Document:

ex10-4.htm

Exhibit 10.4

SECURED CONVERTIBLE PROMISSORY NOTE

	
 

	
 

	
Effective Date: June 4, 2014

	
U.S. $1, 105, 000.00

          FOR VALUE RECEIVED, MEDICAN ENTERPRISES, INC., a Nevada corporation ('Borrower'), promises to pay to TYPENEX CO-INVESTMENT, LLC, a Utah limited liability company, or its successors or assigns ('Lender'), $1,105,000.00 and any interest, fees, charges and late fees on the date that is seventeen (17) months after the Purchase Price Date (as defined below) (the 'Maturity Date') in accordance with the terms set forth herein and to pay interest on the Outstanding Balance (as defined below) (including all Tranches (as defined below), both Conversion Eligible Tranches (as defined below) and Subsequent Tranches (as defined below) that have not yet become Conversion Eligible Tranches) at the rate of ten percent (10%) per annum from the Purchase Price Date until the same is paid in full. This Secured Convertible Promissory Note (this 'Note') is issued and made effective as of June 4, 2014 (the 'Effective Date'). For purposes hereof, the 'Outstanding Balance' of this Note means, as of any date of determination, the Purchase Price (as defined below), as reduced or increased, as the case may be, pursuant to the terms hereof for redemption, conversion or otherwise, plus any original issue discount ('OID'), the Carried Transaction Expense Amount (as defined below), accrued but unpaid interest, collection and enforcements costs (including attorneys' fees) incurred by Lender, transfer, stamp, issuance and similar taxes and fees related to Conversions (as defined below), and any other fees or charges (including without limitation late charges) incurred under this Note. This Note is issued pursuant to that certain Securities Purchase Agreement dated June 4, 2014, as the same may be amended from time to time (the 'Purchase Agreement'), by and between Borrower and Lender. All interest calculations hereunder shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall compound daily and shall be payable in accordance with the terms of this Note. Certain capitalized terms used herein but not otherwise defined shall have the meaning ascribed thereto in the Purchase Agreement. Certain other capitalized terms used herein are defined in Attachment 1 attached hereto and incorporated herein by this reference.

          This Note carries an OID of $100,000.00. In addition, Borrower agrees to pay $7,500.00 to Lender to cover Lender's legal fees, accounting costs, due diligence, monitoring and other transaction costs incurred in connection with the purchase and sale of this Note, $2,500.00 of which amount was previously paid to Lender and $5,000.00 of which amount (the 'Carried Transaction Expense Amount') is included in the initial principal balance of this Note. The purchase price for this Note shall be $1,000,000.00 (the 'Purchase Price'), computed as follows: $1,105,000.00 original principal balance, less the OID, less the Carried Transaction Expense Amount. The Purchase Price shall be payable by delivery to Borrower at Closing of the Secured Investor Notes, the Investor Notes, and a wire transfer of immediately available funds in the amount of the Initial Cash Purchase Price (as defined in the Purchase Agreement). For purposes hereof, the term 'Purchase Price Date' means the date the Initial Cash Purchase Price is delivered by Lender to Borrower.

          Notwithstanding any other provision contained in this Note, the conversion by Lender of any portion of the Outstanding Balance shall only be exercisable in eleven (11) tranches (each, a 'Tranche'), consisting of (i) an initial Tranche in an amount equal to $170,000.00 and any interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note and the other Transaction Documents (as defined in the Purchase Agreement) (the 'Initial Tranche'), and (ii) ten (10) additional Tranches, each in the amount of $93,500.00, plus any interest, costs, fees or charges accrued thereon or added thereto under the terms of this Note and the other Transaction Documents (each, a 'Subsequent Tranche'). The Initial Tranche shall correspond to the Initial Cash Purchase Price, $15,000.00 of the OID and the Carried Transaction Expense Amount, and may be converted any time subsequent to the Purchase Price Date. The first Subsequent Tranche shall correspond to Secured Investor Note #1 and $8,500.00 of the OID, the second Subsequent Tranche shall correspond to Secured Investor Note #2 and $8,500.00 of the OID, the third Subsequent Tranche shall correspond to Secured Investor Note #3 and $8,500.00 of the OID, the fourth subsequent Tranche shall correspond to Secured Investor Note #4 and

 

  

$8,500.00 of the ODD, the fifth Subsequent Tranche shall correspond to Investor Note #5 and $8,500.00 of the OID, the sixth Subsequent Tranche shall correspond to Investor Note #6 and $8,500.00 of the OID, the seventh Subsequent Tranche shall correspond to Investor Note #7 and $8,500.00 of the OID, the eighth Subsequent Tranche shall correspond to Investor Note #8 and $8,500.00 of the OID, the ninth Subsequent Tranche shall correspond to Investor Note #9 and $8,500.00 of the ODD, the tenth Subsequent Tranche shall correspond to Investor Note #10 and $8,500.00 of the ODD. Lender's right to convert any portion of any of the Subsequent Tranches is conditioned upon Lender's payment in full of the Secured Investor Note or Investor Note, as applicable, corresponding to such Subsequent Tranche (upon the satisfaction of such condition, such Subsequent Tranche becomes a 'Conversion Eligible Tranche'). For the avoidance of doubt, subject to the other terms and conditions hereof, the Initial Tranche shall be deemed a Conversion Eligible Tranche as of the Purchase Price Date for all purposes hereunder and may be converted in whole or in part at any time subsequent to the Purchase Price Date, and each Subsequent Tranche that becomes a Conversion Eligible Tranche may be converted in whole or in part at any time subsequent to the first date on which such Subsequent Tranche becomes a Conversion Eligible Tranche. For all purposes hereunder, Conversion Eligible Tranches shall be converted (or redeemed, as applicable) in order of the lowest-numbered Conversion Eligible Tranche. At all times hereunder, the aggregate amount of any costs, fees or charges incurred by or assessable against Borrower hereunder, including, without limitation, any fees, charges or premiums incurred in connection with an Event of Default (as defined below), shall be added to the lowest-numbered then-current Conversion Eligible Tranche.

          1. Payment: Prepayment. Provided there is an Outstanding Balance, on each Installment Date (as defined below), Borrower shall pay to Lender an amount equal to the Installment Amount (as defined below) due on such Installment Date in accordance with Section 8. All payments owing hereunder shall be in lawful money of the United States of America or Conversion Shares (as defined below), as provided for herein, and delivered to Lender at the address furnished to Borrower for that purpose. All payments shall be applied first to (a) costs of collection, if any, then to (b) fees and charges, if any, then to (c) accrued and unpaid interest, and thereafter, to (d) principal. Notwithstanding the foregoing, so long as Borrower has not received a Lender Conversion Notice (as defined below) or an Installment Notice (as defined below) from Lender where the applicable Conversion Shares have not yet been delivered and so long as no Event of Default has occurred since the Effective Date (whether declared by Lender or undeclared), then Borrower shall have the right, exercisable on not less than five (5) Trading Days prior written notice to Lender to prepay the Outstanding Balance of this Note, in full, in accordance with this Section 1. Any notice of prepayment hereunder (an 'Optional Prepayment Notice') shall be delivered to Lender at its registered address and shall state: (y) that Borrower is exercising its right to prepay this Note, and (z) the date of prepayment, which shall be not less than five (5) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the 'Optional Prepayment Date'), Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of Lender as specified by Lender in writing to Borrower not more than one (1) Trading Day prior to the Optional Prepayment Date. If Borrower exercises its right to prepay this Note, Borrower shall make payment to Lender of an amount in cash (the 'Optional Prepayment Amount') equal to 125% (the 'Prepayment Premium') multiplied by the Outstanding Balance of this Note. If Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to Lender within two (2) Trading Days following the Optional Prepayment Date, Borrower shall forever forfeit its right to prepay this Note pursuant to this section.

          2. Security. This Note is secured by that certain Security Agreement of even date herewith, as the same may be amended from time to time (the 'Security Agreement'), executed by Borrower in favor of Lender encumbering the Secured Investor Notes and the Investor Notes, as more specifically set forth in the Security Agreement, all the terms and conditions of which are hereby incorporated into and made a part of this Note.

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          3. Lender Optional Conversion.

                    3.1. Lender Conversion Price. Subject to adjustment as set forth in this Note, the conversion price for each Lender Conversion (as defined below) shall be $1.65 (the 'Lender Conversion Price').

                    3.2. Lender Conversions. Lender has the right at any time after the Purchase Price Date, including without limitation until any Optional Prepayment Date (even if Lender has received an Optional Prepayment Notice), at its election, to convert (each instance of conversion is referred to herein as a 'Lender Conversion') all or any part of the Outstanding Balance into shares ('Lender Conversion Shares') of fully paid and non-assessable common stock, $0.001 par value per share ('Common Stock'), of Borrower as per the following conversion formula: the number of Lender Conversion Shares equals the amount being converted (the 'Conversion Amount') divided by the Lender Conversion Price. Conversion notices in the form attached hereto as Exhibit A (each, a 'Lender Conversion Notice') may be effectively delivered to Borrower by any method of Lender's choice (including but not limited to facsimile, email, mail, overnight courier, or personal delivery), and all Lender Conversions shall be cashless and not require further payment from Lender. Borrower shall deliver the Lender Conversion Shares from any Lender Conversion to Lender in accordance with Section 9 below within three (3) Trading Days of Lender's delivery of the Lender Conversion Notice to Borrower.

                    3.3. Application to Installments. Notwithstanding anything to the contrary herein, including without limitation Section 8 hereof, Lender may, in its sole discretion, apply all or any portion of any Lender Conversion toward any Installment Conversion (as defined below), even if such Installment Conversion is pending, as determined in Lender's sole discretion, by delivering written notice of such election (which notice may be included as part of the applicable Lender Conversion Notice) to Borrower at any date on or prior to the applicable Installment Date. In such event, Borrower may not elect to allocate such portion of the Installment Amount being paid pursuant to this Section 3.3 in the manner prescribed in Section 8.3; rather, Borrower must reduce the applicable Installment Amount by the Conversion Amount described in this Section 3.3.

          4. Defaults and Remedies.

                    4.1. Defaults. The following are events of default under this Note (each, an 'Event of Default'): (0 Borrower shall fail to pay any principal when due and payable (or payable by Conversion) hereunder; or (ii) Borrower shall fail to deliver any Conversion Shares or True-Up Shares (as defined below) in accordance with the terms hereof; or (iii) Borrower shall fail to pay any interest, fees, charges, or any other amount when due and payable (or payable by Conversion) hereunder; or (iv) a receiver, trustee or other similar official shall be appointed over Borrower or a material part of its assets and such appointment shall remain uncontested for twenty (20) days or shall not be dismissed or discharged within sixty (60) days; or (v) Borrower shall become insolvent or generally fails to pay, or admits in writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any; or (vi) Borrower shall make a general assignment for the benefit of creditors; or (vii) Borrower shall file a petition for relief under any bankruptcy, insolvency or similar law (domestic or foreign); or (viii) an involuntary proceeding shall be commenced or filed against Borrower; or (ix) Borrower shall become delinquent in its filing requirements as a fully-reporting issuer registered with the SEC; or (x) Borrower shall default or otherwise fail to observe or perform any covenant, obligation, condition or agreement of Borrower contained herein or in any other Transaction Document, or (xi) Borrower shall fail to timely file all required quarterly and annual reports and any other filings that are necessary to enable Lender to sell Conversion Shares or True-Up Shares pursuant to Rule 144; or (xii) any representation, warranty or other statement made or furnished by or on behalf of Borrower to Lender herein, in any Transaction Document, or otherwise in connection with the issuance of this Note shall be false, incorrect, incomplete or misleading in any material respect when made or furnished; or (xiii) the occurrence of a Fundamental Transaction without Lender's prior written consent; or (xiv) Borrower shall fail to maintain the Share

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Reserve as required under the Purchase Agreement; or (xv) Borrower effectuates a reverse split of its Common Stock without twenty (20) Trading Days prior written notice to Borrower; or (xvi) any money judgment, writ or similar process shall be entered or filed against Borrower or any subsidiary of Borrower or any of its property or other assets for more than $100,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) calendar days unless otherwise consented to by Lender, or (xvii) Borrower is not DWAC Eligible.

                    4.2. Remedies. Upon the occurrence of any Event of Default, Lender may at any time thereafter accelerate this Note by written notice to Borrower, with the Outstanding Balance becoming immediately due and payable in cash at the Mandatory Default Amount (as defined hereafter). Notwithstanding the foregoing, upon the occurrence of any Event of Default, Lender may, at its option, elect to increase the Outstanding Balance by applying the Default Effect (as defined below) (subject to the limitation set forth below) via written notice to Borrower without accelerating the Outstanding Balance, in which event the Outstanding Balance shall be increased as of the date of the occurrence of the applicable Event of Default pursuant to the Default Effect, but the Outstanding Balance shall not be immediately due and payable unless so declared by Lender (for the avoidance of doubt, if Lender elects to apply the Default Effect pursuant to this sentence, it shall reserve the right to declare Outstanding Balance immediately due and payable at any time and no such election by Lender shall be deemed to be a waiver of its right to declare the Outstanding Balance immediately due and payable as set forth herein unless otherwise agreed to by Lender in writing). For purposes hereof, the 'Default Effect' is calculated by multiplying the Outstanding Balance by 125%, with the resulting product then becoming the Outstanding Balance under this Note; provided that the Default Effect may only be applied twice hereunder. Notwithstanding the foregoing, upon the occurrence of any Event of Default described in clauses (iv), (v), (vi), (vii) or (viii) of Section 4.1, the Outstanding Balance as of the date of acceleration shall become immediately and automatically due and payable in cash at the Mandatory Default Amount, without any written notice required by Lender. The 'Mandatory Default Amount' means the greater of (i) the Outstanding Balance (including all Tranches, both Conversion Eligible Tranches and Subsequent Tranches that have not yet become Conversion Eligible Tranches) divided by the Installment Conversion Price (as defined below) on the date the Mandatory Default Amount is either demanded or paid in full, whichever has a lower Installment Conversion Price, multiplied by the volume weighted average price (the 'VWAP') on the date the Mandatory Default Amount is either demanded or paid in full, whichever has a higher VWAP, or (ii) the Default Effect. At any time following the occurrence of any Event of Default, upon written notice given by Lender to Borrower, interest shall accrue on the Outstanding Balance beginning on the date the applicable Event of Default occurred at an interest rate equal to the lesser of 22% per annum or the maximum rate permitted under applicable law ('Default Interest'). Additionally, following the occurrence of any Event of Default, Borrower may, at its option, pay any Lender Conversion in cash instead of Lender Conversion Shares by paying to Lender on or before the applicable Delivery Date (as defined below) a cash amount equal to the number of Lender Conversion Shares set forth in the applicable Lender Conversion Notice multiplied by the highest intra-day trading price of the Common Stock that occurs during the period beginning on the date the applicable Event of Default occurred and ending on the date of the applicable Lender Conversion Notice. In connection with acceleration described herein, Lender need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and Lender 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 Lender at any time prior to payment hereunder and Lender shall have all rights as a holder of the Note until such time, if any, as Lender receives full payment pursuant to this Section 4.2. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon. Nothing herein shall limit Lender's right to pursue any other remedies available to it 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 Conversion Shares upon Conversion of the Notes as required pursuant to the terms hereof.

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                    4.3. Certain Additional Rights. Notwithstanding anything to the contrary herein, in the event Borrower fails to make any payment or otherwise to deliver any Conversion Shares as and when required under this Note, then (i) the Lender Conversion Price for all Lender Conversions occurring after the date of such failure to pay shall equal the lower of the Lender Conversion Price applicable to any Lender Conversion and the Market Price as of any applicable date of Conversion, and (ii) the true-up provisions of Section 11 below shall apply to all Lender Conversions that occur after the date of such failure to pay, provided that all references to the 'Installment Notice' in Section 11 shall be replaced with references to a 'Lender Conversion Notice' for purposes of this Section 4.3, all references to 'Installment Conversion Shares' in Section 11 shall be replaced with references to 'Lender Conversion Shares' for purposes of this Section 4.3, and all references to the 'Installment Conversion Price' in Section 11 shall be replaced with references to the 'Lender Conversion Price' for purposes of this Section 4.3.

                    4.4. Cross Default. A breach or default by Borrower of any covenant or other term or condition contained in any Other Agreements (as defined below) shall, at the option of Lender, be considered an Event of Default under this Note, in which event Lender shall be entitled (but in no event required) to apply all rights and remedies of Lender under the terms of this Note. 'Other Agreements' means, collectively, (a) all existing and future agreements and instruments between, among or by Borrower (or an affiliate), on the one hand, and Lender (or an affiliate), on the other hand, and (b) any financing agreement or a material agreement that affects Borrower's ongoing business operations. For the avoidance of doubt, all existing and future loan transactions between Borrower and Lender and their respective affiliates will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to Lender.

          5. Unconditional Obligation: No Offset. Borrower acknowledges that this Note is an unconditional, valid, binding and enforceable obligation of Borrower not subject to offset (except as set forth in Section 20 below), deduction or counterclaim of any kind. Borrower hereby waives any rights of offset it now has or may have hereafter against Lender, its successors and assigns, and agrees to make the payments or conversions called for herein in accordance with the terms of this Note.

          6. Waiver. No waiver of any provision of this Note shall be effective unless it is in the form of a writing signed by the party granting the waiver. No waiver of any provision or consent to any prohibited action shall constitute a waiver of any other provision or consent to any other prohibited action, whether or not similar. No waiver or consent shall constitute a continuing waiver or consent or commit a party to provide a waiver or consent in the future except to the extent specifically set forth in writing.

          7. Rights Upon Issuance of Securities.

                    7.1. Subsequent Equity Sales. Except with respect to Excluded Securities, if Borrower or any subsidiary thereof, as applicable, at any time this Note is outstanding, shall sell or issue any Common Stock to Lender or any third party for a price that is less than the then effective Lender Conversion Price, then such Lender Conversion Price shall be automatically reduced and only reduced to equal such lower issuance price. Except with respect to Excluded Securities, if Borrower or any subsidiary thereof, as applicable, at any time this Note is outstanding, shall sell or grant any option to any party to purchase, or sell or grant any right to reprice, or issue any Common Stock, preferred shares convertible into Common Stock, or debt, warrants, options or other instruments or securities to Lender or any third party which are convertible into or exercisable for shares of Common Stock (together herein referred to as 'Equity Securities'), including without limitation any Deemed Issuance (as defined herein), at an effective price per share less than the then effective Lender Conversion Price (such issuance, together with any sale of Common Stock, is referred to herein as a 'Dilutive Issuance'), then, the Lender Conversion Price shall be automatically reduced and only reduced to equal such lower effective price per share. If the holder of any Equity Securities so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices

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or otherwise, or due to warrants, options, or rights per share which are issued in connection with such Dilutive Issuance, be entitled to receive shares of Common Stock at an effective price per share that is less than the Lender Conversion Price, such issuance shall be deemed to have occurred for less than the Lender Conversion Price on the date of such Dilutive Issuance, and the then effective Lender Conversion Price shall be reduced and only reduced to equal such lower effective price per share. Such adjustments described above to the Lender Conversion Price shall be permanent (subject to additional adjustments under this section), and shall be made whenever such Common Stock or Equity Securities are issued. Borrower shall notify Lender, in writing, no later than the Trading Day following the issuance of any Common Stock or Equity Securities subject to this Section 7.1, indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price, or other pricing terms (such notice, the 'Dilutive Issuance Notice'). For purposes of clarification, whether or not Borrower provides a Dilutive Issuance Notice pursuant to this Section 7.1, upon the occurrence of any Dilutive Issuance, on the date of such Dilutive Issuance the Lender Conversion Price shall be lowered to equal the applicable effective price per share regardless of whether Borrower or Lender accurately refers to such lower effective price per share in any Installment Notice or Lender Conversion Notice.

                    7.2. Adjustment of Lender Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision hereof, if Borrower at any time on or after the Effective Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Lender Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision hereof, if Borrower at any time on or after the Effective Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Lender Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7.2 shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7.2 occurs during the period that a Lender Conversion Price is calculated hereunder, then the calculation of such Lender Conversion Price shall be adjusted appropriately to reflect such event.

                    7.3. Other Events. In the event that Borrower (or any subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect Lender from dilution or if any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then Borrower's board of directors shall in good faith determine and implement an appropriate adjustment in the Lender Conversion Price so as to protect the rights of Lender, provided that no such adjustment pursuant to this Section 7.3 will increase the Lender Conversion Price as otherwise determined pursuant to this Section 7, provided further that if Lender does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then Borrower's board of directors and Lender shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by Borrower.

          8. Borrower Installments.

                    8.1. Installment Conversion Price. Subject to the adjustments set forth herein, the conversion price for each Installment Conversion (the 'Installment Conversion Price') shall be the lesser of (i) the Lender Conversion Price, and (ii) 55% (the 'Conversion Factor') of the average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding the applicable Conversion (the 'Market Price'), provided that if at any time the average of the three (3) lowest Closing Bid Prices in the twenty (20) Trading Days immediately preceding any date of measurement is below $0.75, then in such event the then-current Conversion Factor shall be reduced to 50% for all future Conversions. Additionally, if at any time after the Effective Date Borrower is not DWAC Eligible, then

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the then-current Conversion Factor will automatically be reduced by 5% for all future Conversions. If at any time after the Effective Date, the Conversion Shares are not DTC Eligible, then the then-current Conversion Factor will automatically be reduced by an additional 5% for all future Conversions. For example, the first time Borrower is not DWAC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 55% to 50% for purposes of this example. Following such event, the first time the Conversion Shares are no longer DTC Eligible, the Conversion Factor for future Conversions thereafter will be reduced from 50% to 45% for purposes of this example.

                    8.2. Installment Conversions. Beginning on the date that is six (6)months after the Purchase Price Date and on the same day of each month thereafter until the Maturity Date (each, an 'Installment Date'), Borrower shall pay to Lender the applicable Installment Amount due on such date, subject to the provisions of this Section 8. Payments of each Installment Amount may be made (a) in cash, or (b) by converting such Installment Amount into shares of Common Stock ('Installment Conversion Shares', and together with the Lender Conversion Shares, the 'Conversion Shares') in accordance with this Section 8 (each an 'Installment Conversion', and together with Lender Conversions, a 'Conversion') per the following formula: the number of Installment Conversion Shares equals the portion of the applicable Installment Amount being converted divided by the Installment Conversion Price, or (c) by any combination of the foregoing, so long as the cash is delivered to Lender on the applicable Installment Date and the Installment Conversion Shares are delivered to Lender on or before the applicable Delivery Date. Notwithstanding the foregoing, Borrower will not be entitled to elect an Installment Conversion with respect to any portion of any applicable Installment Amount and shall be required to pay the entire amount of such Installment Amount in cash if on the applicable Installment Notice Due Date (defined below) there is an Equity Conditions Failure (as defined below), and such failure is not waived in writing by Lender. Moreover, in the event Borrower desires to pay all or any portion of any Installment Amount in cash, it must notify Lender in writing of such election and the portion of the applicable Installment Amount it elects to pay in cash not more than twenty-five (25) or less than fifteen (15) Trading Days prior to the applicable Installment Date. If Borrower fails to so notify Lender, it shall not be permitted to elect to pay any portion of such Installment Amount in cash unless otherwise agreed to by Lender in writing or proposed by Lender in an Installment Notice delivered by Lender to Borrower. Notwithstanding the foregoing or anything to the contrary herein, Borrower shall only be obligated to deliver Installment Amounts with respect to Tranches that have become Conversion Eligible Tranches and shall have no obligation to pay to Lender any Installment Amount with respect to any Tranche that has not become a Conversion Eligible Tranche. In furtherance thereof, in the event Borrower has repaid all Conversion Eligible Tranches pursuant to the terms of this Note, it shall have no further obligations to deliver any Installment Amount to Lender unless and until any Subsequent Tranche that was not previously a Conversion Eligible Tranche becomes a Conversion Eligible Tranche pursuant to the terms of this Note. Notwithstanding that failure to repay this Note in full by the Maturity Date is an Event of Default, the Installment Dates shall continue after the Maturity Date pursuant to this Section 8 until the Outstanding Balance is repaid in full, provided that Lender shall, in Lender's sole discretion, determine the Installment Amount for each Installment Date after the Maturity Date.

                    8.3. Allocation of Installment Amounts. Subject to Section 8.2 regarding an Equity Conditions Failure, for each Installment Date (each, an 'Installment Notice Due Date'), Borrower may elect to allocate the payment of the applicable Installment Amount between cash and via an Installment Conversion, by email or fax delivery of a notice to Lender substantially in the form attached hereto as Exhibit B (each, an 'Installment Notice'), provided, that to be effective, each applicable Installment Notice must be received by Lender not more than twenty-five (25) or less than fifteen (15) Trading Days prior to the applicable Installment Notice Due Date. If Lender has not received an Installment Notice within such time period, then Lender may prepare the Installment Notice and deliver the same to Borrower by fax or email. Following its receipt of such Installment Notice, Borrower may either ratify Lender's proposed allocation in the applicable Installment Notice or elect to change the allocation by written notice to Lender by email or fax on or before 12:00 p.m. New York time on the applicable Installment Date, so long as the sum of the cash payments and the amount of Installment Conversions

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equal the applicable Installment Amount, provided that Lender must approve any increase to the portion of the Installment Amount payable in cash. If Borrower fails to notify Lender of its election to change the allocation prior to the deadline set forth in the previous sentence (and seek approval to increase the amount payable in cash), it shall be deemed to have ratified and accepted the allocation set forth in the applicable Installment Notice prepared by Lender. If neither Borrower nor Lender prepare and deliver to the other party an Installment Notice as outlined above, then Borrower shall be deemed to have elected that the entire Installment Amount be converted via an Installment Conversion. Borrower acknowledges and agrees that regardless of which party prepares the applicable Installment Notice, the amounts and calculations set forth thereon are subject to correction or adjustment because of error, mistake, or any adjustment resulting from an Event of Default or other adjustment permitted under the Transaction Documents (an 'Adjustment'). Furthermore, no error or mistake in the preparation of such notices, or failure to apply any Adjustment that could have been applied prior to the preparation of an Installment Notice may be deemed a waiver of Lender's right to enforce the terms of any Note, even if such error, mistake, or failure to include an Adjustment arises from Lender's own calculation. Borrower shall deliver the Installment Conversion Shares from any Installment Conversion to Lender in accordance with Section 9 below on or before each applicable Installment Date.

          9. Method of Conversion Share Delivery. On or before the close of business on the third (3rd) Trading Day following the Installment Date or the third (3rd) Trading Day following the date of delivery of a Lender Conversion Notice, as applicable (the 'Delivery Date'), Borrower shall, provided it is DWAC Eligible at such time, deliver or cause its transfer agent to deliver the applicable Conversion Shares electronically via DWAC to the account designated by Lender in the applicable Lender Conversion Notice or Installment Notice. If Borrower is not DWAC Eligible, it shall deliver to Lender or its broker (as designated in the Lender Conversion Notice or Installment Notice, as applicable), via reputable overnight courier, a certificate representing the number of shares of Common Stock equal to the number of Conversion Shares to which Lender shall be entitled, registered in the name of Lender or its designee. For the avoidance of doubt, Borrower has not met its obligation to deliver Conversion Shares by the Delivery Date unless Lender or its broker, as applicable, has actually received the certificate representing the applicable Conversion Shares no later than the close of business on the relevant Delivery Date pursuant to the terms set forth above.

          10. Conversion Delays. If Borrower fails to deliver Conversion Shares or True-Up Shares in accordance with the timeframes stated in Sections 3, 8, 9, or 11, as applicable, Lender, at any time prior to selling all of those Conversion Shares or True-Up Shares, as applicable, may rescind in whole or in part that particular Conversion attributable to the unsold Conversion Shares or True-Up Shares, with a corresponding increase to the Outstanding Balance (any returned Conversion Amount will tack back to the Purchase Price Date for purposes of determining the holding period under Rule 144). In addition, for each Conversion, in the event that Conversion Shares or True-Up Shares are not delivered by the fourth Trading Day (inclusive of the day of the Conversion or the True-Up Date (as defined below), as applicable), a late fee equal to the greater of $500.00 per day and 2% of the applicable Conversion Amount or Installment Amount, as applicable (but in any event the cumulative amount of such late fees shall not exceed the applicable Conversion Amount or Installment Amount) will be assessed for each day after the third Trading Day (inclusive of the day of the Conversion and the True-Up Date) until Conversion Share or True-Up Share delivery is made; and such late fee will be added to the Outstanding Balance (under Lender's and Borrower's expectations that any late fees charged will tack back to the Purchase Price Date for purposes of determining the holding period under Rule 144).

          11. True-Up. On the date that is twenty-three (23) Trading Days (a 'True-Up Date') from each date Borrower delivers Free Trading (as defined below) Installment Conversion Shares to Lender, there shall be a true-up where Lender shall have the right to require Borrower to deliver to Lender additional Installment Conversion Shares ('True-Up Shares') if the Installment Conversion Price as of the True-Up Date is less than the Installment Conversion Price used in the applicable Installment Notice. In such event, Borrower shall deliver to Lender within three (3) Trading Days of the date Lender delivers

8

 

  

notice of its right to receive True-Up Shares to Borrower (pursuant to a form of notice substantially in the form attached hereto as Exhibit C) the number of True-Up Shares equal to the difference between the number of Installment Conversion Shares that would have been delivered to Lender on the True-Up Date based on the Installment Conversion Price as of the True-Up Date and the number of Installment Conversion Shares originally delivered to Lender pursuant to the applicable Installment Notice. For the avoidance of doubt, if the Installment Conversion Price as of the True-Up Date is higher than the Installment Conversion Price set forth in the applicable Installment Notice, then Borrower shall have no obligation to deliver True-Up Shares to Lender, nor shall Lender have any obligation to return any excess Installment Conversion Shares to Borrower under any circumstance.

          12. Ownership Limitation. Notwithstanding anything to the contrary contained in this Note or the other Transaction Documents, if at any time Lender shall or would be issued shares of Common Stock under any of the Transaction Documents, but such issuance would cause Lender (together with its affiliates) to beneficially own a number of shares exceeding 4.99% of the number of shares of Common Stock outstanding on such date (including for such purpose the shares of Common Stock issuable upon such issuance) (the 'Maximum Percentage'), then Borrower must not issue to Lender shares of the Common Stock which would exceed the Maximum Percentage. For purposes of this section, beneficial ownership of Common Stock will be determined pursuant to Section 13(d) of the 1934 Act. The shares of Common Stock issuable to Lender that would cause the Maximum Percentage to be exceeded are referred to herein as the 'Ownership Limitation Shares'. Borrower will reserve the Ownership Limitation Shares for the exclusive benefit of Lender. From time to time, Lender may notify Borrower in writing of the number of the Ownership Limitation Shares that may be issued to Lender without causing Lender to exceed the Maximum Percentage. Upon receipt of such notice, Borrower shall be unconditionally obligated to immediately issue such designated shares to Lender, with a corresponding reduction in the number of the Ownership Limitation Shares. Notwithstanding the forgoing, the term '4.99%' above shall be replaced with '9.99%' at such time as the Market Capitalization of the Common Stock is less than $10,000,000.00. Notwithstanding any other provision contained herein, if the term '4.99%' is replaced with '9.99%' pursuant to the preceding sentence, such increase to '9.99%' shall remain at 9.99% until increased, decreased or waived by Lender as set forth below. By written notice to Borrower, Lender may increase, decrease or waive the Maximum Percentage as to itself but any such waiver will not be effective until the 61st day after delivery thereof. The foregoing 61-day notice requirement is enforceable, unconditional and non-waivable and shall apply to all affiliates and assigns of Lender.

          13. Payment of Collection Costs. If this Note is placed in the hands of an attorney for collection or enforcement prior to commencing arbitration or legal proceedings, or is collected or enforced through any arbitration or legal proceeding, or Lender otherwise takes action to collect amounts due under this Note or to enforce the provisions of this Note, then Borrower shall pay the costs incurred by Lender for such collection, enforcement or action including, without limitation, attorneys' fees and disbursements. Borrower also agrees to pay for any costs, fees or charges of its transfer agent that are charged to Lender pursuant to any Conversion or issuance of shares pursuant to this Note.

          14. Opinion of Counsel. In the event that an opinion of counsel is needed for any matter related to this Note, Lender has the right to have any such opinion provided by its counsel. Lender also has the right to have any such opinion provided by Borrower's counsel.

          15. Governing Law. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Utah. The provisions set forth in the Purchase Agreement to determine the proper venue for any disputes are incorporated herein by this reference.

9

 

  

          16. Resolution of Disputes.

                    16.1. Arbitration of Disputes. By its acceptance of this Note, each party agrees to be bound by the Arbitration Provisions set forth as an Exhibit to the Purchase Agreement

                    16.2. Calculation of Disputes. Notwithstanding the Arbitration Provisions, in the case of a dispute as to any arithmetic calculation hereunder, including without limitation calculating the Outstanding Balance, Lender Conversion Price, Lender Conversion Shares to be delivered, Installment Conversion Price, Installment Conversion Shares to be delivered, the Market Price, or the VWAP (collectively, 'Calculations'), Borrower or Lender (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile or email with confirmation of receipt (a) within two (2) Trading Days after receipt of the applicable notice giving rise to such dispute to Borrower or Lender (as the case may be) or (b) if no notice gave rise to such dispute, at any time after Lender learned of the circumstances giving rise to such dispute. If Lender and Borrower are unable to agree upon such determination or calculation within two (2) Trading Days of such disputed determination or arithmetic calculation (as the case may be) being submitted to Borrower or Lender (as the case may be), then Borrower shall, within two (2) Trading Days, submit via facsimile the disputed Calculation to an independent, reputable investment bank or accounting firm selected by Lender. Borrower shall cause the investment bank or accounting firm to perform the determinations or calculations (as the case may be) and notify Borrower and Lender of the results no later than ten (10) Trading Days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank's or accounting firm's determination or calculation with respect to the disputes set forth in this Section 16.2 (as the case may be) shall be binding upon all parties absent demonstrable error. The investment banker's or accounting firm's fee for performing such Calculation shall be paid by the incorrect party, or if both parties are incorrect, by the party whose Calculation is furthest from the correct Calculation as determined by the investment banker or accounting firm. In the event Borrower is the losing party, no extension of the Delivery Date shall be granted and Borrower shall incur all effects for failing to deliver the applicable Conversion Shares in a timely manner as set forth in this Note.

          17. Cancellation. After repayment or conversion of the entire Outstanding Balance (including without limitation delivery of True-Up Shares pursuant to the payment of the final Installment Amount, if applicable), this Note shall be deemed paid in full, shall automatically be deemed canceled, and shall not be reissued.

          18. Amendments. The prior written consent of both parties hereto shall be required for any change or amendment to this Note.

          19. Assignments. Borrower may not assign this Note without the prior written consent of Lender. This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by Lender without the consent of Borrower.

          20. Offset Rights. Notwithstanding anything to the contrary herein or in any of the other Transaction Documents, (a) the parties hereto acknowledge and agree that Lender maintains a right of offset pursuant to the terms of the Secured Investor Notes and the Investor Notes that, under certain circumstances, permits Lender to deduct amounts owed by Borrower under this Note from amounts otherwise owed by Lender under the Secured Investor Notes and the Investor Notes, and (b) in the event of the occurrence of any Investor Note Default (as defined the Secured Investor Notes, the Investor Notes, or any other note issued by the initial Lender in connection with the Purchase Agreement), or at any other time, Borrower shall be entitled to deduct and offset any amount owing by the initial Lender under the Secured Investor Notes and the Investor Notes, as applicable, from any amount owed by Borrower under this Note (the 'Borrower Offset Right'). In the event that Borrower's exercise of the Borrower Offset Right results in the full satisfaction of Borrower's obligations under this Note, Lender shall return the original Note to Borrower marked 'cancelled' or, in the event this Note has been lost, stolen or destroyed,

10

 

  

a lost note affidavit in a form reasonably acceptable to Borrower. For the avoidance of doubt, Borrower shall not incur any Prepayment Premium set forth in Section 1 hereof with respect to any portions of this Note that are satisfied by way of a Borrower Offset Right.

          21. Time of the Essence. Time is expressly made of the essence with respect to each and every provision of this Note and the documents and instruments entered into in connection herewith.

          22. Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with the subsection of the Purchase Agreement titled 'Notices.'

[Remainder of page intentionally left blank; signature page follows]

11

 

  

          IN WITNESS WHEREOF, Borrower has caused this Note to be duly executed as of the Effective Date.

	
 

	
 

	
 

	
 

	
BORROWER:

	
 

	
 

	
 

	
Medican Enterprises, Inc.

	
 

	
 

	
 

	
 

	
BY:

	

	
 

	
Name:

	
Kenneth Williams

	
 

	
Title:

	
CEO

ACKNOWLEDGED. ACCEPTED AND AGREED:

LENDER:

	
 

	
 

	
 

	
Typenex Co-Investment, LLC

	
 

	
 

	
 

	
By: 

	
Red Cliffs Investments, Inc., its Manager

	
 

	
 

	
 

	
 

	
By.

	

	
 

	
 

	
John M.Fife, President

	
 

[Signature Page to Secured Convertible Promissory Note]

 

  

ATTACHMENT 1

DEFINITIONS

          For purposes of this Note, the following terms shall have the following meanings:

          Al. 'Approved Stock Plan' means any stock option plan which has been approved by the Board of Directors of Borrower, pursuant to which Borrower's securities may be issued to any employee, officer or director for services provided to Borrower.

          A2. 'Deemed Issuance' means an issuance of Common Stock that shall be deemed to have occurred on the latest possible permitted date pursuant to the terms hereof in the event Borrower fails to deliver Conversion Shares as and when required pursuant to Sections 3 or 8 of the Note. For the avoidance of doubt, if Borrower has elected or is deemed under Section 8.3 to have elected to pay an Installment Amount in Installment Conversion Shares and fails to deliver such Installment Conversion Shares, such failure shall be considered a Deemed Issuance hereunder even if an Equity Conditions Failure exists at that time or other relevant date of determination.

          A3. 'DTC' means the Depository Trust Company.

          A4. 'DTC Eligible' means, with respect to the Common Stock, that such Common Stock is eligible to be deposited in certificate form at the DTC, cleared and converted into electronic shares by the DTC and held in the name of the clearing firm servicing Lender's brokerage firm for the benefit of Lender.

          A5. 'DTC/FAST Program' means the DTC's Fast Automated Securities Transfer Program.

          A6. 'DWAC' means Deposit Withdrawal at Custodian as defined by the DTC.

          A7. 'DWAC Eligible' means that (i) Borrower's Common Stock is eligible at DTC for full services pursuant to DTC's operational arrangements, including without limitation transfer through DTC's DWAC system, (ii) Borrower has been approved (without revocation) by the DTC's underwriting department, (iii) Borrower's transfer agent is approved as an agent in the DTC/FAST Program, (iv) the Conversion Shares are otherwise eligible for delivery via DWAC; (v) Borrower has previously delivered all Conversion Shares to Lender via DWAC; and (vi) Borrower's transfer agent does not have a policy prohibiting or limiting delivery of the Conversion Shares via DWAC.

          A8. 'Equity Conditions Failure' means that any of the following conditions has not been satisfied during any applicable Equity Conditions Measuring Period (as defined below): (i) with respect to the applicable date of determination all of the Conversion Shares are freely tradable under Rule 144 or without the need for registration under any applicable federal or state securities laws (in each case, disregarding any limitation on conversion of this Note); (ii) on each day during the period beginning one month prior to the applicable date of determination and ending on and including the applicable date of determination (the 'Equity Conditions Measuring Period'), the Common Stock is listed or designated for quotation (as applicable) on any of The New York Stock Exchange, NYSE Amex, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the OTC Bulletin Board, the OTCQX or the OTCQB (each, an 'Eligible Market') and shall not have been suspended from trading on any such Eligible Market (other than suspensions of not more than two (2) Trading Days and occurring prior to the applicable date of determination due to business announcements by Borrower); (iii) on each day during the Equity Conditions Measuring Period, Borrower shall have delivered all shares of Common Stock issuable upon conversion of this Note on a timely basis as set forth in Section 9 hereof and all other shares of capital stock required to be delivered by Borrower on a timely basis as set forth in the other Transaction Documents; (iv) any shares of Common Stock to be issued in connection with the event requiring determination may be issued in full without violating Section 12 hereof (Lender acknowledges that Borrower shall be entitled to assume that this condition has been met for all purposes hereunder absent written notice from Lender); (v) any shares of Common Stock to be issued in connection with the event requiring determination may be issued in full without violating the rules or regulations of the Eligible Market on which the Common Stock is then listed or designated for quotation (as applicable); (vi) on each day during the Equity Conditions Measuring Period, no public announcement of a pending, proposed or intended Fundamental Transaction shall have occurred which has not been abandoned, terminated or consummated; (vii) Borrower shall have no knowledge of any fact that would reasonably be expected to cause any of the Conversion Shares to not be freely tradable without the need for registration under any applicable state securities laws (in each case, disregarding any limitation on conversion of this Note); (viii) on each day during the Equity Conditions Measuring Period, Borrower otherwise shall have been in material compliance with each, and shall not have breached any, term, provision, covenant, representation or warranty of any Transaction Document; (ix) without limiting clause (viii) above, on each day during the Equity Conditions Measuring Period, there shall not

Attachment 1 to Secured Convertible Promissory Note, Page 1

 

  

have occurred an Event of Default or an event that with the passage of time or giving of notice would constitute an Event of Default; (x) on each Installment Notice Due Date and each Installment Date, the average and median daily dollar volume of the Common Stock on its principal market for the previous twenty (20) Trading Days shall be greater than $35,000.00; (xi) the ten (10) day average VWAP of the Common Stock is greater than $0.10, and (xii) the Common Stock shall be DWAC Eligible as of each applicable Installment Notice Due Date, Installment Date or other date of determination.

          A9. 'Excluded Securities' means any shares of Common Stock, options, or convertible securities issued or issuable (i) in connection with any Approved Stock Plan; provided that the option term, exercise price or similar provisions of any issuances pursuant to such Approved Stock Plan are not amended, modified or changed on or after the Purchase Price Date; and (ii) in connection with mergers, acquisitions, strategic licensing arrangements, strategic business partnerships or joint ventures, in each case with non-affiliated third parties and otherwise on an arm's-length basis, the purpose of which is not to raise additional capital; provided, that such third parties are not granted any registration rights. Notwithstanding the foregoing, any Common Stock issued or issuable to raise capital for Borrower or its subsidiaries, directly or indirectly, in connection with any transaction contemplated by clause (ii) above, including, without limitation, securities issued in one or more related transactions or that result in similar economic consequences, shall not be deemed to be Excluded Securities.

          A10. 'Free Trading' means that (a) the shares or certificate(s) representing the applicable shares of Common Stock have been cleared and approved for public resale by the compliance departments of Lender's brokerage firm and the clearing firm servicing such brokerage, and (b) such shares are held in the name of the clearing firm servicing Lender's brokerage firm and have been deposited into such clearing firm's account for the benefit of Lender.

          A11. 'Fundamental Transaction' means that (y) (i) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or merge with or into (whether or not Borrower or any of its subsidiaries is the surviving corporation) any other person or entity, or (ii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other person or entity, or (iii) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other person or entity to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the person or persons making or party to, or associated or affiliated with the persons or entities making or party to, such purchase, tender or exchange offer), or (iv) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other person or entity whereby such other person or entity acquires more than 50% of the outstanding shares of voting stock of Borrower (not including any shares of voting stock of Borrower held by the other persons or entities making or party to, or associated or affiliated with the other persons or entities making or party to, such stock or share purchase agreement or other business combination), or (v) Borrower or any of its subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Common Stock, other than an increase in the number of authorized shares of Borrower's Common Stock, or (z) any 'person' or 'group' (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the 'beneficial owner' (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding voting stock of Borrower.

          A12. 'Installment Amount' means $92,083.33 ($1,105,000.00 + 12), plus the sum of any accrued and unpaid interest that has been added to the lowest-numbered then-current Conversion Eligible Tranche as of the applicable Installment Date and accrued, and unpaid late charges that have been added to the lowest-numbered then-current Conversion Eligible Tranche, if any, under this Note as of the applicable Installment Date, and any other amounts accruing or owing to Lender under this Note as of such Installment Date; provided, however, that, if the remaining amount owing under all then-existing Conversion Eligible Tranches or otherwise with respect to this Note as of the applicable Installment Date is less than the Installment Amount set forth above, then the Installment Amount for such Installment Date (and only such Installment Amount) shall be reduced (and only reduced) by the amount necessary to cause such Installment Amount to equal such outstanding amount

          A13. 'Market Capitalization of the Common Stock' shall mean the product equal to (a) the average VWAP of the Common Stock for the immediately preceding fifteen (15) Trading Days, multiplied by (b) the aggregate number of outstanding shares of Common Stock as reported on Borrower's most recently filed Form 10-Q or Form 10-K.

          A14. 'Trading Day' shall mean any day on which the Common Stock is traded or tradable for any period on the Common Stock's principal market, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

Attachment 1 to Secured Convertible Promissory Note, Page 2

 

  

EXHTBIT A

Typenex Co-investment, LLC

303 East Wacker Drive, Suite 1200

Chicago, Illinois 60601

	
 

	
 

	
Medican Enterprises, Inc.

	
Date: _______________

	
Attn: Kenneth Williams

	
 

	
5955 Edmond Street, Suite 102

	
 

	
Las Vegas, Nevada 89118

	
 

LENDER CONVERSION NOTICE

          The above-captioned Lender hereby gives notice to Medican Enterprises, Inc., a Nevada corporation (the 'Borrower'), pursuant to that certain Secured Convertible Promissory Note made by Borrower in favor of Lender on June 4, 2014 (the 'Note'), that Lender elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of Borrower as of the date of conversion specified below. Said conversion shall be based on the Lender Conversion Price set forth below. In the event of a conflict between this Lender Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of Lender Conversion Notice to conform to the Note. Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.

	
 

	
 

	
 

	
 

	
A.

	
Date of Conversion: _______________

	
 

	
B.

	
Lender Conversion #: _______________

	
 

	
C.

	
Conversion Amount: _______________

	
 

	
D.

	
Lender Conversion Price: _______________

	
 

	
E.

	
Lender Conversion Shares: _______________ (C divided by D)

	
 

	
F.

	
Remaining Outstanding Balance of Note: _______________ *

	
 

	
G.

	
Remaining balance of Secured Investor Note(s) and Investor Note(s): _______________ *

	
 

	
H.

	
Outstanding Balance of Note net of balance of Secured Investor Note(s) and Investor Notes: _______________ * (F minus G)

* Subject to adjustments for corrections, defaults, interest and other adjustments permitted by the Transaction Documents (as defined in the Purchase Agreement).

The Conversion Amount converted hereunder shall be deducted from the following Conversion Eligible Tranche(s):

 

	
Conversion Amount

	
Tranche No.

	
 

	
 

	
 

	
 

	
 

	
 

Please transfer the Lender Conversion Shares electronically (via DWAC) to the following account:

	
 

	
 

	
 

	
 

	
 

	
Broken:

	
 

	
 

	
Address:

	
 

	
DTC#:

	
 

	
 

	
 

	
 

	
Account #:

	
 

	
 

	
 

	
 

	
Account Name:

	
 

	
 

	
 

	
 

          To the extent the Lender Conversion Shares are not able to be delivered to Lender electronically via the DWAC system, deliver all such certificated shares to Lender via reputable overnight courier after receipt of this Lender Conversion Notice (by facsimile transmission or otherwise) to:

Exhibit A to Secured Convertible Promissory Note, Page 1

 

  

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Sincerely,

	
 

	
 

	
 

	
 

	
Lender:

	
 

	
 

	
 

	
 

	
 

	
Typenex Co-Investment, LLC

	
 

	
 

	
 

	
By: Red Cliffs Investments, Inc., its Manager

	
 

	
 

	
 

	
By:

	
 

	
 

	
 

	
John M. Fife, President

	
 

Exhibit A to Secured Convertible Promissory Note, Page 2

 

  

EXHIBIT B

Medican Enterprises, Inc.

5955 Edmond Street, Suite 102

Las Vegas, Nevada 89118

	
 

	
 

	
Typenex Co-Investment, LLC

	
Date: _______________

	
Attn: John Fife

	
 

	
303 E. Wacker Dr., Suite 1200

	
 

	
Chicago, IL 60601

	
 

INSTALLMENT NOTICE

The above-captioned Borrower hereby gives notice to Typenex Co-Investment, LLC, a Utah limited liability company (the 'Lender'), pursuant to that certain Secured Convertible Promissory Note made by Borrower in favor of Lender on June 4, 2014 (the 'Note'), of certain Borrower elections and certifications related to payment of the Installment Amount of $ _______________ due on _______________, 201_ (the 'Installment Date'). In the event of a conflict between this Installment Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of Installment Notice to conform to the Note. Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.

INSTALLMENT CONVERSION AND CERTIFICATIONS 

AS OF THE INSTALLMENT DATE

A. INSTALLMENT CONVERSION

	
 

	
 

	
 

	
 

	
A.

	
Installment Date:_______________, 201_

	
 

	
 

	
 

	
 

	
B.

	
Installment Amount: ______________ 

	
 

	
 

	
 

	
 

	
C.

	
Portion of Installment Amount Borrower elected to pay in cash: ______________

	
 

	
 

	
 

	
 

	
D.

	
Portion of Installment Amount to be converted into Common Stock: ______________ (B minus C)

	
 

	
 

	
 

	
 

	
E.

	
Installment Conversion Price: ______________ (lower of (i) Lender Conversion Price in effect and (ii) Market Price as of Installment Date)

	
 

	
 

	
 

	
 

	
F.

	
Installment Conversion Shares: ______________ (D divided by E)

	
 

	
 

	
 

	
 

	
G.

	
Remaining Outstanding Balance of Note: ______________*

	
 

	
 

	
 

	
 

	
H.

	
Remaining balance of Secured Investor Note(s) and Investor Note(s): ______________*

	
 

	
 

	
 

	
 

	
I.

	
Outstanding Balance of Note net of balance of Secured Investor Note(s) and Investor Note(s): ______________* (G minus H)

B. EQUITY CONDITIONS CERTIFICATION

	
 

	
 

	
1.

	
Market Capitalization of the Common Stock: ______________

	
 

	
 

	
(Check One)

	
 

	
2.

	
Borrower herby certifies that no Equity Conditions Failure exists as of the Installment Date.

	
 

	
 

	
3.

	
Borrower hereby gives notice that an Equity Conditions Failure has occurred and requests a waiver from Lender with respect thereto. The Equity Conditions Failure is as follows:

Exhibit B to Secured Convertible Promissory Note, Page 1

 

  

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Sincerely,

	
 

	
 

	
 

	
Borrower:

	
 

	
 

	
 

	
medican Enterprises, Inc.

	
 

	
 

	
 

	
By:

	
 

	
 

	
 

	
 

	
 

	
Name:

	
 

	
 

	
 

	
 

	
 

	
Title:

	
 

	
 

Exhibit B to Secured Convertible Promissory Note, Page 2

 

  

  

  

EXHIBIT C

Typenex Co-Investment, LLC

303 East Wacker Drive, Suite 1200

Chicago, Illinois 60601

	
 

	
 

	
Medican Enterprises, Inc.

	
Date: _______________

	
Attn: _____________________

	
 

	
5955 Edmond Street, Suite 102

	
 

	
Las Vegas, Nevada 89118

	
 

TRUE-UP NOTICE

The above-captioned Lender hereby gives notice to Medican Enterprises, Inc., a Nevada corporation (the 'Borrower*), pursuant to that certain Secured Convertible Promissory Note made by Borrower in favor of Lender on June 4, 2014 (the 'Note'), of True-Up Conversion Shares related to ___________, 201_ (the 'Installment Date'). In the event of a conflict between this True-Up Notice and the Note, the Note shall govern, or, in the alternative, at the election of Lender in its sole discretion, Lender may provide a new form of True-Up Notice to conform to the Note. Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.

TRUE-UP CONVERSION SHARES AND CERTIFICATIONS 

AS OF THE TRUE-UP DATE

	
 

	
 

	
 

	
1. TRUE-UP CONVERSION SHARES

	
 

	
 

	
A.

	
Installment Date: _______________, 201_

	
 

	
 

	
 

	
 

	
B.

	
True-Up Date: _______________, 201_

	
 

	
 

	
 

	
 

	
C.

	
Portion of Installment Amount converted into Common Stock: _______________

	
 

	
 

	
 

	
 

	
D.

	
True-Up Conversion Price: _______________ (lower of (i) Lender Conversion Price in effect and (ii) Market Price as of True-Up Date)

	
 

	
 

	
 

	
 

	
E.

	
True-Up Conversion Shares: _______________ (C divided by D)

	
 

	
 

	
 

	
 

	
F.

	
Installment Conversion Shares delivered: _______________

	
 

	
 

	
 

	
 

	
G.

	
True-Up Conversion Shares to be delivered: _______________ (only applicable if E minus F is greater than zero)

	
 

	
 

	
 

	
2. EQUITY CONDITIONS CERTIFICATION (Section to be completed by Borrower)

	
 

	
 

	
A.

	
Market Capitalization of the Common Stock: _______________

	
 

	
 

	
 

	
(Check One)

	
 

	
 

	
B.

	
_______________ Borrower herby certifies that no Equity Conditions Failure exists as of the applicable True-Up Date.

	
 

	
 

	
 

	
 

	
C.

	
_______________ Borrower hereby gives notice that an Equity Conditions Failure has occurred and requests a waiver from Lender with respect thereto. The Equity Conditions Failure is as follows:

Exhibit C to Secured Convertible Promissory Note, Page 1

 

  

  

  

 

  

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
Sincerely,

	
 

	
 

	
 

	
Lender:

	
 

	
 

	
 

	
Typenex Co-Investment, LLC

	
 

	
 

	
By: Red Cliffs Investments, Inc., its Manager

	
 

	
 

	
By:

	
 

	
 

	
 

	
John M. Fife, President

	
 

	
 

	
 

	
 

	
ACKNOWLEDGED AND CERTIFIED BY:

	
 

	
 

	
 

	
Borrower:

	
 

	
 

	
 

	
 

	
 

	
MEDICAN ENTERPRISES, INC.

	
 

	
 

	
 

	
By:

	
 

	
 

	
 

	
 

	
 

	
Name:

	
 

	
 

	
 

	
 

	
 

	
Title:

	
 

	
 

Exhibit C to Secured Convertible Promissory Note, Page 2ex10-5.htm

Exhibit 10.5

SECURITIES PURCHASE AGREEMENT

          THIS SECURITIES PURCHASE AGREEMENT (the 'Agreement') is made as of the 25th day of June, 2014 by and between Medican Enterprises, Inc., a Nevada corporation (the 'Company'), and Himmil Investments, Ltd., a British Virgin Islands company (the 'Investor').

          WHEREAS, the Company and the Investor are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended (the '1933 Act'), and Rule 506(b) of Regulation D ('Regulation D') as promulgated by the United States Securities and Exchange Commission (the 'Commission') under the 1933 Act (without limiting any other such exemption which may apply to the transactions contemplated by this Agreement);

          WHEREAS, the Company has authorized the issuance of (i) a senior convertible note, in the original principal amount of $1,500,000, in the form attached hereto as Exhibit A (the 'Note'), which Note shall be convertible into shares of the Company's common stock, $.001 par value per share (the 'Common Stock'), in accordance with the terms of the Note, and (ii) a warrant to acquire up 297,832 additional shares of Common Stock, in the form attached hereto as Exhibit B (the 'Warrant');

          WHEREAS, Investor wishes to purchase, and the Company wishes to sell at the Closing (as defined below), upon the terms and conditions stated in this Agreement, (i) the Note (and the Common Stock issuable upon conversion thereof, collectively, the 'Conversion Shares') and (ii) the Warrant (and the Common Stock issuable upon exercise thereof, collectively, the 'Warrant Shares').

          WHEREAS, the Note, the Conversion Shares, the Warrant and the Warrant Shares are collectively referred to herein as the 'Securities' and the offering contemplated hereby is referred to herein as the 'Offering';

          WHEREAS, the parties have agreed that the obligation to repay the Note shall be an unsecured obligation of the Company; and

          WHEREAS, at the Closing, the parties hereto shall execute and deliver a Registration Rights Agreement, in the form attached hereto as Exhibit C (the 'Registration Rights Agreement'), pursuant to which the Company has agreed to provide certain registration rights with respect to the Registrable Securities (as defined in the Registration Rights Agreement), under the 1933 Act and the rules and regulations promulgated thereunder, and applicable state securities laws.

          NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, and in consideration of the premises and the mutual agreements, representations and warranties, provisions and covenants contained herein, the parties hereto, intending to be legally bound hereby, agree as follows:

 

  

          1. Purchase and Sale of Note and Warrant.

                    1.1 Purchase and Sale of Note and Warrant. Subject to the satisfaction (or, where legally permissible, the waiver) of the conditions set forth in Section 4.1, the Company shall issue and sell to the Investor, and the Investor shall purchase from the Company on the Closing Date (as defined below), the Note and the Warrant (the 'Closing').

                    1.2 Form of Payment. On the Closing Date, (i) the Investor shall pay the Purchase Price (as defined below) (less the amounts withheld pursuant to Section 12.12) to the Company for the Note and the Warrant to be issued and sold to the Investor at the Closing, by wire transfer of immediately available funds in accordance with the Company's written wire instructions and (ii) immediately following the Company's receipt of such amount, the Company shall deliver to the Investor (x) the Note and (y) the Warrant, in each case, duly executed on behalf of the Company and registered in the name of the Investor or its designee.

          2. Purchase Price. The purchase price for the Note and the Warrant to be purchased by the Investor (the 'Purchase Price')shall be $1,000,000. The Note will be issued with an original issue discount of approximately 33.33%.

          3. Closing Date. The date and time of the Closing (the 'Closing Date')shall be 10:00 a.m. (New York City time), on the first (1st) Trading Day (as defined below) (and including the date hereof if a Trading Day) on which the conditions to the Closing set forth in Section 4.1 below are satisfied or waived. The Closing shall occur electronically.

          4. Closing Conditions; Certain Covenants.

                    4.1 Conditions to the Closing.

                    (a) Conditions of the Company to the Closing. The obligation of the Company to sell and issue the Note and the Warrant to the Investor at the Closing is subject to the fulfillment, to the Company's reasonable satisfaction, prior to or at the Closing, of each of the following conditions:

                    (i) Representations and Warranties. The representations and warranties of the Investor contained in this Agreement (x) that are not qualified by 'materiality' shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the Closing Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (y) that are qualified by 'materiality' shall have been true and correct when made and shall be true and correct as of the Closing Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.

                    (ii) Registration Rights Agreement. The Investor shall have duly executed and delivered the Registration Rights Agreement to the Company.

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                    (iii) No Injunction. No statute, regulation, order, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by the Transaction Documents.

                    (b) Conditions to the Investor to the Closing. The obligation of the Investor to purchase the Note and the Warrant to be issued to the Investor at the Closing is subject to the satisfaction, or (where legally permissible) the waiver by the Investor, on the Closing Date, of each of the following conditions:

                    (i) Representations and Warranties. The representations and warranties of the Company contained in this Agreement (x) that are not qualified by 'materiality' or 'Material Adverse Effect' shall have been true and correct in all material respects when made and shall be true and correct in all material respects as of the Closing Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct in all material respects as of such other date and (y) that are qualified by 'materiality' or 'Material Adverse Effect' shall have been true and correct when made and shall be true and correct as of the Closing Date with the same force and effect as if made on such dates, except to the extent such representations and warranties are as of another date, in which case, such representations and warranties shall be true and correct as of such other date.

                    (ii) Performance of the Company. The Company shall have performed, satisfied and complied in all material respects with all covenants, agreements and conditions required by this Agreement and the Registration Rights Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing Date. The Company shall have delivered to the Investor on the Closing Date a written certification by an executive officer of the Company to the foregoing substantially in the form attached hereto as Exhibit D.

                    (iii) No Suspension of Trading in or Notice of Delisting of Common Stock. Trading in the Common Stock shall not have been suspended by the Commission, the Trading Market or the FINRA (except for any suspension of trading of less than fourteen (14) days, which suspension shall be terminated prior to the Closing Notice Date), the Company shall not have received any final and non-appealable notice that the listing or quotation of the Common Stock on the Trading Market shall be terminated on a date certain (unless, prior to such date certain, the Common Stock is listed or quoted on any other Trading Market), trading in securities generally as reported on the Trading Market shall not have been suspended or limited, nor shall a banking moratorium have been declared either by the U.S. or New York State authorities (except for any suspension, limitation or moratorium which shall be terminated prior to the Closing Notice Date), there shall not have been imposed any suspension of electronic trading or settlement services by the Depository Trust Company ('DTC')with respect to the Common Stock that is continuing, the Company shall not have received any notice from DTC to the effect that a suspension of electronic trading or settlement services by DTC with respect to the Common Stock is being imposed or is contemplated (unless, prior to such suspension, DTC shall have notified the Company in writing that DTC has determined not to impose any such suspension).

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                    (iv) Compliance with Laws. The Company shall have complied with all applicable federal, state and local governmental laws, rules, regulations and ordinances in connection with the execution, delivery and performance of this Agreement and the other Transaction Documents (as defined below) to which it is a party and the consummation of the transactions contemplated hereby and thereby, including, without limitation, the Company shall have obtained all permits and qualifications required by any applicable state securities or 'Blue Sky' laws for the offer and sale of the Securities by the Company to the Investor).

                    (v) No Injunction. No statute, regulation, order, decree, writ, ruling or injunction shall have been enacted, entered, promulgated, threatened or endorsed by any court or governmental authority of competent jurisdiction which prohibits the consummation of or which would materially modify or delay any of the transactions contemplated by the Transaction Documents.

                    (vi) No Proceedings or Litigation. No action, suit or proceeding before any arbitrator or any court or governmental authority shall have been commenced or threatened, and no inquiry or investigation by any governmental authority shall have been commenced or threatened, against the Company or any Subsidiary, or any of the officers, directors or affiliates of the Company or any Subsidiary, seeking to restrain, prevent or change the transactions contemplated by the Transaction Documents, or seeking material damages in connection with such transactions.

                    (vii) Listing of Securities. All of the Conversion Shares and Warrant Shares that may be issued pursuant to the Note and Warrant, respectively, shall have been approved for listing or quotation on the Trading Market as of the Closing Date, in each case, without regard to any limitations on conversion or exercise set forth in the Note or Warrant, respectively, subject only to notice of issuance.

                    (viii) No Material Adverse Effect. No condition, occurrence, state of facts or event constituting a Material Adverse Effect shall have occurred and be continuing.

                    (ix) Opinion of Counsel. On the Closing Date, the Investor shall have received an opinion from outside counsels to the Company, dated the Closing Date, in the form mutually agreed to by the parties hereto prior to the date hereof.

                    (x) Note and Warrant. At the Closing, the Company shall have tendered to the Investor the Note and Warrant.

                    (xi) Registration Rights Agreement. The Company shall have duly executed and delivered the Registration Rights Agreement to the Investor.

                    (xii) Current Public Information. All reports, schedules, registrations, forms, statements, information and other documents required to have been filed by the

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Company with the Commission pursuant to the reporting requirements of the 1934 Act, including all material required to have been filed pursuant to Section 13(a) or 15(d) of the 1934 Act, shall have been filed with the Commission under the 1934 Act.

                    4.2 Reserved.

                    4.3 Securities Law Disclosure; Publicity. The Company shall (a) by 9:00 a.m. (New York City time) on the Trading Day immediately following the Closing Date, issue a press release in form and substance reasonably acceptable to the Investor disclosing the material terms of the transactions contemplated hereby (the 'Press Release')and (b) by the fourth Trading Date following the Closing Date, issue a Current Report on Form 8-K (the 'Current Report') disclosing the material terms of the transactions contemplated hereby, and including the Transaction Documents as exhibits thereto, within the time required by the 1934 Act. From and after the issuance of the Press Release, the Company represents to the Investor that the Company shall have publicly disclosed all material, non-public information delivered to the Investor as of such time by the Company or any of its subsidiaries, or any of their respective officers, directors, employees or agents in connection with the transactions contemplated by the Transaction Documents. The Company shall afford the Investor and its counsel with a reasonable opportunity to review and comment upon, shall consult with the Investor and its counsel on the form and substance of, and shall give due consideration to all such comments from the Investor or its counsel on, any press release, Commission filing or any other public disclosure made by or on behalf of the Company relating to the Investor, its purchases hereunder or any aspect of the Transaction Documents or the transactions contemplated thereby, prior to the issuance, filing or public disclosure thereof, and the Company shall not issue, file or publicly disclose any such information to which the Investor shall object. For the avoidance of doubt, the Company shall not be required to submit for review any such disclosure contained in periodic reports filed with the Commission under the Exchange Act if it shall have previously provided the same disclosure for review in connection with a previous filing.

                    4.4 Legends. The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144 (as defined below), to the Company or to an affiliate of the Investor or in connection with a pledge, the Company may require the transferor thereof to provide to the Company an opinion of the Company's counsel, the form and substance of which opinion shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the 1933 Act. The Investor understands that the certificate or other instrument representing the Note and the Warrant and the stock certificates representing the Conversion Shares and the Warrant Shares, respectively, except as set forth below, shall bear any legends as required by applicable state securities or 'Blue Sky' laws in addition to a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such stock certificates):

          [NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN] [THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN] REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE

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OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

          The Company shall use its reasonable best efforts to cause its transfer agent to remove the legend set forth above and to issue a certificate without such legend to the holder of the Securities upon which it is stamped, or to issue to such holder by electronic delivery at the applicable balance account at DTC, unless otherwise required by state securities or 'blue sky' laws, at such time as (i) such Securities are registered for resale under the 1933 Act, (ii) in connection with a sale, assignment or other transfer, such holder provides the Company with an opinion of counsel, in a form generally acceptable to the Company's legal counsel and the Transfer Agent, to the effect that such sale, assignment or transfer of the Securities may be made without registration under the 1933 Act, (ii) if the holding period (as determined under Rule 144) for such Securities is at least six months, but less than one year, such holder provides the Company and its legal counsel with reasonable assurance in writing that the Securities are being sold, assigned or transferred pursuant to Rule 144 or Rule 144A or (iii) if the holding period (as determined under Rule 144) for such Securities is at least one year, such holder provides the Company and its legal counsel with reasonable assurance in writing that the Securities can be sold, assigned or transferred pursuant to Rule 144 or Rule 144A. In furtherance of the foregoing, the Company agrees that, following the Effective Date or at such time as such legend is not required pursuant to this Section 4.4, the Company shall, no later than three Trading Days following the delivery by the Investor to the Company or the Transfer Agent of a certificate representing Conversion Shares or Warrant Shares issued with a restrictive legend (such third Trading Day, the 'Legend Removal Date'), either: (A) issue and deliver (or cause to be issued and delivered) to the Investor a certificate representing such Conversion Shares or Warrant Shares, as applicable, that is free from all restrictive and other legends or (B) cause the Transfer Agent to credit the Investor's or its designee's account at DTC through its Deposit/Withdrawal at Custodian (DWAC) system with a number of shares of Common Stock equal to the number of Conversion Shares or Warrant Shares, as applicable, represented by the certificate so delivered by the Investor. If the Company fails on or prior to the Legend Removal Date to either (i) issue and deliver (or cause to be issued and delivered) to the Investor a certificate representing the Conversion Shares or Warrant Shares, as applicable, that is free from all restrictive and other legends or (ii) cause the Transfer Agent to credit the balance account of the Investor or its designee at DTC through its Deposit/Withdrawal at Custodian (DWAC) system with a number of shares of Common Stock equal to the number of the Conversion Shares or Warrant Shares, as applicable, represented by the certificate delivered by the Investor pursuant hereto (a 'Delivery Failure'),and if on or after the Legend Removal Date the Investor purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Investor of shares of Common Stock that the Investor anticipated receiving from the Company

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without any restrictive legend, then the Company shall, within three Trading Days after the Investor's request, pay cash to the Investor in an amount equal to the Investor's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased, at which point the Company's obligation to deliver a certificate or credit the Investor's or its designee's account at DTC for such shares of Common Stock shall terminate and such shares shall be cancelled(the 'Buy-In Remedy'). For the avoidance of doubt, with respect to any given Delivery Failure, the Investor shall be entitled, at the election of the Investor, to recovery either pursuant to this Buy-In Remedy or Section 3(c)(ii) of the Note, but not both.

                    4.5 Sales of Stock.

                    (a) Investor hereby agrees that, for so long as Investor owns any Notes, such Investor shall not maintain a Net Short Position (as defined below).

                    (b) For purposes hereof, a 'Net Short Position' by a person means a position whereby such person has executed one or more sales of Common Stock that is marked as a short sale (but not including any sale marked 'short exempt') and that is executed at a time when the Investor has no equivalent offsetting long position in the Common Stock (or is deemed to have a long position hereunder or otherwise in accordance with Regulation SHO of the 1934 Act). For purposes of determining whether the Investor has an equivalent offsetting long position in the Common Stock, all Common Stock (A) that is owned by the Investor, (B) that may be issued as Interest Shares pursuant to the terms of the Notes issuable to the Investor on the Closing Date or, after the Closing Date, then held by the Investor or (C) that would be issuable upon conversion or exercise in full of all Securities issuable to the Investor on the Closing Date or, after the Closing Date, then held by the Investor (assuming that such Securities were then fully convertible or exercisable, notwithstanding any provisions to the contrary, and giving effect to any conversion or exercise price adjustments that would take effect given only the passage of time) shall be deemed to be held long by the Investor.

                    4.6 Reservation of Shares. So long as any Notes or Warrants remain outstanding, the Company shall take all action necessary to at all times have authorized, and reserved for the purpose of issuance, no less than the sum of (i) 100% of the maximum number of shares of Common Stock issuable upon conversion of all the Notes then outstanding (assuming for purposes hereof, that the Notes are convertible at the Conversion Price (as defined in the Notes) and without regard to any limitations on the conversion of the Notes set forth therein), and (ii) 100% of the maximum number of Interest Shares issuable pursuant to the terms of the Notes then outstanding from the Closing Date through the twelve month anniversary of the Closing Date (determined as if issued on the Trading Day immediately preceding the Closing Date without taking into account any limitations on the issuance of securities set forth in the Notes) and (iii) 100% of the maximum number of Warrant Shares issuable upon exercise of all the Warrants then outstanding (without regard to any limitations on the exercise of the Warrants set forth therein).

          5. Representations and Warranties of the Company. Except as set forth in the Disclosure Schedules, which Disclosure Schedules shall be deemed a part hereof and shall qualify any representation or otherwise made herein to the extent of the disclosure contained in the corresponding section of the Disclosure Schedules, the Company hereby makes the following representations and warranties to the Investor as of the Closing Date:

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                    5.1 Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a Material Adverse Effect.

                    5.2 Capitalization. As of the date hereof, the authorized capital stock of the Company consists of (i) 100,000,000 shares of Common Stock, of which, 42,685,852 are issued and outstanding and 915,450 shares are reserved for issuance pursuant to Convertible Securities (as defined below) (other than the Notes and the Warrants) and (ii) 5,000,000 shares of preferred stock, of which none are issued and outstanding. A complete capitalization table of the Company as of the date hereof is attached hereto as Schedule 5.2 (including, without limitation, all outstanding Convertible Securities). No shares of Common Stock are held in treasury. All of such outstanding shares are duly authorized and have been, or upon issuance will be, validly issued and are fully paid and nonassessable. 17,358,920 shares of the Company's issued and outstanding Common Stock on the date hereof are as of the date hereof owned by Persons who are 'affiliates' (as defined in Rule 405 of the 1933 Act and calculated based on the assumption that only officers, directors and holders of at least 10% of the Company's issued and outstanding Common Stock are 'affiliates' without conceding that any such Persons are 'affiliates' for purposes of federal securities laws) of the Company or any of its Subsidiaries. To the Company's Knowledge, except as disclosed in the Public Reports, no Person owns 10% or more of the Company's issued and outstanding shares of Common Stock (calculated based on the assumption that all Convertible Securities (as defined below), whether or not presently exercisable or convertible, have been fully exercised or converted (as the case may be) taking account of any limitations on exercise or conversion (including 'blockers') contained therein without conceding that such identified Person is a 10% stockholder for purposes of federal securities laws), (i) None of the Company's or any Subsidiary's capital stock is subject to preemptive rights or any other similar rights or any Encumbrances suffered or permitted by the Company or any Subsidiary; (ii) except as disclosed in Schedule Schedule 5.2 (ii), there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional capital stock of the Company or any of its Subsidiaries or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into, or exercisable or exchangeable for, any capital stock of the Company or any of its Subsidiaries; (iii) other than as set forth on Schedule 5.2(iii), there are no outstanding debt securities, notes, credit agreements, credit facilities or other agreements, documents or instruments evidencing Indebtedness of the Company or any of its Subsidiaries or by which the Company or any of its Subsidiaries is or may become bound; (iv) there are no financing statements securing obligations in any amounts filed in connection with the Company or any of its Subsidiaries; (v) except as set forth on Schedule 5.2(v), there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of their securities under the 1933 Act (except pursuant to the Registration Rights Agreement); (vi) there are no outstanding securities or instruments of the Company or any of its Subsidiaries which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company or any of its Subsidiaries is or may become bound to redeem a security of the Company or any of its

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Subsidiaries; (vii) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities; (viii) neither the Company nor any Subsidiary has any stock appreciation rights or 'phantom stock' plans or agreements or any similar plan or agreement; and (ix) neither the Company nor any of its Subsidiaries have any liabilities or obligations required to be disclosed in the Public Reports which are not so disclosed in the Public Reports, other than those incurred in the ordinary course of the Company's or its Subsidiaries' respective businesses and which, individually or in the aggregate, do not or could not reasonably be expected to have a Material Adverse Effect.

                    5.3 Authorization; Enforcement. All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the Note, the Warrant and the Registration Rights Agreement (the 'Transaction Documents')and the performance of all obligations of the Company hereunder and thereunder, and the authorization (or reservation for issuance), sale and issuance of the Note and the Warrant, and the Common Stock into which the Note and the Warrant are convertible or exercisable, as applicable, have been taken on or prior to the date hereof. Each of the Transaction Documents has been duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except: (i) as limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies and (iii) insofar as indemnification and contribution provisions may be limited by applicable law.

                    5.4 Valid Issuance of the Conversion Shares and Warrant Shares; Reservation of Shares. Each of the Note and Warrant has been duly authorized and, when issued and paid for in accordance with this Agreement, will be duly and validly issued, fully paid and nonassessable, free and clear of all Liens imposed by the Company other than restrictions on transfer under this Agreement and under applicable state and federal securities laws. Upon conversion in accordance with the Note or exercise in accordance with the Warrant (as the case may be), the Conversion Shares and the Warrant Shares, respectively, when issued and delivered in accordance with the terms of this Agreement and the Note or the Warrant, as applicable, for the consideration expressed herein and therein, will be duly and validly issued, fully paid and non'assessable, free and clear of all Liens imposed by the Company, other than restrictions on transfer under this Agreement and under applicable state and federal securities laws. The Company has reserved from its duly authorized capital stock a sufficient number of shares of Common Stock for issuance of the Conversion Shares as required by Section 8 of the Note and Warrant Shares as required by Section 1(g) of the Warrant.

                    5.5 Offering. Subject to the truth and accuracy of the Investor's representations set forth in Section 6 of this Agreement, the offer and issuance of the Securities as contemplated by this Agreement are exempt from the registration requirements of the Securities Act of 1933, as amended (the '1933 Act')and the qualification or registration requirements of state securities laws or other applicable blue sky laws. Neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemptions.

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                    5.6 Public Reports. The Company is current in its filing obligations under the 1934 Act, including without limitation as to its filings of Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K (collectively, the 'Public Reports'). The Public Reports do not contain any untrue statement of a material fact or omit to state any fact necessary to make any statement therein not misleading. The financial statements included within the Public Reports for the fiscal year ended December 31, 2013 and for each quarterly period thereafter (the 'Financial Statements')have been prepared in accordance with generally accepted accounting principles ('GAAP')applied on a consistent basis throughout the periods indicated and with each other, except that unaudited Financial Statements may not contain all footnote required by generally accepted accounting principles. The Financial Statements fairly present, in all material respects, the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject in the case of unaudited Financial Statements to normal year-end audit adjustments.

                    5.7 Compliance With Laws. The Company has not violated any law or any governmental regulation or requirement which violation has had or would reasonably be expected to have a Material Adverse Effect on its business and the Company has not received written notice of any such violation.

                    5.8 Violations. The consummation of the transactions contemplated by the Transaction Documents and all other documents and instruments required to be delivered in connection therewith will not result in or constitute any of the following: (a) a violation of any provision of the articles of incorporation, bylaws or other governing documents of the Company; (b) a violation of any provisions of any applicable law or of any writ or decree of any court or governmental instrumentality; (c) a default or an event that, with notice or lapse of time or both, would be a default, breach, or violation of a lease, license, promissory note, conditional sales contract, commitment, indenture, mortgage, deed of trust, or other agreement, instrument, or arrangement to which the Company is a party or by which the Company or its property is bound; (d) an event that would permit any party to terminate any agreement or to accelerate the maturity of any indebtedness or other obligation of the Company; or (e) the creation or imposition of any lien, pledge, option, security agreement, equity, claim, charge, encumbrance or other restriction or limitation on the capital stock or on any of the properties or assets of the Company.

                    5.9 Consents; Waivers. No consent, waiver, approval or authority of any nature, or other formal action, by any Person, firm or corporation, or any agency, bureau or department of any government or any subdivision thereof, not already obtained, is required in connection with the execution and delivery of the Transaction Documents by the Company or the consummation by the Company of the transactions provided for herein and therein.

                    5.10 Sarbanes-Oxley Act. The Company is in compliance with any and all applicable requirements of the Sarbanes-Oxley Act of 2002 that are effective as of the date hereof, and any and all applicable rules and regulations promulgated by the Commission thereunder that are effective as of the date hereof.

                    5.11 Absence of Litigation. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company, threatened against or affecting the Company, the Common Stock or any of the Company's officers or directors in their capacities as such.

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                    5.12 Material Changes; Undisclosed Events, Liabilities or Developments. Since the date of the latest audited financial statements included within the Public Reports, except as specifically disclosed in a subsequent Public Report filed prior to the date hereof: (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. Except for the issuance of the Securities contemplated by this Agreement, no event, liability, fact, circumstance, occurrence or development has occurred or exists or is reasonably expected to occur or exist with respect to the Company or its Subsidiaries or their respective businesses, properties, operations, assets or financial condition, that would be required to be disclosed by the Company under applicable securities laws at the time this representation is made or deemed made that has not been publicly disclosed at least one Trading Day prior to the date that this representation is made.

                    5.13 Intellectual Property. The Company has, or has rights to use, all patents, patent applications, trademarks, trademark applications, service marks, trade names, trade secrets, inventions, copyrights, licenses and other intellectual property rights and similar rights as described in the Public Reports as necessary or required for use in connection with their respective businesses and which the failure to so have could have a Material Adverse Effect (collectively, the 'Intellectual Property Rights'). None of, and the Company has not received a notice (written or otherwise) that any of, the Intellectual Property Rights has expired, terminated or been abandoned, or is expected to expire or terminate or be abandoned, within two (2) years from the date of this Agreement. The Company has not received, since the date of the latest audited financial statements included within the Public Reports, a written notice of a claim or otherwise has any knowledge that the Intellectual Property Rights violate or infringe upon the rights of any Person, except as could not have or reasonably be expected to not have a Material Adverse Effect. To the knowledge of the Company, all such Intellectual Property Rights are enforceable and there is no existing infringement by another Person of any of the Intellectual Property Rights. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of their intellectual properties, except where failure to do so could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect.

                    5.14 Registration Rights. Other than the Investor or as set forth in the Public Reports, no Person has any right to cause the Company to effect the registration under the 1933 Act of any securities of the Company.

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                    5.15 Disclosure. Except with respect to the material terms and conditions of the transactions contemplated by the Transaction Documents, the Company confirms that neither it nor any other Person acting on its behalf has provided the Investor or its agents or counsel with any information that it believes constitutes or might constitute material, non-public information. The Company understands and confirms that the Investor will rely on the foregoing representation in effecting transactions in securities of the Company. All of the disclosure furnished by or on behalf of the Company to the Investor regarding the Company and its Subsidiaries, their respective businesses and the transactions contemplated hereby, including the Disclosure Schedules to this Agreement, is true and correct in all material respects and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The press releases disseminated by the Company during the twelve months preceding the date of this Agreement taken as a whole do not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made and when made, not misleading. The Company acknowledges and agrees that the Investor does not make nor has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 6 hereof.

                    5.16 No Integrated Offering. Assuming the accuracy of the Investor's representations and warranties set forth in Section 6, neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of (i) the 1933 Act which would require the registration of any such securities under the 1933 Act, or (ii) any applicable shareholder approval provisions of any Trading Market on which any of the securities of the Company are listed or designated.

                    5.17 Seniority. As of the Closing Date, no Indebtedness or other claim against the Company is senior to the Note in right of payment, whether with respect to interest or upon liquidation or dissolution, or otherwise, other than indebtedness secured by purchase money security interests (which is senior only as to underlying assets covered thereby) and capital lease obligations (which is senior only as to the property covered thereby).

                    5.18 Bankruptcy Status; Indebtedness. The Company has no current intention or expectation to file for reorganization or liquidation under the bankruptcy or reorganization laws of any jurisdiction within one year from the Closing Date. Schedule 5.18 sets forth as of the date hereof all outstanding secured and unsecured Indebtedness (as defined below) of the Company or any Subsidiary, or for which the Company or any Subsidiary has commitments. For the purposes of this Agreement, 'Indebtedness'means (x) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company's consolidated balance sheet (or the notes thereto), except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments in excess of $100,000 due under leases required to be capitalized in accordance with GAAP. The Company is not in default with respect to any Indebtedness.

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                    5.19 Regulation M Compliance. The Company has not, and to its knowledge no one acting on its behalf has, (i) taken, directly or indirectly, any action designed to cause or to result in the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of any of the Securities, (ii) sold, bid for, purchased, or paid any compensation for soliciting purchases of, any of the Securities, or (iii) paid or agreed to pay to any Person any compensation for soliciting another to purchase any other securities of the Company.

                    5.20 No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering contemplated hereby, any beneficial owner of 20% or more of the Company's outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the 1933 Act) connected with the Company in any capacity at the time of sale (each, an 'Issuer Covered Person')is subject to any of the 'Bad Actor' disqualifications described in Rule 506(d)(l)(i) to (viii) under the 1933 Act (a 'Disqualification Event'), except for a Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event.

          6. Representations and Warranties of the Investor. The Investor hereby represents, warrants and covenants that:

                    6.1 Authorization. The Investor has full power and authority to enter into this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby and has taken all action necessary to authorize the execution and delivery of this Agreement and the Registration Rights Agreement, the performance of its obligations hereunder and thereunder and the consummation of the transactions contemplated hereby and thereby.

                    6.2 No Public Sale or Distribution. The Investor is (i) acquiring the Note and the Warrant, and (ii) upon conversion of the Note will acquire the Conversion Shares and (iii) upon exercise of the Warrant will acquire the Warrant Shares for its own account, not as a nominee or agent, and not with a view towards, or for resale in connection with, the public sale or distribution of any part thereof, except pursuant to sales registered or exempted under the 1933 Act. The Investor is acquiring the Securities hereunder in the ordinary course of its business. The Investor does not presently have any contract, agreement, undertaking, arrangement or understanding, directly or indirectly, with any Person to sell, transfer, pledge, assign or otherwise distribute any of the Securities.

                    6.3 Accredited Investor Status; Investment Experience. The Investor is an 'accredited investor' as that term is defined in Rule 501(a) of Regulation D. The Investor can bear the economic risk of its investment in the Securities, and has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of an investment in the Securities.

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                    6.4 Reliance on Exemptions. The Investor understands that the Securities are being offered and sold to it in reliance on specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying in part upon the truth and accuracy of, and the Investor's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Investor set forth herein in order to determine the availability of such exemptions and the eligibility of the Investor to acquire the Securities.

                    6.5 Information. The Investor and its advisors, if any, have been furnished with all materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Investor. The Investor and its advisors, if any, have been afforded the opportunity to ask questions of the Company. Neither such inquiries nor any other due diligence investigations conducted by the Investor or its advisors, if any, or its representatives shall modify, amend or affect the Investor's right to rely on the Company's representations and warranties contained herein. The Investor understands that its investment in the Securities involves a high degree of risk. The Investor has sought such accounting, legal and tax advice as it has considered necessary to make an informed investment decision with respect to its acquisition of the Securities. The Investor is relying solely on its own accounting, legal and tax advisors, and not on any statements of the Company or any of its agents or representatives, for such accounting, legal and tax advice with respect to its acquisition of the Securities and the transactions contemplated by this Agreement.

                    6.6 No Governmental Review. The Investor understands that no United States federal or state agency or any other government or governmental agency has passed on or made any recommendation or endorsement of the Securities or the fairness or suitability of the investment in the Securities nor have such authorities passed upon or endorsed the merits of the offering of the Securities.

                    6.7 Validity; Enforcement; No Conflicts. This Agreement and each Transaction Document to which the Investor is a party have been duly and validly authorized, executed and delivered on behalf of the Investor and shall constitute the legal, valid and binding obligations of the Investor enforceable against the Investor in accordance with their respective terms, except as such enforceability may be limited by general principles of equity or to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation and other similar laws relating to, or affecting generally, the enforcement of applicable creditors' rights and remedies. The execution, delivery and performance by the Investor of this Agreement and each Transaction Document to which the Investor is a party and the consummation by the Investor of the transactions contemplated hereby and thereby will not (i) result in a violation of the organizational documents of the Investor or (ii) conflict with, or constitute a default (or an event which with notice or lapse of time or both would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Investor is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities or 'Blue Sky' laws) applicable to the Investor, except in the case of clause (ii) above, for such conflicts, defaults or rights which would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on the ability of the Investor to perform its obligations hereunder.

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                    6.8 Organization and Standing. The Investor is a company duly organized, validly existing and in good standing under the laws of the British Virgin Islands.

                    6.9 No Disqualification Events. None of the Investor, any of its predecessors, any affiliates of the Investor, any director, executive officer, other officer of the Investor, (each, an 'Investor Covered Person' and, together, 'Investor Covered Persons') is subject to any of the 'Bad Actor' disqualifications described in Rule 506(d)(l)(i) to (viii) under the Securities Act (an 'Investor Disqualification Event'), except for a Investor Disqualification Event covered by Rule 506(d)(2) or (d)(3). The Investor has exercised reasonable care to determine whether any Investor Covered Person is subject to a Disqualification Event. The Investor has complied, to the extent applicable, with its disclosure obligations under Rule 506(e).

                    6.10 Brokers or Finders. The Investor represents and warrants, to the best of its knowledge, that no finder, broker, agent, financial advisor or other intermediary, nor any purchaser representative or any broker-dealer acting as a broker, is entitled to any compensation in connection with the transactions contemplated by this Agreement or the transactions contemplated hereby.

                    6.11 Ability to Perform. There are no actions, suits, proceedings or investigations pending against Investor or Investor's assets before any court or governmental agency (nor is there any threat thereof) which would impair in any way Investor's ability to enter into and fully perform its commitments and obligations under this Agreement or the transactions contemplated hereby.

          7. Use of Proceeds. The Investor acknowledges that the Company will use the proceeds received from the purchase of the Note and Warrant for, among other things, (i) costs and expenses relating to the sale of the Note and Warrant to the Investor and (ii) general working capital purposes.

          8. Rule 144 Availability; Public Information. At all times during the period commencing on the six (6) month anniversary of the Closing Date and ending at such time that all of the Securities can be sold without the requirement to be in compliance with Rule 144(c)(1) under the 1933 Act and otherwise without restriction or limitation pursuant to Rule 144 under the 1933 Act, the Company shall use its reasonable best efforts to ensure the availability of Rule 144 under the 1933 Act to the Investor with regard to the Conversion Shares and the Warrant Shares (assuming a cashless exercise of the Warrant), including compliance with Rule 144(c)(1) under the 1933 Act. If, (i) at any time during the period commencing from the six (6) month anniversary of the Closing Date and ending on the first anniversary of the Closing Date, the Company shall fail for any reason to satisfy the current public information requirement under Rule 144(c) under the 1933 Act (a 'Public Information Failure'), or (ii) the Company shall fail to take such action as is reasonably requested by the Investor to enable the Investor to sell the Conversion Shares and the Warrant Shares (assuming a cashless exercise of the Warrant) pursuant to Rule 144 under the 1933 Act (including, without limitation, delivering all such legal opinions, consents, certificates, resolutions and instructions to the Company's transfer agent as may be reasonably requested from time to time by the Investor and otherwise fully cooperate with Investor and Investor's broker to effect such sale of securities pursuant to Rule 144 under the 1933 Act) (a 'Process Failure'),then, in either case, in addition to the Investor's other available remedies, the Company shall pay to a Investor, in cash, as liquidated damages and not

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as a penalty, by reason of any such delay in or reduction of its ability to sell the Securities, an amount in cash equal to two percent (2.0%) of the aggregate Purchase Price of the Investor's Securities on the day of a Public Information Failure or Process Failure, as applicable, and on every thirtieth (30th) day (pro rated for periods totaling less than thirty days) thereafter until (a) in the case of a Process Failure, the date such Process Failure is cured, or (b) in the case of a Public Information Failure, the earlier of (1) the date such Public Information Failure is cured and (b) such time that such public information is no longer required for the Investor to transfer the Conversion Shares or the Warrant Shares (assuming a cashless exercise of the Warrant) pursuant to Rule 144 under the 1933 Act. The payments to which the Investor shall be entitled pursuant to this Section 8 are referred to herein as 'Rule 144 Failure Payments.'Rule 144 Failure Payments shall be paid on the earlier of (i) the last day of the calendar month during which such Rule 144 Failure Payments are incurred and (ii) the third (3rd) Trading Day after the event or failure giving rise to the Rule 144 Failure Payments is cured.

          9. Indemnification. In consideration of the Investor's execution and delivery of the Transaction Documents and acquiring the Securities thereunder and in addition to all of the Company's other obligations under the Transaction Documents, the Company shall defend, protect, indemnify and hold harmless the Investor and each holder of any Securities and all of their stockholders, partners, members, officers, directors, employees and direct or indirect investors and any of the foregoing Persons' agents or other representatives (including, without limitation, those retained in connection with the transactions contemplated by this Agreement) (collectively, the 'Indemnitees')from and against any and all actions, causes of action, suits, claims, losses, costs, penalties, fees, liabilities and damages, and expenses in connection therewith (irrespective of whether any such Indemnitee is a party to the action for which indemnification hereunder is sought), and including reasonable attorneys' fees and disbursements (the 'Indemnified Liabilities'), incurred by any Indemnitee as a result of, or arising out of, or relating to (a) any misrepresentation or breach of any representation or warranty made by the Company or any Subsidiary in any of the Transaction Documents, (b) any breach of any covenant, agreement or obligation of the Company or any Subsidiary contained in any of the Transaction Documents or (c) any cause of action, suit or claim brought or made against such Indemnitee by a third party (including for these purposes a derivative action brought on behalf of the Company or any Subsidiary) and arising out of or resulting from (i) the execution, delivery, performance or enforcement of any of the Transaction Documents, (ii) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance of the Securities, or (iii) the status of the Investor or holder of the Securities as an investor in the Company pursuant to the transactions contemplated by the Transaction Documents. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 9 shall be the same as those set forth in Section 6 of the Registration Rights Agreement. Notwithstanding anything to the contrary in this Section 9, the Company shall not be obligated to pay an Indemnitee any sums otherwise due under this Section 9 if the Company has already paid the Indemnitee such sums for the same Indemnified Liabilities under Section 6 of the Registration Rights Agreement.

          10. Reserved.

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          11. Reserved.

          12. Miscellaneous

                    12.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of the Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto or their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

                    12.2 Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York . The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in New York County, New York , for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, 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 any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. 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 to such party at the address for such notices to it under this Agreement 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 manner permitted by law. EACH PARTY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED HEREBY.

                    12.3 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

                    12.4 Notices. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next Trading Day, (c) five (5) Trading Days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to (a) in the case of the Company, to Medican Enterprises, Inc., 5955 Edmond Street, Suite 102, Las Vegas Nevada 89118, Telephone Number: (800) 416-8802, Fax: (702) 825-2660 , Attention: President, with a copy (which shall not constitute notice) to Ellenoff Grossman & Schole LLP, 1350 Avenue of the Americas, New York, New York 10105, Telephone Number: (212) 370-1300, Fax: (212) 370-7889 , Attention:

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Lawrence A. Rosenbloom, Esq. or (b) in the case of the Investor, to Himmil Investments, Ltd., Rodus Building, 4th Floor, Road Town, Tortola, British Virgin Islands, Telephone Number: (284) 494-8086, Fax: (284) 494-9474, Attention: Arthur C. Price, Director, with a copy (which shall not constitute notice) to Jolie Kahn, Esq, 2 Liberty Place, 50 South 16th Street, Suite 3401, Philadelphia, PA 19102, Telephone Number: (215) 253-6645, Fax: (866) 705-3071.

                    12.5 Finder's Fees. Each party represents that it neither is nor will be obligated for any finders' fee or commission in connection with this transaction. The Company shall indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finders' fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

                    12.6 Amendments and Waivers. No provision of this Agreement may be amended other than by a written instrument signed by both parties hereto. No provision of this Agreement may be waived other than in a written instrument signed by the party against whom enforcement of such waiver is sought. No failure or delay in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercises thereof or of any other right, power or privilege.

                    12.7 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

                    12.8 Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement among the parties and no party shall be liable or bound to any other party in any manner by any warranties, representations or covenants except as specifically set forth herein or therein.

                    12.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Signatures to this Agreement transmitted by facsimile, by electronic mail in 'portable document format' ('.pdf'), or by any other electronic means which preserves the original graphic and pictorial appearance of the Agreement, shall have the same effect as physical delivery of the paper document bearing the original signature.

                    12.10 Interpretation. Unless the context of this Agreement clearly requires otherwise, (a) references to the plural include the singular, the singular the plural, the part the whole, (b) references to any gender include all genders, (c) 'including' has the inclusive meaning frequently identified with the phrase 'but not limited to' and (d) references to 'hereunder' or 'herein' relate to this Agreement.

                    12.11 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, the Investor and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations contained in the Transaction Documents and hereby agree to waive and not to assert in any action for specific performance of any such obligation the defense that a remedy at law would be adequate.

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                    12.12 Fees and Expenses. Each party shall bear its own fees and expenses related to the transactions contemplated by the Transaction Documents; provided, however, that $40,000 heretofore paid by the Company to the Investor) shall be withheld by the Investor from the Purchase Price at the Closing as a non-accountable and non-refundable document preparation fee (the 'Document Preparation Fee')in connection with the preparation, negotiation, execution and delivery of the Transaction Documents and business and legal due diligence of the Company, and shall be paid directly to the Investor's counsel on the Closing Date by wire transfer of immediately available funds. For the avoidance of doubt, the Document Preparation Fee (and any portion thereof) shall be non-refundable when paid. The Company shall pay all transfer agent fees (including, without limitation, any fees required for same-day processing of any instruction letter delivered by the Company, delivery of any legal opinion, and any conversion or exercise notice delivered by a Investor), stamp taxes and other taxes and duties levied in connection with the delivery of any Securities to the Investor.

                    12.13 No Variable Rate Transactions; No Frustration. For so long as the Note remains outstanding, neither the Company nor any of its affiliates or Subsidiaries, nor any of its or their respective officers, employees, directors, agents or other representatives, will, without the prior written consent of the Investor (which consent may be withheld, delayed or conditioned in the Investor's sole discretion), effect, enter into, announce or recommend to its stockholders any agreement, plan, arrangement or transaction that would or would reasonably be expected to constitute or involve a Variable Rate Transaction. So long as the Investor or its affiliates hold any Securities, neither the Company nor any of its affiliates or Subsidiaries, nor any of its or their respective officers, employees, directors, agents or other representatives, will, without the prior written consent of the Investor (which consent may be withheld, delayed or conditioned in the Investor's sole discretion), effect, enter into, announce or recommend to its stockholders any agreement, plan, arrangement or transaction that would or would reasonably be expected to restrict, delay, conflict with or impair the ability or right of the Company to timely perform its obligations under this Agreement, the Note or the Warrant, including, without limitation, the obligation of the Company to timely deliver shares of Common Stock to the Investor or its affiliates in accordance with this Agreement, the Note or the Warrant.

                    12.14 No Integration. None of the Company, any of its affiliates (as defined in Rule 501(b) under the 1933 Act), or any person acting on behalf of the Company or such affiliate will sell, offer for sale, or solicit offers to buy or otherwise negotiate in respect of any security (as defined in the 1933 Act) which will be integrated with the sale of the Securities in a manner which would require the registration of the Securities under the 1933 Act or require stockholder approval under the rules and regulations of the Trading Market and the Company will take all action that is appropriate or necessary to assure that its offerings of other securities will not be integrated for purposes of the 1933 Act or the rules and regulations of the Trading Market, with the issuance of Securities contemplated hereby.

                    12.15 Volume Restriction. The Investor shall not sell Conversion Shares on any Trading Day in an amount, in the aggregate, exceeding (x) if no Market Liquidity Event has occurred on such Trading Day, 10% or (y) if a Market Liquidity Event has occurred on such Trading Day, 50%, in each case, of the composite aggregate dollar trading volume of the Common Stock as reported on Bloomberg, L.P. for such Trading Day.

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          13. Additional Defined Terms. In addition to the terms defined elsewhere in this Agreement, the Note or the Warrant the following terms have the meanings set forth in this Section 13:

                    13.1 '1934 Act' means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

                    13.2 'Approved Stock Plan' shall have the meaning as set forth in Section Error! Reference source not found. above.

                    13.3 'Commission' means the United States Securities and Exchange Commission.

                    13.4 'Convertible Securities' shall have the meaning as set forth in Section Error! Reference source not found. above.

                    13.5 'Effective Date' means the date that the Initial Registration Statement (as defined in the Registration Rights Agreement) filed pursuant to the Registration Rights Agreement has been declared effective by the Commission.

                    13.6 'Excluded Securities' shall have the meaning as set forth in Section Error! Reference source not found. above.

                    13.7 'Liens'means a lien, charge pledge, security interest, encumbrance, right of first refusal, preemptive right or other restriction.

                    13.8 'Market Liquidity Event' means, as of any given Trading Day, such time as the composite aggregate dollar trading volume of the Common Stock as reported on Bloomberg, L.P. for such given Trading Day exceeds 12,000 shares of Common Stock (as adjusted for stock splits, stock dividends, recapitalizations and similar events).

                    13.9 'Material Adverse Effect' means (i) a material adverse effect on the legality, validity or enforceability of any Transaction Document, (ii) a material adverse effect on the results of operations, assets, business, prospects or condition (financial or otherwise) of the Company and the Subsidiaries, taken as a whole, or (iii) a material adverse effect on the Company's ability to perform in any material respect on a timely basis its obligations under any Transaction Document.

                    13.10 'Person' means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act. For all purposes of this Agreement, violations of the restrictions set forth in this Section 11 by any Subsidiary or affiliate of the Company, or any officer, employee, director, agent or other representative of the Company or any of its Subsidiaries or affiliates shall be deemed a direct breach of this Section 11 by the Company.

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                    13.11 'Registrable Securities' shall have the meaning set forth in the Registration Rights Agreement.

                    13.12 'Short Sales' shall mean 'short sales' as defined in Rule 200 promulgated under Regulation SHO under the 1934 Act.

                    13.13 Subsidiary' shall mean any corporation or other entity of which at least a majority of the securities or other ownership interest having ordinary voting power for the election of directors or other persons performing similar functions are at the time owned directly or indirectly by the Company and/or any of its other Subsidiaries.

                    13.14 'Trading Day' means any day on which the Common Stock is traded on the Trading Market, provided that 'TradingDay'shall not include any day on which the Common Stock is scheduled to trade on the Trading Market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on the Trading Market (or if the Trading Market does not designate in advance the closing time of trading on the Trading Market, then during the hour ending at 4:00:00 p.m., New York City time) unless such day is otherwise designated as a Trading Day in writing by the Investor.

                    13.15 '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 OTC Bulletin Board, The NASDAQ Global Market, The NASDAQ Global Select Market, The NASDAQ Capital Market, the New York Stock Exchange, NYSE Arca, the NYSE MKT, or the OTCQX Marketplace or the OTCQB Marketplace operated by OTC Markets Group Inc. (or any successor to any of the foregoing).

                    13.16 'Variable Rate Transaction' means a transaction in which the Company or any Subsidiary (i) issues or sells any convertible securities either (A) at a conversion, exercise or exchange rate or other price that is based upon and/or varies with the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such convertible securities, or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such Convertible Securities or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, including, without limitation, pursuant to any 'weighted average' or 'full-ratchet' anti-dilution provision, or (ii) enters into any agreement (including, without limitation, an equity line of credit or an 'at-the-market' offering) whereby the Company or any Subsidiary may sell securities at a future determined price.

[SIGNATURES ON THE FOLLOWING PAGE]

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          IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date provided above.

	
 

	
 

	
 

	
 

	
 

	
THE COMPANY

	
 

	
 

	
 

	
 

	
 

	
MEDICAN ENTERPRISES, INC.

	
 

	
 

	
 

	
 

	
By:

	

	
 

	
 

	
 

	
 

	
 

	
 

	
Name: Kenneth Williams

	
 

	
 

	
Title: CEO

 

  

          IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date provided above.

	
 

	
 

	
 

	
 

	
 

	
THE INVESTOR:

	
 

	
 

	
 

	
 

	
 

	
HIMMIL INVESTMENTS, LTD.

	
 

	
 

	
 

	
 

	
By:

	

	
 

	
 

	
 

	
Name: Arthur C. Price

	
 

	
 

	
Title: Director

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