Document:

exhibit102.htm

 

Exhibit 10.2

AMENDED AND RESTATED

 

PURCHASE AND CONTRIBUTION AGREEMENT

Dated as of October 10, 2013

Among

LEXMARK INTERNATIONAL, INC.

 

and

 

PERCEPTIVE SOFTWARE, LLC

as Sellers

and

LEXMARK RECEIVABLES CORPORATION

as Purchaser

                                                            

  

  

  

TABLE OF CONTENTS

 

Page

	 PRELIMINARY STATEMENTS	 1

 

	 Article I DEFINITIONS	 1

	 	 SECTION 1.01	 Certained Defined Terms	 1
	 	 SECTION 1.02	 Other Terms	 10

 

	 Article II AMOUNTS AND TERMS OF THE PURCHASES AND CONTRIBUTIONS	10

	 	 SECTION 2.01	 Facility	 10
	 	 SECTION 2.02	 Making Purchases	10
	 	 SECTION 2.03	 Collections	 11
	 	 SECTION 2.04	 Settlement Procedures	 12
	 	 SECTION 2.05	 Payments and Computations, Etc.	 12
	 	 SECTION 2.06	 Contributions	 13

 

	 Article III CONDITIONS OF PURCHASES	13

	 	 SECTION 3.01	 Conditions Precedent to Initial Purchase from Seller	13
	 	 SECTION 3.02	 Conditions Precedent to All Purchases	 14

 

	 Article IV REPRESENTATIONS AND WARRANTIES	 15

	 	 SECTION 4.01	 Representations and Warranties of the Sellers	15

 

	 Article V COVENANTS	 18

	 	 SECTION 5.01	 Covenants of the Seller	 18
	 	 SECTION 5.02	 Grant of Security Interest	 22
	 	 SECTION 5.03	 Covenant of the Sellers and the Purchaser	 22

 

	 Article VI ADMINISTRATION AND COLLECTION	 23

	 	 SECTION 6.01	 Designation of Collection Agent	23
	 	 SECTION 6.02	 Duties of Collection Agent	23
	 	 SECTION 6.03	 Collection Agent Fee	25
	 	 SECTION 6.04	 Certain Rights of the Purchaser	 25
	 	 SECTION 6.05	 Rights and Remedies	25
	 	 SECTION 6.06	 Transfer of Records to Purchaser	 26

 

	 Article VII EVENTS OF TERMINATION	 27

	 	 SECTION 7.01	 Events of Termination	27

 

	Article VIII INDEMNIFICATION	 29

	 	 SECTION 8.01	 Indemnities by the Sellers	29

 

	 Article IX MISCELLANEOUS	 31

	 	 SECTION 9.01	 Amendments, Etc.	31
	 	 SECTION 9.02	 Notices, Etc.	31
	 	 SECTION 9.03	 Binding Effect, Assignability	 31

 

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Page

 

	 	 SECTION 9.04	 Costs, Expenses and Taxes	32
	 	 SECTION 9.05	 No Proceedings	32
	 	 SECTION 9.06	 Confidentiality	32
	 	 SECTION 9.07	 GOVERNING LAW	 33
	 	 SECTION 9.08	 Third Party Beneficiary	33
	 	 SECTION 9.09	 Execution in Counterparts	33
	 	 SECTION 9.10	 Amendment and Restatement of Original Agreement	33

 

EXHIBITS

 

	 EXHIBIT A	 Credit and Collection Policy
	 EXHIBIT B	 Lock-Box Banks
	 EXHIBIT C	 Form of Promissory Note for Deferred Purchase Price
	 EXHIBIT D	 Form of Promissory Note for Purchaser Loans
	 EXHIBIT E	 Form of Monthly Report
	 EXHIBIT F	 Form of Weekly Report
	 EXHIBIT G	 Form of Daily Report

 

 

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AMENDED AND RESTATED

 

PURCHASE AND CONTRIBUTION AGREEMENT

 

 

Dated as of October 10, 2013

 

LEXMARK INTERNATIONAL, INC., a Delaware corporation (“Lexmark International”), PERCEPTIVE SOFTWARE, LLC, a Delaware limited liability company (“Perceptive” and together with Lexmark International, collectively, the “Sellers”, each individually, a “Seller”), and LEXMARK RECEIVABLES CORPORATION, a Delaware corporation (the “Purchaser”), agree as follows:

 

PRELIMINARY STATEMENTS.  (1) Certain terms which are capitalized and used throughout this Agreement (in addition to those defined above) are defined in Article I of this Agreement.

 

(2)           Each Seller has Receivables that it wishes to sell to the Purchaser, and the Purchaser is prepared to purchase such Receivables on the terms set forth herein.

 

(3)           Lexmark International may also wish to contribute Receivables to the capital of the Purchaser on the terms set forth herein.

 

(4)           Lexmark International and the Purchaser are parties to a Purchase and Contribution Agreement, dated as of October 22, 2001, as heretofore amended (as so amended, the “Original Agreement”), pursuant to which, on the terms and subject to the conditions set forth therein, Lexmark International has sold Receivables to Purchaser and contributed Receivables to the capital of the Purchaser.

 

(5)           The parties hereto wish to amend and restate the Original Agreement in its entirety.

 

NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto agree that the Original Agreement shall be amended and restated in its entirety as follows:

 

 

ARTICLE I

 

DEFINITIONS

 

SECTION 1.01. Certain Defined Terms.  As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

 

“Adverse Claim” means a lien, security interest, or other charge or encumbrance, or any other type of preferential arrangement.

 

“Affiliate” means, as to any Person, any other Person that, directly or indirectly, is in control of, is controlled by or is under common control with such Person or is a director or officer of such Person.

 

  

  

  

 

“Alternate Base Rate” means, on any date, a fluctuating rate of interest per annum equal to the higher of:

 

(a)  the rate of interest most recently announced by The Bank of Tokyo-Mitsubishi UFJ, Ltd. in New York, New York as its Prime Rate; or

 

(b)  the Federal Funds Rate most recently determined by BTMU, plus 1.00%.

 

The Alternate Base Rate is not necessarily intended to be the lowest rate of interest determined by The Bank of Tokyo-Mitsubishi UFJ, Ltd. or BTMU in connection with extensions of credit.

 

“BTMU” means The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, a Japanese banking corporation acting through its New York Branch.

 

“Business Day” means any day on which banks are not authorized or required to close in New York City.

 

“Cash Control Triggering Event” has the meaning set forth in the Sale Agreement.

 

“Code” means the Internal Revenue Code of 1986, as amended from time to time.

 

“Collection Agent” means at any time the Person then authorized pursuant to Section 6.01 to service, administer and collect Transferred Receivables.

 

“Collection Agent Default” has the meaning set forth in the Sale Agreement.

 

“Collection Agent Fee” has the meaning specified in Section 6.03.

 

“Collections” means, with respect to any Receivable, all cash collections and other cash proceeds of such Receivable, including, without limitation, all cash proceeds of Related Security with respect to such Receivable, and any Collections of such Receivable deemed to have been received pursuant to Section 2.04.

 

“Contract” means an agreement between a Seller and an Obligor, substantially in the form of one of the written contracts or (in the case of any open account agreement) one of the invoices approved by the Purchaser, pursuant to or under which such Obligor shall be obligated to pay for merchandise, insurance or services from time to time.

 

“Contributed Receivable” has the meaning specified in Section 2.06.

 

“Credit and Collection Policy” means those receivables credit and collection policies and practices of the Sellers in effect on the date of this Agreement and described in Exhibit A hereto, as modified in compliance with this Agreement.

 

“Credit Facility” means the Credit Agreement, dated as of January 18, 2012, by and among Lexmark International as borrower, the lenders party thereto, JPMorgan

 

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Chase Bank, N.A., as Administrative Agent, Citibank, N.A., as Syndication Agent, and SunTrust Bank and BTMU, as Co-Documentation Agents, as amended, restated, modified or supplemented from time to time, and all agreements, documents and instruments executed in connection therewith together with any replacement facility or refinancing thereof entered into by Lexmark International.

 

“Daily Report” means a report in substantially the form of Exhibit G hereto and containing such additional information as the Purchaser may reasonably request from time to time, furnished by the Collection Agent to the Purchaser pursuant to Section 6.02(b)(iii) following the occurrence of a Level II Downgrade Event.

 

“Debt” means (i) indebtedness for borrowed money, (ii) obligations evidenced by bonds, debentures, notes or other similar instruments, (iii) obligations to pay the deferred purchase price of property or services (but excluding trade accounts payable or accrued liabilities arising in the ordinary course of business consistent with past practices), (iv) obligations as lessee under leases which shall have been or should be, in accordance with GAAP, recorded as capital leases, and (v) obligations under direct or indirect guaranties in respect of, and obligations (contingent or otherwise) to purchase or otherwise acquire, or otherwise to assure a creditor against loss in respect of, indebtedness or obligations of others of the kinds referred to in clauses (i) through (iv) above.

 

“Debt Rating” for any Person, means the rating by S&P or Moody’s of such Person’s long-term public senior unsecured non-credit-enhanced debt.

 

“Defaulted Receivable” means a Receivable:

 

(i)       as to which any payment, or part thereof, remains unpaid for 91 or more days from the original due date for such payment;

 

(ii)  as to which the Obligor thereof or any other Person obligated thereon or owning any Related Security in respect thereof has taken any action, or suffered any event to occur, of the type described in Section 7.01(g); or

 

(iii)     which, consistent with the Credit and Collection Policy, would be written off the applicable Seller’s books as uncollectible.

 

“Deferred Purchase Price” means the portion of the Purchase Price of Purchased Receivables purchased on any Purchase Date from a Seller exceeding the amount of the Purchase Price under Section 2.02 to be paid in cash to such Seller, which portion when added to the cumulative amount of all previous Deferred Purchase Prices for the Sellers (after giving effect to any payments made on account thereof) shall not exceed 40% of the Outstanding Balance of the Transferred Receivables at such time.  The obligations of the Purchaser in respect of the Deferred Purchase Price shall be evidenced by the Purchaser’s subordinated promissory note to each Seller in the form of Exhibit C hereto.

 

“Designated Obligor” means, at any time, each Obligor; provided, however, that any Obligor shall cease to be a Designated Obligor upon three Business Days’ notice by the Purchaser to the Sellers.

 

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“Dilution” means, with respect to any Receivable, any reductions, adjustments or cancellation in the Outstanding Balance of such Receivable as a result of any defective, rejected, or returned merchandise or services or failure by the applicable Seller to deliver any merchandise or provide any services or otherwise to perform under the underlying Contract or invoice, any change in the terms of or cancellation of a Contract or invoice, or any cash discount, discount for quick payment or other adjustment or setoff.

 

“Discount” means, in respect of each Purchase, 0.34% of the Outstanding Balance of the Receivables that are the subject of such Purchase; provided, however, the foregoing Discount may be revised prospectively by request of either of the parties hereto to reflect changes in recent experience with respect to write-offs, timing and cost of Collections and cost of funds, provided that such revision is consented to by each of the parties (it being understood that each party agrees to duly consider such request but shall have no obligation to give such consent).

 

“Eligible Receivable” means a Receivable:

 

(i)       the Obligor of which is a United States resident (and shall include without limitation, Government Obligors, state and local governments of jurisdictions located in the United States, or any agency or subdivision thereof) and is not an Affiliate of any of the parties hereto;

 

(ii)      the Obligor of which, at the later of the date of this Agreement and the date such Receivable is created, is a Designated Obligor;

 

(iii)     which is not a Defaulted Receivable and the Obligor of which is not the Obligor of any Defaulted Receivables which in the aggregate constitute 25% or more of the aggregate Outstanding Balance of all Receivables of such Obligor;

 

(iv)     which, according to the Contract related thereto, is required to be paid in full within 90 days of the original billing date therefor;

 

(v)      which is an obligation representing all or part of the sales price of merchandise, insurance or services within the meaning of Section 3(c)(5) of the Investment Company Act of 1940, as amended, and the nature of which is such that its purchase with the proceeds of notes would constitute a “current transaction” within the meaning of Section 3(a)(3) of the Securities Act of 1933, as amended;

 

(vi)      which is an “account” within the meaning of Article 9 of the UCC of the applicable jurisdictions;

 

(vii)     which is denominated and payable only in United States dollars in the United States;

 

(viii)    which arises under a Contract which, together with such Receivable, is in full force and effect and constitutes the legal, valid and binding obligation of the Obligor of such Receivable and is not subject to any Adverse

 

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Claim or any dispute, offset, counterclaim or defense whatsoever (except the potential discharge in bankruptcy of such Obligor);

 

(ix)     which, together with the Contract related thereto, does not contravene in any material respect any laws, rules or regulations applicable thereto (including, without limitation, laws, rules and regulations relating to usury, consumer protection, truth in lending, fair credit billing, fair credit reporting, equal credit opportunity, fair debt collection practices and privacy) and with respect to which no party to the Contract related thereto or the Collection Agent is in violation of any such law, rule or regulation in any material respect;

 

(x)       Intentionally omitted;

 

(xi)      which was generated in the ordinary course of the applicable Seller’s business;

 

(xii)     which has not been extended, rewritten or otherwise modified from the original terms thereof (except as permitted by Section 6.02(c));

 

(xiii)    the transfer, sale or assignment of which does not contravene any applicable law, rule or regulation; and

 

(xiv)    which satisfies all applicable requirements of the Credit and Collection Policy.

 

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations promulgated and rulings issued thereunder.

 

“ERISA Affiliate” means any trade or business (whether or not incorporated) that, together with the applicable Seller, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.

 

“ERISA Event” means (a) any “reportable event”, as defined in Section 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an “accumulated funding deficiency” (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by a Seller or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by a Seller or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by a Seller or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal form any Plan or Multiemployer Plan; or (g) the receipt by a Seller or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from a Seller or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a 

 

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Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.

 

“Event of Termination” has the meaning specified in Section 7.01.

 

“Excluded Receivable Account Debtor”  means each Person listed in a side letter among the Purchaser, the Collection Agent, the Program Agent (as defined in the Sale Agreement) and each Investor Agent (as defined in the Sale Agreement), as such side letter may be amended from time to time in accordance with the Sale Agreement.

 

“Excluded Receivables” means the indebtedness of (i) an Excluded Receivable Account Debtor, (ii) any Obligor located outside of the fifty states of the United States and the District of Columbia, but solely to the extent such indebtedness arises from goods having a final destination or services rendered exclusively outside of the fifty states of the United States and the District of Columbia and (iii) any Obligor of the managed print services business of a Seller, resulting from a capital lease or other lease of merchandise, any services or insurance in connection with, or otherwise related to, a capital lease or other lease, in each case resulting from the provision or sale of merchandise, insurance or services by a Seller under a Contract.

 

“Facility” means the willingness of the Purchaser to consider making Purchases of Receivables from the Sellers from time to time pursuant to the terms of this Agreement.

 

“Facility Termination Date” means the earliest of (i) the “Facility Termination Date” (as defined in the Sale Agreement), (ii) the date of termination of the Facility pursuant to Section 7.01, (iii) the date which the Sellers designate by at least two Business Days’ notice to the Purchaser, and (iv) the Commitment Termination Date (as defined in the Sale Agreement).

 

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal (for each day during such period) to:

 

(a)       the weighted average of the rates on overnight federal funds transactions with members of the Federal Reserve System arranged by federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York; or

 

(b)       if such rate is not so published for any day which is a Business Day, the average of the quotations for such day on such transactions received by BTMU from three federal funds brokers of recognized standing selected by it.

 

“GAAP” means generally accepted accounting principles in the United States of America.

 

“General Trial Balance” of a Seller on any date means such Seller’s accounts receivable trial balance (whether in the form of a computer printout, magnetic tape or diskette) on such date, listing Obligors and the Receivables respectively owed by such 

 

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Obligors on such date together with the aged Outstanding Balances of such Receivables, in form and substance satisfactory to the Purchaser.

 

“Government Obligor” means an Obligor which is the federal government of the United States of America or a subdivision or agency thereof.

 

“Incipient Event of Termination” means an event that but for notice or lapse of time or both would constitute an Event of Termination.

 

“Indemnified Amounts” has the meaning specified in Section 8.01.

 

“Level I Downgrade Event” means the Debt Rating of Lexmark International is rated lower than BBB- by S&P or lower than Baa3 by Moody’s (and includes each Level II Downgrade Event).

 

“Level II Downgrade Event” means the Debt Rating of Lexmark International is rated lower than BB by S&P or lower than Ba2 by Moody’s.

 

“Lock-Box Account” means a post office box administered by a Lock-Box Bank or an account maintained at a Lock-Box Bank for the purpose of receiving Collections.

 

“Lock-Box Agreement” means an agreement among one or more of the Sellers, the Purchaser (and/or its assignees and designees) and a Lock-Box Bank, in form and substance satisfactory to the Purchaser (or its assignees or designees), granting control over each Lock-Box Account to the Purchaser (or its assignees or designees).

 

“Lock-Box Bank” means any of the banks holding one or more Lock-Box Accounts.

 

“Monthly Report” means a report in substantially the form of Exhibit E hereto and containing such additional information as the Purchaser may reasonably request from time to time, furnished by the Collection Agent to the Purchaser pursuant to Section 6.02(b)(i).

 

“Multiemployer Plan” means a Multiemployer plan as defined in Section 4001(a)(3) of ERISA.

 

“Obligor” means a Person obligated to make payments to a Seller pursuant to a Contract.

 

“Outstanding Balance” of any Receivable at any time means the then outstanding principal balance thereof.

 

“PBGC” means the Pension Benefit Guaranty Corporation referred to and defined in ERISA and any successor entity performing similar functions.

 

“Person” means an individual, partnership, corporation (including a business trust), limited liability company, joint stock company, trust, unincorporated association, 

 

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joint venture or other entity, or a government or any political subdivision or agency thereof.

 

“Plan” means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which a Seller or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 or ERISA be deemed to be) an “employer” as defined in Section 3(5) of ERISA.

 

“Purchase” means a purchase by the Purchaser of Receivables from a Seller pursuant to Article II.

 

“Purchase Date” means each day on which a Purchase is made pursuant to Article II.

 

“Purchase Price” for any Purchase means an amount equal to the Outstanding Balance of the Receivables that are the subject of such Purchase as set forth in the applicable Seller’s General Trial Balance, minus the Discount for such Purchase.

 

“Purchased Receivable” means any Receivable which is purchased by the Purchaser pursuant to Section 2.02.

 

“Purchaser Loan” means any loan made by the Purchaser, at its option, to a Seller, upon such Seller’s request, provided that (a) the aggregate principal amount at any one time outstanding of all Purchaser Loans made to all Sellers shall not exceed $20,000,000, (b) the aggregate principal amount at any one time outstanding of all Purchaser Loans made to Perceptive shall not exceed $5,000,000, and (c) no such Purchaser Loans may be made if an Event of Termination or an Incipient Event of Termination has occurred and is continuing, or would occur after giving effect thereto, or if any amounts are outstanding under the Deferred Purchase Price.  Purchaser Loans made by the Purchaser hereunder shall be evidenced by the promissory note of the applicable Seller in substantially the form of Exhibit D hereto.

 

“Receivable” means the indebtedness of any Obligor under a Contract (other than Excluded Receivables), and includes the right to payment of any interest or finance charges and other obligations of such Obligor with respect thereto.

 

“Receivable Interest” has the meaning set forth in the Sale Agreement.

 

“Receivables Purchase Request” has the meaning specified in Section 2.02(a).

 

“Related Security” means with respect to any Receivable:

 

(i)  all of the applicable Seller’s interest in any merchandise (including returned merchandise) relating to any sale giving rise to such Receivable;

 

(ii)     all security interests or liens and property subject thereto from time to time purporting to secure payment of such Receivable, whether pursuant to the Contract related to such Receivable or otherwise, together with all financing 

 

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statements filed against an Obligor describing any collateral securing such Receivable;

 

(iii)    all guaranties, insurance and other agreements or arrangements of whatever character from time to time supporting or securing payment of such Receivable whether pursuant to the Contract related to such Receivable or otherwise; and

 

(iv)    the Contract and all other books, records and other information (including, without limitation, computer programs, tapes, discs, punch cards, data processing software and related property and rights) relating to such Receivable and the related Obligor.

 

“Responsible Financial Officer” means, for any Person, its chief financial officer, controller, treasurer or assistant treasurer.

 

“Sale Agreement” means that certain Second Amended and Restated Receivables Purchase Agreement, dated as of the date of this Agreement, among the Purchaser, as seller, Gotham Funding Corporation, as the investor, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch and Fifth Third Bank, as banks, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch and Fifth Third Bank, as investor agents, The Bank of Tokyo-Mitsubishi UFJ, Ltd., New York Branch, as program agent, Lexmark International, as collection agent, and Lexmark International and Perceptive, as originators, as amended, modified or restated from time to time.

 

“Sale Agreement Final Payment Date” means the later of the Facility Termination Date and the date on which all Capital, Yield and other amounts payable under the Sale Agreement are paid in full.

 

“Seller Report” means a Monthly Report, a Weekly Report or a Daily Report.

 

“Settlement Date” means the fifteenth day of each month (or if such day is not a Business Day, the immediately succeeding Business Day); provided, however, that following the occurrence of an Event of Termination, Settlement Dates shall occur on such days as are selected from time to time by the Purchaser or its designee in a written notice to the Collection Agent.

 

“Transferred Receivable” means a Purchased Receivable or a Contributed Receivable.

 

“UCC” means the Uniform Commercial Code as from time to time in effect in the specified jurisdiction.

 

“Week” means each calendar week beginning on Monday and ending on (and including) the following Sunday.

 

“Weekly Report” means a report in substantially the form of Exhibit F hereto and containing such additional information as the Purchaser may reasonably request from 

 

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time to time, furnished by the Collection Agent to the Purchaser pursuant to Section 6.02(b)(ii).

 

“Withdrawal Liability” means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

 

SECTION 1.02.  Other Terms. (a)  All accounting terms not specifically defined herein shall be construed in accordance with GAAP.

 

(b)  All terms used in Article 9 of the UCC in the State of New York, and not specifically defined herein, are used herein as defined in such Article 9.

 

(c)       A reference to an “Article,” “Section” or “Subsection” without further reference to a specific article or section number is a reference to the same Article, Section or Subsection in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions.

 

(d)       A reference to a Subsection without further reference to a Section is a reference to such Subsection as  contained in the same Section in which the reference appears, and this rule shall also apply to paragraphs and other subdivisions.

 

(e)       The words “herein,” “hereof,” “hereunder” and other words of similar import refer to this Agreement as a whole and not to any particular provision.

 

(f)        The term “include” or “including” shall mean without limitation by reason of enumeration.

 

 

ARTICLE II

 

AMOUNTS AND TERMS OF PURCHASES AND CONTRIBUTIONS

 

SECTION 2.01.  Facility.  On the terms and conditions hereinafter set forth and without recourse to the Sellers (except to the extent specifically provided herein), each Seller may at its option sell or (in the case of Lexmark International) contribute to the Purchaser all Receivables originated by it from time to time and the Purchaser may at its option purchase or accept as a contribution from each such Seller all Receivables of such Seller from time to time, in each case during the period from the date hereof to the Facility Termination Date.

 

SECTION 2.02.  Making Purchases

 

(a)       Initial Purchase.  The Sellers shall give the Purchaser at least one Business Day’s notice of their request for the initial Purchase hereunder, which request shall specify the date of such Purchase (which shall be a Business Day) and the proposed Purchase Price for such Purchase.  The Purchaser shall promptly notify the Sellers whether it has determined to make such Purchase.  On the date of such Purchase, the Purchaser shall, upon satisfaction of the applicable conditions set forth in Article III, pay the Purchase Price for such Purchase in the manner provided in Section 2.02(c).

 

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(b)       Subsequent Purchases.  On each Business Day following the initial Purchase, unless either party shall notify the other parties to the contrary, each Seller shall sell to the Purchaser and the Purchaser shall purchase from such Seller, upon satisfaction of the applicable conditions set forth in Article III, all Receivables originated by such Seller which have not previously been sold or contributed to the Purchaser; provided, however, that Lexmark International may, at its option on any Purchase Date, contribute all or any of such Receivables to the Purchaser pursuant to Section 2.06, instead of selling such Receivables to the Purchaser pursuant to this Section 2.02(b).  On or within five Business Days after the date of each such Purchase, the Purchaser shall pay the Purchase Price for such Purchase in the manner provided in Section 2.02(c).

 

(c)       Payment of Purchase Price.  The Purchase Price for each Purchase shall be paid on or within five Business Days after the Purchase Date therefor by means of any one or a combination of the following: (i) a deposit in same day funds to the applicable Seller’s account designated by such Seller, (ii) an increase in the Deferred Purchase Price payable to the applicable Seller (subject at all times to the limitations contained in the definition thereof), or (iii) a credit against interest and/or principal owed by the applicable Seller with respect to any Purchaser Loan owing from such Seller.  The allocation of the Purchase Price as among such methods of payment shall be subject in each instance to the approval of the Purchaser and the applicable Seller.

 

(d)       Ownership of Receivables and Related Security.  On each Purchase Date, after giving effect to the Purchase (and any contribution of Receivables) on such date, the Purchaser shall own all Receivables originated by the Sellers as of such date (including Receivables which have been previously sold or contributed to the Purchaser hereunder).  The Purchase or contribution of any Receivable shall include all Related Security with respect to such Receivable.

 

SECTION 2.03.  Collections.  (a)  The Collection Agent shall, on each Settlement Date, deposit into an account of the Purchaser or the Purchaser’s assignee all Collections of Transferred Receivables then held by the Collection Agent.

 

(b)        In the event that a Seller believes that Collections which are not Collections of Transferred Receivables have been deposited into an account of the Purchaser or the Purchaser’s assignee, such Seller shall so advise the Purchaser and, on the Business Day following such identification, the Purchaser shall remit, or shall cause to be remitted, all Collections so deposited which are identified, to the Purchaser’s satisfaction, to be Collections of Receivables which are not Transferred Receivables to such Seller.

 

(c)        On each Settlement Date, the Purchaser shall pay to the applicable Seller accrued interest on the Deferred Purchase Price of such Seller and the Purchaser may, at its option, prepay in whole or in part the principal amount of the Deferred Purchase Price of any Seller; provided that each such payment shall be made solely from (i) Collections of Transferred Receivables after all other amounts then due from the Purchaser under the Sale Agreement have been paid in full and all amounts then required to be set aside by the Purchaser or the Collection Agent under the Sale Agreement have been so set aside or (ii) excess cash flow from operations of the Purchaser which is not required to be applied to the payment of other obligations of the Purchaser; and provided further, that no such payment shall be made at any time when an Event 

 

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of Termination shall have occurred and be continuing.  Following the Sale Agreement Final Payment Date, the Purchaser shall apply, on each Settlement Date, all Collections of Transferred Receivables received by the Purchaser pursuant to Section 2.03(a) (and not previously distributed) first to the payment of accrued interest on the Deferred Purchase Price, and then to the reduction of the principal amount of the Deferred Purchase Price of each Seller.

 

SECTION 2.04.  Settlement Procedures.  (a)  If on any day the Outstanding Balance of any Purchased Receivable is reduced or adjusted as a result of any defective, rejected or returned merchandise or services or any cash discount, discount for quick payment or other adjustment made by any Seller, or any set-off or dispute in respect of any claim by the Obligor thereof against any Seller (whether such claim arises out of the same or a related transaction or an unrelated transaction but excluding adjustments, reductions or cancellations in respect of such Obligor’s bankruptcy), such Seller shall be deemed to have received on such day a Collection of such Purchased Receivable in the amount of such reduction or adjustment.  If such Seller is not the Collection Agent, such Seller shall pay to the Collection Agent on or prior to the next Settlement Date all amounts deemed to have been received pursuant to this subsection.

 

(b)        Upon discovery by a Seller or the Purchaser of a breach of any of the representations and warranties made by such Seller in Section 4.01(j) with respect to any Transferred Receivable, such party shall give prompt written notice thereof to the other parties, as soon as practicable and in any event within three Business Days following such discovery.  The applicable Seller shall, upon not less than two Business Days’ notice from the Purchaser or its assignee or designee, repurchase such Transferred Receivable on the next succeeding Settlement Date for a repurchase price equal to the Outstanding Balance of such Transferred Receivable.  Each repurchase of a Transferred Receivable shall include the Related Security with respect to such Transferred Receivable.  The proceeds of any such repurchase shall be deemed to be a Collection in respect of such Transferred Receivable.  If the applicable Seller is not the Collection Agent, such Seller shall pay to the Collection Agent on or prior to the next Settlement Date the repurchase price required to be paid pursuant to this subsection.

 

(c)         Except as stated in subsection (a) or (b) of this Section 2.04 or as otherwise required by law or the underlying Contract, all Collections received from an Obligor of any Transferred Receivable shall be applied to the Receivables of such Obligor in the order of the age of such Receivables, starting with the oldest such Receivable, unless such Obligor designates its payment for application to specific Receivables.

 

SECTION 2.05.  Payments and Computations, Etc. (a)  All amounts to be paid or deposited by a Seller or the Collection Agent hereunder shall be paid or deposited no later than 12:00 noon (New York City time) on the day when due in same day funds to an account or accounts designated by the Purchaser from time to time, which accounts, during the existence of the Sale Agreement, shall be those set forth in the Sale Agreement, provided, that all amounts to be deposited into the Cash Collateral Account (as defined in the Sale Agreement) shall be deposited no later than 12:00 noon (New York City time) on the date when due, and in any event such amounts shall be deposited into the Cash Collateral Account prior to any withdrawal from a Lock-Box Account (other than to directly fund a deposit into the Cash Collateral Account).

 

(b)         Each Seller shall, to the extent permitted by law, pay to the Purchaser interest on any amount not paid or deposited by such Seller (whether as Collection Agent or 

 

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otherwise) when due hereunder at an interest rate per annum equal to 2.00% per annum above the Alternate Base Rate, payable on demand.

 

(c)         All computations of interest and all computations of fees hereunder shall be made on the basis of a year of 360 days for the actual number of days (including the first but excluding the last day) elapsed.  Whenever any payment or deposit to be made hereunder shall be due on a day other than a Business Day, such payment or deposit shall be made on the next succeeding Business Day and such extension of time shall be included in the computation of such payment or deposit.

 

SECTION 2.06.  Contributions.  Lexmark International may from time to time at its option, by notice to the Purchaser on or prior to the date of the proposed contribution, identify Receivables which it proposes to contribute to the Purchaser as a capital contribution.  On the date of each such contribution and after giving effect thereto, the Purchaser shall own the Receivables so identified and contributed (collectively, the “Contributed Receivables”) and all Related Security with respect thereto.  The foregoing notwithstanding, on the date of the initial Purchase hereunder Lexmark International agrees to contribute to the Purchaser all Receivables which are not included in such initial Purchase from Lexmark International.

 

 

ARTICLE III

 

CONDITIONS OF PURCHASES

 

SECTION 3.01.  Conditions Precedent to Initial Purchase from the Sellers.  The initial Purchase of Receivables from the Sellers hereunder is subject to the conditions precedent that the Purchaser shall have received on or before the date of such Purchase the following, each (unless otherwise indicated) dated such date, in form and substance satisfactory to the Purchaser:

 

(a)        Certified copies of the resolutions of the Board of Directors (or similar governing body, as applicable) of each Seller approving this Agreement and certified copies of all documents evidencing other necessary corporate or limited liability company, as applicable, action and governmental approvals, if any, with respect to this Agreement.

 

(b)        A certificate of the Secretary or Assistant Secretary of each Seller certifying the names and true signatures of the officers of such Seller authorized to sign this Agreement and the other documents to be delivered by it hereunder.

 

(c)        Acknowledgment copies or time stamped receipt copies of proper financing statements, duly filed on or before the date of the initial Purchase, naming each Seller as the seller/debtor and the Purchaser as the purchaser/secured party, or other similar instruments or documents, as the Purchaser may deem necessary or desirable under the UCC of all appropriate jurisdictions or other applicable law to perfect the Purchaser’s ownership of and security interest in the Transferred Receivables and Related Security and Collections with respect thereto.

 

(d)        Acknowledgment copies or time stamped receipt copies of proper financing statements, if any, necessary to release all security interests and other rights of 

 

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any Person in the Transferred Receivables, Contracts or Related Security previously granted by any Seller (other than those in favor of the Purchaser).

 

(e)         Completed requests for information, dated on or before the date of such initial Purchase, listing the financing statements referred to in subsection (c) above and all other effective financing statements filed in the jurisdictions referred to in subsection (c) above that name any Seller as debtor, together with copies of such other financing statements (none of which shall cover any Transferred Receivables, Contracts or Related Security).

 

(f)         A favorable opinion of Thompson Hines LLP, counsel for the Sellers, as to such matters as the Purchaser may reasonably request.

 

(g)        Evidence satisfactory to the Purchaser that each Lock-Box Account shall be under the exclusive ownership and control of the Purchaser (or its assignees or designees) and subject to a Lock-Box Agreement.

 

SECTION 3.02. Conditions Precedent to All Purchases.  Each Purchase (including the initial Purchase) hereunder shall be subject to the further conditions precedent that:

 

(a)        with respect to any such Purchase, on or prior to the date of such Purchase, each applicable Seller shall have delivered to the Purchaser, (i) if requested by the Purchaser, such Seller’s General Trial Balance (which if in magnetic tape or diskette format shall be compatible with the Purchaser’s computer equipment) as of a date not more than 31 days prior to the date of such Purchase, and (ii) a written report identifying, among other things, the Receivables to be included in such Purchase and such additional information concerning such Receivables as may reasonably be requested by the Purchaser;

 

(b)        with respect to any such Purchase, the Collection Agent shall have delivered to the Purchaser at least one Business Day prior to such purchase (in the case of a Monthly Report or a Weekly Report) and on the same day of (but prior to) such purchase (in the case of a Daily Report), in form and substance satisfactory to the Purchaser, a completed Monthly Report or, if required by Section 6.02(g)(ii) a completed Weekly Report or if required by Section 6.02(g)(iii) a completed Daily Report, containing information covering the most recently ended reporting period for which information is required pursuant to Section 6.02(g)(i), (ii) or (iii), as the case may be and containing such additional information as may reasonably be requested by the Purchaser;

 

(c)        the applicable Seller shall have marked its master data processing records and, at the request of the Purchaser, each Contract giving rise to Purchased Receivables and all other relevant records evidencing the Receivables which are the subject of such Purchase with a legend, acceptable to the Purchaser, stating that such Receivables, the Related Security and Collections with respect thereto, have been sold in accordance with this Agreement; and

 

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(d)       on the date of such Purchase the following statements shall be true (and the applicable Seller, by accepting the Purchase Price for such Purchase, shall be deemed to have certified that):

 

(i)        The representations and warranties contained in Section 4.01 are correct on and as of the date of such Purchase as though made on and as of such date,

 

(ii)        No event has occurred and is continuing, or would result from such Purchase, that constitutes an Event of Termination or an Incipient Event of Termination and

 

(iii)       The Purchaser shall not have delivered to the Sellers a notice that the Purchaser shall not make any further Purchases hereunder; and

 

(e)        the Purchaser shall have received such other approvals, opinions or documents as the Purchaser may reasonably request.

 

Notwithstanding the foregoing conditions precedent in clauses (i) and (ii) of Section 3.02(d), upon payment of the Purchase Price for any Receivable (whether by payment of cash, through an increase in the Deferred Purchase Price, credit with respect to a Purchaser Loan or by capital contribution), title to such Receivable and the Related Security with respect thereto shall vest in the Purchaser, whether or not such conditions precedent to the Purchase were in fact satisfied.  If any of the foregoing conditions precedent are not satisfied, the Purchaser shall have available to it (and shall not be deemed to have waived by reason of completing such Purchase) all applicable rights and remedies under Sections 2.04, 7.01 and 8.01 and otherwise.

 

 

ARTICLE IV

 

REPRESENTATIONS AND WARRANTIES

 

SECTION 4.01. Representations and Warranties of the Sellers.  Each Seller represents and warrants as follows:

 

(a)          Such Seller is a corporation or limited liability company, as applicable, duly incorporated or formed, respectively, and validly existing under the laws of Delaware, and is duly qualified to do business, and is in good standing, in every jurisdiction where the nature of its business requires it to be so qualified (including without limitation, the State of Delaware) except to the extent that the failure so to be so qualified would not reasonably be expected to materially adversely affect the collectibility of the Transferred Receivables or the ability of such Seller to perform its obligations under this Agreement.

 

(b)          The execution, delivery and performance by such Seller of this Agreement and the other documents to be delivered by it hereunder, including such Seller’s sale and (in the case of Lexmark International) contribution of Receivables hereunder and such Seller’s use of the proceeds of Purchases, (i) are within such Seller’s corporate or limited liability company, as applicable, powers, (ii) have been duly authorized by all necessary 

 

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corporate or limited liability company, as applicable, action, (iii) do not contravene (1) such Seller’s charter or by-laws or operating agreement, as applicable, (2) any law, rule or regulation applicable to such Seller, (3) any contractual restriction binding on or affecting such Seller or its property or (4) any order, writ, judgment, award, injunction or decree binding on or affecting such Seller or its property, and (iv) do not result in or require the creation of any lien, security interest or other charge or encumbrance upon or with respect to any of its properties (except for the transfer of such Seller’s interest in the Transferred Receivables pursuant to this Agreement).  This Agreement has been duly executed and delivered by such Seller.

 

(c)           No authorization or approval or other action by, and no notice to or filing with, any governmental authority or regulatory body is required for the due execution, delivery and performance by such Seller of this Agreement or any other document to be delivered by it hereunder, or to ensure that the Purchaser will have an undivided ownership interest in and to the Receivables, the Related Security and the Collections which is perfected and prior to all other Adverse Claims, except for the filing of UCC financing statements which are referred to herein (including, without limitation, the filing of releases of UCC financing statements described in Section 3.01(d) hereof and Section 3.01(d) of the Sale Agreement).

 

(d)           This Agreement constitutes the legal, valid and binding obligation of such Seller enforceable against such Seller in accordance with its terms.

 

(e)           Sales and contributions made pursuant to this Agreement will constitute a valid sale, transfer, and assignment of the Transferred Receivables to the Purchaser, enforceable against creditors of, and purchasers from, such Seller.  Such Seller shall have no remaining property interest in any Transferred Receivable.

 

(f)            The balance sheets of Lexmark International and its subsidiaries as at December 31, 2012, and the related statements of income and retained earnings of Lexmark International and its subsidiaries for the fiscal year then ended, copies of which have been furnished to the Purchaser, and the balance sheets of Lexmark International and its subsidiaries as at June 30, 2013, copies of which have been furnished to the Purchaser, in each case, fairly present the financial condition of Lexmark International and its subsidiaries as at such date and the results of the operations of Lexmark International and its subsidiaries for the period ended on such date, all in accordance with GAAP consistently applied, and since June 30, 2013 there has been no material adverse change in the business, operations, property or financial or other condition of any Seller.

 

(g)           There is no pending or threatened action or proceeding affecting such Seller or any of its subsidiaries before any court, governmental agency or arbitrator which may materially adversely affect the financial condition or operations of such Seller or any of its subsidiaries or the ability of any Seller to perform its obligations under this Agreement, or which purports to affect the legality, validity or enforceability of this Agreement; neither such Seller nor any of its subsidiaries is in default with respect to any order of any court, arbitration or governmental body except for defaults with respect to orders of governmental agencies which defaults are not material to the business or operations of Lexmark International and its Subsidiaries, taken as a whole.

 

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(h)           The use of all funds acquired by such Seller under this Agreement will not conflict with or contravene any of Regulations T, U and X of the Board of Governors of the Federal Reserve System as the same may from time to time be amended, supplemented or otherwise modified.

 

(i)            No transaction contemplated hereby requires compliance with any bulk sales act or similar law.

 

(j)            Each Receivable purported to be sold or contributed, as applicable, by such Seller hereunder is an Eligible Receivable, and each such Receivable and each Transferred Receivable, together with the Related Security, is owned (immediately prior to its sale or contribution hereunder) by such Seller free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser).  When the Purchaser makes a Purchase or accepts a contribution hereunder, as applicable, it shall acquire valid and perfected first priority ownership of each Purchased Receivable and the Related Security and Collections with respect thereto free and clear of any Adverse Claim (other than any Adverse Claim arising solely as the result of any action taken by the Purchaser), and no effective financing statement or other instrument similar in effect covering any Transferred Receivable, any interest therein, the Related Security or Collections with respect thereto is on file in any recording office except such as may be filed in favor of Purchaser in accordance with this Agreement or the Original Agreement or in connection with any Adverse Claim arising solely as the result of any action taken by the Purchaser.

 

(k)           Each Seller Report (if prepared by such Seller, or to the extent that information contained therein is supplied by such Seller), information, exhibit, financial statement, document, book, record or report furnished or to be furnished at any time by such Seller to the Purchaser in connection with this Agreement is or will be accurate in all material respects as of the date so furnished, and no such document contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained therein, in the light of the circumstances under which they were made, not misleading.

 

(l)            The principal place of business and chief executive office of such Seller and the office where such Seller keeps its records concerning the Transferred Receivables are located at the address or addresses referred to in Section 5.01(b).

 

(m)          The names and addresses of all the Lock-Box Banks, together with the account numbers of the Lock-Box Accounts at such Lock-Box Banks, are specified in Exhibit B (as the same may be updated from time to time pursuant to Section 5.01(g)).

 

(n)           Such Seller is not known by and does not use any tradename or doing-business-as name.

 

(o)           With respect to any programs used by such Seller in the servicing of the Receivables, no sublicensing agreements are necessary in connection with the designation of a new Collection Agent pursuant to Section 6.01(b) so that such new Collection Agent shall have the benefit of such programs (it being understood that, 

 

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however, the Collection Agent, if other than such Seller, shall be required to be bound by a confidentiality agreement reasonably acceptable to such Seller).

 

(p)           The transfers of Transferred Receivables by such Seller to the Purchaser pursuant to this Agreement, and all other transactions between such Seller and the Purchaser, have been and will be made in good faith and without intent to hinder, delay or defraud creditors of such Seller.

 

(q)            If less than all of the Receivables of such Seller have been transferred to the Purchaser pursuant to this Agreement, no selection procedure was utilized by such Seller in selecting the Contributed Receivables to be transferred to the Purchaser hereunder which is adverse to the interests of the Purchaser or would reasonably be expected to result in the Contributed Receivables containing a higher percentage of Defaulted Receivables than the percentage of Defaulted Receivables in the Receivables retained by such Seller.

 

 

ARTICLE V

 

COVENANTS

 

SECTION 5.01. Covenants of the Sellers.  Each Seller covenants from the date hereof until the first day following the Facility Termination Date on which all of the Transferred Receivables are either collected in full or become Defaulted Receivables:

 

(a)        Compliance with Laws, Etc.  Such Seller will comply in all material respects with all applicable laws, rules, regulations and orders and preserve and maintain its corporate or limited liability company, as applicable, existence, rights, franchises, qualifications and privileges except to the extent that the failure so to comply with such laws, rules and regulations or the failure so to preserve and maintain such rights, franchises, qualifications, and privileges would not materially adversely affect the collectibility of the Transferred Receivables or the ability of such Seller to perform its obligations under this Agreement.

 

(b)        Offices, Records, Name and Organization.  Such Seller will keep its principal place of business and chief executive office and the office where it keeps its records concerning the Transferred Receivables at the address of such Seller set forth under its name on the signature page to this Agreement or, upon 30 days’ prior written notice to the Purchaser, at any other locations within the United States.  Such Seller will not change its name or its state of organization, unless (i) such Seller shall have provided the Purchaser with at least 30 days’ prior written notice thereof and (ii) no later than the effective date of such change, all actions reasonably requested by the Purchaser to protect and perfect the interest in the Transferred Receivable have been taken and completed.  Such Seller also will maintain and implement administrative and operating procedures (including, 

 

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without limitation, an ability to recreate records evidencing Transferred Receivables and related Contracts in the event of the destruction of the originals thereof), and keep and maintain all documents, books, records and other information reasonably necessary or advisable for the collection of all Transferred Receivables (including, without limitation, records adequate to permit the daily identification of each new Transferred Receivable and all Collections of and adjustments to each existing Transferred Receivable).  Such Seller shall make a notation in its books and records, including its computer files, to indicate which Receivables have been sold or contributed to the Purchaser hereunder.

 

(c)         Performance and Compliance with Contracts and Credit and Collection Policy.  Such Seller will, at its expense, timely and fully perform and comply with all material provisions, covenants and other promises required to be observed by it under the Contracts related to the Transferred Receivables, and timely and fully comply in all material respects with the Credit and Collection Policy in regard to each Transferred Receivable and the related Contract.

 

(d)         Sales, Liens, Etc.  Except for the sales and contributions of Receivables contemplated herein, such Seller will not sell, assign (by operation of law or otherwise) or otherwise dispose of, or create or suffer to exist any Adverse Claim upon or with respect to, any Transferred Receivable, Related Security, related Contract or Collections, or upon or with respect to any account to which any Collections of any Transferred Receivable are sent, or assign any right to receive income in respect thereof.

 

(e)         Extension or Amendment of Transferred Receivables.  Except as provided in Section 6.02(c), such Seller will not extend, amend or otherwise modify the terms of any Transferred Receivable, or amend, modify or waive any term or condition of any Contract related thereto.

 

(f)         Change in Business or Credit and Collection Policy.  Such Seller will not make any change in the character of its business or in the Credit and Collection Policy that would, in either case, materially adversely affect the collectibility of the Transferred Receivables or the ability of such Seller to perform its obligations under this Agreement.

 

(g)        Change in Payment Instructions to Obligors.  Such Seller will not add or terminate any bank or bank account as a Lock-Box Bank or Lock-Box Account from those listed in Exhibit B to this Agreement, or make any change in its instructions to Obligors regarding payments to be made to any Lock-Box Bank, unless the Purchaser shall have received notice of such addition, termination or change (including an updated Exhibit B) and a fully executed assignment agreement assigning any such new Lock-Box Account to the Purchaser and such new Lock-Box Account shall be subject to a Lock-Box Agreement.

 

(h)        Deposits to Lock-Box Accounts.  Such Seller will instruct all Obligors to remit all their payments in respect of Transferred Receivables into Lock-Box Accounts.  If such Seller shall receive any Collections directly, it shall immediately (and in any event within two Business Days) deposit the same to a Lock-Box Account.

 

(i)         Audits.  Such Seller will, from time to time during regular business hours as requested by the Purchaser or its assigns, permit the Purchaser, or its agents, representatives or assigns, (i) to conduct, on a reasonable and customary basis, periodic audits of the Transferred Receivables, the Related Security and the related books and 

 

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records and collections systems of such Seller, (ii) to examine and make copies of and abstracts from all books, records and documents (including, without limitation, computer tapes and disks) in the possession or under the control of such Seller relating to Transferred Receivables and the Related Security, including, without limitation, the related Contracts, and (iii) to visit the offices and properties of such Seller for the purpose of examining such materials described in clause (ii) above, and to discuss matters relating to Transferred Receivables and the Related Security or such Seller’s performance hereunder or under the Contracts with any of the officers or employees of such Seller having knowledge of such matters.

 

(j)          Further Assurances.  (i)  Such Seller agrees from time to time, at its expense, promptly to execute and deliver all further instruments and documents, and to take all further actions, that may be necessary or desirable, or that the Purchaser or its assignee may reasonably request, to perfect, protect or more fully evidence the sale and contribution of Receivables under this Agreement, or to enable the Purchaser or its assignee to exercise and enforce its respective rights and remedies under this Agreement.  Without limiting the foregoing, such Seller will, (A) upon the reasonable request of the Purchaser or its assignee, execute and file such financing or continuation statements, or amendments thereto, and such other instruments and documents, that may be necessary or desirable or that the Purchaser may reasonably request to perfect, protect or evidence such Transferred Receivables; and (B) upon the reasonable request of the Purchaser or its assignee upon its determination that the same is reasonably necessary in connection with the Receivables purchased hereunder, deliver to the Purchaser copies of all Contracts relating to the Transferred Receivables and all records relating to such Contracts and the Transferred Receivables, whether in hard copy or in magnetic tape or diskette format (which if in magnetic tape or diskette format shall be compatible with the Purchaser’s computer equipment).

 

(ii)        Such Seller authorizes the Purchaser or its assignee to file financing or continuation statements, and amendments thereto and assignments thereof, relating to the Transferred Receivables and the Related Security, the related Contracts and the Collections with respect thereto without the signature of such Seller where permitted by law.  A photocopy or other reproduction of this Agreement shall be sufficient as a financing statement where permitted by law.

 

(iii)       Such Seller shall perform its obligations under the Contracts related to its Transferred Receivables to the same extent as if the Transferred Receivables had not been sold or transferred.

 

(k)            Reporting Requirements.  The Sellers will provide to the Purchaser the following:

 

(i)          as soon as available and in any event within 60 days after the end of the first three quarters of each fiscal year of Lexmark International, consolidated balance sheets of Lexmark International and its subsidiaries as of the end of such quarter and consolidated statements of income and retained earnings of Lexmark International and its subsidiaries for the period commencing at the 

 

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end of the previous fiscal year and ending with the end of such quarter, certified by a Responsible Financial Officer of Lexmark International;

 

(ii)         as soon as available and in any event within 105 days after the end of each fiscal year of Lexmark International, a copy of the annual report for such year for Lexmark International and its subsidiaries on a consolidated basis, containing financial statements for such year audited by PricewaterhouseCoopers LLP or other nationally recognized independent public accountants;

 

(iii)        as soon as possible and in any event within five days after the occurrence of each Event of Termination or within five days after any Seller obtains knowledge of the occurrence of an Incipient Event of Termination, a statement of a Responsible Financial Officer of the Sellers setting forth details of such Event of Termination or Incipient Event of Termination and the action that the Sellers have taken and propose to take with respect thereto;

 

(iv)        promptly after the sending or filing thereof, copies of all reports that Lexmark International sends to any of its securityholders, and copies of all reports and registration statements that Lexmark International or any  subsidiary files with the Securities and Exchange Commission or any national securities exchange;

 

(v)         promptly after any Seller obtains knowledge thereof, notice of the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of any Seller and any ERISA Affiliates in an aggregate amount exceeding $25,000,000;

 

(vi)        at least 30 days prior to any change in any Seller’s name or such Seller’s jurisdiction of organization, a notice setting forth the new name or jurisdiction of organization and the effective date thereof;

 

(vii)       promptly after any Seller obtains knowledge thereof, notice of any “Event of Termination” or “Facility Termination Date” under this Agreement or any “Event of Default” under the Credit Facility;

 

(viii)      concurrently with the delivery of each Seller Report by the Collection Agent, a statement as to whether or not all of the Receivables under all Contracts arising during the immediately preceding month have been transferred by the Sellers to the Purchaser and, if less than all of such Receivables have been transferred, a summary of those Receivables not transferred; and

 

(ix)         such other information respecting the Transferred Receivables or the condition or operations, financial or otherwise, of Lexmark International or any other Seller as the Purchaser may from time to time reasonably request.

 

Reports and financial statements required to be delivered pursuant to clauses (i), (ii) and (iv) of this Section 5.01(k) shall be deemed to have been delivered on the date on which 

 

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such reports, or reports containing such financial statements are posted on the SEC’s website at www.sec.gov.

 

(l)           Separate Conduct of Business.  Such Seller will: (i) maintain separate corporate or limited liability company records and books of account from those of the Purchaser; (ii) conduct a portion of its business from an office separate from that of the Purchaser; (iii) ensure that all oral and written communications, including without limitation, letters, invoices, purchase orders, contracts, statements and applications, will be made solely in its own name; (iv) have stationery and other business forms and a mailing address and a telephone number separate from those of the Purchaser; (v) not hold itself out as having agreed to pay, or as being liable for, the obligations of the Purchaser; (vi) not engage in any transaction with the Purchaser except as contemplated by this Agreement or as permitted by the Sale Agreement; (vii) continuously maintain as official records the resolutions, agreements and other instruments underlying the transactions contemplated by this Agreement; and (viii) disclose on its annual financial statements (A) the effects of the transactions contemplated by this Agreement in accordance with generally accepted accounting principles and (B) that the assets of the Purchaser are not available to pay its creditors.

 

(m)         Misdirected Payments.  Such Seller will not deposit or otherwise credit, or cause to be so deposited or credited, to any Lock-Box Account cash or cash proceeds other than Collections of Receivables.  Such Seller shall use commercially reasonable efforts (including, without limitation, sending notices from time to time to any Person depositing or crediting to any Lock-Box Account cash or cash proceeds which are not Collections of Receivables) to prevent cash or cash proceeds other than Collections of Receivables from being deposited or credited to any Lock-Box.

 

(n)          No Commingling.  In the event that any cash or cash proceeds other than Collections of Receivables are deposited or credited to any Lock-Box Account, such Seller shall, or shall cause, such cash or cash proceeds to be identified and withdrawn from the Lock-Box Account within three Business Days of such deposit or credit.

 

SECTION 5.02.  Grant of Security Interest.  To secure all obligations of the Sellers arising in connection with this Agreement, and each other agreement entered into in connection with this Agreement, whether now or hereafter existing, due or to become due, direct or indirect, or absolute or contingent, including, without limitation, Indemnified Amounts, payments on account of Collections received or deemed to be received, and any other amounts due the Purchaser hereunder, each Seller hereby assigns and grants to Purchaser a security interest in all of such Seller’s right, title and interest now or hereafter existing in, to and under all Receivables which do not constitute Transferred Receivables, the Related Security and all Collections with regard thereto.

 

SECTION 5.03.  Covenant of the Sellers and the Purchaser.  The Sellers and the Purchaser have structured this Agreement with the intention that each Purchase of Receivables hereunder be treated as a sale of such Receivables by the applicable Seller to the Purchaser for all purposes and each contribution of Receivables hereunder shall be treated as an absolute transfer of such Receivables by the applicable Seller to the Purchaser for all purposes.  The applicable Seller and the Purchaser shall record each Purchase and contribution as a sale or 

 

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purchase or capital contribution, as the case may be, on its books and records, and reflect each Purchase and contribution in its financial statements and tax returns as a sale or purchase or capital contribution, as the case may be.  In the event that, contrary to the mutual intent of the Sellers and the Purchaser, any Purchase or contribution of Receivables hereunder is not characterized as a sale or absolute transfer, each Seller shall, effective as of the date hereof, be deemed to have granted (and each Seller hereby does grant) to the Purchaser a first priority security interest in and to any and all Receivables, the Related Security and the proceeds thereof to secure the repayment of all amounts advanced to the Sellers hereunder with accrued interest thereon, and this Agreement shall be deemed to be a security agreement.

 

 

ARTICLE VI

 

ADMINISTRATION AND COLLECTION

 

SECTION 6.01.  Designation of Collection Agent.  The servicing, administration and collection of the Transferred Receivables shall be conducted by such Person (the “Collection Agent”) so designated by the Purchaser and its assigns pursuant to the Sale Agreement, from time to time.  Until the Purchaser or its assignee gives notice to the Sellers of the designation of a new Collection Agent, Lexmark International is hereby designated as, and hereby agrees to perform the duties and obligations of, the Collection Agent pursuant to the terms hereof.  Upon Lexmark International’s receipt of such notice, Lexmark International agrees that it will terminate its activities as Collection Agent hereunder in a manner which the Purchaser or its assigns (or their respective designee) believes will facilitate the transition of the performance of such activities to the new Collection Agent, and Lexmark International shall use its best efforts to assist the Purchaser or its assign (or their respective designee) to take over the servicing, administration and collection of the Transferred Receivables, including, without limitation, providing access to and copies of all computer tapes or disks and other documents or instruments that evidence or relate to Transferred Receivables maintained in its capacity as Collection Agent and access to all employees and officers of Lexmark International responsible with respect thereto.  The Collection Agent may, with the prior consent of the Purchaser, subcontract with any other Person for the servicing, administration or collection of Transferred Receivables.  Any such subcontract shall not affect the Collection Agent’s liability for performance of its duties and obligations pursuant to the terms hereof and any such subcontract shall automatically terminate upon designation of a successor Collection Agent.

 

SECTION 6.02.  Duties of Collection Agent.  (a)  The Collection Agent shall take or cause to be taken all such actions as may be necessary or advisable to collect each Transferred Receivable from time to time, all in accordance with applicable laws, rules and regulations, with reasonable care and diligence, and in accordance with the Credit and Collection Policy.  The Purchaser hereby appoints the Collection Agent, from time to time designated pursuant to Section 6.01, as agent to enforce its ownership and other rights and interests in the Transferred Receivables, the Related Security and the Collections with respect thereto.  In performing its duties as Collection Agent, the Collection Agent shall exercise the same care and apply the same policies as it would exercise and apply if it owned the Transferred Receivables and shall act in the best interests of the Purchaser and its assignees.

 

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(b)           (i)           On or prior to the fifteenth calendar day of each month (or if such day is not a Business Day, the next Business Day), the Collection Agent shall prepare and forward to the Purchaser a Monthly Report relating to the Receivable Interests outstanding on the last day of the immediately preceding month.

 

(ii) If a Level I Downgrade Event (but no Level II Downgrade Event) shall have occurred and be continuing, on or prior to the close of business on the second Business Day of each Week, the Collection Agent shall prepare and forward to the Purchaser a Weekly Report which shall contain information related to the Receivables current as of the close of business on the last Business Day of the preceding Week.

 

(iii) If a Level II Downgrade Event shall have occurred and be continuing, the Collection Agent shall, by no later than 3:00 P.M. (New York City time) on each Business Day, prepare and forward to the Purchaser a Daily Report which shall contain information relating to the Receivables current as of the close of business on the immediately prior Business Day.

 

The Collection Agent may elect to transmit Seller Reports to the Purchaser by electronic mail (each an “E-Mail Seller Report”) provided, that (i) each E-Mail Seller Report shall be (A) formatted as the Purchaser may designate from time to time and (B) sent to the Purchaser at an electronic mail address designated by the Purchaser, and (ii) the Purchaser (A) shall be authorized to rely upon such E-Mail Seller Report for purposes of this Agreement to the same extent as if the contents thereof had been otherwise delivered to the Purchaser in accordance with the terms of this Agreement and (B) may, upon notice in writing to the Collection Agent and each Seller, terminate the right of the Collection Agent to transmit E-Mail Seller Reports.

 

(c)            If no Event of Termination or Incipient Event of Termination shall have occurred and be continuing, a Seller, while it is the Collection Agent, may, in accordance with the Credit and Collection Policy, extend the maturity or adjust the Outstanding Balance of any Transferred Receivable as such Seller deems appropriate to maximize Collections thereof, or otherwise amend or modify the terms of any Transferred Receivable.

 

(d)           The Sellers shall deliver to the Collection Agent, and the Collection Agent shall hold in trust for the Sellers and the Purchaser in accordance with their respective interests, all documents, instruments and records (including, without limitation, computer tapes or disks) which evidence or relate to Transferred Receivables.

 

(e)            The Collection Agent shall within three Business Days following receipt turn over to the applicable Seller any cash collections or other cash proceeds received with respect to Receivables not constituting Transferred Receivables (including without limitation, Excluded Receivables), less, in the event such Seller is not the Collection Agent, all reasonable and appropriate out-of-pocket costs and expenses of the Collection Agent of servicing, collecting and administering the Receivables to the extent not covered by the Collection Agent Fee received by it.

 

(f)             The Collection Agent also shall perform the other obligations of the “Collection Agent” set forth in this Agreement with respect to the Transferred Receivables.

 

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SECTION 6.03.  Collection Agent Fee.  The Purchaser shall pay to the Collection Agent, so long as it is acting as the Collection Agent hereunder, a periodic collection fee (the “Collection Agent Fee”) of 0.50% per annum on the average daily aggregate Outstanding Balance of the Transferred Receivables, payable on the fifteenth day of each month (or, if such day is not a Business Day, the immediately succeeding Business Day) or such other day during each calendar month as the Purchaser and the Collection Agent shall agree.

 

SECTION 6.04.  Certain Rights of the Purchaser.  (a)  To the extent it has not previously done so, each Seller hereby transfers to the Purchaser (and its assigns and designees) the exclusive ownership and control of the Lock-Box Accounts maintained by such Seller for the purpose of receiving Collections.

 

(b)       At any time following a Cash Control Triggering Event:

 

(i)          The Purchaser may give notice, at the Sellers’ expense, of the Purchaser’s ownership to each Obligor of Transferred Receivables and any Person obligated on any Related Security, and direct that all payments of all amounts payable thereunder be made directly to the Purchaser or its designee.

 

(ii)         Each Seller shall, at the Purchaser’s request and at such Seller’s expense, give notice of the Purchaser’s ownership to each Obligor of Transferred Receivables and any Person obligated on any Related Security, and direct that all payments of all amounts payable thereunder be made directly to the Purchaser or its designee.

 

(iii)        At the Purchaser’s request and at the applicable Seller’s expense, each Seller and the Collection Agent shall (A) assemble all of the documents, instruments and other records (including, without limitation, computer tapes and disks) that evidence or relate to the Transferred Receivables, and the related Contracts and Related Security, or that are otherwise necessary or desirable to collect the Transferred Receivables, and shall make the same available to the Purchaser at a place selected by the Purchaser or its designee, and (B) segregate all cash, checks and other instruments received by it from time to time constituting Collections of Transferred Receivables in a manner acceptable to the Purchaser and, promptly upon receipt, remit all such cash, checks and instruments, duly indorsed or with duly executed instruments of transfer, to the Purchaser or its designee.  The Purchaser shall also have the right to make copies of all such documents, instruments and other records at any time.

 

(iv)        Each Seller authorizes the Purchaser to take any and all steps in such Seller’s name and on behalf of such Seller that are necessary or desirable, in the determination of the Purchaser, to collect amounts due under the Transferred Receivables, including, without limitation, endorsing such Seller’s name on checks and other instruments representing Collections of Transferred Receivables and enforcing the Transferred Receivables and the Related Security and related Contracts.

 

SECTION 6.05.  Rights and Remedies.  (a)  If a Seller or the Collection Agent fails to perform any of its obligations under this Agreement, the Purchaser may (but shall not be required to) itself perform, or cause performance of, such obligation, and, if such Seller (as 

 

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Collection Agent or otherwise) fails to so perform, the costs and expenses of the Purchaser incurred in connection therewith shall be payable by such Seller as provided in Section 8.01 or Section 9.04 as applicable.

 

(b)       Each Seller shall perform all of its obligations under the Contracts related to the Transferred Receivables to the same extent as if such Seller had not sold or contributed Receivables hereunder and the exercise by the Purchaser of its rights hereunder shall not relieve such Seller from such obligations or its obligations with respect to the Transferred Receivables.  The Purchaser shall not have any obligation or liability with respect to any Transferred Receivables or related Contracts, nor shall the Purchaser be obligated to perform any of the obligations of such Seller thereunder.

 

(c)        Each Seller shall cooperate with the Collection Agent in collecting amounts due from Obligors in respect of the Transferred Receivables.

 

(d)        Each Seller hereby grants to Collection Agent an irrevocable power of attorney, with full power of substitution, coupled with an interest, to take in the name of such Seller all steps necessary or advisable to endorse, negotiate or otherwise realize on any writing or other right of any kind held or transmitted by such Seller or transmitted or received by Purchaser (whether or not from such Seller) in connection with any Transferred Receivable.

 

SECTION 6.06.  Transfer of Records to Purchaser.  Each Purchase and contribution of Receivables hereunder shall include the transfer to the Purchaser of all of the applicable Seller’s right and title to and interest in the records relating to such Receivables and shall include an irrevocable non-exclusive license to the use of such Seller’s computer software system to access and create such records.  Such license shall be without royalty or payment of any kind, is coupled with an interest, and shall be irrevocable until all of the Transferred Receivables are either collected in full or become Defaulted Receivables.

 

Each Seller shall take such action requested by the Purchaser, from time to time hereafter, that may be necessary or appropriate to ensure that the Purchaser has an enforceable ownership interest in the records relating to the Transferred Receivables and rights (whether by ownership, license or sublicense) to the use of such Seller’s computer software system to access and create such records.

 

In recognition of each Seller’s need to have access to the records transferred to the Purchaser hereunder, the Purchaser hereby grants to each Seller an irrevocable license to access such records in connection with any activity arising in the ordinary course of such Seller’s business or in performance of its duties as Collection Agent, provided that (i) such Seller shall not disrupt or otherwise interfere with the Purchaser’s use of and access to such records during such license period and (ii) such Seller consents to the assignment and delivery of the records (including any information contained therein relating to such Seller or its operations) to any assignees or transferees of the Purchaser provided they agree to hold such records confidential.

 

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ARTICLE VII

 

EVENTS OF TERMINATION

 

SECTION 7.01.  Events of Termination.  If any of the following events (“Events of Termination”) shall occur and be continuing:

 

(a)       The Collection Agent (i) shall fail to perform or observe any term, covenant or agreement under this Agreement (other than as referred to in clauses (ii), (iii) of (iv) of this subsection (a)) and such failure shall remain unremedied for 10 Business Days, (ii) shall fail to make when due any payment or deposit to be made by it under this Agreement and such failure shall remain unremedied for one Business Day after notice thereof has been delivered by the Purchaser, (iii) (A) shall fail to deliver when due any Weekly Report or Daily Report and such failure shall remain unremedied for more than two Business Days, in the case of a Weekly Report, or for more than one Business Day, in the case of a Daily Report, or (B) shall fail to deliver when due more than two Weekly Reports in any calendar month or more than two Daily Reports in any calendar week, or (iv) shall fail to perform or observe any term, covenant or agreement contained in Sections 6.02 (other than as set forth in clauses (ii) or (iii) of this subsection) and such failure shall remain unremedied for more than five Business Days; or

 

(b)       Any Seller shall fail to make any payment required under Section 2.04(a) or 2.04(b); or

 

(c)       Any representation or warranty made or deemed made by any Seller (or any of its officers) under or in connection with this Agreement or any information or report delivered by such Seller pursuant to this Agreement shall prove to have been incorrect or untrue in any material respect when made or deemed made or delivered; provided, however, the making or deemed making of such incorrect or untrue representation or warranty with respect to clause (iii)(2), (3) or (4) of Section 4.01(b) or Sections 4.01(d), (f), (g), (h), (k), (l), (m), (n) or (o) shall not constitute an Event of Termination so long as within 10 Business Days after the earlier of any Seller obtaining knowledge or receiving notice that any such representation or warranty is incorrect or untrue the Purchaser expressly waives, in writing, the Event of Termination which would otherwise arise therefrom; or

 

(d)       Any Seller (i) shall fail to perform or observe any other term, covenant or agreement contained in this Agreement (other than as referred to in clauses (ii) or (iii) of this subsection (d)) on its part to be performed or observed, (ii) shall fail to make when due any payment or deposit to be made by it under this Agreement and such failure shall remain unremedied for one Business Day after notice thereof has been delivered by the Purchaser or its assignees, or (iii) shall fail to perform or observe any term, covenant or agreement contained in (x) Section 5.01 (b), (e), (g), (h),(k)(vi), or (l) and any such failure shall remain unremedied for 10 Business Days after the earlier of any Seller obtaining knowledge or receiving notice of such failure (provided, that with respect to Section 5.01(g) and (h) no such grace period shall apply if the aggregate amount of Collections subject to such failure shall exceed $1,000,000, and, provided, further, that with respect to Section 5.01(l) no such grace period shall apply if the aggregate amount 

 

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of Collections subject to such failure shall exceed $10,000,000) or (y) Section 5.01(a), (c), (f), (i), (k)(i), (k)(ii), (k)(iv), (k)(v), or (k)(ix) and any such failure shall remain unremedied for 20 Business Days after the earlier of such Seller obtaining knowledge or receiving notice of such failure; or

 

(e)        Any Seller or the Collection Agent shall fail to pay any principal of or premium or interest on any of its Debt which is outstanding in a principal amount of at least $50,000,000 in the aggregate when the same becomes due and payable (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise), and such failure shall continue after the applicable grace period, if any, specified in the agreement or instrument relating to such Debt; or any other event shall occur or condition shall exist under any agreement or instrument relating to any such Debt and shall continue after the applicable grace period, if any, specified in such agreement or instrument, if the effect of such event or condition is to accelerate, or to permit the acceleration of, the maturity of such Debt; or any such Debt shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), redeemed, purchased or defeased, or an offer to repay, redeem, purchase or defease such Debt shall be required to be made, in each case prior to the stated maturity thereof; or

 

(f)         Any Purchase or contribution of Receivables hereunder, the Related Security and the Collections with respect thereto shall for any reason cease to constitute valid and perfected ownership of such Receivables, Related Security and Collections free and clear of any Adverse Claim; or

 

(g)        Any Seller or the Collection Agent shall generally not pay its debts as such debts become due, or shall admit in writing its inability to pay its debts generally, or shall make a general assignment for the benefit of creditors; or any proceeding shall be instituted by or against any Seller or any of its subsidiaries seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up, reorganization, arrangement, adjustment, protection, relief, or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appointment of a receiver, trustee, custodian or other similar official for it or for any substantial part of its property and, in the case of any such proceeding instituted against it (but not instituted by it), either such proceeding shall remain undismissed or unstayed for a period of 60 days, or any of the actions sought in such proceeding (including, without limitation, the entry of an order for relief against, or the appointment of a receiver, trustee, custodian or other similar official for, it or for any substantial part of its property) shall occur; or any Seller or any Material Worldwide Subsidiary (as such term is defined in the Credit Facility) shall take any action to authorize any of the actions set forth above in this subsection (g); or

 

(h)        An “Event of Termination” shall have occurred under the Sale Agreement or the Purchaser shall so state in writing;

 

then, and in any such event, the Purchaser may, by notice to the Sellers, take either or both of the following actions:  (x) declare the Facility Termination Date to have occurred (in which case the Facility Termination Date shall be deemed to have occurred) and (y) without limiting any right under this Agreement to replace the Collection Agent (but subject, prior to the Sale Agreement 

 

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Final Payment Date, to the designation made under the Sale Agreement), designate another Person to succeed the applicable Seller as Collection Agent so long as a Collection Agent Default shall have occurred and be continuing; provided, that, automatically upon the occurrence of any event (without any requirement for the passage of time or the giving of notice) described in paragraph (g) of this Section 7.01, the Facility Termination Date shall occur, the applicable Seller (if it is then serving as the Collection Agent) shall cease to be the Collection Agent, and the Purchaser (or its assigns or designees) shall become the Collection Agent.  Upon any such declaration or designation or upon such automatic termination, the Purchaser shall have, in addition to the rights and remedies under this Agreement, all other rights and remedies with respect to the Receivables provided after default under the UCC and under other applicable law, which rights and remedies shall be cumulative.

 

 

ARTICLE VIII

 

INDEMNIFICATION

 

SECTION 8.01.  Indemnities by the Sellers.  Without limiting any other rights which the Purchaser may have hereunder or under applicable law, the Sellers jointly and severally hereby agree to indemnify the Purchaser and its assigns and transferees (each, an “Indemnified Party”) from and against any and all damages, claims, losses, liabilities and related costs and expenses, including reasonable attorneys’ fees and disbursements (all of the foregoing being collectively referred to as “Indemnified Amounts”), awarded against or incurred by any Indemnified Party arising out of or as a result of this Agreement or the purchase or contribution of any Transferred Receivables or in respect of any Transferred Receivable or any Contract, including, without limitation, arising out of or as a result of:

 

(i)       the inclusion, or purported inclusion, in any Purchase or contribution of any Receivable that is not an Eligible Receivable on the date of such Purchase, or the characterization in any Seller Report or other statement made by any Seller of any Transferred Receivable as an Eligible Receivable which is not an Eligible Receivable as of the date of such Seller Report or statement;

 

(ii)      any representation or warranty or statement made or deemed made by any Seller (or any of its officers) under or in connection with this Agreement, which shall have been incorrect in any material respect when made;

 

(iii)     the failure by any Seller to comply with any applicable law, rule or regulation with respect to any Transferred Receivable or the related Contract; or the failure of any Transferred Receivable or the related Contract to conform to any such applicable law, rule or regulation;

 

(iv)     the failure to vest in the Purchaser absolute ownership of the Receivables that are, or that purport to be, the subject of a Purchase or contribution under this Agreement and the Related Security and Collections in respect thereof, free and clear of any Adverse Claim;

 

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(v)      the failure of any Seller to have filed, or any delay in filing, financing statements or other similar instruments or documents under the UCC of any applicable jurisdiction or other applicable laws with respect to any Receivables that are, or that purport to be, the subject of a Purchase or contribution under this Agreement and the Related Security and Collections in respect thereof, whether at the time of any Purchase or contribution or at any subsequent time;

 

(vi)     any dispute, claim, offset or defense (other than discharge in bankruptcy of the Obligor) of the Obligor to the payment of any Receivable that is, or that purports to be, the subject of a Purchase or contribution under this Agreement (including, without limitation, a defense based on such Receivable or the related Contract not being a legal, valid and binding obligation of such Obligor enforceable against it in accordance with its terms), or any other claim resulting from the sale of the merchandise or services related to such Receivable or the furnishing or failure to furnish such merchandise or services or relating to collection activities with respect to such Receivable (if such collection activities were performed by such Seller acting as Collection Agent);

 

(vii)    any failure of any Seller, as Collection Agent or otherwise, to perform its duties or obligations in accordance with the provisions hereof or to perform its duties or obligations under any Contract related to a Transferred Receivable;

 

(viii)   any products liability or other claim arising out of or in connection with merchandise, insurance or services which are the subject of any Contract;

 

(ix)      the commingling of Collections of Transferred Receivables by any Seller or a designee of any Seller, as Collection Agent or otherwise, at any time with other funds of such Seller or an Affiliate of such Seller;

 

(x)       any third party investigation, litigation or proceeding related to this Agreement or the use of proceeds of Purchases or the ownership of Receivables, the Related Security, or Collections with respect thereto or in respect of any Receivable, Related Security or Contract (excluding any collection costs of the Purchaser arising directly from the financial inability of an Obligor to pay in respect of any Receivable);

 

(xi)      any failure of any Seller to comply with its covenants contained in this Agreement;

 

(xii)     any Collection Agent Fees or other costs and expenses payable to any replacement Collection Agent, to the extent in excess of the Collection Agent Fees payable to any Seller hereunder;

 

(xiii)    any claim brought by any Person other than an Indemnified Party arising from any activity by any Seller or any Affiliate of any Seller in servicing, administering or collecting any Transferred Receivable;

 

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(xiv)    any Dilution with respect to any Transferred Receivable; or

 

(xv)     the failure of any Seller to comply with any term or provision of any Contract that contains a confidentiality provision that purports to restrict the ability of the Purchaser (or its assigns) to exercise its rights under this Agreement, including, without limitation, its right to review the Contract.

 

It is expressly agreed and understood by the parties hereto (i) that the foregoing indemnification is not intended to, and shall not, constitute a guarantee of the collectibility or payment of the Transferred Receivables and (ii) that nothing in this Section 8.01 shall require any Seller to indemnify any Person (A) for Receivables which are not collected, not paid or uncollectible on account of the insolvency, bankruptcy, or financial inability to pay of the applicable Obligor, (B) for damages, losses, claims or liabilities or related costs or expenses to the extent found by a court of competent jurisdiction to have resulted from such Person’s gross negligence or willful misconduct, or (C) for any income taxes or franchise taxes incurred by such Person arising out of or as a result of this Agreement or in respect of any Transferred Receivable or any Contract.

 

 

ARTICLE IX

 

MISCELLANEOUS

 

SECTION 9.01.  Amendments, Etc.  No amendment or waiver of any provision of this Agreement or consent to any departure by a Seller therefrom shall be effective unless in a writing signed by the Purchaser and, in the case of any amendment, also signed by the Sellers, and then such amendment, waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.  No failure on the part of the Purchaser to exercise, and no delay in exercising, any power, right or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such power, right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other power, right or remedy.   The rights and remedies herein provided shall be cumulative and nonexclusive of any rights or remedies provided by law.  Any waiver of this Agreement shall be effective only in the specific instance and for the specific purpose for which given.

 

SECTION 9.02.  Notices, Etc.  All notices and other communications hereunder shall, unless otherwise stated herein, be in writing (which shall include facsimile communication) and be faxed or delivered, to each party hereto, at its address set forth under its name on the signature pages hereof or at such other address as shall be designated by such party in a written notice to the other parties hereto.  Notices and communications by facsimile shall be effective when sent (and shall be followed by hard copy sent by regular mail), and notices and communications sent by other means shall be effective when received.

 

SECTION 9.03.      Binding Effect; Assignability.  (a)  This Agreement shall be binding upon and inure to the benefit of the Sellers, the Purchaser and their respective successors and assigns; provided, however, that no Seller may assign its rights or obligations hereunder or any interest herein without the prior written consent of the Purchaser.  In connection with any sale or assignment by the Purchaser of all or a portion of the Transferred Receivables, the buyer or assignee, as the case may be, shall, to the extent of its purchase or assignment, have all rights 

 

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of the Purchaser under this Agreement (as if such buyer or assignee, as the case may be, were the Purchaser hereunder) except to the extent specifically provided in the agreement between the Purchaser and such buyer or assignee, as the case may be.

 

(b)        This Agreement shall create and constitute the continuing obligations of the parties hereto in accordance with its terms, and shall remain in full force and effect until such time, after the Facility Termination Date, when all of the Transferred Receivables are either collected in full or become Defaulted Receivables; provided, however, that rights and remedies with respect to any breach of any representation and warranty made by any Seller pursuant to Article IV and the provisions of Article VIII and Sections 9.04, 9.05 and 9.06 shall be continuing and shall survive any termination of this Agreement.

 

SECTION 9.04.  Costs, Expenses and Taxes.  (a)  In addition to the rights of indemnification granted to the Purchaser pursuant to Article VIII hereof, the Sellers jointly and severally agree to pay on demand all costs and expenses in connection with the preparation, execution and delivery of this Agreement and the other documents and agreements to be delivered hereunder, including, without limitation, the reasonable fees and out-of-pocket expenses of counsel for the Purchaser with respect thereto and with respect to advising the Purchaser as to its rights and remedies under this Agreement, and the Sellers jointly and severally agree to pay all costs and expenses, if any (including reasonable counsel fees and expenses), in connection with the enforcement of this Agreement and the other documents to be delivered hereunder excluding, however, any costs of enforcement or collection of Transferred Receivables which are not paid on account of the insolvency, bankruptcy or financial inability to pay of the applicable Obligor.

 

(b)          In addition, the Sellers jointly and severally agree to pay any and all stamp and other taxes and fees payable in connection with the execution, delivery, filing and recording of this Agreement or the other documents or agreements to be delivered hereunder, and the Sellers jointly and severally agree to save each Indemnified Party harmless from and against any liabilities with respect to or resulting from any delay in paying or omission to pay such taxes and fees.

 

SECTION 9.05.  No Proceedings.  Each Seller hereby agrees that it will not institute against or join any other Person in instituting against the Purchaser any proceeding of the type referred to in Section 7.01(g) so long as there shall not have elapsed one year plus one day since the later of (i) the Facility Termination Date and (ii) the date on which all of the Transferred Receivables are either collected in full or become Defaulted Receivables.

 

SECTION 9.06.  Confidentiality.  Unless otherwise required by applicable law, each party hereto agrees to maintain the confidentiality of this Agreement in communications with third parties and otherwise; provided that this Agreement may be disclosed to (i) third parties to the extent such disclosure is made pursuant to a written agreement of confidentiality in form and substance reasonably satisfactory to the other parties hereto, and (ii) such party’s legal counsel and auditors and the Purchaser’s assignees, if they agree in each case to hold it confidential.

 

Notwithstanding any other provision herein, each party hereto (and each employee, representative or other agent of each party hereto) may disclose to any and all 

 

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Persons, without limitation of any kind, the U.S. tax treatment and U.S. tax structure of the transaction contemplated by this Agreement and the other Transaction Documents and all materials of any kind (including opinions or other tax analyses) that are provided to such party relating to such U.S. tax treatment and U.S. tax structure, other than any information for which nondisclosure is reasonably necessary in order to comply with applicable securities laws.  The preceding sentence is intended to cause this Agreement to be treated as not having been offered under conditions of confidentiality for purposes of Section 1.6011-4(b)(3) (or any successor provision) of the U.S. Treasury Regulations promulgated under Section 6011 of the Internal Revenue Code of 1986, as amended, and shall be construed in a manner consistent with such purpose.

 

SECTION 9.07.  GOVERNING LAW.  THIS AGREEMENT SHALL, IN ACCORDANCE WITH SECTION 5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK, BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO ANY CONFLICT OF LAWS PRINCIPLES THEREOF THAT WOULD CALL FOR THE APPLICATION OF THE LAWS OF ANY OTHER JURISDICTION, EXCEPT TO THE EXTENT THAT, PURSUANT TO THE UCC OF THE STATE OF NEW YORK, THE PERFECTION AND THE EFFECT OF PERFECTION OR NON-PERFECTION OF THE PURCHASER’S OWNERSHIP OF OR SECURITY INTEREST IN THE RECEIVABLES ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

 

SECTION 9.08.  Third Party Beneficiary.  Each of the parties hereto hereby acknowledges that the Purchaser may assign all or any portion of its rights under this Agreement and that such assignees may (except as otherwise agreed to by such assignees) further assign their rights under this Agreement, and each Seller hereby consents to any such assignments.  All such assignees, including parties to the Sale Agreement in the case of assignment to such parties, shall be third party beneficiaries of, and shall be entitled to enforce the Purchaser’s rights and remedies under, this Agreement to the same extent as if they were parties thereto, except to the extent specifically limited under the terms of their assignment.

 

SECTION 9.09.  Execution in Counterparts.  This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and all of which when taken together shall constitute one and the same agreement.

 

SECTION 9.10.  Amendment and Restatement of Original Agreement.  This Agreement constitutes an amendment and restatement in its entirety of the Original Agreement.  Each party hereto acknowledges that the amendment and restatement of the Original Agreement on the terms and conditions set forth herein shall not in any way affect any sales, transfers, contributions, assignments or security interest grants effected pursuant to the Original Agreement or any representations, warranties or covenants made by any Seller with respect to such sales, transfers, contributions, assignments or security interest grants, any indemnities thereunder, or any rights or remedies of the Purchaser or its assigns.  The Sellers hereby confirms all purchases, contributions, sales, transfers, assignments and security interests effected pursuant to the Original Agreement.

 

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IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

 

	
SELLER:

	
LEXMARK INTERNATIONAL, INC.

 

 

By:   /s/ Bruce J. Frost       

Name:  Bruce J. Frost

Title:   Treasurer

 

Address: 740 West New Circle Road

Building 1, Dept. 857

Lexington, Kentucky  40550

 

Facsimile No.:  (859) 232-5137

Telephone No.: (859) 232-3645

 

	
SELLER:

	
PERCEPTIVE SOFTWARE, LLC

 

 

By:    /s/ Bruce J. Frost       

Name:  Bruce J. Frost

Title:   Treasurer

 

Address:740 West New Circle Road

Building 1, Dept. 857

Lexington, Kentucky  40550

 

Facsimile No.:  (859) 232-5137

Telephone No.: (859) 232-3645

	
PURCHASER:

	
LEXMARK RECEIVABLES CORPORATION

 

 

By:   /s/ Bruce J. Frost         

Name:  Bruce J. Frost

Title:   Treasurer

 

Address:2215-B Renaissance Drive

Suite 5

Las Vegas, NV 89119

 

Facsimile No.:  (702) 966-4247

Telephone No.: (702) 740-4244

[Signature Page to Amended and Restated Purchase and Contribution Agreement]

  

  

  

EXHIBIT A

 

On file with the Program Agent.

A-1

  

  

  

EXHIBIT B

 

LOCK-BOX BANKS

 

Bank of America, N.A.

P.O. Box 96612

Chicago, IL  60693-6612

 

 

Bank of America, N.A.

PO Box 846261

Dallas, TX 75284-6261

B-1

  

  

  

EXHIBIT C

 

FORM OF

 

DEFERRED PURCHASE PRICE NOTE

 

New York, New York

October 10, 2013

 

FOR VALUE RECEIVED, LEXMARK RECEIVABLES CORPORATION, a Delaware corporation (the “Purchaser”), hereby promises to pay to ____________________________________ (the “Seller”) the principal amount of this Note, determined as described below, together with interest thereon at a rate per annum equal at all times to the sum of (i) 0.5% per annum, plus (ii) the Applicable Margin (as defined in the Sale Agreement) then in effect, plus (ii) the Eurodollar rate (as determined by the Purchaser in its reasonable discretion) for periods of one month, in each case in lawful money of the United States of America.  Capitalized terms used herein but not defined herein shall have the meanings assigned to such terms in the Amended and Restated Purchase and Contribution Agreement dated as of October 10, 2013 between the Seller, the other sellers named therein, and the Purchaser (such agreement, as it may from time to time be amended, restated or otherwise modified in accordance with its terms, the “Purchase and Contribution Agreement”).  This Note is one of the notes referred to in the definition of “Deferred Purchase Price” in the Purchase and Contribution Agreement.

 

The aggregate principal amount of this Note at any time shall be equal to the difference between (a) the sum of the aggregate principal amount of this Note on the date of the issuance hereof and each addition to the principal amount of this Note pursuant to the terms of Section 2.02 of the Purchase and Contribution Agreement minus (b) the aggregate amount of all payments made in respect of the principal amount of this Note, in each case, as recorded on the books and records of the Purchaser and the Seller, but failure to so record shall not affect the obligations of the Purchaser to the Seller.

 

The entire principal amount of this Note shall be due and payable one year and one day after the Facility Termination Date or such later date as may be agreed in writing by the Seller and the Purchaser.  The principal amount of this Note may, at the option of the Purchaser, be prepaid in whole at any time or in part from time to time, in each case, to the extent permitted by the Purchase and Contribution Agreement.  Interest on this Note shall be paid in arrears on each Settlement Date, at maturity and thereafter on demand.  All payments hereunder shall be made by wire transfer of immediately available funds to such account of the Seller as the Seller may designate in writing.

 

Notwithstanding any other provisions contained in this Note, in no event shall the rate of interest payable by the Purchaser under this Note exceed the highest rate of interest permissible under applicable law.

 

The obligations of the Purchaser under this Deferred Purchase Price Note are subordinated in right of payment, to the extent set forth in Section 2.03(c) of the Purchase and 

 

C-1

  

  

 

Contribution Agreement, to the prior payment in full of all Capital, Yield, Fees and other obligations of the Purchaser under the Sale Agreement.

 

Notwithstanding any provision to the contrary in this Deferred Purchase Price Note or elsewhere, other than with respect to payments specifically permitted by Section 2.03(c) of the Purchase and Contribution Agreement, no demand for any  payment may be made hereunder, no payment shall be due with respect hereto and the Seller shall have no claim for any payment hereunder prior to the occurrence of the Facility Termination Date and then only on the date, if ever, when all Capital, Yield, Fees and other obligations owing under the Sale Agreement shall have been paid in full.

 

In the event that, notwithstanding the foregoing provision limiting such payment, the Seller shall receive any payment or distribution on this Deferred Purchase Price Note which is not specifically permitted by Section 2.03(c) of the Purchase and Contribution Agreement, such payment shall be received and held in trust by the Seller for the benefit of the entities to whom the obligations are owed under the Sale Agreement and shall be promptly paid over to such entities.

 

The Purchaser hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever.

 

Neither this Note, nor any right of the Seller to receive payments hereunder, shall, without the prior written consent of the Purchaser and (so long as the Sale Agreement remains in effect or any amounts remain outstanding thereunder) the Agent under the Sale Agreement, be assigned, transferred, exchanged, pledged, hypothecated, participated or otherwise conveyed.

 

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

 

	 	  
LEXMARK RECEIVABLES CORPORATION

	 
	 	 	 
	 	 	 
	 	By: _______________________________	 
	 	Name:	 
	 	Title:	 

 

 

 

                                                           

C-2

  

  

  

EXHIBIT D

 

FORM OF PURCHASER LOAN NOTE

 

 New York, New York

 

$[____________]

 

FOR VALUE RECEIVED, [_______________________], a Delaware [______________] (the “Company”), hereby promises to pay to LEXMARK RECEIVABLES CORPORATION (the “Lender”), no later than twelve (12) months from the date hereof or on demand if sooner made, the aggregate unpaid principal amount of the Purchaser Loans made by the Lender to the Company under the Purchase and Contribution Agreement referred to below), and to pay on each Settlement Date interest on the unpaid principal amount of the Purchaser Loans at a rate per annum equal at all times to the sum of (i) the Eurodollar rate (as determined by the Lender in its reasonable discretion) plus (ii) the Applicable Margin (as defined in the Sale Agreement), then in effect, for periods of one month, in each case in lawful money of the United States of America and in immediately available funds.

 

The date and amount of each Purchaser Loan made by the Lender to the Company from the date hereof until the repayment of all sums due hereunder, and each payment made on account of the principal thereof, shall be recorded by the Lender and the Company on their books and records.

 

This Note is the Purchaser Loan Note referred to in the Amended and Restated Purchase and Contribution Agreement (as amended, restated or otherwise modified from time to time, the “Purchase and Contribution Agreement”) dated as of October 10, 2013 between the Company and the Lender, as a Seller and the Purchaser, respectively, and the other sellers party thereto, and evidences Purchaser Loans made by the Lender to the Company thereunder.  Capitalized terms used in this Note and not defined herein have the respective meanings assigned to them in the Purchase and Contribution Agreement.

 

The principal amount of this Note may, at the option of the Company, be prepaid in whole at any time or in part from time to time.

 

Notwithstanding any other provisions contained in this Note, in no event shall the rate of interest payable by the Company under this Note exceed the highest rate of interest permissible under applicable law.

 

The Company hereby waives diligence, presentment, demand, protest and notice of any kind whatsoever with respect to this Note.

 

In the event the Lender shall refer this Note to an attorney for collection, the Company agrees to pay, in addition to unpaid principal and interest, all the costs and expenses incurred in attempting or effecting collection hereunder, including reasonable attorney’s fees, whether or not suit is instituted.

 

D-1

  

  

 

 

THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.

 

[______________________________________]

 

 

 

By: ____________________________________                                                            

Name:

Title:

 

D-2

  

  

  

EXHIBIT E

FORM OF MONTHLY REPORT

On file with the Program Agent.

E-1

  

  

  

EXHIBIT F

FORM OF WEEKLY REPORT

On file with the Program Agent.

F-1

  

  

  

EXHIBIT G

FORM OF DAILY REPORT

On file with the Program Agent.

G-1exh10-1.htm

Exhibit 10.1

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 (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.

Principal Amount: $32,500.00                                                                                                Issue Date: October 4, 2013

Purchase Price: $32,500.00

CONVERTIBLE PROMISSORY NOTE

FOR VALUE RECEIVED, HDS INTERNATIONAL CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $32,500.00 together with any interest as set forth herein, on July 8, 2015 (the “Maturity Date”), and to pay simple interest (“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 annual percentage 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 9.99% 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 100 days’ prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 100th 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.

  

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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, , reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 50% multiplied by the Market Price (as defined herein) (representing a discount rate of 50%). “Market Price” means the average of the lowest five (5) Trading Prices (as defined below) for the Common Stock during the thirty (30) 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 pink sheets, or applicable trading market (the “OTCQB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTCQB 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” by the National Quotation Bureau, Inc. 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 OTCQB, 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), provided that the transaction referenced in this 1.2(b)(ii) actually closes (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 the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative, or the Borrower (in the case of clause (i) 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.

  

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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.

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

  

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conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

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

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

(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a 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.

  

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(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 through willful or deliberate hindrances on the part of the Borrower. 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.

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. ”7

  

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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 a valid opinion of counsel provided by the Buyer 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, 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, 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, five (5) 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, or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting

  

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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.

(c) 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 all 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.

(d) 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 9.99% 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, and similar events relating to the Common Stock occurring after the date hereof.

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

  

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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.

1.9 Prepayment. Notwithstanding anything to the contrary contained in this is thirty (30) days following the issue date, 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 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 125%, 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.

Notwithstanding anything to the contrary contained in this Note, at any time during 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, 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 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 Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, 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 Second Optional Prepayment Amount due to the Holder of the Note

  

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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.

Notwithstanding anything to the contrary contained in this Note, at any time during 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, 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 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 Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, 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 Third 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.

Notwithstanding any to the contrary stated elsewhere herein, at any time during 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, 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 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 Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, 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 Fourth 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.

     Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date

  

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and ending one hundred fifty (150) days following the issue date, 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 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 Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 145%, 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 Fifth 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.

     Notwithstanding any to the contrary stated elsewhere herein, at any time during 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, 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 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 Optional Prepayment Date, the Borrower shall make payment of the Sixth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Sixth Optional Prepayment Amount”) equal to 150%, 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 Sixth 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.

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,

  

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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 the board of directors.

2.2 Borrowings. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, (a) create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any other person, firm, partnership, joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or (b) suffer to exist any liability for borrowed money, except any borrowings that does not render the Borrower a "Shell" company as defined in Rule 12b-2 under the Securities Exchange Act of 1934.

2.3 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.

2.4 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 $300,000.

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

  

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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.

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 $250,000, 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 OTCQB 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.

  

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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

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, provided that the Borrower shall 20 days to cure any such defaults in this Section 3.13.

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without written notice to the Holder on the date it becomes effective.

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

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

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE

  

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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.

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.

  

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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:

	  	  	
HDS INTERNATIONAL CORP.

	  	  	
10 Dorrance Street - Suite 700

	  	  	
Providence, RI 02903

	  	  	
Attn: TASSOS RECACHINAS, Chief Executive Officer

	  	  	
facsimile: 888-501-2280

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

	  	  	
The Law Office of Conrad C. Lysiak, P.S.

	  	  	
ATTN: Conrad C. Lysiak, Esq.

	  	  	
601 West First Avenue, Suite 903

	  	  	
Spokane, WA 99201

	  	  	
facsimile: 509-747-1770

	  	  	  
	  	  	  
	  	
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:

	  	  	
ASHER ENTERPRISES, INC.

	  	  	
1 Linden Pl., Suite 207

	  	  	
Great Neck, NY. 11021

	  	  	
Attn: Curt Kramer, President

	  	  	
facsimile: 516-498-9894

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

	  	  	
Naidich Wurman Birnbaum & Maday, LLP

	  	  	
80 Cuttermill Road, Suite 410

  

16

  

	  	  	
Great Neck, NY 11021

	  	  	
facsimile: 516-466-3555

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).

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.

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

  

17

  

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. .

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 October 4, 2013.

HDS INTERNATIONAL CORP.

	
By:

	
TASSOS RECACHINAS

	  	
TASSOS RECACHINAS

	  	
Chief Executive Officer

  

18

  

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 HDS INTERNATIONAL CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of October 4, 2013 (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:

	
 

	  
	  	
ASHER ENTERPRISES, INC.

	  	
1 Linden Pl., Suite 207

	  	
Great Neck, NY. 11021

	  	
Attention: Certificate Delivery

	  	
(516) 498-9890

	
 

	  
	  	
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:

	  	  
	
 

	  
	  	
ASHER ENTERPRISES, INC.

	
 

	  
	  	
By: _____________________________

	  	
Name: Curt Kramer

	  	
Title: President

	  	
Date: ______________

	  	
1 Linden Pl., Suite 207

	  	
Great Neck, NY. 11021

  

19

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