Document:

Exhibit 10.22 Milford Craft OA

MILFORD CRAFT, LLC

_____________

OPERATING AGREEMENT

________________

As of May __, 2015

OPERATING AGREEMENT

THIS OPERATING AGREEMENT (the “Agreement”) of MILFORD CRAFT, LLC, a Connecticut limited liability company (the “Company”), dated as of May __, 2015, by and among New England WOB, LLC and Attitude Beer Holding Co. (each a “Member and collectively the “Members”).

WHEREAS, the Company, was formed as a limited liability company pursuant to the laws of the State of Connecticut by filing the Articles of Organization with the Connecticut Secretary of State on April 10, 2015, as the same may be amended, supplemented or modified from time to time (the “Articles of Organization”); and 

WHEREAS, the undersigned desire to provide for the regulation and establishment of the affairs of the Company, the conduct of its business and the relations among them as Members of the Company.

NOW THEREFORE, for and in consideration of the premises stated, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members hereby agree as follows:

ARTICLE 1

DEFINITIONS

SECTION 1.1

Definitions. As used herein, the following terms have the following respective meanings:

(a)

“Act” shall mean the Limited Liability Company Law of the State of Connecticut and any successor statute, as amended from time to time.

(b)

“Adjusted Capital Account” means the cash contributed by a Member, (i) reduced from time to time by cash distributions from the Company to him in accordance with Section 5.2(b)(ii) herein, and (ii) increased from time to time by any additional cash contributions made by him in accordance with Section 3.2(a) herein, and (iii) otherwise adjusted as required under Treasury Regulations § 1.704-1(b)(2)(iv). 

(c)

“Affiliate” means any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, another Person.

(d)

“Agreement” means this Operating Agreement, as amended from time to time.

(e)

“Available Cash” means all cash of the Company after paying its current obligations and making the appropriate reservations for foreseeable future expenses.

(f)

“Bankruptcy” with respect to any Person, means (i) making an assignment for the benefit of creditors, (ii) filing a voluntary petition in bankruptcy, (iii) becoming the subject of an order for relief or being-declared insolvent in any federal or state bankruptcy or insolvency proceeding (unless such order is dismissed within ninety (90) days following entry), (iv) filing a petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any statute, law, or regulation, (v) filing an answer or other pleading admitting or failing to contest the material allegation of a petition filed against it in any proceeding similar in nature to those described in the preceding clause, or otherwise failing to obtain dismissal of such petition within one hundred- twenty (120) days following its filing, or (vi) seeking, consenting to, or acquiescing in, the appointment of a trustee, receiver, or liquidator of all or any substantial part of its properties.

(g)

“Capital Contribution” means the aggregate capital contribution made from time to time in cash by a Member to the Company.

(h)

“Capital Proceeds” means the proceeds of the sale of all or substantially all the assets of the Company.

(i)

“Code” means the Internal Revenue Code of 1986, as amended, and any successor statute.

(j)

“Company” means MILFORD CRAFT, LLC, a New York limited liability company.

(k)

“Incompetency” with respect to any member who is a natural person, shall mean the entry by a court of competent jurisdiction of an order or decree adjudicating such Member incompetent to manage his person or his estate.

1

(l)

“Interest(s)” means an interest as a Member of the Company.

(m)

“Lien” means, with respect to any asset, any mortgage, lien, pledge, charge, security interest, conditional sale agreement or encumbrance of any kind, or any other type of preferential arrangement that has the practical effect of creating a security interest in respect of such asset.

(n)

“Liquidator” means the Manager, or if there are no Manager at the time in question, such other Person who is appointed in accordance with applicable law to take all actions related to the winding up of the Company’s business and the distribution of the Company’s assets.

(o)

“Manager” means New England WOB, LLC. 

(p)

“Management Fee” shall mean 4% of Net Sales. Net Sales shall mean the total revenue from sales generated by a company, less deduction of returns, allowances for damaged or missing goods and any discounts allowed. 

(q)

“Member” means any of those Persons identified above as Members and any substitute or additional Member in such Person’s capacity as a member of the Company.

(r)

“Member Majority” or “Majority of Members” means, at any time, any combination of Members holding, in the aggregate, a majority of all of the Interests.

(s)

“Membership Interest” shall mean the same thing as Interest as defined in Section 1.1(o) herein.

(t)

“Membership Percentage” means, with respect to each Member, the percentage set forth in “Schedule A” attached hereto.

(u)

“Net Profits and Net Losses” means, for any period, the net profits and net losses, respectively, derived from the operation of the Company for Federal income tax purposes, including gains and losses on the sale of all or any portion of the Company’s assets.

(v)

“Notice” means a written notice containing all information which is either desirable, relevant or necessary to satisfy the purposes for which such notice is being delivered.

(w)

“Operating Reserves” means cash reserves of the Company held by the Company to ensure it can make future payments despite any drop in revenue. Operating Reserves shall not exceed two (“2”) months expenses determined by taking the average monthly expense for the previous 12 months. 

(x)

“P&L Participant” means a person entitled to participate in the profits and losses of the Company but shall not be a Member of the Company and shall not have any voting rights, equity interest or stake in the Company. A P&L Participant shall solely have a contractual agreement with the Company.

(y)

“Person” means any natural person, corporation (stock or nonstock), limited liability company, limited partnership, general partnership, joint stock company, joint venture, association (profit or nonprofit), company, estate, trust, bank, trust company, land trust, business trust or other organization, whether or not a legal entity, and any government agency or political subdivision thereof.

(z)

“Securities Act” means the Securities Act of 1933, as amended, and any successor statute, and the rules and regulations promulgated thereunder.

(aa)

“Transfer” means the sale, transfer, assignment, pledge, mortgage, hypothecation, encumbrance, distribution or other disposition of any Interests.

(bb)

“Treasury Regulations” means regulations adopted by the Treasury Department of the United States governing application and enforcement of the Code. Any reference to a section or provision of the Treasury Regulations shall be deemed to refer also to such section or provision as amended or superseded.

(cc)

“Unreturned Capital Contribution” of any Member means, at any date, the Capital Contributions of such Member reduced from time to time (but not below zero) by any distribution to such Member pursuant to Section 5.2(b)(ii) hereof.

2

ARTICLE 2

THE COMPANY; THE MEMBERS; VOTING RIGHTS

SECTION 2.1

Registered Office and Registered Agent. The address of the registered office of the Company is 3472 Pine Haven Circle, Boca Raton, FL 33431 and the registered agent is Corporate Creations Network, Inc.

SECTION 2.2

Principal Office. The address of the principal office of the Company shall be 3472 Pine Haven Circle, Boca Raton, FL 33431 or such other place as the Manager may from time to time determine.

SECTION 2.3

Duration. The Company’s existence shall continue until dissolved in accordance with the Act and this Agreement.

SECTION 2.4

Maintenance. The Members shall promptly sign and file all certificates, amendments or other instruments as required by law to maintain the Company in good standing as a limited liability company in all jurisdictions in which it conducts business, including without limitation, as required to comply with any fictitious name statutes.

SECTION 2.5

Changes in Registered Office, etc. The Manager may make such changes in the registered office, registered agent and principal office as they may deem necessary or advisable, and shall give Notice to all Members promptly following any such change. The Company may maintain such other or additional business offices at such other place or places as the Manager may from time to time deem advisable.

SECTION 2.6

Business Purpose. The Company is formed and organized to engage in the following business:

(a)

To own, improve, develop, operate and manage a World of Beer Franchise in Milford, Connecticut; and

(b)

To engage in any business related or incidental to one or more of the foregoing activities.

The Members have entered into a Joint Venture Agreement dated December 24, 2014, regarding the establishment of World of Beer franchises (the “JV Agreement”). 

SECTION 2.7

Authority and Powers. The Company is authorized and empowered to do any and all acts and things necessary, appropriate, proper, advisable, incidental to, or convenient for the furtherance and accomplishment of its purposes, and for the protection and benefit of the Company, including without limitation, all acts and things permitted under the Act and this Agreement.

SECTION 2.8

Juridical Existence, Properties, Etc. The Company shall maintain, preserve, and keep in full force and effect its limited liability company existence and all rights, franchises, licenses and permits necessary to the proper conduct of its business, and the ownership, lease, or operation of its properties which, if not so maintained, could reasonably be expected to have a material adverse effect on the Company, and to take all action which may be reasonably required to obtain, preserve, renew and extend all material licenses, permits, authorizations, trade names, trademarks, service names, service marks, copyrights and patents which are necessary for the continuance of the operation of any such property by the Company.

SECTION 2.9

Members and Membership Percentages. The Members and their respective Membership Percentages shall are set forth in “Schedule A” attached hereto.

SECTION 2.10

Voting Rights. All Members shall have the right to vote t heir membership interest in proportion to their respective Membership Percentages shall are set forth in “Schedule A” attached hereto

SECTION 2.11

P&L Participants. The Manger may grant solely to significant employees of the Company the rights to be a P&L Participant of the Company, up to five percent (5%) of the Company’s profits and losses. Such P&L Participant shall participate in the profits and losses as if such person was a Member. All P&L Participant shall be identified on Schedule C and their participation with the Members in the profits and losses of the Company shall be set forth on Schedule B. No Member or employee of a Member may be a P&L Participant.

3

ARTICLE 3

CAPITAL CONTRIBUTIONS

SECTION 3.1

Initial Capital Contributions. The members have made an initial capital contribution as set forth on Schedule A.

SECTION 3.2

Additional Capital Contributions. 

(a)

Upon the consent of a Majority of Members, the Manager shall have the right to require additional capital contributions (“Capital Calls”) from the Members to be paid on a pro rata basis as to all Members in accordance with the percentages set forth on Schedule A.

(b)

The Manager may obtain Company loans to cover any Company required Additional Capital Contributions, with the consent of the Members holding a majority of the Membership Interest in the Company. 

(c)

In the event that a Member fails to, or refuses to contribute towards a Capital Call (the “Defaulting Member”), then either:

(i)

The remaining Members may elect to purchase the Membership Interest from the Defaulting Member, at a 15% discount to the Defaulting Member’s Initial Capital Contribution; or 

(ii)

The remaining Members may elect to contribute the necessary funds (the “Lending Members”) on behalf of the Defaulting Member which shall be considered a loan to the Defaulting Member, to be secured by its Membership Interest in the Company.

(A)

Any loan given to the Company by the Lending Member on behalf of the Defaulting Member, shall accrue interest at a rate of 300 basis points above LIBOR per annum. In the event of a Distribution by the Manager under Article 5 herein or under a dissolution of the Company under Article 10 herein, the Manager shall use the funds attributable to the Defaulting Member, to first pay off any loans to the Defaulting Member by the Lending Member.

(B)

In furtherance of any loan to any Defaulting Member by the Lending Members in accordance with this Section, the Members hereby expressly agree to execute any and all loan documents which the Company’s attorneys deem necessary, including but not limited to; a Note, Guaranty, Loan Agreement, and Pledge Agreement. Furthermore, the Defaulting Member shall be responsible to pay for all legal fees that the Company shall incur in furtherance of such loan. 

SECTION 3.3 

Return of Capital Contributions. The contributions of the Members to the capital of the Company shall be returned to them in cash, in whole or in part, at any time in the discretion of the Manager in accordance with Section 5.2(b) herein. 

SECTION 3.4

Time when Capital is Returned. Upon the satisfaction of all the Company’s financing obligations, or a liquidation of the assets of the LLC, or the dissolution of the LLC, the Capital Contributions shall be returned to the Members pro rata in accordance with each Member’s Capital Contributions. 

SECTION 3.5

 No Right to Priority. Except as otherwise expressly provided in this Agreement, or as required to comply with the Code and Treasury Regulations, no Member shall have priority over any other Member as to any allocations, distributions, or return of all or any part of its Capital Contributions.  

SECTION 3.6

Dilution. No dilution of the membership interest of any member shall occur without the consent of World of Beer Franchising, Inc.

4

ARTICLE 4

ALLOCATION OF PROFITS AND LOSSES TO MEMBERS

SECTION 4.1

Allocation of Net Profits and Net Losses. Net profits and net losses shall be allocated in the proportions set forth on Schedule B. 

SECTION 4.2

Required Special Allocations. Notwithstanding Section 4.1 hereof,

(a)

Appropriate adjustments shall be made to the allocations of Net Profits and Net Losses to the extent required under Section 704(c) of the Code and the Treasury Regulations thereunder and under Sections 1.704-1(b)(2)(iv)(d), (e), (f) and (g) of the Treasury Regulations;

(b)

Appropriate adjustments shall be made to the allocations of Net Profits and Net Losses to the extent required to comply with the “qualified income offset” provisions of Section 1.704-1(b)(2)(ii)(d) of the Treasury Regulations; the partnership “minimum gain chargeback” provisions of Section 1.704-2(f) of the Treasury Regulations; and the “partner nonrecourse deduction” and “partner nonrecourse debt minimum gain chargeback” provisions of Section 1.704-2(i) of the Treasury Regulations, all issued pursuant to Section 704(b) of the Code. To the extent permitted by such Treasury Regulations, the allocations in such year and subsequent years shall be further adjusted so that the cumulative effect of all the allocations shall be the same as if all such allocations were made pursuant to Section 4.1 hereof (as adjusted by Section 4.3(a) hereof) without regard to this Section 4.3(b).

SECTION 4.3

Other Allocation Rules. For purposes of determining the Net Profits, Net Losses, or any other items allocable to any period, Net Profits, Net Losses, and any such other items shall be determined on a daily, monthly, or other basis, as determined by the Manager using any permissible method under Code § 706 and the Treasury Regulations applicable thereto.

SECTION 4.4

Recapture Income. “Recapture Income,” if any, realized by the Company pursuant to Sections 1245 or 1250 of the Code shall be allocated to the Members to whom the prior corresponding depreciation deductions were allocated, in proportion to the amounts of such depreciation deductions previously allocated to them.

ARTICLE 5

DISTRIBUTIONS

SECTION 5.1

Distributions in Kind. No Member shall be entitled to demand and receive distributions other than in cash form. Any non-cash Company assets distributed in kind shall be distributed to the Members entitled thereto as tenants-in-common owning undivided interests in the same proportion as would be applicable to cash distributions, however, such distribution in kind may only be made with consent of the Members holding a Member Majority.

SECTION 5.2

Distribution of Available Cash and Capital Proceeds. 

(a)

Available Cash. The Manager shall distribute Available Cash in the percentages set forth on Schedule B. It is anticipated the Manager shall make distributions on a monthly basis.

(b)

Capital Proceeds. Capital Proceeds remaining after the payment of any debts and liabilities of the Company due and payable at such time and the establishment of any Operating Reserves which the Manager determines, in his sole discretion necessary for reasonable ongoing business requirements, and necessary to provide for any contingent or unforeseen liabilities or obligations of the Company, shall be distributed in accordance with the following order of priority:

(i)

First, to repay the Capital Contributions of the Members as set forth on Schedule A; and

(ii)

Second, in the percentages set forth on Schedule B. 

5

ARTICLE 6

RESIGNATION OR BANKRUPTCY OF A MEMBER

RESTRICTIONS ON THE TRANSFER OF INTERESTS;

ADMISSION OF SUBSTITUTE AND ADDITIONAL MEMBERS;

SECTION 6.1

Resignation or Bankruptcy of a Member; Continuation of the Company.

(a)

A Member shall have the right to withdraw his Capital Contribution upon the termination of the Company as provided in Section 10.2 hereof, provided, however, that no part of the Capital Contribution of any Member shall be withdrawn unless all liabilities of the Company, except obligations to Members on account of their Capital Contributions, have been paid, or unless the Company has assets sufficient to pay them.

(b)

Within ninety (90) days following the Resignation or the Bankruptcy (other than by reason of death or incompetency) of a Member, the Company shall dissolve unless, within such applicable period, a majority in interest of the Members (excluding for such purpose the successor in interest to the terminated Member’s Interest) elect in writing to continue the Company on such terms as they may agree upon in writing. If an election to continue the Company is so made then the Company shall continue in existence until the end of the term for which it has been formed, or until a subsequent Resignation (other than by reason of death or incompetency), Bankruptcy or other event of dissolution occurs.

(c)

The death or Incompetency of a Member shall neither dissolve nor terminate the Company.

SECTION 6.2

Restrictions on the Transfer of Interests.

(a)

Except as expressly provided herein, no Member shall have the right to Transfer all or any part of its Interest without the prior written consent of the Manager, which may be withheld in his sole discretion, according to reasonable terms. 

Upon the consent of the Manager, a Member may transfer his Membership Interest in the Company to a permitted transferee (“Transferee”). Such Transferee shall be required to pay the Company’s legal fees in connection with effectuating such Transfer as a condition precedent to the consent. Such Transferee shall be bound to the same extent as a Member hereunder in making a Transfer of his Interest. Any purported Transfer in violation of the provisions of this Agreement shall be null and void ab initio.

(b)

Notwithstanding subparagraph (a) above, any Member may Transfer all of his Interest during his lifetime to;

(i)

an entity that is wholly controlled, and continues to be controlled by that Member. 

(ii)

another Member of the Company, pursuant to Section 6.2 herein.

(iii)

an immediate family member of the Member or a trust for the benefit of an immediate family member.

For purposes of this subparagraph (b), the term “Entity” shall be limited to the transfer of Member’s interest to a Corporation, LLC or Trust. If control of such Entity is transferred to another individual or another entity, such change and transfer shall constitute an unauthorized transfer pursuant to the terms of this agreement.

(c)

Notwithstanding anything to the contrary contained herein, pursuant to Section 6.1(a) or the applicability of Section 6.1(b) or 6.2 hereof:

(i)

No Transfer of an Interest shall be made if the Interest which is the subject of a proposed Transfer when added to the total of all other Interests Transferred within the period of twelve (12) consecutive months prior thereto would result in the termination of the Company under Section 708 of the Code or if the Transfer would cause the Company to lose its status under the Code as a partnership for Federal income tax purposes.

(ii)

No Interest shall be transferred unless the registration provisions of the Securities Act of 1933, as amended, and all applicable state “blue sky laws” have been complied with or unless compliance with such provisions is not required, each Member recognizing that no interest in the Company has been registered under Federal or state securities laws. The Manager may request in their sole discretion an opinion from the Company’s counsel or any other counsel that such transfer will not violate applicable securities laws. The costs of such opinion shall be paid for by the Transferee.

6

(iii)

Although a permitted Transferee pursuant to Sections 6.1(b) or 6.2 shall be treated as an assignee of, and be entitled to, all of the rights of the Selling Member to receive profits, losses and distributions to the extent of the Interest assigned to him, no Transferee whatsoever shall become substituted as a Member in the Company (x) without the prior written consent of a Majority of Members, which may be withheld in their sole discretion, for any or no reason, and (y) unless and until such Transferee shall have evidenced his consent and agreement to be bound by all of the terms and provisions of this Agreement, and to assume, as a substituted Member, his pro rata share hereunder of the obligations of his transferor as a Member, by executing and acknowledging a counterpart of an amendment of this Agreement and/or such other agreement to that effect as the Manager may request, each of which shall appropriately reflect his admission as a member of the Company and his capital contribution thereto, and such other documents, all as may reasonably be required by the Managing Member. Such substitution shall then take effect when the Manager have accepted such person as a Member and the books and records of the Company reflect such Person as admitted to the Company as a Member. As a condition to such Transferee becoming a substituted Member, such Transferee shall also be required to pay the Company’s costs and expenses, including but not limited to legal fees and disbursements, in connection with his becoming a Member.

(d)

If a Transfer or attempted Transfer of an Interest is made other than in accordance with the terms of this Agreement, it shall be null and void and no right, title or interest in the Company shall be transferred.

(e)

No assignment, transfer or other disposition of all or any part of the interest of any Member permitted under this Agreement shall be binding upon the Limited Liability Company unless and until a duly executed and acknowledged counterpart of such assignment or instrument of transfer, in form and substance satisfactory to the Company, has been delivered to the Company.

(f)

As between a Member and an assignee or transferee of such Member's interest in accordance with this Agreement, allocations and distributions for any fiscal year shall be apportioned as of the date of the assignment or transfer, on the basis of the number of days before and after said date, without regard to the results of the Company's operations before or after the assignment or transfer.

(g)

No assignment or other disposition of any interest of any Member may be made if such assignment or disposition, alone or when combined with other transactions, would result in the termination of the Company within the meaning of Section 708 of the Internal Revenue Code or under any other relevant section of the Code or any successor statute. No assignment or other disposition of any interest of any Member may be made without an opinion of counsel satisfactory to the Company that such assignment or disposition is subject to an effective registration under, or exempt from the registration requirements of, the applicable State and Federal securities laws. No interest in the Company may be assigned or given to any person below the age of 21 years or to a person who has been adjudged to be insane or incompetent.

SECTION 6.3

Right Of First Refusal.

(a)

Anything herein contained to the contrary, the Company shall be entitled to treat the record holder of the interest of a Member as the absolute owner thereof, and shall incur no liability by reason of distributions made in good faith to such record holder, unless and until there has been delivered to the Company the assignment or other instrument of transfer and such other evidence as may be reasonably required by the Company to establish to the satisfaction of the Limited Liability Company that an interest has been assigned or transferred in accordance with this Agreement.

(b)

Notwithstanding the forgoing terms, and subject to Section 6.1(b) herein, if a Member desires to sell, or otherwise dispose of all or any part of its interest in the Company, such Member (the “Selling Member”) shall first offer to sell and convey such interest to any other Members before selling, or otherwise disposing of such interest to any other person, corporation or other entity. Such offer shall be in writing, shall be given to every other Member, and shall set forth the interest to be sold, purchase price to be paid, the date on which the closing is to take place, (which date shall be not less than thirty nor more than sixty days after the delivery of the offer), the location within the State of New York at which the closing is to take place, and all other material terms and conditions of the sale, transfer or the disposition.

(c)

Within fifteen days after the delivery of said offer to the other Members shall deliver to the Selling Member a written notice either accepting or rejecting the offer. Failure to deliver said notice within said fifteen days conclusively shall be deemed a rejection of the offer. Any or all of the other Members may elect to accept the offer, and if more than one of the other Members elects to accept the offer, the interest being sold and the purchase price therefor shall be allocated among the Members so accepting the offer in proportion to their Members’ Percentage Interest, unless they otherwise agree in writing. 

7

(d)

If any or all of the other Members elect to accept the offer, then (a) upon such acceptance in writing, the Member(s) shall pay a non-refundable ten percent (10%) down payment of the purchase price and (b) then the transfer of the Membership Interest shall be held in accordance with the offer and the Selling Member shall deliver to the other Members who have accepted the offer an assignment of the interest being sold by the Selling Member, and said other Member shall pay the remaining balance of the purchase price prescribed in the offer. 

(f)

If no other Member accepts the offer, or if the Members who have accepted such offer default in the obligation to purchase the interest, than the Selling Member within 120 days after the delivery of the offer may sell such interest to any other person or entity at a purchase price which is not less than the purchase price prescribed in the offer and upon terms and conditions which are substantially the same as the terms and conditions set forth in the offer, provided all other applicable requirements of the Agreement are complied with. An assignment of such interest to a person or entity who is not a Member of the Limited Liability Company shall cause such Person to become a member upon the execution of the such documents required by Section 6.2(c)(iii).

(g)

If the Selling Member does not sell such interest within said 120 days, then the Selling Member may not thereafter sell such interest without again offering such interest to the other Members in accordance with this Article 6.

SECTION 6.4

Admission of Persons as Additional Members. In regards to permitted Transferee’s pursuant to Section 6.1 and 6.2 herein, the Manager shall have the right to admit, and each of the Members hereby consents to the admission of, such additional Members to the Company as the Manager shall unanimously determine in his sole discretion; it being understood no Member shall have its Membership Percentage reduced without his prior written consent. In the event that the Manager shall determine to admit one or more Members to the Company, the Members hereby agree to execute and deliver such documents as the Manager shall request in order to effectuate the admission of such additional Member(s). Any additional Member(s) admitted to the Company shall be required to execute a counterpart signature page to this Agreement and, if required, an amendment to the Articles of Organization of the Company and such other documents as the Manager may request in order to effectuate admission to the Company.

SECTION 6.5

Attitude Beer Holding Co. The Company and Members acknowledge that Attitude Beer Holding Co. is owned by Harrison Vickers and Waterman, Inc., a publicly traded company. No change in the direct or indirect ownership of Attitude Beer Holding Co. shall be deemed a transfer of Attitude Beer Holding Co.’s Membership Interest. The Company agrees to fully cooperate with Attitude Beer Holding Co. and Harrison Vickers and Waterman in supplying all information to Harrison Vickers and Waterman and its auditor so Harrison Vickers and Waterman can timely comply with its Securities and Exchange Commission reporting obligations.

SECTION 6.6

WOB. The Members acknowledge that the business of the Company is subject to a franchising agreement with WOB and pursuant to the Franchise Agreement, the Members may be required to or prohibited from transferring their membership interest or make other changes to this agreement in accordance with the terms of the Franchise Agreement.

ARTICLE 7

MANAGEMENT

SECTION 7.1

Manager New England WOB, LLC is hereby appointed the Manager of the Company (the “Manager”). The business and affairs of the Company shall be managed under the sole direction and control of the Manager, using reasonable business practices, and all powers of the Company shall be exercised by or under the authority of the Manager. No other Person shall have any right or authority to act for or bind the Company except as permitted in this Agreement or as required by law. The Manager may be removed by a Majority of Members only for gross negligence or fraud.

SECTION 7.2

General Powers. The Manager shall have the full power to execute and deliver, for and on behalf of the Company, any and all documents and instruments which may be necessary or desirable to carry on the business of the Company, including, without limitation, any and all deeds, contracts, leases, mortgages, deeds of trust, promissory notes, security agreements, and financing statements pertaining to the Company's assets or obligations, and to authorize the confession of judgment against the Company. No person dealing with the Manager need inquire into the validity or propriety of any document or instrument executed in the name of the Company by the Manager, or as to the authority of the Manager in executing the same. 

SECTION 7.3.

Limitation on Authority of Members.

(a)

No Member is an agent of the Company solely by virtue of being a Member, and no Member has authority to act for the Company solely by virtue of being a Member.

8

(b)

This Article 7 supersedes any authority granted to the Members pursuant to Section 412 of the Law. Any non-manager Member who takes any action or binds the Company in violation of this Article 7 shall be solely responsible for any loss and expense incurred by the Company as a result of the unauthorized action and shall indemnify and hold the Company harmless with respect to the loss or expense.

SECTION 7.4

Appointment of New Manager. A new Manager can be appointed only by Members holding a Member Majority. Such new Manager need not be a Member of the company. 

SECTION 7.5

Liability and Indemnification.

(a)

The Manager shall not be liable, responsible, or accountable, in damages or otherwise, to any Member or to the Company for any act performed by the Manager within the scope of the authority conferred on the Manager by this Agreement, except for fraud, bad faith, gross negligence, or an intentional breach of this Agreement.

(b)

The Company shall indemnify the Manager for any act performed by the Manager within the scope of the authority conferred on the Manager by this Agreement, except for fraud, bad faith, gross negligence, or an intentional breach of this Agreement.

SECTION 7.6

Major Decisions

(a)

Approval of Major Decisions. Notwithstanding anything to the contrary in this Agreement, certain decisions or actions as set forth in this Section 7.6 (“Major Decisions”) may not be taken solely in the Manager’s discretion and shall require the affirmative vote of a Member Majority. Approval of Major Decisions may be given at a Meeting called for that purpose or by written consent.

(b)

Designation of Major Decisions. The following shall constitute Major Decisions subject to this Section:

(i)

Other than in the regular course of business, the sale of all or a substantial portion of the assets owned by the Company. For this purpose, Twenty Percent (20%) of the fair market value of the assets owned by the Company shall constitute a “substantial portion.” 

(ii)

The dissolution, liquidation or other termination or cessation of the business operations of the Company, including without limitation the filing of a voluntary petition in Bankruptcy, the assignment of all or substantially all of the assets of the Company for the benefit of the Company’s creditors or the appointment of trustee, liquidator, administrator or like person or entity for the purpose of winding up the business and affairs of the Company.

(iii)

Any change in the principal purpose of the Company’s business, as set forth in Section 2.6 above.

(iv)

Any borrowing or pledge of assets owned by the Company in excess of $50,000 in the aggregate or any loan to a Member or Manager.

(v)

The admission of new Member.

ARTICLE 8

RELATED PARTY DEALINGS

SECTION 8.1

Outside Business Interests; Business Opportunity. The Members may each engage in or possess interests in other business ventures of every kind and description for its own account, including without limitation, serving as a member, partner or shareholder of other entities which own, either directly or through interests in other entities, properties similar to the assets of the Company and neither the Company nor any of the Members shall have any rights by virtue of this Agreement in or to such other business ventures or to the income or profits derived therefrom, or to any business opportunities as may become available to the Manager or any Member, whether or not similar in nature to the Company’s then existing business activities.

9

SECTION 8.2

Member Dealing With the Company. The fact that a Member or an affiliate thereof is employed by or is directly or indirectly interested in or connected with any person, firm or corporation employed by the Company for real estate management or otherwise to perform a service, or from or with which the Company may purchase any property or have other business dealings, shall not prohibit the Member from employing or otherwise dealing with such person, firm or corporation, so long as such business dealing, contract, or agreement follows and contains reasonable business terms. Neither the Company nor any of the Members shall have any rights in or to any income or profits derived therefrom. The said Member or his affiliated company shall not receive any benefit of any kind, other that is specifically and contractually agreed upon, in writing, between the respective companies and or parties.

ARTICLE 9

MEMBER LIABILITY; INDEMNIFICATION AND LIABILITY LIMITATION

SECTION 9.1

Liability of Members; Enforcement of Obligations. Except to the extent otherwise expressly stated in this Agreement or prescribed under the Act, (a) the Members shall have no fiduciary or partnership relationship between or among themselves solely by reason of their status as Members, and (b) the rights of each of the Members and the Company to sue for matters and claims arising out of or pertaining to this Agreement shall not be dependent upon the dissolution, winding-up or termination of the Company.

SECTION 9.2

Indemnification of Members . Except as provided in Section 9.4, every Person who was or is a party, or who is threatened to be made a party, to any pending, completed or impending action, suit or proceeding of any kind, whether civil, criminal, administrative, arbitrative or investigative (whether or not by or in the right of the Company) by reason of (a) being or having been a Member of the Company, (b) being or having been a Member, manager, partner, officer or director of any other entity at the request of the Company, or (c) serving or having served in a representative capacity for the Company in connection with any partnership, joint venture, committee, trust, employee benefit plan or other enterprise, shall be indemnified by the Company against all expenses (including reasonable attorneys’ fees and expenses), judgments, fines, penalties, awards, costs, amounts paid in settlement and liabilities of all kinds, actually incurred by such Person incidental to or resulting from such action, suit or proceeding to the fullest extent permitted under the Act, without limiting any other indemnification rights to which such Person otherwise may be entitled. The Company may, but shall not be required to, purchase insurance on behalf of such Person against liability asserted against or incurred by such Person in its capacity as a Manager or Member of the Company, or arising from such Person’s status as a Manager or Member, whether or not the Company would have authority to indemnify such Person against the same liability under the provisions of this Section 9.2 or the Act.

SECTION 9.3

Limitation of Liability. Except as otherwise expressly provided in this Agreement, no Member or Manager shall have liability to the Company or other Members for monetary damages resulting from errors made in the exercise of good-faith judgment.

SECTION 9.4

Qualification of Indemnification and Liability Limitation. 

(a)

The indemnification rights and limitations on liabilities set forth in Sections 9.2 and 9.3 shall not apply to claims based upon any willful misconduct, intentional breach or disregard of the terms of this Agreement or knowing violation of criminal law or any federal or state securities law, including without limitation, unlawful insider trading or market manipulation for any security, nor shall such indemnification rights and limitations on liabilities preclude the Company or any Member from recovery for any loss or damage otherwise covered under any insurance policy or fidelity bonding. Nothing herein shall be deemed to prohibit or limit the Company’s right to pay, or obtain insurance covering, the costs (including reasonable attorneys’ fees and expenses) to defend an indemnitee, Member or Manager against any such claims, subject to a full reservation of rights to reimbursement in the event of a final adjudication adverse to such indemnitee, Member or Manager.

(b)

An indemnitee shall be entitled to recover from an indemnitor all legal costs or expenses, including reasonable attorney’s fees and expenses, incurred by such indemnitee to enforce its rights hereunder, or to collect any sums due from the indemnitor hereunder.

10

ARTICLE 10

DISSOLUTION AND LIQUIDATION OF THE COMPANY

SECTION 10.1

Dissolution of the Company. The Company shall be dissolved on the earlier of the expiration of the term of the Company or upon:

(a)

The Resignation (other than by reason of death or incompetency) or Bankruptcy of a Member unless a majority in interest of the Members (as defined in Section 6.1(b)) elect to continue the Company pursuant to Section 6.1(b);

(b)

The Resignation or Bankruptcy of a Member which leaves only one (1) Member remaining, and no additional or substitute Member is admitted to the Company in accordance with this Agreement within ninety (90) days thereafter;

(c)

The expiration of thirty (30) days following the sale or other disposition of all or substantially all of the Company’s assets;

(d)

The election by a majority of the Members to liquidate the Company; or

(e)

The occurrence of any other event of dissolution under the provisions of this Agreement or the Act.

SECTION 10.2

Winding-up and Distribution of the Company.

(a)

Upon the dissolution of the Company pursuant to Section 10.1, the Company’s business shall be wound up and its assets liquidated by the Liquidator as provided in this Section 10.2, and the net proceeds of such liquidation shall be distributed as follows:

(i)

First, to payment of all debts and liabilities of the Company, including, without limitation, any loans from Members and the expenses of liquidation;

(ii)

Second, to establishment of any reserves reasonably deemed necessary by the Liquidator for contingent, unmatured or unforeseen liabilities or obligations of the Company. Said reserves shall be paid over to an attorney-at-law of the State of New York, as escrowee, to be held by him for the purpose of disbursing such reserves in payment of any of the aforementioned contingencies, and, at the expiration of such period as shall be deemed advisable, to distribute the balance thereafter remaining in the manner hereinafter provided, together with accrued interest thereon, if any;

(iii)

Third, to those Members having positive Capital Account balances pro rata in the proportion that each such Member’s positive Capital Account balance bears to the aggregate of the positive Capital Account balances of all such Members, until all Member’s Capital Account balances are equal to zero;

(iv)

Fourth, any funds remaining shall be distributed in the percentages set forth on Schedule B.

(b)

The Liquidator shall file all certificates and notices of the Company’s dissolution required by law. The Liquidator shall sell and otherwise liquidate the Company’s assets without unnecessary delay. Upon the complete liquidation of the Company’s assets and distribution to the Members, they shall cease to be Members of the Company, and the Liquidator shall execute, acknowledge and cause to be filed all certificates and notices required by law to terminate the existence of the Company.

11

ARTICLE 11

AMENDMENTS

SECTION 11.1

Adoption of Amendments Generally. Amendments to this Agreement to reflect the substitution or addition of a Member shall be made by written instrument executed by the substituted Member, the added Member, or the resigned Member (or its authorized representative), as applicable. Any other amendments to this Agreement may be made by a written instrument executed by Members holding, in the aggregate, at least two-thirds of Membership Interests; provided, however, that no amendment to this Agreement may:

(a)

substantially alter the purposes of the Company without the written consent of all Members;

(b)

expand the obligations or liabilities of any Member under this Agreement, or modify any Member’s limited liability, without the written consent of such Member;

(c)

modify the computational method of determining, or priority applicable to, allocations or distributions under Articles 4 and 5 and Section 10.2, without the written consent of all Members; or

(d)

amend this Article 11 without the written consent of all Members.

ARTICLE 12

MISCELLANEOUS

SECTION 12.1

Non-Recourse Company Loans. Any loans taken by the Company, shall be non-recourse loans as to any and all individual Members or the Manger, and no Member or Manager shall be required to sign a personal guaranty to in order to secure such loan(s), unless unanimously consented to by the Members. 

ARTICLE 13

GENERAL PROVISIONS.

SECTION 13.1

Books and Records. All records of the Company shall be kept at the principal office of the Company and shall be available for examination by any Member, or such Member’s duly authorized representatives, at all reasonable times at the office of the Company and by way of internet access to Company bank accounts. The method of accounting on which the books shall be maintained shall be determined by the majority of the Members . The Manager may make on behalf of the Company the election permitted by Section 754 of the Code. New England WOB, LLC shall be designated as the “tax matters partner” (the “TMP”) for purposes of the Code and the “Designated Person” for purposes of maintaining an Investor List to the extent required by the Code. The TMP is hereby authorized to take such actions as may be required by the Code and the regulations thereunder to continue such designations. The determination by the TMP with respect to the treatment of any item or its allocation for Federal, state or local tax purposes shall be binding upon all of the Members, so long as such determination is reasonable and will not be inconsistent with any express terms hereof. No cause of action shall accrue to any Member under this Section 13.1 if the TMP acted in good faith to comply with his obligations hereunder. No charge shall be made to the Company for his acting as tax matters partner. Upon the Resignation or Bankruptcy of the TMP, a majority of the Members may select a Member to become the new “tax matter partner” and “Designated Person”.

SECTION 13.2

Fiscal Year. The fiscal year of the Company shall be the calendar year.

SECTION 13.3

Custody of Company Funds; Bank Accounts.

(a)

The Manager shall have a fiduciary responsibility for the safekeeping and use of all funds and assets of the Company, whether or not in their immediate possession or control. The Company’s funds shall not be commingled with the funds of any other Person and the Manager shall not use, or permit use of, the Company’s funds in any manner except for the benefit of the Company.

12

(b)

All funds of the Company not otherwise invested shall be deposited in one or more internet–accessible accounts maintained in such federally insured financial institutions as the Manager may deem appropriate, and withdrawals shall be made only in the regular course of Company business on such signature or signatures as the Manager may deem appropriate. Usernames and passwords for access to all accounts shall be made available to all members.

SECTION 13.4

Notices. Except as otherwise provided herein, all Notices, requests, consents and other communications hereunder to the Company or to any Member shall be deemed to be sufficient if contained in a written instrument delivered in person or sent by telecopier, nationally-recognized overnight courier or first class registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

(a)

if to the Company, to its principal office set forth in Section 2.4, as such office may be changed in accordance with Section 2.7.

(b)

if to any Member, to its respective address set forth on Schedule A hereto.

Any Member may, at any time and from time to time, designate a substitute address or addresses for itself by delivering a Notice to the Company and to each other Member in the manner set forth in this Section. All such Notices, requests, consents and other communications shall be deemed to have been delivered (i) in the case of personal delivery or delivery by telecopier, on the date of such delivery, (ii) in the case of delivery by nationally-recognized overnight courier, on the date of such delivery, and (iii) in the case of mailing in the manner set forth in this Section, on the third business day after the posting thereof.

SECTION 13.5

Burden and Benefit. This Agreement shall be binding upon, and shall inure to the benefit of, the Members, and their respective heirs, executors, administrators, successors and assigns. There shall be no third party beneficiaries of this Agreement.

SECTION 13.6

Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, and all of which together shall constitute one Agreement binding on all parties hereto, notwithstanding that not all parties shall have signed the same counterpart.

SECTION 13.7

Severability of Provisions. If any term or provision of this Agreement or the application thereof to any Person or circumstance shall, to any extent, be invalid or unenforceable, the remainder of this Agreement and the application of such term or provision to Persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Agreement shall be valid and be enforceable to the fullest extent permitted by law.

SECTION 13.8

Entire Agreement. This Agreement sets forth all (and is intended by the Members to be an integration of all) of the promises, agreements and understandings among the Members with respect to the Company, its business operations and management, the Property and all other Company assets, and there are no promises, agreements, or understandings, oral or written, express or implied, among them other than as set forth or incorporated herein.

SECTION 13.9

Headings. The headings of the sections of this Agreement have been inserted for convenience of reference only and shall not be deemed to be a part of this Agreement.

SECTION 13.10

Pronouns and Plurals. Whenever the context may require, any pronouns used herein shall be deemed to refer to the masculine, feminine, or neuter forms, and the singular form of nouns, pronouns and verbs shall include the plural, and vice versa.

SECTION 13.11

Governing Law. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of New York.

13

SECTION 13.12

Dispute Resolution. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in New York County, New York for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery). Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each party irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby. If either party shall commence an action or proceeding to enforce any provisions of the documents contemplated herein, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys’ fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or proceeding.

SECTION 13.13

Agreement in Counterparts. This Agreement may be executed in several counterparts, and all such executed counterparts shall constitute one agreement, binding on all of the parties hereto, notwithstanding that all of the parties are not signatory to the original or to the same counterpart.

[REST OF THIS PAGE LEFT INTENTIONALLY BLANK]

14

IN WITNESS WHEREOF, the parties hereto have executed this Operating Agreement as of the date first above written.

COMPANY:

MILFORD CRAFT, LLC

_______________________________

Name: 

Title: Manager of its manager New England World of Beer

MEMBERS:

New England World of Beer

Attitude Beer Holding Co. 

_______________________________

_______________________________

By:

By: Roy Warren

Its: Manager

Its: President

15

SCHEDULE A

			
	Member

	Percentage Interest

	Initial Capital Contribution

	New England World of Beer

505 S. Flagler Drive, Suite 1010

West Palm Beach, FL 33401

	49%

	$1.00

	Attitude Beer Holding Co.

712 US Highway 1, Suite 200

North Palm Beach, FL 33408 

	51%

	$1,373,000*

	Total

	100%

	$1,373,001

* This amount shall be paid on the following schedule:

1. $40,000 on or before June 30, 2015;

2. $78,000 on or before July 30, 2015;

3. $210,000 on or before October 1, 2015; 

4. $261,250 on or before January 1, 2016;

5. $261,250 on or before February 1, 2016; 

6. $261,250 on or before March 1, 2016; and

7. $261,250 on or before April 1, 2016;.

16Exhibit 10.23 Convertible Note

EXHIBIT 10.23

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAS NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO BORROWER. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.

THIS NOTE HAS BEEN ISSUED PURSUANT TO THE EXERCISE OF AN ADDITIONAL INVESTMENT RIGHT ISSUED PURSUANT TO AN ASSET PURCHASE AGREEMENT AMONG HARRISON VICKERS AND WATERMAN INC., THE INITIAL HOLDER ON APRIL 21, 2015 (THE “PURCHASE AGREEMENT”) IN CONNECTION WITH TRANSACTIONS DESCRIBED THEREIN.

 

Original Issue Date: July 29, 2015

Principal Amount: $80,000.00

SECURED CONVERTIBLE NOTE

DUE JULY 29, 2017

 

THIS CONVERTIBLE NOTE is one of a series of duly authorized and validly issued Notes of HARRISON VICKERS AND WATERMAN INC., a Nevada corporation, (the “Borrower”), having its principal place of business at 4224 White Plains Road, 3rd Floor, Bronx, New York 10466, due July 29, 2017 (this note, the “Note” and, collectively with the other notes of such series, the “Notes”).

 

FOR VALUE RECEIVED, Borrower promises to pay to ALPHA CAPITAL ANSTALT, Lettstrasse 32, 9490 Vaduz, Principality of Liechtenstein Fax: + 423 232 31 96 or its registered assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of Eighty Thousand Dollars ($80,000.00) on July 29, 2017 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest, if any, to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.

The Holder of this Note has been granted a security interest in assets of the Borrower.

This Note is subject to the following additional provisions:

Section 1.          Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:

 

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

 

“Bankruptcy Event” means any of the following events: (a) Borrower or any Subsidiary thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or any Subsidiary thereof, (b) there is commenced against Borrower or any Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) Borrower or any Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) Borrower or any Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) Borrower or any Subsidiary thereof makes a general assignment for the benefit of creditors, (f) Borrower or any Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) Borrower or any Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

 

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

 

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

 

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

“Change of Control Transaction” means, other than by means of conversion or exercise of the Notes and the Securities issued together with the Notes, the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of Borrower, by contract or otherwise) of in excess of 50% of the voting securities of Borrower, (b) Borrower merges into or consolidates with any other Person, or any Person merges into or consolidates with Borrower and, after giving effect to such transaction, the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of Borrower or the successor entity of such transaction, or  (c) Borrower sells or transfers all or substantially all of its assets to another Person and the stockholders of Borrower immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) the execution by Borrower of an agreement to which Borrower is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

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

“Common Stock” means the common stock of the Company, $0.0001 par value, and any other class of securities into which such securities may hereafter be reclassified or changed.

 

“Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, right, option, warrant or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

“Conversion” shall have the meaning ascribed to such term in Section 4.

 

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

 

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

 

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.

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

 

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

 

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

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

 “Loan Documents” shall have the meaning set forth in Section 9.

“Mandatory Conversion” shall have the meaning set forth in Section 6.

2

“Mandatory Conversion Date” shall have the meaning set forth in Section 6.

“Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding principal amount of this Note divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 115% of the outstanding principal amount of this Note and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

“New York Courts” shall have the meaning set forth in Section 9(d).

“Note Register” shall have the meaning set forth in Section 2(c).

 

“Notice of Mandatory Conversion” shall have the meaning set forth in Section 6.

 

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

“Other Holders” means the holders of Other Notes.

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

 

“Permitted Indebtedness” means (x) any liabilities for borrowed money or amounts owed not in excess of $200,000 in the aggregate (other than trade accounts payable incurred in the ordinary course of business), (y) all guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Borrower’s consolidated balance sheet (or the notes thereto) not affecting more than $200,000 in the aggregate, except guaranties by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business; and (z) the present value of any lease payments not in excess of $200,000 due under leases required to be capitalized in accordance with GAAP.  Neither the Borrower nor any Subsidiary is in default with respect to any Indebtedness.

 

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

“Purchase Agreement” has the meaning set forth on the first page of this Note.

“Purchase Rights” shall have the meaning set forth in Section 5(b).

“Reservation Date” shall have the meaning set forth in Section 4(e)(vi).

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

 

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

 

“Successor Entity” shall have the meaning set forth in Section 5(e).

“Threshold Period” shall have the meaning set forth in Section 6(b).

3

 

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

 

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

“Transaction Documents” shall have the meaning set forth in the Purchase Agreement of even date herewith among the Borrower and other parties thereto.

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

Section 2.         Interest.

a)

Interest in Cash or in Kind. Holders shall be entitled to receive, and Borrower shall pay, cumulative interest on the outstanding principal amount of this Note compounded annually at the annual rate of 10% (subject to increase as set forth in this Note) payable on each anniversary of the Original Issue Date and on the Maturity Date (each such date, an “Interest Payment Date”) (if the Interest Payment Date is not a Trading Day, the applicable payment shall be due on the next succeeding Trading Day).

b)

Payment Grace Period.  The Borrower shall not have any grace period to pay any monetary amounts due under this Note.

c)

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

d)

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

e)

Pari Passu.   Except as otherwise set forth herein, all payments made on this Note and the Other Notes and all actions taken by the Borrower with respect to this Note and the Other Notes, shall be made and taken pari passu with respect to this Note and the Other Notes.  Notwithstanding anything to the contrary contained herein or in the Transaction Documents,  it shall not be considered non-pari passu for a Holder or Other Holder to elect to receive interest paid in shares of Common Stock or for the Borrower to actually pay interest in shares of Common Stock to such electing Holder or Other Holder.

 

f)

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

Section 3.           Registration of Transfers and Exchanges.

 

a)          Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.

4

 

b)          Investment Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

 

c)          Reliance on Note Register. Prior to due presentment for transfer to Borrower of this Note, Borrower and any agent of Borrower may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither Borrower nor any such agent shall be affected by notice to the contrary.

 

Section 4.           Conversion.

 

a)          Voluntary Conversion.   At any time after the Original Issue Date until this Note is no longer outstanding, Note principal and/or at the election of the Holder accrued interest shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to Borrower a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal and/or interest amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to Borrower unless the entire principal amount of this Note has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note or accrued interest, at the option of the Holder, in an amount equal to the applicable conversion. The Holder and Borrower shall maintain records showing the principal and interest amount(s) converted and the date of such conversion(s). Borrower may deliver an objection to any Notice of Conversion only within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

b)          Conversion Price.  The conversion price for the principal and interest in connection with voluntary conversions by the Holder shall be equal to the lesser of (i) $0.0025, or (ii) fifty percent (50%) of the lowest Closing Price of the Common Stock for the thirty (30) Trading Days preceding the Conversion Date, subject to adjustment herein (the “Conversion Price”).

 

c)          Mechanics of Conversion.

 

i.          Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted plus interest elected by the Holder to be converted by (y) the Conversion Price.

 

ii.         Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), Borrower shall deliver, or cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares which, on or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) after the effective date or a current registration statement, shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Note. On or after the earlier of (i) the six month anniversary of the Original Issue Date or (ii) the effective date, Borrower shall use its best efforts to deliver any certificate or certificates required to be delivered by Borrower under this Section 4(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

iii.         Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to Borrower at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event Borrower shall promptly return to the Holder any original Note delivered to Borrower and the Holder shall promptly return to Borrower the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

5

iv.         Obligation Absolute; Partial Liquidated Damages. Borrower’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to Borrower or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of Borrower to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by Borrower of any such action Borrower may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the outstanding principal amount hereof, Borrower may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and Borrower posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, Borrower shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If Borrower fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, Borrower shall pay to the Holder, in cash, as liquidated damages and not as a penalty, for each $1,000 of principal amount being converted, $10 per Trading Day (increasing to $20 per Trading Day on the fifth (5th) Trading Day after such liquidated damages being to accrue) for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 8 hereof for Borrower’s failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

v.           Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if Borrower fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder or Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then Borrower shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if Borrower had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, Borrower shall be required to pay the Holder $1,000. The Holder shall provide Borrower written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of Borrower, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to Borrower’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

6

 

vi.         Reservation of Shares Issuable Upon Conversion. Borrower covenants that it will from and after the Original Issue Date, and at all times thereafter reserve and keep available out of its authorized and unissued shares of Common Stock for the sole purpose of issuance upon conversion of this Note as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Notes), not less than such aggregate number of shares of the Common Stock as shall be issuable upon the conversion of the then outstanding principal amount of this Note and interest which has accrued and would accrue on such principal amount, assuming such principal amount was not converted through the Maturity Date. Borrower covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and non-assessable.

vii.         Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, Borrower shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.

 

viii.         Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, Borrower shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and Borrower shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to Borrower the amount of such tax or shall have established to the satisfaction of Borrower that such tax has been paid. Borrower shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.

7

d)           Holder’s Conversion Limitations. Borrower shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of Borrower subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes or the Warrants) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to Borrower each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and Borrower shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) Borrower’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by Borrower, or (iii) a more recent written notice by Borrower or Borrower’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, Borrower shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of Borrower, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder may decrease the Beneficial Ownership Limitation at any time and the Holder, upon not less than 61 days’ prior notice to Borrower, may increase the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply. Any such increase will not be effective until the 61st day after such notice is delivered to Borrower. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.

8

Section 5.           Certain Adjustments.

 

a)          Stock Dividends and Stock Splits. If Borrower, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by Borrower upon conversion of the Notes), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of Borrower, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of Borrower) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.

b)          Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time Borrower grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

d)

Pro Rata Distributions. During such time as this Note is outstanding, if Borrower shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a “Distribution”), at any time after the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

9

e)          Fundamental Transaction. If, at any time while this Note is outstanding, (i) Borrower, directly or indirectly, in one or more related transactions effects any merger or consolidation of Borrower with or into another Person, (ii) Borrower, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by Borrower or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) Borrower, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) Borrower, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of Borrower, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) and Section 4(e) on the conversion of this Note). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and Borrower shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. Borrower shall cause any successor entity in a Fundamental Transaction in which Borrower is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of Borrower under this Note and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of Borrower and shall assume all of the obligations of Borrower under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as Borrower herein.

10

f)

Subsequent Equity Sales. If, at any time while this Note is outstanding, Borrower or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 6(b) in respect of an Exempt Issuance. If Borrower enters into a Variable Rate Transaction, despite the prohibition set forth in the Purchase Agreement, Borrower shall be deemed to have issued Common Stock or Common Stock Equivalents at the lowest possible conversion price at which such securities may be converted or exercised. Borrower shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 6(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”). For purposes of clarification, whether or not Borrower provides a Dilutive Issuance Notice pursuant to this Section 6(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

g)

Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of Borrower) issued and outstanding.

 

h)          Notice to the Holder.

 

i.            Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, Borrower shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii.          Notice to Allow Conversion by Holder. If (A) Borrower shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of Borrower shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which Borrower is a party, any sale or transfer of all or substantially all of the assets of Borrower, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) Borrower shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of Borrower, then, in each case, Borrower shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding Borrower or any of the Subsidiaries, Borrower shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

11

Section 6.

Redemption and Mandatory Conversion.  Borrower shall have no right to require the Holder to surrender the Note for redemption, nor convert any part or all of this Note without the consent of the Holder.

Section 7.          Negative Covenants. As long as any portion of this Note remains outstanding, unless the holders of at least 51% in principal amount of the then outstanding Notes which must include the Lead Investor shall have otherwise given prior written consent, Borrower shall not, and shall not permit any of the Subsidiaries to, directly or indirectly:

 

a)          other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind, including, but not limited to, a guarantee, on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits therefrom; 

 

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

 

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

 

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

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

 

f)        pay cash dividends or distributions on any equity securities of Borrower;

 

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

 

h)

any material damage to, or loss, theft or destruction of, any Collateral, whether or not insured, or any strike, lockout, labor dispute, embargo, condemnation, or other casualty which causes, for more than fifteen (15) consecutive days, the cessation or substantial curtailment of revenue producing activities at any facility of Borrower or any Subsidiary, if any such event or circumstance could have a Material Adverse Effect; or

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

 

Section 8.             Events of Default.

 

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

i.           any default in the payment of (A) the principal amount of any Note or (B) liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of a default under clause (B) above, is not cured within 7 Trading Days after Borrower has become or should have become aware of such default;

 

ii.         Borrower shall fail to observe or perform any other covenant or agreement contained in the Notes (other than a breach by Borrower of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (x) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 7 Trading Days after notice of such failure sent by the Holder or by any Other Holder to Borrower and (B) 15 Trading Days after Borrower has become or should have become aware of such failure;

12

 

iii.         a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents, or (B) any other material agreement, lease, document or instrument to which Borrower or any Subsidiary is obligated (and not covered by clause (vi) below);

 

iv.         any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any Other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;

 

v.           Borrower or any Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;

 

vi.         Borrower or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $200,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

 

vii.         Borrower shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 30% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

 

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

 

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

 

x.         any Person shall breach any agreement delivered to the initial Holders pursuant to Section 2.2 of the Purchase Agreement;

 

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

xii.

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

xiii.

cessation of operations by Borrower or a material Subsidiary;

xiv.

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

xv.

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

xvi.

a Commission or judicial stop trade order or suspension from  its Principal Trading Market;

xvii.

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

13

xviii.

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

xix.

the Borrower fails to have authorized and reserved 150% of the Conversion Shares issuable upon conversion of the Notes including Conversion Shares issuable upon conversion of interest through the Maturity Date;

xx.

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

xxi.

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

xxii.

the occurrence of an Event of Default under any Other Note; or

xxiii.

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

b)          Remedies Upon Event of Default, Fundamental Transaction and Change of Control Transaction.  If any Event of Default or a Fundamental Transaction or a Change of Control Transaction occurs, the outstanding principal amount of this Note, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount. Commencing on the Maturity Date and also five (5) days after the occurrence of any Event of Default interest on this Note shall accrue at an interest rate equal to the lesser of 15% per annum or the maximum rate permitted under applicable law. Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by Borrower. In connection with such acceleration described herein, the Holder need not provide, and Borrower hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 8(b). No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

14

Section 9.

Security Interest/Waiver of Automatic Stay.   This Note is secured by a security interest granted to the Holder pursuant to a Security Agreement, as delivered by Borrower to Holder.  The Borrower acknowledges and agrees that should a proceeding under any bankruptcy or insolvency law be commenced by or against the Borrower or a Subsidiary, or if any of the Collateral (as defined in the Security Agreement) should become the subject of any bankruptcy or insolvency proceeding, then the Holder should be entitled to, among other relief to which the Holder may be entitled under the Transaction Documents and any other agreement to which the Borrower or a Subsidiary and Holder are parties (collectively, “Loan Documents”) and/or applicable law, an order from the court granting immediate relief from the automatic stay pursuant to 11 U.S.C. Section 362 to permit the Holder to exercise all of its rights and remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION 362.  FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER 11 U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY, INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER TO ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR APPLICABLE LAW. The Borrower hereby consents to any motion for relief from stay that may be filed by the Holder in any bankruptcy or insolvency proceeding initiated by or against the Borrower and, further, agrees not to file any opposition to any motion for relief from stay filed by the Holder.  The Borrower represents, acknowledges and agrees that this provision is a specific and material aspect of the Loan Documents, and that the Holder would not agree to the terms of the Loan Documents if this waiver were not a part of this Note. The Borrower further represents, acknowledges and agrees that this waiver is knowingly, intelligently and voluntarily made, that neither the Holder nor any person acting on behalf of the Holder has made any representations to induce this waiver, that the Borrower has been represented (or has had the opportunity to he represented) in the signing of this Note and the Loan Documents and in the making of this waiver by independent legal counsel selected by the Borrower and that the Borrower has discussed this waiver with counsel.  

Section 10.           Miscellaneous.

 

a)          Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, 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 Borrower, to: Harrison Vickers and Waterman Inc., 4224 White Plains Road, 3rd Floor, Bronx, New York 10466, Attn: Roy Warren, and (ii) if to the Holder, to: the address and fax number indicated on the front page of this Note, with an additional copy by fax only to (which shall not constitute notice): Grushko & Mittman, P.C., 515 Rockaway Avenue, Valley Stream, New York 11581, facsimile: (212) 697-3575.

 

b)          Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of Borrower, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of Borrower. This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.         

 

c)          Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, Borrower shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to Borrower.

15

d)          Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.  This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought.  For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of this Note, whether or not such other document or agreement was delivered together herewith or was executed apart from this Note.

 

e)          Waiver. Any waiver by Borrower or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of Borrower or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion. Any waiver by Borrower or the Holder must be in writing.

 

f)         Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.

 

g)        Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. Borrower covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive Borrower from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and Borrower (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

h)        Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

 

i)         Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

16

 

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

 

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

 

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

 

(Signature Pages Follow)

17

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by an authorized officer as of the 29th day of July, 2015.

HARRISON VICKERS AND WATERMAN, INC.

By: /s/ Roy G. Warren

Name: Roy G. Warren

Title: President and CEO

WITNESS:

/s/ Tommy E. Kee

18

ANNEX A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert principal under the Convertible Note due July 29, 2017 of Harrison Vickers and Waterman, Inc., a Nevada corporation (the “Borrower”), into shares of common stock (the “Common Stock”), of Borrower according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by Borrower in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

 

By the delivery of this Notice of Conversion the undersigned represents and warrants to Borrower that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.

 

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

 

Conversion calculations:

		
	 

	Date to Effect Conversion: ____________________________

	 

	 

	 

	Principal Amount of Note to be Converted: $__________________

	 

	 

	 

	Number of shares of Common Stock to be issued: ______________

	 
	 

	 
	* Interest Amount to be Converted: $_______________

	 

	 

	 

	Signature: _________________________________________

	 

	 

	 

	Name: ____________________________________________

	 

	 

	 

	Address for Delivery of Common Stock Certificates: __________

	 

	_____________________________________________________ 

	 
	_____________________________________________________

	 
	 

	 

	Or

	 

	 

	 

	DWAC Instructions: _________________________________

	 

	 

	 

	Broker No:_____________

	 

	Account No: _______________

  

*   Interest on Principal Amount of $____________ for period of ______________ through ________________.

19

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00249-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00249-of-00352.parquet"}]]