Document:

ex10.1

 

 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. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES. 
 

 Principal Amount: $27,500.00 Issue Date: February 28, 2012 
 Purchase Price: $27,500.00 
 

 CONVERTIBLE PROMISSORY NOTE
 

 FOR VALUE RECEIVED, Bio-Matrix Scientific Group, Inc., a Delaware 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 $27,500.00 together with any interest as set forth herein, on November 30, 2012 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.0001 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 
 

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 Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”). 
 

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

 The following terms shall apply to this Note: 
 

 ARTICLE I. CONVERSION RIGHTS
 

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

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 Date, plus (3) at the Borrower’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. 
 

 1.2 Conversion Price. 
 

 (a) Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (as defined herein) (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, 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) (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 
 

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 clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative. 
 

 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 pursuant to Section 4(g) of the Purchase Agreement. 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 
 

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 issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof. 
 

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

 (d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as 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 
 

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

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

 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: 
 

 

 

 

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

 The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the 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, the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation, merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization. 
 

 (b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization, reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of 
 

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

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

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

 The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per 
 

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 share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options. 
 

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

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

 (f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth 
 

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 (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note. 
 

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

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

 1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is one hundred twenty (120) days following the date hereof, 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 
 

 10
 

 
 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 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 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 which is one hundred twenty-one (121) days 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 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 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 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 Second 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. 
 

 After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment. 
 

 

 

 

 11
 

 
 ARTICLE II. CERTAIN COVENANTS
 

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

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

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

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

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

 

 

 

 12
 

 
 ARTICLE III. EVENTS OF DEFAULT
 

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

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

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

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

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

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

 

 13
 

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

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

 3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the 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. 
 

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

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

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

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

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

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

 

 14
 

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

 Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all 
 

 15
 

 
 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. 
 

 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: 
 

 Bio-Matrix Scientific Group, Inc. 
 4700 Spring Street - Suite 203 
 La Mesa, CA 91942 
 Attn: DAVID KOOS, Chief Executive Officer 
 facsimile: 
 

 

 

 

 16
 

 
 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 
 Great Neck, NY 11021 
 Attn: Bernard S. Feldman, Esq. 
 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). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement. 
 

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

 4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of 
 

 17
 

 
 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 Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock. 
 

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

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

 

 18
 

 
 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 February 28, 2012. 
 

 Bio-Matrix Scientific Group, Inc. 
 

 By: /s/David Koos
 DAVID KOOS 
 Chief Executive Officer
 

 

 

 

 

 

 

 

 

 

 

 19
 

 
 EXHIBIT A
 

 NOTICE OF CONVERSION
 

 The undersigned hereby elects to convert $_________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of Bio-Matrix Scientific Group, Inc., a Delaware corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of February 28, 2012 (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, New York 11021
 

 

 20Unassociated Document

Exhibit 10.1

 

 

AMENDED AND RESTATED EMPLOYMENT AGREEMENT

 

This AMENDED AND RESTATED EMPLOYMENT AGREEMENT (“Agreement”) made as of the 24th day of April, 2012 between FRIENDFINDER NETWORKS INC., a Nevada corporation (the “Company”) having an office at 6800 Broken Sound Parkway, Suite 200, Boca Raton, Florida 33487  and MARC H. BELL (the “Executive”).

 

WHEREAS, the Company and Executive are parties to that certain Employment Agreement that became effective May 16, 2011 (the "Employment Agreement"); and

 

WHEREAS, the Company and Executive have agreed to amend and restate the Employment Agreement under the terms and conditions provided herein; and

 

WHEREAS, the Company desires to continue the Executive's employment and the Executive desires to accept such continued employment by the Company on the terms and subject to the conditions hereinafter set forth.

 

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

 

1.             Employment.  The Company hereby employs the Executive, and the Executive hereby accepts such employment by the Company, upon the terms and conditions set forth below.

 

2.             Term.  Subject to the provisions for termination herein provided, the Company and the Executive agree that the Employment Agreement initially became effective on May 16, 2011 (the “Effective Date”) and that this Agreement shall continue until March 29, 2017 (the “Term”), or until the Executive terminates employment in accordance with Section 5, if earlier.  Nothing in this Agreement, as amended and restated, shall be deemed to extend the Term of Executive's employment.

 

3.             Duties and Responsibilities.

 

3.1           During the Term, the Executive shall have the following positions with the Company: (a) commencing on March 30, 2012 through the close of business on June 30, 2012, the Executive shall have the position of Chief Executive Officer of the Company; and (b) commencing on July 1, 2012 through the remainder of the Term, the Executive shall have the position of Chief Strategy Officer and Co-Chairman of the Board of Directors of the Company (the “Board”).

 

3.2           At all times during the Term and in connection with the above positions, the Executive shall perform such executive duties and responsibilities commonly incident to such office as may be assigned to him from time to time by or under the authority of the Board, and, in the absence of such assignment, such duties customary to such offices as are necessary to the operations of the Company.

 

3.3           The Executive’s employment by the Company shall be full-time, and during the Term, the Executive agrees that he will devote his business time and attention, his best efforts, and all of his skill and ability to promote the interests of the Company, provided the Executive shall be permitted to engage in charitable and civic activities and manage his personal investments as long as such other activities (individually or collectively) (a) do not interfere with the performance of his duties or responsibilities under this Agreement and (b) do not injure the reputation, business or business relationships of the Company or any of its affiliates as reasonably determined by the Company in good faith.

 

  

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3.4           The Executive shall be permitted to perform the services required by this Agreement from any location(s) selected by the Executive to the extent that the Executive has electronic access to the Company’s computer system from such location(s).

 

3.5           Nothing contained herein shall require the Executive to follow any directive or to perform any act which would violate any laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority. The Executive shall act in accordance with all laws, ordinances, regulations or rules of any governmental, regulatory or administrative body, agent or authority, any court or judicial authority, or any public, private or industry regulatory authority.

 

4.           Compensation.

 

4.1           Base Salary.  Subject to Section 10 hereof, during the Term, the Company shall pay the Executive the following "Base Salary" in accordance with the Company's customary payroll practices as in effect from time to time (but in no event less frequently than monthly): the Executive shall receive a Base Salary of $500,000 per annum.  The Base Salary may be increased each fiscal year of the Company (the “Fiscal Year”) following the first anniversary of the date hereof at the rate of ten percent (10%) of the then current Base Salary, if permitted under the terms of the agreements governing the Company's indebtedness and obligations  (the “Indenture”).

 

4.2           Annual Stock Grant.  Subject to the Company's stockholders approving the FriendFinder Networks Inc. 2012 Stock Incentive Plan (the "Incentive Plan") at the 2012 annual stockholders' meeting and any subsequent stockholder approvals of incentive plans that are required in order to make the annual stock grants required by this Agreement (the “Stockholder Approval”), on the last day of each calendar quarter during the Term beginning with the calendar quarter commencing April 1, 2012(each an  “Equity Grant Date”), the Company shall grant to the Executive 62,500 shares of common stock, par value $0.001 per share, of the Company (“Common Stock”), which shall be non-forfeitable and free of any restrictions on sale, transfer, assignment or other conveyance.  The Executive, at his election, may pay to the Company the withholding tax due on the grant of the Common Stock within the five business day period following the date of the grant or may instruct the Company to withhold that number of whole shares of Common Stock required to pay the minimum statutory withholding tax due with respect to the grant. In the event that Stockholder Approval has not been obtained as of an Equity Grant Date and as a result of the lack of such Stockholder Approval the Company is not able to award all or a portion of the equity that is required to be awarded pursuant to the Agreement (disregarding the Stockholder Approval requirement), if and when the Stockholder Approval is obtained, all equity that would have been granted to the Executive on any Equity Grant Date  (disregarding the Stockholder Approval requirement) prior to the Stockholder Approval shall be awarded within five (5) days of the Stockholder Approval (provided that such equity shall be reduced to the extent that the Company has provided compensation to the Executive in lieu of the equity pursuant to the following sentence).  In the event that Stockholder Approval is not obtained within three (3) months of the date of the Agreement (and/or within three (3) months of any date on which a subsequent Stockholder Approval is required in order to grant the equity under this Section 4.2), then the Company shall use its best efforts to provide other compensation to the Executive in order to put the Executive in the same economic position he would have been had Stockholder Approval been obtained within the requisite period.

 

  

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4.3           Bonus. In addition to the Base Salary, the Executive will be eligible to receive (i) a performance bonus in respect of each Fiscal Year the Executive is employed by the Company during the Term of up to one hundred percent (100%) of the Base Salary in effect on the last day of the Fiscal Year plus (ii) one hundred percent (100%) of the dollar value of the quarterly Common Stock grants made to the Executive during the applicable Fiscal Year pursuant to Section 4.2 of the Agreement, determined based on the closing stock price of the Common Stock of the Company as of the date of the grants. The award of each year’s performance bonus, if any, shall be based upon the following performance criteria: (a) seventy-five percent (75%) based on the compensation committee's objective evaluation of revenue growth, successful integration of acquisitions, EBITDA growth and margin improvement, which shall be provided to the Executive in writing at the beginning of each Fiscal Year (and no later than January 31 of each Fiscal Year), and (b) twenty-five percent (25%) based on the compensation committee's subjective evaluation of the Executive’s performance.  Such determination shall be made after consultation with the Executive within sixty (60) days following the end of each Fiscal Year during the Term commencing with the Fiscal Year ended December 31, 2012.  For the Fiscal Year 2012, the criteria set forth above shall be evaluated commencing on the Effective Date.  The Executive must be employed by the Company through December 31 of the applicable Fiscal Year in order to receive a bonus with respect to such Fiscal Year.  Subject to Section 10 hereof, the Company shall pay any performance bonus payable hereunder within seventy-four (74) days following the end of the applicable Fiscal Year; provided, however, to the extent any portion of the bonus (the "Excess Bonus"), is not deductible by the Company pursuant to Section 162(m) of the Code, then such Excess Bonus shall not be paid to the Executive until the first day of the month following the date of Executive's termination of employment with the Company. The full performance bonus that may be awarded pursuant to this Section 4.2, as it may be increased from time to time in the discretion of the Board, shall be referred to herein as the “Bonus.”  The Bonus will be paid in cash.  In the event that as of the result of any Indenture effective as of the payment date of the Bonus, the Bonus cannot be paid in its entirety in the form of cash, the portion of the Bonus that cannot be paid in cash shall be paid in the form of Common Stock.  If such portion of the Bonus cannot be paid in the form of Common Stock because of the lack of available shares under the Company’s equity plans that have received Stockholder Approval, the Company shall use its best efforts to pay to the Executive such portion of the Bonus in a form permissible under the Indenture.  Notwithstanding the foregoing, in no event shall the foregoing provisions relieve the Company of its obligation to pay to the Executive the full Bonus provided under Section 4.3.

 

4.4           Stock Options.  Subject to availability under the Company's 2008 Stock Option Plan or obtaining the Stockholder Approval, the Company shall grant on the date of this Agreement an option to purchase 8,334 shares of common stock of the Company and shall grant an option to purchase 4,167 shares of common stock of the Company on April 3, 2013 and on each anniversary of April 3, 2013 during the Term (each such grant, an “Option”); provided, that, the Executive is employed by the Company on each such date.  The respective exercise price per share of each Option shall be no less than the fair market value of the underlying shares on the date the Option is granted.  The fair market value of the Company’s common stock shall be determined based on the closing price on the trading day immediately before the grant date.  Subject to accelerated vesting provisions set forth in Section 6 herein, each Option shall vest as to twenty percent (20%) of the shares subject to such Option on the first anniversary of the grant of such Option and as to twenty percent (20%) of the shares subject to such Option on each anniversary thereafter, subject to the Executive’s continued employment with the Company on the relevant vesting dates.  In all other respects, each Option shall be subject to the terms, definitions and provisions of the Company’s 2008 Stock Option Plan, as amended from time to time, and the stock option agreement by and between the Executive and the Company.

 

  

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4.5           Restricted Stock.  Subject to availability under the Company's 2009 Restricted Stock Plan or obtaining the Stockholder Approval, on May 16, 2012 and on each anniversary of such date thereafter during the Term, the Company shall issue to the Executive 2,500 shares of restricted stock (the “Restricted Stock”); provided, that, the Executive is employed by the Company on each such anniversary date, which stock the Executive shall not sell, transfer, assign or otherwise convey prior to the third anniversary of the date such Restricted Stock is issued.  In the event that the Executive ceases to be employed by the Company, except for termination of the Executive’s employment under Certain Circumstances or due to the Executive’s death, “disability” (as defined under the FriendFinder Networks Inc. 2009 Restricted Stock Plan) or termination of the Executive’s employment upon the expiration of the Term, the Company shall have the right to repurchase any Restricted Stock issued less than three years prior to the date of such termination at the fair market value of the Restricted Stock on the date such Restricted Stock was issued.  The Company shall provide written notice to the Executive of its intention to exercise such repurchase right no later than five (5) days after the date of termination of employment and the repurchase of the Restricted Stock shall be consummated within ten (10) days of such notice.

 

For purposes of this Agreement, “Certain Circumstances” shall mean the termination of the Executive’s employment (i) by the Company Without Cause (as defined in Section 5.1); or (ii) by the Executive for Good Reason (as defined in Section 5.2); or (iii) as a result of a Change in Control (as defined in Section 6).

 

4.6           Share Adjustment.  All share amounts contemplated in Sections 4.2, 4.3, 4.4 and 4.5 are subject to appropriate adjustment in the event of a stock split, reverse stock split, merger, recapitalization and similar transactions which may take place after the date hereof.

 

4.7           Expenses.  The Company shall pay or reimburse the Executive for all reasonable out-of-pocket expenses incurred by the Executive, accompanied by vouchers therefore in accordance with the Company’s policies, in the course of providing management services to the Company or in connection with otherwise performing services under this Agreement. In addition, the Company will reimburse the Executive for reasonable attorneys fees paid to one law firm for representing the Executive in negotiating this Agreement.

 

4.8           Vacation.  The Executive shall be entitled to paid vacation, as well as paid holidays and paid time off according to the Company policy in effect from time to time.

 

4.9           Benefits.  During the Term of this Agreement, the Executive shall be eligible to participate in each of the Company’s existing or future benefit plans, policies or arrangements maintained by the Company and made available to employees generally, as well as all such existing or future benefit plans, policies or arrangements maintained by the Company for the benefit of executives. Except as specifically provided for herein, no additional compensation under any such plan, policy or arrangement shall be deemed to modify or otherwise effect the terms of this Agreement.

 

  

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4.10           D&O Insurance Coverage.  The Company shall cover Executive in its standard D&O insurance policy, under the current limits and evidence in place and shall provide written evidence of such coverage upon request by the Executive; provided that the limits shall be no less than $10 million per defined loss, and $10 million in total coverage.

 

4.11           Indemnification Agreement.  It is hereby agreed between Executive and Company that Executive’s Indemnification Agreement entered into as of April 21, 2009 and attached hereto as Exhibit 1 shall remain in full force and effect in accordance with its terms.

 

5.           Termination.

 

5.1           Termination by the Company for Cause. The Company may terminate the Executive’s employment and this Agreement at any time during the Term for Cause, effective immediately upon written notice to the Executive of such termination.  For purposes of this Section 5.1, “Cause” shall mean: a willful failure or refusal on Executive’s part to perform Executive’s duties under this Agreement, or a willful failure or refusal to carry out the lawful directions of the Board; willful gross misconduct, willful dishonesty or fraud on Executive’s part in connection with Executive’s employment, regardless of whether it results in economic harm to the Company or its subsidiaries or affiliates; or a material breach by the Executive of any provision of this Agreement.  No termination of the Executive’s employment hereunder by the Company for Cause shall be effective as a termination for Cause unless the provisions of this Section shall first have been complied with.  The Executive shall be given written notice by the Board, with such notice stating in reasonable detail the particular circumstances that constitute the grounds on which the proposed termination for Cause is based.  The Executive shall have ten (10) days after receipt of such notice to fully cure such alleged violation, if possible.  If he fails to cure such alleged violation within such ten (10) day period, the Executive shall then be entitled to a hearing in person (together with counsel) before the full Board.  If after such hearing, the Board gives written notice to the Executive confirming that a majority of the members of the full Board voted after the hearing to terminate him for Cause, the Executive’s employment shall thereupon be terminated for Cause.  For purposes hereof, no act or omission shall be deemed to be “willful” if such act or omission was taken (or omitted) in the good faith belief that such is in the best interests of, or not opposed to the best interests of, the Company or if such act or omission resulted from the Executive’s physical or mental incapacity.

 

5.2           Termination by the Company Without Cause.  The Company may terminate the Executive’s employment and this Agreement without Cause upon thirty (30) days’ prior written notice to the Executive.

 

5.3           Termination by the Executive for Good Reason.  The Executive may terminate his employment and this Agreement for Good Reason.  A resignation for “Good Reason” shall mean a resignation by the Executive of the Executive’s employment within sixty (60) days following the occurrence of any of the following events or the date that the Executive has actual knowledge of any of the events, if later:

 

  

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(a)           Without the Executive’s written consent, a material change or reduction of his duties, title(s), position or responsibilities;

 

(b)           Without the Executive’s written consent, a significant reduction by the Company in the Base Salary or Bonus as in effect immediately prior to such reduction or a significant reduction or failure to provide the other compensation and benefits to Executive as set forth under this Agreement;

 

(c)           The Company’s breach of any provision in this Agreement; or

 

(d)           Without the Executive’s written consent, a requirement by the Company that the Executive relocate his office to a location more than one (1) mile from its then-current location or if the Company requires extensive travel above and beyond what Executive has customarily performed for the Company.

 

5.4           Voluntary Termination by the Executive Without Good Reason.  The Executive may voluntarily terminate his employment hereunder without Good Reason, upon not less than 60 days’ prior written notice to the Company.

 

5.5           Death.  The Executive’s employment and this Agreement shall automatically terminate upon the Executive’s death.

 

6.           Severance.

 

6.1           In the event of a termination of the Executive’s employment by the Company for Cause, by the Executive without Good Reason, due to the expiration of the Term or as a result of the Executive’s death, the Executive (or his estate, as applicable) shall be entitled to (i) his Base Salary earned but unpaid through and including the date of the termination of his employment, (ii) any unpaid bonus that is earned and accrued for any completed Fiscal Year (including but not limited to any Excess Bonus), (iii) any benefits or payments to which the Executive is entitled under any Company plan, program, agreement, or policy, and (iv) have forwarded to an email address specified by the Executive (or his estate) following his termination all emails sent to mbell@ffn.com, mbell@PMGI.com, Mbell@penthouse.com and any other email addresses used by the Executive while employed by the Company for a period of seven (7) years following the date of the Executive’s termination of employment (collectively, the “Accrued Amounts”).  In the case of the provision set forth above in Section 6.1(iv), the Executive shall be bound by the confidentiality obligations set forth in Section 9 herein for such applicable period of time and the Company may automatically cease forwarding such e-mails upon discovering that Executive has violated his confidentiality obligations. Additionally, the Company may cease forwarding such e-mails if the act of forwarding such e-mails would result in the Company violating any law.  Nothing in Section 6.1(iv) above shall prohibit the Company from shutting down a website, sever, domain name or taking any other related action which would result in the Company's inability to forward e-mails to the Executive if such decision was made by the Board in good faith.   For avoidance of doubt, absent a termination of employment in connection with a Change in Control pursuant to Section 6.3 the Executive shall not be entitled to any severance benefits pursuant to Section 6.2 if his employment is terminated by the Company for Cause, by the Executive without Good Reason or due to the Executive's death or the expiration of the Term; provided that, in the event that the Executive's employment is terminated by the Company for Cause or is terminated by the Executive without Good Reason (a "Discretionary Severance Event"), the Board (without the Executive's participation), in its sole and absolute discretion, may choose to pay the Executive an amount equal to the sum of the payments referred to in subsections 6.2(a) and (b) below, payable in twenty-four (24) monthly payments, beginning within sixty (60) days following the termination date.

 

  

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6.2           In the event the Executive’s employment is terminated by the Company without Cause (which does not include termination due to expiration of the Term) or by the Executive for Good Reason during the Term, the Executive shall be entitled to the Accrued Amounts and, subject to the Executive’s signing, returning to the Company and not revoking a release of claims related to the Executive's employment with the Company, for the benefit of the Company, in the form provided by the Company and mutually agreed upon by the parties (the “Release”), the Executive shall be entitled to receive, and the Company shall be obligated to provide, the following cash severance benefits:

 

(a)           Payment to the Executive of an amount equal to the lesser of (i) 2.99 times (A) the Base Salary as of the date  of  termination plus (B) the value of 250,000 shares of Common Stock (determined based on the closing price of the Common Stock as of the date of termination) or (ii) the amount of Base Salary owed to the Executive for the remainder of the Term plus the value of the Common Stock to be granted to the Executive over the remainder of the Term (determined based on the closing price of the Common Stock of the Company as of the date of termination), in twenty-four (24) monthly payments, beginning within sixty (60) days following the termination date, as determined by the Company;

 

(b)           Payment to the Executive of an amount equal to one hundred percent (100%) of the Bonus opportunity actually earned for the Fiscal Year prior to the year of termination, if any; this amount shall be paid in twenty-four (24) monthly payments, beginning within sixty (60) days following the termination date, as determined by the Company;

 

(c)           Payment to the Executive of an amount equal to five (5) times the Executive’s Base Salary plus five (5) times the value of 250,000 shares of Common Stock (determined based on the closing price of the Common Stock of the Company as of the date of termination) less the amount determined pursuant to Section 6.2(a), to be paid in a lump sum within sixty (60) days following termination, as determined by the Company; and

 

(d)           The same level of health (i.e. medical, vision and dental) coverage and benefits as in effect for the Executive and his dependents on the day immediately preceding the date of termination of employment; provided, however that (i) the Executive constitutes a qualified beneficiary, as defined in Section 4980B(g)(1) of the Code; and (ii) the Executive elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The Company shall continue to provide the Executive and his dependents with such health coverage at the Company's expense until the date the Executive and his dependents are no longer eligible to receive continuation coverage pursuant to COBRA;

 

(e)           All outstanding stock options, restricted stock and other awards granted under the Incentive Plan (the "Awards") shall immediately vest upon termination and the Executive shall be entitled to sell, transfer or otherwise convey all shares of stock received pursuant to the Awards as of the date of termination notwithstanding any provision in any award agreement to the contrary, subject to compliance with the federal securities laws.  Executive shall remain eligible to exercise his stock options through the expiration date of such stock options notwithstanding any provision in any stock option award agreement to the contrary.  Notwithstanding this subsection 6.2(e), however, Executive shall have the option, in his sole discretion, to elect to forgo the accelerated vesting of the Awards.

 

  

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Notwithstanding anything else to the contrary in this Agreement, all severance and benefits provided in this Section 6.2 are subject to the Executive’s signing, returning to the Company and not revoking a release of claims related to the Executive's employment with the Company, for the benefit of the Company, in the form provided by the Company and mutually agreed upon by the parties (the “Release”) within 45 days following the date the Executive actually receives an execution copy of such Release.  The Company shall have no more than 15 days following the Executive's termination of employment to provide Executive with such release.  In the event the 60 day post-termination period, during which the payments referred to in subsections 6.2(a), 6.2(b) and 6.2(c) above or 6.3(a), 6.3(b) and 6.3(c) below are required to be made, begins in one taxable year of the Executive and ends in a second taxable year of the Executive, the payments referred to in subsections 6.2(a), 6.2(b) and 6.2(c) above or 6.3(a), 6.3(b) and 6.3(c) below shall be made in the second taxable year (and within such 60 day period).

 

6.3           In the event that the Executive's employment is terminated for any reason within 12 months following a Change in Control, the Executive shall be entitled to receive the Accrued Amounts and, subject to the Executive’s signing, returning to the Company and not revoking a release of claims related to the Executive's employment with the Company, for the benefit of the Company, in the form provided by the Company and mutually agreed upon by the parties (the “Release”), the Executive shall be entitled to receive, and the Company shall be obligated to provide, the following cash severance benefits:

 

(a)           Payment to the Executive of an amount equal to the lesser of (i) 2.99 times (A) the Base Salary as of the date  of  termination plus (B) the value of 250,000 shares of Common Stock (determined based on the closing price of the Common Stock as of the date of termination) or (ii) the amount of Base Salary owed to the Executive for the remainder of the Term plus the value of the Common Stock to be granted to the Executive over the remainder of the Term (determined based on the closing price of the Common Stock of the Company as of the date of termination), in twenty-four (24) monthly payments, beginning within sixty (60) days following the termination date, as determined by the Company;

 

(b)           Payment to the Executive of an amount equal to one hundred percent (100%) of the Bonus opportunity actually earned for the Fiscal Year prior to the year of termination, if any; this amount shall be paid in twenty-four (24) monthly payments, beginning within sixty (60) days following the termination date, as determined by the Company;

 

(c)           Payment to the Executive of an amount equal to five (5) times the Executive’s Base Salary plus five (5) times the value of 250,000 shares of Common Stock (determined based on the closing price of the Common Stock of the Company as of the date of termination) less the amount determined pursuant to Section 6.2(a), to be paid in a lump sum within sixty (60) days following termination, as determined by the Company; and

 

(d)           The same level of health (i.e. medical, vision and dental) coverage and benefits as in effect for the Executive and his dependents on the day immediately preceding the date of termination of employment; provided, however that (i) the Executive constitutes a qualified beneficiary, as defined in Section 4980B(g)(1) of the Code; and (ii) the Executive elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), within the time period prescribed pursuant to COBRA. The Company shall continue to provide the Executive and his dependents with such health coverage at the Company's expense until the date the Executive and his dependents are no longer eligible to receive continuation coverage pursuant to COBRA.

 

  

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(e)           All outstanding Awards shall immediately vest upon termination and the Executive shall be entitled to sell, transfer or otherwise convey all shares of stock received pursuant to the Awards as of the date of termination notwithstanding any provision in any award agreement to the contrary, subject to compliance with the federal securities laws.  Executive shall remain eligible to exercise his stock options through the expiration date of such stock options notwithstanding any provision in any stock option award agreement to the contrary.

 

(f)           To the extent that severance benefits are payable under this Section 6.3, no benefits shall be payable under Section 6.2.

 

For purposes of this Agreement, a “Change in Control” shall mean:  (i) the direct or indirect acquisition, whether in one or a series of transactions by any person (as such term is used in Section 13(d) and Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), or related persons (such person or persons, an “Acquirer”) constituting a group (as such term is used in Rule 13d-5 under the Exchange Act), of (A) beneficial ownership (as defined in the Exchange Act) of issued and outstanding shares of stock of the Company, the result of which acquisition is that such person or such group possesses in excess of 50% of the combined voting power of all then-issued and outstanding capital stock of the Company, or (B) the power to elect, appoint, or cause the election or appointment of at least a majority of the members of the Board (or such other governing body in the event the Company or any successor entity is not a corporation); (ii) a merger or consolidation of the Company with a person or a direct or indirect subsidiary of such person, provided that the result of such merger or consolidation, whether in one or a series of related transactions, is that the holders of the outstanding voting stock of the Company immediately prior to the consummation of such transaction do not possess, whether directly or indirectly, immediately after the consummation of such merger or consolidation, in excess of 50% of the combined voting power of all then-issued and outstanding capital stock of the merged or consolidated person, its direct or indirect parent, or the surviving person of such merger or consolidation; or (iii) a sale or disposition, whether in one or a series of transactions, of all or substantially all of the Company’s assets.

 

6.4           In the event of the Executive’s death on or after he becomes entitled to severance hereunder, any severance not yet paid to the Executive as of the date of his death shall be paid to his estate.

 

6.5           Notwithstanding any other provision contained herein, if the Board (or its delegate) determines in its discretion that severance payments due under this Agreement are “nonqualified deferred compensation” subject to Section 409A of the Code and that the Executive is a “specified employee” as defined in Section 409A(a)(2)(B)(i) of the Code and the regulations and other guidance issued thereunder, then such severance payments, to the extent that they are nonqualified deferred compensation subject to Section 409A of the Code shall be paid on the first payroll date of the seventh month following the month in which the Executive’s termination occurs.  For purposes of this Agreement, whether the Executive is a “specified employee” will be determined in accordance with written procedures adopted by the Board.

 

  

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6.6           Notwithstanding any other provision contained herein, the Company shall establish an irrevocable grantor trust (the “Trust”) containing provisions which are the same as, or are similar to, the provisions contained in the model “rabbi trust” set forth in Internal Revenue Service Revenue Procedure 92-64 within sixty (60) days of the date of the Agreement.  Upon the earlier of the date that there is a Change in Control of the Company or the date the Executive terminates employment with the  Company pursuant to Section 6.2 of the Agreement, the Company shall make an irrevocable deposit into the Trust in an amount equal to the full severance benefits payable or potentially payable to the Executive pursuant to Section 6.2 (in the event there has not been a Change in Control as of the date of termination) or 6.3 (in the event that the there has been a Change in Control).  In the event that the amount of the severance benefits payable pursuant to Section 6.3 cannot be determined with certainty as of the date of the Change in Control, the Company shall make a good faith estimate of the severance benefits payable pursuant to Section 6.3 and shall make additional deposits to the Trust on a monthly basis if the severance benefits payable pursuant to Section 6.3 exceed the amount previously deposited in the Trust.  The Company shall pay all costs relating to the establishment and maintenance of the Trust and the investment of funds held in such Trust.  The severance benefits payable pursuant to Section 6.2 or Section 6.3, as applicable, shall be paid from the Trust unless the Company timely pays the severance benefits to the Executive.

 

6.7           In the event that as of the result of any Indenture effective as of the date of the Executive’s termination, the severance benefits payable pursuant to Section 6.2 or Section 6.3, as applicable, cannot be paid in their entirety in the form of cash, the severance benefits shall be paid in the form of Common Stock to the extent they cannot be paid in cash.  If that portion of the severance benefits cannot be paid in the form of Common Stock because of the lack of available shares under the Company’s equity plans that have received Stockholder Approval, the Company shall use its best efforts to pay to the Executive that portion of the severance benefits in a form permissible under the Indenture.  Notwithstanding the foregoing, in no event shall this Section 6.7 relieve the Company of its obligation to pay to the Executive the full benefits provided under Section 6.2 or Section 6.3, as applicable.

 

7.           Non-Competition.  Executive acknowledges that Executive’s employment with the Company will enable Executive to obtain, among other things, knowledge associated with the Company’s business and will also enable Executive to form certain relationships with individuals and entities with which the Company furnishes its products and/or services.  Executive further acknowledges that the substantial relationships with prospective and existing customers, goodwill and other valuable proprietary interests of the Company will cause the Company to suffer irreparable and continuing damage in the event Executive competes or assists others in competing with the Company during Executive’s employment and within two (2) years subsequent to the Executive’s notice of voluntary termination (other than for Good Reason) during the Term or a Discretionary Severance Event (if the Board chooses to make the payments described in Section 6.2 above).  Therefore, Executive agrees that during Executive’s employment and for a period of two (2) years from the date of notice in the event of voluntary termination (other than for Good Reason) during the Term or a Discretionary Severance Event (if the Board chooses to make the payments described in Section 6.2 above) (“Restrictive Period”), Executive will not, without the prior written consent of the Company, which consent may be withheld by the Company in its sole and absolute discretion, be employed directly or indirectly by a competitor of the Company, or otherwise engage directly or indirectly in any conduct, activity, or business that substantially competes with the business of the Company’s internet segment, as described in the Company’s registration statement on Form S-1 for its initial public offering, as of the date of effectiveness of such registration statement.  The phrase “directly or indirectly” shall include either as an individual or as a partner, joint venturer, employee, agent, executive, independent contractor, consultant, officer, director, stockholder, investor or otherwise.  Nothing herein shall preclude Executive from continuing to engage in the activities authorized by Paragraph 3.3 of this Agreement.  Executive further acknowledges that Executive’s continued employment with the Company and the payment of severance pursuant to Section 6 herein constitutes fair and adequate consideration for Executive’s agreement not to engage in such conduct during the Restrictive Period in the event of Executive’s voluntary termination (other than for Good Reason) or a Discretionary Severance Event (if the Board chooses to make the payments described in Section 6.2 above).  The geographic scope of the non-competition obligations of this paragraph includes anywhere in the world where the Company engage(s) in business or otherwise markets or sells its/their products or services (“Restricted Area”) in the provision of any services which are the same as, substantially similar to or competitive with the business and services which the Company was designing, developing, selling or providing, within the twelve (12) month period prior to the Employee’s termination of employment.  Notwithstanding the foregoing, in the event the Company shall fail to pay Executive any severance payments to Executive pursuant to Section 6 of this Agreement when due, Executive shall have no further obligations under this Section 7.  In the event that the Company files for bankruptcy or materially defaults on its secured debt, the Executive shall have no further obligations under this Section 7.

 

  

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8.           Non-Solicitation.  Executive acknowledges that, because of Executive’s responsibilities at the Company, Executive has developed and will help to develop, and has been exposed to, the Company’s business strategies, information on customers and clients, and other valuable Proprietary Information, and that use or disclosure of such Proprietary Information in breach of this Agreement would be extremely difficult to detect or prove.  For purposes of this Agreement, “Proprietary Information” shall mean any and all trade secrets, confidential knowledge, data or any other proprietary information pertaining to any business of the Company or any of its clients, customers or consultants, licensees or affiliates.  By way of illustration but not limitation, “Proprietary Information” includes (a) inventions, ideas, improvements, discoveries, trade secrets, processes, data, programs, source code, web site designs, web site processes, knowledge, know-how, designs, techniques, formulas, test data, computer code, complaints, complaint processes and analysis, security procedures and processes, passwords, user ids, customer information, affiliate information, customer lists, affiliate lists, other works of authorship and designs whether or not patentable, copyrightable, or otherwise protected by law, and whether or not conceived or prepared by the Executive, either alone or jointly with others (hereinafter collectively referred to as “Inventions”); (b) information regarding research, development, new products and services, marketing plans and strategies, merchandising and selling, business plans, strategies, forecasts, projections, profits, investments, operations, financings, records, budgets and financial statements, licenses, prices and costs, suppliers and customers; and (c) identity, requirements, preferences, practices and methods of doing business of specific parties with whom the Company transacts business, and information regarding the skills and compensation of other employees of the Company and independent contractors performing services for the Company.  Executive also acknowledges that the Company’s relationships with its employees, customers, clients, vendors, and other persons are valuable business assets.  Therefore, Executive agrees as follows:

 

  

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(a)           Executive shall not, for a period of one (1) year following Executive’s date of notice of voluntary termination (other than for Good Reason) or a Discretionary Severance Event (if the Board chooses to make the payments described in Section 6.2 above), directly or indirectly solicit, induce, recruit, or encourage any officer, director, or employee of the Company to leave the Company or terminate his or her employment with the Company.

(b)           Executive shall not, for a period of one (1) year following the Executive’s date of notice of voluntary termination (other than for Good Reason) or a Discretionary Severance Event (if the Board chooses to make the payments described in Section 6.2 above), for the purpose of selling products or services competitive with the Company’s, solicit any actual or prospective customer or client of the Company by using the Company’s Proprietary Information or trade secrets, or otherwise solicit such customers or clients by using means that amount to unfair competition.

Notwithstanding the foregoing, in the event the Company shall fail to pay Executive any severance payments to Executive pursuant to Section 6 of this Agreement when due, Executive shall have no further obligations under Section 8(a) and Section 8(b) hereto.  In the event that the Company files for bankruptcy or materially defaults on its secured debt, the Executive shall have no further obligations under this Section 8.

9.           Confidentiality. The Executive understands and acknowledges that in the course of his employment, he has had and will continue to have access to and will learn confidential information regarding the Company that concerns the technological innovations, operations and methodologies of the Company, including, without limitation, business plans, financial information, protocols, proposals, manuals, procedures and guidelines, computer source codes, programs, software, know-how and specifications, inventions, copyrights, trade secrets, market information, developments (as hereinafter defined), data and customer information (collectively, “Confidential Information”). The Executive recognizes that the use or disclosure of Confidential Information could cause the Company substantial loss and damages which could not be readily calculated, and for which no remedy at law would be adequate. Accordingly, the Executive agrees that during the period beginning on the date hereof and continuing in perpetuity thereafter, he shall keep confidential and shall not directly or indirectly disclose any such Confidential Information to any third party, except as required to fulfill his duties in connection with his employment by the Company, and shall not misuse, misappropriate or exploit such Confidential Information in any way. The restrictions contained herein shall not apply to any information which the Executive can demonstrate (i) was already available to the public at the time of disclosure, or subsequently became available to the public, otherwise than by breach of this Agreement or (ii) was the subject of a court order to disclose.

 

10.           Administration/Other Agreements.  Notwithstanding anything contained in this Agreement to the contrary, the Executive acknowledges and agrees that the Board, in its sole and absolute discretion, shall administer this Agreement in a manner that complies with Section 409A of the Code. 

 

11.           Section 280G Gross-Up Payments.  If any of the payments under this Agreement ("Payment")  will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar tax that may hereafter be imposed), the Company shall pay to the Executive in cash additional amounts (the "Gross-Up Payments") such that the net amount retained by the Executive after deduction from the Payment and the Gross-Up Payments of any Excise Tax imposed upon the Payment and any federal, state and local income tax and Excise Tax and any other tax imposed upon the Gross-Up Payments shall be equal to the original amount of the Payment, prior to deduction of any Excise Tax imposed with respect to the Payment.  The Gross-Up Payments are intended to place the Executive in the same economic position he would have been in if the Excise Tax did not apply.  The Gross-Up Payments shall be paid to the Executive when any Excise Tax relating to said Payment becomes due and payable, provided that such Gross-Up Payments shall not be paid later than the end of the calendar year next following the calendar year in which the Executive remits (or has remitted on his behalf) the related taxes to the appropriate tax authorities.

 

  

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12.           Miscellaneous.

 

12.1           Notices.  All notices under this Agreement shall be in writing and shall be deemed to have been duly given if personally delivered with an acknowledgment of receipt or if mailed by first class registered or certified mail, return receipt requested, addressed to Company and to the Executive at their last known respective addresses, or to such other person or address as may be designated by like notice hereunder.  Any such notice shall be deemed to be given on the day delivered, if personally delivered, or on the third day after the mailing if mailed.

 

12.2           Parties in Interest.  The Executive shall not delegate his employment obligations under this Agreement to any other person.  The Company may not assign any of its obligations hereunder other than to any entity that acquires (by purchase, merger or otherwise) all or substantially all of the voting stock or assets of the Company, provided such acquirer promptly assumes all of the obligations hereunder of the Company in a writing delivered to the Executive.  In the event of a merger or other combination, or the sale or liquidation of business and assets, the Company shall use its reasonable best efforts to cause such assignee or transferee to promptly and expressly assume the liabilities, obligations and duties of the Company hereunder. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective heirs, legal representatives, successor and permitted assigns, but no other person shall acquire or have any rights under or by virtue of this Agreement.

 

12.3           Further Assurances.  From and after the date of this Agreement, each of the parties hereto shall from time to time, at the request of the other party and without further consideration, do, execute and deliver, or cause to be done, executed and delivered, all such further acts, things and instruments as may be reasonably requested or required more effectively to evidence and give effect to the transactions provided for in this Agreement.

 

12.4           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws and decisions of the State of Florida applicable to contracts made and to be performed therein without giving effect to the principles of conflict of laws.  The parties hereby consent and agree to the exclusive jurisdiction of the state and federal courts in the County of Palm Beach, State of Florida in any lawsuit arising from or relating to this Agreement.

 

12.5           Counterparts; Facsimile Signatures.  This Agreement may be executed in counterparts and by facsimile, and each such counterpart shall be deemed to be an original instrument, but all such counterparts together shall constitute but one agreement.  Facsimile signatures shall be considered originals for all purposes.

 

  

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12.6           Severability.  The provisions of this Agreement are severable, and if any one or more provisions are determined to be judicially unenforceable, in whole or in part, the remaining provisions shall nevertheless be binding and enforceable.

 

12.7           Entire Agreement; Modification; Waiver.  Except as otherwise specifically contemplated herein and in the Executive's Indemnification Agreement, this Agreement contains the entire agreement and understanding between the parties with respect to the subject matter hereof and supersedes all prior negotiations and understandings, if any.  Neither this Agreement nor any of its provisions may be modified, amended, waived, discharged or terminated in whole or in part, except in writing, and signed by the parties.  No waiver of any such provision or any breach of or default under this Agreement shall be deemed or shall constitute a waiver of any other provision, breach or default.  No amendment of the Agreement may cause any amount payable to the Executive prior to the amendment to be includible in the Executive’s taxable income on any earlier date under the provisions of Code Section 409A as determined after the amendment.

 

13.           Section 409A Compliance.  It is intended that all benefits and compensation payable pursuant to this Agreement are exempt from or, alternatively, comply with Code Section 409A (and any legally binding guidance promulgated under Code Section 409A, including, without limitation, the Final Treasury Regulations), and this Agreement will be interpreted, administered and operated accordingly.  In the event that any provision of this Agreement is inconsistent with Code Section 409A or such guidance, then the applicable provisions of Code Section 409A shall supersede such inconsistent provision.  In accordance with the foregoing, the Executive shall not have a legally binding right to any distribution made to Executive in error.  Notwithstanding the foregoing, in no event will any of the Company, its parent, its or their respective subsidiaries, affiliates, or officers, directors, employees, or agents have any liability for failure of this Agreement to be exempt from or comply with Code Section 409A and none of the foregoing guarantees that the Agreement is exempt from or complies with Code Section 409A.  For all purposes under Code Section 409A, the Executive’s right to receive any payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.  Whenever a payment under this Agreement specifies a payment period with reference to a number of days, the actual date of payment within the specified period shall be within the sole discretion of the Company.  A “termination of employment” under this Agreement shall mean a “separation from service” under Code Section 409A and Final Treasury Regulation 1.409A-1(h) and the default presumptions thereof.

 

Notwithstanding any other provision of this Agreement to the contrary, to the extent that any reimbursement of expenses constitutes “deferred compensation” under Code Section 409A, such reimbursement shall be provided no later than December 31 of the year following the year in which the expense was incurred.  The amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year.  The amount of any in-kind benefits provided in one year shall not affect the amount of in-kind benefits provided in any other year.

 

14.           Attorney Fees.  In the event that either party is required to pursue claims or commence litigation to enforce their rights under this Agreement, or to defend against claims brought against them by the other party that are determined by a court to be without merit, the prevailing party shall be entitled to recover their reasonable attorneys' fees and costs.

 

  

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15.           Tenure.  The Company acknowledges the tenure of Executive as an employee of the Company and his tenure and eligibility under the Company's policies and compensation and benefit programs applicable to employees.

 

 

[ signature page follows ]

 

  

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

 

 

	 	
FRIENDFINDER NETWORKS INC.

 

By: /s/ Ezra Shashoua 

Name: EZRA SHASHOUA

Title: CHIEF FINANCIAL OFFICER

 

EXECUTIVE:

 

/s/ Marc H. Bell 

MARC H. BELL

 

 

[Signature Page to Marc H. Bell Employment Agreement]

 

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