Document:

Unassociated Document

Exhibit 10.1

PRESS RELEASE

 

Magic Software Breaks Performance Records with Q3 Revenue of $30 Million and Net Income of $4 Million, an Increase of 60% Year over Year

 

Company Reports Double-Digit Overall Growth for the Eighth Consecutive Quarter

 

Or Yehuda, Israel, November 2, 2011 – Magic Software Enterprises Ltd. (NASDAQ: MGIC), a global provider of mobile and cloud-enabled application and business integration platforms, today announced its financial results for the third quarter of 2011.

 

Financial Highlights for the Third Quarter and Nine-Month Period Ended September 30, 2011

 

	
·

	
Third-quarter revenues increased 34% to $30 million compared to $22.4 million in the same period last year.

 

	
·

	
Operating income for the third quarter increased 60% to $4 million, compared to $2.5 million in the same period last year.

 

	
·

	
Net income for the third quarter increased 60% to $4 million compared to $2.5 million in the same period last year.

 

	
·

	
Revenues for the nine-month period ended September 30, 2011 increased 30% to $82.8 million compared to $63.6 million in the same period last year.

 

	
·

	
Operating income for the nine-month period ended September 30, 2011 increased 67% to $10.5 million compared to $6.3 million in the same period last year.

 

	
·

	
Net income for the nine-month period ended September 30, 2011 increased 70% to $10.7 million compared to $6.3 million in the same period last year.

 

	
·

	
Operating cash flow for the nine-month period ended September 30, 2011 totaled $9 million.

 

	
·

	
Total cash and cash equivalents, short-term bank deposits, and short-term investments in marketable securities as of September 30, 2011 amounted to $46.6 million.

 

Results

 

For the third quarter ended September 30, 2011, total revenues were $30 million, with net income of $4 million, or $0.11 per fully diluted share. This compares with revenues of $22.4 million and net income of $2.5 million, or $0.08 per fully diluted share, for the same period last year.

 

Operating income for the third quarter ended September 30, 2011, was $4 million, or $0.11 per fully diluted share. This compares to operating income of $2.5 million, or $0.08 per fully diluted share, for the same period a year ago.

 

For the nine month-period ended September 30, 2011, total revenues were $82.8 million, with net income of $10.7 million, or $0.29 per fully diluted share. This compares with revenues of $63.6 million and net income of $6.3 million, or $0.19 per fully diluted share, for the same period last year.

 

  

  

  

 

Operating income for the nine-month period ended September 30, 2011, was $10.5 million, or $0.28 per fully diluted share. This compares to operating income of $6.3 million, or $0.19 per fully diluted share, for the same period a year ago.

 

Comments of Management

 

Commenting on the results, Guy Bernstein, Chief Executive Officer of Magic Software, said: “These excellent results demonstrate that Magic Software is going from strength to strength, achieving double-digit overall growth for the eighth consecutive quarter, with impressive performance in all our regions.”

 

“Moving forward, we expect to see significant customer adoption of our expanded mobile offering and cloud-based application platform, both of which deliver technologies that are central to many enterprises’ IT strategy. We will also continue to make strategic technology acquisitions, such as the recently announced purchase of BluePhoenix's AppBuilder activity, that will strengthen our position as a global provider of application development platforms,” concluded Mr. Bernstein.

 

Non-GAAP Financial Measures

 

This release includes non-GAAP operating income, net income, basic and diluted earnings per share and other non-GAAP financial measures. These non-GAAP measures exclude the following items:

 

	
  

	
·

	
Amortization of purchased intangible assets

 

	
  

	
·

	
In-process research and development capitalization and amortization and

 

	
  

	
·

	
Equity-based compensation expense

 

Magic Software’s management believes that the presentation of non-GAAP measures provides useful information to investors and management regarding financial and business trends relating to the Company’s financial condition and results of operations as well as the net amount of cash generated by its business operations after taking into account capital spending required to maintain or expand the business.

 

These non-GAAP financial measures are not in accordance with, or an alternative for, generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. In addition, these non-GAAP financial measures are not based on any comprehensive set of accounting rules or principles. Magic Software believes that non-GAAP financial measures have limitations in that they do not reflect all of the amounts associated with Magic Software’s results of operations as determined in accordance with GAAP and that these measures should only be used to evaluate Magic Software’s results of operations in conjunction with the corresponding GAAP measures.

 

Refer to the Reconciliation of Selected Financial Metrics from GAAP to Non-GAAP tables below.

 

  

  

  

 

About Magic Software

 

Magic Software Enterprises Ltd. (NASDAQ: MGIC) is a global provider of mobile and cloud-enabled application and business integration platforms.

 

For more information, visit www.magicsoftware.com

 

For the latest detailed investor information, visit our new Investor Relations web page.

 

Except for the historical information contained herein, the matters discussed in this news release include forward-looking statements that may involve a number of risks and uncertainties. Actual results may vary significantly based upon a number of factors including, but not limited to, risks in product and technology development, market acceptance of new products and continuing product conditions, both here and abroad, release and sales of new products by strategic resellers and customers, and other risk factors detailed in the Company's most recent annual report and other filings with the Securities and Exchange Commission.

 

Press contact:

 

Tania Amar

Magic Software Enterprises

Tel: +972 (0)3 538 9300

Email: tania@magicsoftware.com

 

  

  

  

 

	
MAGIC SOFTWARE ENTERPRISES LTD.

	
CONSOLIDATED STATEMENTS OF INCOME

	
U.S. dollars in thousands (except per share data)

 

	  	 	
Three months ended

	 	 	
Nine months ended

	 
	  	 	
September 30,

	 	 	
September 30,

	 
	  	 	
2011

	 	 	
2010

	 	 	
2011

	 	 	
2010

	 
	  	 	
Unaudited

	 	 	
Unaudited

	 
	
Revenues

	 	 	29,977	 	 	 	22,372	 	 	 	82,845	 	 	 	63,551	 
	
Cost of Revenues

	 	 	17,816	 	 	 	13,191	 	 	 	49,290	 	 	 	37,104	 
	
Gross profit

	 	 	12,161	 	 	 	9,181	 	 	 	33,555	 	 	 	26,447	 
	
Research and development, net

	 	 	758	 	 	 	526	 	 	 	1,578	 	 	 	1,566	 
	
Selling, marketing and general and

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
    administrative expenses

	 	 	7,396	 	 	 	6,151	 	 	 	21,436	 	 	 	18,555	 
	
Total operating costs and expenses

	 	 	8,154	 	 	 	6,677	 	 	 	23,014	 	 	 	20,121	 
	
Operating income

	 	 	4,007	 	 	 	2,504	 	 	 	10,541	 	 	 	6,326	 
	
Financial income (expenses), net

	 	 	60	 	 	 	32	 	 	 	311	 	 	 	(284	)
	
Other income, net

	 	 	19	 	 	 	68	 	 	 	92	 	 	 	148	 
	
Income before taxes on income

	 	 	4,086	 	 	 	2,604	 	 	 	10,944	 	 	 	6,190	 
	
Taxes on income

	 	 	24	 	 	 	66	 	 	 	67	 	 	 	(102	)
	
Net income

	 	 	4,062	 	 	 	2,538	 	 	 	10,877	 	 	 	6,292	 
	
Net income attributable to non-controlling interests

	 	 	(43	)	 	 	-	 	 	 	(198	)	 	 	-	 
	
Net income attributable to Magic Shareholders

	 	 	4,019	 	 	 	2,538	 	 	 	10,679	 	 	 	6,292	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Net earnings per share attributable to

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
   Magic :

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Basic

	 	 	0.11	 	 	 	0.08	 	 	 	0.29	 	 	 	0.20	 
	
Diluted

	 	 	0.11	 	 	 	0.08	 	 	 	0.29	 	 	 	0.19	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Weighted average number of shares used in

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
     computing net earnings per share attributable to

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
     Magic:

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
        Basic

	 	 	36,339	 	 	 	32,056	 	 	 	36,241	 	 	 	31,993	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
        Diluted

	 	 	36,954	 	 	 	32,596	 	 	 	37,058	 	 	 	32,485	 

 

 

  

  

  

 

	
MAGIC SOFTWARE ENTERPRISES LTD.

	  
	
RECONCILIATION BETWEEN GAAP AND NON-GAAP

	
STATEMENTS OF INCOME FOR COMPARATIVE PURPOSES

	
U.S. dollars in thousands (except per share data)

 

	  	 	 	 	 	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	  	 	
Three months ended

	 	 	
Nine months ended

	 
	  	 	
September 30,

	 	 	
September 30,

	 
	  	 	
2011

	 	 	
2010

	 	 	
2011

	 	 	
2010

	 
	  	 	
Unaudited

	 	 	
Unaudited

	 
	  	 	 	 	 	 	 	 	 	 	 	 	 
	
GAAP operating income

	 	 	4,007	 	 	 	2,504	 	 	 	10,541	 	 	 	6,326	 
	
Amortization of capitalized software and

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
    other intangible assets

	 	 	1,066	 	 	 	759	 	 	 	2,829	 	 	 	2,716	 
	
Capitalization of software development

	 	 	(1,253	)	 	 	(783	)	 	 	(3,846	)	 	 	(2,350	)
	
Stock-based compensation

	 	 	139	 	 	 	106	 	 	 	447	 	 	 	165	 
	
Total adjustments to GAAP

	 	 	(48	)	 	 	82	 	 	 	(570	)	 	 	531	 
	
Non-GAAP operating income

	 	 	3,959	 	 	 	2,586	 	 	 	9,971	 	 	 	6,857	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
GAAP Net income attributable

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
   to Magic Shareholders

	 	 	4,019	 	 	 	2,538	 	 	 	10,679	 	 	 	6,292	 
	
Total adjustments to GAAP as above

	 	 	(48	)	 	 	82	 	 	 	(570	)	 	 	531	 
	
Non-GAAP net income

	 	 	3,971	 	 	 	2,620	 	 	 	10,109	 	 	 	6,823	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Non-GAAP basic net earnings per share

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
   attributable to Magic

	 	 	0.11	 	 	 	0.08	 	 	 	0.28	 	 	 	0.21	 
	
Weighted average number of shares used in

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
   computing basic net earnings per share

	 	 	36,339	 	 	 	32,056	 	 	 	36,241	 	 	 	31,993	 
	  	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Non-GAAP diluted net earnings per share

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
   attributable to Magic

	 	 	0.11	 	 	 	0.08	 	 	 	0.27	 	 	 	0.21	 
	
Weighted average number of shares used in

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
   computing diluted net earnings per share

	 	 	37,046	 	 	 	32,647	 	 	 	37,155	 	 	 	32,533	 

 

  

  

  

 

	
MAGIC SOFTWARE ENTERPRISES LTD.

	
CONSOLIDATED BALANCE SHEETS

	
U.S. dollars in thousands

 

	  	 	 	 	 	 	 
	  	 	
September 30,

	 	 	
December 31,

	 
	  	 	
2011

	 	 	
2010

	 
	  	 	
(Unaudited)

	 	 	 	 
	  	 	 	 	 	 	 
	
ASSETS

	 	 	 	 	 	 
	
CURRENT ASSETS:

	 	 	 	 	 	 
	
     Cash and cash equivalents

	 	 	35,139	 	 	 	43,661	 
	
     Short-term bank deposits

	 	 	9,800	 	 	 	24	 
	
     Available-for-sale marketable securities

	 	 	1,612	 	 	 	2,857	 
	
     Trade receivables, net

	 	 	21,813	 	 	 	17,801	 
	
     Other accounts receivable and  prepaid expenses

	 	 	3,716	 	 	 	4,029	 
	
Total current assets

	 	 	72,080	 	 	 	68,372	 
	  	 	 	 	 	 	 	 	 
	
LONG-TERM RECEIVABLES:

	 	 	 	 	 	 	 	 
	
    Severance pay fund

	 	 	344	 	 	 	325	 
	
    Other long-term receivables

	 	 	3,587	 	 	 	2,141	 
	
Total other long-term receivables

	 	 	3,931	 	 	 	2,466	 
	  	 	 	 	 	 	 	 	 
	
PROPERTY AND EQUIPMENT, NET

	 	 	2,083	 	 	 	1,827	 
	
IDENTIFIABLE INTANGIBLE ASSETS AND

	 	 	 	 	 	 	 	 
	
    GOODWILL, NET

	 	 	49,571	 	 	 	39,285	 
	
 

	 	 	 	 	 	 	 	 
	
TOTAL ASSETS

	 	 	127,665	 	 	 	111,950	 
	  	 	 	 	 	 	 	 	 
	
LIABILITIES AND EQUITY

	 	 	 	 	 	 	 	 
	  	 	 	 	 	 	 	 	 
	
CURRENT LIABILITIES:

	 	 	 	 	 	 	 	 
	
     Short-term credit and current maturities

	 	 	 	 	 	 	 	 
	
        of long term loans

	 	 	50	 	 	 	9	 
	
     Trade payables

	 	 	3,703	 	 	 	2,994	 
	
     Accrued expenses and other accounts payable

	 	 	15,776	 	 	 	15,028	 
	
     Deferred revenues

	 	 	4,320	 	 	 	1,526	 
	
Total current liabilities

	 	 	23,849	 	 	 	19,557	 
	  	 	 	 	 	 	 	 	 
	
NON-CURRENT LIABILITIES:

	 	 	 	 	 	 	 	 
	
     Long-term loans

	 	 	9	 	 	 	2	 
	
     Liability due to acquisition activities

	 	 	1,338	 	 	 	2,990	 
	
     Accrued severance pay

	 	 	704	 	 	 	536	 
	
Total non-current liabilities

	 	 	2,051	 	 	 	3,528	 
	  	 	 	 	 	 	 	 	 
	
EQUITY

	 	 	 	 	 	 	 	 
	
   Magic Shareholders' equity

	 	 	100,664	 	 	 	88,865	 
	
   Non-controlling interests

	 	 	1,101	 	 	 	-	 
	
Total equity

	 	 	101,765	 	 	 	88,865	 
	  	 	 	 	 	 	 	 	 
	
TOTAL LIABILITIES AND EQUITY

	 	 	127,665	 	 	 	111,950Exhibit 4.1

 

 

NEITHER, THE ISSUANCE AND SALE OF THE SECURITIES, REPRESENTED BY THIS CERTIFICATE, NOR, THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (i) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL, IN A FORM GENERALLY ACCEPTABLE TO THE COMPANY’S LEGAL COUNSEL, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (ii) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.

 

THIS NOTE HAS BEEN ISSUED WITH ORIGINAL ISSUE DISCOUNT (“OID”).  PURSUANT TO TREASURY REGULATION §1.1275-3(b)(1), THOMAS A. MOORE, A REPRESENTATIVE OF THE BORROWER HEREOF WILL, BEGINNING TEN (10) DAYS AFTER THE ISSUE DATE OF THIS NOTE, PROMPTLY MAKE AVAILABLE TO THE HOLDER UPON REQUEST THE INFORMATION DESCRIBED IN TREASURY REGULATION §1.1275-3(b)(1)(i).  THOMAS A. MOORE MAY BE REACHED AT TELEPHONE NUMBER (609) 452 9813.

 

	
Principal Amount:

	  	
___________

	
Purchase Price:

	  	
___________

	
Issue Date:

	  	
October 31, 2011

	
Maturity Date:

	  	
October 31, 2012

 

FORM OF CONVERTIBLE PROMISSORY NOTE

 – SERIES C, TRANCHE 7 –

 

FOR VALUE RECEIVED, ADVAXIS, INC., a Delaware corporation (hereinafter called “Borrower” or the “Company”), hereby promises to pay to __________ (the “Holder”) or order, without demand, the aggregate principal amount of _______________ (______) (the “Principal Amount”), payable on October 31, 2012 (the “Maturity Date”).

 

This Series C, Tranche 7 Note (“Note”) is one of a series of notes (the “Notes”) issued pursuant to the terms of a Note Purchase Agreement (the “Purchase Agreement”), by and between the Borrower, the initial Holder and certain other investors signatory thereto (including the initial Holder), dated as of October 28, 2011.  Unless otherwise separately defined herein, all capitalized terms used in Note shall have the same meaning as is set forth in the Purchase Agreement.  Unless otherwise separately defined herein, all capitalized terms used in Note shall have the same meaning as is set forth in the Purchase Agreement.  The following terms shall apply to Note:

 

  

1

  

 

ARTICLE I

GENERAL PROVISIONS

1.1 Conversion Privileges.  The conversion privileges set forth in Article II shall remain in full force and effect immediately from the date hereof and until Note is paid in full regardless of the occurrence of an Event of Default but subject to Article II.  The Principal Amount of Note, or such portion thereof, that has not previously been converted into common stock, $0.001 par value, of the Company (the “Common Stock”) in accordance with Article II hereof, if any, shall be payable in full on the Maturity Date.

 

1.2 Borrower May Have Senior Indebtedness Outstanding; Notes are Subordinate to Senior Indebtedness.  The Borrower currently has secured indebtedness outstanding that is senior in right of payment with the indebtedness evidenced by this Note (the “Senior Indebtedness”).  The Holder expressly acknowledges that the indebtedness represented by Note is expressly subordinate to the Senior Indebtedness.

 

1.3 Interest.  There shall be no periodic payments of interest on this Note.

 

ARTICLE II

CONVERSION RIGHTS

The Holder shall have the right to convert the Principal Amount of this Note into shares of the Borrower’s Common Stock as set forth below.

 

2.1 Conversion into the Borrower’s Common Stock.

 

(a) Conversion Price.  The conversion price in effect on any date of conversion shall be equal to $0.15, subject to adjustment herein (the “Conversion Price”).

 

  

2

  

 

(b) Conversion.  The Holder shall have the option, but shall not be required, to convert all or a portion of the Note into a number of fully paid and non-assessable shares of Common Stock (the “Conversion Shares”).  The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding Principal Amount of this Note to be converted by (y) the Conversion Price.

 

(c) Mechanics of Conversion.  As a condition to effecting the conversion set forth in Section 2.1(b) above, the Holder shall properly complete and deliver to the Company a Notice of Conversion, a form of which is annexed hereto as Exhibit A (the “Notice of Conversion”), which notice must be received by the Company at least one (1) Trading Day prior to the Maturity Date.  The Notice of Conversion shall set forth the Principal Amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”); provided, however, that the Holder may not deliver to the Company a Notice of Conversion for more than eighty-five percent (85%) of the Principal Amount of this Note as of the Issue Date of this Note prior to the Maturity Date (or such greater amount of the Principal Amount prior to the Maturity Date, as determined by the Company in its reasonable discretion, as would not as of such date of determination cause the Company to be required to issue any additional shares of Common Stock to any holder of securities of the Company as of the time immediately prior to the Issue Date (each, an “Existing Securityholder”) or result in a reduction of the conversion price or exercise price of any outstanding Convertible Security or Option, as applicable, in each case held by an Existing Securityholder as of the time immediately prior to the Issue Date).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder.  Upon timely delivery to the Borrower of the Notice of Conversion, certificates evidencing that number of shares of Common Stock for the portion of the Note converted in accordance herewith shall be transmitted by the Company’s transfer agent to the Holder by crediting the account of the Holder’s prime broker with The Depository Trust Company through its Deposit / Withdrawal at Custodian system if the Company is then a participant in such system and either (A) there is an effective registration statement permitting the issuance of the Conversion Shares to, or resale of the Conversion Shares by, the Holder or (B) the shares are eligible for resale by the Holder without volume or manner-of-sale limitations pursuant to Rule 144, and otherwise by physical delivery to the address specified by the Holder in the Notice of Conversion by the date that is three (3) Trading Days after the Conversion Date (such third day being the “Share Delivery Date”).

 

  

3

  

 

(d) Obligation to Deliver Conversion Shares Absolute; Certain Remedies.

 

(i) Obligation Absolute.  The Company’s obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder.  In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.

 

(ii) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion.  In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 2.1(c), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a Principal Amount equal to the Principal Amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 2.1(c) (the “Buy-In Liquidated Damages”).  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.  The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.

 

  

4

  

 

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

 

(e) Adjustment.  The number and kind of shares or other securities to be issued upon conversion determined pursuant to Section 2.1(b), shall be subject to adjustment, from time to time, upon the happening of certain events while this conversion right remains outstanding, as follows:

 

(i) Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, or (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 2.3 on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 2.3 on the conversion of this Note).  For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 2(e)(i) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

  

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

 

(f) Notice of Adjustment.  Upon the occurrence of an event specified in Section 2.1(e), the Borrower shall promptly mail to the Holder a notice setting forth the adjustment and setting forth a statement of the facts requiring such adjustment, provided that any additional notice requirements set forth in Section 2.1(e)(i) shall also be applicable.

 

(g) Reservation of Shares.  At such time when necessary, Borrower:

 

(i) will reserve from its authorized and unissued Common Stock a sufficient amount of Common Stock to permit the full conversion of Note;

 

(ii) represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable; and

 

(iii) agrees that its issuance of Note shall constitute full authority to its officers, agents, and transfer agents who are charged with the duty of executing and issuing stock certificates to execute and issue the necessary certificates for shares of Common Stock upon the conversion of Note.

 

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

 

  

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2.3 Limitations on Conversion.  Notwithstanding anything to the contrary contained in this Note, this Note shall not be convertible by the Holder hereof, and the Company shall not effect any conversion of this Note or otherwise issue any shares of Common Stock pursuant hereto, to the extent (but only to the extent) that the Holder or any of its affiliates would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the Common Stock. To the extent the above limitation applies, the determination of whether this Note shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to convert this Note, or to issue shares of Common Stock, pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. For purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Securities Act of 1934, as amended, and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Note. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within two (2) Trading Days confirm orally to the Holder and, if requested, in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Note or securities issued pursuant to the Purchase Agreement.

 

ARTICLE III

EVENT OF DEFAULT

The occurrence of any of the following events of default (“Event of Default”) shall, at the option of the Holder hereof, make the outstanding Principal Amount plus all other amounts payable under this Note immediately due and payable in cash at the Mandatory Default Amount (as defined below), upon demand:

 

3.1 Failure to Pay.  The Borrower fails to pay the Principal Amount or other sum due under Note when due.

 

 

  

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3.2 Breach of Covenant.  The Borrower breaches any material covenant of the Purchase Agreement or Note in any material respect and such breach, if subject to cure, continues for a period of FIFTEEN (15) Trading Days after written notice to the Borrower from the Holder.

 

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

 

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

 

3.5 Judgments.  Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its property or other assets for more than ONE MILLION DOLLARS ($1,000,000.00) and shall remain unvacated, unbonded or unstayed for a period of FORTY-FIVE (45) days.

 

3.6 Bankruptcy.  Bankruptcy, reorganization, insolvency proceeding, liquidation proceedings or other proceedings or relief under any bankruptcy law or any law, or the issuance of any notice in relation to such event, for the relief of debtors shall be instituted by or against the Borrower and if instituted against them are not dismissed within FORTY-FIVE (45) Trading Days of initiation.

 

3.7 Non-Payment.  A default by the Borrower under any one or more obligations in an aggregate monetary amount in excess of ONE MILLION DOLLARS ($1,000,000.00) for more than TWENTY (20) Trading Days after notice to the Borrower from the Holder, unless the Borrower is contesting the validity of such obligation in good faith and has segregated cash funds equal to not less than one-half of the contested amount.

 

  

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3.8 Failure to Deliver Common Stock or Replacement Note.  Borrower’s failure to deliver Common Stock to the Holder pursuant to and in the form required by Note within TEN (10) Trading Days after the applicable Conversion Date.

 

3.9 Reservation Default.  Failure by the Borrower to have reserved for issuance upon conversion of this Note the amount of Common stock as set forth in this Note for more than NINETY (90) days after notice to the Borrower from the Holder.

 

3.10 Optimus Transaction.  The Borrower consummates an Optimus Transaction at any time any Notes remain outstanding, except in compliance with Section 4.1(g) below.

 

Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company.  In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law.  For purposes of this Article III, “Mandatory Default Amount” means the sum of (a) the greater of (i) the outstanding Principal Amount of this Note, divided by the Conversion Price on the date the Mandatory Default Amount is either (A) demanded (if demand or notice is required to create an Event of Default) or otherwise due or (B) paid in full, whichever has a lower Conversion Price, multiplied by the VWAP on the date the Mandatory Default Amount is either (x) demanded or otherwise due or (y) paid in full, whichever has a higher VWAP, or (ii) 100% of the outstanding principal amount of this Note, and (b) all other amounts, costs, expenses and liquidated damages due in respect of this Note.

 

ARTICLE IV

NEGATIVE COVENANTS

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

 

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

 

  

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

 

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

 

(d) repay, repurchase or offer to repay, repurchase or otherwise acquire for cash more than a de minimis number of shares of its Common Stock or Common Stock Equivalents (except to the extent permitted by 4.1(e) below) other than repurchases of Common Stock or Common Stock Equivalents (except to the extent permitted by 4.1(e) below) of departing officers and directors of the Company or in connection with any Optimus Transaction, provided that such repurchases shall not exceed an aggregate of $150,000 during the term of this Note;

 

(e) repay, repurchase or offer to repay, repurchase or otherwise acquire any Indebtedness for cash prior to maturity thereof, other than this Note and the other Notes;

 

(f) pay cash dividends or distributions on any equity securities of the Company;

 

(g) issue any securities in any Optimus Transaction (other than the exercise or conversion of Convertible Securities or Options outstanding as of the Issue Date), except to the extent the net proceeds of such issuance are used to pay the redemption price of any Optional Redemption (as defined below) of this Note and/or any corresponding optional redemption provision in any other Notes;

 

(h) other than Excluded Securities (as defined in the Purchase Agreement), the Company shall not issue, enter into any agreement to issue or announce the issuance or proposed issuance of, any Common Stock or Common Stock Equivalents, for an effective price less than $0.13 (subject to adjustment for forward and reverse stock splits, recapitalizations and the like) (for purposes of clarification, this Section 4.1(h) would not prohibit the Company from undertaking another transaction on prices, terms and conditions (other than conversion prices of Notes and exercise prices of Warrants of no less than $0.13 per share), either identical to or no less burdensome on the Company than the transactions contemplated under the Purchase Agreement) unless (i) such issuance results in net proceeds at least equal to the aggregate principal amount of the Notes then outstanding and (ii) the Company irrevocably offers to the Holder, upon at least three (3) Trading Days’ prior written notice, the right, in the Holder’s sole discretion, to be repaid directly out of the closing net proceeds of such issuance the up to the entire principal amount of this Note then outstanding, as elected by the Holder, in its sole discretion,  or

 

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

 

4.2 Definitions. 

 

For the purpose of this Note, the following definitions shall apply:

 

(a) “Permitted Indebtedness” means (i) the Indebtedness evidenced by the Notes, (ii) the Indebtedness existing on the Issue Date and set forth on Schedule 5.19 attached to the Purchase Agreement, (iii) unsecured Indebtedness incurred by the Company, which Indebtedness is not senior in rank to the Notes and does not mature prior to the Maturity Date, (iv) Indebtedness secured by Permitted Liens, and (v) extensions, refinancings and renewals of any items in clauses (i) through (iv) above, provided that the principal amount is not increased (other than with respect to the addition of existing or future interest due and payable thereunder to the principal thereunder) or the terms modified to impose materially more burdensome terms upon the Company or its Subsidiaries, as the case may be.

 

(b) “Permitted Lien” means the individual and collective reference to the following: (i) any Lien for taxes not yet due or delinquent or being contested in good faith by appropriate proceedings for which adequate reserves have been established in accordance with GAAP, (ii) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent, (iii) any Lien created by operation of law, such as materialmen's liens, mechanics' liens and other similar liens, arising in the ordinary course of business with respect to a liability that is not yet due or delinquent or that are being contested in good faith by appropriate proceedings, (iv) Liens (A) upon or in any equipment acquired or held by the Company or any of its Subsidiaries to secure the purchase price of such equipment or indebtedness incurred solely for the purpose of financing the acquisition or lease of such equipment, or (B) existing on such equipment at the time of its acquisition, provided that the Lien is confined solely to the property so acquired and improvements thereon, and the proceeds of such equipment, (v) Liens incurred in connection with the extension, renewal or refinancing of the indebtedness secured by Liens of the type described in clause (iv) above, provided that any extension, renewal or replacement Lien shall be limited to the property encumbered by the existing Lien and the principal amount of the Indebtedness being extended, renewed or refinanced does not increase, (vi) leases or subleases and licenses and sublicenses granted to others in the ordinary course of the Company's business, not interfering in any material respect with the business of the Company and its Subsidiaries taken as a whole, (vii) Liens in favor of customs and revenue authorities arising as a matter of law to secure payments of custom duties in connection with the importation of goods, (viii) Liens arising from judgments, decrees or attachments in circumstances not constituting an Event of Default, (ix) Liens incurred in connection with Permitted Indebtedness under clause (i) and, solely to the extent existing as of the Issue Date, clause (ii) of the definition thereof (including any extensions, refinancings and renewals of such Indebtedness that constitute Permitted Indebtedness).

 

  

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ARTICLE V

 

COMPANY OPTIONAL REDEMPTION RIGHT

 

5.1 Optional Redemption Right.

 

  Subject to the provisions of this Article V, at any time after the Effective Date, the Company may deliver a notice to the Holder (an “Optional Redemption Notice” and the date such notice is deemed delivered hereunder, the “Optional Redemption Notice Date”) of its irrevocable election to redeem some or all of the then outstanding principal amount of this Note for cash on the 20th Trading Day following the Optional Redemption Notice Date (such date, the “Optional Redemption Date”, such 20 Trading Day period, the “Optional Redemption Period” and such redemption, the “Optional Redemption”).  The Optional Redemption Amount is payable in full on the Optional Redemption Date.  The Company may only effect an Optional Redemption if each of the Equity Conditions (as defined below) shall have been met (unless waived in writing by the Holder) on each Trading Day during the period commencing on the Optional Redemption Notice Date through to the Optional Redemption Date and through and including the date payment of the Optional Redemption Amount is actually made in full.  If any of the Equity Conditions shall cease to be satisfied at any time during the Optional Redemption Period, then the Holder may elect to nullify the Optional Redemption Notice by notice to the Company within 3 Trading Days after the first day on which any such Equity Condition has not been met in which case the Optional Redemption Notice shall be null and void, abinitio.  The Company covenants and agrees that it will honor all Notices of Conversion tendered from the time of delivery of the Optional Redemption Notice through the date all amounts owing thereon are due and paid in full.  “Equity Conditions” means, during the period in question, (a) the Company shall have duly honored all conversions and redemptions scheduled to occur or occurring by virtue of one or more Notices of Conversion of the Holder, if any, (b) the Company shall have paid all liquidated damages and other amounts owing to the Holder in respect of this Note, (c)(i) there is an effective Registration Statement pursuant to which the Holder is permitted to utilize the prospectus thereunder to resell all of the Conversion Shares issuable upon conversion of such portion of this Note subject to an Optional Redemption (and the Company believes, in good faith, that such effectiveness will continue uninterrupted for such period) or (ii) all of the Conversion Shares issuable upon conversion of such portion of this Note subject to an Optional Redemption may be resold pursuant to Rule 144 during such period, (d) the Common Stock is trading on a Trading Market and all of the shares issuable pursuant to the Transaction Documents are listed or quoted for trading on such Trading Market (and the Company believes, in good faith, that trading of the Common Stock on a Trading Market will continue uninterrupted for the foreseeable future), (e) there is a sufficient number of authorized but unissued and otherwise unreserved shares of Common Stock for the issuance of all of the Conversion Shares issuable upon conversion of such portion of this Note and any other Notes being redeemed at such time, (f) there is no existing Event of Default and, to the actual knowledge of the Company, no existing event which, with the passage of time or the giving of notice, would constitute an Event of Default, (g) the issuance of the shares issuable to the Holder upon conversion of such portion of this Note subject to an Optional Redemption would not violate the limitations set forth in Section 2.3 under this Note, (h) there has been no public announcement of a pending or proposed Fundamental Transaction that has not been consummated or abandoned, (i) the applicable Holder is not in possession of any information provided by the Company that constitutes, or may constitute, material non-public information, (j) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the daily trading volume for the Common Stock on the principal Trading Market exceeds $100,000 per Trading Day and (k) for each Trading Day in a period of 20 consecutive Trading Days prior to the applicable date in question, the VWAP equals or exceeds $0.20 (subject to adjustment for forward and reverse stock splits, recapitalizations and the like).

 

  

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5.2 Right to Convert.  Notwithstanding the foregoing, the Holder may elect to convert the outstanding principal amount of the Note subject to an Optional Redemption Notice pursuant to Article II at any time prior to actual payment in cash for any redemption under this Section 6 by the delivery of an irrevocable Notice of Conversion to the Company.

 

ARTICLE VI

UNSECURED NOTE

 

6.1 Unsecured Note .  Note is an unsecured obligation of the Borrower.

 

ARTICLE VII

MISCELLANEOUS

 

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

 

7.2 Notices.  All notices, requests, demands, consents, instructions or other communications required or permitted hereunder shall be in writing and either faxed, mailed or delivered to each party at the respective addresses of the parties as set forth in the Purchase Agreement or at such other address or facsimile number as a party shall furnished to the other party in writing.  All such notices and communications shall be effective (a) when sent by Federal Express or other overnight service of recognized standing on the Trading Day following the deposit with such service; (b) when mailed, by registered or certified mail, first class postage prepaid and addressed as aforesaid through the United States Postal Service, upon receipt; (c) when delivered by hand, upon delivery; and/or (d) when faxed, upon confirmation of receipt.

 

 

  

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7.3 Amendment Provision.  No provision of this Note may be modified or amended without the prior written consent of holders of a majority of the principal amount of the Notes then outstanding and any amendment to any provision of any of the Notes made in conformity with the provisions of this Section 7.3 (and such corresponding provision set forth in such other Notes) shall be binding on all holders of Notes.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument as originally executed, or if later amended or supplemented, then as so amended or supplemented.

 

7.4 Assignability.  Note shall be binding upon the Borrower and its successors and assigns, and shall inure to the benefit of the Holder and its successors and assigns.

 

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

 

7.6 Governing Law.  Note shall be governed by and construed in accordance with the laws of the State of New York, including, but not limited to, New York statutes of limitations.  Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the civil or state courts of New York or in the federal courts located in the State and county of New York.  Both parties and the individual signing this Agreement on behalf of the Borrower agree to submit to the jurisdiction of such courts.  The prevailing party shall be entitled to recover from the other party its reasonable attorney’s fees and costs.  In the event that any provision of Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform to such statute or rule of law.  Any such provision, which may prove invalid or unenforceable under any law, shall not affect the validity or unenforceability of any other provision of Note.  Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Borrower in any other jurisdiction to collect on the Borrower’s obligations to Holder, or to enforce a judgment or other decision in favor of the Holder.  This Note shall be deemed an unconditional obligation of Borrower for the payment of money and, without limitation to any other remedies of Holder, may be enforced against Borrower by summary proceeding pursuant to New York Civil Procedure Law and Rules Section 3213 or any similar rule or statute in the jurisdiction where enforcement is sought.  For purposes of such rule or statute, any other document or agreement to which Holder and Borrower are parties or which Borrower delivered to Holder, which may be convenient or necessary to determine Holder’s rights hereunder or Borrower’s obligations to Holder are deemed a part of Note, whether or not such other document or agreement was delivered together herewith or was executed apart from Note.

 

  

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7.7 Construction.  Each party acknowledges that its legal counsel participated in the preparation of Note and, therefore, stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation of Note to favor any party against the other.

 

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

 

7.9 Non-Business Days.  Whenever any payment or any action to be made shall be due on a Saturday, Sunday or a public holiday under the laws of the State of New York, such payment may be due or action shall be required on the next succeeding Trading Day and, for such payment, such next succeeding day shall be included in the calculation of the amount of accrued interest payable on such date.

 

 

 

[SIGNATURES ON THE FOLLOWING PAGE]

 

  

  

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IN WITNESS WHEREOF, Borrower has caused Note to be signed in its name by an authorized officer as of the ___ day of October, 2011.

 

                ADVAXIS, INC.

                By: ____________________________________

                 Name: Thomas A. Moore

                 Title: Chairman/ CEO

WITNESS:

______________________________________

 

 

  

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NOTICE OF CONVERSION

 

(To be executed by the Registered Holder in order to convert the Note)

 

The undersigned hereby elects to convert $_________ of the principal amount and $_________ of the interest due, if any, on the Note issued by ADVAXIS, INC. on _____________, 2011 into shares of common stock of ADVAXIS, INC. (the “Borrower”) according to the conditions set forth in such Note, as of the date written below.

 

Date of Conversion: _____________________________________________________________

 

Conversion Price: _______________________________________________________________

 

Number of Shares of Common Stock Beneficially Owned on the Conversion Date: Less than 5% of the outstanding Common Stock: ___________________________________________

 

 

Shares to Be Delivered: _________________________________________________________

 

Notwithstanding anything to the contrary contained herein, this Conversion Notice shall constitute a representation by the Holder of the Note submitting this Conversion Notice that, after giving effect to the conversion provided for in this Conversion Notice, such Holder (together with its affiliates) will not have beneficial ownership (together with the beneficial ownership of such person's affiliates) of a number of shares Common Stock which exceeds the Maximum Percentage (as defined in the Note) of the total outstanding shares Common Stock of the Company as determined pursuant to the provisions of Section 2.3 of the Note.

 

Signature: _____________________________________________________________________

 

Print Name:   _________________________

 

Address:       _________________________

 

_________________________

 

 

  

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