Blueprint





 







Exhibit 10.2


 


 


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 BORROWER. THIS
SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS
SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN
ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A
FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR”
AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN
SECURED BY SUCH SECURITIES.


 


                                                                                                                                                                                                                                              
Original Issue Date:
November 9,
2017


 



Principal Amount: $54,000.00



Purchase Price: $50,000.00


 



CONVERTIBLE NOTE



DUE NOVEMBER 9, 2018


 


THIS
CONVERTIBLE NOTE is issued by Sincerity Applied Materials
Holdings Corp., a Nevada corporation, (the
“Borrower”), due November 9, 2018 (this note, the
“Note”
and, collectively with the other notes of such series, the
“Notes”).


 


FOR
VALUE RECEIVED, Borrower promises to pay to ______________ or its registered assigns
(the “Holder”), with an address
at _________________________, or shall have paid pursuant to the
terms hereunder, the principal sum of Fifty Four Thousand Dollars ($54,000.00)
on November 9, 2018 (the “Maturity Date”) or such
earlier date as this Note is required or permitted to be repaid or
such later date if extended by the Holder as provided hereunder,
and to pay interest, if any, 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(d).


 


“Asset Disposition” means
the sale, transfer, lease, license, contribution or other
conveyance of assets of Borrower in one or more dispositions not in
the ordinary course of business that results in net cash proceeds
to Borrower of $10,000 or more, in the aggregate.


 


“Bankruptcy Event” means
any of the following events: (a) Borrower or any Subsidiary 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 Borrower or any Subsidiary thereof, (b)
there is commenced against Borrower or any Subsidiary thereof any
such case or proceeding that is not dismissed within 60 days after
commencement, (c) Borrower 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) Borrower 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) Borrower or any Subsidiary thereof makes a general
assignment for the benefit of creditors, (f) Borrower 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) Borrower 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.


 




 

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


 


“Business Day” means any
day except any Saturday, any Sunday, any day which is a federal
legal holiday in the United States or any day on which banking
institutions in the State of New York are required by law or other
governmental action to close.


 


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


 


“Change of Control
Transaction” means, other than by means of conversion
or exercise of the Notes and the Securities issued together with
the Notes, 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 Borrower,
by contract or otherwise) of in excess of 50% of the voting
securities of Borrower, (b) Borrower merges into or consolidates
with any other Person, or any Person merges into or consolidates
with Borrower and, after giving effect to such transaction, the
stockholders of Borrower immediately prior to such transaction own
less than 50% of the aggregate voting power of Borrower or the
successor entity of such transaction, (c) Borrower sells or
transfers all or substantially all of its assets to another Person
and the stockholders of Borrower immediately prior to such
transaction own less than 50% 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 Borrower of an
agreement to which Borrower is a party or by which it is bound,
providing for any of the events set forth in clauses (a) through
(d) above.


 


“Closing Price” means on
any particular date (a) the last reported closing bid price
per share of Common Stock on such date on the Trading Market (as
reported by Bloomberg L.P. at 4:15 p.m. (New York City time)), or
(b) if there is no such price on such date, then the closing bid
price on the Trading Market on the date nearest preceding such date
(as reported by Bloomberg L.P. at 4:15 p.m. (New York City time)),
or (c)  if the Common Stock is not then listed or quoted on a
Trading Market and if prices for the Common Stock are then reported
in the “pink sheets” published by OTC Markets Group,
Inc. (or a similar organization or agency succeeding to its
functions of reporting prices), the most recent bid price per share
of the Common Stock so reported, or (d) if the shares of
Common Stock are not then publicly traded the fair market value of
a share of Common Stock as determined by an independent appraiser
selected in good faith by the Holder and reasonably acceptable to
Borrower, the fees and expenses of which shall be paid by
Borrower.


 


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


 


“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(e).


 


“Equity Conditions” means,
during the period in question, 
(a) Borrower shall have duly honored all conversions scheduled to
occur or occurring by virtue of one or more Notices of Conversion
of the applicable Holder on or prior to the dates so requested or
required, if any, (b) Borrower shall have paid all liquidated
damages and other amounts owing to the applicable Holder in respect
of this Note and the other Transaction Documents, (c) there
is an effective registration statement pursuant to which the
Holders are permitted to utilize the prospectus thereunder to
resell all of the Conversion Shares and Warrant Shares issuable
pursuant to the Transaction Documents (and Borrower believes, in
good faith, that such effectiveness will continue uninterrupted for
the foreseeable future), and Company counsel has delivered to the
Company’s transfer agent and Holder a standing, written
unqualified opinion that resales may then be made by the Holder of
all of the Holders Conversion Shares and Warrant Shares pursuant to
such effective registration statement, (d) the Common Stock is
listed or traded on a Trading Market, (e) there is a sufficient
number of authorized, but unissued and otherwise unreserved, shares
of Common Stock for the issuance of all of the shares then issuable
pursuant to the Transaction Documents, (f) an Event of Default has
not occurred, whether or not such Event of Default has been cured,
(g) there is no existing event which, with the passage of time or
the giving of notice, would constitute an Event of Default, (h) the
issuance of the shares in question to the applicable Holder would
not exceed the Beneficial Ownership Limitation, 
(i) there has been no public announcement of a pending or proposed
Fundamental Transaction or Change of Control Transaction that has
not been consummated, and (j) the applicable Holder is not in
possession of any information provided by Borrower that
constitutes, or may constitute, material non-public
information.


 




 

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“Event of Default” shall
have the meaning set forth in Section 8(a).


 


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


 


“Interest Payment Date”
shall have the meaning set forth in Section 2(a).


 


“Interest Share Amount”
shall have the meaning set forth in Section 2(a).


 


“Mandatory Default Amount”
means the sum of (a) the greater of (i) the outstanding principal
amount of this Note divided by the Conversion Price on the date the
Mandatory Default Amount is either (A) demanded (if demand or
notice is required to create an Event of Default), (B) otherwise
due, or (C) paid in full, whichever is lowest, multiplied by the
VWAP on the date the Mandatory Default Amount is either (x)
demanded, (y) due, or (z) paid in full, whichever is highest, or
(ii) 120% of the outstanding principal amount of this Note plus (b)
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 9(d).


 


“Note Register” shall have
the meaning set forth in Section 3(c).


 


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


 


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


 


“Other Holder” means a
holder of one or more Other Notes (collectively,
“Other
Holders”).


 


“Other Notes” means Notes
nearly identical to this Note issued to other Holders pursuant to
the Purchase Agreement.


 


“Permitted Lien” means the
individual and collective reference to the following: (a) Liens for
taxes, assessments and other governmental charges or levies not yet
due or Liens for taxes, assessments and other governmental charges
or levies being contested in good faith and by appropriate
proceedings for which adequate reserves (in the good faith judgment
of the management of Borrower) have been established in accordance
with GAAP, (b) Liens imposed by law which were incurred in the
ordinary course of Borrower’s business, such as
carriers’, warehousemen’s and mechanics’ Liens,
statutory landlords’ Liens, and other similar Liens arising
in the ordinary course of Borrower’s business, and which (x)
do not individually or in the aggregate materially detract from the
value of such property or assets or materially impair the use
thereof in the operation of the business of Borrower and its
consolidated Subsidiaries or (y) are being contested in good faith
by appropriate proceedings, which proceedings have the effect of
preventing for the foreseeable future the forfeiture or sale of the
property or asset subject to such Lien, and (c) Liens in connection
with Permitted Indebtedness under clauses (a) and (b) thereunder,
and Liens incurred in connection with Permitted Indebtedness under
clause (c) thereunder, provided that such Liens are not secured by
assets of Borrower or its Subsidiaries other than the assets so
acquired or leased, and (d) Liens in effect prior to the Original
Issue Date.


 


“Purchase Agreement” means
the Securities Purchase Agreement, dated as of November 9, 2017
among Borrower and the original Holders, as amended, modified or
supplemented from time to time in accordance with its
terms.


 


“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(d).


 


“Trading Day” means a day
on which the principal Trading Market is open for
trading.


 




 

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“Trading Market” means any
of the following markets or exchanges on which the Common Stock is
listed or quoted for trading on the date in question: the NYSE MKT,
the NASDAQ Capital Market, the NASDAQ Global Market, the NASDAQ
Global Select Market, the New York Stock Exchange, the OTC Bulletin
Board, the OTCQB, the OTCQX or the OTC Pink (or any successors to
any of the foregoing).


 


“VWAP” means, for any
date, the price determined by the first of the following clauses
that applies: (a) if the Common Stock is then listed or quoted on a
Trading Market, the daily volume weighted average price of the
Common Stock for such date (or the nearest preceding date) on the
Trading Market on which the Common Stock is then listed or quoted
as reported by Bloomberg L.P. (based on a Trading Day from 9:30
a.m. (New York City time) to 4:02 p.m. (New York City time)),
(b)  if any of the NASDAQ markets or exchanges is not a
Trading Market, the volume weighted average price of the Common
Stock for such date (or the nearest preceding date) on the OTC
Bulletin Board, (c) if the Common Stock is not then listed or
quoted for trading on the OTC Bulletin Board and if prices for the
Common Stock are then reported on the OTCQX, OTCQB or OTC Pink
Marketplace maintained by the OTC Markets Group, Inc. (or a similar
organization or agency succeeding to its functions of reporting
prices), the volume weighted average price of the Common Stock on
the first such facility (or a similar organization or agency
succeeding to its functions of reporting prices), or (d) in
all other cases, the fair market value of a share of Common Stock
as determined by an independent appraiser selected in good faith by
the Purchasers of a majority in interest of the Securities then
outstanding and reasonably acceptable to Borrower, the fees and
expenses of which shall be paid by Borrower.


 


Section
2.       
 Interest and
Payment.


 


a)           Interest
in Cash or in Kind. Holders shall be entitled to receive,
and Borrower shall pay, cumulative interest on the outstanding
principal amount of this Note at the annual rate of twelve percent
(12%) (as subject to increase as set forth in this Note) from the
Original Issue Date through the Maturity Date.


 


b)           Payment
Grace Period. Except as set forth herein, the Borrower shall
not have any grace period to pay any monetary amounts due under
this Note.


 


c)                 Conversion
Privileges. The Conversion Rights set forth in Section 4
shall remain in full force and effect immediately from the date
hereof and until the Note is paid in full regardless of the
occurrence of an Event of Default. This Note shall be payable in
full on the Maturity Date, unless previously converted into Common
Stock in accordance with Section 4 hereof.


 


d)                 Application
of Payments. Interest on this Note shall be calculated on
the basis of a 360-day year and the actual number of days elapsed.
Payments made in connection with this Note shall be applied first
to amounts due hereunder other than principal and interest,
thereafter to interest and finally to principal.


 


e)                 Pari
Passu. Except as otherwise set forth herein, all payments
made on this Note and the Other Notes and all actions taken by the
Borrower with respect to this Note and the Other Notes, including
but not limited to Optional Redemption, shall be made and taken
pari passu with respect to
this Note and the Other Notes. Notwithstanding anything to the
contrary contained herein or in the Transaction Documents, it shall
not be considered non-pari
passu for a Holder or Other Holder to elect to receive
interest paid in shares of Common Stock or for the Borrower to
actually pay interest in shares of Common Stock to such electing
Holder or Other Holder, nor for a Holder of a Note or Other Note to
accept a prepayment provided a prepayment offer was made to the
Holder and holders of Other Notes on a pari passu basis.


 


f)                 Installment
Payments. Commencing on the third monthly anniversary after
the Issue Date, the Borrower shall make monthly payments equal to
all the accrued interest and fifteen percent (15%) of the original
principal amount of the Note.


 


G)           Manner
and Place of Payment. Principal and interest on this Note
and other payments in connection with this Note shall be payable at
the Holder’s offices as designated above in lawful money of
the United States of America in immediately available funds without
set-off, deduction or counterclaim. Upon assignment of the interest
of Holder in this Note, Borrower shall instead make its payment
pursuant to the assignee’s instructions upon receipt of
written notice thereof. Except as set forth herein, this Note may
not be prepaid or mandatorily converted without the consent of the
Holder.


 




 

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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 set forth in the Purchase
Agreement and may be transferred or exchanged only in compliance
with the Purchase Agreement and applicable federal and state
securities laws and regulations.


 


c)
         Reliance on Note Register.
Prior to due presentment for transfer to Borrower of this Note,
Borrower and any agent of Borrower 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 Borrower nor any such agent shall be affected by notice to
the contrary.


 


Section
4.     
     Conversion.


 


a)
         Voluntary Conversion. At any
time after the 170th day 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 Borrower 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 and accrued
interest, if any, to be converted at the election of the Holder 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. To effect
conversions hereunder, the Holder shall not be required to
physically surrender this Note to Borrower unless the entire
principal amount of this Note has been so converted. Conversions of
principal 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 Borrower shall maintain
records showing the principal amount(s) converted and the date of
such conversion(s). Borrower 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 for the principal and interest in connection with
voluntary conversions by the Holder shall be 75% multiplied by the
Market Price (as defined herein)(representing a discount rate of
25%). “Market Price” means the lowest one (1) Trading
Prices (as defined below) for the Common Stock during the twenty
(20) Trading Day period ending on the last complete Trading Day
prior to the Conversion Date. “Trading Prices” means,
for any security as of any date, the lowest traded price on the
Over-the Counter Pink Marketplace, OTCQB, or applicable trading
market (the “OTCQB”) as reported by a reliable
reporting service (“Reporting Service”) designated by
the Holder (i.e. www.Nasdaq.com) or, if the OTCQB is not the
principal trading market for such security, on the principal
securities exchange or trading market where such security is listed
or traded or, if the lowest intraday trading price of such security
is not available in any of the foregoing manners, the lowest
intraday price of any market makers for such security that are
quoted on the OTC Markets, per share of Common Stock, subject to
adjustment as described herein (“Conversion Price”). If at
any time the Conversion Price as determined hereunder for any
Conversion would be less than the par value of the Common Stock,
then the Company shall have right to increase the Conversion Price
hereunder for such conversion to par value and increase the
Conversion Amount for such Conversion to include, as liquidated
damages, Additional Principal. “Additional Principal”
means such additional amount to be added to the Conversion Amount
to the extent necessary to cause the number of Conversion Shares
issuable upon such Conversion to equal the same number of
Conversion Shares as would have been issued had the Conversion
Price not been subject to the minimum price set forth in this
Section.


 




 

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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 plus
interest, if any, elected by the Holder to be converted by (y) the
Conversion Price.


 


ii.         Delivery
of Certificate Upon Conversion. Not later than five (5)
Trading Days after each Conversion Date (the “Share Delivery Date”),
Borrower shall deliver, or cause to be delivered, to the Holder a
certificate or certificates representing the Conversion Shares
which, on or after the earlier of (i) the first anniversary of the
Original Issue Date or (ii) the Effective Date, shall be free of
restrictive legends and trading restrictions (other than those
which may then be required by Section 4.1(d) the Purchase
Agreement) representing the number of Conversion Shares being
acquired upon the conversion of this Note. On or after the earlier
of (i) the first anniversary of the Original Issue Date or (ii) the
Effective Date, Borrower shall use its commercially reasonable
efforts to deliver any certificate or certificates required to be
delivered by Borrower under this Section 4(c) electronically
through the Depository Trust Company or another established
clearing corporation performing similar functions.


 


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 Borrower
at any time on or before its receipt of such certificate or
certificates, to rescind such Conversion, in which event Borrower
shall promptly return to the Holder any original Note delivered to
Borrower and the Holder shall promptly return to Borrower the
Common Stock certificates issued to such Holder pursuant to the
rescinded Conversion Notice.


 


iv.         Obligation
Absolute. Borrower’s obligations to issue and deliver
the Conversion Shares upon conversion of this Note in accordance
with the terms hereof are absolute and unconditional, irrespective
of any action or inaction by the Holder to enforce the same, any
waiver or consent with respect to any provision hereof, the
recovery of any judgment against any Person or 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 Borrower 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 Borrower to the Holder in
connection with the issuance of such Conversion Shares;
provided,
however, that such
delivery shall not operate as a waiver by Borrower of any such
action Borrower may have against the Holder. In the event the
Holder of this Note shall elect to convert any or all of the
outstanding principal amount hereof, Borrower may not refuse
conversion based on any claim that the Holder or anyone associated
or affiliated with the Holder has been engaged in any violation of
law, agreement or for any other reason, unless an injunction from a
court, on notice to Holder, restraining and or enjoining conversion
of all or part of this Note shall have been sought and obtained,
and Borrower posts a surety bond for the benefit of the Holder in
the amount of 150% of the outstanding principal amount of this
Note, which is subject to the injunction, which bond shall remain
in effect until the completion of arbitration/litigation of the
underlying dispute and the proceeds of which shall be payable to
the Holder to the extent it obtains judgment. In the absence of
such injunction, Borrower shall issue Conversion Shares or, if
applicable, cash, upon a properly noticed conversion. If Borrower
fails for any reason to deliver to the Holder such certificate or
certificates pursuant to Section 4(c)(ii) by the Share Delivery
Date, Borrower shall pay to the Holder, in cash, as liquidated
damages and not as a penalty, for each $1,000 of principal amount
being converted, $10 per Trading Day (increasing to $20 per Trading
Day on the fifth (5th) Trading Day after
such liquidated damages being to accrue) 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 8 hereof for Borrower’s
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.


 




 

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v.           Compensation
for Buy-In on Failure to Timely Deliver Certificates Upon
Conversion. In addition to any other rights available to the
Holder, if Borrower 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 or
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 Borrower
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 Borrower 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, Borrower shall be required
to pay the Holder $1,000. The Holder shall provide Borrower written
notice indicating the amounts payable to the Holder in respect of
the Buy-In and, upon request of Borrower, 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
Borrower’s 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. Borrower covenants that
it will at all times reserve and keep available out of its
authorized and unissued shares of Common Stock for the sole purpose
of issuance upon conversion of this Note 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), not less than three times such aggregate number of
shares of the Common Stock as shall (subject to the terms and
conditions set forth in the Purchase Agreement) be issuable (taking
into account the adjustments and restrictions of Section 5) upon
the conversion of the then outstanding principal amount of this
Note and interest which has accrued and would accrue on such
principal amount, assuming such principal amount was not converted
through three years after the Original Issue Date. Borrower
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, Borrower 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
Conversion Price or round up to the next whole share.


 


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, Borrower 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 Borrower 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 Borrower
the amount of such tax or shall have established to the
satisfaction of Borrower that such tax has been paid. Borrower
shall pay all Transfer Agent fees required for same-day processing
of any Notice of Conversion.


 




 

7








 






 


d)
          Holder’s
Conversion Limitations. From and after the date that the
Conversion Shares are of a class of equity of the borrower
registered under Section 12(g) of the Exchange Act or the Company
is subject to the reporting requirements of Section 13 or Section
15(d) of the Exchange Act, Borrower shall not affect any conversion
of this Note, and a Holder shall not have the right to convert any
portion of this Note, to the extent that after giving effect to the
conversion set forth on the 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
Borrower subject to a limitation on conversion or exercise
analogous to the limitation contained herein (including, without
limitation, any other Notes or the Warrants) beneficially owned by
the Holder or any of its Affiliates.  Except as set forth in
the preceding sentence, for purposes of this Section 4(d),
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 Borrower each time it
delivers a Notice of Conversion that such Notice of Conversion has
not violated the restrictions set forth in this paragraph and
Borrower 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(d), 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) Borrower’s
most recent periodic or annual report filed with the Commission, as
the case may be, (ii) a more recent public announcement by
Borrower, or (iii) a more recent written notice by Borrower or
Borrower’s transfer agent setting forth the number of shares
of Common Stock outstanding.  Upon the written or oral request
of a Holder, Borrower 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 Borrower, 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 may decrease the Beneficial
Ownership Limitation at any time and the Holder, upon not less than
61 days’ prior notice to Borrower, may increase the
Beneficial Ownership Limitation provisions of this Section 4(d),
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(d) shall continue to apply. Any such increase will not be
effective until the 61st day after such
notice is delivered to Borrower. 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.


 


Section 5.       
   Certain
Adjustments.


 


a)
         Stock Dividends and Stock
Splits. If Borrower, 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 Borrower upon conversion of 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 Borrower, 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 Borrower) 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.


 




 

8








 






 


b)
         Subsequent Rights Offerings.
In addition to any adjustments
pursuant to Section 5(a) above, if at any time Borrower 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).


 


c)           Pro
Rata Distributions. During such time as this Note is
outstanding, if Borrower shall declare or make any dividend whether
or not permitted, or makes any 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).


 


d)
         Fundamental Transaction. If, at
any time while this Note is outstanding, (i) Borrower, directly or
indirectly, in one or more related transactions effects any merger
or consolidation of Borrower with or into another Person, (ii)
Borrower, 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 Borrower 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 50% or more of
the outstanding Common Stock, (iv) Borrower, 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) Borrower, 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 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(d) on the conversion
of this Note), the number of shares of Common Stock of the
successor or acquiring corporation or of Borrower, 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 Borrower 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.
Borrower shall cause any successor entity in a Fundamental
Transaction in which Borrower is not the survivor (the
“Successor
Entity”) to assume in writing all of the obligations
of Borrower under this Note and the other Transaction Documents (as
defined in the Purchase Agreement) in accordance with the
provisions of this Section 5(d) 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 “Company” shall
refer instead to the Successor Entity), and may exercise every
right and power of Borrower and shall assume all of the obligations
of Borrower under this Note and the other Transaction Documents
with the same effect as if such Successor Entity had been named as
Borrower herein.


 




 

9








 






 


e)           Adjustment
Upon Issuance of Shares of Common Stock. If and whenever on
or after the date hereof, the Company issues or sells, or in
accordance with this Section 5 is deemed to have issued or sold,
any shares of Common Stock (including the issuance or sale of
shares of Common Stock owned or held by or for the account of the
Company, but excluding any Exempt Issuance issued or sold or deemed
to have been issued or sold) for a consideration per share (the
“New Issuance
Price”) less than a price equal to the Fixed
Conversion Price in effect immediately prior to such issue or sale
or deemed issuance or sale (such Fixed Conversion Price then in
effect is referred to as the “Applicable Price”) (the
foregoing a “Dilutive Issuance”), then
immediately after such Dilutive Issuance, the Fixed Conversion
Price then in effect shall be reduced to the New Issuance Price.
For all purposes of the foregoing (including, without limitation,
determining the adjusted Fixed Conversion Price and consideration
per share under this Section 5(e)), the following shall be
applicable:

 

(i) Issuance of Options. If the
Company in any manner grants or sells any options (other than
options that qualify as Exempt Issuances) and the lowest price per
share for which one share of Common Stock is issuable upon the
exercise of any such option or upon conversion, exercise or
exchange of any Common Stock Equivalents issuable upon exercise of
any such option is less than the Applicable Price, then such share
of Common Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the granting or sale
of such option for such price per share. For purposes of this
Section 5(e)(i), the “lowest price per share for which one
share of Common Stock is issuable upon the exercise of any such
options or upon conversion, exercise or exchange of any Common
Stock Equivalents issuable upon exercise of any such option”
shall be equal to (1) the lower of (x) the sum of the lowest
amounts of consideration (if any) received or receivable by the
Company with respect to any one share of Common Stock upon the
granting or sale of such option, upon exercise of such option and
upon conversion, exercise or exchange of any Common Stock
Equivalent issuable upon exercise of such option and (y) the lowest
exercise price set forth in such option for which one share of
Common Stock is issuable upon the exercise of any such options or
upon conversion, exercise or exchange of any Common Stock
Equivalents issuable upon exercise of any such option minus (2) the
sum of all amounts paid or payable to the holder of such option (or
any other Person) upon the granting or sale of such option, upon
exercise of such option and upon conversion, exercise or exchange
of any Common Stock Equivalent issuable upon exercise of such
option plus the value of any other consideration received or
receivable by, or benefit conferred on, the holder of such option
(or any other Person). Except as contemplated below, no further
adjustment of the Fixed Conversion Price shall be made upon the
actual issuance of such shares of Common Stock or of such Common
Stock Equivalents upon the exercise of such options or upon the
actual issuance of such shares of Common Stock upon conversion,
exercise or exchange of such Common Stock Equivalents.

 

(ii) Issuance
of Common Stock Equivalents. If the Company in any manner
issues or sells any Common Stock Equivalents (other than Common
Stock Equivalents that qualify as Exempt Issuances) and the lowest
price per share for which one share of Common Stock is issuable
upon the conversion, exercise or exchange thereof is less than the
Applicable Price, then such share of Common Stock shall be deemed
to be outstanding and to have been issued and sold by the Company
at the time of the issuance or sale of such Common Stock
Equivalents for such price per share. For the purposes of this
Section 5(e)(ii), the “lowest price per share for which one
share of Common Stock is issuable upon the conversion, exercise or
exchange thereof” shall be equal to (1) the lower of (x) the
sum of the lowest amounts of consideration (if any) received or
receivable by the Company with respect to one share of Common Stock
upon the issuance or sale of the Common Stock Equivalent and upon
conversion, exercise or exchange of such Common Stock Equivalent
and (y) the lowest conversion price set forth in such Common Stock
Equivalent for which one share of Common Stock is issuable upon
conversion, exercise or exchange thereof minus (2) the sum of all
amounts paid or payable to the holder of such Common Stock
Equivalent (or any other Person) upon the issuance or sale of such
Common Stock Equivalent plus the value of any other consideration
received or receivable by, or benefit conferred on, the holder of
such Common Stock Equivalent (or any other Person). Except as
contemplated below, no further adjustment of the Fixed Conversion
Price shall be made upon the actual issuance of such shares of
Common Stock upon conversion, exercise or exchange of such Common
Stock Equivalents, and if any such issue or sale of such Common
Stock Equivalents is made upon exercise of any Options for which
adjustment of this Note has been or is to be made pursuant to other
provisions of this Section 5(e), except as contemplated below, no
further adjustment of the Fixed Conversion Price shall be made by
reason of such issue or sale.

 


 




 

10








 






 

(iii) Change
in Option Price or Rate of Conversion. If the purchase or
exercise price provided for in any options, the additional
consideration, if any, payable upon the issue, conversion, exercise
or exchange of any Common Stock Equivalents, or the rate at which
any Common Stock Equivalents are convertible into or exercisable or
exchangeable for shares of Common Stock increases or decreases at
any time, the Fixed Conversion Price in effect at the time of such
increase or decrease shall be adjusted to the Fixed Conversion
Price which would have been in effect at such time had such options
or Common Stock Equivalents provided for such increased or
decreased purchase price, additional consideration or increased or
decreased conversion rate, as the case may be, at the time
initially granted, issued or sold. For purposes of this Section
5(e)(iii), if the terms of any option or Common Stock Equivalent
that was outstanding as of the date of issuance of this Note are
increased or decreased in the manner described in the immediately
preceding sentence, then such option or Common Stock Equivalent and
the shares of Common Stock deemed issuable upon exercise,
conversion or exchange thereof shall be deemed to have been issued
as of the date of such increase or decrease. No adjustment pursuant
to this Section 5(e) shall be made if such adjustment would result
in an increase of the Fixed Conversion Price then in
effect.

 


(iv)           Calculation
of Consideration Received. If any option and/or Common Stock
Equivalent and/or Adjustment Right is issued in connection with the
issuance or sale or deemed issuance or sale of any other securities
of the Company (as determined by the Holder, the
“Primary
Security”, and such option and/or Common Stock
Equivalent and/or Adjustment Right, the “Secondary Securities”),
together comprising one integrated transaction, the consideration
per share of Common Stock with respect to such Primary Security
shall be deemed to be equal to the difference of (x) the lowest
price per share for which one share of Common Stock was issued in
such integrated transaction (or was deemed to be issued pursuant to
Section 5(e)(i) or 5(e)(ii) above, as applicable) solely with
respect to such Primary Security, minus (y) with respect to such
Secondary Securities, the sum of (I) the Black Scholes
Consideration Value of each such option, if any, (II) the fair
market value (as determined by the Holder) or the Black Scholes
Consideration Value, as applicable, of such Adjustment Right, if
any, and (III) the fair market value (as determined by the Holder)
of such Common Stock Equivalent, if any, in each case, as
determined on a per share basis in accordance with this Section
5(e)(iv). If any shares of Common Stock, options or Common Stock
Equivalents are issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor (for the purpose
of determining the consideration paid for such Common Stock, option
or Common Stock Equivalent, but not for the purpose of the
calculation of the Black Scholes Consideration Value) will be
deemed to be the net amount of consideration received by the
Company therefor. If any shares of Common Stock, options or Common
Stock Equivalents are issued or sold for a consideration other than
cash (for the purpose of determining the consideration paid for
such Common Stock, option or Common Stock Equivalent, but not for
the purpose of the calculation of the Black Scholes Consideration
Value), the amount of such consideration received by the Company
will be the fair value of such consideration, except where such
consideration consists of publicly traded securities, in which case
the amount of consideration received by the Company for such
securities will be the arithmetic average of the VWAPs of such
security for each of the five (5) Trading Days immediately
preceding the date of receipt. If any shares of Common Stock,
Options or Common Stock Equivalents are issued to the owners of the
non-surviving entity in connection with any merger in which the
Company is the surviving entity (for the purpose of determining the
consideration paid for such Common Stock, option or Common Stock
Equivalent, but not for the purpose of the calculation of the Black
Scholes Consideration Value), the amount of consideration therefor
will be deemed to be the fair value of such portion of the net
assets and business of the non-surviving entity as is attributable
to such shares of Common Stock, options or Common Stock
Equivalents, as the case may be. The fair value of any
consideration other than cash or publicly traded securities (for
the purpose of determining the consideration paid for such Common
Stock, option or Common Stock Equivalent, but not for the purpose
of the calculation of the Black Scholes Consideration Value) will
be determined jointly by the Company and the Holder. If such
parties are unable to reach agreement within ten (10) days after
the occurrence of an event requiring valuation (the
“Valuation
Event”), the fair value of such consideration will be
determined within five (5) Trading Days after the tenth
(10th) day
following such Valuation Event by an independent, reputable
appraiser jointly selected by the Company and the Holder. The
determination of such appraiser shall be final and binding upon all
parties absent manifest error and the fees and expenses of such
appraiser shall be borne by the Company.


 


f)         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 Borrower) issued and outstanding.


 




 

11








 






 


g)
         Notice to the
Holder.


 


i.            Adjustment
to Conversion Price. Whenever the Conversion Price is
adjusted pursuant to any provision of this Section 5, Borrower
shall promptly deliver to each Holder a notice setting forth the
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) Borrower shall declare a
dividend (or any other distribution in whatever form) on the Common
Stock, (B) Borrower shall declare a special nonrecurring cash
dividend on or a redemption of the Common Stock, (C) Borrower 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 Borrower shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger
to which Borrower is a party, any sale or transfer of all or
substantially all of the assets of Borrower, or any compulsory
share exchange whereby the Common Stock is converted into other
securities, cash or property or (E) Borrower shall authorize the voluntary or
involuntary dissolution, liquidation or winding up of the affairs
of Borrower, then, in each case, Borrower 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 Borrower or any of the
Subsidiaries, Borrower 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.


 


Section
6.          Negative
Covenants. As long as any principal amount of this Note
remains outstanding, Borrower shall not, and shall not permit any
of the Subsidiaries to, directly or indirectly, without the prior
written consent of the Holder:


 


a)           enter
into any transaction pursuant to Section 3(a)(10) of the Securities
Act;


 


b)           other
than Permitted Liens, enter into, create, incur, assume or suffer
to exist any Liens of any kind, on or with respect to any of its
property or assets now owned or hereafter acquired or any interest
therein or any income or profits therefrom;


 


c)           amend
its charter documents, including, without limitation, its
certificate of incorporation and bylaws, in any manner that
materially and adversely affects any rights of the
Holder;


 


d)           repay,
repurchase or offer to repay, repurchase or otherwise acquire more
than a de
minimis number of
shares of its Common Stock or Common Stock Equivalents other than
as to the Conversion Shares or Warrant Shares as permitted or
required under the Transaction Documents;


 


e)           redeem,
defease, repurchase, repay or make any payments in respect of, by
the payment of cash or cash equivalents (in whole or in part,
whether by way of open market purchases, tender offers, private
transactions or otherwise), all or any portion of any Indebtedness
(other than the Notes if on a pro-rata basis), whether by way of
payment in respect of principal of (or premium, if any) or interest
on, such Indebtedness;


 




 

12








 






 


f)           declare
or make any dividend or other distribution of its assets or rights
to acquire its assets to holders of shares of Common Stock,
preferred stock, or any other equity security 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;


 


g)           enter
into any transaction with any Affiliate of Borrower which would be
required to be disclosed in any public filing with the Commission,
unless such transaction is made on an arm’s-length basis and
expressly approved by a majority of the disinterested directors of
Borrower (even if less than a quorum otherwise required for board
approval);


 


h)           enter
into any capital transaction 30 days after the Original Issue Date;
or


 


h)           enter
into any agreement with respect to any of the foregoing.


 


Section
7.          
  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 or interest amount of
this Note or (B) 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 a
default under clause (B) above, is not cured within 3 Trading Days
after Borrower has become or should have become aware of such
default;


 


ii.           Borrower
shall fail to observe or perform any other covenant or agreement
contained in the Notes (other than a breach by Borrower of its
obligations to deliver shares of Common Stock to the Holder upon
conversion, which breach is addressed in clause (ix) below) which
failure is not cured, if possible to cure, within the earlier to
occur of (A) five (5) Trading Days
after written notice of such failure sent by the Holder or by any
Other Holder to Borrower and (B) ten (10) Trading Days after
Borrower has 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, including but not
limited to failure to strictly comply with the provisions of the
Transaction Documents, or (B) any other material agreement, lease,
document or instrument to which Borrower or any Subsidiary is
obligated (and not covered by clause (vi) below), which, in the
case of subsection (B), would reasonably be expected to have a
Material Adverse Effect;


 


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;


 


v.           Borrower
or any Subsidiary shall be subject to a Bankruptcy
Event;


 


vi.           Borrower
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;


 


vii.           Borrower
shall be a party to any Change of Control Transaction or
Fundamental Transaction;


 




 

13








 






 


viii.           Borrower
does not meet the current public information requirements under
Rule 144;


 


ix.           Borrower
shall fail for any reason to deliver certificates to a Holder prior
to the fifth (5th) Trading Day after
a Conversion Date pursuant to Section 4(c) or Borrower shall
provide at any time notice to the Holder, including by way of
public announcement, of Borrower’s intention to not honor
requests for conversions of any Notes in accordance with the terms
hereof;


 


x.           any
Person shall breach any material term of any agreement delivered to
the initial Holders pursuant to Section 2.2(a) of the Purchase
Agreement;


 


xi.           any
monetary judgment, writ or similar final process shall be entered
or filed against Borrower, any subsidiary or any of their
respective property or other assets for more than $50,000, and such
judgment, writ or similar final process shall remain unvacated,
unbonded or unstayed for a period of 90 calendar days;


 


xii.           any
dissolution, liquidation or winding up by Borrower or a material
Subsidiary of a substantial portion of their business;


 


xiii.           cessation
of operations by Borrower or a material Subsidiary;


 


xiv.           an
event resulting in the Common Stock no longer being listed or
quoted on a Trading Market, or notification from a Trading Market
that the Borrower is not in compliance with the conditions for such
continued quotation and such non-compliance continues for twenty
(20) days following such notification;


 


xv.           a
Commission or judicial stop trade order or suspension from the
Borrower’s Principal Trading Market;


 


xvi.           the
Borrower effectuates a reverse split of its Common Stock without
ten (10) days prior written notice to the Holder;


 


xvii.           a
failure by Borrower to notify Holder of any material event of which
Borrower is obligated to notify Holder pursuant to the terms of
this Note or any other Transaction Document;


 


xviii.                                 a
default by the Borrower of a material term, covenant, warranty or
undertaking of any other agreement to which the Borrower and Holder
are parties, or the occurrence of an event of default under any
such other agreement to which Borrower and Holder are parties which
is not cured after any required notice and/or cure period or
waived;


 


xix.           the
occurrence of an Event of Default under any Other
Note;


 


xx.           any
material provision of any Transaction Document shall at any time
for any reason (other than pursuant to the express terms thereof)
cease to be valid and binding on or enforceable against the
Borrower, or the validity or enforceability thereof shall be
contested by Borrower, or a proceeding shall be commenced by
Borrower or any governmental authority having jurisdiction over
Borrower or Holder, seeking to establish the invalidity or
unenforceability thereof, or Borrower shall deny in writing that it
has any liability or obligation purported to be created under any
Transaction Document;


 


xxi.           the
failure by Borrower or any material Subsidiary to maintain any
material intellectual property rights, personal, real property,
equipment, leases or other assets which are necessary to conduct
its business (whether now or in the future) and such breach is not
cured with twenty (20) days after the first day of such occurrence;
or


 


xxii.           the
restatement after the date hereof of any financial statements filed
by the Borrower with the Commission for any date or period from and
after the Original Issue Date and until this Note is no longer
outstanding, if the result of such restatement would, by comparison
to the unrestated financial statements, have constituted a Material
Adverse Effect. For the avoidance of doubt, any restatement related
to new accounting pronouncements shall not constitute a default
under this Section.


 




 

14








 






 


xxiii           the
Conversion Price falls below the par value of the common stock
subject to cure as set forth above.


 


xxiv           the
Borrower fails to deliver original “wet” signature
signed copies of the Notes, Warrants and COJ to Purchaser Counsel
on or before November 14, 2017.


 


In the
event more than one grace, cure or notice period is applicable to
an Event of Default, then the shortest grace, cure or notice period
shall be applicable thereto.


 


b)
         Remedies Upon Event of Default,
Fundamental Transaction and Change of Control Transaction.
If any Event of Default or a Fundamental Transaction or a Change of
Control Transaction occurs, the outstanding principal amount of
this Note, 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 in cash at the
Mandatory Default Amount. Commencing on the Maturity Date and also
five (5) days after the occurrence of any Event of Default interest
on this Note shall accrue at an interest rate equal to the lesser
of 24% per annum or the maximum rate permitted under applicable
law. Upon the payment in full of the Mandatory Default Amount, the
Holder shall promptly surrender this Note to or as directed by
Borrower. In connection with such acceleration described herein,
the Holder need not provide, and Borrower hereby waives, any
presentment, demand, protest or other notice of any kind, 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 7(b). No such
rescission or annulment shall affect any subsequent Event of
Default or impair any right consequent thereon.


 


Section
8.                      Redemption.
The Borrower will have the option at
any time up to the 179th
day after the Closing Date, of
prepaying the outstanding Principal amount of this Note
(“Optional
Redemption”), in whole or
in part, by paying to the Holder a sum of money in cash equal to
one hundred and eighteen percent (118%) of the Principal amount to
be redeemed, together with accrued but unpaid interest thereon and
any and all other sums due, accrued or payable to the Holder
arising under this Note through the Redemption Payment Date as
defined below (the “Redemption
Amount”).
Borrower’s election to exercise its right to prepay must be
by notice in writing (“Notice of
Redemption”). The Notice
of Redemption shall specify the date for such Optional Redemption
(the “Redemption Payment
Date”), which date shall
be a date certain not sooner than five (5) business days after the
date of the Notice of Redemption (the “Redemption
Period”). At all times up
to the Redemption Payment Date, the Holder may convert any portion
of this Note, except as otherwise prohibited herein. On the
Redemption Payment Date, the Redemption Amount, less any portion of
the Redemption Amount against which the Holder has permissibly
exercised its conversion rights, shall be paid in good funds to the
Holder. In the event the Borrower fails to pay the Redemption
Amount on the Redemption Payment Date as set forth herein, then (i)
such Notice of Redemption will be null and void, (ii) Borrower will
have no right to deliver another Notice of Redemption, and (iii)
Borrower’s failure may be deemed by Holder to be a
non-curable Event of Default.


 


Section
9.      
    Miscellaneous.


 


a)
         Notices. All notices, demands, requests, consents,
approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall
be (i) personally served, (ii) deposited in the mail, registered or
certified, return receipt requested, postage prepaid, (iii)
delivered by reputable air courier service with charges prepaid, or
(iv) transmitted by hand delivery, telegram, e-mail or facsimile,
addressed as set forth below or to such other address as such party
shall have specified most recently by written notice. Any notice or
other communication required or permitted to be given hereunder
shall be deemed effective (a) upon hand delivery or delivery by
facsimile, or e-mail with accurate confirmation generated by the
transmitting facsimile machine or transmitting computer(e-mail), at
the address or number designated below (if delivered on a business
day during normal business hours where such notice is to be
received), or the first business day following such delivery (if
delivered other than on a business day during normal business hours
where such notice is to be received) or (b) on the second business
day following the date of mailing by express courier service, fully
prepaid, addressed to such address, or upon actual receipt of such
mailing, whichever shall first occur. The addresses for such
communications shall be: (i) if to Borrower, to: Sincerity
Applied Materials Holdings Corp., Level 4, 10 Yarra Street, South
Yarra, VIC 3141 Australia, Attn: Zhang Yiwen, President and CEO,
email: James@sincerityplastics.com, with a copy by fax or email
only to (which shall not constitute notice): Scott Rapfogel, Esq.,
Fax: (212) 259–8200, Email: srapfogel@ckrlaw.com
and (ii) if to the Holder, to: the address and fax number indicated
on the front page of this Note, with an additional copy by fax only
to (which shall not constitute notice): Grushko & Mittman,
P.C., 515 Rockaway Avenue, Valley Stream, New York 11581,
facsimile: (212) 697-3575.


 




 

15








 






 


b)
         Absolute Obligation. Except as
expressly provided herein, no provision of this Note shall alter or
impair the obligation of Borrower, 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 Borrower. 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, Borrower 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
Borrower.


 


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. This Note shall be 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 similar rule or statute in the
jurisdiction where enforcement is sought. For purposes of such rule
or statute, any other document or agreement to which Holder and
Borrower are parties or which Borrower delivered to Holder, which
may be convenient or necessary to determine Holder’s rights
hereunder or Borrower’s obligations to Holder are deemed a
part of this Note, whether or not such other document or agreement
was delivered together herewith or was executed apart from this
Note.


 


e)
         Waiver. Any waiver by Borrower
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 Borrower 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
Borrower or the Holder must be in writing.


 


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.


 


g)
       Usury. 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. Borrower
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 Borrower
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 Borrower (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.


 




 

16








 






 


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.


 


j)         Amendment.
Unless otherwise provided for hereunder, this Note may not be
modified or amended or the provisions hereof waived without the
written consent of Borrower and the
Holder.


 


k)
       Facsimile Signature. In the
event that the Borrower’s signature is delivered by facsimile
transmission, PDF, electronic signature or other similar electronic
means, such signature shall create a valid and binding obligation
of the Borrower with the same force and effect as if such signature
page were an original thereof.


 


 


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


 



(Signature Pages Follow)


 




 

17








 






 


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


 



                                                                                   

Sincerity
Applied Materials Holdings Corp.






 


 


By:
_______________________________


                                                                                            
Name: Zhang Yiwen


       
Title: President and CEO


 


 




 

18








 






 

 



ANNEX A



 



NOTICE OF CONVERSION


 


The
undersigned hereby elects to convert principal under the
Convertible Note due November 9, 2018 of Sincerity Applied
Materials Holdings Corp., a Nevada corporation (the
“Company”), into shares of
common stock (the “Common Stock”), of
Borrower 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
Borrower 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 Borrower 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: $__________________


	
 

	
 


	
 

	

Additional
Interest to be Converted: $_______________


	
 

	
 


	
 

	

Number
of shares of Common Stock to be issued: ______________


	
 

	
 


	
 

	

Signature:
_________________________________________


	
 

	
 


	
 

	

Name:
____________________________________________


	
 

	
 


	
 

	

Address
for Delivery of Common Stock Certificates: __________


	
 

	

_____________________________________________________ 


	
 

	

_____________________________________________________


	
 

	
 


	
 

	

Or


	
 

	
 


	
 

	

DWAC
Instructions: _________________________________


	
 

	
 


	
 

	

Broker
No:_____________


	
 

	

Account
No: _______________







  


 

 


 


 


 

 




 

19