditional, to pay the principal of, liquidated damages and
accrued interest, as applicable, on this Note at the time, place, and rate, and
in the coin or currency, herein prescribed. This Note is a direct debt
obligation of the Companies. This Note ranks pari passu with all other Notes now
or hereafter issued under the terms set forth herein.

 

c)       Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen
or destroyed, the Companies shall execute and deliver, in exchange and
substitution for and upon cancellation of a mutilated Note, or in lieu of or in
substitution for a lost, stolen or destroyed Note, a new Note for the principal
amount of this Note so mutilated, lost, stolen or destroyed, but only upon
receipt of evidence of such loss, theft or destruction of such Note, and of the
ownership hereof, reasonably satisfactory to the Companies.

 

d)       Governing Law. All questions concerning the construction, validity,
enforcement and interpretation of this Note shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York,
without regard to the principles of conflict of laws thereof. Each party agrees
that all legal proceedings concerning the interpretation, enforcement and
defense of the transactions contemplated by any of the Transaction Documents
(whether brought against a party hereto or its respective Affiliates, directors,
officers, shareholders, employees or agents) shall be commenced in the state and
federal courts sitting in the City of New York, Borough of Manhattan (the “New
York Courts”). Each party hereto hereby irrevocably submits to the exclusive
jurisdiction of the New York Courts for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein (including with respect to the enforcement of any of the
Transaction Documents), and hereby irrevocably waives, and agrees not to assert
in any suit, action or proceeding, any claim that it is not personally subject
to the jurisdiction of such New York Courts, or such New York Courts are
improper or inconvenient venue for such proceeding. Each party hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding 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 applicable law. Each
party hereto hereby irrevocably waives, to the fullest extent permitted by
applicable law, any and all right to trial by jury in any legal proceeding
arising out of or relating to this Note or the transactions contemplated hereby.
If any party shall commence an action or proceeding to enforce any provisions of
this Note, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys’ fees and other costs and
expenses incurred in the investigation, preparation and prosecution of such
action or proceeding.

 

e)       Waiver. Any waiver by the Companies or the Holder of a breach of any
provision of this Note shall not operate as or be construed to be a waiver of
any other breach of such provision or of any breach of any other provision of
this Note. The failure of the Companies or the Holder to insist upon strict
adherence to any term of this Note on one or more occasions shall not be
considered a waiver or deprive that party of the right thereafter to insist upon
strict adherence to that term or any other term of this Note on any other
occasion. Any waiver by the Companies or the Holder must be in writing.

 

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f)        Severability. If any provision of this Note is invalid, illegal or
unenforceable, the balance of this Note shall remain in effect, and if any
provision is inapplicable to any Person or circumstance, it shall nevertheless
remain applicable to all other Persons and circumstances. If it shall be found
that any interest or other amount deemed interest due hereunder violates the
applicable law governing usury, the applicable rate of interest due hereunder
shall automatically be lowered to equal the maximum rate of interest permitted
under applicable law. The Companies covenants (to the extent that it may
lawfully do so) that it shall not at any time insist upon, plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay, extension
or usury law or other law which would prohibit or forgive the Companies from
paying all or any portion of the principal of or interest on this Note as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Note, and the
Companies (to the extent it may lawfully do so) hereby expressly waives all
benefits or advantage of any such law, and covenants that it will not, by resort
to any such law, hinder, delay or impede the execution of any power herein
granted to the Holder, but will suffer and permit the execution of every such as
though no such law has been enacted.

 

g)       Remedies, Characterizations, Other Obligations, Breaches and Injunctive
Relief. The remedies provided in this Note shall be cumulative and in addition
to all other remedies available under this Note and any of the other Transaction
Documents at law or in equity (including a decree of specific performance and/or
other injunctive relief), and nothing herein shall limit the Holder’s right to
pursue actual and consequential damages for any failure by the Companies to
comply with the terms of this Note. The Companies covenants to the Holder that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the Holder and shall not, except as expressly provided
herein, be subject to any other obligation of the Companies (or the performance
thereof). The Companies acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Holder and that the remedy at law
for any such breach may be inadequate. The Companies therefore agrees that, in
the event of any such breach or threatened breach, the Holder shall be entitled,
in addition to all other available remedies, to an injunction restraining any
such breach or any such threatened breach, without the necessity of showing
economic loss and without any bond or other security being required. The
Companies shall provide all information and documentation to the Holder that is
requested by the Holder to enable the Holder to confirm the Companies’
compliance with the terms and conditions of this Note.

 

h)       Next Business Day. Whenever any payment or other obligation hereunder
shall be due on a day other than a Business Day, such payment shall be made on
the next succeeding Business Day.

 

i)        Headings. The headings contained herein are for convenience only, do
not constitute a part of this Note and shall not be deemed to limit or affect
any of the provisions hereof.

 

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j)        Security Interest. The obligations of the Companies under this Note
shall be secured by that certain Amended and Restated Security and Pledge
Agreement, dated _____________, by and among the Companies, EWSD, and the
Holder.

 

Notwithstanding anything to the contrary contained in any of the Transaction
Documents or any other transaction document between any Company and the Holder
or any Affiliate of the Holder, to the extent there be an allocation of cash
flow to pay off any obligation any Company, such cash flow shall be first
allocated to pay off the Companies’ obligations under this Note.

 

k)       Use of Proceeds. The gross proceeds of the funding to the Companies
related to this Note shall be used as agreed.

 

l)        Co-Obligor. EWSD, shall, jointly and severally, and with the
Companies, be and remain subject to all terms, conditions and obligations to
which the Companies is subject pursuant to this Note (the “Co-Obligor
Obligations”). The Co-Obligor Obligations shall in no respect modify or replace
any obligations of the Companies arising hereunder.

 

*********************

 

(Signature Pages Follow)

 

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IN WITNESS WHEREOF, the Companies have caused this Note to be duly executed by a
duly authorized officer as of the date first above indicated.

          NOTIS GLOBAL, INC.       By:       Name:
Title:   Facsimile No. for delivery of Notices:          

  PUEBLO AGRICULTURE SUPPLY AND EQUIPMENT, LLC       By:       Name:
Title:   Facsimile No. for delivery of Notices:          

  As co-obligor:       EWSD I, LLC       By:       Name:
Title:   Facsimile No. for delivery of Notices:          

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ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the 10% Senior Secured
Convertible Promissory Note, due ______________ of Notis Global, Inc., a Nevada
corporation (the “Company”) and Pueblo Agriculture Supply and Equipment, LLC,
into shares of common stock (the “Common Stock”) of the Company according to the
conditions hereof, as of the date written below. If shares of Common Stock are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates and opinions as reasonably requested by the Companies
in accordance therewith. No fee will be charged to the holder for any
conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and
warrants to the Companies that its ownership of the Common Stock does not exceed
the amounts specified under Section 4 of this Note, as determined in accordance
with Section 13(d) of the Exchange Act.

 

The undersigned agrees to comply with the prospectus delivery requirements under
the applicable securities laws in connection with any transfer of the aforesaid
shares of Common Stock.

Conversion calculations:

 

  Date to Effect Conversion:       Principal Amount of Note to be Converted:    
  Payment of Interest in Common Stock __ yes __ no   If yes, $_____ of Interest
Accrued on Account of Conversion at Issue.       Number of shares of Common
Stock to be issued:       Signature:       Name:       Delivery Instructions:

 

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Schedule 1

 

CONVERSION SCHEDULE

 

This 10% Senior Secured Convertible Promissory Note, due on _____________, in
the original principal amount of $__________ is issued by Notis Global, Inc., a
Nevada corporation (the “Company”) and Pueblo Agriculture Supply and Equipment,
LLC. This Conversion Schedule with respect to the Common Stock of the Company
reflects conversions made under Section 4 of the above referenced Note.

Dated:

 

Date of Conversion (or
for first entry, Original
Issue Date) Amount of
Conversion Aggregate
Principal
Amount
Remaining
Subsequent to
Conversion (or
original Principal
Amount) Companies Attest

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

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