Document:

Exhibit 10.1

STOCK EXCHANGE AGREEMENT

STOCK EXCHANGE AGREEMENT (the "Agreement") made this 14th day of September, 2016, by and among Liberated Energy, Inc., a Nevada corporation whose principal office is located at 15 Elvis Boulevard, Chester, New York 10918 ("LIBE"); Brian P. Conway, an individual, whose address is the same as LIBE ("PRINCIPAL LIBE SHAREHOLDER"); and Ron Knori ("SELLER); who is the owner of all of the Membership Interests of EcoCab Portland, LLC, an Oregon Limited Liability Company ("EPLLC"), who has executed a subscription agreement which will be appended hereto at closing.

R E C I T A L S

A.              ECPLLC is engaged in the business of operating a taxi service in Portland, Oregon.

B.              SELLER owns the entire issued and outstanding membership interests of ECPLLC (the "ECPLLC Membership Interest").

C.              LIBE is a publicly traded company engaged in the business of developing and marketing alternative energy source products.

D.              LIBE is authorized to issue up to 10,000,000,000 shares of Common Stock and there are 2,588,330 shares of Common Stock outstanding after completing a 1-for-3,500 reverse stock split. All reference to shares of LIBE Common Stock herein, is post 1-for-3,500 reverse stock split. LIBE is authorized to issue up to 10,000,000 shares of Series A Preferred Stock all of which are issued and outstanding and are owned by PRINCIPAL LIBE SHAREHOLDER. Each

share of Series A Preferred Stock has 10,000 votes.

E.            LIBE desires to acquire one hundred percent (100%) of the ECPLLC Membership Interest in consideration for which LIBE shall issue to SELLER 25,553,000 restricted shares of LIBE Common Stock (the "Restricted Common Shares" and PRINCIPAL LIBE SHAREHOLDER will transfer to SELLER all of the issued and outstanding shares of Series A Preferred Stock (the "Exchange"). It is the intention of the parties this transaction be tax free and at closing SELLER shall own collectively at least 80% of the total outstanding shares of LIBE common stock and SELLER will own 100% of LIBE's authorized preferred stock.

AGREEMENT

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows.

ARTICLE I

ACQUISITION OF ECPLLC COMMON SHARES BY LIBE

1.1            Acquisition of ECPLLC.  In the manner and subject to the terms and conditions set forth herein, LIBE shall acquire from SELLER, one hundred percent (100%) of the issued and outstanding ECPLLC Membership Interest.

1.2            Effective Date.  If all of the conditions precedent to the obligations of each of the parties hereto as hereinafter set forth shall have been satisfied or shall have been waived, the transactions set forth herein (the "Exchange") shall become effective on the Closing Date as defined herein.

1.3            Consideration

(a)            In consideration of SELLER transferring 100% of the issued and outstanding ECPLLC Membership Interest to LIBE, LIBE will issue to SELLER the Restricted Common Shares and PRINCIPAL LIBE SHAREHOLDER will transfer all of the issued and outstanding shares of LIBE Series A Preferred Stock to SELLER (the "Seller Consideration Shares").

 

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(b)            If the outstanding shares of LIBE Common Stock are changed into a different number or class of shares by reason of any stock split, division or subdivision of shares, stock dividend, reverse stock split, consolidation of shares, reclassification, recapitalization, or other similar transaction, then the number of shares of Common Stock referenced in Section 1.3(a), above, shall be appropriately adjusted.

1.4           Effect of Stock Exchange.  As of the Closing Date, all of the following shall occur:

(a)            The Articles of Incorporation of LIBE and the Articles of Organization of ECPLLC, as in effect on the Effective Date, shall continue in effect without change or amendment.

(b)            The Bylaws of LIBE and the Operation Agreement of ECPLLC, as in effect on the Closing Date, shall continue in effect without change or amendment.

(c)            Upon the Closing Date, the current directors will resign as members of the board of directors of LIBE, and Ron Knori, Brian Honeyman, and Paul Bernal will be appointed to the board of directors of LIBE. Further, the current officers of LIBE will resign and Ron Knori will be appointed president and chief executive officer and Brian Honeyman will be appointed secretary.

1.5            Disclosure Schedules.  Simultaneously with the execution of this Agreement: (a) LIBE shall deliver a schedule relating to LIBE which, along with the reports of LIBE filed with the Securities and Exchange Commission, shall be referred to as the "LIBE Disclosure Schedule", and (b) SELLER and ECPLLC shall deliver a schedule relating to SELLER and ECPLLC (the "ECPLLC Disclosure Schedule") and collectively with the LIBE Disclosure Schedule, the "Disclosure Schedules" setting forth the matters required to be set forth in the Disclosure Schedules as described elsewhere in this Agreement. The Disclosure Schedules shall be deemed to be part of this Agreement.

1.6            Further Action.  From time to time after the Closing, without further consideration, the parties shall execute and deliver such instruments of conveyance and transfer and shall take such other action as any party reasonably may request to more effectively transfer the ECPLLC shares of Common Stock and LIBE Shares.

ARTICLE II

CONDUCT OF BUSINESS PENDING CLOSING; STOCKHOLDER APPROVAL

LIBE, SELLER and ECPLLC covenant that between the date hereof and the Closing Date (as hereinafter defined):

2.1            Access.  The parties hereto shall afford all other parties to this Agreement, and their legal counsels, accountants and other representatives, throughout the period prior to the Closing Date, full access, during normal business hours, to (a) all of the books, records, documents and correspondence of and records, and (b) the respective parties' properties in order to conduct inspections to determine that the party are operating in material compliance with all applicable federal, state and local and foreign statutes, rules and regulations. Any such investigation or inspection by a party shall not be deemed a waiver of, or otherwise limit, the representations, warranties and covenants contained herein.

2.2            Conduct of Business.  During the period from the date hereof to the Closing Date, the business of each party shall be operated by in the usual and ordinary course of such business and in material compliance with the terms of this Agreement. Without limiting the generality of the foregoing:

(a)            Each party shall each use its reasonable effort to (i) maintain available services (ii) complete or maintain all existing material arrangements; (iii) maintain the integrity of all confidential information; and (iv) comply in all material respects with all applicable laws; and,

(b)            Except as contemplated by this Agreement, LIBE and ECPLLC shall not (i) sell, lease, assign, transfer or otherwise dispose of any of their material assets or property including cash; (ii) agree to assume, guarantee, endorse or in any way become responsible or liable for, directly or indirectly, any material contingent obligation; make any material capital expenditures; (iii) enter into any transaction concerning a merger or consolidation other than with the other party hereto or liquidate or dissolve itself (or suffer any liquidation or dissolution) or convey, sell, lease, transfer or

 

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otherwise dispose of, in one transaction or a series of related transactions, all or a substantial part of its property, business, or assets, or stock or securities convertible into stock of any subsidiary, or make any material change in the present method of conducting business; (iv) declare or pay any dividends or make any other distribution (whether in cash or property) on any shares of its capital stock or purchase, redeem, retire or otherwise acquire for value any shares of its capital stock or warrants or options whether now or hereafter outstanding; (v) make or suffer to exist any advances or loans to, or investments in any person, firm, corporation or other business entity not a party to this Agreement; (vi) enter into any new material agreement or be or become liable under any new material agreement, for the lease, hire or use of any real or personal property; (vii) create, incur, assume or suffer to exist, any mortgage, pledge, lien, charge, security interest or encumbrance of any kind upon any of its property or assets, income or profits, whether now owned or hereafter acquired; or (viii) agree to do any of the foregoing.

2.3            Exclusivity.  LIBE and ECPLLC and their officers, directors, representatives and agents, from the date hereof, until the Closing Date (unless this Agreement shall be earlier terminated as hereinafter provided), shall not hold discussions with any person or entity, other than LIBE, SELLER and ECPLLC or their respective agents concerning the Exchange, nor solicit, negotiate or entertain any inquiries, proposals or offers to purchase the business of LIBE or ECPLLC, nor the shares of capital stock of LIBE or the ECPLLC Membership Interest from any person other than LIBE, SELLER and ECPLLC, nor, except in connection with the normal operation of LIBE's and ECPLLC's respective business, or as required by law, or as authorized in writing by LIBE, SELLER and ECPLLC to disclose any confidential information concerning LIBE, SELLER or ECPLLC to any person other than SELLER, ECPLLC and SELLER's and ECPLLC's representatives or agents.

2.4            Board and Shareholder Approval.  The Board of Directors of LIBE has determined that the Exchange is fair to and in the best interests of its stockholders and has approved and adopted this Agreement and the terms of the Exchange. Shareholders of LIBE will not vote or approve of the transaction contemplated by this agreement. This Agreement constitutes, and all other agreements contemplated hereby will constitute, when executed and delivered by LIBE, the valid and binding obligation of LIBE, enforceable in accordance with their respective terms.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF LIBE AND PRINCIPAL LIBE SHAREHOLDER

Except as set forth in the LIBE Disclosure Schedule, (which incorporates all the reports of LIBE filed with the United States Securities and Exchange Commission) LIBE and PRINCIPAL LIBE SHAREHOLDER, jointly and severally represent and warrant to SELLER and ECPLLC as follows:

3.1            Organization and Standing.  LIBE is a corporation duly organized, validly existing and in good standing under the laws of the State of Nevada. LIBE has all requisite corporate power to carry on its business as it is now being conducted and is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction where such qualification is necessary under applicable law except where the failure to qualify (individually or in the aggregate) will not have any material adverse effect on the business or prospects of LIBE. The copies of the Articles of Incorporation and Bylaws of LIBE, as amended to date, which have been delivered to SELLER and ECPLLC, are true and complete copies of these documents as now in effect.

3.2           Capitalization.

(a)            The number of shares of capital stock which are issued and outstanding are set forth in Recital D. All of such shares of capital stock that are issued and outstanding are duly authorized, validly issued and outstanding, fully paid and non-assessable, and were not issued in violation of the preemptive rights of any person. Other than as set forth in the LIBE Disclosure Schedule and Recital D, there are no subscriptions, warrants, rights or calls or other commitments or agreements to which LIBE is a party or by which it is bound, pursuant to which LIBE is or may be required to issue or deliver securities of any class. Other than as set forth in the LIBE Disclosure Schedule and Recital D, there are no outstanding securities convertible or exchangeable, actually or contingently, into Common Stock or any other securities of LIBE.

(b)            To LIBE'S knowledge, all outstanding shares of LIBE capital stock have been issued and

 

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granted in compliance with all applicable securities laws and other applicable legal requirements.

(c)            LIBE has good and marketable title to all of the LIBE Shares, free and clear of all liens, claims and encumbrances of any third persons.

3.3            Subsidiaries.  LIBE does not own any subsidiary corporations.

3.4            Authority.  LIBE's Board of Directors has determined that the Exchange is fair to and in the best interests of LIBE's stockholders. The execution, delivery and performance by LIBE of this Agreement (including the contemplated issuance of the Seller Consideration Shares) have been duly authorized by all necessary action on the part of LIBE. LIBE has the absolute and unrestricted right, power and authority to perform its obligations under this Agreement. This Agreement constitutes, and all other agreements contemplated hereby will constitute, when executed and delivered by LIBE in accordance herewith, the valid and binding obligations of LIBE, enforceable in accordance with their respective terms.

3.5            Assets.  Assets of LIBE are set forth in the LIBE Disclosure Schedule.

3.6            Contracts and Other Commitments.  Except as set forth in the LIBE Disclosure Schedule, LIBE is not a party to any contracts or agreements.

3.7            Litigation.  There is no claim, action, proceeding, or investigation pending or, to its knowledge, threatened against or affecting LIBE before or by any court, arbitrator or governmental agency or authority which, in its reasonable judgment, could have a material adverse effect on the operations or prospects of LIBE. There are no decrees, injunctions or orders of any court, governmental department, agency or arbitration outstanding against LIBE or asserted against LIBE that has not been paid.

3.8            Taxes.  For purposes of this Agreement, (A) "Tax" (and, with correlative meaning, "Taxes") shall mean any federal, state, local or foreign income, alternative or add-on minimum, business, employment, franchise, occupancy, payroll, property, sales, transfer, use, value added, withholding or other tax, levy, impost, fee, imposition, assessment or similar charge together with any related addition to tax, interest, penalty or fine thereon; and (B) "Returns" shall mean all returns (including, without limitation, information returns and other material information), reports and forms relating to Taxes.

		(a)	LIBE has duly filed and paid all Taxes.

		(b)	LIBE is not a party to any pending action or proceeding by any governmental authority for the assessment of any Tax, and, to the knowledge of LIBE, no claim for assessment or collection of any Tax related to LIBE has been asserted against LIBE that has not been paid. There are no Tax liens upon the assets of LIBE. There is no valid basis, to LIBE's knowledge, for any assessment, deficiency, notice, 30-day letter or similar intention to assess any Tax to be issued to LIBE by any governmental authority.

3.9            Compliance with Laws and Regulations.  LIBE has complied and is presently complying, in all material respects, with all laws, rules, regulations, orders and requirements (federal, state and local and foreign) applicable to it in all jurisdictions where the business of LIBE is conducted or to which LIBE is subject, including all requisite filings with the SEC. LIBE has not made any misrepresentation nor has omitted any material facts in any of its SEC filings to date.

3.10        Hazardous Materials.  To the knowledge of LIBE, LIBE has not violated, or received any written notice from any governmental authority with respect to the violation of any law, rule, regulation or ordinance pertaining to the use, maintenance, storage, transportation or disposal of "Hazardous Materials." As used herein, the term "Hazardous Materials" means any substance now or hereafter designated pursuant to Section 307(a) and 311 (b)(2)(A) of the Federal Clean Water Act, 33 USC §§ 1317(a), 1321(b)(2)(A), Section 112 of the Federal Clean Air Act, 42 USC § 3412, Section 3001 of the Federal Resource Conservation and Recovery Act, 42 USC § 6921, Section 7 of the Federal Toxic Substances Control Act, 15 USC § 2606, or Section 101(14) and Section 102 of the Comprehensive Environmental Response, Compensation and Liability Act, 42 USC §§ 9601(14), 9602.

3.11        No Breaches.  The making and performance of this Agreement will not (i) conflict with or violate the

 

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Articles of Incorporation or the Bylaws of LIBE, (ii) violate any laws, ordinances, rules, or regulations, or any order, writ, injunction or decree to which LIBE is a party or by which LIBE or any of its businesses, or operations may be bound or affected or (iii) result in any breach or termination of, or constitute a default under, or constitute an event which, with notice or lapse of time, or both, would become a default under, or result in the creation of any encumbrance upon any material asset of LIBE under, or create any rights of termination, cancellation or acceleration in any person under, any contract.

3.12        Employees.  LIBE has does not have any employees that are represented by any labor union or collective bargaining unit. Nor does LIBE have any employment agreements or compensation plans which are in effect with anyone.

3.13        Financial Statements.  Year-end audited financial statements and unaudited quarterly stub financial statements are available online at www.sec.gov, and at Section 3.13 of the LIB Disclosure Schedule LIBE has attached a true and accurate balance sheet of LIBE as of the date hereof (collectively, the "Financial Statements"). The Financial Statements present fairly, in all material respects, the financial position on the dates thereof and results of operations of LIBE for the periods indicated, prepared in accordance with generally accepted accounting principles ("GAAP"), consistently applied.

3.14        Absence of Certain Changes or Events.  Except as set forth in the LIBE Disclosure Schedule, since June 30, 2016, (the "Balance Sheet Dates"), there has not been:

(a)            any material adverse change in the financial condition, properties, assets, liabilities or business of LIBE;

(b)            any material damage, destruction or loss of any material properties of LIBE, whether or not covered by insurance;

(c)            any material adverse change in the manner in which the business of LIBE and has been conducted;

(d)            any material adverse change in the treatment and protection of trade secrets or other confidential information of LIBE; and,

(e)            any occurrence not included in paragraphs (a) through (d) of this Section 3.14 which has resulted, or which LIBE has reason to believe, might be expected to result in a material adverse change in the business or prospects of LIBE.

3.15        Government Licenses, Permits, Authorizations.  LIBE has all governmental licenses, permits, authorizations and approvals necessary for the conduct of its business as currently conducted ("Licenses and Permits"). All such Licenses and Permits are in full force and effect, and no proceedings for the suspension or cancellation of any thereof is pending or, to the knowledge of LIBE, threatened.

3.16        Employee Benefit Plans.

(a)            LIBE has no bonus, material deferred compensation, material incentive compensation, stock purchase, stock option, severance pay, termination pay, hospitalization, medical, insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plan.

(b)            LIBE has not maintained, sponsored or contributed to, any employee pension benefit plan (as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA")) or any similar pension benefit plan under the laws of any foreign jurisdiction.

(c)            Except as set forth in the LIBE Disclosure Schedule, neither the execution, delivery or performance of this Agreement, nor the consummation of the Exchange or any of the other transactions contemplated by this Agreement, will result in any bonus, golden parachute, severance or other payment or obligation to any current or former employee or director of any of LIBE, or result in any acceleration of the time of payment, provision or vesting of any such benefits.

 

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3.17        Business Locations.  Other than as set forth in the LIBE Disclosure Schedule, LIBE does not own or lease any real or personal property in any state or country.

3.18        Intellectual Property.  LIBE owns the intellectual property set for in the LIBE Disclosure Schedule. LIBE is not currently in receipt of any notice of any violation or infringements of, and is not knowingly violating or infringing, or to the best of its knowledge has not violated or infringed the rights of others in any trademark, trade name, service mark, copyright, patent, trade secret, know-how or other intangible assets.

3.19        Governmental Approvals.  Except as set forth in the LIBE Disclosure Schedule, no authorization, license, permit, franchise, approval, order or consent of, and no registration, declaration or filing by LIBE with, any governmental authority, domestic or foreign, federal, state or local, is required in connection with LIBE's execution, delivery and performance of this Agreement. Except as set forth in the LIBE Disclosure Schedule, no consents of any other parties are required to be received by or on the part of LIBE to enable LIBE to enter into and carry out the terms of this Agreement.

3.20        Transactions with Affiliates.  Except as set forth in the LIBE Disclosure Schedule, LIBE is not indebted for money borrowed, either directly or indirectly, from any of its officers, directors, or any Affiliate (as defined below), in any amount whatsoever; nor are any of its officers, directors, or Affiliates indebted for money borrowed from LIBE; nor are there any transactions of a continuing nature between LIBE and any of its officers, directors, or Affiliates not subject to cancellation which will continue beyond the Closing Date, including, without limitation, use of the assets of LIBE for personal benefit with or without adequate compensation. For purposes of this Agreement, the term (i) "Affiliate" shall mean any person that, directly or indirectly, through one or more intermediaries, controls or is controlled by, or is under common control with, the person specified. As used in the foregoing definition, the term (ii) "control" shall mean the power through the ownership of voting securities, contract or otherwise to direct the affairs of another person and (iii) "person" shall mean an individual, firm, trust, association, corporation, partnership, government (whether federal, state, local or other politic al subdivision, or any agency or bureau of any of them) or other entity.

3.21        No Distributions.  LIBE has not made nor has any intention of making any distribution or payment to any of its shareholders with respect to any of its securities except in accordance with the terms of this Agreement.

3.22        Liabilities.  LIBE has no material direct or indirect indebtedness, liability, claim, loss, damage, deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate, liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent or otherwise ("Liabilities"), whether or not of a kind required by generally accepted accounting principles to be set forth on a financial statement, other than (i) Liabilities fully and adequately reflected or reserved against on the LIBE Balance Sheet, (ii) Liabilities incurred since the Balance Sheet Date in the ordinary course of the business of LIBE, or (iii) Liabilities otherwise disclosed in this Agreement, including the exhibits hereto and LIBE Disclosure Schedule.

3.23        Accounts Receivable.  LIBE has no accounts receivables other than as disclosed in the LIBE Disclosure Schedule.

3.24        Insurance.  LIBE has no insurance policies in effect.

3.25        Contracts and Other Commitments.  Schedule 3.25 of the LIBE Disclosure Schedule consists of a true and complete list of all material contracts, agreements, commitments and other instruments (whether oral or written) to which LIBE is a party. LIBE has filed a copy of each such contract with the SEC. All such contracts are valid and binding upon LIBE and are in full force and effect and are enforceable in accordance with their respective terms. No such contracts are in breach, and no event has occurred which, with the lapse of time or action by a third party, could result in a material default under the terms thereof. To LIBE'S knowledge, no stockholder of ECPLLC has received any payment from any contracting party in connection with or as an inducement for causing LIBE to enter into any such contract.

3.26        No Omissions or Untrue Statements.  No representation or warranty made by LIBE or PRINCIPAL LIBE SHAREHOLDER to SELLER or ECPLLC in this Agreement contains any untrue statement of a material fact or omits or will omit to state a material fact necessary to make the statements contained herein or therein not misleading.

 

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ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF SELLER

Except as set forth in the ECPLLC Disclosure Schedule, SELLER and ECPLLC jointly and severally represent and warrant to LIBE and PRINCIPAL LIBE SHAREHOLDER as follows:

4.1            Organization and Standing of ECPLLC.  ECPLLC is a limited liability company, duly organized, validly existing and in good standing under the laws of Oregon, and has the power to carry on its business as now conducted and to own its assets and is duly qualified to transact business as a limited liability corporation in each state where such qualification is necessary except where the failure to qualify will not have a material adverse effect on the business or prospects of ECPLLC.

4.2            Authority.  The Managing Member and SELLER have approved this Agreement as evidenced by their respective signatures to this Agreement.

4.3            No Conflict.  The making and performance of this Agreement will not (i) conflict with the Articles of Organization or the Operating Agreement of ECPLLC, (ii) violate any laws, ordinances, rules, or regulations, or any order, writ, injunction or decree to which ECPLLC is a party or by which ECPLLC or any of its material assets, business, or operations may be bound or affected or (iii) result in any breach or termination of, or constitute a default under, or constitute an event which, with notice or lapse of time, or both, would become a default under, or result in the creation of any encumbrance upon any material asset of ECPLLC, or create any rights of termination, cancellation, or acceleration in any person under any material agreement, arrangement, or commitment.

4.4            Properties.  Except as set forth in the ECPLLC Disclosure Schedule, SELLER has good and marketable title to the entire ECPLLC Membership Interest, free and clear of all liens, claims and encumbrances of third persons whatsoever, and ECPLLC has good and marketable title to all of the assets and properties which it purports to own as reflected on the balance sheet included in the ECPLLC Financial Statements (as hereinafter defined), or thereafter acquired.

4.5            Capitalization of ECPLLC.  All of the Membership Interest are owned by SELLER, and there are no ownership interests of ECPLLC outstanding other than the Membership Interest. The Articles of Organization of ECPLLC do not limit the number of ownership interests that can be issued. The ECPLLC Membership Interest was duly authorized and is validly issued, fully paid, and non-assessable. As of the date hereof, there were no outstanding options, warrants or rights of conversion or other rights, agreements, arrangements or commitments relating to the securities of ECPLLC or obligating ECPLLC to issue or sell any ECPLLC ownership interest, other than as listed on Schedule 4.5 of the ECPLCC Disclosure Schedule. To SELLER's knowledge, the ECPLLC Membership Interest was issued and granted in compliance with all applicable legal requirements.

4.6            Governmental Approval; Consents.  No authorization, license, permit, franchise, approval, order or consent of, and no registration, declaration or filing by SELLER or ECPLLC with any governmental authority, domestic or foreign, federal, state or local, is required in connection with SELLER's OR ECPLLC's execution, delivery and performance of this Agreement. Except as set forth in the ECPLLC Disclosure Schedule, no consents of any other parties are required to be received by or on the part of SELLER or ECPLLC to enable SELLER and ECPLLC to enter into and carry out this Agreement.

4.7            Adverse Developments.  Since June 30, 2016, there have been no material adverse changes in the assets, liabilities, properties, operations or financial condition of ECPLLC, and no event has occurred other than in the ordinary and usual course of business or as set forth in the ECPLLC Financial Statements which could be reasonably expected to have a materially adverse effect upon ECPLLC.

4.8            Taxes.  ECPLLC has duly filed all required tax returns. All such returns were, when filed, and to SELLER's knowledge, were accurate and complete in all material respects and were prepared in conformity with applicable laws and regulations. ECPLLC has paid in full all taxes through June 30, 2016. ECPLLC is not a party to any pending action or proceeding by any governmental authority for the assessment of any tax, and, to the knowledge of ECPLLC, no claim for assessment or collection of any tax has been asserted against ECPLLC that have not been paid. There are no tax liens upon the assets of ECPLLC. There is no valid basis, to ECPLLC 's knowledge, for any assessment, deficiency, notice,

 

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30-day letter or similar intention to assess any tax to be issued to ECPLLC by any governmental authority.

4.9            Litigation.  Except as set forth on the ECPLLC Disclosure Schedule, there is no material claim, action, proceeding, or investigation pending or, to their knowledge, threatened against or affecting SELLER or ECPLLC before or by any court, arbitrator or governmental agency or authority. There are no material decrees, injunctions or orders of any court, governmental department, agency or arbitration outstanding against SELLER or ECPLLC.

4.10        Compliance with Laws and Regulations.  ECPLLC has complied and is presently complying, in all material respects, with all laws, rules, regulations, orders and requirements applicable to it in all jurisdictions in which its operations are currently conducted or to which it is currently subject.

4.11        Governmental Licenses, Permits and Authorizations.  ECPLLC has all governmental licenses, permits, authorizations and approvals necessary for the conduct of its business as currently conducted. All such licenses, permits, authorizations and approvals are in full force and effect, and no proceedings for the suspension or cancellation of any thereof is pending or threatened.

4.12        Liabilities.  ECPLLC has no material direct or indirect Liabilities, as that term is defined in Section 3.22 ("ECPLLC Liabilities"), whether or not of a kind required by generally accepted accounting principles to be set forth on a financial statement, other than (i) ECPLLC Liabilities fully and adequately reflected or reserved against on the ECPLLC Balance Sheet, (ii) ECPLLC Liabilities incurred in the ordinary course of the business of ECPLLC, and (iii) ECPLLC Liabilities otherwise disclosed in this Agreement, including the Exhibits hereto.

4.13        SELLER's Representations Regarding LIBE Shares.

(a)            SELLER acknowledges that LIBE has limited assets and business and that the LIBE Shares are speculative and involve a high degree of risk, including among many other risks that the LIBE Shares will be restricted as elsewhere described in this Agreement and will not be transferable unless first registered under the Securities Act of 1933, as amended ("Act"), or pursuant to an exemption from the Act's registration requirements.

(b)            SELLER has access on EDGAR to all of LIBE's reports filed with the SEC and SELLER have had an opportunity to ask questions of and receive answers from LIBE regarding its business, assets, results of operations, financial condition and plan of operation and the terms and conditions of the issuance of the LIBE Shares.

(c)            SELLER is an "accredited investor" as that term is defined in Regulation 501 of the Securities Act of 1933, as amended and are each acquiring the LIBE Shares for his own account, and not for the account of any other person other than for the benefit of SELLER, and SELLER has no current intent to make any resale, pledge, hypothecation, distribution or public offering of the LIBE Shares except as permitted by applicable law.

(d)            SELLER, acting with the assistance of counsel and other professional advisers, possess such knowledge and experience in financial, tax and business matters as to enable him to utilize the information made available by LIBE, to evaluate the merits and risks of acquiring the LIBE Shares and to make an informed investment decision with respect thereto.

(e)            SELLER was not solicited by LIBE or anyone on LIBE's behalf to enter into any transaction by any form of general solicitation or general advertising, as those terms are defined in Regulation D of the Securities Act of 1933, as amended.

4.14        Contracts and Other Commitments.  Schedule 4.14 of the ECPLLC Disclosure Schedule consists of a true and complete list of all material contracts, agreements, commitments and other instruments (whether oral or written) to which ECPLLC is a party. ECPLLC has made or will make available to LIBE a copy of each such contract. All such contracts are valid and binding upon ECPLLC and are in full force and effect and are enforceable in accordance with their respective terms. No such contracts are in breach, and no event has occurred which, with the lapse of time or action by a third party, could result in a material default under the terms thereof. To ECPLLC's knowledge, no stockholder of ECPLLC has received any payment from any contracting party in connection with or as an inducement for causing ECPLLC to enter into any such contract.

 

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4.15        Absence of Certain Changes or Events.  Except as set forth in the ECPLLC Disclosure Schedule, since June 30, 2016, (the "Balance Sheet Date"), there has not been:

(a)            any material adverse change in the financial condition, properties, assets, liabilities or business of ECPLLC;

(b)            any material damage, destruction or loss of any material properties of ECPLLC, whether or not covered by insurance;

(c)            any material adverse change in the manner in which the business of ECPLLC and has been conducted;

(d)            any material adverse change in the treatment and protection of trade secrets or other confidential information of ECPLLC; and

(e)            any occurrence not included in paragraphs (a) through (d) of this Section 4.15 which has resulted, or which ECPLLC has reason to believe, might be expected to result in a material adverse change in the business or prospects of ECPLLC.

4.16        Financial Statements.  At closing, the ECPLLC Disclosure Schedule will contain unaudited financial statements for the year ending December 31, 2015 and unaudited financial statements at September 30, 2016 (collectively the "Financial Statements"). EOCO was organized in the State of Oregon on September 18, 2014. The ECPLLC Financial Statements present fairly, in all material respects, the financial position on the dates thereof and results of operations of ECPLLC for the periods indicated, prepared in accordance with GAAP, consistently applied. There are no assets of ECPLLC the value of which is materially overstated in said balance sheets.

4.17        ECPLLC Motor Vehicles.  Schedule 4.17 of the ECPLLC Disclosure Schedule sets forth a complete and correct list and summary description of all motor vehicles owned by ECPLLC or in which ECPLLC has a beneficial interest. Except as otherwise set forth in Schedule 4.17 all such motor vehicles are owed by ECPLLC.  ECPLLC is not currently in receipt of any notice of any violation from any regulatory agency.

4.18        Subsidiaries.  ECPLLC owns no subsidiaries nor does it own or have an interest in any other corporation, partnership, joint venture or other entity.

4.19        Hazardous Materials.  To the knowledge of ECPLLC, ECPLLC has not violated, or received any written notice from any governmental authority with respect to the violation of any law, rule, regulation or ordinance pertaining to the use, maintenance, storage, transportation or disposal of "Hazardous Materials." As used herein, the term "Hazardous Materials" means any substance now or hereafter designated which is found to be toxic or harmful to humans or the environment when present in certain amounts or quantities.

4.20        Employees.  ECPLLC has no employees that are represented by any labor union or collective bargaining unit.

4.21        Employee Benefit Plans.  The ECPLLC Disclosure Schedule identifies each salary, bonus, material deferred compensation, material incentive compensation, stock purchase, stock option, severance pay, termination pay, hospitalization, medical, insurance, supplemental unemployment benefits, profit-sharing, pension or retirement plan, program or material agreement.

4.22        Business Locations.  ECPLC rents offices and dispatch center in Portland, Oregon. ECPLLC does not own or lease any real or personal property in any other location.

4.23        Insurance.  Except as set forth in Schedule 4.23 of the ECPLLC Disclosure Schedule, ECPLLC has no insurance policies in effect.

4.24        No Omission or Untrue Statement.  No representation or warranty made by SELLER or ECPLLC to LIBE or PRINCIPAL LIBE SHAREHOLDER in this Agreement contains any untrue statement of a material fact or omits

 

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or will omit to state a material fact necessary to make the statements contained herein or therein not misleading.

ARTICLE V

CLOSING

5.1            Closing.  The Exchange shall be completed on the first business day after the day on which the last of the conditions contained in this Article V is fulfilled or waived (the "Closing Date"); provided, however, that in no event shall the Closing occur later than October 31, 2016, unless otherwise agreed to by the parties in writing. The Closing shall take place as the parties may agree. At the Closing, PRINCIPAL LIBE SHAREHOLDER, LIBE, SELLER and ECPLLC shall make the deliveries contemplated by this Agreement, and in accordance with the terms of this Agreement.

5.2            LIBE's and PRINCIPAL LIBE SHARHOLDER'S Closing Deliveries.  At the Closing, in addition to documents referred elsewhere, LIBE and PRINCIPAL LIBE SHAREHOLDER shall cause to be delivered to SELLER:

(a)            a certificate, dated as of the Closing Date, executed by the President or Chief Executive Officer of LIBE, to the effect that the representations and warranties contained in this Agreement are true and correct in all material respects at and as of the Closing Date and that LIBE has complied with or performed in all material respects all terms, covenants and conditions to be complied with or performed by LIBE on or prior to the Closing Date;

(b)            certificates representing the Restricted Common Shares and 10,000,000 shares of Series A Preferred Stock;

(c)            certified resolution of the Board of Directors and shareholders authorizing and approving the transactions set forth herein;

(d)            proof that all of the outstanding liabilities of LIBE have been paid in full; and, (e)  such other documents as SELLER or their counsel may reasonably require.

5.3            ECPLLC's Closing Deliveries.  At the Closing, in addition to documents referred to elsewhere, SELLER shall deliver to LIBE:

(a)            a certificate of SELLER dated as of the Closing Date that the representations and warranties of SELLER contained in this Agreement are true and correct in all material respects and that SELLER have complied with or performed in all material respects all terms, covenants, and conditions to be complied with or performed by SELLER on or prior to the Closing Date;

(b)            an Assignment, duly endorsed, assigning the ECPLLC Membership Interest to Libe;

(c)            such other documents as LIBE or its counsel may reasonably require.

ARTICLE VI

CONDITIONS TO OBLIGATIONS OF LIBE

The obligation of LIBE to consummate the Closing is subject to the following conditions, any of which may be waived by it in its sole discretion.

6.1            Compliance by SELLER and ECPLLC.  SELLER and ECPLLC shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with in all material respects by SELLER and ECPLLC prior to or on the Closing Date.

6.2            Accuracy of SELLER's and ECPLLC Representations.  SELLER's and ECPLLC's representations and warranties contained in this Agreement (including the Disclosure Schedule) or any schedule, certificate, or other

 

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instrument delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true and correct in all material respects at and as of the Closing Date (except for such changes permitted by this Agreement) and shall be deemed to be made again as of the Closing Date.

6.3            Documents.  All documents and instruments required hereunder to be delivered by SELLER and ECPLLC to LIBE at the Closing shall be delivered in form and substance reasonably satisfactory to LIBE and its counsel.

6.4            Litigation.  No litigation seeking to enjoin the transactions contemplated by this Agreement or to obtain damages on account hereof shall be pending or, to ECPLLC's knowledge, be threatened.

6.5            Material Adverse Change.  Except for operations in the ordinary course of business, no material adverse change shall have occurred subsequent to June 30, 2016 in the financial position, results of operations, assets, or liabilities of ECPLLC, nor shall any event or circumstance have occurred which would result in a material adverse change in the financial position, results of operations, assets, or liabilities of ECPLLC.

6.6            Approval by ECPLLC.  The Managing Member and owners of ECPLLC shall have approved in writing this Agreement and the transactions contemplated hereby.

6.7            Satisfaction with Due Diligence.  LIBE shall have been satisfied with its due diligence review of ECPLLC and its operations.

6.8            Regulatory Compliance.  ECPLLC shall have received any and all regulatory approvals and consents required to complete the transactions contemplated hereby.

6.9            Ownership Maintenance.  At Closing Principal LIBE Shareholder will own 11% of the total outstanding common shares of LIBE. If at any time within six months after the Closing Date, LIBE issues additional shares of common stock other than Permitted Issuances, Principal LIBE Shareholder will be issued additional shares of common stock in order to maintain his ownership at 11% of the total outstanding shares of common stock of LIBE as such percentage is reduced by Permitted Issuances or by sales of stock by the Principal LIBE Shareholder. "Permitted Issuances" means (1) any shares issued in connection with capital formation in an arm's length transaction, (2) employee stock options or warrants issued to service providers, or (3) shares of LIBE common stock or LIBE Convertible Notes issued in exchange for convertible notes of EPCLLC outstanding as of the Closing Date.

 

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ARTICLE VII

CONDITIONS TO SELLER's AND ECPLLC's OBLIGATIONS

The obligation of SELLER and ECPLLC to consummate the Closing is subject to the following conditions, any of which may be waived by SELLER and ECPLLC in their discretion.

7.1            Compliance by LIBE and PRINCIPAL LIBE SHAREHOLDER.  LIBE and PRINCIPAL LIBE SHAREHOLDER shall have performed and complied in all material respects with all agreements and conditions required by this Agreement to be performed or complied with by them prior to or on the Closing Date.

7.2            Accuracy of Representations of LIBE and PRINICIPAL LIBE SHAREHOLDER.  The representations and warranties of LIBE and PRINCIPAL LIBE SHAREHOLDER contained in this Agreement (including the exhibits hereto and the LIBE Disclosure Schedule) or any schedule, certificate, or other instrument delivered pursuant to the provisions hereof or in connection with the transactions contemplated hereby shall be true and correct in all material respects at and as of the Closing Date (except for changes permitted by this Agreement) and shall be deemed to be made again as of the Closing Date.

7.3            Continuation as Publicly Traded Company.  LIBE will continue to remain reporting with the SEC, pursuant to Section 13 of the Securities Exchange Act of 1934, as amended, for a minimum of ten years from the date of Closing and cause its shares to continue to be listed for trading on the OTC Markets for the same period of time.

7.4            Litigation.  No litigation seeking to enjoin the transactions contemplated by this Agreement or to obtain damages on account hereof shall be pending or to LIBE's knowledge be threatened.

7.5            Documents.  All documents and instruments required hereunder to be delivered by LIBE and PRINCIPAL LIBE SHAREHOLCER at the Closing shall be delivered in form and substance reasonably satisfactory to SELLER and ECPLLC and their counsel.

7.6            Liabilities.  Except as set forth in Section 7.6 of the LIBE Disclosure Schedule, LIBE shall have no liabilities except as incurred in the ordinary course of business, as reflected on LIBE's most recent balance sheet, or as otherwise approved by SELLER.

7.7            Approval by Board of Directors.  The board of directors of LIBE shall have approved this Agreement.

7.8            Satisfaction with Due Diligence.  SELLER shall have been satisfied with their due diligence review of LIBE and satisfied themselves that LIBE continues to trade its shares on OTC Market under the designation PINK.

7.9            Regulatory Compliance.  LIBE shall have received any and all regulatory approvals and consents required to complete the transactions contemplated hereby.

7.10        Ingestion of Capital.  LIBE or others shall have paid all of LIBE's outstanding liabilities and LIBE shall

have executed an agreement with third parties for the ingestion of $200,000 of capital to LIBE, payable on Closing.

7.11        Payment to PRINCIPAL LIBE SHAREHOLDER.  PRINCIPAL LIBE SHAREHOLDER shall have been paid $15,000 from EEPLLC or a third party.

ARTICLE VIII

TERMINATION

8.1            Termination Prior to Closing.

 

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(a)            If the Closing has not occurred by October 31, 2016, any party may terminate this Agreement at any time thereafter by giving written notice of termination to the other, provided, however, that no party may terminate this Agreement if such party has breached any material terms or conditions of this Agreement and such breach has prevented the timely closing of the Exchange. Notwithstanding the above, such deadline may be extended one or more times, only by mutual written consent of SELLER and LIBE.

(b)            Prior to October 31, 2016, any party may terminate this Agreement following the insolvency or bankruptcy of the other party hereto, or if any one or more of the conditions to Closing set forth in Article VI or Article V II shall become incapable of fulfillment or there shall have occurred a material breach of this Agreement and either such condition of breach shall not have been waived by the party for whose benefit the condition was established, then LIBE (in the case of a condition in Article VI) or SELLER (in the case of a condition specified in Article VII) may terminate this Agreement. In addition, either LIBE or SELLER or ECPLLC may terminate this Agreement upon written notice to the other if it shall reasonably determine that the Exchange has become inadvisable by reason of the institution or threat by an y federal, state or municipal governmental authorities of a formal investigation or of any action, suit or proceeding of any kind against either or both parties.

8.2            Consequences of Termination.  Upon termination of this Agreement pursuant to this Article VIII or any other express right of termination provided elsewhere in this Agreement, the parties shall be relieved of any further obligation under this Agreement except for the obligations in Section 11.4; provided, however, that no termination of this Agreement, pursuant to this Article VIII hereof or under any other express right of termination provided elsewhere in this Agreement shall operate to release any party from any liability to any other party incurred otherwise than under this Agreement before the date of such termination, or from any liability resulting from any willful misrepresentation of a material fact made in connection with this Agreement or willful breach of any material provision hereof.

 

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ARTICLE IX

ADDITIONAL COVENANTS

9.1            Mutual Cooperation.  The parties hereto will cooperate with each other, and will use all reasonable efforts to cause the fulfillment of the conditions to the parties' obligations hereunder and to obtain as promptly as possible all consents, authorizations, orders or approvals from each and every third party, whether private or governmental, required in connection with the transactions contemplated by this Agreement.

9.2            Changes in Representations and Warranties of a Party.  Between the date of this Agreement and the Closing Date, no party shall directly or indirectly, enter into any transaction, take any action, or by inaction permit an otherwise preventable event to occur, which would result in any of the representations and warranties of such party herein contained not being true and correct at and as of the Closing Date. Each party shall promptly give written notice to the other parties upon becoming aware of (a) any fact which, if known on the date hereof, would have been required to be set forth or disclosed pursuant to this Agreement, and (b) any impending or threatened breach in any material respect of any of the party's representations and warranties contained in this Agreement and with respect to the latter shall use all reasonable efforts to remedy same.

9.3            Name Change.  As soon as practicable after completing the acquisition of ECPLLC, LIBE will change its name to EcoCab USA, Inc.

9.4            SEC Filings.  The parties agree that the following filing shall be made with the Securities and Exchange Commission ("Commission"): (a) a report on Form 8-K will be filed with the Commission disclosing the execution of this Agreement and subsequently, the completion of the terms thereof.

9.5            Conduct of Business.  During the period from the date of this Agreement until the earlier of the Closing Date or the termination of this Agreement in accordance with its terms, ECPLLC and LIBE shall continue to conduct their businesses and maintain their business relationships in the ordinary and usual course consistent with past practice and will not, without the prior written consent of the other party:

(a)            Sell, lease, assign transfer or otherwise dispose of any of its material assets, including cash;

(b)            Agree to, or assume guarantee, endorse or otherwise in any way be or become responsible or liable for, directly or indirectly, any material contingent obligation;

(c)            Make any material capital expenditures;

(d)            Enter into any transaction concerning a merger or consolidation other than with the other party hereto or liquidate or dissolve itself (or suffer any liquidation or dissolution) or convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of related transactions, all or a substantial part of its property, business, or assets, or stock or securities convertible into stock of any subsidiary, or make any material change in the present method of conducting business;

(e)            Declare or pay any dividends or make any other distribution (whether in cash or property) on any shares of its capital stock or purchase, redeem, retire or otherwise acquire for value any shares of its capital stock or warrants or options whether now or hereafter outstanding;

(f)            Make any advances or loans to, or investments in any person, firm, corporation or other business entity not a party to this Agreement;

(g)            Enter into any new material agreement or be or become liable under any new material agreement, for the lease, hire or use of any real or personal property; or

(h)            Create, incur, assume or suffer to exist, any mortgage, pledge, lien, charge, security interest or encumbrance of any kind upon any of its property or assets, income or profits, whether now owned or hereafter acquired.

 

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ARTICLE X

SECURITIES & INDEMNIFICATION

10.1        LIBE Shares Not Registered.  SELLER has been advised that the LIBE Shares have not been and when issued, will not be registered under the Securities Act of 1933, the securities laws of any state of the United States or the securities laws of any other country and that in issuing and selling the LIBE Shares to SELLER pursuant hereto, LIBE is relying upon the "safe harbor" provided by Regulation 506 of Regulation D of the Securities Act of 1933, as amended. Resales of the LIBE Shares may only be made pursuant to an effective registration statement or the availability of an exemption from registration. All certificates evidencing the LIBE Shares shall, unless and until removed in accordance with law, bear a restrictive legend substantially in the following form:

The securities evidenced hereby have not been registered under the Securities Act of 1933, as amended, nor any other applicable securities act (the "Acts"), and may not be sold, transferred, assigned, pledged or otherwise distributed, unless there is an effective registration statement under such Acts covering such securities or the Company receives an opinion of counsel for the holder of these securities (concurred on by counsel for the Company) stating that such sale, transfer, assignment, pledge or distribution is exempt from or in compliance with the registration and prospectus delivery requirements of such Acts.

10.2        Indemnification by LIBE and PRINCIPAL LIBE SHAREHOLDER.  LIBE and PRINCIPAL LIBE SHAREHOLDER shall indemnify SELLER and ECPLLC in respect of, and hold SELLER and ECPLLC harmless against, any and all debts, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), monetary damages, fines fees, penalties, interest obligations, deficiencies, losses and expenses (including without limitation attorneys fees and litigation costs) incurred or suffered by SELLER or ECPLLC.

 

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(a)            resulting from any misrepresentation, breach of warranty or failure to perform any covenant or agreement of LIBE contained in this Agreement; and

(b)            resulting from any liability of LIBE incurred or resulting from activities that took place prior to the Closing not disclosed on the LIBE Disclosure Schedule.

10.3            Indemnification by SELLER and ECPLLC.  SELLER and ECPLLC shall jointly and severally indemnify LIBE and PRINCIPAL LIBE SHAREHOLDER in respect of, and hold LIBE and PRINCIPAL LIBE SHAREHOLDER harmless against, any and all debts, obligations and other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or whether known or unknown, or due or to become due or otherwise), monetary damages, fines fees, penalties, interest obligations, deficiencies, losses and expenses (including without limitation attorneys fees and litigation costs) incurred or suffered by LIBE or PRINCIPAL LIBE SHAREHOLDER:

(a)            resulting from any misrepresentation, breach of warranty or failure to perform any covenant or agreement of SELLER contained in this Agreement; and,

(b)            resulting from any liability of SELLER incurred or resulting from activities that took place prior to the Closing not disclosed on the ECPLLC Financial Statements.

ARTICLE XI

LEAK OUT OF SHARES

11.1        Restriction on Trades.  With respect to his shares of LIBE common stock, PRINCIPAL LIBE SHAREHOLDER agrees that, for a two-year period beginning on the Closing Date (the "Leak Out Period"), he may not trade more than 10% of the day's total trading volume. PRINCIPAL LIBE SHAREHOLDER will not engage in any short selling of LIBE common stock during the Leak Out Period.

11.2        Legend.  An appropriate legend describing this Agreement shall be imprinted on each stock certificate representing Common Stock covered hereby, and the transfer records of the Company's transfer agent shall reflect such appropriate restrictions.

11.3        Permitted Transfer.  Notwithstanding the foregoing, PRINCIPAL LIBE SHAREHOLDER (and any transferee of his) may transfer any LIBE common stock: (i) to any trust, partnership, corporation or other entity formed for the direct or indirect benefit of the undersigned or the immediate family of the undersigned, provided that prior to such transfer a duly authorized officer, representative or trustee of such transferee agrees in writing to be bound by the restrictions set forth herein, and provided further that any such transfer shall not involve a disposition for value, (ii) to non- profit organizations qualified as charitable organizations under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or (iii) if such transfer occurs by operation of law, such as rules of descent and distribution, statutes governing the effects of a merger or a qualified domestic order, provided that prior to such transfer the transferee executes an agreement stating that the transferee is receiving and holding any LIBE common stock subject to the provisions of this Agreement. For purposes hereof, "immediate family" means any relationship by blood, marriage or adoption, not more remote than first cousin.

ARTICLE XI

MISCELLANEOUS

12.1        Expenses.  Each party shall each pay its own expenses incident to the negotiation, preparation, and carrying out of this Agreement, including legal, accounting and audit fees.

12.2        Survival of Representations, Warranties and Covenants.  All statements contained in this Agreement

 

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or in any certificate delivered by or on behalf of parties pursuant hereto, or in connection with the actions contemplated hereby shall be deemed representations, warranties and covenants by the parties as the case may be, hereunder. All representations, warranties, and covenants made by parties in this Agreement, or pursuant hereto, shall survive the Closing in a period of two (2) years.

12.3        Publicity.  LIBE and ECPLLC shall not issue any press release or make any other public statement, in each case, relating to, in connection with or arising out of this Agreement or the transactions contemplated hereby, without obtaining the prior approval of the other, which shall not be unreasonably withheld or delayed, except that prior approval shall not be required if, in the reasonable judgment of LIBE prior approval by SELLER would prevent the timely dissemination of such release or statement in violation of applicable federal securities laws, rules or regulations or policies of OTC Markets.

12.4        Non-Disclosure.  A disclosing party will not at any time after the date of this Agreement, without the recipient's consent, except in the ordinary operation of its business or as required by law, divulge, furnish to or make accessible to anyone any knowledge or information with respect to confidential or secret processes, inventions, discoveries, improvements, formulae, plans, material, devices or ideas or know-how, whether patentable or not, with respect to any confidential or secret aspects of such party (including, without limitation, customer lists, supplier lists and pricing arrangements with customers or suppliers) ("Confidential Information"). The parties will not at any time after the date of this Agreement and prior to the Exchange use, divulge, furnish to or make accessible to anyone any Confidential Information (other than to its representatives as part of its due diligence or corporate investigation). Any information, which (i) at or prior to the time of disclosure by the disclosing party was generally available to the public through no breach of this covenant, (ii) was available to the public on a non-confidential basis prior to its disclosure by the disclosing party, or (iii) was made available to the public from a third party provided that such third party did not obtain or disseminate such information in breach of any legal obligation of the disclosing party, shall not be deemed Confidential Information for purposes hereof, and the undertakings in this covenant with respect to Confidential Information shall not apply thereto. The undertakings of the parties set forth above in this Section 12.4 shall terminate upon consummation of the Closing. If this Agreement is terminated pursuant to the provisions of Article VIII or any other express right of termination set forth in this Agreement, the recipient shall return to the disclosing party all copies of all Confidential Information previously furnished to it by the disclosing party.

12.5        Succession and Assignments and Third Party Beneficiaries.  This Agreement may not be assigned (either voluntarily or involuntarily) by any party hereto without the express written consent of the other parties. Any attempted assignment in violation of this Section shall be void and ineffective for all purposes. In the event of an assignment permitted by this Section, this Agreement shall be binding upon the heirs, successors and assigns of the parties hereto. There shall be no third party beneficiaries of this Agreement except as expressly set forth herein to the contrary.

12.6        Notices.  All notices, requests, demands, or other communications with respect to this Agreement shall be in writing and shall be (i) sent by facsimile transmission, (ii) sent by the United States Postal Service, registered or certified mail, return receipt requested, or (iii) personally delivered by a nationally recognized express overnight courier service, charges prepaid, to the following addresses (or such other addresses as the parties may specify from time to time in accordance with this Section):

	 	
If, to LIBE or PRINCIPAL

	
Brian P. Conway

	 	
LIBE SHAREHOLDER:

	
LIBERATED ENERGY, INC.

	 	 	
15 Elvis Boulevard

	 	 	
Chester, New York 10918

	 	 	
Tel: (845) 610-3817

	 	 	 
	 	 	 
	 	
If, to ECPLLC:

	 
	 	 	
EcoCab Portland, LLC

	 	 	
3250 Northwest Yeon Avenue, Suite 4-6 W

	 	 	
Portland, OR 97210

	 	 	 

 

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Any such notice shall, when sent in accordance with the preceding sentence, be deemed to have been given and received on the earliest of (i) the day delivered to such address or sent by facsimile transmission, (ii) the tenth business day following the date deposited with the United States Postal Service, as the case may be, or (iii) 72 hours after shipment by such courier service.

12.7        Construction. This Agreement shall be construed and enforced in accordance with the internal laws of the State of Nevada without giving effect to the principles of conflicts of law thereof. All parties hereby irrevocably submit to the exclusive jurisdiction of any state or federal court sitting in the state of Nevada for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waive, and agree not to assert in any suit, action or proceeding, any claim that he is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper.

12.8        Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which shall together constitute one and the same Agreement.

12.9        No Implied Waiver; Remedies. No failure or delay on the part of the parties hereto to exercise any right, power, or privilege hereunder or under any instrument executed pursuant hereto shall operate as a waiver nor shall any single or partial exercise of any right, power, or privilege preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. All rights, powers, and privileges granted herein shall be in addition to other rights and remedies to which the parties may be entitled at law or in equity.

12.10     Entire Agreement. This Agreement, including the Exhibits and Disclosure Schedules attached hereto, sets forth the entire understandings of the parties with respect to the subject matter hereof, and it incorporates and merges any and all previous communications, understandings, oral or written as to the subject matter hereof, and cannot be amended or changed except in writing, signed by the parties.

12.11     Headings. The headings of the Sections of this Agreement, where employed, are for the convenience of reference only and do not form a part hereof and in no way modify, interpret or construe the meanings of the parties.

12.12     Severability. To the extent that any provision of this Agreement shall be invalid or unenforceable, it shall be considered deleted hereof and the remainder of such provision and of this Agreement shall be unaffected and shall continue in full force and effect.

12.13     Attorneys Fees. In the event any legal action is brought to interpret or enforce this Agreement, the party prevailing in such action shall be entitled to recover its attorneys' fees and costs in addition to any other relief that it is entitled.

12.14     Consultants. Each party represents to the others that there is no broker or finder entitled to a fee or other compensation for bringing the parties together to effect the Exchange.

IN WITNESS WHEREOF, the parties hereto have executed this Agreement the day and year first above written.

	
LIBE:

	
Liberated Energy, Inc.

	 	
a Nevada Corporation

	 	 	 	 
	 	 	 	 
	 	 	
By:

	
BRIAN P. CONWAY

	 	 	 	
Brian P. Conway, President

 

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PRINCIPAL LIBE SHAREHOLDER:

	
BRIAN P. CONWAY

	 	
Brian P. Conway

	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	 	 	 	 
	
ECPLLC:

	
EcoCab Portland, LLC, an Oregon limited liability company

	 	 	 	 
	 	 	
By:

	
RON KNORI

	 	 	 	
Ron Knori, Managing Member

	 	 	 	 
	 	 	 	 
	 	 	 	 
	
SELLER:

	
RON KNORI

	 	
Ron Knori

 

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LIBE Disclosure Schedule

3.13            Financial Statements.

LIBE Balance Sheet as of September 13, 2016

	 	 	 	 	 	 	
Sep 13, 16

	
ASSETS

	 	 	 	 
	 	
Current Assets

	 
	 	 	
Checking/Savings

	 
	 	 	 	
Wells Fargo

	 
	 	 	 	 	
Checking 0195

	
7,161.13

	 	 	 	
Total Wells Fargo

	
7,161.13

	 	 	
Total Checking/Savings

	
7,161.13

	 	
Total Current Assets

	
7,161.13

	
TOTAL ASSETS

	 	
7,161.13

	
LIABILITIES & EQUITY

	 
	 	
Liabilities

	 	 	 
	 	 	
Current Liabilities

	 
	 	 	 	
Other Current Liabilities

	 
	 	 	 	 	
Accrued Interest

	
18,896.63

	 	 	 	 	
Convertible Notes

	 
	 	 	 	 	 	
Care bourn

	
355,259.70

	 	 	 	 	 	
Craig Savin

	
20,000.00

	 	 	 	 	 	
Service Trading Company

	
22,000.00

	 	 	 	 	
Total Convertible Notes

	
397,259.70

	 	 	 	 	
Received for Stock

	
50,000.00

	 	 	 	
Total Other Current Liabilities

	
466,156.33

	 	 	
Total Current Liabilities

	
466,156.33

	 	
Total Liabilities

	
466,156.33

	 	
Equity

	 	 	 	 
	 	 	
Capital Stock

	
788.00

	 	 	
Paid In Capital

	
745,515.38

	 	 	
Preferred Stock

	
10,000.00

	 	 	
Retained Earnings

	
-1,083,231.59

	 	 	
Net Income

	
-132,066.99

	 	
Total Equity

	 	
-458,995.20

	
TOTAL LIABILITIES & EQUITY

	
7,161.13

 

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The $355,359.70 balance indicated for Carebourn Capital L.P. is in respect of promissory notes convertible into common stock of LIBE at a discount to the market trading price. The indicated balance reflects the LIBE's estimate of the actual cost to LIBE of the promissory notes, given the conversion discount feature. By face amount, the outstanding principal and accumulated interest balance of all promissory notes held by Carebourn Capital as of September 12, 2016 is as follows:

	 	
Principal

	 	
Interest

	
Carebourn Capital L.P.

	
$18,000

	 	
$18,485.26

	 	
$21,000

	 	
$22,125.37

	 	
$28,000

	 	
$29,914.74

	 	
$23,000

	 	
$23,000.00

	 	
$198,000.00

	 	
$0.00

Similarly, the outstanding principal balance of the promissory note held by Service Trading Co. is as follows:

	
Service Trading Co.

	
$22,000

	 	
$23,500.00

4.12            Liabilities.

One of LIBE's lenders, LG Capital Funding LLC, by email, accepted LIBE's offer to settle their outstanding convertible promissory note for $85,000. LIBE promptly delivered a check to LG Capital Funding for $85,000, which in the LIBE's view formed a binding contract with LIBE to settle the debt. Without returning the check, LG Capital Funding took action in conflict with the settlement agreement, by attempting to convert part the promissory note into 39,197 shares of restricted LIBE common stock. LIBE's position is that the settlement was binding and that the attempt to convert the note is a breach of contract. LIBE will seek an injunction to prevent the issuance of shares in respect of the note conversion and enforce the settlement agreement.

 

-21-

ECPLLC Disclosure Schedule

4.5               Capitalization of ECPLLC

ECPLLC has outstanding $235,000 principal amount of convertible notes convertible into membership interests of ECPLLC at the election of the holders at any time before the First Payment Date as defined in the notes. The First Payment Dates range from January 1, 2017 to October 1, 2017. At January 1, 2017, the convertible notes (principal and accumulated interest) will be convertible into an aggregate 4.91% ownership interest of ECPLLC. EPCLLC has discussed with the noteholders the possible exchange of the convertible notes for promissory notes of LIBE that would be convertible into shares of LIBE common stock, but no definitive agreements have been reached.

ECPLLC's outside legal counsel holds a warrant for 0.87% ownership interest of the Company. The warrant has an exercise price of $50,000 and a ten year term. ECPLCC has agreed to exchange it for a warrant for 222,909 shares of common stock of LIBE with the same exercise price and term.

 

-22-

4.17            Motor Vehicles

	
Eco Cab Portland LLC Atlas Vehicle Schedule as of September 13, 2016-CA16936P2016Policy #

	
Veh#

	
Year

	
Make

	
Model

	
Vehicle ID Number

	
Stated Value

	
1

	
2015

	
Tesla

	
Model S

	
5YJSA1H18FFP70935

	
96,360

	
2

	
2015

	
Tesla

	
Model S

	
5YJSA1H16FFP69380

	
96,360

	
3

	
2015

	
Tesla

	
Model S

	
5YJSA1H18EFP62543

	
105,450

	
4

	
2013

	
Nissan

	
Leaf

	
1N4AZ0CP5DC409799

	
18,000

	
5

	
2013

	
Nissan

	
Leaf

	
1N4AZ0CP2DC408822

	
18,000

	
6

	
2013

	
Nissan

	
Leaf

	
1N4AZ0CP7DC408007

	
18,000

	
7

	
2013

	
Nissan

	
Leaf

	
1N4AZ0CP8DC405150

	
18,000

	
8

	
2013

	
Nissan

	
Leaf

	
1N4AZ0CP9DC407523

	
18,000

	
9

	
2013

	
Nissan

	
Leaf

	
1N4AZ0CPXDC411063

	
18,000

	
10

	
2013

	
Nissan

	
Leaf

	
1N4AZ0CP7DC403177

	
18,000

	
11

	
2013

	
Nissan

	
Leaf

	
1N4AZ0CP8DC402121

	
18,000

	
12

	
2014

	
MVLLC

	
MV-1

	
57WMD2A67EM101858

	
51,159

	
13

	
2014

	
MVLLC

	
MV-1

	
57WMD2A6XEM101806

	
51,159

	
14

	
2013

	
Nissan

	
Leaf

	
1N4AZ0CP6DC403817

	
18,000

	
15

	
2015

	
Tesla

	
Model S

	
5YJSA4H16FFP73012

	
95,370

	
16

	
2015

	
Tesla

	
Model S

	
5YJSA4H17FFP73049

	
93,470

	
17

	
2015

	
Tesla

	
Model S

	
5YJSA4H13FFP76188

	
94,820

	
18

	
2014

	
Tesla

	
Model S

	
5YJSA1H1XEFP37692

	
94,240

	
19

	
2014

	
Tesla

	
Model S

	
5YJSA1H19EFP30507

	
94,420

	
20

	
2014

	
MVLLC

	
MV-1

	
57WMD1A63EM100605

	
38,900

	
21

	
2014

	
MVLLC

	
MV-1

	
57WMD1A67EM100610

	
38,900

	
22

	
2014

	
MVLLC

	
MV-1

	
57WMD2A69EM101795

	
38,900

	
23

	
2016

	
Ford

	
Trasit 150 Van

	
1FMZK1CM1GKA15512

	
48,000

	
24

	
2016

	
Ford

	
Trasit 150 Van

	
1FMZK1CM3GKA15513

	
48,000

	
25

	
2016

	
MVLLC

	
MV-1

	
57WMD1A6XEM100715

	
35,000

	
26

	
2014

	
Tesla

	
Model S

	
5YJSA1H11EFP62190

	
70,000

	
27

	
2015

	
Tesla

	
Model S85

	
5YJSA1E15FF114664

	
70,000

	
28

	
2014

	
Tesla

	
Model S

	
5YJSA1H1XEFP62494

	
70,000

	
29

	
2015

	
Ford

	
Trasit 150 Van

	
1FTNE1CM1FKB29583

	
40,000

	
30

	
2015

	
Ford

	
Trasit 150 Van

	
1FTNE1CM3FKB29584

	
40,000

	
31

	
2015

	
Ford

	
Trasit 150 Van

	
1FTNE1CMXFKB29582

	
40,000

	
32

	
2015

	
Ford

	
Trasit 150 Van

	
1FTNE1CM6FKB18367

	
40,000

Progressive Auto Schedule as of September 13, 2016-Policy #035676362

	
Veh#

	
Year

	
Make

	
Model

	
Vehicle ID Number

	
Stated Value

	
1

	
2015

	
Tesla

	
Model S P

	
5YJSA4H29FFP79900

	
125,120

	
2

	
2016

	
Tesla

	
X

	
5YJXCAE21GF003927

	
100,000

	
Liberty Auto Policy as of September 13, 2016-Policy #BAS56842886

	
Veh#

	
Year

	
Make

	
Model

	
Vehicle ID Number

	
Stated Value

	
1

	
2014

	
Tesla

	
Model S

	
5YJSA1H12EFP58083

	
96,150

 

-23-Exhibit 10.2

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

	
Principal Amount: $197,363.70

	
Issue Date: September 7, 2016

CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, Liberated Energy, Inc. a Nevada corporation (hereinafter called the "Borrower"), hereby promises to pay to the order of CAREBOURN CAPITAL, L.P., a Delaware limited partnership, or registered assigns (the "Holder") the sum of $197,363.70 together with any interest as set forth herein, on September 7, 2017 (the "Maturity Date"), and to pay interest on the unpaid principal balance hereof at the rate of 12% (The "Interest Rate") per annum from the date hereof (the "Issue Date") until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid ("Default Interest"). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the "Common Stock") in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term "business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the "Purchase Agreement").

In addition, the Borrower agrees to pay $8,000.00 to the Holder, or the Holder's designee, to cover the Holder's legal fees, accounting fees, due diligence fees, monitoring, and/or other transactional costs incurred in connection with the purchase and sale of the Note (the "Transactional Expense Amount"), all of which amount is included in the initial principal balance of this Note.

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

The following terms shall apply to this Note:

ARTICLE I. CONVERSION RIGHTS

1.1            Conversion Right. The Holder shall have the right from time to time, and at any time following Ninety (90) days after the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non- assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the "Conversion Price") determined as provided herein (a "Conversion"); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days' prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the "Notice of Conversion"), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the "Conversion Date"). The term "Conversion Amount" means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to

2

be converted in such conversion plus (2) at the Holder's option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder's option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

1.2            Conversion Price.

Calculation of Conversion Price. The conversion price (the "Conversion Price") shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 50% multiplied by the Market Price (as defined herein) (representing a discount rate of 50%). In the event that the Borrower's shares of common stock are chilled for deposit into the DTC system and only eligible for Xclearing deposit, an additional Ten percent (10%) discount shall be added to the amount being converted at such time. "Market Price" means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the lowest price on the OTC Markets OTCQB Marketplace, or applicable trading market (the "OTCQB") as reported by a reliable reporting service ("Reporting Service") designated by the Holder (i.e. Bloomberg) or, if the OTCQB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. "Trading Day" shall mean any day on which the Common Stock is tradable for any period on the OTCQB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

1.3            Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the "Reserved Amount"). The Reserved Amount shall be increased from time to time in accordance with the Borrower's obligations pursuant to Section

4(g) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter

3

there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note. However, upon receipt of written notice from the Holder of Borrower's failure to maintain the Reserved Amount, the Borrower shall have three (3) days to cure any deficiencies in the Reserved Amount.

1.4            Method of Conversion.

(a)  Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after One Hundred Eighty Days following the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

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

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

4

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

(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

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

(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it

5

has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

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

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

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for

6

opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

1.6            Effect of Certain Events.

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

(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, or an exchange of shares, recapitalization or reorganization pursuant to a merger or consolidation, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets or more than 50% of the total outstanding shares of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extent practicable, thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization,

7

reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section 1.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.

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

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

1.7            Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the "Maximum Share Amount"), which shall be 9.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower's ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

1.8            Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares, if any, which cannot be issued because their issuance would exceed such Holder's allocated portion of the Reserved Amount or

8

Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder's rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered, adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower's failure to convert this Note.

1.9            Prepayment. Notwithstanding anything to the contrary contained in this Note, the Borrower may prepay the amounts outstanding hereunder pursuant to the following terms and conditions:

(a)            At any time during the period beginning on the Issue Date and ending on the date which is thirty (30) days following the Issue Date, the Borrower shall have the right, exercisable on not less than twenty (20) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest.

(b)            At any time during the period beginning the day which is thirty one (31) days following the Issue Date and ending on the date which is sixty (60) days following the Issue Date, the Borrower shall have the right, exercisable on not less than twenty (20) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest.

(c)            At any time during the period beginning the day which is sixty one (61) days following the Issue Date and ending on the date which is ninety (90) days following the Issue Date, the Borrower shall have the right, exercisable on not less than twenty (20) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x)

9

accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest.

(d)            At any time during the period beginning the day which is ninety one (91) days following the Issue Date and ending on the date which is one hundred twenty (120) days following the Issue Date, the Borrower shall have the right, exercisable on not less than twenty (20) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest.

(e)            At any time during the period beginning the day which is one hundred twenty one (121) days following the Issue Date and ending on the date which is one hundred fifty (150) days following the Issue Date, the Borrower shall have the right, exercisable on not less than twenty (20) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 145%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest.

(f)            At any time during the period beginning the day which is one hundred fifty one (151) days following the Issue Date and ending on the date which is one hundred eighty (180) days following the Issue Date, the Borrower shall have the right, exercisable on not less than twenty (20) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full by making a payment to the Holder of an amount in cash equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note plus (y) Default Interest.

(g)            After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

Any notice of prepayment hereunder (an "Optional Prepayment Notice") shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than twenty (20) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the "Optional Prepayment Date"), the Borrower shall make payment of the applicable prepayment amount to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower delivers an Optional Prepayment Notice and fails to pay the applicable prepayment amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9. Notwithstanding anything to the contrary in this Note, the Borrower's right

10

to prepay the amounts outstanding under this Note, in accordance with the terms and conditions of this Note, is expressly conditional upon the Holder's written acceptance, in Holder's sole discretion, of such applicable prepayment during the time that the Borrower is exercising their right to prepay this Note.

ARTICLE II. CERTAIN COVENANTS

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

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

2.4            Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business, (c) made to a pending merging partner pursuant to an agreement of merger or (c) not in excess of $100,000.

ARTICLE III. EVENTS OF DEFAULT

If any of the following events of default (each, an "Event of Default") shall occur:

3.1            Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise, following a five (5) day cure period.

3.2            Conversion and the Shares. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs, and/or hinders its

11

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

3.3            Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

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

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

3.6            Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.

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

3.8            Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCQB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock

12

Exchange, or the American Stock Exchange.

3.9            Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

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

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

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

3.13        Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.

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

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

3.16        Cross-Default. Notwithstanding anything to the contrary contained in this Note or other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained any other financial instrument, including but not limited to all convertible promissory notes, already issued, or issued in the future, by the Borrower, to the Holder or any other 3rd party, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note.

3.17        Event of Default. Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT

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SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6,

3.8, 3.9, 3.11, 3.12, 3.13, 3.14, 3.15 and/or 3.16 exercisable through the delivery of written notice to the Borrower by such Holders (the "Default Notice"), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the "Mandatory Prepayment Date") plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "Default Sum") or (ii) the "parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "Default Amount") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

ARTICLE IV. MISCELLANEOUS

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

	 

14

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

If to the Borrower, to:

Liberated Energy, Inc.

2 Coleman Court

Southampton, NJ 08088

Attention: Brian P. Conway / CEO

Email: bconway1@warwick.net

If to the Holder:

CAREBOURN CAPITAL, L.P.

8700 Black Oaks Lane N

Maple Grove, Minnesota 55311

Attn: Chip Rice, Managing Member

Email: info@carebourncapital.com

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

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

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

15

4.6            Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Florida without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of Florida or in the federal courts located in the state of Florida. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this 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 other manner permitted by law.

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

4.8            Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.

4.9            Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower's shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or

16

conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.

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

4.12        Right of First Refusal. If at any time while this Note is outstanding, the Borrower has a bona fide offer of capital or financing from any 3rd party, the Borrower must first offer such opportunity to the Holder to provide such capital or financing to the Borrower on the same terms as each respective 3rd party's terms. Should the Holder be unwilling or unable to provide such capital or financing to the Borrower within 5 days from receipt of written notice of the offer (the "Offer Notice") from the Borrower, then the Borrower may obtain such capital or financing from that respective 3rd party upon the same terms and conditions offered by the Borrower to the Holder, which transaction must be completed within 30 days after the date of the Offer Notice. If the Borrower does not complete such transaction within such time period, then the Borrower must again offer the capital or financing opportunity to the Holder on the same terms, and the process detailed above shall be repeated.

4.13        In the event that the Borrower fails to maintain the Reserved Amount as of the 115th day following the issue date of this Note, the Borrower shall issue a new note (identical in terms to the Note) which contains a principal value equal to 25% multiplied by the aggregated total principal and accrued interest owed under the Note as of that 115th day (the Penalty Note"), to the Holder, as a penalty. The issuance of the Penalty Note shall be in addition to all other applicable penalties contained herein.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this September 7, 2016.

	 	
Liberated Energy, Inc.

	 	 
	 	 	 
	 	 	 
	 	
By:

	
BRIAN P. CONWAY

	 	
Name:

	
Brian P. Conway

	 	
Title:

	
CEO

 

 

 

 

 

  

18

EXHIBIT A: NOTICE OF CONVERSION

The undersigned hereby elects to convert $_______________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note ("Common Stock") as set forth below, of Liberated Energy, Inc., a Nevada corporation (the "Borrower") according to the conditions of the convertible note of the Borrower dated as of September 7, 2016 (the "Note"), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

		[ ]	The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC Transfer").

Name of DTC Prime Broker:

Account Number:

		[ ]	The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder's calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

CAREBOURN CAPITAL, L.P.

8700 Black Oaks Lane N

Maple Grove, Minnesota 55311

Attention: Certificate Delivery

612.889.4671

Date of Conversion:                                                                                                                                            ____________

Applicable Conversion Price:                                                                                                                $___________

Number of Shares of Common Stock to be Issued

Pursuant to Conversion of the Notes:                                                                                         ____________

Amount of Principal Balance Due remaining

Under the Note after this conversion:                                                                                          ____________

CAREBOURN CAPITAL, L.P.

By: ____________________________

Name:      Chip Rice

Title:            Managing Member

8700 Black Oaks Lane N

Maple Grove, Minnesota 55311

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