Document:

TRU.2013.10K-Ex10.59

EXHIBIT 10.59
EXECUTION COPY

EMPLOYMENT AGREEMENT
Deborah Derby

This EMPLOYMENT AGREEMENT (the “Agreement”) is dated as of March 6, 2013 (the “Execution Date”) by and between TOYS “R” US, INC. (the “Company”) and Deborah Derby (“Executive”).
In consideration of the premises and mutual covenants herein and for other good and valuable consideration, the parties agree as follows:
1.Term of Employment.  Subject to the provisions of Section 8 of this Agreement, Executive shall be employed by the Company and designated indirect subsidiaries of the Company (each, a “Subsidiary”), for a period commencing on March 6, 2013 (the “Commencement Date”) and ending on the first anniversary of the Commencement Date (the “Initial Term”), on the terms and subject to the conditions set forth in this Agreement.  Following the Initial Term, the term of Executive’s employment hereunder shall automatically be renewed on the terms and conditions hereunder for additional one-year periods commencing on each anniversary of the last day of the Initial Term (the Initial Term and any annual extensions of the term of this Agreement, subject to the provisions of Section 8 hereof, together, the “Employment Term”); provided, however, that if the Company provides Executive with written notice of non-renewal of the Employment Term at least 180 days prior to the third anniversary of the Commencement Date, then the Employment Term, and Executive’s employment hereunder, shall terminate on such third anniversary, and such non-renewal shall constitute an event giving rise only to the payments and benefits provided under Section 8.a. of this Agreement.  
2.    Position.
a.    During the Employment Term, Executive shall serve as the Vice Chairman and Executive Vice President of each of the Company, Toys “R” Us – Delaware, Inc. and any other indirect Subsidiaries that the board of directors of the Company (the “Board”) designates (such entities collectively referred to as the “TRU Group”).  In such positions, Executive shall have such duties and authority as determined by the Board and the board of directors of each Subsidiary, as applicable (each, a “Subsidiary Board”) and commensurate with the position of the Executive Vice President of a company of similar size and nature to that of the TRU Group.  During the Employment Term, the Executive shall report to the Chief Executive Officer of the Company (the “CEO”).
b.    During the Employment Term, Executive will devote Executive’s full business time and reasonable best efforts to the performance of Executive’s duties hereunder and will not engage in any other business, profession or occupation for compensation or otherwise which would conflict or interfere in any material respect with the rendition of such services either directly or indirectly, without the prior written consent of the CEO and/or board; provided that nothing herein shall preclude Executive from continuing to serve on any board of directors or trustees, advisory board or government commission which is listed on Exhibit A attached hereto, or, subject to the prior approval of the CEO, from accepting appointment to 

serve on any board of directors or trustees of any business corporation or any charitable organization; provided in each case in the aggregate, that such activities do not conflict or interfere with the performance of Executive’s duties hereunder or conflict with Section 9 below.
3.    Base Salary.  During the Employment Term, the Company shall pay Executive a base salary at the annual rate of $700,000, payable in substantially equal periodic payments in accordance with the Company’s practices for other executive employees, as such practices may be determined from time to time.  Executive shall be entitled to such increases in Executive’s base salary, if any, as may be determined from time to time in the sole discretion of the Board, which shall at least annually review Executive’s rate of base salary to determine if any such increase shall be made.  Executive’s annual base salary, as in effect from time to time hereunder, is hereinafter referred to as the “Base Salary.”    
4.    Signing Bonus. Upon Executive’s commencement of employment with the Company on the Commencement Date, the Company shall pay Executive a one-time signing bonus of $115,000.  
5.    Annual Bonus.  During the Employment Term, Executive shall be eligible to earn an annual bonus award in respect of each fiscal year of the Company (an “Annual Bonus”), in a target amount of up to 110% of Executive’s Base Salary (the “Target Bonus”), payable upon the Company’s achievement of certain performance targets established by the Board or any appropriate committee or delegatee thereof and pursuant to the terms of the Company’s incentive plan, as in effect from time to time.  Performance targets and incentive plans shall be similar to those in place for other senior executives.  Notwithstanding the foregoing, in the event the Company’s performance exceeds such performance targets, Executive shall be eligible to earn an Annual Bonus in an amount in excess of the Target Bonus, as determined by the Board or any appropriate committee or delegatee thereof in accordance with the Company’s incentive plan, as in effect from time to time.  The Annual Bonus, if any, shall be paid to Executive not later than two and one-half (21⁄2) months after the end of the applicable fiscal year of the Company.
6.    Employee Benefits; Perquisites; Business and Relocation Expenses.  
a.    Employee Benefits.  During the Employment Term, Executive and her spouse and dependents, as applicable, shall be entitled to participate in the Company’s welfare benefit plans and retirement plans, including, without limitation, the Company’s 401(k) and supplemental executive retirement plans and medical, dental and life insurance plans, as in effect from time to time (collectively, the “Employee Benefits”), on the same basis as those benefits are or may be made available to the other senior executives of the Company (other than benefits which have been terminated or for which participation has been frozen).  The Company shall be permitted to modify such benefits from time to time consistent with any modifications that impact other senior executives of the Company.
b.    Perquisites.  During the Employment Term, Executive shall be entitled to receive such perquisites as are made available to other senior executives of the Company in accordance with the Company’s policies, as in effect from time to time.  Executive 

shall be entitled to not less than four (4) weeks of paid vacation per year, which vacation shall be taken at such times as are reasonably acceptable to the Company in light of the Company’s operations, Executive’s performance of her duties, and in accordance with the terms of the Company’s vacation policy, as in effect from time to time, applicable to Executive.
c.    Business Expenses.  During the Employment Term, reasonable business expenses incurred by Executive in the performance of Executive’s duties hereunder shall be reimbursed by the Company in accordance with the Company’s policies, as in effect from time to time, applicable to senior executive officers of the Company.
7.    Equity.  
a.    During the Employment Term, Executive shall be eligible to participate in the Toys “R” Us, Inc. 2010 Incentive Plan (the “Incentive Plan”) in accordance with the policies and procedures of the Incentive Plan and any subsequent plans.  In the event the Company implements a broad-based management restructuring and transition program, Executive will be entitled to participate in any equity-based retention or repurchase program that the Company may implement in connection therewith for the benefit of other senior executives of the Company, on terms that are consistent therewith.  For the avoidance of doubt, Executive will not be entitled to participate in any cash retention program that the Company may implement , but Executive will be eligible for the annual “May 2013 Grant.”
b.    At the first meeting of the designated committee of the Board occurring during the Employment Term:
(i)    Executive will be granted: (x) an option to purchase 26,667 shares of common stock of the Company (“Common Stock”), which option will have an exercise price equal to USD $60.00 per share (“2015 Options”), and (y) an option to purchase 21,014 shares of Common Stock, which option will have an exercise price equal to USD $44.00 per share (“2016 Options” and together with the 2015 Options, the “Options”), in each case so long as such per share exercise price is at least equal to the per share fair market value of Common Stock on the date of such grant, determined in accordance with the requirements of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)).  These Options will be granted pursuant to the Incentive Plan and the form of nonqualified stock option agreement used by the Company to make awards to members of senior management, except that, subject to Executive’s continued employment with the TRU Group through the applicable vesting date(s): (A) 50% of the 2015 Options will vest on each of the first and second anniversaries, respectively, of the date of grant of the 2015 Options and (B) 50% of the 2016 Options will vest on the first anniversary, and 25% of the 2016 Options will vest on each of the second and third anniversaries, respectively, of the date of grant of the 2016 Options.  
(ii)    To the extent a plan or program is put in place to address the undervalued options in section (i) above for senior executives, Executive shall also be permitted to participate in that plan or program.

8.    Termination.  The Employment Term and Executive’s employment hereunder may be terminated by either party at any time and for any reason; provided that Executive will be required to give the Company at least 60 days’ advance written notice of any resignation of Executive’s employment without Good Reason (as defined in Section 8.c. below) (other than due to Executive’s death or Disability).  Notwithstanding any other provision of this Agreement, the provisions of this Section 8 shall exclusively govern Executive’s rights upon termination of employment with the TRU Group; provided, however, that nothing contained in this Section 8 shall alter Executive’s or the Company’s rights with respect to the Incentive Plan, which shall continue to govern Executive’s equity holdings following any termination in accordance herewith.
a.    By the Company For Cause or By Executive Without Good Reason.
(i)    The Employment Term and Executive’s employment hereunder may be terminated by the Company for Cause (as defined below) and shall terminate automatically upon Executive’s resignation without Good Reason (other than due to Executive’s death or Disability); provided, that Executive will be required to give the Company at least 60 days’ advance written notice of such resignation.
(ii)     For purposes of this Agreement, “Cause” shall mean any of the following, as determined by the CEO: (A) Executive’s willful failure to perform any material portion of her duties; (B) the commission of any fraud, misappropriation or misconduct by Executive that causes demonstrable injury, monetarily or otherwise, to the Company or an Affiliate (as such term is defined in the Incentive Plan); (C) the conviction of, or pleading guilty or nolo contendere to, a felony involving moral turpitude; (D) an act resulting or intended to result, directly or indirectly, in material gain or personal enrichment to the Executive at the expense of the Company or an Affiliate; (E) any material breach of Executive’s fiduciary duties to the Company or an Affiliate as an employee or officer; (F) a violation of the Company’s Code of Ethical Standards, Business Practices and Conduct; (G) the failure by the Executive to comply, in any material respect, with the provisions of Sections 9 and 10 of this Agreement; or (H) the failure by the Executive to comply with any other undertaking set forth in this Agreement or any other agreement Executive has with the Company or any Affiliate or any breach by Executive hereof or thereof if such failure or breach is reasonably likely to result in a material injury to the Company or an Affiliate.  Notwithstanding the foregoing, the conduct in sections (A), (D), (E), (F), (G) and (H), shall not be deemed “‘Cause” if the basis for such Cause is cured within a reasonable period of time (determined in light of the cure appropriate to the basis of such Cause), but in no event more than thirty (30) business days after Executive receives the Notice of Termination specifying the basis of such Cause.
(iii) If Executive’s employment is terminated by the Company for Cause, or if Executive resigns without Good Reason, Executive shall be entitled to receive:
(A)    a lump sum payment of the Base Salary that is earned by Executive but unpaid as of the date of Executive’s termination of employment, paid in accordance with the Company’s payroll practices, but in no event later than thirty (30) days following Executive’s termination of employment;

(B)    a lump sum payment of any Annual Bonus that is earned by Executive but unpaid as of the date of termination for the immediately preceding fiscal year, paid in accordance with Section 5 (except to the extent payment is otherwise deferred pursuant to any applicable deferred compensation arrangement with the Company); 
(C)    reimbursement, within 30 days following submission by Executive to the Company of appropriate supporting documentation, for any unreimbursed business expenses properly incurred by Executive in accordance with the Company policy referenced in Section 6.c. above prior to the date of Executive’s termination; provided claims for such reimbursement (accompanied by appropriate supporting documentation) are submitted to the Company within ninety (90) days following the date of Executive’s termination of employment; 
(D)    such Employee Benefits, if any, as to which Executive may be entitled under the employee benefit plans of the Company; and
(E)    continuation of medical, dental and life insurance benefits (pursuant to the same benefit plans as in effect for active employees of the Company), as follows:
		
	(I)
	Executive shall pay a portion of such costs as if Executive’s employment had not terminated, until the earlier to occur of (x) twelve (12) months from the date of termination and (y) the date on which Executive commences to be eligible for coverage under substantially comparable medical, dental and life insurance benefit plans from any subsequent employer (the “Benefit Continuation Period”); provided that if such continued coverage is not possible under the general terms and provisions of such plan(s) during such period, the Company shall pay an amount to Executive equal to the Company’s cost of providing such benefits to Executive as if Executive’s employment had not terminated (the “Company Subsidy”).  In order to facilitate such coverage, Executive and her spouse and dependents, as applicable, in accordance with the Company’s policies in effect at the time of Executive’s termination, shall agree to elect continuation coverage in accordance with the provisions of the Consolidated Omnibus Budget Reconciliation Act of 1986, as amended (“COBRA Coverage”) and the Company may satisfy its obligations hereunder by paying a portion of the premiums required for such COBRA Coverage. In the event that the Company, in its sole and absolute discretion, determines at any time that the continued payment of Executive’s COBRA premiums is in violation of the nondiscrimination rules set forth in Section 105(h) of the Code, which will result in a detrimental tax result for Executive (taxability of Executive’s health benefits), the Company 

reserves the right to discontinue such practice to the extent necessary, and to thereafter pay to Executive the taxable Company Subsidy each month for the remainder of the Benefit Continuation Period, less applicable withholding.
		
	(II)
	Upon expiration of the Benefit Continuation Period, Executive shall pay the premium charged to former employees of the Company pursuant to Section 4980B of the Code until the Executive is sixty-five (65) years of age.  The Company may amend or otherwise alter the plans to provide different benefits to Executive as long as the benefits provided to Executive are no less favorable than those then provided or offered to active employees holding similar positions to the position held by Executive as of her date of termination.  To the extent such continued coverage is not possible under the general terms and provisions of such plan(s) during such period, or the plans cannot be so amended in any manner not adverse to the Company, the Company shall pay Executive, on an after-tax basis, an amount necessary for Executive to acquire such benefits from an independent insurance carrier, net of the amount Executive would otherwise be required to pay under this clause (II).  

In no event shall the coverage provided pursuant to this Section 8.a.(iii)(E) extend beyond December 31 of the year in which Executive reaches age 65.  The medical, dental and life insurance coverage under this Section 8.a.(iii)(E) provided in any one calendar year shall not affect the amount of benefits to be provided in any other calendar year, and the reimbursement of an eligible expense must be made no later than December 31 of the year after the year in which the expense was incurred.  Executive’s rights pursuant to this Section 8.a.(iii)(E) shall not be subject to liquidation or exchange for another benefit.  The obligations of the Company under this Section 8.a.(iii)(E) shall be terminated if, at any time after the date of termination of Executive’s employment, Executive is employed by or is otherwise affiliated with a party that offers medical benefits to Executive.
All amounts described in clauses (A) through (E) hereof shall be referred to as the “Accrued Rights” for purposes of this Agreement.  Following such termination of Executive’s employment by the Company for Cause or resignation by Executive without Good Reason, except as set forth in this Section 8.a.(iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement. 
b.    Disability or Death.
(i)    The Employment Term and Executive’s employment hereunder shall terminate upon Executive’s death and may be terminated by the Company upon the Executive’s Disability.  For purposes of this Agreement, “Disability” shall mean the determination that the Executive is disabled pursuant to the terms of the Company’s long term disability plan.  

(ii)    Upon termination of Executive’s employment hereunder for either Disability or death, Executive or Executive’s estate (as the case may be) shall be entitled to receive:
(A)    the Accrued Rights (excluding in the case of Executive’s death, those rights provided under clause (E) of such definition); and
(B)    a pro rata portion of the Annual Bonus, if any, that Executive would have been entitled to receive pursuant to Section 5 hereof for such year based upon the Company’s actual results for the year of termination and the percentage of the fiscal year that shall have elapsed through the date of Executive’s termination of employment, payable to Executive pursuant to Section 5 had Executive’s employment not terminated.
Following Executive’s termination of employment due to Executive’s death or Disability, except as set forth in this Section 8.b.(ii), Executive or her estate, as applicable, shall have no further rights to any compensation or any other benefits under this Agreement. 
c.    By the Company Without Cause or by Executive for Good Reason.  
(i)    Executive’s employment hereunder may be terminated (A) by the Company without Cause (which shall not include Executive’s termination of employment due to her death or Disability) or (B) by Executive for Good Reason (as defined below).  
(ii)    For purposes of this Agreement, “Good Reason” shall mean, other than in connection with a termination of the Executive’s employment by the Company for Cause or due to Executive’s death or Disability: (A) without the consent of Executive, the failure of the Company to pay any undisputed amount due under this Agreement; (B) without the consent of Executive, a reduction in Executive’s targeted compensation level (other than a general reduction in base salary or annual incentive compensation opportunities that affects all members of senior management of the Company proportionally); (C) without the consent of Executive, Company requiring Executive to be based at any office or location outside Northern New Jersey; (D) the new Chief Executive Officer of the Company or any successor (the “New CEO”) and Executive do not mutually agree upon Executive’s job title and material job responsibilities, (E) prior to the hiring of the New CEO, change in job title that is not mutually agreed upon by the Company and Executive, or (F) prior to the hiring of the New CEO, material change in job responsibilities or reporting relationship that is not mutually agreed upon by the Company and Executive.  Notwithstanding the foregoing: (x) any termination by Executive for Good Reason may only occur if Executive provides a Notice of Termination (as defined in Section 8.d.) for Good Reason within 45 days after Executive learns (or reasonably should have learned) about the occurrence of the event giving rise to the claim of Good Reason; and (y) resignation by Executive shall not be deemed for “Good Reason” if the basis for such Good Reason is cured within a reasonable period of time (determined in light of the cure appropriate to the basis of such Good Reason), but in no event more than thirty (30) business days after the Company receives the Notice of Termination specifying the basis of such Good Reason.

(iii)     If Executive’s employment is terminated by the Company without Cause (excluding by reason of Executive’s death or Disability), or by Executive for Good Reason, Executive shall be entitled to receive: 
(A)    the Accrued Rights; 
(B)    a pro rata portion of the Annual Bonus, if any, that Executive would have been entitled to receive pursuant to Section 5 hereof for such year based upon the Company’s actual results for the year of termination and the percentage of the fiscal year that shall have elapsed through the date of Executive’s termination of employment, payable to Executive pursuant to Section 5 had Executive’s employment not terminated; and
(C)    subject to Executive’s continued compliance with the provisions of Sections 9 and 10 and Executive’s execution (and non-revocation) of a release of all claims against the TRU Group in a form substantially similar to the Separation and Release Agreement attached hereto as Exhibit B, an amount equal to $750,000.00 in a lump sum payment within sixty (60) days following Executive’s termination of employment, but in no event later than the March 15 following the year in which the Executive terminates employment.
Following Executive’s termination of employment by the Company without Cause (excluding by reason of Executive’s death or Disability) or by Executive for Good Reason, except as set forth in this Section 8(c)(iii), Executive shall have no further rights to any compensation or any other benefits under this Agreement. 
d.    Notice of Termination.  Any purported termination of employment by the Company or by Executive (other than due to Executive’s death or Disability) shall be communicated by written Notice of Termination to the other party hereto in accordance with Section 14.g. hereof.  For purposes of this Agreement, a “Notice of Termination” shall mean a notice which shall indicate the specific termination provision in this Agreement relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of employment under the provision so indicated.  To the extent a right to cure is triggered, the Notice of Termination shall state the cure required and a date by which the cure must occur.
e.     Board/Committee Resignation.  Upon termination of Executive’s employment for any reason, Executive agrees to resign, as of the date of such termination and to the extent applicable, from the Board and any Subsidiary Boards (and any committees thereof).  
9.    Non-Competition.
a.    Executive acknowledges and recognizes the highly competitive nature of the businesses of the Company and its Affiliates and accordingly agrees as follows:

(i)    During the Employment Term and a eighteen (18) month period commencing on Executive’s termination of employment (the “Restricted Period”), Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any person, firm, partnership, joint venture, association, corporation or other business organization, entity or enterprise whatsoever (“Person”), directly or indirectly:
(A)    engage in any business that directly or indirectly is a “Competitive Business.”  For purposes of this subsection (A) a “Competitive Business” means, with respect to the Executive at any time, any Person engaged wholly or in part (directly or through one or more subsidiaries) in the retail sale or distribution (including in stores or via mail order, e-commerce, or similar means) of “Competing Products,” if more than one-third (1/3) of such Person's gross sales for the twelve (12) month period preceding such time (or with respect to the period after Executive’s termination date, as of such termination date) are generated by engaging in such sale or distribution of Competing Products.  Without limiting the foregoing, the term “Competitive Business” shall in any event include Wal-Mart, K-Mart/Sears, Target, Amazon.com, Buy Buy Baby, Mattel, Hasbro, Tesco, Carrefour and any of their respective parents, subsidiaries, Affiliates or commonly controlled entities.   For purposes of this subsection (A) “Competing Products” means, with respect to the Executive at any time, (1) toys and games, (2) video games, computer software for children, and electronic toys or games, (3) juvenile or baby products, apparel, equipment, furniture, or consumables, (4) wheeled goods for children, and (5) any other product or group of related products that represents more than twenty (20) percent of the gross sales of the Company and its subsidiaries for the twelve (12) month period preceding such time (or with respect to the period after the Executive’s termination date, as of such termination date);
(B)    enter the employ of, or render any services to, any Person (or any division or controlled or controlling Affiliate of any Person) who or which engages in a Competitive Business;
(C)    acquire a financial interest in, or otherwise become actively involved with, any Competitive Business, directly or indirectly, as an individual, partner, shareholder, officer, director, principal, agent, trustee or consultant; or
(D)    interfere with, or attempt to interfere with, business relationships (whether formed before, on or after the date of this Agreement) between the Company or any of its Affiliates and customers, clients, suppliers, partners, members or investors of the Company or its Affiliates.
(E)    Notwithstanding anything to the contrary in this Agreement, Executive may, directly or indirectly own, solely as a passive investment, securities of any Person engaged in a Competitive Business which are publicly traded on a national or regional stock exchange or on the over-the-counter market or privately held if Executive (x) is not a controlling Person of, or a member of a group which 

controls, such Person and (y) does not, directly or indirectly, own 3% or more of any class of securities of such Person who is publicly traded or privately held.
(ii)    During the Restricted Period, Executive will not, whether on Executive’s own behalf or on behalf of or in conjunction with any Person, directly or indirectly:
(A)    solicit to leave the employment of, or encourage any employee of the Company or its Affiliates to leave the employment of, the Company or its Affiliates; or
(B)    hire any such employee (other than clerical or administrative support personnel) who was employed by the Company or its Affiliates as of the date of Executive’s termination of employment with the Company or who left the employment of the Company or its Affiliates coincident with, or within one year prior to, the termination of Executive’s employment with the Company.
(iii) During the Restricted Period, Executive will not, directly or indirectly, solicit to leave the employment of, or encourage to cease to work with, as applicable, the Company or its Affiliates any consultant, supplier or service provider then under contract with the Company or its Affiliates.  
b.    It is expressly understood and agreed that although Executive and the Company consider the restrictions contained in this Section 9 to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction contained in this Agreement is an unenforceable restriction against Executive, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable.  Alternatively, if any court of competent jurisdiction finds that any restriction contained in this Agreement is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.  
10.    Confidentiality.
a.    Executive will not at any time (whether during or after Executive’s employment with the Company), except when required to perform her duties to the TRU Group, (x) retain or use for the benefit, purposes or account of Executive or any other Person; or (y) disclose, divulge, reveal, communicate, share, transfer or provide access to any Person outside the TRU Group (other than its professional advisers who are bound by confidentiality obligations), any non-public, proprietary or confidential information --including without limitation rates, trade secrets, know-how, research and development, software, databases, inventions, processes, formulae, technology, designs and other intellectual property, information concerning finances, investments, profits, pricing, costs, products, services, vendors, customers, clients, partners, investors, personnel, compensation, recruiting, training, advertising, sales, marketing, promotions, government and regulatory activities and approvals -- concerning the past, current or future business, activities and operations of the Company and its subsidiaries 

and/or any third party that has disclosed or provided any of same to the Company and its subsidiaries on a confidential basis (“Confidential Information”) without the prior written authorization of the Board.
b.    “Confidential Information” shall not include any information that is (x) generally known to the industry or the public other than as a result of Executive’s breach of this covenant or any breach of other confidentiality obligations by third parties; (y) required by law or judicial process to be disclosed; provided that Executive shall give prompt written notice to the Company of such requirement, disclose no more information than is so required, and cooperate with any attempts by the Company to obtain a protective order or similar treatment; or (z) disclosed in connection with a litigation or arbitration proceeding between the parties.
c.    Except as required by law or judicial process, Executive will not disclose to anyone, other than Executive’s immediate family, legal and/or financial advisors, the existence or contents of this Agreement; provided that Executive may disclose to any prospective future employer the provisions of Sections 9 and 10 of this Agreement, provided they agree to maintain the confidentiality of such terms.
d.    Upon termination of Executive’s employment with the TRU Group for any reason, Executive shall (x) cease and not thereafter commence use of any Confidential Information or intellectual property (including without limitation, any patent, invention, copyright, trade secret, trademark, trade name, logo, domain name or other source indicator) owned by the Company, its subsidiaries or Affiliates; (y) immediately destroy, delete, or return to the Company, at the Company’s option, all originals and copies in any form or medium (including memoranda, books, papers, plans, computer files, letters and other data) in Executive’s possession or control (including any of the foregoing stored or located in Executive’s office, home, laptop or other computer, whether or not the Company’s property) that contain Confidential Information or otherwise relate to the business of the Company, its Affiliates or subsidiaries (whether or not the retention or use thereof would reasonably be expected to result in a demonstrable injury to the Company, its Affiliates or subsidiaries), except that Executive may retain only those portions of any personal notes, notebooks and diaries that do not contain any Confidential Information; and (z) notify and fully cooperate with the Company regarding the delivery or destruction of any other Confidential Information of which Executive is or becomes aware.
e.    Executive shall not improperly use for the benefit of, bring to any premises of, divulge, disclose, communicate, reveal, transfer or provide access to, or share with the TRU Group any confidential, proprietary or non-public information or intellectual property relating to a former employer or other third party without the prior written permission of such third party.  Executive hereby indemnifies, holds harmless and agrees to defend the TRU Group and its respective officers, directors, partners, employees, agents and representatives from any actual breach of the foregoing covenant.  During the Employment Term, Executive shall comply with all relevant written policies and guidelines of the Company and its subsidiaries and Affiliates which have been made available or disclosed to him, including regarding the protection of Confidential Information and intellectual property and potential conflicts of 

interest.  Executive acknowledges that the Company and its subsidiaries and Affiliates may amend any such policies and guidelines from time to time, and that Executive remains at all times bound by their most current version; provided, however, that Executive shall not be bound by any such amendments unless and until Executive receives notice of such amendments and copies thereof are made available or disclosed to her.
f.    The provisions of this Section 10 shall survive the termination of Executive’s employment for any reason.
11.    Specific Performance.  Executive acknowledges and agrees that the Company’s remedies at law for a breach or threatened breach of any of the provisions of Sections 9 or 10 would be inadequate and the Company and its subsidiaries and Affiliates would suffer irreparable damages as a result of such breach or threatened breach.  In recognition of this fact, Executive agrees that, in the event of such a breach or threatened breach, in addition to any remedies at law, the Company, may seek equitable relief in the form of specific performance, temporary restraining order, temporary or permanent injunction or any other equitable remedy which may then be available.
12.    Arbitration.  Except as provided in Section 11, any other dispute arising out of or asserting breach of this Agreement, or any statutory or common law claim by Executive relating to her employment under this Agreement or the termination thereof (including any tort or discrimination claim), shall be exclusively resolved by binding statutory arbitration in accordance with the Employment Dispute Resolution Rules of the American Arbitration Association.  Such arbitration process shall take place in New York, New York.  A court of competent jurisdiction may enter judgment upon the arbitrator’s award.  Each party shall pay the costs and expenses of arbitration (including fees and disbursements of counsel) incurred by such party in connection with any dispute arising out of or asserting breach of this Agreement.
13.    Compliance with Code Section 409A.
a.    General.  This Agreement shall be interpreted and administered in a manner so that any amount or benefit payable hereunder shall be paid or provided in a manner that is either exempt from or compliant with the requirements of Section 409A of the Code (“Code Section 409A”) and applicable advice and regulations issued thereunder.  Nevertheless, the tax treatment of the benefits provided under the Agreement is not warranted or guaranteed.  Neither the Company nor its directors, officers, employees or advisers (other than Executive) shall be held liable for any taxes, interest, penalties or other monetary amounts owed by Executive as a result of the application of Code Section 409A in respect of any payments or benefits that may be provided under this Agreement or otherwise, except as provided in this Section 13.a. The parties hereby acknowledge and agree that at the time that the Executive’s prior employment with the Company ended, neither party reasonably anticipated that any further services would be performed by the Executive to the Company or any of its Affiliates, and as such the Executive experienced a “separation from service” within the meaning of Code Section 409A at such time.  Notwithstanding the foregoing, in the event it is determined that such a “separation from service” did not occur, the Company agrees to reimburse the Executive for any additional income taxes, penalties and/or interest assessed against the Executive pursuant to 

Code Section 409A (but not the regular income taxes payable by the Executive as a result of receiving such payments) with regard to the severance payments made to the Executive pursuant to the Separation and Release Agreement between the Executive and the Company dated February 17,  2012 (the “Severance Payments”), such that, after payment by the Executive of the additional income taxes, penalties and/or interest assessed under Code Section 409A, the Executive will be in the economic position the Executive would have been had such payment or distribution not been determined to be noncompliant with Code Section 409A.  The Company also agrees to reimburse the Executive for expenses incurred during a tax audit or litigation addressing the existence or amount of any Code Section 409A tax liability for the Severance Payments in connection with the foregoing provided, however, that the Company shall reimburse the Executive for such expenses regardless of the final determination regarding whether any such tax liability is due.  Any Code Section 409A tax gross-up payment made pursuant to this paragraph shall be made (i) no later than the end of the Executive’s taxable year next following the Executive’s taxable year in which the Executive remits the related Code Section 409A taxes, or (ii) where as a result of such audit or litigation no taxes are remitted, the end of the Executive’s taxable year next following the Executive’s taxable year in which the audit is completed and there is a final and nonappealable settlement or other resolution of the litigation.  The Company’s obligations to make the reimbursements described in this paragraph shall not be conditioned upon the Executive’s employment with the Company and shall survive and apply even after the Executive’s termination of employment with the Company or the Executive’s death.  
b.    Definitional Restrictions.  Notwithstanding anything in this Agreement to the contrary, to the extent that any amount or benefit that would constitute non-exempt “deferred compensation” for purposes of Section 409A of the Code (“Non-Exempt Deferred Compensation”) would otherwise be payable or distributable hereunder, or a different form of payment of such Non-Exempt Deferred Compensation would be effected, by reason of a Change in Control or Executive’s Disability or termination of employment, such Non-Exempt Deferred Compensation will not be payable or distributable to Executive, and/or such different form of payment will not be effected, by reason of such circumstance unless the circumstances giving rise to such Change in Control, Disability or termination of employment, as the case may be, meet any description or definition of “change in control event”, “disability” or “separation from service”, as the case may be, in Section 409A of the Code and applicable regulations (without giving effect to any elective provisions that may be available under such definition).  This provision does not affect the dollar amount or prohibit the vesting of any Non-Exempt Deferred Compensation upon a Change in Control, Disability or termination of employment, however defined.  If this provision prevents the payment or distribution of any Non-Exempt Deferred Compensation, or the application of a different form of payment, such payment or distribution shall be made at the time and in the form that would have applied absent the non-409A-conforming event.  
c.    Six-Month Delay in Certain Circumstances.  Notwithstanding anything in this Agreement to the contrary, if any amount or benefit that would constitute Non-Exempt Deferred Compensation would otherwise be payable or distributable under this Agreement by reason of Executive’s separation from service with the TRU Group during a 

period in which Executive is a “specified employee” (as defined under Code Section 409A regulations), then, subject to any permissible acceleration of payment by the Company under Treas. Reg. Section 1.409A-3(j)(4)(ii) (domestic relations order), (j)(4)(iii) (conflicts of interest), or (j)(4)(vi) (payment of employment taxes): (i) the amount of such Non-Exempt Deferred Compensation that would otherwise be payable during the six-month period immediately following Executive’s separation from service will be accumulated through and paid or provided on the first day of the seventh month following Executive’s separation from service (or, if Executive dies during such period, within 30 days after Executive’s death) (in either case, the “Required Delay Period”); and (ii) the normal payment or distribution schedule for any remaining payments or distributions will resume at the end of the Required Delay Period. 
d.    Treatment of Installment Payments.  Each payment of termination benefits under this Agreement, including, without limitation, each installment payment and each payment or reimbursement of premiums for continued medical, dental or life insurance coverage under Section 7.c.(iii)(d), shall be considered a separate payment, as described in Treas. Reg. Section 1.409A-2(b)(2), for purposes of Section 409A of the Code.  
e.    Timing of Release of Claims.  Whenever in this Agreement a payment or benefit is conditioned on Executive’s execution of a release of claims, such release must be executed, and all revocation periods shall have expired, within 60 days after the date of termination of Executive’s employment; failing which such payment or benefit shall be forfeited.  If such payment or benefit constitutes Non-Exempt Deferred Compensation, and if such 60-day period begins in one calendar year and ends in the next calendar year, the payment or benefit shall not be made or commence before the second such calendar year, even if the release becomes irrevocable in the first such calendar year.  
f.    Permitted Acceleration.  The Company shall have the sole authority to make any accelerated distribution permissible under Treas. Reg. Section 1.409A-3(j)(4) to Executive of deferred amounts, provided that such distribution meets the requirements of Treas. Reg. Section 1.409A-3(j)(4).  
14.    Miscellaneous.
a.    Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without regard to conflicts of laws principles thereof.
b.    Entire Agreement/Amendments.  This Agreement, that certain letter agreement between the Executive and the Company related to this Agreement dated as of March 6, 2013 (the “Side Letter”), and the Incentive Plans contain the entire understanding of the parties with respect to the employment of Executive by the TRU Group.  There are no restrictions, agreements, promises, warranties, covenants or undertakings between the parties with respect to the subject matter herein other than those expressly set forth herein and therein.  This Agreement may not be altered, modified, or amended except by written instrument signed by the parties hereto.

c.    No Waiver.  The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver of such party’s rights or deprive such party of the right thereafter to insist upon strict adherence to that term or any other term of this Agreement.
d.    Severability.  In the event that any one or more of the provisions of this Agreement shall be or become invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be affected thereby.
e.    Assignment.  This Agreement, and all of Executive’s rights and duties hereunder, shall not be assignable or delegable by Executive; provided, however, that if Executive shall die, all amounts then payable to Executive hereunder shall be paid in accordance with the terms of this Agreement to Executive’s devisee, legatee or other designee or, if there be no such devisee, legatee or designee, to Executive’s estate.  Any purported assignment or delegation by Executive in violation of the foregoing shall be null and void ab initio and of no force and effect.  This Agreement may be assigned by the Company to a person or entity which is an Affiliate, and shall be assigned to any successor in interest to substantially all of the business operations of the Company.  Upon such assignment, the rights and obligations of the Company hereunder shall become the rights and obligations of such Affiliate or successor person or entity.  Further, the Company will require any successor (whether, direct or indirect, by purchase, merger, consolidation, or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place.  As used in this Agreement, “Company” shall mean the Company and any successor to its business and/or assets which is required by this Section 14.e. to assume and agree to perform this Agreement or which otherwise assumes and agrees to perform this Agreement; provided, however, in the event that any successor, as described above, agrees to assume this Agreement in accordance with the preceding sentence, as of the date such successor so assumes this Agreement, the Company shall cease to be liable for any of the obligations contained in this Agreement.  
f.    Set Off; Mitigation.  The Company’s obligation to pay Executive the amounts provided and to make the arrangements provided hereunder shall not be subject to set-off, counterclaim or recoupment, other than amounts loaned or advanced to Executive by the Company or its Affiliates, amounts owed by Executive under the Incentive Plan.  Executive shall not be required to mitigate the amount of any payment provided for pursuant to this Agreement by seeking other employment or otherwise and the amount of any payment provided for pursuant to this Agreement shall not be reduced by any compensation earned as a result of Executive’s other employment or otherwise.
g.    Notice.  For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered by hand or overnight courier or three days after it has been mailed by United States registered mail, return receipt requested, postage prepaid, addressed to 

the respective addresses set forth below in this Agreement, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
If to the Company:
Toys “R” Us, Inc.
One Geoffrey Way
Wayne, New Jersey 07470 
Attention:  General Counsel 

If to Executive:
To the most recent address of Executive set forth in the personnel records of the Company.
With a copy to:
Kerrie R. Heslin, Esq.
Nukk-Freeman & Cerra, P.C.
636 Morris Turnpike, Suite 2F
Short Hills, New Jersey  07078

h.    Executive Representation.  Executive hereby represents to the Company that the execution and delivery of this Agreement by Executive and the performance by Executive of Executive’s duties hereunder shall not constitute a breach of, or otherwise contravene, the terms of any employment agreement or other agreement or policy to which Executive is a party or otherwise bound.
i.    Prior Agreements. This Agreement supersedes all prior agreements and understandings (including verbal agreements) between Executive and the Company and/or its Affiliates regarding the terms and conditions of Executive’s employment with the Company and/or its Affiliates; provided, however, that the Incentive Plan shall govern the terms and conditions of Executive’s equity holdings in the Company.
j.    Cooperation.  Executive shall provide Executive’s reasonable cooperation in connection with any action or proceeding (or any appeal from any action or proceeding) which relates to events occurring during Executive’s employment hereunder, but only to the extent the Company requests such cooperation with reasonable advance notice to Executive and in respect of such periods of time as shall not unreasonably interfere with Executive’s ability to perform her duties with any subsequent employer; provided, however, that the Company shall pay any reasonable travel, lodging and related expenses that Executive may incur in connection with providing all such cooperation, to the extent approved by the Company prior to incurring such expenses.  Executive is entitled to be paid or reimbursed for any expenses under this Section 14.j., the amount reimbursable in any one calendar year shall not affect the amount reimbursable in any other calendar year, and the reimbursement of an eligible expense 

must be made no later than December 31 of the year after the year in which the expense was incurred.  Executive’s rights to payment or reimbursement of expenses pursuant to this Section 14.j. shall expire at the end of 20 years after the Execution Date and shall not be subject to liquidation or exchange for another benefit.
k.    Withholding Taxes.  The Company may withhold from any amounts payable under this Agreement such Federal, state and local taxes as may be required to be withheld pursuant to any applicable law or regulation.
l.    Counterparts.  This Agreement may be signed in counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instrument.
[Signatures on next page.]

IN WITNESS WHEREOF, the parties hereto have duly executed this amended and restated Agreement as of the day and year first above written.

TOYS “R” US, INC.

By: ___________________________
Name:
Title:

EXECUTIVE

______________________________
Deborah Derby

EXHIBIT A

Member of the Board of Directors – The Vitamin Shoppe

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EXHIBIT B
SEPARATION AND RELEASE AGREEMENT
This Separation and Release Agreement (“Agreement”) is entered into as of this ___ day of __________________________, 20__, between TOYS “R” US, INC. and any successor thereto (collectively, the “Company”) and Deborah Derby (the “Executive”).
The Executive and the Company agree as follows:
1.The employment relationship between the Executive and the Company and its subsidiaries and affiliates, as applicable, terminated on _________________________________ (the “Termination Date”).
2.    In accordance with the Employment Agreement dated as of March 6, 2013 by and between TOYS “R” US, INC. and Executive (the “Employment Agreement”), Executive is entitled to receive certain payments and benefits after the Termination Date.
3.    In consideration of the above, the sufficiency of which the Executive hereby acknowledges, the Executive, on behalf of the Executive and the Executive’s heirs, executors and assigns, hereby releases and forever discharges the Company and its members, parents, affiliates, subsidiaries, divisions, any and all current and former directors, officers, employees, agents, and contractors and their heirs and assigns, and any and all employee pension benefit or welfare benefit plans of the Company, including current and former trustees and administrators of such employee pension benefit and welfare benefit plans, from all claims, charges, or demands, in law or in equity, whether known or unknown, which may have existed or which may now exist from the beginning of time to the date of this Agreement, including, without limitation, any claims the Executive may have arising from or relating to the Executive’s employment or termination from employment with the Company and its subsidiaries and affiliates, as applicable, including a release of any rights or claims the Executive may have under Title VII of the Civil Rights Act of 1964, as amended, and the Civil Rights Act of 1991 (which prohibit discrimination in employment based upon race, color, sex, religion, and national origin); the Americans with Disabilities Act of 1990, as amended, and the Rehabilitation Act of 1973 (which prohibit discrimination based upon disability); the Family and Medical Leave Act of 1993 (which prohibits discrimination based on requesting or taking a family or medical leave); Section 1981 of the Civil Rights Act of 1866 (which prohibits discrimination based upon race); Section 1985(3) of the Civil Rights Act of 1871 (which prohibits conspiracies to discriminate); the Employee Retirement Income Security Act of 1974, as amended (which prohibits discrimination with regard to benefits); any other federal, state or local laws against discrimination; or any other federal, state, or local statute, or common law relating to employment, wages, hours, or any other terms and conditions of employment. This includes a release by the Executive of any claims for wrongful discharge, breach of contract, torts or any other claims in any way related to the Executive’s employment with or resignation or termination from the Company and its subsidiaries and affiliates, as applicable. This release also includes a release of any claims for age discrimination under the Age Discrimination in Employment Act, as amended (“ADEA”). The ADEA requires that the Executive be advised to consult with an attorney before the Executive 

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waives any claim under ADEA. In addition, the ADEA provides the Executive with at least 21 days to decide whether to waive claims under ADEA and seven days after the Executive signs the Agreement to revoke that waiver. This release does not release the Company from any obligations due to the Executive under the Executive’s Employment Agreement or under this Agreement, any rights Executive has to indemnification by the Company and any vested rights Executive has under the Company’s employee pension benefit and welfare benefit plans.
Additionally, in consideration of the foregoing, the Company agrees to release and forever discharge the Executive and the Executive’s heirs, executors and assigns from any claims, charges or demands, and/or causes of action whatsoever, in law or in equity, whether known or unknown, which may have existed or which may now exist from the beginning of time to the date of this Agreement, including, but not limited to, any claim, matter or action related to the Executive’s employment and/or affiliation with, or termination and separation from the Company and its subsidiaries and affiliates; provided that such release shall not release the Executive from any loan or advance by the Company or its subsidiaries or affiliates, as applicable, a breach of Executive’s fiduciary obligations under New Jersey state law or a breach under Section 9 or 10 of the Executive’s Employment Agreement.
4.    This Agreement is not an admission by either the Executive or the Company or its subsidiaries or affiliates of any wrongdoing or liability.
5.    The Executive waives any right to reinstatement or future employment with the Company and its subsidiaries and affiliates following the Executive’s separation from the Company and its subsidiaries and affiliates on the Termination Date.
6.    The Executive agrees not to engage in any act after execution of the Agreement that is intended, or may reasonably be expected to harm the reputation, business, prospects or operations of the Company or its subsidiaries or affiliates or their respective officers, directors, stockholders or employees. The Company further agrees that it will engage in no act which is intended, or may reasonably be expected to harm the reputation, business or prospects of the Executive.
7.    The Executive shall continue to be bound by Sections 9 and 10 of the Executive’s Employment Agreement.
8.    The Executive shall promptly return all Company and subsidiary and affiliate property in the Executive’s possession, including, but not limited to, Company or subsidiary or affiliate keys, credit cards, cellular phones, computer equipment, software and peripherals and originals or copies of books, records, or other information pertaining to the Company or subsidiary or affiliate business. 
9.    This Agreement shall be governed by and construed in accordance with the laws of the State of New Jersey, without reference to the principles of conflict of laws. Exclusive jurisdiction with respect to any legal proceeding brought concerning any subject matter contained in this Agreement shall be settled by arbitration as provided in the Executive’s Employment Agreement.

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10.    This Agreement represents the complete agreement between the Executive and the Company concerning the subject matter in this Agreement and supersedes all prior agreements or understandings, written or oral. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives.
11.    Each of the sections contained in this Agreement shall be enforceable independently of every other section in this Agreement, and the invalidity or unenforceability of any section shall not invalidate or render unenforceable any other section contained in this Agreement.
12.    It is further understood that for a period of 7 days following the execution of this Agreement in duplicate originals, the Executive may revoke this Agreement, and this Agreement shall not become effective or enforceable until the revocation period has expired. No revocation of this Agreement by the Executive shall be effective unless the Company has received within the 7 day revocation period, written notice of any revocation, all monies received by the Executive under this Agreement and all originals and copies of this Agreement.
13.    This Agreement has been entered into voluntarily and not as a result of coercion, duress, or undue influence. The Executive acknowledges that the Executive has read and fully understands the terms of this Agreement and has been advised to consult with an attorney before executing this Agreement. Additionally, the Executive acknowledges that the Executive has been afforded the opportunity of at least 21 days to consider this Agreement.
The parties to this Agreement have executed this Agreement as of the day and year first written above.
TOYS “R” US, INC.

By: /s/ David J. Schwartz            
Name: David J. Schwartz
Title:   Executive Vice President – General
Counsel and Corporate Secretary

EXECUTIVE

/s/ Deborah M. Derby                
Deborah Derby

3Unassociated Document

Exhibit 10.8

 

NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.

	
February 21, 2014

	
$150,000

VANITY EVENTS HOLDING, INC.

8% Convertible Debenture

Due February 20, 2017

FOR VALUE RECEIVED, Vanity Events Holding, Inc. a Delaware corporation (hereinafter called the “Borrower” or the “Company”), hereby promises to pay to IBC FUNDS LLC, a Nevada Corporation  (the “Holder”), or order, without demand, the sum of ONE HUNDRED FIFTY THOUSAND Dollars ($150,000), with simple interest accruing at the rate described below, on February 20, 2017(the "Maturity Date")..

 NOW THEREFORE, the following terms shall apply to this Note:

ARTICLE I

GENERAL PROVISIONS

1.1           Payments. The entire unpaid principal amount due under this Note (the “Principal”) shall be due and payable on the Maturity Date. Interest on this Note (the “Interest”) will be payable annually. Interest shall be payable in cash or, at the Company’s option, in shares of the Company’s common stock, par value $0.001 per share (the "Common Stock").

           Upon any conversion in part by the Holder in accordance with Article II, the Holder and the Borrower shall in good faith recalculate the outstanding principal balance. Upon any full conversion by the Holder in accordance with Article II of all of the Interest and the Principal due hereunder, all of the Borrower's payment obligations shall terminate. All payments in respect of the indebtedness evidenced hereby shall be applied in the following order: to accrued Interest, Principal, and charges and expenses owing under or in connection with this Note.

           If any payment of interest is paid in Common Stock, the number of shares issuable will be determined utilizing the conversion ratio as set forth in Article II. Notwithstanding the foregoing, the Company’s right to pay this Note, including any Interest due thereunder, in shares of Common Stock upon the Maturity Date is subject to the condition that: (i) the Common Stock is trading on the OTC Markets (Pink Sheets), OTC Bulletin Board, American Stock Exchange or Nasdaq; and (ii) there is an effective Registration Statement on the Maturity Date or the shares are otherwise eligible for resale pursuant to Rule 144.

1.2           Interest.  Interest shall accrue on the outstanding principal balance hereof at an annual rate equal to eight percent (8%) from the date Principal was advanced in connection with this Note and shall be payable annually unless otherwise converted earlier at the election of the Holder as further described below.  Interest shall be calculated on the basis of a 360-day year and the actual number of days elapsed, to the extent permitted by applicable  law.  Interest hereunder will be paid to the Holder or its assignee in whose name this Note is registered on the records of the Borrower regarding registration and transfers of Notes  (the “Note Register”).  However, should the Company fail to maintain current public information as defined in Rule 144 of the Securities Act of 1933, the interest rate shall increase to 18% per annum for that period when the Company’s filings are not up-to-date and the failure to timely file shall constitute a default allowing for acceleration of the Note.

  

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1.3           Payment Grace Period. From and after the 10th day after an Event of Default under Section 3.1, the Interest Rate applicable to any unpaid amounts owed hereunder shall be increased to eighteen percent (18%) per annum.

 

1.4           Conversion Privileges. The conversion privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until the Note is paid in full regardless of the occurrence of an Event of Default. This Note shall be payable in full on the Maturity Date, unless previously converted into Common Stock in accordance with Article II hereof; provided, that if an Event of Default has occurred, the Holder may elect to extend the Maturity Date by the amount of days of the pendency of the Event of Default.

 

1.5           Corporate Existence.  So long as this Note remains outstanding, the Company shall not directly or indirectly consummate any merger, reorganization, restructuring, reverse stock split, consolidation, sale of all or substantially all of the Company's assets or any similar transaction or related transactions (each such transaction, a “Fundamental Change”) where the Company is not the surviving entity unless, prior to the consummation a Fundamental Change, the Company shall have given the Holder not less than fourteen (14) days prior written notice to the Holder.  In any such case, the Company grant the Holder the right to put this Note to the Company up to the time of the effectiveness of the Fundamental Change at 150% of the then outstanding Principal plus any unpaid and accrued Interest.

This Note is subject to the following additional provisions:

ARTICLE II

CONVERSION RIGHTS AND REDEMPTION RIGHTS

The Holder shall have the right to convert the principal and accrued and unpaid interest due under this Note into Shares of the Borrower's Common Stock as set forth below.

2.1           Conversion into the Borrower's Common Stock.

(a)           The Holder shall have the right from and after the date of the issuance of this Note and then at any time until this Note is fully paid, to convert any outstanding and unpaid principal portion of this Note, and accrued Interest, at the election of the Holder (the date of giving of such notice of conversion being a "Conversion Date") into fully paid and non-assessable shares of Common Stock as such stock exists on the date of issuance of this Note (such shares, the “Conversion Shares”), or any shares of capital stock of Borrower into which such Common Stock shall hereafter be changed or reclassified (the “Other Securities”), at the conversion price as defined in Section 2.1(b) hereof (the "Conversion Price"), determined as provided herein. Upon delivery to the Borrower of a completed Notice of Conversion, a form of which is attached hereto as Exhibit A, Borrower shall issue and deliver to the Holder within three (3) business days from the Conversion Date (such third day being the “Delivery Date”) that number of Conversion Shares for the portion of the Note converted in accordance with the foregoing. At the election of the Holder, the Borrower will deliver accrued but unpaid interest on the principal amount of the Note being converted in the manner provided in Section 1.1 through the Conversion Date directly to the Holder on or before the Delivery Date. The number of Conversion Shares to be issued upon each conversion of this Note shall be determined by dividing that portion of the principal of this Note and accrued interest to be converted, by the Conversion Price.

(b) Subject to adjustment as provided in Section 2.1(c) hereof, the Conversion Price per share shall be 25% of the lowest closing bid price as of 4 pm (New York Time) for the Company’s stock during the previous 20 trading days.

(c)            The Conversion Price and number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(a), shall be subject to adjustment from time to time upon the happening of the following certain events while this conversion right remains outstanding:

 

  

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                                A.           Reorganization, Consolidation, Merger, etc.; Reclassification.  In case at any time or from time to time, the Company shall, subject to Section 1.5 hereof, effect a Fundamental Change, then, in each such case, as a condition to the consummation of such a transaction, proper and adequate provision shall be made by the Company whereby the Holder of this Note, on the conversion hereof as provided in Article II, at any time after the consummation of such Fundamental Change, shall receive, in lieu of the Conversion Shares (or Other Securities) issuable on such conversion prior to such consummation or such effective date, the stock and other securities and property (including cash) to which such Holder would have been entitled upon such consummation of a Fundamental Change if such Holder had so converted this Note, immediately prior thereto, all subject to further adjustment thereafter as provided in Section 2.1(c)(E).

                                           If the Borrower at any time shall, by reclassification or otherwise, change the Common Stock into the same or a different number of securities of any class or classes that may be issued or outstanding, this Note, as to the unpaid principal portion thereof and accrued interest thereon, shall thereafter be deemed to evidence the right to purchase an adjusted number of such securities and kind of securities as would have been issuable as the result of such change with respect to the Common Stock immediately prior to such reclassification or other change.

                                B.           Dissolution. In the event of any dissolution of the Company following the transfer of all or substantially all of its properties or assets, the Company, prior to such dissolution, shall at its expense deliver or cause to be delivered the stock and other securities and property (including cash, where applicable) receivable by the Holder of this Note after the effective date of such dissolution pursuant to this Article II to a bank or trust company (a “Trustee”) having its principal office in New York, NY, as trustee for the Holder of the Notes.

                                C.           Continuation of Terms. Upon any Fundamental Change or transfer (and any dissolution following any transfer) referred to in this Article II, this Note shall continue in full force and effect and the terms hereof shall be applicable to the Other Securities and property receivable on the conversion of this Note after the consummation of such Fundamental Change or transfer or the effective date of dissolution following any such transfer, as the case may be, and shall be binding upon the issuer of any other securities, including, in the case of any such transfer, the person acquiring all or substantially all of the properties or assets of the Company, whether or not such person shall have expressly assumed the terms of this Note as provided in Section 2.1(c)(E). In the event this Note does not continue in full force and effect after the consummation of the transaction described in this Article II, then only in such event will the Company's securities and property (including cash, where applicable) receivable by the Holder of this Note be delivered to the Trustee as contemplated by Section 2.1(c)(B).

 

                D.           Share Issuance.  If at any time this Note is outstanding the Company shall offer, issue or agree to issue any common stock or securities convertible into or exercisable for shares of common stock (or modify any of the foregoing which may be outstanding) to any person or entity at a price per share or conversion or exercise price per share which shall be less than the then applicable Conversion Price in respect of the Shares, without the consent of the Holders of this Note, except with respect to Excepted Issuances, then the Company shall issue, for each such occasion, additional shares of Common Stock to each Holder so that the average per share purchase price of the shares of Common Stock issued to the Holder (of only the Conversion Shares still owned by the Holder) is equal to such other lower price per share and the Conversion Price shall automatically be reduced to such other lower price per share.  For the purposes hereof, "Excepted Issuances" means any offer, issuance or agreement to issue any common stock or securities convertible into or exercisable for shares of common stock (or modify any of the foregoing which may be outstanding) in connection with (i) full or partial consideration in connection with a strategic merger, consolidation or purchase of substantially all of the securities or assets of corporation or other entity, (ii) the Company’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital, (iii) the Company’s issuance of Common Stock or the issuance or grants of options to purchase Common Stock pursuant to the Company’s stock option plans and employee stock purchase plans, (iv) the conversion of any of the Notes, (v) the payment of any interest on the Notes, and (vi) as has been described in the Reports filed with the Commission or delivered to the Holder prior to the issuance of this Note (collectively, the “Excepted Issuances”).  The delivery to the Holder of the additional shares of Common Stock shall be not later than the closing date of the transaction giving rise to the requirement to issue additional shares of Common Stock.  For purposes of the issuance and adjustment described in this paragraph, the issuance of any security of the Company carrying the right to convert such security into shares of Common Stock or of any warrant, right or option to purchase Common Stock shall result in the issuance of the additional shares of Common Stock upon the issuance of such convertible security, warrant, right or option and again at any time upon any subsequent issuances of shares of Common Stock upon exercise of such conversion or purchase rights if such issuance is at a price lower than the Conversion Price in effect upon such issuance.  The rights of the Holder set forth in this Section 2.1 (c)(D), are in addition to any other rights the Holder has pursuant to this Note, any Transaction Document and any other agreement referred to or entered into in connection herewith.

 

  

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                                E.           Extraordinary Events Regarding Common Stock. In the event that the Company shall (a) issue additional shares of the Common Stock as a dividend or other distribution on outstanding Common Stock, (b) subdivide its outstanding shares of Common Stock, or (c) subject to Section 1.5 hereof, combine its outstanding shares of the Common Stock into a smaller number of shares of the Common Stock, then, in each such event, the Conversion Price shall, simultaneously with the happening of such event, be adjusted by multiplying the then Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such event, and the product so obtained shall thereafter be the Conversion Price then in effect. The Conversion Price, as so adjusted, shall be readjusted in the same manner upon the happening of any successive event or events described herein in this Section 2.1(c)(E). The number of Conversion Shares that the Holder of this Note shall thereafter, on the conversion hereof as provided in Article II, be entitled to receive shall be adjusted to a number determined by multiplying the number of Conversion Shares that would otherwise (but for the provisions of this Section 2.1(c)(E)) be issuable on such conversion by a fraction of which (a) the numerator is the Conversion Price that would otherwise (but for the provisions of this Section 2.1(c)(E)) be in effect, and (b) the denominator is the Conversion Price in effect on the date of such conversion.

                                F.           Certificate as to Adjustments. In each case of any adjustment or readjustment in the shares of Common Stock (or Other Securities) issuable on the conversion of the Notes, the Company at its expense will promptly cause its Chief Financial Officer or other appropriate designee to compute such adjustment or readjustment in accordance with the terms of the Note and prepare a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based, including a statement of (a) the consideration received or receivable by the Company for any additional shares of Common Stock (or Other Securities) issued or sold or deemed to have been issued or sold, (b) the number of shares of Common Stock (or Other Securities) outstanding or deemed to be outstanding, and (c) the Conversion Price and the number of Conversion Shares to be received upon conversion of this Note, in effect immediately prior to such adjustment or readjustment and as adjusted or readjusted as provided in this Note. The Company will forthwith mail a copy of each such certificate to the Holder of the Note and any transfer agent of the Company.

 

        G.           Delay in Clearing. The Company shall issue shares to the Holder as set forth in 2.1(b) (“Initial Conversion Price”). However if the conversion price for the common stock on the Clearing Date (defined below) is lower than the Initial Conversion Price, then the Initial Conversion Price shall be adjusted such that the Discount shall be taken based on the Clearing Date, and the Company shall issue additional shares to Purchaser to reflect such adjusted Conversion Price, with such additional issuance being subject to the limitation on conversion as set forth in 2.11, below.  For purposes of this Agreement, the Clearing Date shall be on the date in which the conversion shares are deposited into the Purchaser’s brokerage account and Purchaser’s broker has confirmed with Purchaser that the Purchaser may execute trades of the conversion shares. The Holder shall represent and warrant that the shares were promptly tendered to the Holder’s broker and that the delay is not the result of the Holder failing to provide the Broker or Clearing Firm with appropriate documentation to clear such shares including but not limited to this Note.

2.2           Method of Conversion. This Note may be converted by the Holder in whole or in part as described in Section 2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this Note, a new Note containing the same date and provisions of this Note shall, at the request of the Holder, be issued by the Borrower to the Holder for the principal balance of this Note and interest which shall not have been converted or paid.

2.3           Issuance Below Par.  The Parties hereto agree that Delaware Law allows for the issuance of conversion shares under this section even if such conversion price is less than the shares’ stated par value, and that such shares shall be issued in response to a Conversion Request regardless of Conversion Price.

 

  

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2.4           Intentionally Left Blank.

2.5           Conversion of Note.

(a)           Upon the conversion of this Note or part thereof, the Company shall, at its own cost and expense, take all necessary action, including obtaining and delivering, an opinion of counsel to assure that the Company's transfer agent shall issue stock certificates in the name of Holder (or its nominee) or such other persons as designated by Holder and in such denominations to be specified at conversion representing the number of Conversion Shares issuable upon such conversion. The Company warrants that no instructions other than these instructions have been or will be given to the transfer agent of the Company's Common Stock and that, unless waived by the Holder, the Conversion Shares will be free-trading, and freely transferable, and will not contain a legend restricting the resale or transferability of the Conversion Shares provided the Conversion Shares are being sold pursuant to an effective registration statement covering the Conversion Shares or are otherwise exempt from registration.

(b)           Subscriber will give notice of its decision to exercise its right to convert this Note or part thereof by telecopying an executed and completed Notice of Conversion (a form of which is attached as Exhibit A to the Note) to the Company via confirmed telecopier transmission, email, or overnight courier or otherwise pursuant to Section 4.2 of this Note. The Subscriber will not be required to surrender this Note until this Note has been fully converted or satisfied, with each date on which a Notice of Conversion is telecopied to the Company in accordance with the provisions hereof shall be deemed a Conversion Date (as defined above). The Company will itself or cause the Company’s transfer agent to transmit the Company's Common Stock certificates representing the Conversion Shares issuable upon conversion of this Note to the Subscriber via express courier for receipt by such Subscriber on or before the Delivery Date (as defined above). In the event the Conversion Shares are electronically transferable, then delivery of the Conversion Shares must be made by electronic transfer provided request for such electronic transfer has been made by the Subscriber and the Subscriber has complied with all applicable securities laws in connection with the sale of the Common Stock, including, without limitation, the prospectus delivery requirements.  A Note representing the balance of this Note not so converted will be provided by the Company to the Subscriber if requested by Subscriber, provided the Subscriber delivers the original Note to the Company.

(c)           The Company understands and agrees that a delay in the delivery of the Conversion Shares in the form required pursuant to Section 2.5(a) hereof, after the Delivery Date (as hereinafter defined) could result in economic loss to the Holder. As compensation to the Holder for such loss, the Company agrees to pay (as liquidated damages and not as a penalty) to the Holder for late issuance of Conversion Shares upon Conversion of the Note in the amount of $500 per business day after the Delivery Date for each $10,000 of Note principal amount being converted of the corresponding Conversion Shares which are not timely delivered. The Company shall pay any payments incurred under this Section in immediately available funds upon demand. Furthermore, in addition to any other remedies which may be available to the Holder, in the event that the Company fails for any reason to effect delivery of the Conversion Shares by the Delivery Date the Holder will be entitled to revoke all or part of the relevant Notice of Conversion  by delivery of a notice to such effect to the Company whereupon the Company and the Holder shall each be restored to their respective positions immediately prior to the delivery of such notice, except that the liquidated damages described above shall be payable through the date notice of revocation or rescission is given to the Company.

(d)           Nothing contained herein or in any document referred to herein or delivered in connection herewith shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest or dividends required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.

2.6           Injunction Posting of Bond. In the event a Holder shall elect to convert a Note or part thereof in whole or in part, the Company may not refuse conversion based on any claim that such Holder or any one associated or affiliated with such Holder has been engaged in any violation of law, or for any other reason, unless an injunction from a court, on notice, restraining and or enjoining conversion of all or part of such Note shall have been sought and obtained by the Company and the Company has posted a surety bond for the benefit of such Holder in the amount of 120% of the amount of the Note, which bond shall remain in effect until the completion of arbitration/litigation of the dispute and the proceeds of which shall be payable to such Holder to the extent Holder obtains judgment.

 

  

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2.7           Optional Redemption.

(a)           Provided that the Company has a number of authorized but unissued shares of Common Stock sufficient for the issuance of all Conversion Shares underlying the remaining principal amount of this Note, such Common Stock is listed or quoted (and is not suspended from trading) on the Principal Market and such shares of Common Stock are approved for listing on such Principal Market upon issuance if applicable, such Common Stock is registered for resale under the Registration Statement and the prospectus under such Registration Statement is available for the sale of all Registrable Securities held by the Subscriber or there is an applicable exemption from registration, such issuance would be permitted in full without violating Section 2.3 herein or the rules or regulations of any trading market on which such Common Stock may be listed or quoted, and both immediately before and after giving effect thereto, no Event of Default under the Subscription Agreement or this Note shall or would exist, the Borrower will have the option of prepaying the outstanding principal amount of this Note ("Optional Redemption"), in whole or in part, together with interest accrued thereon, by paying to the Holder a sum of money equal to one hundred fifty percent (150%) of the principal amount to be redeemed, together with accrued but unpaid interest thereon and interest that will accrue until the actual repayment date and any and all other sums due, accrued or payable to the Holder arising under the Note, the Subscription Agreement or any Transaction Document (the "Redemption Amount") on the day written notice of redemption (the "Notice of Redemption") is given to the Holder. The Notice of Redemption shall specify the date for such Optional Redemption (the "Redemption Payment Date"), which date shall be not less than five (5) business days after the date of the Notice of Redemption (the "Redemption Period"). A Notice of Redemption shall not be effective with respect to any portion of this Note for which the Holder has a pending election to convert, or for Conversion Notices given by the Holder prior to the Redemption Payment Date. On the Redemption Payment Date, the Redemption Amount shall be paid in good funds to the Holder. In the event the Borrower fails to pay the Redemption Amount on the Redemption Payment Date as set forth herein, then (i) such Notice of Redemption will be null and void, (ii) Borrower will have no further right to deliver another Notice of Redemption, and (iii) Borrower’s failure may be deemed by Holder to be a non-curable Event of Default. The funds for such redemption may not come from a third party financing or other financing provided by the holder and may not result in the subsequent assignment of this debt.

           2.8           Mandatory Redemption at Subscriber’s Election.  In the event the Company is prohibited from issuing Conversion Shares, or fails to timely deliver Shares on a Delivery Date, or upon the occurrence of any other Event of Default (as defined in this Note or in the Subscription Agreement) or for any reason other than pursuant to the limitations set forth in Section 2.3 hereof, then at the Subscriber's election, the Company must pay to the Subscriber ten (10) business days after request by the Subscriber, at the Subscriber's election, a sum of money in immediately available terms equal to the greater of (i) the product of the outstanding principal amount of the Note designated by the Subscriber multiplied by 150%, or (ii) the product of the number of Conversion Shares otherwise deliverable upon conversion of an amount of Note principal and/or interest designated by the Subscriber (with the date of giving of such designation being a “Deemed Conversion Date”) at the then Conversion Price that would be in effect on the Deemed Conversion Date multiplied by the average of the closing bid prices for the Common Stock for the five consecutive trading days preceding either: (1) the date the Company becomes obligated to pay the Mandatory Redemption Payment, or (2) the date on which the Mandatory Redemption Payment is made in full, whichever is greater, together with accrued but unpaid interest thereon and any liquidated damages then payable (“Mandatory Redemption Payment”).  The Mandatory Redemption Payment must be received by the Subscriber on the same date as the Company Shares otherwise deliverable or within ten (10) business days after request, whichever is sooner (“Mandatory Redemption Payment Date”).  Upon receipt of the Mandatory Redemption Payment, the corresponding Note principal and interest will be deemed paid and no longer outstanding. Liquidated damages calculated pursuant to Section 2.5(c) hereof, that have been paid or accrued for the twenty (20) day period prior to the actual receipt of the Mandatory Redemption Payment by the Subscriber shall be credited against the Mandatory Redemption Payment.

           2.9           Buy-In.  In addition to any other rights available to the Subscriber, but without any duplicative recovery by the Subscriber, if the Company fails to deliver to the Subscriber the Conversion Shares issuable upon conversion of this Note by the Delivery Date and if after five (5) business days after the Delivery Date the Subscriber purchases (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by such Subscriber of the Common Stock which the Subscriber was entitled to receive upon such conversion (a “Buy-In”), then the Company shall pay in cash to the Subscriber (in addition to any remedies available to or elected by the Subscriber) the amount by which (A) the Subscriber's total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (B) the aggregate principal and/or interest amount of the Note for which such conversion was not timely honored, together with interest thereon at a rate of 15% per annum, accruing until such amount and any accrued interest thereon is paid in full (which amount shall be paid as liquidated damages and not as a penalty).  For example, if the Subscriber purchases shares of Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of $10,000 of note principal and/or interest, the Company shall be required to pay the Subscriber $1,000, plus interest.  The Subscriber shall provide the Company written notice indicating the amounts payable to the Subscriber in respect of the Buy-In.

 

  

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2.10           Reservation. During the period the conversion right exists, Borrower will reserve and instruct its Transfer Agent to reserve from its authorized and unissued Common Stock a number of shares of Common Stock equal to 150% of the amount of Common Stock issuable upon the full conversion of this Note. Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. Borrower agrees that its issuance of this Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of this Note.

2.11           Maximum Conversion

(a) Notwithstanding anything to the contrary contained herein, the number of Conversion Shares that may be acquired by the Holder upon conversion of this Note (or otherwise in respect hereof) shall be limited to the extent necessary to ensure that, following such conversion (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its affiliates and any other persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the 1934 Act, does not exceed 4.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such conversion). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. By written notice to the Company, a Subscriber may waive the provisions of this Section 2.3(a) as to itself but any such waiver will not be effective until the 61st day after delivery thereof and such waiver shall have no effect on any other Subscriber.

(b)           Notwithstanding anything to the contrary contained herein, the number of Conversion Shares that may be acquired by the Holder upon conversion of this Note (or otherwise in respect hereof) shall be limited to the extent necessary to ensure that, following such conversion (or other issuance), the total number of shares of Common Stock then beneficially owned by such Holder and its affiliates and any other persons whose beneficial ownership of Common Stock would be aggregated with the Holder’s for purposes of Section 13(d) of the 1934 Act, does not exceed 9.999% of the total number of issued and outstanding shares of Common Stock (including for such purpose the shares of Common Stock issuable upon such conversion). For such purposes, beneficial ownership shall be determined in accordance with Section 13(d) of the 1934 Act and the rules and regulations promulgated thereunder. This provision may not be waived.

2.12           Short sales.  The Holder shall not sell short the common shares of the Company without first having sent a conversion request to the Company or having such shares available to cover such short sale prior to entering into such short sale.

ARTICLE III

EVENTS OF DEFAULT

An “Event of  Default,”  wherever  used  herein, means any one of the following events  (whatever  the reason and whether it shall be voluntary  or involuntary or effected by operation of law or pursuant to any judgment,  decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

  

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3.1           Failure to Pay Principal or Interest. The Borrower fails to pay any installment of Principal, Interest or other sum due under this Note when due and payable.

3.2           Breach of Covenant. The Borrower breaches any other covenant or other term or condition of the Subscription Agreement or this Note in any material respect and such breach, if subject to cure, continues for a period of ten (10) business days after written notice to the Borrower from the Holder.

3.3           Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein, in the Subscription Agreement, or in any agreement, statement or certificate given in writing pursuant hereto or in connection therewith shall be false or misleading in any material respect as of the date made and the Closing Date.

3.4           Receiver or Trustee. 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.

3.5           Judgments. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than $1,000,000, and shall remain unvacated, unbonded or unstayed for a period of thirty (30) days.

3.6           Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower and if instituted against Borrower are not dismissed within thirty (60) days of initiation.

3.7           Non-Payment.  A default by the Borrower under any one or more obligations in an aggregate monetary amount in excess of $200,000 for more than forty-five (45) days after the due date. Any obligations in default prior to December 15th, 2013 are not an “Event of Default” under this agreement.

3.8           Stop Trade. An SEC or judicial stop trade order or Principal Market trading suspension that lasts for five or more consecutive trading days.

3.9           Failure to Deliver Common Stock or Replacement Note. Borrower's failure to timely deliver Common Stock to the Holder pursuant to and in the time required by this Note.

                3.10          Failure to Maintain Current Public Information. The Company’s failure to maintain current public information as defined in Rule 144 of the Securities Act of 1933 or failure to timely file its reports as required by Securities Exchange Act of 1934.

3.11           Reverse Splits.  The Borrower effectuates a reverse split of its Common Stock without the prior written consent of of the Holder.

3.12           Reservation Default.  Failure by the Borrower to have reserve for issuance upon conversion of the Note the amount of Common stock as set forth in the Subscription Agreement.

3.13           Cross Default. A default by the Borrower of a material term, covenant, warranty or undertaking of any other agreement to which the Borrower and Holder are parties.

3.14           Change in Control. A change in control of the Company without at least fourteen (14) days prior written notice to Holder. A change in control shall mean that more than 30% of the shares of common stock are consolidated in one person or entity so that the person or entity (other than any one or more of the Holders) may control the election of the board of directors or the passage of a proposal that would normally require a shareholder vote without such shareholder vote and that such person or entity was not a holder of shares of the Company at the date of execution hereof.

3.15           Asset Sales.  Any instance, undertaken without written consent  of the Holder, whereby the Company or any of its subsidiaries, sells, transfers, leases or otherwise disposes (including pursuant to a merger) of substantially all of the Company’s assets, including any asset constituting an equity interest in any other person, except sales, transfers, leases and other dispositions of inventory, used, obsolete or surplus equipment or other property, in each case in the ordinary course of the Company’s business and consistent with past practice.

 

  

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3.16     Delisting.  Delisting of the Common Stock from the  Principal Market, including the OTC Markets’ QB tier, Pink Sheets or the Over-the-Counter Bulletin Board, on which the Common Stock is then listed or quoted for trading.

During the time that any portion of this Note is outstanding,  if any Event of Default has occurred,  the remaining principal amount of this Note, together with interest and other amounts owing in respect   hereof,  to the date of  acceleration  shall become, at the  Holder's  election,  immediately  due and payable in cash,  provided  however,  the Holder may request  (but shall have no obligation  to request)  payment of such amounts in Common Stock of the Borrower. In addition to any other remedies,  the Holder shall have the right (but not the obligation)  to convert this Note at any time after (x) an Event of Default or (y) the Maturity Date at the Conversion Price then ineffect. The Holder must provide written notice notifying the Holder when an Event of Default occurs or at the Maturity Date of the Note.. Such declaration may be rescinded and annulled by Holder at any time prior to payment hereunder. No such rescission or annulment  shall affect any subsequent  Event of Default or impair any right  consequent  thereon.  Upon an Event of Default,  notwithstanding  any other provision of this Note or any Transaction Document,  the Holder shall have no obligation to comply with or adhere to any  limitations,  if any, on the conversion of this Note or the sale of the Conversion Shares, Shares or Other Securities.

ARTICLE IV

MISCELLANEOUS

4.1           Failure or Indulgence Not Waiver. No failure or delay on the part of Holder hereof 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 privilege. 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, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be: (i) if to the Borrower to: Vanity Events Holdings, Inc. 12555 Orange Drive, Suite 216, Davie Florida 33330, telecopier number: 954-756-8043 and (ii) if to the Holder, to IBC Funds, LLC, 5348 Vegas Drive Suite 333, Las Vegas, NV 89108

4.3           Amendment Provision. The term "Note" and all reference thereto, as used throughout this instrument, shall mean this instrument 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 the benefit of the Holder and its successors and assigns.

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

  

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4.6           Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Delaware. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of Florida or in the federal courts located in the state of Florida located in Broward County, Florida. 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.

4.7           Maximum Payments. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Borrower to the Holder and thus refunded to the Borrower.

4.8           Waiver of Jury Trial.  THE PARTIES HEREBY  KNOWINGLY,  VOLUNTARILY AND  INTENTIONALLY WAIVE  THE  RIGHT  ANY OF THEM  MAY HAVE TO A TRIAL  BY JURY IN  RESPECT  OF ANY LITIGATION  BASED  HEREON OR ARISING OUT OF,  UNDER OR IN  CONNECTION  WITH THIS AGREEMENT  OR ANY  TRANSACTION  DOCUMENT  OR ANY  COURSE OF  CONDUCT,  COURSE OF DEALING,  STATEMENTS  (WHETHER VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY.  THIS PROVISION  IS  A  MATERIAL  INDUCEMENT  FOR  THE  PARTIES'  ACCEPTANCE  OF  THIS AGREEMENT.

4.9           Redemption. This Note may not be redeemed or paid without the consent of the Holder except as described in this Note or in the Subscription Agreement.

4.10          Shareholder Status. The Holder shall not have rights as a shareholder of the Borrower with respect to unconverted portions of this Note. However, the Holder will have all the rights of a shareholder of the Borrower with respect to the shares of Common Stock to be received by Holder after delivery by the Holder of a Conversion Notice to the Borrower.

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SIGNATURE PAGE FOLLOWS]

  

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        IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by an authorized officer as of the 21st day of February, 2014.

	 	VANITY EVENTS HOLDINGS, INC.	 
	 	 	 	 
	
 

	
By: 

	/s/ Robert Zysblat	 
	 	 	Name: Robert Zysblat	 
	 	 	Title: President	 
	 	 	 	 

 

  

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Exhibit A

NOTICE OF CONVERSION

 

(To be executed by the Holder in order to Convert the Note originally issued February 21, 2014)

TO:

The undersigned hereby irrevocably elects to convert $_________________ of the  principal  amount of the above  Note  into  Shares of Common  Stock of ________________________.,  according to the conditions  stated therein,  as of the Conversion Date written below.

                                                           

 

	Conversion Date: 	 	 
	 	 	 
	Applicable Conversion Price: 	 	 
	 	 	 
	Signature: 	 	 
	 	 	 
	Name: 	 	 
	 	 	 
	Amount to be converted:	$	 
	 	 	 
	Aunt of Note unconverted: 	$	 
	 	 	 
	Conversion Price per share: 	$	 
	 	 	 
	Number of shares to be issued: 	 	 
	 	 	 
	Amount of Interest Converted: 	$	 
	 	 	 
	Conversion Price per share: 	$	 
	 	 	 
	Number of Interest shares of to be issued: 	 	 
	 	 	 
	Total Number of shares of to be issued: 	 	 
	 	 	 
	Issue to: 	 	 
	 	 	 
	Broker DTC Participant Code: 	 	 
	 	 	 
	Account Number: 	 	 

 

If to be issued in Certificate form, send to:

____________________________________

____________________________________

____________________________________

____________________________________

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