Document:

hpilspa12_2716.htm - Generated by SEC Publisher for SEC Filing

 

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (this “Agreement”), dated as of         December
27, 2016, is entered into by and between HPIL
Holding, a Nevada corporation (the “Company”), and Kodiak Capital Group, LLC, a Delaware limited liability company (the “Purchaser”).

WHEREAS, subject to the terms and
conditions set forth in this Agreement and pursuant to Section 4(2) of the
Securities Act of 1933, as amended (the “Securities Act” or “1933 Act”), and
Rule 506 promulgated thereunder by the United States
Securities and Exchange Commission (the “SEC”), the Company desires to
issue and sell to the Purchaser, and the Purchaser desires to purchase from the
Company a 15% Convertible Note of the Company, in the
form attached hereto as Exhibit A, in the principal amount of $60,000.00
(together with any note(s) issued in replacement thereof or as interest thereon
or otherwise with respect thereto in accordance with the terms thereof, the
“Note”), convertible into shares (“Conversion Shares”) of common stock, $0.0001
par value per share (the “Common Stock”), of the Company, upon the terms and
subject to the limitations and conditions set forth in such Note. 

NOW, THEREFORE, IN CONSIDERATION of the
mutual covenants contained in this Agreement, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
Company and the Purchaser agree as follows:

1.     Purchase
and Sale of Note.

a)              
Purchase of Note. On the Closing Date (as
defined below), the Company shall issue and sell to the Purchaser, and the Purchaser
agrees to purchase from the Company, the Note for an aggregate purchase price
of $50,000.00 (“Purchase Price”). 

b)              
Form of Payment. On the Closing Date (i)
the Purchaser shall pay the Purchase Price by wire transfer of immediately
available funds to the Company, in accordance with the Company’s written wiring
instructions, simultaneously with delivery of the Note, and (ii) the Company
shall deliver such Note duly executed on behalf of the Company to the Purchaser,
simultaneously with delivery of such Purchase Price.

c)              
Closing Date. Subject to the satisfaction (or
written waiver) of the conditions thereto set forth in Section 6 and Section 7
below, the closing of the transactions contemplated by this Agreement (the
“Closing”) shall occur on the first business day following the date hereof or
such other mutually agreed upon time (the “Closing Date”) at the offices of
Purchaser’s counsel.

2.     Purchaser’s
Representations and Warranties. The Purchaser represents and warrants
to the Company that:

a)              
Investment Purpose. Purchaser is acquiring the Securities for its own account and not with a
view towards, or for resale in connection with, the public sale or distribution
thereof in violation of applicable securities laws; provided, however, by
making the representations herein, Purchaser does not agree, or make any
representation or warranty, to hold any of the Securities for any minimum or
other specific term and reserves the right to dispose
of the Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.  The Purchaser is acquiring the
Securities hereunder in the ordinary course of its business. The Purchaser does
not presently have any agreement or understanding, directly or indirectly, with
any person to distribute any of the Securities in violation of applicable
securities laws.

1

                                                                              

 

 

b)              
Accredited Investor Status. The Purchaser is an
“accredited investor” as that term is defined in Rule 501(a) of Regulation D
(an “Accredited Investor”).

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

d)              
Information. The Purchaser and its advisors, if
any, have been, and for so long as the Securities remain outstanding will
continue to be, furnished with all materials relating to the business, finances
and operations of the Company and materials relating to the offer and sale of
the Securities which have been reasonably requested by the Purchaser or its
advisors, provided that the Purchaser has not been furnished with, and the
Company shall not in the future deliver to the Purchaser without its consent,
any material non-public information concerning the Company. The Purchaser and
its advisors, if any, have been, and for so long as the Securities remain
outstanding will continue to be, afforded the opportunity to ask questions of
the Company. Neither such inquiries nor any other due diligence investigation
conducted by Purchaser or any of its advisors or representatives shall modify,
amend or affect Purchaser’s right to rely on the Company’s representations and
warranties contained in Section 3 below.  The Purchaser understands that its
investment in the Securities involves a significant degree of risk.

e)              
Governmental Review. The Purchaser understands
that no United States federal or state agency or any other government or
governmental agency has passed upon or made any recommendation or endorsement
of the Securities.

f)               
Transfer or Re-sale. The Purchaser understands
that (i) the sale or re-sale of the Securities has not been and is not being
registered under the 1933 Act or any applicable state securities laws, and the
Securities may not be transferred unless (a) the Securities are sold pursuant
to an effective registration statement under the 1933 Act, (b) the Purchaser
shall have delivered to the Company an opinion of counsel that shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions to the effect that the securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration, which
opinion shall be reasonably acceptable to the Company, (c) the Securities are
sold or transferred to an “affiliate” (as defined in Rule 144 promulgated under
the 1933 Act (or a successor rule) (“Rule 144”)) of the Purchaser who agrees to
sell or otherwise transfer the Securities only in accordance with this Section
2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to
Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) (“Regulation S”)
and the Purchaser shall have delivered to the Company an opinion of counsel reasonably
acceptable to the Company relating to such Regulation S; (ii) any sale of such
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of such Rule and further, if such Rule is not applicable, any re-sale of
such Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the 1933 Act) may require compliance with some other exemption under
the 1933 Act or the rules and regulations of the SEC thereunder; and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the 1933 Act or any state securities laws or to comply
with the terms and conditions of any exemption thereunder (in each case).
Notwithstanding the foregoing or anything else contained herein to the
contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending
arrangement.

2

                                                                              

 

 

g)              
Legends. The Purchaser understands that
the Securities have been issued (or will be issued in the case of the
Conversion Shares) pursuant to an exemption from registration or qualification
under the 1933 Act and applicable state securities laws, and except as set
forth below, the Securities shall bear any legend as required by the “blue sky”
laws of any state and a restrictive legend in substantially the following form
(and a stop-transfer order may be placed against transfer of such stock
certificates):     

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

The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon
which it is stamped, if, unless otherwise required by applicable state
securities laws, (a) such Security is registered for sale under an effective
registration statement filed under the 1933 Act or otherwise may be sold
pursuant to Rule 144 or Regulation S without any restriction as to the number
of securities as of a particular date that can then be
immediately sold, or (b) such holder provides the Company with an opinion of
counsel at the Company’s expense, in the form, substance and scope customary
for opinions of counsel in comparable transactions, to the effect that a public
sale or transfer of such Security may be made without registration under the
1933 Act, which opinion shall be reasonably accepted by the Company so that the
sale or transfer is effected. The Purchaser agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed,
in compliance with applicable prospectus delivery requirements, if any.

3

                                                                              

 

 

h)              
Authorization; Enforcement. This Agreement has been
duly and validly authorized. This Agreement has been duly executed and
delivered on behalf of the Purchaser, and this Agreement constitutes a valid
and binding agreement of the Purchaser enforceable in accordance with its
terms.

i)               
Prohibition on Short Sales.  From and including the date of this
Agreement, and for so long as the Purchaser holds any outstanding Notes due the
Company, the Purchaser agrees that it will neither sell the Company’s stock
short, nor direct, instruct or otherwise influence any of its affiliates,
principals or advisors to sell the Company’s stock short. 

3.     Representations
and Warranties of the Company. The Company represents and
warrants to the Purchaser, as of the date hereof and the Closing Date, that:

a)              
Organization and Qualification. The Company and
each of its Subsidiaries (as defined below), if any, is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to
carry on its business as and where now owned, leased, used, operated and
conducted. Schedule 3(a) sets forth a list of all of the Subsidiaries of the
Company and the jurisdiction in which each is incorporated. The Company and
each of its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in every jurisdiction in which its ownership
or use of property or the nature of the business conducted by it makes such qualification
necessary except where the failure to be so qualified or in good standing would
not have a Material Adverse Effect. “Material Adverse Effect” means any
material adverse effect on the business, operations, assets, financial
condition or prospects of the Company or its Subsidiaries, if any, taken as a
whole, or on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith.  “Subsidiaries” means
any corporation or other organization, whether incorporated or unincorporated,
in which the Company owns, directly or indirectly, any equity or other
ownership interest.

b)              
Authorization; Enforcement. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement and the Note and to consummate the transactions contemplated hereby
and thereby and to issue the Securities, in accordance with the terms hereof
and thereof, (ii) the execution and delivery of this Agreement and the Note by
the Company and the consummation by it of the transactions contemplated hereby
and thereby (including without limitation, the issuance of the Note and the
issuance and reservation for issuance of the Conversion Shares issuable upon
conversion and exercise thereof) have been duly authorized by the Company’s
Board of Directors and no further consent or authorization of the Company, its
Board of Directors, or its shareholders is required, (iii) this Agreement has been duly executed and delivered by the Company by its
authorized representative, and such authorized representative is the true and
official representative with authority to sign this Agreement and the other
documents executed in connection herewith and bind the Company accordingly, and
(iv) this Agreement constitutes, and upon execution and delivery by the Company
of the Note and each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.

4

                                                                              

 

 

c)              
Capitalization. As of the date hereof, the authorized
capital stock of the Company, and number of shares issued and outstanding, is
as set forth in the Company’s most recent periodic report filed with the SEC.
Except as disclosed on Schedule 3(c) hereof, no shares are reserved for
issuance pursuant to the Company’s stock option plans. Except as disclosed in
the SEC Documents no shares are reserved for issuance pursuant to securities
exercisable for, or convertible into or exchangeable for shares of Common Stock.
All of such outstanding shares of capital stock are, or upon issuance will be,
duly authorized, validly issued, fully paid and non-assessable. No shares of
capital stock of the Company are subject to preemptive rights or any other
similar rights of the shareholders of the Company or any liens or encumbrances
imposed through the actions or failure to act of the Company. As of the
effective date of this Agreement, and except as disclosed in the SEC Documents,
(i) there are no outstanding options, warrants, scrip, rights to subscribe for,
puts, calls, rights of first refusal, agreements, understandings, claims or
other commitments or rights of any character whatsoever relating to, or
securities, notes or rights convertible into or exchangeable for any shares of
capital stock of the Company or any of its Subsidiaries, or arrangements by
which the Company or any of its Subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its Subsidiaries,
(ii) there are no agreements or arrangements under which the Company or any of
its Subsidiaries is obligated to register the sale of any of its or their
securities under the 1933 Act and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in
any agreement providing rights to security holders) that will be triggered by
the issuance of any of the Securities. The Company has furnished to the Purchaser
true and correct copies of the Company’s Certificate of Incorporation as in
effect on the date hereof (“Certificate of Incorporation”), the Company’s
By-laws, as in effect on the date hereof (the “By-laws”), and the terms of all
securities convertible into or exercisable for Common Stock of the Company and
the material rights of the holders thereof in respect thereto.

d)              
Issuance of Shares. The Conversion Shares are
duly authorized and reserved for issuance and, upon conversion of the Note, as
the case may be, in accordance with their respective terms, will be validly
issued, fully paid and non-assessable, and 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 Company and
will not impose personal liability upon the holder thereof.

e)              
Acknowledgment of Dilution. The Company’s executive
officers and directors understand the nature of the Securities being sold
hereby and recognize that the issuance of the Securities will have a potential
dilutive effect on the equity holdings of other holders of the Company’s equity
or rights to receive equity of the Company.  The board of directors
of the Company has concluded, in its good faith business judgment that the
issuance of the Securities is in the best interests of the Company.  The
Company specifically acknowledges that its obligation
to issue the Conversion Shares upon conversion of the Notes is binding upon the
Company and enforceable regardless of the dilution such issuance may have on
the ownership interests of other stockholders of the Company or parties
entitled to receive equity of the Company.

5

                                                                              

 

 

f)               
No Conflicts. The execution, delivery and performance
of this Agreement, the Note by the Company and the consummation by the Company
of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance of the Conversion Shares)
will not (i) conflict with or result in a violation of any provision of the
Certificate of Incorporation or By-laws, or (ii) violate or conflict with, or
result in a breach of any provision of, or constitute a default (or an event
which with notice or lapse of time or both could become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture, patent, patent license or instrument
to which the Company or any of its Subsidiaries is a party and that is not
filed as an SEC Document or other document filed with the SEC, or (iii) result
in a violation of any law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations and regulations of
any self-regulatory organizations to which the Company or its securities are
subject) applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or
affected (except for such conflicts, defaults, terminations, amendments,
accelerations, cancellations and violations as would not, individually or in
the aggregate, have a Material Adverse Effect). Neither the Company nor any of
its Subsidiaries is in violation of its Certificate of Incorporation, By-laws
or other organizational documents and neither the Company nor any of its
Subsidiaries is in default (and no event has occurred which with notice or
lapse of time or both could put the Company or any of its Subsidiaries in
default) under, and neither the Company nor any of its Subsidiaries has taken
any action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its Subsidiaries is a
party or by which any property or assets of the Company or any of its
Subsidiaries is bound or affected, except for possible defaults as would not,
individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its Subsidiaries, if any, are not being
conducted, and shall not be conducted so long as the Purchaser owns any of the
Securities, in violation of any law, ordinance or regulation of any
governmental entity. Except as specifically contemplated by this Agreement and
as required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court, governmental agency,
regulatory agency, self regulatory organization or stock market or any third
party in order for it to execute, deliver or perform any of its obligations
under this Agreement and the Note in accordance with the terms hereof or thereof
or to issue and sell the Securities in accordance with the terms hereof and
thereof and to issue the Conversion Shares. All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior
to the date hereof. The Company is not in violation of the listing requirements
of the Over-the-Counter Bulletin Board (the “OTCBB”), or OTCQB and does not
reasonably anticipate that the Common Stock will be delisted by the OTCBB or OTCQB,
in the foreseeable future. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.

6

                                                                              

 

 

g)              
SEC Documents; Financial Statements.
The Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC (all of the foregoing filed
prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits to such
documents) incorporated by reference therein, being hereinafter referred to
herein as the “SEC Documents”). Upon written request the Company will deliver
to the Purchaser true and complete copies of the SEC Documents, except for such
exhibits and incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended (“1934 Act” or “Exchange Act”), and none of
the SEC Documents, at the time they were filed with the SEC, contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior the date
hereof). As of their respective dates, the financial statements of the Company
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto. Such financial statements have been prepared in
accordance with United States generally accepted accounting principles,
consistently applied, during the periods involved and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business, and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. The Company is subject to the reporting requirements of the 1934
Act.

h)              
Absence of Certain Changes. Since October 31, 2016,
there has been no material adverse change and no material adverse development
in the assets, liabilities, business, properties, operations, financial
condition, results of operations, prospects or 1934 Act reporting status of the
Company or any of its Subsidiaries.

i)               
Absence of Litigation. There is no action, suit,
claim, proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or
directors in their capacity as such, that could have a Material Adverse Effect.
Schedule 3(i) contains a complete list and summary description of any pending
or, to the knowledge of the Company, threatened proceeding against or affecting
the Company or any of its Subsidiaries, without regard to whether it would have
a Material Adverse Effect. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.

7

                                                                              

 

 

j)               
Patents, Copyrights, etc. The Company and each of
its Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names,
trade names and copyrights (“Intellectual Property”) necessary to enable it to
conduct its business as now operated (and, as presently contemplated to be
operated in the future); there is no claim or action by any person pertaining
to, or proceeding pending, or to the Company’s knowledge threatened, which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
as presently contemplated to be operated in the future); to the best of the
Company’s knowledge, the Company’s or its Subsidiaries’ current and intended
products, services and processes do not infringe on any Intellectual Property
or other rights held by any person and/or entity; and the Company is unaware of
any facts or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.

k)              
No Materially Adverse Contracts, Etc.
Neither the Company nor any of its Subsidiaries is subject to any charter,
corporate or other legal restriction, or any judgment, decree, order, rule or
regulation which in the judgment of the Company’s officers has or is expected
in the future to have a Material Adverse Effect. Neither the Company nor any of
its Subsidiaries is a party to any contract or agreement which in the judgment
of the Company’s officers has or is expected to have a Material Adverse Effect.

l)               
Tax Status. The Company and each of its
Subsidiaries has made or filed all federal, state and foreign income and all
other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no basis for any
such claim. The Company has not executed a waiver with respect to the statute
of limitations relating to the assessment or collection of any foreign,
federal, state or local tax. None of the Company’s tax returns is presently
being audited by any taxing authority.

m)            
Certain Transactions. Except for arm’s length
transactions pursuant to which the Company or any of its Subsidiaries makes
payments in the ordinary course of business upon terms no less favorable than
the Company or any of its Subsidiaries could obtain from third parties and
other than the grant of any stock options disclosed on Schedule 3(c), none of
the officers, directors, or employees of the Company is presently a party to
any transaction with the Company or any of its Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership,
trust or other entity in which any officer, director, or any such employee has
a substantial interest or is an officer, director, trustee or partner.

8

                                                                              

 

 

n)              
Disclosure. All information relating to or
concerning the Company or any of its Subsidiaries set forth in this Agreement
and provided to the Purchaser pursuant to Section 2(d) hereof and otherwise in
connection with the transactions contemplated hereby is true and correct in all
material respects and the Company has not omitted to state any material fact
necessary in order to make the statements made herein or therein, in light of
the circumstances under which they were made, not misleading. No event or
circumstance has occurred or exists with respect to the Company or any of its
Subsidiaries or its or their business, properties, prospects, operations or
financial conditions, which, under applicable law, rule or regulation, requires
public disclosure or announcement by the Company but which has not been so
publicly announced or disclosed.

o)              
Acknowledgment Regarding Purchaser’ Purchase of Securities.
The Company acknowledges and agrees that the Purchaser is acting solely in the
capacity of arm’s length purchaser with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that the Purchaser
is not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any statement made by the Purchaser or any of its
respective representatives or agents in connection with this Agreement and the
transactions contemplated hereby is not advice or a recommendation and is
merely incidental to the Purchaser’s purchase of the Securities.

p)              
No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has
directly or indirectly made any offers or sales in any security or solicited
any offers to buy any security under circumstances that would require registration
under the 1933 Act of the issuance of the Securities to the Purchaser. The
issuance of the Securities to the Purchaser will not be integrated with any
other issuance of the Company’s securities (past, current or future) for
purposes of any shareholder approval provisions applicable to the Company or
its securities.

q)              
Brokers.  The Company
hereby represents and warrants that it has not hired, retained or dealt with
any broker, finder, consultant, person, firm or corporation in connection with
the negotiation, execution or delivery of this Agreement or the transactions
contemplated hereunder. The Company covenants and agrees that should any claim
be made against Purchaser for any commission or other compensation by any
broker, finder, person, firm or corporation, including without limitation, the
Broker, based upon the Company’s engagement of such person in connection with
this transaction, the Company shall indemnify, defend and hold Purchaser
harmless from and against any and all damages, expenses (including attorneys’
fees and disbursements) and liability arising from such claim. The Company
shall pay the commission of the Broker, to the attention of the Broker,
pursuant to their separate agreement(s) between the Company and the Broker.

r)               
Permits; Compliance. The Company and each of
its Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties
and to carry on its business as it is now being conducted (collectively, the
“Company Permits”), and there is no action pending or, to the knowledge of the
Company, threatened regarding suspension or cancellation of any of the Company
Permits. Neither the Company nor any of its Subsidiaries is in conflict with,
or in default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect. Since           June
30, 2015, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.

9

                                                                              

 

 

s)              
Environmental Matters. 

                                                          
i.                 
There are, to the Company’s knowledge, with respect to the Company
or any of its Subsidiaries or any predecessor of the Company, no past or
present violations of Environmental Laws (as defined below), releases of any
material into the environment, actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise to any common
law environmental liability or any liability under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 or similar
federal, state, local or foreign laws and neither the Company nor any of its
Subsidiaries has received any notice with respect to any of the foregoing, nor
is any action pending or, to the Company’s knowledge, threatened in connection
with any of the foregoing. The term “Environmental Laws” means all federal,
state, local or foreign laws relating to pollution or protection of human
health or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata), including, without
limitation, laws relating to emissions, discharges, releases or threatened
releases of chemicals, pollutants contaminants, or toxic or hazardous
substances or wastes (collectively, “Hazardous Materials”) into the
environment, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or notice letters,
orders, permits, plans or regulations issued, entered, promulgated or approved
thereunder.

                                                        
ii.                 
Other than those that are or were stored, used or disposed of in
compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, leased or used by the Company or any
of its Subsidiaries, and no Hazardous Materials were released on or about any
real property previously owned, leased or used by the Company or any of its
Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the
Company’s or any of its Subsidiaries’ business.

                                                      
iii.                 
There are no underground storage tanks on or under any real
property owned, leased or used by the Company or any of its Subsidiaries that
are not in compliance with applicable law.

t)               
Title to Property. The Company and its
Subsidiaries have good and marketable title in fee simple to all real property
and good and marketable title to all personal property
owned by them which is material to the business of the Company and its
Subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(t) or such as would not have
a Material Adverse Effect. Any real property and facilities held under lease by
the Company and its Subsidiaries are held by them under valid, subsisting and
enforceable leases with such exceptions as would not have a Material Adverse
Effect.

10

                                                                              

 

 

u)              
Insurance. The Company and its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such coverage amounts as are prudent and customary in the
businesses in which the Company is engaged, including, but not limited to,
directors and officers insurance coverage with coverage amounts that are at
least equal to the aggregate Purchase Price.  Neither the Company nor any
Subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business without a significant increase in cost.

v)              
Internal Accounting Controls. Except as disclosed
in the SEC Documents, the Company and each of its Subsidiaries maintain a
system of internal accounting controls sufficient, in the judgment of the
Company’s board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management’s general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.

w)            
Foreign Corrupt Practices. Neither the Company, nor
any of its Subsidiaries, nor any director, officer, agent, employee or other
person acting on behalf of the Company or any Subsidiary has, in the course of
his actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic government
official or employee.

x)              
Solvency. Except as disclosed in the SEC Documents, the Company (after
giving effect to the transactions contemplated by this Agreement) is solvent (i.e.,
its assets have a fair market value in excess of the amount required to pay its
probable liabilities on its existing debts as they become absolute and matured)
and currently the Company has no information that would lead it to reasonably
conclude that the Company would not, after giving effect to the transaction
contemplated by this Agreement, have the ability to, nor does it intend to take
any action that would impair its ability to, pay its debts from time to time
incurred in connection therewith as such debts mature.

11

                                                                              

 

 

y)              
No Investment Company. The Company is not, and
upon the issuance and sale of the Securities as contemplated by this Agreement
will not be, an “investment company” required to be registered under the
Investment Company Act of 1940 (an “Investment Company”). The Company is not
controlled by an Investment Company.

z)              
No “Shell”.     The Company is
not,  and has not at any time previously been a Shell Company, as defined
in Rule 144.

 

4.     COVENANTS. 

a)              
Best Efforts. The parties shall use their best
efforts to satisfy timely each of the conditions described in Section 6 and 7
of this Agreement.

b)              
Form D; Blue Sky Laws. The Company agrees to timely
file a Form D with respect to the Securities as required under Regulation D and
to provide a copy thereof to the Purchaser promptly after such filing. The
Company shall, on or before the Closing Date, take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
the Purchaser at the applicable closing pursuant to this Agreement under
applicable securities or “blue sky” laws of the states of the United States (or
to obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Purchaser on or prior to the Closing Date.

c)              
Use of Proceeds. The Company shall use the
proceeds from the sale of the Securities for general corporate
purposes, marketing and sales, product development, key personnel recruiting
and business development
purposes. 

d)              
Financial Information. Upon written request of
the Purchaser, the Company agrees to send or make available the following
reports to the Purchaser until the Purchaser transfers, assigns, or sells all
of the Securities: (i) within ten (10) days after the filing (or the applicable
deadline to so file) with the SEC or OTC Markets Group, a copy of its Annual
Report and its Quarterly Reports and any Supplemental Reports; (ii) within one
(1) day after release, copies of all press releases issued by the Company or
any of its Subsidiaries; and (iii) contemporaneously with the making available
or giving to the shareholders of the Company, copies of any notices or other
information the Company makes available or gives to such shareholders. Notwithstanding
the foregoing, the Company shall not disclose any material nonpublic information
to the Purchaser without its consent unless such information is disclosed to
the public prior to or promptly following such disclosure to the Purchaser.

e)              
Listing. The Company will obtain and, so long as the Purchaser owns any
of the Securities, maintain the listing and trading of its Common Stock on the OTCBB,
and OTCQB, or any equivalent replacement exchange, the NASDAQ Stock Market
(“NASDAQ”), the New York Stock Exchange (“NYSE”), or the NYSE MKT, f/k/a American
Stock Exchange (“AMEX”), and will comply in all respects with the Company’s
reporting, filing and other obligations under the bylaws or rules of the
Financial Industry Regulatory Authority (“FINRA”) and such exchanges, as
applicable. The Company shall promptly provide to the Purchaser copies of any
notices it receives from the SEC, OTC Markets Group and
any other exchanges or quotation systems on which the Common Stock is then
listed regarding the continued eligibility of the Common Stock for listing on
such exchanges and quotation systems, provided that it shall not provide any
notices constituting material nonpublic information.

12

                                                                              

 

 

f)               
Corporate Existence. So long as the Purchaser
beneficially owns any Securities, the Company shall maintain its corporate
existence and shall not sell all or substantially all of the Company’s assets,
except in the event of a merger or consolidation or sale of all or
substantially all of the Company’s assets, where the surviving or successor
entity in such transaction (i) assumes the Company’s obligations hereunder and
under the agreements and instruments entered into in connection herewith and
(ii) is a publicly traded corporation whose Common Stock is listed for trading
on NASDAQ, NYSE or AMEX.

g)              
No Integration. The Company shall not make any offers
or sales of any security (other than the Securities) under circumstances that
would require registration of the Securities being offered or sold hereunder
under the 1933 Act or cause the offering of the Securities to be integrated
with any other offering of securities by the Company for the purpose of any
stockholder approval provision applicable to the Company or its securities.

h)              
Securities
Laws Disclosure; Publicity.  The Company shall comply with applicable
securities laws by filing a Current Report on Form 8-K, within four (4) Trading
Days following the date hereof, disclosing all the material terms of the
transactions contemplated hereby, if the Company deems the transactions
contemplated hereby to constitute material non-public information. The Company
and Purchaser shall consult with each other in issuing any other press releases
with respect to the transactions contemplated hereby, and neither the Company
nor Purchaser shall issue any such press release or otherwise make any such
public statement without the prior consent of the Company, with respect to any
press release of any Purchaser, or without the prior consent of Purchaser, with
respect to any press release of the Company, except if such disclosure is
required by law, in which case the disclosing party shall promptly provide the
other party with prior notice of such public statement or communication.

 

i)               
Non-Public
Information. 
Except with respect to the material terms and conditions of the transactions
contemplated by this Agreement, the Company covenants and agrees that neither
it nor any other person acting on its behalf will provide the Purchaser or its
agents or counsel with any information that the Company believes constitutes
material non-public information, unless prior thereto the Purchaser shall have
executed a written agreement regarding the confidentiality and use of such
information.  The Company understands and confirms that the Purchaser shall be
relying on the foregoing covenant in effecting transactions in securities of
the Company.

 

j)               
Subsidiaries.  So long as the
Note remains outstanding, the Company shall not transfer any assets or rights
to any of its subsidiaries or permit any of its subsidiaries to engage in any
significant business or operations, whether such subsidiaries are currently
existing or hereafter created.

 

k)              
Insurance.  So long as the
Note remains outstanding, the Company and its Subsidiaries shall maintain in
full force and effect insurance reasonably believed by the Company
to be adequate coverage (a) on all assets and activities, covering property
loss or damage and loss of income by fire or other hazards or casualty, and (b)
against all liabilities, claims and risks for which it is customary for
companies similarly situated to the Company to insure, including without
limitation applicable product liability insurance, required workmen’s
compensation insurance, and other insurance covering injury or damage to
persons or property, but excluding directors and officers insurance coverage. 
The Company shall promptly furnish or cause to be furnished evidence of such insurance
to the Purchaser, in form and substance reasonably satisfactory to the
Purchaser.

13

                                                                              

 

 

 

l)               
Par
Value. 
If the closing bid price at any time the Note is outstanding falls below $0.0001,
the Company shall cause the par value of its Common Stock to be reduced to $0.00001 
or less.

 

m)            
[Intentionally
Omitted].
 

 

n)              
Future
Financings:
From the date hereof until such time as the
Purchaser      no longer holds any of the Securities, in the event the Company
issues or sells any shares of Common Stock or securities directly or indirectly
convertible into or exercisable for Common Stock (“Common Stock Equivalents”)
or amends the transaction documents relating to any sale or issuance of Common
Stock or Common Stock Equivalents, if a Purchaser reasonably believes that the
terms and conditions thereunder are more favorable to such investors as the
terms and conditions granted under the Transaction Documents, upon notice to
the Company by such Purchaser the Company shall amend the terms of this
transaction and the Transaction documents so as to give the Purchasers the
benefit of such more favorable terms or conditions.

 

 

o)              
Short
Sales: the
Holder will not engage in short sale of Company’s Common Stock. Here, a “short
sale” shall mean a sale of Common Stock by such Purchaser that is marked as a
short sale and this made at a time when there is no equivalent offsetting long
position in Common Stock held by such Purchaser, where an “equivalent
offsetting long position” includes all shares of Common Stock held by such
Purchaser and all underlying shares of Common Stock which are issuable upon
conversion, exercise of exchange of convertible securities, warrants, options
or other rights to subscribe for or to purchase or exchange for shares of
Common Stock. 

 

 

5.     Transfer
Agent Instructions. Upon receipt of a duly executed Notice of Conversion, the
Company shall issue irrevocable instructions to its transfer agent to issue
certificates, registered in the name of the Purchaser or its nominee, for the
Conversion Shares in such amounts as specified from time to time by the Purchaser
to the Company upon conversion of the Note, or any part thereof, in accordance
with the terms thereof (the “Irrevocable Transfer Agent Instructions”). In the
event that the Company proposes to replace its transfer agent, the Company
shall provide, prior to the effective date of such replacement, a fully
executed Irrevocable Transfer Agent Instructions in a form as initially
delivered pursuant to this Agreement and the Securities (including but not
limited to the provision to irrevocably reserve shares of Common Stock in the
Reserved Amount (as defined in the Note)) signed by the
successor transfer agent to Company and the Company. Prior to registration of
the Conversion Shares under the 1933 Act or the date on which the Conversion
Shares 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,
all such certificates shall bear the restrictive legend specified in Section
2(g) of this Agreement. The Company warrants that: (i) no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and stop transfer instructions to give effect to Section 2(f) hereof (in the
case of the Conversion Shares, prior to registration of the Conversion Shares
under the 1933 Act or the date on which the Conversion Shares 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), will be given by the
Company to its transfer agent and that the Securities shall otherwise be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Note; (ii) it will not direct its transfer agent
not to transfer or delay, impair, and/or hinder its transfer agent in
transferring (or issuing)(electronically or in certificated form) any
certificate for Conversion Shares to be issued to the Purchaser upon conversion
of or otherwise pursuant to the Note as and when required by the Note and this
Agreement; and (iii) it will not fail to remove (or direct its transfer agent
not to remove or impair, delay, and/or hinder its transfer agent from removing)
any restrictive legend (or to withdraw any stop transfer instructions in
respect thereof) on any certificate for any Conversion Shares issued to the Purchaser
upon conversion of or otherwise pursuant to the Note as and when required by
the Note and this Agreement. Nothing in this Section shall affect in any way
the Purchaser’s obligations and agreement set forth in Section 2(g) hereof to
comply with all applicable prospectus delivery requirements, if any, upon
re-sale of the Securities. If the Purchaser provides the Company with (i) an
opinion of counsel in form, substance and scope customary for opinions in
comparable transactions, to the effect that a public sale or transfer of such
Securities may be made without registration under the 1933 Act and such sale or
transfer is effected or (ii) the Purchaser provides reasonable assurances that
the Securities can be sold pursuant to Rule 144, the Company shall permit the
transfer, and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates, free from restrictive legend,
in such name and in such denominations as specified by the Purchaser. The
Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Purchaser, by vitiating the intent and purpose of
the transactions contemplated hereby. Accordingly, the Company acknowledges
that the remedy at law for a breach of its obligations under this Section 5 may
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Purchaser shall be
entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate transfer, without the necessity
of showing economic loss and without any bond or other security being required.

14

                                                                              

 

 

6.     Injunction Posting
of Bond.  In the event the Purchaser shall elect to convert the
Note or any parts thereof, the Company may not refuse conversion or exercise
based on any claim that Purchaser or anyone associated or affiliated with Purchaser
has been engaged in any violation of law, or for any other reason.  In
connection with any injunction sought or attempted by the Company, the Company
shall be required to post a bond at least equal to the greater of either: (i)
the outstanding principal amount of the Note; and (ii) the market value of the
Conversion Shares sought to be converted, exercised or issued, based on the
sale price per share of Common Stock on the principal market on which it is
traded.

15

                                                                              

 

 

7.    
Delivery of Unlegended Shares. 

a)              
Within three (3) business days (such third business day being the
“Unlegended Shares Delivery Date”) after the business day on which the
Company has received (i) a notice that Conversion Shares, or any other Common
Stock held by the Purchaser has been sold pursuant to a registration statement
or Rule 144 under the 1933 Act, (ii) a representation that the prospectus
delivery requirements, or the requirements of Rule 144, as applicable and if
required, have been satisfied, (iii) the original share certificates representing
the shares of Common Stock that have been sold, and (iv) in the case of sales
under Rule 144, customary representation letters of the Purchaser and, if
required, Purchaser’s broker regarding compliance with the requirements of Rule
144, the Company at its expense, (y) shall deliver, and shall cause legal
counsel selected by the Company to deliver to its transfer agent (with copies
to Purchaser) an appropriate instruction and opinion of such counsel, directing
the delivery of shares of Common Stock without any legends including the legend
set forth in Section 4(h) above (the “Unlegended Shares”); and (z) cause
the transmission of the certificates representing the Unlegended Shares
together with a legended certificate representing the balance of the submitted
Common Stock certificate, if any, to the Purchaser at the address specified in
the notice of sale, via express courier, by electronic transfer or otherwise on
or before the Unlegended Shares Delivery Date.

b)              
The Company understands that a delay in the delivery of the
Unlegended Shares later than the Unlegended Shares Delivery Date could result
in economic loss to the Purchaser.  As compensation to Purchaser for such loss,
the Company agrees to pay late payment fees (as liquidated damages and not as a
penalty) to the Purchaser for late delivery of Unlegended Shares in the amount
of $1,000.00 per business day after the Unlegended Shares Delivery Date. If
during any three hundred and sixty (360) day period, the Company fails to
deliver Unlegended Shares as required by this Section for an aggregate of
thirty (30) days, then Purchaser or assignee holding Securities subject to such
default may, at its option, require the Company to redeem all or any portion of
the shares subject to such default at a price per share equal to the greater of
(i) 200% of the most recent closing price of the Common Stock or (ii) a
fraction in which the numerator is the highest closing price of the Common
Stock during the aforedescribed thirty (30) day period and the denominator of
which is the lowest conversion price during such thirty (30) day period,
multiplied by the conversion price or exercise price, as the case may be (“Unlegended
Redemption Amount”).  The Company shall pay any payments incurred under
this Section in immediately available funds upon demand.

8.     Conditions
to the Company’s Obligation to Sell. The obligation of the
Company hereunder to issue and sell the Note to the Purchaser at the Closing is
subject to the satisfaction, at or before the Closing Date of each of the
following conditions thereto, provided that these conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:

a)              
The Purchaser shall have executed this Agreement and delivered the
same to the Company.

b)              
The Purchaser shall have delivered the Purchase Price to the
Company.

16

                                                                              

 

 

c)              
The representations and warranties of the Purchaser shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the Purchaser shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Purchaser at or prior to the Closing Date.

d)              
No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated hereby
which prohibits the consummation of any of the transactions contemplated by
this Agreement.

9.     Conditions
to The Purchaser’s Obligation to Purchase. The obligation of
the Purchaser hereunder to purchase the Note at the Closing is subject to the
satisfaction, at or before the Closing Date of each of the following
conditions, provided that these conditions are for the Purchaser’s sole benefit
and may be waived by the Purchaser at any time in its sole discretion:

a)              
The Company shall have executed this Agreement and delivered the
same to the Purchaser.

b)              
The Company shall have delivered to the Purchaser the duly
executed Note (in such denominations as the Purchaser shall request) in
accordance with Section 1 above.

c)              
The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to the Purchaser, shall have been delivered to and acknowledged in
writing by the Company’s Transfer Agent (a copy of which written acknowledgment
shall be provided to Purchaser simultaneously with Closing).

d)              
The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Purchaser
shall have received a certificate or certificates, executed by the chief
executive officer of the Company, dated as of the Closing Date, to the
foregoing effect and as to such other matters as may be reasonably requested by
the Purchaser including, but not limited to certificates with respect to the
Company’s Certificate of Incorporation, By-laws, incumbency, and Board of
Directors’ resolutions relating to the transactions contemplated hereby.

e)              
No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.

17

                                                                              

 

 

f)               
No event shall have occurred which could reasonably be expected to
have a Material Adverse Effect on the Company including but not limited to a
change in the 1934 Act reporting status of the Company or the failure of the
Company to be timely in its 1934 Act reporting obligations.

g)              
The Conversion Shares shall have been authorized for quotation on
the OTCBB, and OTCQB, and trading of the Common Stock on the OTCBB, and OTCQB, shall
not have been suspended by the SEC or the OTC Markets Group.

10.  Governing
Law; Miscellaneous. 

a)              
Governing Law. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware without regard to principles of conflicts of laws thereof or
any other State.  Any action brought by any party against any other
party hereto concerning the transactions contemplated by this Agreement shall
be brought only in the state courts of Delaware or in the federal courts
located in the state and county of Delaware.  The parties to this
Agreement 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 parties executing this Agreement and
other agreements referred to herein or delivered in connection herewith on
behalf of the Company agree to submit to the in personam jurisdiction of such
courts and hereby irrevocably 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 Agreement 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 hereto 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 contemplated hereby 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.

b)              
Removal of Restrictive Legends.  In the event that Purchaser has any shares of
the Company’s Common Stock bearing any restrictive legends, and Purchaser,
through its counsel or other representatives, submits to the Transfer Agent any
such shares for the removal of the restrictive legends thereon in connection
with a sale of such shares pursuant to any exemption to the registration
requirements under the Securities Act, and the Company and or its counsel
refuses or fails for any reason (except to the extent that such refusal or
failure is based solely on applicable law that would prevent the removal of
such restrictive legends) to render an opinion of
counsel or any other documents or certificates required for the removal of the
restrictive legends, then the Company hereby agrees and acknowledges that the Purchaser
is hereby irrevocably and expressly authorized to have counsel to the Purchaser
render any and all opinions and other certificates or instruments which may be
required for purposes of removing such restrictive legends, and the Company
hereby irrevocably authorizes and directs the Transfer Agent to, without any
further confirmation or instructions from the Company, issue any such shares
without restrictive legends as instructed by the Purchaser, and surrender to a
common carrier for overnight delivery to the address as specified by the Purchaser,
certificates, registered in the name of the Purchaser or its designees,
representing the shares of Common Stock to which the Purchaser is entitled,
without any restrictive legends and otherwise freely transferable on the books
and records of the Company.

18

                                                                              

 

 

c)              
Filing Requirements.  From the date of
this Agreement until the Notes are no longer outstanding, the Company will timely
and voluntarily comply with all reporting requirements that are applicable to
an issuer with a class of shares registered pursuant to Section 12(g) of the
1934 Act, whether or not the Company is then subject to such reporting
requirements, and comply with all requirements related to any registration
statement filed pursuant to this Agreement.  The Company will use reasonable
efforts not to take any action or file any document (whether or not permitted
by the 1933 Act or the 1934 Act or the rules thereunder) to terminate or
suspend such registration or to terminate or suspend its reporting and filing
obligations under said acts until the Notes are no longer outstanding. The Company will maintain the quotation or listing of its
Common Stock on the OTCBB, and OTCQB, NYSE or NASDAQ Stock Market (whichever of
the foregoing is at the time the principal trading exchange or market for the
Common Stock (the “Principal Market”), and will comply in all respects
with the Company’s reporting, filing and other obligations under the bylaws or
rules of the Principal Market, as applicable. The Company will provide Purchaser
with copies of all notices it receives notifying the Company of the threatened
and actual delisting of the Common Stock from any Principal Market.  As
of the date of this Agreement and the Closing Date, the OTCQB, is the Principal
Market. Until the Note is no longer outstanding, the Company will
continue the listing or quotation of the Common Stock on a Principal Market and
will comply in all respects with the Company’s reporting, filing and other
obligations under the bylaws or rules of the Principal Market.

d)              
144 Default.  In the event commencing twelve (12)
months after the Closing Date and ending twenty-four (24) months thereafter,
the Purchaser is not permitted to resell any of the Conversion Shares without
any restrictive legend or if such sales are permitted but subject to volume
limitations or further restrictions on resale as a result of the unavailability
to Subscriber of Rule 144(b)(1)(i) under the 1933 Act or any successor rule (a
“144 Default”), for any reason except for Purchasers’ status as an
Affiliate or “control person” of the Company, or as a result of a change in
current applicable securities laws, then the Company shall pay such Purchaser
as liquidated damages and not as a penalty an amount equal to two percent (2%) of
the value of Conversion Shares (based on the closing sale of the Common Stock) subject
to such 144 Default during the pendency of the 144 Default of each thirty day period
thereafter (or portion thereof).

19

                                                                              

 

 

e)              
Fees
and Expenses. 
On or prior to the Closing, the Company shall pay or reimburse to Purchaser a
non-refundable, non-accountable sum equal to $5,000.00 as and for the fees,
costs and expenses (including without limitation legal fees and disbursements
and due diligence and administrative expenses) incurred by the Purchaser in
connection with the Purchaser’s due diligence and negotiation, preparation and
execution of the Transaction Documents and consummation of the Transactions. 
The Purchaser may withhold and offset the balance of such amount from the
payment of its Purchase Price otherwise payable hereunder at Closing, which
offset shall constitute partial payment of such Purchase Price in an amount
equal to such offset.  Except as expressly set forth in this Agreement or the
Note to the contrary, each party shall pay the fees and expenses of its
advisers, counsel, accountants and other experts, if any, and all other
expenses incurred by such party incident to the negotiation, preparation,
execution, delivery and performance of this Agreement.  The Company shall pay
all transfer agent fees, stamp taxes and other taxes and duties levied in
connection with the delivery of any Securities to the Purchaser.

 

f)               
Usury.  To the extent
it may lawfully do so, the Company hereby agrees not to insist upon or plead or
in any manner whatsoever claim, and will resist any and all efforts to be
compelled to take the benefit or advantage of, usury laws wherever enacted, now
or at any time hereafter in force, in connection with any claim, action or
proceeding that may be brought by the Purchaser in order to enforce any right
or remedy under the Note.  Notwithstanding any provision to the contrary
contained in herein or under the Note, it is expressly agreed and provided that
the total liability of the Company under the Note for payments in the nature of
interest shall not exceed the maximum lawful rate authorized under applicable
law (the “Maximum Rate”), and, without limiting the foregoing, in no
event shall any rate of interest or default interest, or both of them, when
aggregated with any other sums in the nature of interest that the Company may
be obligated to pay under the Note or herein exceed such Maximum Rate.  It is
agreed that if the maximum contract rate of interest allowed by law and
applicable to the Note is increased or decreased by statute or any official
governmental action subsequent to the date hereof, the new maximum contract
rate of interest allowed by law will be the Maximum Rate applicable to the Note
from the effective date forward, unless such application is precluded by
applicable law.  If under any circumstances whatsoever, interest in excess of
the Maximum Rate is paid by the Company to the Purchaser with respect to
indebtedness evidenced by the Note, such excess shall be applied by the
Purchaser to the unpaid principal balance of any such indebtedness or be
refunded to the Company, the manner of handling such excess to be at the
Purchaser’s election.

 

g)              
Headings. The headings of this Agreement are for convenience of reference
only and shall not form part of, or affect the interpretation of, this
Agreement.

h)              
Severability. In the event that any provision of
this Agreement 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 provision hereof which may prove invalid or
unenforceable under any law shall not affect the validity or enforceability of
any other provision hereof.

20

                                                                              

 

 

i)               
Entire Agreement; Amendments. This Agreement and
the instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Purchaser
makes any representation, warranty, covenant or undertaking with respect to
such matters. No provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the Purchaser.

j)               
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, email or facsimile, addressed as set
forth below or to such other address as such party shall have specified most
recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile or email, with accurate confirmation
generated by the transmitting facsimile machine or computer, at the address,
email 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: 

            Purchaser:                   Kodiak Capital
Group, LLC 

260 Newport Center Drive

Newport Beach, CA 92660 

 

Company:                   HPIL HOLDING

                                    3738 Coach Cove

                                    Sanford, MI 48657

 

Each party shall provide notice to the other party of any change
in address.

 

k)              
Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their successors and
assigns. Neither the Company nor the Purchaser shall assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
other. Notwithstanding the foregoing, subject to Section 2(f), the Purchaser
may assign its rights hereunder to any person that purchases Securities in a
private transaction from the Purchaser or to any of its “affiliates,” as that
term is defined under the 1934 Act, without the consent of the Company.

l)               
Third Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.

21

                                                                              

 

 

m)            
Survival. The representations and warranties of the Company and the
agreements and covenants set forth in this Agreement shall survive the closing
hereunder notwithstanding any due diligence investigation conducted by or on
behalf of the Purchaser. The Company agrees to indemnify and hold harmless the Purchaser
and all their officers, directors, employees and agents for loss or damage
arising as a result of or related to any breach or alleged breach by the
Company of any of its representations, warranties and covenants set forth in
this Agreement or any of its covenants and obligations under this Agreement,
including advancement of expenses as they are incurred.

n)              
Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order
to carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.

o)              
No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied
against any party.

p)              
Remedies. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Purchaser by vitiating the intent
and purpose of the transaction contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for a breach of its obligations under this
Agreement will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement, that the Purchaser
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 Agreement and
to enforce specifically the terms and provisions hereof, without the necessity
of showing economic loss and without any bond or other security being required.

q)              
Counterparts.  This
Agreement may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
together shall be deemed to be one and the same agreement.

r)               
Signatures.  Any signature
transmitted by facsimile, e-mail, or other electronic means shall be deemed to
be an original signature.

 

(Remainder of page intentionally left blank)

 

 

 

 

22

                                                                              

 

 

 

IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.

COMPANY:

 

HPIL
HOLDING

By: /s/
Nitin Amersey

Director
and CFO

 

 

INVESTOR:

 

KODIAK
CAPITAL GROUP, LLC

By: /s/
Ryan Hodson

Managing
Memberhpilnote12_2716.htm - Generated by SEC Publisher for SEC Filing

 

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: $60,000.00                                                           Issue
Date: December 27, 2016

 

15% CONVERTIBLE NOTE

FOR VALUE RECEIVED, HPIL
HOLDING, a Nevada corporation (“Borrower” or “Company”), hereby
promises to pay to the order of KODIAK CAPITAL GROUP, LLC, a Delaware
limited liability company, or its registered assigns (the “Holder”), on December
27, 2017, (subject to extension as set forth below, the “Maturity Date”), the
sum of $60,000.00 as set forth herein, together with interest on the unpaid
principal balance hereof at the rate of fifteen (15%) per annum (the “Interest
Rate”) from the date of issuance hereof until this Note plus any and all amounts
due hereunder are paid in full, and any additional amounts set forth herein,
including without limitation any Additional Principal (as defined herein).
Interest shall be computed on the basis of a 365-day year and the actual number
of days elapsed. Any amount of principal or interest on this Note which is not
paid when due shall bear interest at the rate of twenty-four (24%) per annum
from the due date thereof until the same is paid (“Default Interest”).  All
payments due hereunder 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 entered
into by and between the Company and Holder dated on or about the date hereof,
pursuant to which this Note was originally issued (the “Purchase Agreement”). 
The Holder may, by written notice to the Borrower at least five (5) days before
the Maturity Date (as may have been previously extended), extend the Maturity
Date to up to one (1) year following the date of the original Maturity Date
hereunder.

 

 

 

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, in its sole and absolute discretion, at any
time and from time to time to convert all or any part of the outstanding amount
due under 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 9.9% 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 Regulation 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 (“Conversion Shares”) 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 11:59 p.m.,
New York, New York time on such conversion date (the “Conversion Date”). The
term “Conversion Amount” means, with respect to any Conversion of this Note,
the sum of (1) the principal amount of this Note to be converted in such Conversion, plus (2) accrued and unpaid interest, if
any, on such principal amount being converted at the interest rates provided in
this Note to the Conversion Date, plus (3)
at the Holder’s option, Default Interest, if any, on the amounts referred to in
the immediately preceding clauses (1) and/or (2), plus (4)
any
Additional Principal for such Conversion, plus (5) at the
Holder’s option, any amounts owed to the Holder pursuant to Sections 1.2(c) and
1.4(g) hereof.

 

 

 

1.2.            
Conversion
Price. 

 

a)              
Calculation
of Conversion Price. The conversion price hereunder (the
“Conversion Price”) shall equal the lower of: (i) the closing sale price of the
Common Stock on the Principal Market on the Trading Day immediately preceding
the Closing Date, and (ii) 40% of the lowest sale price for the Common Stock on
the Principal Market during the thirty (30) consecutive Trading Days
immediately preceding the Conversion Date, provided, however, if the Company’s
share price at any time loses the bid (ex: 0.0001 on the ask with zero market
makers on the bid on level 2), then the Conversion Price may, in the Holder’s
sole and absolute discretion, be reduced to a fixed conversion price of 0.00001
(if lower than the conversion price otherwise), and provided, further, that
the Conversion Price shall be subject to Section 1.2(b) below.  If such Common
Stock is not traded on the OTCBB, OTCQB, NASDAQ, or NYSE, then such sale price
shall be the sale price of such security on the principal securities exchange
or trading market where such security is listed or traded or, if no sale 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 such sale price cannot
be calculated for such security on such date in the manner provided above, such
price shall be the fair market value as mutually determined by the Borrower and
the Holder. If the Borrower’s Common stock is chilled for deposit at DTC,
becomes chilled at any point while this Note remains outstanding or deposit or
other additional fees are payable due to a Yield Sign, Stop Sign or other
trading restrictions, or if the closing sale price at any time falls below 0.10
then such 40% figure specified in clause 1.2(a)(ii) above shall be reduced to 20%.
Additionally, the Borrower acknowledges that it will
take all reasonable steps necessary or appropriate, including providing a board
of directors resolution authorizing the issuance of common stock and an opinion
of counsel confirming the rights of Holder to sell shares of Common Stock issuable
or issued to Holder on conversion of this Note pursuant to Rule 144 as
promulgated by the SEC (“Rule 144"), as such Rule may be in effect from
time to time. If the Borrower does not promptly provide a board of directors’
resolution and an opinion from Company counsel, and so long as the requested
sale may be made pursuant to Rule 144, the Company agrees to accept an opinion
of counsel to the Holder which opinion will be issued at the Company’s expense
and the conversion dollar amount will be reduced by $750.00 to cover the cost
of such legal opinion.  “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. Additionally, if the Company ceases to be a reporting
company pursuant to the 1934 Act or if the Note cannot be converted into free
trading shares after 181 days from the issuance date, an additional 15%
discount will be attributed to the Conversion Price.

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

c)              
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 (as defined below) the Borrower shall pay to
the Holder $1,000.00 per day in cash, for each day beyond the Deadline that the
Borrower fails to 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, 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 this Note is a valuable right to the
Holder. The damages resulting from a failure, attempt to frustrate, or interference
with such conversion right are difficult if not impossible to quantify.
Accordingly the parties acknowledge that the liquidated damages provision
contained in this Section are justified.

 

 

 

1.3.            
Authorized
Shares.
The Borrower covenants that the Borrower will at all times while this Note is
outstanding 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. The Borrower is required at
all times to have authorized and reserved five (5) times the number of shares
that is actually issuable upon full conversion of this Note (based on the
Conversion Price of the Notes in effect from time to time)(the “Reserved
Amount”).  Initially, the Company will instruct the Transfer Agent to reserve twenty
million (20,000,000) shares of common stock in the name of the Holder for
issuance upon conversion hereof.  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 this Note shall be convertible at the then current Conversion Price, the
Borrower shall at the same time make proper provision so that thereafter there
shall be a sufficient number of shares of Common Stock authorized and reserved,
free from preemptive rights, for conversion of this Note in full. 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.

1.4.            
Method
of Conversion. 

a)              
Mechanics
of Conversion.
Subject to Section 1.1, this Note may be converted by the Holder in whole or in
part at any time and from time to time after the Issue Date, by 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 11:59 p.m.,
New York, New York time).

b)              
Book
Entry 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.

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 duly
and properly executed 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 11:59
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, the
Borrower shall pay to the Holder $1,000.00 per day in cash, for each day beyond
the Deadline that the Borrower fails to deliver such Common Stock to the
Holder. 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,
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, or 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.

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

1.5.            
Restricted
Securities.
The shares of Common Stock issuable upon conversion of this Note may not be
sold or transferred unless (i) such shares are 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).  Any legend
set forth on any stock certificate evidencing any Conversion Shares 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   form,  substance  and  scope  customary  for opinions of counsel in  comparable transactions, to the
effect that a  public sale
or  transfer of such Common Stock may be made without registration under the
Act, which opinion shall be reasonably acceptable to the  Company, or (ii) in the case of
the Common Stock issued or 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.

 

 

 

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, exchange of shares, recapitalization, reorganization,
or other similar event, as a result of which shares of Common Stock of the
Borrower shall be changed into the same or a different number of shares of
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 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, reorganization or other
similar event or sale of assets (during which time, for clarification, the
Holder shall be entitled to convert this Note) and (b) the resulting successor
or acquiring entity 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.  Such assets shall be held in escrow by the Company
pending any such conversion

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

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

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

1.8.            
Prepayment.
Notwithstanding anything to the contrary contained in this Note, subject to the
terms of this Section, at any time during the period beginning on the Issue
Date and ending on the date which is six (6) months following the Issue Date
(“Prepayment Termination Date”), Borrower shall have the right, exercisable on
not less than five (5) Trading Days prior written notice to the Holder of this
Note, to prepay the outstanding balance on this Note (principal and accrued
interest), in full, in accordance with this Section. 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 ten (10) 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 Optional Prepayment Amount (as
defined below) to or upon the order of the Holder as specified by the Holder in
writing to the Borrower at least one (1) business day prior to the Optional
Prepayment Date.  If the Borrower exercises its right to prepay the Note, the
Borrower shall make payment to the Holder of an amount in cash (the “Optional
Prepayment Amount”) equal to the Prepayment Factor (as defined below),
multiplied by the sum of: (w) the then outstanding principal amount of this
Note plus (x) accrued and unpaid interest on the
unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the
amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an
Optional Prepayment Notice and fails to pay the Optional 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. After the Prepayment Termination Date, the
Borrower shall have no right to prepay this Note. For purposes hereof, the
“Prepayment Factor” shall equal one hundred and fifty percent (150%), provided
that such Prepayment factor shall equal one hundred and thirty percent (130%)
if the Optional Prepayment Date occurs on or before the date which is ninety (90)
days following the Issue Date hereof. 

 

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.

2.2.            
Restriction
on Stock Repurchases.
So long as the Borrower shall have any obligation under this Note, the Borrower
shall not without the Holder’s written consent redeem, repurchase or otherwise
acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related
transactions any shares of capital stock of the Borrower or any warrants,
rights or options to purchase or acquire any such shares.

 

 

 

2.3.            
Borrowings;
Liens. Notwithstanding section 4(m) of the Purchase
Agreement, so long as the Borrower shall have any obligation under this
Note, the Borrower shall not (i) create, incur, assume guarantee, endorse,
contingently agree to purchase or otherwise become liable upon the obligation
of any person, firm, partnership, joint venture or corporation, except by the
endorsement of negotiable instruments for deposit or collection, or suffer to
exist any liability for borrowed money, except (a) borrowings in existence or
committed on the date hereof and of which the Borrower has informed Holder in
writing prior to the date hereof, or (b) indebtedness to trade creditors or
financial institutions incurred in the ordinary course of business, or (ii)
enter into, create or incur any liens, claims or encumbrances of any kind, on
or with respect to any of its property or assets now owned or hereafter
acquired or any interest therein or any income or profits therefrom, securing
any indebtedness occurring after the date hereof.

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

2.5.            
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 in existence or committed on
the date hereof and which the Borrower has informed Holder in writing prior to
the date hereof.

2.6.            
Charter.  So long as
the Borrower shall have any obligations under this Note, the Borrower shall not
amend its charter documents, including without limitation its certificate of
incorporation and bylaws, in any manner that materially and adversely affects
any rights of the Holder.

ARTICLE III. EVENTS OF DEFAULT

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

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.

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 at any time following the execution hereof or)
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 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 five
(5) 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 seven (7)
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 $50,000.00, 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 OTCBB, or OTCQB, or an equivalent replacement exchange, NASDAQ, the NYSE
or AMEX.

3.9.            
Failure
to Comply with the Exchange Act. The Borrower shall fail to comply in
any material respect 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, during the term of this Note, to maintain any material
intellectual property rights, personal, real property or other assets which are
necessary to conduct its business (whether now or in the future).

3.13.        
Financial
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 the other
related or companion documents, a breach or default by the Borrower of any
covenant or other term or condition contained in any of the Other Agreements,
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 and the Other
Agreements, in which event the Holder shall be entitled (but in no event
required) to apply all rights and remedies of the Holder under the terms of
this Note and the Other Agreements by reason of a default under said Other
Agreement or hereunder. “Other
Agreements” means, collectively, all agreements and instruments between, among
or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any
affiliate of the Holder, including, without limitation, promissory notes;
provided, however, the term “Other Agreements” shall not include the related or
companion documents to this Note. Each of the loan transactions will be
cross-defaulted with each other loan transaction and with all other existing
and future debt of Borrower to the Holder. 

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 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, and/or 3. 15 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 in 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.  The Holder may
still convert any amounts due hereunder, including without limitation the
Default Sum, until such time as this Note has been repaid in full.

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.

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, email or facsimile, addressed as set forth below or to such other address as such party shall have specified
most recently by written notice. Any notice or other communication required or
permitted to be given hereunder shall be deemed effective (a) upon hand
delivery or delivery by facsimile or email, with accurate confirmation
generated by the transmitting facsimile machine or computer, at the address,
email or number designated in the Purchase Agreement (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.

 

 

 

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.

4.6.            
Governing
Law.
This Note shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to conflicts
of laws principles that would result in the application of the substantive laws
of another jurisdiction.  Any action brought by either party against
the other concerning the transactions
contemplated by this Agreement must be brought only in the civil or state
courts of Delaware or in the federal courts located in the State and county of Delaware.  Both
parties and the individual signing this Agreement on behalf of the Borrower
agree to submit to the jurisdiction of such courts.  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 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 unenforceability of any other
provision of this Note. Nothing contained herein shall be deemed or operate to
preclude the Holder from bringing suit or taking other legal action against the
Borrower in any other jurisdiction to collect on the Borrower’s obligations to
Holder, to realize on any collateral or any other security for such
obligations, or to enforce a judgment or other decision in favor of the Holder.  This
Note shall be deemed an unconditional obligation of Borrower for the payment of
money and, without limitation to any other remedies of Holder, may be enforced
against Borrower by summary proceeding pursuant to Delware Civil Procedure Law
and Rules Section 3213 or any similar rule or statute in the jurisdiction where
enforcement is sought.  For purposes of such rule or statute, any
other document or agreement to which Holder and Borrower are parties or which
Borrower delivered to Holder, which may be convenient or necessary to determine
Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part
of this Note, whether or not such other document or
agreement was delivered together herewith or was executed apart from this Note.

 

 

 

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

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 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.

 

 

 

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

 

 

(Remainder
of Page intentionally left blank)

           
 

 

 

 

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

 

COMPANY:

 

HPIL
HOLDING

By: /s/
Nitin Amersey

Director
and CFO

 

 

 

 

 

 

 

 

 

 

                                                                                            

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

                                                                     EXHIBIT A

 

                                                       NOTICE
OF CONVERSION

                                                                               

The
undersigned hereby elects to convert principal under the 15% Convertible Note
of HPIL HOLDING, a Nevada corporation (the Company”), into shares of
common stock (the “Common Stock”), of the Company according to the
conditions hereof, as of the date written below.  If shares of Common Stock are
to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably requested by
the Company in accordance therewith.  No fee will be charged to the holder for any
conversion, except for such transfer taxes, if any.

 

            By
the delivery of this Notice of Conversion the undersigned represents and
warrants to the Company that its ownership of the Common Stock does not exceed
the amounts specified under Section 1.1 of this Note, as determined in
accordance with Section 13(d) of the Exchange Act.

 

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

 

Conversion
calculations:                                                                                                                 

Date to Effect Conversion:                                                         

 

Conversion Price:                                                                       

 

Principal
Amount of Note to be Converted:                                

 

                                                            Interest
Accrued on Account

                                                            of
Conversion at Issue:                                                               

 

                                                            Additional
Principal on Account           of Conversion

                                                            Pursuant
to Section 1.2(b) of the Note:                                       

                                                                                                                                                      

Number
of shares of Common Stock to be issued:                       

                                                                                                                                                                                                                    

                                                                                                                                                      

Signature:                                                                                  

                                                                                          

Name:                                                                                       

                                                                                                                                                      

Address for Delivery of Common
Stock Certificates:       

                                                                                                 

                                                                                                 

 

                                                            Or 

 

                                                            DWAC
Instructions:

                                                            Broker
No:                                 

                                                            Account
No:

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00265-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00265-of-00352.parquet"}]]