**Exhibit 10.14**

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIESREPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIESACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED ORASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, ASAMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATIONIS 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 THESECURITIES.

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**10% CONVERTIBLE NOTE**

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FOR VALUE RECEIVED, InCapta,Inc., a Nevada corporation (“Borrower” or “Company”), hereby promises to pay to the order of EMA Financial,LLC, a Delaware limited liability company, or its registered assigns (the “Holder”), on February 11, 2017, (subjectto extension as set forth below, the “Maturity Date”), the sum of $60,000.00 as set forth herein, together with intereston the unpaid principal balance hereof at the rate of ten (10%) per annum (the “Interest Rate”) from the date of issuancehereof until this Note plus any and all amounts due hereunder are paid in full, and any additional amounts set forth herein, includingwithout limitation any Additional Principal (as defined herein). Interest shall be computed on the basis of a 365-day year andthe actual number of days elapsed. Any amount of principal or interest on this Note which is not paid when due shall bear interestat the rate of twenty-four (24%) per annum from the due date thereof until the same is paid (“Default Interest”). Allpayments due hereunder shall be made in lawful money of the United States of America. All payments shall be made at such addressas the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Wheneverany 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 insteadbe 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 onwhich this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determiningthe amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other thana Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executiveorder to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto inthat certain Securities Purchase Agreement entered into by and between the Company and Holder dated on or about the date hereof,pursuant to which this Note was originally issued (the “Purchase Agreement”). The Holder may, by written notice tothe Borrower at least five (5) days before the Maturity Date (as may have been previously extended), extend the Maturity Date toup to one (1) year following the date of the original Maturity Date hereunder.

 

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

 

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The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.2          Conversion Right.The Holder shall have the right, in its sole and absolute discretion, at any time from time to time, to convert all or any partof the outstanding amount due under this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock existson the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafterbe changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”);provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess ofthat portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by theHolder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of theunconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitationon conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuableupon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would resultin beneficial ownership by the Holder and its affiliates of more than 4.9% of the outstanding shares of Common Stock. For purposesof the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d)of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulation 13D-G thereunder, except asotherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversionmay be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, andthe provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by theHolder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each Conversion ofthis Note (“Conversion Shares”) shall be determined by dividing the Conversion Amount (as defined below) by the applicableConversion 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 the Borrower by the Holder in accordance with Section 1.4 below; provided thatthe Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to resultin, notice) to the 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 amountof this Note to be converted in such Conversion, plus (2) accrued and unpaid interest, if any, on such principal amountbeing converted at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option,Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2), plus (4) any AdditionalPrincipal for such Conversion, plus (5) at the Holder’s option, any amounts owed to the Holder pursuant to Sections1.2(c) and 1.4(g) hereof.

 

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1.2          Conversion Price.

 

(a)          Calculation ofConversion Price. The conversion price hereunder (the “Conversion Price”) shall equal the lower of: (i) the closingsale price of the Common Stock on the Principal Market on the Trading Day immediately preceding the Closing Date, and (ii) 50%of the lowest sale price for the Common Stock on the Principal Market during the twenty-five (25) consecutive Trading Days immediatelypreceding the Conversion Date, *provided, however*, if the Company’s share price at any time loses the bid (ex: 0.0001on the ask with zero market makers on the bid on level 2), then the Conversion Price may, in the Holder’s sole and absolutediscretion, be reduced to a fixed conversion price of 0.00001 (if lower than the conversion price otherwise), and *provided,further*, that the Conversion Price shall be subject to Section 1.2(b) below. If such Common Stock is not traded on the OTCBB,OTCQB, OTC Pink, NASDAQ or NYSE, then such sale price shall be the sale price of such security on the principal securities exchangeor trading market where such security is listed or traded or, if no sale price of such security is available in any of the foregoingmanners, 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 such sale price cannot be calculated for such security on such date in the manner providedabove, such price shall be the fair market value as mutually determined by the Borrower and the Holder. If the Borrower’sCommon stock is chilled for deposit at DTC, becomes chilled at any point while this Note remains outstanding or deposit or otheradditional fees are payable due to a Yield Sign, Stop Sign or other trading restrictions, or if the closing sale price at any timefalls below 0.051 (as appropriately and equitably adjusted for stock splits, stock dividends, stock contributions and similar events),then such 50% figure specified in clause 1.2(a)(ii) above shall be reduced to 35%. Additionally, the Borrower acknowledges thatit will take all reasonable steps necessary or appropriate, including providing a board of directors resolution authorizing theissuance of common stock and an opinion of counsel confirming the rights of Holder to sell shares of Common Stock issuable or issuedto Holder on conversion of this Note pursuant to Rule 144 as promulgated by the SEC (“Rule 144"), as such Rule may bein effect from time to time. If the Borrower does not promptly provide a board of directors’ resolution and an opinion fromCompany counsel, and so long as the requested sale may be made pursuant to Rule 144, the Company agrees to accept an opinion ofcounsel to the Holder which opinion will be issued at the Company’s expense and the conversion dollar amount will be reducedby $750.00 to cover the cost of such legal opinion. “Trading Day” shall mean any day on which the Common Stock is tradablefor any period on the OTC Pink, or on the principal securities exchange or other securities market on which the Common Stock isthen being traded. Additionally, if the Company ceases to be a reporting company pursuant to the 1934 Act or if the Note cannotbe converted into free trading shares after 181 days from the issuance date, an additional 15% discount will be attributed to theConversion Price.

 

(b)         If at any time theConversion Price as determined hereunder for any Conversion would be less than the par value of the Common Stock, then the ConversionPrice hereunder shall equal such par value for such Conversion and the Conversion Amount for such Conversion shall be increasedto include Additional Principal, where “Additional Principal” means such additional amount to be added to the ConversionAmount to the extent necessary to cause the number of Conversion Shares issuable upon such Conversion to equal the same numberof Conversion Shares as would have been issued had the Conversion Price not been subject to the minimum price set forth in thisSection 1.2(b).

 

(c)          Without in any waylimiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agreethat if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (as defined below)the Borrower shall pay to the Holder $1,000.00 per day in cash, for each day beyond the Deadline that the Borrower fails to deliversuch Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accruedor, at the option of the Holder, shall be added to the principal amount of this Note, in which event interest shall accrue thereonin accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordancewith the terms of this Note. The Borrower agrees that the right to convert this Note is a valuable right to the Holder. The damagesresulting from a failure, attempt to frustrate, or interference with such conversion right are difficult if not impossible to quantify.Accordingly the parties acknowledge that the liquidated damages provision contained in this Section are justified.

 

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1.3          Authorized Shares.The Borrower covenants that the Borrower will at all times while this Note is outstanding reserve from its authorized and unissuedCommon Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the fullconversion of this Note. The Borrower is required at all times to have authorized and reserved five (5) times the number of sharesthat is actually issuable upon full conversion of this Note (based on the Conversion Price of the Notes in effect from time totime)(the “Reserved Amount”). Initially, the Company will instruct the Transfer Agent to reserve ten million nine hundredand ten thousand (10,910,000) shares of common stock in the name of the Holder for issuance upon conversion hereof. The Borrowerrepresents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if theBorrower shall issue any securities or make any change to its capital structure which would change the number of shares of CommonStock into which this Note shall be convertible at the then current Conversion Price, the Borrower shall at the same time makeproper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, freefrom preemptive rights, for conversion of this Note in full. The Borrower (i) acknowledges that it has irrevocably instructed itstransfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and

(ii) agrees that its issuance of this Noteshall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to executeand issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrowerdoes not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4          Method of Conversion.

 

(a)         Mechanics of Conversion.Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time and from time to time after theIssue Date, by submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communicationdispatched on the Conversion Date prior to 11:59 p.m., New York, New York time).

 

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

 

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

 

(d)         Delivery of CommonStock upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonablemeans of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, theBorrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the CommonStock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solelyin the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereofand the Purchase Agreement.

 

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

 

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

 

(g)         Failure to DeliverCommon Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actualdamages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note isnot delivered by the Deadline, the Borrower shall pay to the Holder $1,000.00 per day in cash, for each day beyond the Deadlinethat the Borrower fails to deliver such Common Stock to the Holder. Such cash amount shall be paid to Holder by the fifth day ofthe month following the month in which it has accrued or, at the option of the Holder, shall be added to the principal amount ofthis Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principalamount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right toconvert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, or interference with suchconversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provisioncontained in this Section 1.4(g) are justified.

 

(h)          The Borrower acknowledgesthat it will take all reasonable steps necessary or appropriate, including providing an opinion of counsel confirming the rightsof Holder to sell shares of Common Stock issued to Holder on conversion of the Note pursuant to Rule 144 as promulgated by theSEC (“Rule 144"), as such Rule may be in effect from time to time. If the Borrower does not promptly provide an opinionfrom Borrower counsel, and so long as the requested sale may be made pursuant to Rule 144, the Borrower agrees to accept an opinionof counsel to the Holder which opinion will be issued at the Borrower’s expense.

 

1.5          Restricted Securities.The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are soldpursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnishedwith an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparabletransactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption fromsuch registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agreesto sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as definedin the Purchase Agreement). Any legend set forth on any stock certificate evidencing any Conversion Shares shall be removed andthe Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transferagent shall have received an opinion of counsel 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 opinionshall be reasonably acceptable to the Company, or (ii) in the case of the Common Stock issued or issuable upon conversion of thisNote, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwisemay be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then beimmediately sold.

 

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1.6          Effect of CertainEvents.

 

(a)          Effect of Merger,Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assetsof the Borrower, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% ofthe voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower withor into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to bean Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon theconsummation 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 Dueto Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of theNotes, 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 the Borrower shall be changed into the same or a different number of shares of anotherclass or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantiallyall of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holderof this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditionsspecified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securitiesor assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediatelyprior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriateprovisions shall be made with respect to the rights and interests of the 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 conversionof the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafterdeliverable upon the conversion hereof. The 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 priorwritten notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummationof, such merger, consolidation, exchange of shares, recapitalization, reorganization or other similar event or sale of assets (duringwhich time, for clarification, the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiringentity assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successiveconsolidations, mergers, sales, transfers or share exchanges.

 

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(c)         Adjustment Dueto Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) toholders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distributionto the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., aspin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note afterthe date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which wouldhave been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been theholder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution. Suchassets shall be held in escrow by the Company pending any such conversion

 

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

 

(e)         Stock Dividendsand Stock Splits. If the Company, at any time while this Note is outstanding: (A) pays a stock dividend or otherwise makesa distribution or distributions payable in shares of Common Stock on shares of Common Stock or any securities convertible intoor exercisable for Common Stock; (B) subdivides outstanding shares of Common Stock into a larger number of shares; (C) combines(including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares; or (D) issues,in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the ConversionPrice (and each sale or bid price used in determining the Conversion Price) shall be multiplied by a fraction, of which the numeratorshall be the number of shares of Common Stock outstanding immediately before such event and of which the denominator shall be thenumber of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall becomeeffective immediately after the record date for the determination of stockholders entitled to receive such dividend or distributionand shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

 

(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 Section1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holdera certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustmentis based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate settingforth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of CommonStock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

 

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1.7          Revocation.If any Conversion Shares are not received by the Deadline, the Holder may revoke the applicable Conversion pursuant to which suchConversion Shares were issuable. This Note shall remain convertible after the Maturity Date hereof until this Note is repaid orconverted in full.

 

1.8          Prepayment.Notwithstanding anything to the contrary contained in this Note, subject to the terms of this Section, at any time during the periodbeginning on the Issue Date and ending on the date which is six (6) months following the Issue Date (“Prepayment TerminationDate”), Borrower shall have the right, exercisable on not less than five (5) Trading Days prior written notice to the Holderof this Note, to prepay the outstanding balance on this Note (principal and accrued interest), in full, in accordance with thisSection. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of theNote at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) thedate of prepayment which shall be not more than ten (10) Trading Days from the date of the Optional Prepayment Notice. On the datefixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment 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) businessday prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make paymentto the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to the Prepayment Factor (as defined below),multiplied by the sum of:

 

(w) the then outstanding principal amount ofthis Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus(y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuantto Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional PrepaymentAmount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall foreverforfeit its right to prepay the Note pursuant to this Section. After the Prepayment Termination Date, the Borrower shall have noright to prepay this Note For purposes hereof, the “Prepayment Factor” shall equal one hundred and fifty percent (150%),provided that such Prepayment factor shall equal one hundred and thirty five percent (135%) if the Optional Prepayment Date occurson or before the date which is ninety (90) days following the Issue Date hereof.

 

ARTICLE II. CERTAIN COVENANTS

 

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

 

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2.2          Restriction onStock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder’swritten 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 capital stock of the Borrower or any warrants, rights oroptions to purchase or acquire any such shares.

 

2.3          Borrowings; Liens.Notwithstanding section 4(m) of the Purchase Agreement, so long as the Borrower shall have any obligation under this Note, theBorrower shall not (i) create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable uponthe obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instrumentsfor deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committedon the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, or (b) indebtedness to tradecreditors or financial institutions incurred in the ordinary course of business, or (ii) 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 anyinterest therein or any income or profits therefrom, securing any indebtedness occurring after the date hereof.

 

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

 

2.5          Advances andLoans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’swritten consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, withoutlimitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances in existenceor committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof.

 

2.6          Charter.So long as the Borrower shall have any obligations under this Note, the Borrower shall not amend its charter documents, includingwithout limitation its certificate of incorporation and bylaws, in any manner that materially and adversely affects any rightsof the Holder.

 

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ARTICLE III. EVENTS OF DEFAULT

 

Any one or more of thefollowing events which shall occur and/or be continuing shall constitute an event of default (each, an “Event of Default”):

 

3.1          Failure to PayPrincipal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether atmaturity, upon acceleration or otherwise.

 

3.2          Conversion andthe Shares. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that itwill not honor its obligation to do so at any time following the execution hereof or) upon exercise by the Holder of the conversionrights of the 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 the Holder upon conversion of orotherwise pursuant to this Note as and when required by this Note, the 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 certificatefor shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when requiredby this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agentfrom removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate forany shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by thisNote (or makes any written announcement, statement or threat that it does not intend to honor the obligations described in thisparagraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligationsshall not be rescinded in writing) for five (5) business days after the Holder shall have delivered a Notice of Conversion. Itis an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default ofthis Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transferagent. If at the option of the Holder, the Holder advances any funds to the Borrower’s transfer agent in order to processa conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hours of a demand from theHolder.

 

3.3          Breach of Covenants.The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documentsincluding but not limited to the Purchase Agreement and such breach continues for a period of seven (7) days after written noticethereof to the Borrower from the Holder.

 

3.4          Breach of Representationsand Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate givenin writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false ormisleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverseeffect on the rights of the Holder with respect to this Note or the Purchase Agreement.

 

3.5          Receiver or Trustee.The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent tothe appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trusteeshall otherwise be appointed.

 

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3.6          Judgments.Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower orany of its property or other assets for more than $50,000.00, and shall remain unvacated, unbonded or unstayed for a period oftwenty

(20) days unless otherwise consented to bythe Holder, which consent will not be unreasonably withheld.

 

3.7          Bankruptcy.Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief underany bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of theBorrower.

 

3.8          Delisting ofCommon Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB, or OTCQB, OTCPink or an equivalent replacement exchange, NASDAQ, the NYSE or AMEX.

 

3.9          Failure to Complywith the Exchange Act. The Borrower shall fail to comply in any material respect with the reporting requirements of the ExchangeAct; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

3.11        Cessation ofOperations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally unable to pay its debts assuch debts become due, provided, however, that any disclosure of the Borrower’s ability to continue as a “going concern”shall not be an admission that the Borrower cannot pay its debts as they become due.

 

3.12        Maintenanceof Assets. The failure by Borrower, during the term of this Note, 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).

 

3.13        Financial StatementRestatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from twoyears 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 the Holder withrespect to this Note or the Purchase Agreement.

 

3.14        Reverse Splits.The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

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

 

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3.16           Cross-Default.Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or defaultby the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicablenotice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements,in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under theterms 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: (1) the Borrower, and, or for the benefit of, (2) theHolder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “OtherAgreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaultedwith each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

Upon the occurrence andduring the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereofor interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall payto the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPONTHE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELYDUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO:(Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Eventof Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due onthis Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11,3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “DefaultNotice”), and upon the occurrence of an Event of Default specified in the remaining sections of Articles III (other thanfailure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall becomeimmediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amountequal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaidinterest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus(y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuantto Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referredto in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value”of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversionof or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the MandatoryPrepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unlessthe Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shallbe the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the dateof first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”)and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, allof which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection,and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

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If the Borrower fails topay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shallhave the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficientauthorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the numberof shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect. The Holdermay still convert any amounts due hereunder, including without limitation the Default Sum, until such time as this Note has beenrepaid in full.

 

ARTICLE IV. MISCELLANEOUS

 

4.1          Failure or IndulgenceNot Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shalloperate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or furtherexercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, andnot exclusive of, any rights or remedies otherwise available.

 

4.2          Notices.All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writingand, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, returnreceipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmittedby hand delivery, telegram, email or facsimile, addressed as set forth below or to such other address as such party shall havespecified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shallbe deemed effective (a) upon hand delivery or delivery by facsimile or email, with accurate confirmation generated by the transmittingfacsimile machine or computer, at the address, email or number designated in the Purchase Agreement (if delivered on a businessday during normal business hours where such notice is to be received), or the first business day following such delivery (if deliveredother than on a business day during normal business hours where such notice is to be received) or (b) on the second business dayfollowing the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of suchmailing, whichever shall first occur.

 

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4.3          Amendments.This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term“Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notesissued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

4.4          Assignability.This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder andits successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a)of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection witha bona fide margin account or other lending arrangement.

 

4.5          Cost of Collection.If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonableattorneys’ fees.

 

4.6          Governing Law.This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts oflaws principles that would result in the application of the substantive laws of another jurisdiction. Any action brought by eitherparty against the other concerning the transactions contemplated by this Agreement must be brought only in the civil or state courtsof New York or in the federal courts located in the State and county of New York. Both parties and the individual signing thisAgreement on behalf of the Borrower agree to submit to the jurisdiction of such courts. The prevailing party shall be entitledto recover from the other party its reasonable attorney’s fees and costs. In the event that any provision of this Note isinvalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extentthat it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision whichmay prove invalid or unenforceable under any law shall not affect the validity or unenforceability of any other provision of thisNote. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal actionagainst the Borrower in any other jurisdiction to collect on the Borrower’s obligations to Holder, to realize on any collateralor any other security for such obligations, or to enforce a judgment or other decision in favor of the Holder. This Note shallbe deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder,may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similarrule or statute in the jurisdiction where enforcement is sought. For purposes of such rule or statute, any other document or agreementto which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determineHolder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Note, whether or not such otherdocument or agreement was delivered together herewith or was executed apart from this Note.

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

 

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

 

4.9          Notice of CorporateEvents. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unlessand only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notificationof any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who areentitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (includingby 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 proposedsale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution orwinding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record datespecified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the dateon which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statementregarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrowershall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously withthe notification to the Holder in accordance with the terms of this Section 4.9.

 

4.10        Remedies.The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiatingthe intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law fora breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by theBorrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at lawor in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curingany breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economicloss and without any bond or other security being required.

 

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4.11        Usury. ThisNote shall be subject to the anti-usury limitations contained in the Purchase Agreement.

 

IN WITNESS WHEREOF, Borrowerhas caused this Note to be signed in its name by its duly authorized officer as of the Issue Date first set forth above.

 

 

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