Document:

ex103.htm

Exhibit 10.3

STEVE WELDON

EXECUTIVE EMPLOYMENT AGREEMENT

AMENDED

This Executive Employment Agreement (this “Agreement”), dated January 6, 2015 (the “Effective Date”), is made by and between OXIS INTERNATIONAL, INC., a Delaware corporation, its subsidiaries, successors and assigns (the “Company”), and STEVE WELDON (“Executive”).

 

RECITAL

 

WHEREAS, the Company wishes to employ Executive, and Executive wishes to accept such offer, on the terms set forth below.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the foregoing and the mutual promises contained herein, the parties agree as follows:

 

1. Employment

 

The Company will employ Executive and Executive will accept employment by the Company as the Chief Financial Officer (the “CFO”).  While serving as CFO of the Company, Executive will have the authority consistent with the terms of this Agreement and as may be granted from time to time by the Company’s Chief Executive Officer (“CEO”) and/or the Company’s board of directors (the “Board”).  Executive shall comply with any conflicts of interest policy and code of conduct as and when adopted in writing by the Company.

 

2. Attention and Effort

 

Executive will devote his full professional time, attention and effort to the Company’s business and will use his best efforts to serve the interests of the Company during the term of this Agreement; provided, however, that Executive may devote reasonable periods of time to engage in other activities that (i) are permitted by the CEO, in his or her sole discretion, (ii) do not interfere with Executive’s performance of his duties to the Company hereunder and (iii) do not violate Section 8 hereof.  The obligations in this Section 2 shall not prevent Executive from (x) participating in charitable, civic, educational, professional, community or industry affairs or, with prior written approval of the CEO, serving on the board of directors or advisory boards of other companies and (y) managing Executive’s and Executive’s family’s personal investments, in the case of each of clauses (x) and (y), so long as such activities do not materially interfere with the performance of Executive’s duties hereunder or create a potential business conflict or the appearance thereof.  The prior written approval of the CEO has been provided with respect to those boards of directors that Executive currently serves on as of the Effective Date that are disclosed to Company in writing, pursuant to the provisions of Section 16 herein.

 

3. Term

 

Unless otherwise terminated pursuant to Section 6 of this Agreement, Executive’s initial term of employment under this Agreement shall continue from the Effective Date and shall expire twenty-four (24) months following the Effective Date (the “Initial Expiration Date”); provided that such initial term shall automatically renew for consecutive one year periods commencing on the Initial Expiration Date, unless terminated by the Company or Executive upon one hundred twenty (120) days notice prior to the expiration of the then-current term or otherwise in accordance with the terms of this Agreement (such term and all renewals thereof being the “Term”).

 

  

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4. Compensation

 

During the Term (or until Executive’s employment is otherwise terminated in accordance with Section 6), the Company agrees to pay or cause to be paid to Executive, and Executive agrees to accept in exchange for the services rendered hereunder by him, the following compensation:

 

4.1 Base Salary

 

The Company agrees and acknowledges that Executive is entitled to compensation that includes not less than $168,000.00 as an initial base salary before applicable payroll deductions (“Annual Base Salary”).  Such Annual Base Salary shall be subject to adjustment by the Board, but in no case shall it be adjusted lower.  The Annual Base Salary shall be paid in installments consistent with the Company’s normal payroll schedule, subject to applicable withholding and other taxes.

4.2 Performance Bonus

 

Executive will be eligible to participate in an annual bonus program (the “Bonus Plan”), as established and approved by the CEO and the Board for the Company’s senior executives based upon the achievement of annual performance goals (“Annual Performance Goals”) set by Executive and the CEO and/or the Board.  Executive’s annual performance bonus, if any, shall be paid within thirty (30) days following completion of the Company’s audited financial statements for the applicable fiscal year.

 

4.3 Stock Grants

 

(a)           General Grant.  Executive (or an entity controlled by Executive) shall be granted 20,000,000 shares of common stock in the Company (the “Stock Grant”), valued at the trading price as of the Effective Date, as consideration for entering into this Agreement and remaining an executive for the entire Term.  Such stock shall vest and be delivered to Executive on the following schedule, at his direction, but no earlier than the initial one-third (1/3) vesting and deliverable within thirty (30) days following the Effective Date; the second one-third (1/3) vesting and deliverable within thirty (30) days following the one-year anniversary of the Effective Date, and the final one-third (1/3) vesting and deliverable within thirty (30) days following the two-year anniversary of the Effective Date.

 

(b)           Termination of Employment or Change of Control.  Subject to Section 7, if Executive ceases to be employed by the Company, the shares discussed in Section 4.3 (a) shall be forfeited without payment upon the termination date to the extent that such shares rights, after taking into account any accelerated vesting occurring in connection with the termination of employment, have not become vested as of such termination date.   Any shares that are forfeited in accordance with this subsection (c) shall be forfeited without payment and Executive shall have no further rights with respect to such forfeited Shares.  Upon the occurrence of a “Change of Control” (as such term is defined herein) the then-unvested portion of the shares described in Section 4.3 (a) shall become fully vested as long as Executive remains an executive of the Company on the date of such event.

 

(c)           Change of Control.  For purposes of this Agreement, Change of Control shall mean:

 

(i)           The acquisition (other than by or from the Company), at any time after the Effective Date, by any person, entity or “group”, within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the “Exchange Act”), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either the then outstanding voting securities entitled to vote generally in the election of directors; or

 

  

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(ii)           Approval by the stockholders of the Company of (A) a reorganization, merger or consolidation with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own more than 50% of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company’s then outstanding voting securities, (B) a liquidation or dissolution of the Company, or (C) the sale of all or substantially all of the assets of the Company, unless the approved reorganization, merger, consolidation, liquidation, dissolution or sale is subsequently abandoned.

 

5. Benefits

 

5.1 General

 

During the Term, Executive will be entitled to participate, subject to and in accordance with applicable law and eligibility requirements, in retirement plans, welfare plans and fringe benefit programs as shall be provided from time to time by, and on the same basis as other senior executives of, the Company.  The Company agrees that Executive’s health benefits (including any medical, vision or dental benefits) under the Company’s health plans and programs shall continue in uninterrupted coverage from Executive’s previous employment with the Company before the Effective Date.

 

5.2 Paid Time Off

 

Executive shall be entitled to no fewer than twenty (20) days of paid time off per year, in addition to holidays recognized and observed by Company as paid holidays for regular employees, and Executive may carry over ten (10) days of unused paid time off into the following year.  Such paid time off shall accrue in accordance with Company’s time off accrual policy as may be modified from time to time at the Company’s sole discretion.  In calculation of Executive’s paid time off, the Company shall base such calculation upon the assumption that Executive’s employment commenced on October 13, 2014.

 

5.3 Expenses

 

The Company shall pay or reimburse Executive for all ordinary and reasonable out-of-pocket expenses actually incurred or, in the case of reimbursement, actually paid by Executive during the Term of this Agreement in the performance of Executive’s services under this Agreement, in accordance with the reimbursement policy implemented by the Company for its executive officers and employees, as applicable; provided that Executive shall submit such expenses in accordance with the policies applicable to senior executives of the Company, generally.

 

6. Termination

 

Employment of Executive pursuant to this Agreement may be terminated as follows, but in any case, the provisions of Section 8 hereof shall survive the termination of this Agreement and the termination of Executive’s employment hereunder.

 

6.1 By the Company

 

The Company may terminate the employment of Executive with or without Cause (as defined in Section 7.6) at any time during the Term upon giving Notice of Termination (as defined below).

 

  

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6.2 By Executive

 

Executive may terminate his employment at any time, for any reason, upon giving Notice of Termination.

 

6.3 Notice

 

The term “Notice of Termination” shall mean at least thirty (30) days’ written notice of termination of Executive’s employment with the Company, during which period Executive’s employment and performance of services will continue; provided, however, that the Company may, upon notice to Executive and without reducing Executive’s compensation during such period, excuse Executive from any or all of his duties during such period.  The effective date of the termination of Executive’s employment hereunder shall be the date on which such 30-day period expires.

 

7. Termination Payments

 

In the event of termination of the employment of Executive, all compensation and benefits set forth in this Agreement shall terminate except as specifically provided in this Section 7.

 

7.1 Termination by the Company

 

(a)        If the Company terminates Executive’s employment without Cause prior to the expiration of the Term, Executive shall not be entitled to any payments or benefits hereunder except for (i) Executive’s accrued and unpaid Annual Base Salary and accrued and unpaid vacation through the date of employment termination (payable the earlier of any required time period under applicable state law or within ten (10) days following termination, reimbursement under this Agreement for expenses incurred prior to the date of such termination (payable in accordance with applicable Company policy), and all accrued and vested benefits in accordance with applicable Company Executive benefit plans in which Executive participates immediately prior to such termination (payable in accordance with the terms of such plans) (all amounts under this clause (i) are the “Accrued Obligations”), (ii) Executive’s accrued and unpaid bonus, if any, pursuant to the Bonus Plan for the fiscal year ended prior to the date of termination, solely to the extent that the Annual Performance Goals for such year have been achieved (“Prior Year Bonus”) and (iii) the payment of the Severance Package provided in Section 7.5 below.

 

(b)           If the Company terminates Executive’s employment for Cause at any time, Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment, except that Executive shall be entitled to receive the Accrued Obligations and any other earned and vested compensation to which he is entitled under applicable law.  This Agreement shall otherwise terminate and there shall be no further rights with respect to Executive hereunder except for the surviving provisions of this Agreement as provided in Section 12.

 

7.2 Termination by Executive

 

(a)           If Executive terminates his employment for Good Reason (as defined in Section 7.7) prior to the end of the term of this Agreement, Executive shall not be entitled to any payments or benefits hereunder except for (i) the Accrued Obligations, (ii) the Prior Year Bonus, if any, and (iii) the payment of the Severance Package provided in Section 7.5 below.

 

  

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(b)           If Executive terminates Executive’s employment without Good Reason prior to the end of the term of this Agreement, Executive shall not be entitled to any payments or benefits hereunder except for (i) the Accrued Obligations and (ii) the Prior Year Bonus, if any.  This Agreement shall otherwise terminate upon such termination of employment and Executive shall have no further rights or obligations hereunder except for the surviving provisions of this Agreement as described in Section 12.

 

7.3 Termination upon Executive’s Death or Disability

 

(a)           If Executive dies during the term of this Agreement, the obligations of the Company to or with respect to Executive shall terminate in their entirety except as otherwise provided in this Section 7.3.

 

(b)           If Executive becomes eligible for disability benefits under the Company’s long-term disability plans and arrangements (or, if none apply, would have been so eligible under the most recent plan or arrangement) (“Disability”), the Company shall have the right, to the extent permitted by law, to terminate the employment of Executive upon at least thirty (30) days’ written notice to Executive, provided that the Company shall not have the right to terminate Executive’s employment if, in the opinion of a qualified physician reasonably acceptable to both parties, it is reasonably certain that Executive will be able to resume his duties on a regular full-time basis within ninety (90) days of the date that the notice of such termination is delivered.

 

(c)           Upon Executive’s death or the termination of Executive’s employment by virtue of Disability, all of the following shall apply:

 

(i)     Executive, or Executive’s estate or beneficiaries in the case of the death of Executive, shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment, except that Executive, or Executive’s estate or beneficiaries in the case of the death of Executive, shall be entitled to receive (A) the Accrued Obligations, (B) the Prior Year Bonus, if any, and (C) any death or disability benefit payable to Executive in accordance with applicable Company plans or agreements covering Executive; or an amount equal to six (6) month’s Annual Base Salary, whichever is greater, and this Agreement shall otherwise terminate and there shall be no further rights with respect to Executive hereunder except for the surviving provisions of this Agreement as provided in Section 12.  The payments to be made in this Section 7.3 shall be in addition to, rather than in lieu of, the entitlement of Executive or his estate to any other insurance or benefit proceeds as a result of his death or disability.

 

7.4 Expiration of Term

 

If Executive’s employment terminates as a result of the expiration of the term of this Agreement, Executive shall not be entitled to any payments or benefits hereunder except for (a) the Accrued Obligations and (b) the Prior Year bonus, if any.

 

7.5 Severance Payments

 

For purposes of this Agreement, the “Severance Package” shall consist of the rights set forth in this Section 7.5.  Other than as set forth in this Section 7.5, Executive shall have no right to receive any compensation or benefit hereunder on and after the effective date of the termination of employment, except that Executive shall be entitled to receive:

 

(a)           The amounts set forth in Section 7.1 (a) or Section 7.2 (a), as the case may be, to the extent applicable (without duplication);

 

  

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(b)           For a period of  four (4) months after Executive’s employment with the Company is terminated, the continuation of the payment of Executive’s Annual Base Salary (as in effect on the effective date of such termination, without regard for any reduction constituting Good Reason) paid in substantially equal installments and at the same intervals as other senior executives of Company are paid;

 

(c)           A bonus for the period beginning on the first day of the fiscal year in which Executive’s employment is terminated and ending on the date of such termination (the “Termination Bonus”), with such pro-rata amount determined by multiplying (i) the fraction equal to the portion of such fiscal year ending on the date of such termination by (ii) the bonus paid (or to be paid, if as a Prior Year Bonus) to Executive for the fiscal year immediately preceding the year in which termination of employment occurs;

 

(d)           For a period of four (4) months after Executive’s employment with the Company is terminated, such continuing health benefits (including any medical, vision or dental benefits), under the Company’s health plans and programs applicable to senior executives of the Company generally as Executive would have received under this Agreement (and at such costs to Executive as would have applied) in the absence of such termination (but not taking into account any post-termination increases in Annual Base Salary that may otherwise have occurred without regard to such termination and that may have favorably affected such benefits), it being expressly understood and agreed that nothing in this subsection (d) shall restrict the ability of the Company to amend or terminate such plans and programs from time to time in its sole discretion; provided, however, that the Company shall in no event be required to provide such coverage after such time as Executive becomes entitled to receive comparable or more favorable health benefits from another employer or recipient of Executive’s services (and provided, further, that such entitlement shall be determined without regard to any individual waivers or other arrangements);

 

(e)           The  accelerated vesting of Executive’s shares described in Section 4.3 (a) for the period of time from the Effective Date and continuing for four (4) months following the date of termination; and

 

(f)           Except as provided herein, this Agreement shall otherwise terminate upon such termination of employment and Executive shall have no further rights hereunder except for surviving provisions of this Agreement as provided in Section 12.

 

7.6 Cause

 

Wherever reference is made in this Agreement to termination being with or without Cause, “Cause” shall include, but not be limited to, the occurrence of one or more of the following events:

 

(a)           Failure or refusal to substantially perform the lawful duties of Executive described in Section 1 hereof or any reasonable directions of the CEO and/or the Board, which directions are consistent with the duties herein set forth to be performed by Executive after the CEO and/or Board has made a written demand for performance that specifically identifies the manner in which he or she believes that Executive has not substantially performed his duties and Executive, after receipt of such notice and after fifteen (15) days, fails to correct the deficiency indicated in the notice;

 

(b)           Conviction of a crime that is materially injurious to the Company or any of its affiliates or Executives or conviction of any felony, unless such felony would not be a crime under the laws of the state relating to Cannabis;

 

  

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(c)           Gross misconduct by Executive (including, without limitation, substance abuse, violation of the policy regarding sexual harassment, or violation of the Company’s code of conduct) that materially injures, monetarily or otherwise, the reputation or business of the Company;

 

(d)           Failure by Executive of a background check required under state law in any state where application is made for Company to obtain a license relative to cannabis; or

 

(e)           Any other material violation of any provision of this Agreement, to the extent that it is not cured within fifteen (15) days after receipt by Executive of notice thereof.

 

 

7.7 Good Reason

 

Wherever reference is made in this Agreement to termination being with or without Good Reason, “Good Reason” shall mean, without Executive’s prior written consent, the occurrence of any of the following events:

 

(a)        Any material reduction in Executive’s position or duties as CFO, to the extent such material reduction is not cured within fifteen (15) days after receipt by the Company of notice thereof;

 

(b)        Any reduction in Executive’s Annual Base Salary or bonus opportunity percentages, to the extent such reduction is not cured within fifteen (15) days after receipt by the Company of notice thereof;

 

(c)        The failure of the Company to obtain a satisfactory agreement from any successor to all or substantially all of the assets or business of the Company to assume and agree to perform this Agreement within fifteen (15) days after a merger, consolidation, sale or similar transaction; or

 

(d)        Any material violation of any material provision of this Agreement, to the extent that it is not cured within fifteen (15) days after receipt by the Company of notice thereof.

 

7.8 Forfeiture or Sale of Non-Vested Stock and Purchase Rights

 

Subject to the provisions of this Section 7, upon the expiration of the Term of this Agreement, or the termination of Executive’s employment with the Company for any reason by the Company, including the Executive’s death or disability, the Executive shall forfeit all unvested shares or rights described in  Section 4.3 (a) and/or (b).

 

7.9 General Release of Claims

 

Notwithstanding anything to the contrary contained herein, Executive’s receipt of any payments or benefits under this Section 7 (other than the Accrued Obligations) shall be subject to the execution by Executive of a general release of claims substantially in the form set forth on Exhibit A attached hereto and the non-revocation of such release by Executive pursuant to any revocation rights afforded by applicable law.

 

8. Protection of Trade Secrets and Confidential Information

 

  

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8.1 Definition of Confidential Information

 

(a)           “Confidential Information” means all nonpublic information  (whether in paper or electronic form, or contained in Executive’s memory, or otherwise stored or recorded) relating to or arising from Company’s business, including, without limitation, trade secrets and/or proprietary information used, developed or acquired by Company in connection with its business.  Without limiting the generality of the foregoing, “Confidential Information” shall specifically include: (i) all information concerning the manner and details of Company’s operation, organization and management, joint ventures and strategic alliances; (ii) all development or design information relating to products of the Company or relating to products under development or planned by the Company or on its behalf, including, but not limited to, the information contained in formulae, recipes, schematics and drawings, parts designed by the Company or on its behalf, descriptions of product problems or limitations, technical and scientific information, information relating to key research and development areas, consulting source’s documents, appraisals, reports, notes and correspondence, descriptions of product development efforts, whether successful or not, flow charts, and source code listings; (iii) all manufacturing information of existing products and products or projects under development or planned by the Company or on its behalf including, but not limited to, materials sources, vendors, subcontractors, costs, and manufacturing and purchasing sources; (iv) all business, marketing and financial information of the Company including but not limited to research and development strategies, employee responsibilities other than generic titles, development schedules, business forecasts, client and customer lists, past, present and future financial information about the Company or its joint ventures, strategic alliances, consultant and subcontractor identities and capabilities, materials and component supplies, and Company opportunity lists or items; (v) all other information which is or may be subject to trade secret, copyright, mask, or other proprietary protection whether or not registration has been sought for such; (vi) all information relative to patents either issued, pending, or contemplated by the Company; (vii) documents and nonpublic policies, procedures and other printed, written or electronic material generated or used in connection with Company’s business; (viii) the identities of Company’s customers and the specific individual customer representatives with whom Company works; (ix) the details of Company’s relationship with such customers and customer representatives; (x) the identities of distributors, contractors, subcontractors and vendors utilized in Company’s business; (xi) the details of Company’s relationships with such distributors, contractors, subcontractors and vendors; (xii) the nature of fees and charges made to Company’s customers; (xiii) nonpublic forms, contracts and other documents used in Company’s business; (xiv) all information concerning Company’s employees, agents, contractors and subcontractors including without limitation such persons’ or entities’ compensation, benefits, skills, abilities, experience, knowledge and shortcomings, if any; (xv) the nature and content of computer software used in Company’s business, whether proprietary to Company or used by Company under license from a third party; (xvi) any proposed or existing land acquisitions, building and development projects, cost sheets, plans, or construction methods; and (xvii) all other information concerning Company’s concepts, prospects, customers, employees, agents, contractors, subcontractors, earnings, products, services, equipment, systems, and/or prospective and executed contracts and other business arrangements.  “Confidential Information” does not include information that is in the public domain through no wrongful act on the part of Executive.

 

(b)           Executive’s Use of Confidential Information.  Except in connection with and in furtherance of Executive’s work on Company’s behalf, Executive shall not, without Company’s prior written consent, at any time, directly or indirectly: (i) use any Confidential Information for any purpose; (ii) disclose or otherwise communicate any Confidential Information to any person or entity; or (iii) accept or participate in any employment, consulting engagement or other business opportunity that inevitably will result in the disclosure or use of any Confidential Information.

 

  

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(c)           Acknowledgement.  Executive acknowledges that during his engagement with Company, Executive will have access to Confidential Information, all of which shall be made accessible to Executive only in strict confidence; that unauthorized disclosure of Confidential Information will damage Company’s business; that Confidential Information would be susceptible to immediate competitive application by a competitor of Company’s; that Company’s business is substantially dependent on access to and the continuing secrecy of Confidential Information; that Confidential Information is novel, unique to Company and known only to Executive, Company and certain key employees and contractors of Company; that Company shall at all times retain ownership and control of all Confidential Information; and that the restrictions contained in this Agreement are reasonable and necessary for the protection of Company’s legitimate business interests.

 

(d)           Records Containing Confidential Information.  “Confidential Records” means all documents and other records, whether in paper, electronic or other form, that contain or reflect any Confidential Information.  All Confidential Records prepared by or provided to Executive are and shall remain Company’s property.  Except with Company’s prior written consent, Executive shall not, at any time, directly or indirectly: (i) copy or use any Confidential Record for any purpose not relating directly to Executive’s work on Company’s behalf; or (ii) show, give, sell, disclose or otherwise communicate any Confidential Record or the contents of any Confidential Record to any person or entity other than Company or a person or entity authorized by Company to have access to the Confidential Record in question.  Upon the termination of Executive’s engagement with Company, or upon Company’s request, Executive shall immediately deliver to Company or its designee (and shall not keep in Executive’s possession or deliver to any other person or entity) all Confidential Records and all other Company property in Executive’s possession or control.  Executive understands and agrees that compliance with this subsection  (d) may require that data be removed from Executive’s personal computer equipment.  Consequently, upon reasonable prior notice, Executive agrees to permit the qualified personnel of Company and/or its contractors access to such computer equipment for that purpose.  This Agreement shall not prohibit Executive from complying with any subpoena or court order, provided that Executive shall at the earliest practicable date provide a copy of the subpoena or court order to Company’s CEO or other designee, it being the parties’ intention to give Company a fair opportunity to take appropriate steps to prevent the unnecessary and/or improper use or disclosure of Confidential Information and Confidential Records, as determined by Company in its sole discretion.

 

(e)           Third Parties’ Confidential Information.  Executive acknowledges that Company has received and in the future will receive from third parties confidential or proprietary information, and that Company must maintain the confidentiality of such information and use it only for authorized purposes.  Executive shall not use or disclose any such information except as authorized by Company or the third party to whom the information belongs.

 

(f)           Executive’s Former Employers’ Confidential Information.  Executive acknowledges and agrees that Executive is not a party to any agreement that limits Executive’s right or ability to perform services for Company, except as disclosed in a writing delivered to Company contemporaneous with the execution and delivery of this Agreement and that Executive otherwise is free to assume the duties with Company contemplated by this Agreement.  Executive shall not, during Executive’s engagement with Company, improperly use or disclose to Company or any Company employee, agent or contractor any proprietary information or trade secret belonging to any former customer or employer of Executive or any other person or entity to which Executive owes a duty of nondisclosure.

 

  

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9. Assignment of Inventions

 

9.1 Executive hereby agrees to assign to Company all interest in all ideas, work, work product, and inventions, whether patentable or not, made or conceived by Executive, solely or jointly with others during the term of this Agreement with Company, except for any idea or invention for which no equipment, supplies, facility, Confidential Information, or trade secret information of the Company was used and which was developed entirely on Executive’s own time, and

 

(a)           which does not relate either to the business of Company or Company’s clients, or to Company’s or Company’s client’s actual or demonstrably anticipated research or development, or

 

(b)        which does not result from any work performed by Executive for Company.

 

 

All ideas and inventions assigned under this Agreement are hereinafter referred to as “Assigned Inventions”.

 

9.2 Executive hereby agrees to disclose all Assigned Inventions in writing to Company, to assist Company in preparing patent applications for Assigned Inventions, and to execute said applications and all documents required to obtain patents for those inventions and to vest title thereto to Company, all at Company’s expense, but for no consideration to Executive in addition to Executive’s compensation as set forth in this Agreement.  If Company requires Executive’s assistance under this Section after this Agreement has terminated, Executive will be compensated for Executive’s time actually spent in providing that assistance at an hourly rate equivalent to that which was paid under terms of this Agreement.

 

9.3 Executive acknowledges that all original works of authorship which are made by Executive (solely or jointly with others), within the scope of Executive’s work for Company and which are protectable by copyright, are “works made for hire”, as that term is defined in the U. S. Copyright Act (17 USCA, Section 101).

 

9.4 Executive agrees that upon request or upon termination of this Agreement, it will deliver to Company any and all data, drawings, notes, documents, and materials received from Company or originating from the Executive’s services.

 

9.5 Company shall have the sole right to determine the treatment of information received from Executive, including the right to keep the same a trade secret, to use and disclose the same without prior patent application, to file and prosecute United States and foreign applications thereon, to file copyright registrations in its own name, or to follow any other procedure which Company may deem appropriate.

 

10. Non Solicitation

 

  During Executive’s work for Company and for a period of twelve (12) months after termination of that work, Executive shall not, without Company’s prior written consent, directly or indirectly:

 

10.1 cause or attempt to cause any employee, agent or contractor of Company or any Company affiliate to terminate his or her employment, agency or contractor relationship with Company or any affiliate; or interfere or attempt to interfere with the relationship between Company and any employee, agent or contractor; or hire or attempt to hire any employee, agent or contractor of Company, or affiliate; or conduct business of any kind with any Company employee, agent or contractor; or

 

  

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10.2 solicit business from or conduct business with any customer or client served by Company at any point during Executive’s work for Company; or solicit business from or conduct any business with any person or entity that was, during Executive’s work for Company, solicited or identified as a business prospect by Executive or any other Company employee, agent or contractor; or interfere or attempt to interfere with any transaction, agreement, prospective agreement, business opportunity or business relationship in which Company or any affiliate was involved at any point during Executive’s work for Company.

 

11. Covenant of Non-Disparagement

 

 Executive shall not make any oral or written statement (including via any Internet blog, social network or other media outlet) that disparages or reflects negatively upon the Company or its clients, including, without limitation, statements concerning work performance, business practices or personnel decisions, unless required by applicable law.  Executive covenants never to harass or behave unprofessionally toward any past, present or future Company customer, employee, officer, manager or director.

 

12. Survival

 

  Executive’s obligations under Sections 8, 9, 10 and 11 of this Agreement shall survive the termination of this Agreement and shall thereafter be enforceable whether or not such termination is claimed or found to be wrongful or to constitute or result in a breach of any contract or of any other duty owed or claimed to be owed to Executive by Company or any Company employee, agent or contractor.

 

13. Remedies

 

  Executive acknowledges that if Executive breaches any obligation under Sections 8, 9, 10 and/or 11 of this Agreement, Company or its client will suffer immediate and irreparable harm and damage for which money alone cannot fully compensate Company or its client.  Executive therefore agrees that upon such breach or threatened breach of any such obligation, Company or its client shall be entitled to a temporary restraining order, preliminary injunction, permanent injunction or other injunctive relief, without posting any bond or other security, compelling Executive to comply with any or all such provisions.  This Section shall not be construed as an election of any remedy, or as a waiver of any right available to Company or its client under this Agreement or the law, including the right to seek damages from Executive for a breach of any provision of this Agreement, nor shall this Section be construed to limit the rights or remedies available under applicable law for any violation of any provision of this Agreement.

 

 

14. Disputes

 

14.1 With respect to all disputes and other matters arising under or in connection with this Agreement, Executive consents to the jurisdiction and venue of all state and federal courts located in the City and County of Tampa, Florida, and Executive irrevocably consents to the jurisdiction of such courts for purposes of all such actions (after the parties have satisfied the mediation and arbitration requirements described in Section 14.2 herein).

 

  

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14.2 In the event of any controversy or claim arising out of or relating to this Agreement, or a breach thereof, the parties hereto shall first attempt to settle the dispute by mediation.  If settlement is not reached within sixty (60) days after service of a written demand for mediation, any unresolved controversy or claim shall be settled by binding arbitration.  The number of arbitrators shall be three.  The place of arbitration shall be in Tampa, FL.  Florida law shall apply.  Judgment on the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.

 

14.3 In any action relating to or arising from this Agreement, the substantially prevailing party shall be entitled to recover from the other party or parties all costs and expenses, including reasonable attorneys’ fees, incurred by the substantially prevailing party or parties in connection with such arbitration, mediation or other legal proceeding.

 

15. Representations and Warranties of Executive and Company

 

  In order to induce the Company to enter into this Agreement, Executive represents and warrants to the Company that neither the execution nor the performance of this Agreement by Executive will violate or conflict in any way with any other agreement by which Executive may be bound, or with any other duties imposed upon Executive by statutory or common law.

 

16. Form of Notice

 

  All notices given hereunder shall be given in writing, shall specifically refer to this Agreement and shall be personally delivered or sent by telecopy, confirmed e-mail or other electronic facsimile transmission or by registered or certified mail, return receipt requested, or overnight courier that may be tracked at the address set forth below or at such other address as may hereafter be designated by notice given in compliance with the terms hereof:

 

If to Executive:

 

Mr. Steve Weldon                                                                                                           

 

If to the Company:

 

OXIS INTERNATIONAL, INC.

Attention:  Mr. Anthony Cataldo

 

With a copy to:

 

Gary Henrie

 

If notice is mailed, such notice shall be effective three (3) business days after mailing, or if notice is personally delivered or sent by telecopy, confirmed e-mail or other electronic facsimile transmission, it shall be effective upon receipt.

 

  

12

  

17. Assignment

 

  This Agreement is personal to Executive and shall not be assignable by Executive.  Company may assign its rights hereunder to (a) any company resulting from any merger, consolidation or other reorganization to which the Company is a party or (b) any corporation, partnership, association, company or other person to which the Company may transfer all or substantially all of the assets and business of the Company existing at such time.  All of the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns.

 

18. Waivers

 

  No delay or failure by any party hereto in exercising, protecting or enforcing any of its rights, titles, interests or remedies hereunder, and no course of dealing or performance with respect thereto, shall constitute a waiver thereof.  The express waiver by a party hereto of any right, title, interest or remedy in a particular instance or circumstance shall not constitute a waiver thereof in any other instance or circumstance.  All rights and remedies shall be cumulative and not exclusive of any other rights or remedies.

 

19. Amendments in Writing

 

  No amendment, modification, waiver, termination or discharge of any provision of this Agreement, nor consent to any departure therefrom by either party hereto, shall in any event be effective unless the same shall be in writing, specifically identifying this Agreement and the provision intended to be amended, modified, waived, terminated or discharged and signed by the Company and Executive, and each such amendment, modification, waiver, termination or discharge shall be effective only in the specific instance and for the specific purpose for which given.  No provision of this Agreement shall be varied, contradicted or explained by any oral agreement, course of dealing or performance or any other matter not set forth in an agreement in writing and signed by Company and Executive.

 

20. Applicable Law

 

  This Agreement shall, in all respects, including all matters of construction, validity and performance, be governed by, and construed and enforced in accordance with, the laws of the State of Florida, without regard to any rules governing conflicts of laws.

 

21. Severability

 

 If any provision of this Agreement shall be held invalid, illegal or unenforceable in any jurisdiction, for any reason, including, without limitation, the duration of such provision, its geographical scope or the extent of the activities prohibited or required by it, then, to the full extent permitted by law (a) all other provisions hereof shall remain in full force and effect in such jurisdiction and shall be liberally construed in order to carry out the intent of the parties hereto as nearly as may be possible, (b) such invalidity, illegality or unenforceability shall not affect the validity, legality or enforceability of any other provision hereof, and (c) any court or arbitrator having jurisdiction shall have the power to reform such provision to the extent necessary for such provision to be enforceable under applicable law.

 

22. Headings

 

  All headings used herein are for convenience only and shall not in any way affect the construction of, or be taken into consideration in interpreting, this Agreement.

 

  

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23. Counterparts

 

  This Agreement, and any amendment or modification entered into pursuant to Section 19 hereof, may be executed in any number of counterparts, each of which counterparts, when so executed and delivered, shall be deemed to be an original and all of which counterparts, taken together, shall constitute one and the same instrument.  Signing and delivery of this Agreement may be evidenced by facsimile transmission.

 

24. Withholding

 

  Company shall be entitled to withhold from any payments or deemed payments any amount of withholding required by law.  No other taxes, fees, impositions, duties or other charges or offsets of any kind shall be deducted or withheld from amounts payable hereunder, unless otherwise required by law.

 

25. No Duty to Mitigate

 

  Executive shall not be required to mitigate damages or the amount of any payment provided for under this Agreement by seeking other employment or otherwise, nor will any payments hereunder be subject to offset for any reason not expressly provided herein.

 

26. Entire Agreement

 

  This Agreement on and as of the date hereof constitutes the entire agreement between Company and Executive with respect to the subject matter hereof and all prior or contemporaneous oral or written communications, understandings or agreements between Company and Executive with respect to such subject matter are hereby superseded and nullified in their entireties.  In the event of any inconsistency between this Agreement and any other plan, program or agreement in which Executive is a participant or a party, the terms of this Agreement shall control, unless such other plan, program or agreement states otherwise by specific reference to this Section 27.

 

 

27. Notice of Subsequent Employment or Service

 

 During the period beginning at Executive’s termination and ending [twelve (12)] months after the termination, Executive shall notify the Company of his acceptance of employment with, or agreement to provide substantial services to, any entity unrelated to the Company.  Such notice shall be provided promptly, but in any event within seven (7) days after each event giving rise to such notice.

 

 

[Signature page follows]

 

  

14

  

IN WITNESS WHEREOF, the parties have executed and entered into this Agreement on the date set forth above.

 

EMPLOYEE

 

By:                                                                

Name: Steve Weldon

OXIS INTERNATIONAL, INC.

By:                                                                

Name: Anthony Cataldo

Its:  CEO

 

[Signature Page to Executive Employment Agreement]

  

  

  

Exhibit A

 

FORM OF RELEASE AGREEMENT

 

1.           Release.  Steve Weldon (“Executive”), on his own behalf, on behalf of any entities he controls and on behalf of his descendants, dependents, heirs, executors, administrators, assigns and successors, and each of them, hereby acknowledges full and complete satisfaction of and releases and discharges and covenants not to sue OXIS INTERNATIONAL, INC., a Delaware corporation (the “Company”), its divisions, subsidiaries, parents, or affiliated entities, past and present, and each of them, as well as its and their assignees and successors (individually and collectively, “Company Releasees”), from and with respect to any and all claims, agreements, obligations, demands and causes of action, known or unknown, suspected or unsuspected, arising out of or in any way connected with Executive’s employment, the termination thereof, or any other relationship with or interest in the Company, including without limiting the generality of the foregoing, any claim for severance pay, profit sharing, bonus or similar benefit, pension, retirement, life insurance, health or medical insurance or any other fringe benefit, or disability, or any other claims, agreements, obligations, demands and causes of action, known or unknown, suspected or unsuspected, resulting from or arising out of any act or omission by or on the part of Company Releasees committed or omitted prior to the date of this Agreement, including, without limiting the generality of the foregoing, any claim under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Family and Medical Leave Act, or any other federal, state or local law, regulation or ordinance; provided, however, that the foregoing release does not apply to (1) Executive’s right to enforce any obligation of the Company to Executive pursuant to Section 7 of the Employment Agreement dated as of [October __, 2014] by and between the Company and Executive.

 

 

2.           Unknown Future Claims.  Executive acknowledges that he later may discover claims, demands, causes of action or facts in addition to or different from those which Executive now knows or believes to exist with respect to the subject matter of this Agreement and which, if known or suspected at the time of executing this Agreement, may have materially affected its terms.  Nevertheless, Executive hereby waives, as to the Claims, any claims, demands, and causes of action that might arise as a result of such different or additional claims, demands, causes of action or facts.

 

3.           Additional Release by Executive.  In addition to the release set forth in Section 1 above, Executive, on his own behalf and behalf of his descendants, dependents, heirs, executors, administrators, assigns and successors, and each of them, hereby acknowledges full and complete satisfaction of and releases and discharges and covenants not to sue any director, officer, shareholder, partner, representative, attorney, agent or executive, past or present, of any Company Releasee (individually and collectively, “Individual Releasees”), from and with respect to any and all claims, agreements, obligations, demands and causes of action (collectively, “Known Claims”), arising out of or in any way connected with Executive’s employment or any other relationship with or interest in the Company.  Executive represents and agrees that he has no knowledge of any facts or circumstances that may reasonably constitute or lead to any such Known Claim.

 

4.           ADEA Waiver.  Executive expressly acknowledges and agrees that by entering into this Agreement, he is waiving any and all rights or claims that he may have arising under the Age Discrimination in Employment Act of 1967, as amended, which have arisen on or before the date of execution of this Agreement.  Executive further expressly acknowledges and agrees that, in return for this Agreement, he will receive consideration beyond that which he was already entitled to receive before entering into this Agreement;

 

  

  

  

	
  

	
(a)

	
He is hereby advised in writing by this Agreement to consult with an attorney before signing this Agreement;

 

	
  

	
(b)

	
He was given a copy of this Agreement on [__________, 20__] and informed that he had [twenty-one (21)] days within which to consider the Agreement; and

 

	
  

	
(c)

	
He was informed that he has [seven (7)] days following the date of execution of the Agreement in which to revoke the Agreement.

 

5.           No Transferred Claims.  Each party hereto represents and warrants to the other that he or it, as applicable, has not heretofore assigned or transferred to any person not a party to this Agreement any released matter or any part or portion thereof.

 

The undersigned have read and understand the consequences of this Agreement and voluntarily sign it.  The undersigned declare under penalty of perjury under the laws of the State of Colorado that the foregoing is true and correct.

 

EXECUTED this ________ day of ________ 20__, at ______________________ County, State of .

 

 

Steve Weldon

With a copy to:

OXIS INTERNATIONAL, INC.ex4-1.htm

Exhibit 4.1

 

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

 

	
Principal Amount: $54,000.00

	
Issue Date: December 19, 2014

	
Purchase Price: $54,000.00

	  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, U-VEND, INC., a Delaware corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of KBM WORLDWIDE, INC., a New York corporation, or registered assigns (the “Holder”) the sum of $54,000.00 together with any interest as set forth herein, on September 23, 2015 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.  This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America.  All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date.  As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.  Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

  

  

  

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1  Conversion Right.  The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non- assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price  (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock.  For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange  Act”),  and  Regulations  13D-G  thereunder,  except  as  otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon, at the election of the Holder, not less than 61 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 61st day (or such later date, as determined by the Holder, as may be specified in such notice of waiver).   The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”).   The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Holder’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Holder’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

  

2

  

 

1.2 Conversion Price.

 

(a) Calculation   of   Conversion   Price.      The   conversion   price   (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable  adjustments  for  stock  splits,  stock  dividends  or  rights  offerings  by the  Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 58% multiplied by the Market Price (as defined herein) (representing a discount rate of 42%).  “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.  “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin  Board,  Pink  Sheets  electronic  quotation  system  or  applicable  trading  market  (the “OTC”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTC is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets”.  If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes.  “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTC, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

(b) Conversion  Price  During  Major  Announcements.    Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the  “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a).  For purposes hereof,  “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

  

3

  

 

1.3 Authorized  Shares.    The  Borrower  covenants  that  during  the  period  the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”).  The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations hereunder.  The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes.  The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

  

4

  

 

1.4 Method of Conversion.

 

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

 

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

 

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

 

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

  

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

 

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

 

(g) Failure to Deliver Common Stock Prior to Deadline.  Without in any way limiting the Holder’s  right  to  pursue other remedies,  including actual  damages  and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock.  Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note.  The Borrower agrees that the right to convert is a valuable right to the Holder.  The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible  to  qualify.    Accordingly  the  parties  acknowledge  that  the  liquidated  damages provision contained in this Section 1.4(g) are justified.

  

6

  

 

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

 

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

  

7

  

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold.    In  the event  that  the Company does  not  accept  the opinion  of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 Effect of Certain Events.

 

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

 

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

  

8

  

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

 

(d) Adjustment Due to Dilutive Issuance.  If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.   For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable).   No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

  

9

  

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether  or  not  immediately  convertible  (other  than  where  the  same  are  issuable  upon  the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.   For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon  the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities.   No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

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

  

10

  

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

 

1.7 Trading Market Limitations.   Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof.  Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

 

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

  

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1.9       Prepayment.    Notwithstanding anything to the contrary contained in this Note, at any time during the periods set forth on the table immediately following this paragraph (the “Prepayment Periods”), the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9.   Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to Holder, or upon the order of the Holder as specified by the Holder in writing to the Borrower, at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to the percentage (“Prepayment Percentage”) as set forth in the table immediately following this paragraph opposite the applicable Prepayment Period, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus  (x) accrued  and unpaid interest on  the unpaid  principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

	
Prepayment Period

 

	
Prepayment Percentage

	
1.    The period beginning on the Issue Date and ending on the date which is thirty (30) days following the Issue Date.

 

	
115%

	
2.     The period beginning on the date which is thirty one (31) days following the Issue Date and ending on the date which is sixty (60) days following the Issue Date

 

	
120%

	
3.    The period beginning on the date which is sixty-one (61) days following the Issue Date and ending on the date which is ninety (90) days following the Issue Date

 

	
125%

	
4.    The period beginning on the date that is ninety-one (91) day from the Issue Date and ending one hundred twenty (120) days following the Issue Date

 

	
130%

	
5.    The period beginning on the date that is one hundred twenty-one (121) day from the Issue Date and ending one hundred fifty (150) days following the Issue Date

 

	
135%

	
6.    The period beginning on the date that is one hundred fifty-one (151) day from the Issue Date and ending one hundred eighty (180) days following the Issue Date

 

	
140%

 

After the expiration of one hundred eighty (180) days following the Issue Date, the Borrower shall have no right of prepayment.

 

  

12

  

ARTICLE II.  CERTAIN COVENANTS

 

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

 

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

 

    2.3 Borrowings.   So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, create, incur, assume guarantee,  endorse,  contingently  agree  to  purchase  or  otherwise  become  liable  upon  the obligation of any person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the proceeds of which shall be used to repay this Note.

 

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

 

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

  

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ARTICLE III.  EVENTS OF DEFAULT

 

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

 

3.1 Failure to Pay Principal or Interest.  The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.

 

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

 

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

 

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

 

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

  

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

 

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

 

3.8 Delisting of Common Stock.  The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTC (which specifically includes the Pink Sheets electronic  quotation  system)  or  an  equivalent  replacement  exchange,  the  Nasdaq  National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

  

15

  

 

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

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein).  UPON THE OCCURRENCE AND DURING THE CONTINUATION  OF  ANY  EVENT  OF  DEFAULT  SPECIFIED  IN  SECTION  3.2,  THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3.15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment  Date  as  the “Conversion  Date”  for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

  

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

 

ARTICLE IV. MISCELLANEOUS

 

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

 

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

 

	
  

	
If to the Borrower, to: 

U-VEND, INC.

1507 7th Street - #425

Santa Monica, CA 90401

Attn: RAYMOND MEYERS, Chief Executive Officer 

facsimile:

 

	
  

	
With a copy by fax only to (which copy shall not constitute notice): 

[enter name of law firm]

Attn: [attorney name] 

[enter address line 1] 

[enter city, state, zip]

facsimile: [enter fax number]

 

      If to the Holder:

KBM WORLDWIDE, INC.

80 Cuttermill Road – Suite 410

Great Neck, NY  11021

Attn: Seth Kramer, President

e-mail: info@kbmworldwide.com

 

	
  

	
With a copy by fax only to (which copy shall not constitute notice): 

Naidich Wurman Bumbaum & Maday, LLP

Att: Judah A. Eisner, Esq.

Attn: Bernard S. Feldman, Esq. 

facsimile: 516-466-3555

e-mail: dyork@nwbmlaw.com

 

  

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

 

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

 

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

 

4.6 Governing Law.  This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws.  Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau.  The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens.  The Borrower and Holder waive trial by jury.   The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity  or  enforceability  of  any  other  provision  of  any  agreement.      Each  party  hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

  

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

 

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

 

4.9 Notice of Corporate Events.  Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower’s shareholders (and copies of proxy materials and other information sent to shareholders).  In the event of any taking by the Borrower of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution, right or other event, and a brief statement regarding the amount and character of such dividend, distribution, right or other event to the extent known at such time.  The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.

 

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

 

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this December 19, 2014.

	 	 U-VEND, INC	 
	 	
 By:

	  	  
	 	  	
RAYMOND MEYERS

	  
	 	  	
Chief Executive Officer

	  

 

  

19

  

 

EXHIBIT A --  NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $  principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of U-VEND, INC., a Delaware corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower  dated  as  of December 19, 2014 (the “Note”), as of the date written below.  No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

	  	
[  ]

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

	  	  	  
	  	  	
Name of DTC Prime Broker:

Account Number:

	  	  	  
	  	
[  ]

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

	  	  	  
	  	  	
KBM WORLDWIDE, INC.

80 Cuttermill Road – Suite 410

Great Neck, NY 11021

Attention: Certificate Delivery

e-mail: info@kbmworldwide.com

	  	  	  
	  	  	
Date of Conversion:  _______________

Applicable Conversion Price:  $_______________

Number of Shares of Common Stock to be Issued

Pursuant to Conversion of the Notes:  _______________

Amount of Principal Balance Due remaining

Under the Note after this conversion:  _______________

	  	  	  

 

	  	
KBM WORLDWIDE, INC.

	  	  	  	  
	  	
By:

	  	  
	  	
Name:

	
Seth Kramer

	  
	  	
Title:

	
President

	  
	  	
Date:

	
December 19, 2014

	  

 

 

 

 

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