Document:

Exhibit 10.11 Stock Purchase Agreement

	
	 

	STOCK PURCHASE AND SALE AGREEMENT

	 

	by and between

	 

	The Enviromart Companies, Inc. (“Seller”);

Enviromart Industries, Inc. (“Company”)

	 

	And

	 

	Michael R. Rosa (“Purchaser”)

	 

	 

	 

	 

	Dated as of  March 21, 2016

	 

	 

EXECUTION COPY

STOCK PURCHASE AND SALE AGREEMENT

THIS STOCK PURCHASE AND SALE AGREEMENT (this “Agreement”), dated as of March 21, 2016 , is by and between The Enviromart Companies, Inc., a Delaware Corporation (“Seller”), Enviromart Industries, Inc., a Delaware Corporation that is a wholly-owned subsidiary of Seller (the “Company”), each having its principal place of business at 4 Wilder Dr., #7, Plaistow, NH 03865, and Michael R. Rosa, an individual with an address of 4 Wilder Dr., #, 7, Plaistow, NH 03865 (the “Purchaser”) (collectively, sometimes referred to as the “Parties”).

RECITALS

A.

Reference is made to that certain Agreement by and between Mark Shefts, the Seller, and the Purchaser, dated July 14, 2014 (“Investment Agreement”), under which such persons agreed, among other things, that, under specified conditions, the Seller would transfer the all of the issued and outstanding shares of common stock of the Company (the “Company Shares”) to the Purchaser.

“Agreement” has the meaning set forth in the preamble.

 “Closing Balance Sheet” has the meaning specified in Section 5.

“Company” has the meaning set forth in the preamble.

“Company Shares” has the meaning set forth in the recitals.

“Governmental Authority” means any government or political subdivision or regulatory body, whether federal, state, local or foreign, or any agency or instrumentality of any such government or political subdivision or regulatory authority, or any federal, state, local or foreign court or arbitrator.

“Indemnified Person” means any person entitled to be indemnified under Section 9.

“Indemnifying Person” means any person obligated to indemnify another person under Section 9.

 

“Law” means any law, statute, code, ordinance, regulation or other requirement of any Governmental Authority.

“Lien” means any mortgage, lien, pledge, encumbrance, security interest, claim, charge, and/or defect in title or other restriction.

“Order” means any order, judgment, injunction, award, decree, ruling, charge or writ of any Governmental Authority.

“Parties” has the meaning set forth in the preamble.

“Permit” means any permit, license, approval, consent, or authorization issued by a Governmental Authority. 

“Person” means any individual, sole proprietorship, partnership, corporation, limited liability company, unincorporated society or association, trust, or other entity.

“Proceeding” means any complaint, action, lawsuit, hearing, investigation, charge, audit, claim or demand.

“Purchase Price” has the meaning set forth in Section 3.  

“Purchaser” has the meaning set forth in the preamble.

“Seller” has the meaning set forth in the preamble.

“Seller Shares” has the meaning set forth in Section 3.

“Third Party Action” means any written assertion of a claim, or the commencement of any action, suit, or proceeding, by a third party as to which any person believes it may be an Indemnified Person hereunder. 

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2.

PURCHASE AND SALE OF STOCK.

2.1

Purchase of Company Shares.

Subject to the provisions of this Agreement, the Seller agrees to sell, and Purchaser agrees to purchase, at the Closing (as defined in Section 2.2 hereof), the Company Shares, which shares constitute, and will constitute at the Closing, 100% of the issued and outstanding capital stock of the Company.

2.2

Time and Place of Closing.  

The closing of the purchase and sale provided for in this Agreement (herein called the “Closing”) shall be held on April 30, 2016 or at such other date or time as may be fixed by mutual agreement of the parties (the “Closing Date”), but shall be effective March 31, 2016. In no event shall the Closing Date be extended beyond May 30, 2016. 

2.3

Instruments of Conveyance.  

In addition to any other documents to be delivered under other provisions of this Agreement, in order to convey the Company Shares, at the Closing: the Seller shall deliver to Purchaser (a) certificates for all the Company Shares owned by Seller, duly endorsed in blank for transfer, or with stock powers attached duly executed in blank, with all signatures notarized, if requested by Purchaser and (b) such other documents as may be required to effect a valid transfer of the Company Shares by the Seller, free and clear of any and all Encumbrances under Article 8 of the Uniform Commercial Code of the State of New Hampshire or otherwise. Such instruments of transfer (i) shall be in the form and substance reasonably satisfactory to Purchaser, and (ii) shall effectively vest in Purchaser good and marketable title to all the Company Shares, free and clear of all Encumbrances.

In addition to any other documents to be delivered under other provisions of this Agreement, in order to convey the Seller Shares, at the Closing: Purchaser shall deliver to the Seller: (a) certificates for all the Seller Shares owned by Purchaser, duly endorsed in blank for transfer, or with stock powers attached duly executed in blank, with all signatures medallion guaranteed and (b) such other documents as may be required to effect a valid transfer of the Seller Shares by the Purchaser, free and clear of any and all Encumbrances under Article 8 of the Uniform Commercial Code of the State of New Hampshire or otherwise. Such instruments of transfer (i) shall be in the form and substance reasonably satisfactory to Seller, and (ii) shall effectively vest in Seller good and marketable title to all the Seller Shares, free and clear of all Encumbrances..

3.

PURCHASE PRICE

3.1

Purchase Consideration.  In consideration of the Seller’s transfer of the Company Shares to the Purchaser, the Purchaser shall surrender to the Seller, for cancellation at the Closing,  12,657,500 shares of Seller’s common stock (the “Seller Shares”) (the “Purchase Price”), along with stock powers executed in blank with signatures medallion guaranteed.  Such shares shall be endorsed by Purchaser so as to permit them to be returned to the status of authorized and unissued shares.

3.2

Title.  Upon receipt of the Purchase Price, all Seller’s right, title and interest in and to the Company Shares, shall, without further action on the part of the Seller, be vested in the Purchaser free and clear of any and all Liens.

4.

REPRESENTATIONS AND WARRANTIES OF THE SELLER

The Seller hereby represents and warrants to the Purchaser and the Company as follows:

4.1

Execution, Delivery and Performance of Agreement.  The Seller has the power and authority to execute, deliver and perform fully his obligations under this Agreement.

4.2

Title to Company Shares.  Seller is the record and beneficial owner of the Company Shares and is in possession of the certificate(s) evidencing such ownership.  The Company Shares to be delivered by Seller to Purchaser pursuant to this Agreement will be, when delivered, duly authorized, validly issued, fully paid and nonassessable, and will be free and clear of all Encumbrances, under Article 8 of the Uniform Commercial Code of the State of New Hampshire or otherwise.

4.3

Enforceability.  The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Seller and constitute the valid and legally binding obligations of the Seller enforceable against the Seller in accordance with its terms.

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4.4

No Conflict.  Neither the execution of this Agreement, nor the performance by the Seller of its obligations hereunder will violate or conflict with any agreement by which the Seller is bound, or any applicable Law or Order.

4.5

Consents.  No consent of any third party or Governmental Authority is required in connection with the execution and delivery by the Seller of this Agreement and/or the consummation of the transactions contemplated hereby.

5.

REPRESENTATIONS AND WARRANTIES OF THE PURCHASER & COMPANY

The Purchaser and the Company hereby represent and warrant to the Seller as follows:

5.1

Existence and Good Standing.  The Seller is a Delaware Corporation, duly formed, validly existing and in good standing under the laws of the state of Delaware.

5.2

Execution, Delivery and Performance of Agreement.  The Purchaser and the Company each have the power and authority to execute, deliver and perform fully their respective obligations under this Agreement. 

5.3

Enforceability.  The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly authorized by all necessary action on the part of the Purchaser and the Company and constitute the valid and legally binding obligations of each of them, enforceable against them in accordance with its terms.

5.4

No Conflict.  Neither the execution of this Agreement, nor the performance by the Purchaser and the Company of their respective obligations hereunder or thereunder will violate or conflict with the Company or Purchaser’s entry into or performance under this Agreement or the Company’s organizational documents, or any applicable Law or Order.

5.5

Consents.  No consent of any third party or Governmental Authority is required in connection with the execution and delivery by the Purchaser or the Company of this Agreement and/or the consummation of the transactions contemplated hereby.

5.6

Closing Balance Sheet.  Attached hereto as Exhibit A is a balance sheet of the Seller, prepared by Seller’s President and CFO, which shall be delivered at the Closing and dated as of the Closing Date (the “Closing Balance Sheet”), and which shall reflect that the Seller, after giving effect to the transactions contemplated hereby, has zero assets and zero liabilities as of the Closing Date. In the preparation of the Closing Balance Sheet, the following provisions shall apply:

 (a) GAAP.  The Closing Balance Sheet shall be prepared in accordance with GAAP.

(b) Consistency.  The same accounting principles, practices, procedures and policies that were used in preparing the Seller Balance Sheet dated December 31, 2015 shall be used in preparing the Closing Balance Sheet, and the computational methods and assumptions used in preparing the Seller Balance Sheet shall be used in the preparation of the Closing Balance Sheet.  If the Company has no consistent practice or if the Company’s consistent practice is not in accordance with GAAP, GAAP shall be applied.

5.7 

Financial Statements. The Closing Balance Sheet is complete and correct and fairly presents the financial position of the Seller on the Closing Date.  Such Closing Balance Sheet has been prepared in accordance with GAAP consistently applied throughout the periods involved and prior periods, except for the omission of footnotes otherwise required by GAAP in the case of interim financial statements.

5.8

Absence of Undisclosed Liabilities.  

As of the Closing Date, the Seller has no liabilities of any nature, whether accrued, absolute, contingent or otherwise (including without limitation liabilities as guarantor or otherwise with respect to obligations of others, or liabilities for taxes due or then accrued or to become due).

5.9

Payment of Taxes.

(a) The Seller has duly and timely filed, after taking into account valid extensions therefore, all Tax Returns required to be filed by it with any Governmental Authority with respect to Taxes.  All of the Tax Returns are complete and correct in all respects.

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 (b) With respect to all other Taxes for which no return is required or which have not yet accrued or otherwise become due, adequate provision has been made in the Closing Balance Sheet.  The provisions for Taxes reflected in the Closing Balance Sheet are adequate to cover any liabilities of the Seller for Taxes in respect of its business, properties and operations during the periods covered by said financial statement and all prior periods.  Any Taxes which the Seller is required to withhold or collect have been withheld or collected and paid over or will be paid over to proper Governmental Authorities as required by Law.

5.10

Seller SEC Reports.

 (a) The Seller has filed or caused to be filed all registration statements, prospectuses, reports, schedules, forms or statements, and other documents (including exhibits and other information incorporated therein), required to be filed by it with the SEC pursuant to Sections 13, 14 or 15(d) of the Exchange Act for the last three fiscal years of the Seller (the “Seller SEC Reports”) As of their respective dates, the Seller SEC Reports complied in all material respects with the requirements of the Securities Act, or the Exchange Act, as the case may be, and the rules and regulations of the SEC promulgated thereunder applicable to such Seller SEC Reports, and none of the Seller SEC Reports when filed (or, if amended or superseded by a filing before the date of this Agreement, then on the date of such filing) contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

(b) The financial statements of Seller included in the Seller SEC Reports (including any related notes) complied as to form, as of their respective dates of filing with the SEC, in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, were prepared in accordance with GAAP (except, in the case of unaudited statements, as permitted by Form 10-Q or Form 8-K, as applicable, of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly present the consolidated financial position of Seller and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal and recurring year-end audit adjustments (which were not and are not expected to be material in amount).

5.11 

Disclosure of Material Information.  

Neither this Agreement, nor the financial statements (including the footnotes thereto), any Schedule, any exhibit, document or certificate delivered by or on behalf of the Purchaser or the Company pursuant hereto contains any untrue statement of a material fact, or omits to state a material fact necessary to make the statements herein or therein not misleading.  There is no fact which has a Material Adverse Effect on the Seller or its business or may in the future (so far as can now be reasonably foreseen), may have a Material Adverse Effect on the Seller or its business which has not been specifically disclosed herein or on a Schedule hereto.  

6. 

COVENANTS OF PURCHASER AND COMPANY PRIOR TO CLOSING

The Company and the Purchaser each hereby covenant and agree with the Seller as follows:

6.1

Access to Information.  

From and after the date hereof, at reasonable times and upon reasonable notice to the Company, the Seller shall be entitled, through its employees, advisors and Representatives, to make such investigation of the assets, properties, facilities, personnel, business and operations of the Company and the business of the Seller and, to make such examination of the books, records and financial condition of the Seller and the business of the Seller, as Seller reasonably requests.  No investigation by Seller shall diminish, obviate or constitute a waiver of, the enforcement of any of the representations, warranties, covenants or agreements of the Company or Purchaser under this Agreement.  The Company and Purchaser shall furnish the Representatives of Seller with all information and copies of documents concerning the affairs of the business of the Seller and Company as such Representatives may reasonably request and shall cause the appropriate officers, employees, consultants, agents, accountants and attorneys of Seller and the Company to cooperate fully with such Representatives in connection with such review and examination and shall make full disclosure to Seller of all material facts affecting the financial condition and business operations of the Seller and the Company.

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6.2

Seller SEC Filings.  The Purchaser and the Company shall cause the Company’s President and CFO to prepare, at the Company’s expense, and cause to be filed in a timely manner the following Seller SEC reports: Annual Report on Form 10K for the year ended December 31, 2015, Quarterly Reports on Form 10Q for the interim periods through and including the Closing Date, and all Current Reports with respect to all matters that are reportable through and including the Closing Date.  The legal and accounting fees associated with the Seller SEC filings shall be paid by the Company out of Company funds collected by The Rushcap Group, Inc. (“Rushcap”) pursuant to the Inventory Financing Agreement dated June 19, 2015, as it may be amended from time to time (“Inventory Financing Agreement”). To the extent such funds collected by Rushcap are insufficient to pay such fees, Rushcap shall pay such fees on behalf of the Company and the amount of any such payments shall be deemed advanced to the Company by Rushcap and added to the amount owed by the Company to Rushcap under the Inventory Financing Agreement.

6.3

Transaction Costs.  The Purchaser and the Company shall reimburse the Seller for all professional fees and expenses incurred in connection with the transactions contemplated hereby.  The professional fees associated with the transactions contemplated hereby shall be paid by the Company out of Company funds collected by The Rushcap Group, Inc. pursuant to the Inventory Financing Agreement. To the extent such funds collected by Rushcap are insufficient to pay such fees, Rushcap shall pay such fees on behalf of the Company and the amount of any such payments shall be deemed advanced to the Company by Rushcap and added to the amount owed by the Company to Rushcap under the Inventory Financing Agreement.

6.4

Seller’s Corporate Records.  The Purchaser and the Company shall cause the Seller’s President and CFO to deliver at the Closing all the corporate records and documents of the Seller, including without limitation, contracts, agreements, and corporate and financial records of every nature and kind.

6.5

Affirmative Covenants with Respect to Ordinary Course of Business.

Between the date of this Agreement and the Closing, the Seller will, and will cause the Company to, do each of the following with respect to the Company and the Seller:

(a) conduct the Seller and the Company’s business only in the ordinary course of business;

(b) prevent any change with respect to its banking arrangements;

(c) keep intact its current business organization, to keep available its present officers, agents and employees and to preserve the goodwill of those persons having business relations with it;

(d) withhold or remit with respect to any employees all employment taxes;

(e) maintain true, correct and complete books of accounts and records relating to the business of the Seller and the Company;

(f) comply in all respects with all Laws applicable to the conduct of the Seller and Company’s business or its properties or assets;

(g) pay any and all Taxes imposed upon the Seller it or its income, profits or assets, or otherwise required to be paid by it;

(h) pay when due any liability or charge that if, unpaid, might become an Encumbrance upon any of the Seller’s assets;

(i) File all Seller SEC Reports required by Section 6.2 hereof.

6.6

Negative Covenants with Respect to Ordinary Course of Business.  

Between the date of this Agreement and the Closing, the Sellers will, and will cause the Company to, do the following with respect to the Company and the Seller:

(a) refrain from making any purchase, sale or dis­position of any asset or property of the Seller and from mortgaging, pledging or, subjecting to any encumbrance any of its properties or assets;

(b) refrain from entering into any contract or commitment;

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(c) refrain from incurring any contingent liability as a guarantor or otherwise with respect to the obligations of others, and from incurring any other contingent or fixed obligations or;

(d) refrain from entering into any material agreement or amending or terminating any material contract, agreement or license to which it is a party or waiving or releasing any material right or claim;

(e) refrain in from making any change or incurring any obligation to make a change in its Articles of Organization or by-laws or its authorized or issued capital stock or any other of its securities, including warrants and options;

(f) refrain from declaring, setting aside or paying any dividend or making any other distribution in respect of capital stock, or making any direct or indirect redemption, pur­chase or other acquisition of capital stock, of the Seller;

(g) refrain from entering into any employment con­tract or making any change in the compensation payable or to become payable to any of its officers, employees or agents;

(h) refrain from instituting, terminating, changing or making any representations, either oral or written, to increase or change any benefit plan or adopting any new benefit plan;

(i) refrain from making any change in accounting methods or practices;

(j) refrain from prepaying any loans from its stockholders, officers or directors (if any) or making any change in its borrowing arrangements;

(k) refrain from merging, consolidating or reorganizing with, or acquiring, any entity;

(l) refrain from agreeing to any audit assessment by any Governmental Authority or filing any Tax Return, or amendment thereto, unless copies of such Tax Returns have been delivered to the Seller’s chairman for its review and approval prior to filing, or from revoking any tax election or making any agreement or settlement related to Taxes with any Governmental Authority;

(m) refrain from taking any action or permitting the Company or Seller to take any action which would cause any Governmental Authority to institute Proceedings regarding the Company or the Seller or take any other action which would result in the Seller or the Company being in noncompliance in any material respect with the requirements of any Governmental Authority having jurisdiction thereof; and

(n) refrain from issuing any securities of the Company or the Seller

6.8

Notification of Breach of Representations and Warranties.  

Promptly upon the Purchaser, the Company or the Seller’s President having knowledge thereof, such persons shall advise the Seller’s Chairman in writing of (i) any material adverse change with respect to Seller; (ii) any event, condition or circumstance occurring from the date hereof until the Closing Date that would constitute a violation or breach of any representation, warranty, covenant, agreement or provision contained in this Agreement (provided, however, that such disclosure shall not be deemed to cure any violation or breach of any such representation, warranty, covenant, agreement or provision), or (iii) any event, occurrence, transaction or other item that would have been required to be disclosed herein or delivered hereunder, had such event, occurrence, transaction or item existed on the date hereof, and the Purchaser, the Company and the Seller’s President shall use their best efforts to prevent or promptly remedy the same.

6.9

Consummation of Agreement.  

Each of the Purchaser, the Company and Seller’s President shall use his/its best efforts to perform and fulfill all conditions and obligations on their part to be performed and fulfilled under this Agreement, to the end that the transactions contemplated by this Agreement shall be fully carried out.  To this end, the Company, Purchaser and Seller will obtain all necessary authorizations or approvals, including those of the stockholders and Board of Directors of the company and Seller, as applicable.

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6.10

 Exclusive Dealing.

(a) Until such time as  this Agreement is terminated in accordance with its terms, none of the Purchaser, the Company, the Seller, nor any of their respective directors, officers, employees or Representatives will, directly or indirectly:  (i) encourage, solicit, initiate, engage (including by way of furnishing or disclosing information) or participate in any negotiations with any third person or entity (other than the Seller’s Chairman) concerning any merger, consolidation or other business combination involving the Company or the Seller or acquisition of any portion of their assets or business (other than in the ordinary course of business), or encourage, solicit, initiate or entertain inquiries or proposals concerning, or which could reasonably be expected to lead to, any of the foregoing (an “Acquisition Transaction”); or (ii) negotiate or take any other action intended or designed to facilitate the efforts of any third person or entity (other than Seller) relating to a possible Acquisition Transaction, or (ii) enter into any arrangements, agreements or understanding requiring the Purchaser, the Company or Seller to abandon, terminate or fail to consummate the transactions contemplated by this Agreement.

(b) The Purchaser and Company will immediately notify the Seller’s Chairman regarding any contact between the Purchaser, Seller or the Company or any of their respective officers, directors or Representatives and any other person regarding any such offer or proposal or any related inquiry.

6.11

Assumption of Liabilities. In consideration of the mutual covenants and agreements contained herein, effective as of the Closing Date, the Seller does hereby assign to the Purchaser and the Company, and the Purchaser and the Company, hereby acknowledge and accept the Seller’s assignment to the Company and the Purchaser of all of the Seller’s right, title, benefit, privileges and interest in and to, and the Company and the Purchaser hereby jointly and severally assume and agree to observe and perform all of the duties, obligations, terms, provisions and covenants, and to pay and discharge any and all of the liabilities of  the Seller  to be observed, performed, paid or discharged from and after the Closing Date. Each of the Purchaser and the Company covenants and agrees, at its own expense, to execute and deliver, at the request of the Seller, such further instruments of transfer and assignment and to take such other action as Seller may reasonably request to more effectively consummate the assignments and assumptions contemplated by this Section 6.11.

6.12

Further Assurances.  After the date hereof, at the reasonable request of the other party, the Seller and Purchaser/Company shall execute and deliver or cause to be executed and delivered to the other party such documents or other instruments as required by this Agreement, in order to implement the transactions contemplated by this Agreement.

7.

CONDITIONS TO SELLER’S OBLIGATIONS.

The obligation of Seller to consummate this Agreement and the transactions contemplated hereby are subject to the condition that, on or before the Closing, the actions required by this section 7 will have been completed.

7.1

Representations; Warrantees; Covenants. Each of the representations and warranties of the Company and Purchaser contained in Section 5 shall be true and correct as though made on and as of the Closing Date, and the Company, the Seller and the Purchaser shall, on or before the Closing have performed all of their obligations hereunder which by the terms hereof are to be performed by them on or before the Closing.  .

7.2

 No Bankruptcy. The Seller shall not (i) have commenced a voluntary Proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or substantially all of its property, or (ii) have an involuntary Proceeding commenced against it seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereinafter in effect or seeking the appointing of a trustee, receiver, liquidator, custodian or similar official of it or substantially all of its property, or (iii) have consented to any such relief or to the appointment of or taking possession by any such official against it, or (iv) have made a general assignment for the benefit of its creditors, or (iii) have an attachment placed on all or a significant portion of its assets

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7.3

 Absence of Certain Litigation.  There shall not be any (a) injunction, restraining order or other Court Order issued by any court of competent jurisdiction which directs that this Agreement or any material transaction contemplated hereby shall not be consummated as herein provided, (b) Proceeding by any Government Authority pending before any court or Governmental Authority, or threatened to be filed or initiated, wherein such complainant seeks the restraint or prohibition of the consummation of any material transaction contemplated by this Agreement or asserts the illegality thereof, or (c) Proceeding by a private party pending before any Governmental Authority, or threatened to be filed or initiated, which in the reasonable opinion of counsel for Seller is likely to result in the restraint or prohibition of the consummation of any material transaction contemplated hereby or the obtaining of an amount in payment (or indemnification) of material damages from or other material relief against any of the parties or against any directors or officers of Seller, in connection with the con­summation of any material transaction contemplated hereby..

7.4

Resignations of Officers and Directors; Releases. The Seller shall have delivered to Seller’s Chairman prior to Closing:  

(a)

a complete and correct list of all of the officers and directors of the Seller and the written resignations of such of the officers, directors of the Seller (other than its Chairman), which resignations will be effective no later than the Closing Date. 

(b)

A release substantially in the form of Exhibit B hereto received from each of the Purchaser, the Company (and its officers and directors), and the Seller’s officers and directors.

(c)

the termination and release of any right to acquire capital stock of the Company (including under warrants, options or convertible securities).

7.5

Execution of Instruments of Conveyance and Additional Documents. The Company and the Sellers shall have caused the following documents to be delivered (or tendered subject only to Closing) to Seller: each of the documents and instruments required by Section 2.3 hereof. 

7.6

Closing Certificate of Purchaser and Company. The Company and Purchaser shall have delivered one or more certificates of the Purchaser and President of each of the Company and the Seller, dated as of the Closing Date, as to such matters as the Seller shall reasonably request. 

8.

CONDITIONS TO OBLIGATIONS OF THE PURCHASER.

The obligation of the Sellers to consummate this Agreement and the transactions contemplated hereby are subject to the condition that, on or before the Closing, the actions required by this Section 8 will have been completed.

8.1

Representations; Warrantees; Covenants. Each of the representations and warranties of Purchaser and the Company contained in Section 5 shall be true and correct [as though made on and as of the Closing Date and Buyer shall, on or before the Closing, have performed all of its obligations hereunder which by the terms hereof are to be performed by it on or before the Closing.  Buyer shall have delivered to Sellers a certificate of Buyer dated as of the Closing to the foregoing effect.

8.2

.22Absence of Certain Litigation. There shall not be any (a) injunction, restraining order or other Court Order issued by any court of competent jurisdiction which directs that this Agreement or any material transaction contemplated hereby shall not be consummated as herein provided, (b) Proceeding by any Government Authority pending before any court or Governmental Authority, or threatened to be filed or initiated, wherein such complainant seeks the restraint or prohibition of the consummation of any material transaction contemplated by this Agreement or asserts the illegality thereof, or (c) Proceeding by a private party pending before any Governmental Authority, or threatened to be filed or initiated, which in the reasonable opinion of Purchaser is likely to result in the restraint or prohibition of the consummation of any material transaction contemplated hereby or the obtaining of an amount in payment (or indemnification) of material damages from or other material relief against any of the parties or against any directors or officers of the Company, in connection with the con­summation of any material transaction contemplated hereby.

8.3

Closing Certificate of Seller. The Seller shall have delivered one or more certificates, dated as of the Closing Date, as to such matters as the Purchaser shall reasonably request.

The obligation of the Purchaser to consummate this Agreement and the transactions contemplated hereby are subject to the condition that, on or before the Closing, the actions required by this Section 8 will have been completed.

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9.

 INDEMNIFICATION

9.1

Survival; Right to Indemnification Not Affected By Knowledge or Materiality. 

(a)

All representations, warranties, covenants, and obligations in this Agreement, will survive the execution of this Agreement and the Closing of the transactions contemplated hereby. 

(b)

The right of the Indemnified Party to indemnification for losses or other remedy based on breach of the  representations, warranties, and/or covenants set forth in this Agreement will not be affected by the closing of the transaction contemplated by this Agreement, or any information of which the Indemnified Party may have imputed or constructive knowledge prior to the Closing Date, provided that the rights and remedies of the Indemnified Party in respect of any of the foregoing shall not extend to any event or matter which otherwise might have affected such rights and remedies as provided in any specific written waiver or release by the Indemnified Party.          

(c)

For the purpose of determining whether there is a claim for losses under this Section and calculation of the amount of such losses, any qualification of any representation or warranty by reference to the materiality of matters stated therein, and any limitations of such representations as being to the knowledge of any person, or words to similar effect, shall be disregarded. 

9.2

Indemnification by the Company and Purchaser

Subject to the limitations in Section 9.3 below, and in consideration of the transfer of the Company Shares, the Company and the Purchaser, jointly and severally, shall defend, indemnify and hold the Seller harmless from and against any losses, liabilities or expenses, including reasonable attorney’s fees, directly incurred by Seller resulting from any Third Party Action that is instituted against it, resulting from or arising out of any breach of any of the representations, warranties, covenants or agreements made by the Purchaser and/or Company in or pursuant to this Agreement, including without limitation any claim arising out of the Purchaser or Company’s failure to comply with Section 12.12 hereunder relating to the payment of assumed liabilities.

9.3

Limitations on Indemnification by the Company and Purchaser.  

The right to indemnification under Section 9.2 is subject to the following limitations:

(a)

The Company and the Purchaser shall have no liability under Section 9.2 unless Seller gives reasonably prompt written notice to the Company and Purchaser asserting a claim for losses, including reasonably detailed facts and circumstances pertaining thereto, before the expiration of a period of six years after the date hereof for all claims of any type or nature whatsoever. 

9.4

Defense of Third Party Actions.

(a)

Promptly after receipt of notice of any Third Party Action, any person who believes he, she or it may be an Indemnified Person will give prompt written notice to the potential Indemnifying Person of such action.  

(b)

The Indemnified Person shall control the defense and settlement of any Third Party Action asserted against it. The Indemnifying Person shall render all assistance as shall be reasonable and shall have the right to participate in and appoint its own counsel (at its own cost) and be present at the defense of such Third Party Action, but not to control the defense, negotiation or settlement thereof, which control shall remain with the Indemnified Person.

(c)

Each Indemnifying Person hereby consents to the non-exclusive jurisdiction of any court in which a Proceeding is brought against any Indemnified Person for purposes of any claim that an Indemnified Person may have under this Agreement with respect to such Proceeding or the matters alleged therein, and agree that process may be served on them with respect to such a claim anywhere in the world.

9.5

Payment of Indemnification.

Subject to Section 9 above, claims for indemnification under this Section shall be paid or otherwise satisfied by Indemnifying Persons within thirty (30) days after receipt of written notice thereof given by the Indemnified Person in writing.  

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10.

SURVIVAL AND REMEDIES

10.1

Survival.  The provisions contained in Sections 5,6,7,8,9,10 and 11 shall survive any termination of this Agreement. 

10.2 

Remedies. 

The parties hereto acknowledge that the remedy at law for any breach of the obligations undertaken by the parties hereto is and will be insufficient and inadequate and that the parties hereto shall be entitled to equitable relief, in addition to remedies at law.  In the event of any action to enforce the provisions of this Agreement, Purchaser and Company shall waive the defense that there is an adequate remedy at law.  Purchaser and Company acknowledge that the Seller Shares are unique and cannot be obtained on the open market.  Without limiting any remedies Seller may otherwise have hereunder or under applicable law, in the event Purchaser or Company refuse to perform their respective obligations under this Agreement, Seller shall have, in addition to any other rights at law or equity, the right to specific performance.

11.

TERMINATION OF AGREEMENT.

Termination.  

At any time prior to the Closing, this Agreement may be terminated (a) by mutual consent of the parties, (b) by either side if there has been a material misrepresentation, breach of warranty or breach of covenant by the other side in its representations, warranties and covenants set forth herein, (c) by Seller if the conditions stated in Article 7 have not been satisfied at or prior to the Closing, (d) by the Purchaser if the conditions stated in Article 8 have not been satisfied at or prior to the Closing, or (f) if the Closing shall not have occurred and the transactions contemplated hereby consummated by April 30, 2016; provided that the right to terminate under this Section shall not be available to any parties whose breach has been the cause of such failure to close..

11.1

Effect of Termination.

If this Agreement shall be terminated as above provided, all obligations of the parties hereunder shall terminate but any breaching party shall remain liable to a nonbreaching party for its damages.  In the event that this Agreement is so terminated, each party will return all papers, documents, financial statements and other data furnished to it by or with respect to each other party to such other party (including any copies thereof made by the first party).  Notwithstanding such termination, the provisions of Section 9, 10, 12.1 and 12.2 shall survive the termination of this Agreement.

11.2

 Right to Proceed.

Notwithstanding anything in this Agreement to the contrary, (a) if any of the conditions specified in Article 7 hereof have not been satisfied, Seller shall have the right to proceed with the transactions contemplated hereby without waiving its rights hereunder and (b) if any of the conditions specified in Article 8 hereof have not been satisfied, Seller shall have the right to proceed with the transactions contemplated hereby without waiving its rights hereunder.  In each such case, the party electing to proceed shall have the right to require all obligations, undertakings, agreements and other provisions of this Agreement specifically performed by the other parties and shall have the right to obtain and order such specific performance in any of the Courts in the United States or any state or political subdivision thereof. 

12.

MISCELLANEOUS

12.1

Confidentiality.  In the event that the transactions contemplated hereby are not consummated, each party will keep confidential, not disclose and not use for its own benefit (and will cause its subsidiaries, employees, officers and directors to keep confidential, not disclose, and not use for their own benefit) any information, whether written, oral or in electronic format and whether or not identified as “confidential” at the time of its disclosure, obtained with respect to the other party or its subsidiaries, employees, officers and directors as a result of the transaction contemplated hereby or Purchaser’s due diligence process in connection herewith (“Confidential Information”).  The obligation set forth in the preceding sentence will not apply to Confidential Information which (i) is in the public domain on the date hereof, (ii) enters the public domain after the date hereof (other than by reason of the breach of any confidentiality obligation), (iii) was known to the receiving party prior to receipt from the disclosing party, (iv) is independently developed by the receiving party after the date hereof, (v) is disclosed to the receiving party by a third party not in violation of the proprietary or other rights of the other party or (vi) is disclosed pursuant to a requirement of law or judicial process.  

12.2

Expenses.  Except as otherwise provided herein, each of the parties hereto shall bear its respective expenses incurred or to be incurred in connection with the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby.

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12.3

No Assignment.  The rights and obligations of the parties hereunder may not be assigned without the prior written consent of the other party hereto, except that Purchaser may assign its rights and obligations hereunder to any wholly-owned subsidiary formed for the purpose of making the acquisition contemplated hereby.

12.4

Headings.  The headings contained in this Agreement are included for purposes of convenience only, and will not affect the meaning or interpretation of this Agreement.

12.5

Integration, Modification and Waiver.  This Agreement, together with the Schedules or other instruments as may be delivered hereunder, constitutes the entire agreement between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements, representations, understandings, communications, whether written or verbal between the parties in relation thereto.  No supplement, modification or amendment of this Agreement will be binding unless executed in writing by each of the parties’ duly authorized representatives hereto.  No waiver of any of the provisions of this Agreement will be deemed to be or will constitute a continuing waiver.  No waiver will be binding unless executed in writing by the party making the waiver.  The recitals shall form part of this Agreement.

12.6 

Construction.  The parties have participated jointly in the negotiation and drafting of this Agreement.  In the event an ambiguity or question of intent or interpretation arises, this Agreement will be construed as if drafted jointly by the parties and no presumption or burden of proof will arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement.  Any reference to any federal, state, local or foreign statute or law will be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.  The word “including” means including without limitation.  Any reference to the singular in this Agreement also includes the plural and vice versa.

12.7

Severability.  If any provision of this Agreement or the application of any provision hereof to any party or circumstance is, to any extent, adjudged invalid or unenforceable by a court of competent jurisdiction, the application of the remainder of such provision to such party or circumstance, the application of such provision to other parties or circumstances, and the application of the remainder of this Agreement will not be affected thereby.

12.8

Notices.  All notices and other communications required or permitted hereunder must be in writing and will be deemed to have been duly given when delivered in person, or when dispatched by electronic mail or facsimile transmission (provided there is confirmation of such facsimile transmission), or the next business day after having been dispatched by an internationally recognized courier service to the appropriate party at the address specified below:

If to the Seller:

Laurence King, Chairman

160 Summit Avenue

Montvale, NJ 07645

Email: Lking@themarlargroup.com

If to the Purchaser: 

Michael R. Rosa

c/o Enviromart Industries, Inc.

4 Wilder Dr., #7 

Plaistow, NH 03865

Email: mrosa@enviromartindustries.com

If to the Company: 

George Adyns, President

Enviromart Industries, Inc.

4 Wilder Dr., #7 

Plaistow, NH 03865

Email: gadyns@enviromartindustries.com

Any party hereto may change its address or facsimile number for the purposes of this Section 12.8 by giving notice as provided herein.

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12.9

Governing Law.  This Agreement is to be governed by and construed and enforced in accordance with the laws of the State of Delaware without regard to principles of conflicts of law.  

12.10

Counterparts.  This Agreement may be executed in one or more counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument.  The exchange of a fully executed Agreement (in counterparts or otherwise) by fax or electronic transmission is sufficient to bind the parties to the terms and conditions of this Agreement. 

12.11

Disputes.  In case of any dispute hereunder, the prevailing party shall be entitled to be reimbursed by the other party for its reasonable legal fees and expenses.

12.12

Further Assurances.  The Company and the Purchaser from time to time after the Closing at the request of Seller and without further consideration shall execute and deliver further instruments of transfer and assignment (in addition to those delivered hereunder and take such other action as Seller may reasonably require to more effectively transfer and assign to, and vest in, Seller all of the Seller Shares.

12.13

Payment by Company and Purchaser of Assumed Liabilities.  The Purchaser and Company shall promptly pay, or make adequate provision for the payment, in full all of the liabilities of the Seller for which the Purchaser and Company have expressly agreed to be responsible under this Agreement.  If any such liabilities are not so paid or provided for, or if Seller reasonably determines that failure to make any payments will impair conduct of the business conducted by the Seller, Seller may, at any time after the Closing Date, elect to make all such payments directly (but shall have no obligation to do so) and thereafter set off and deduct the full amount of all such payments from amounts due to the Company from The Rushcap Group, Inc. under the Inventory Financing Agreement.  Company shall receive full credit under the Inventory Financing Agreement and this Agreement for all payments so made.  If the Inventory Financing Agreement is no longer in effect, Seller shall bill the Purchaser and Company for such payment and the Company and Purchaser shall reimburse the Seller for any payment so made within 15 days of invoice.  ..

12.14

Assistance in Proceedings The Purchaser and Company  will cooperate with Seller and its counsel in the contest or defense of, and make available its personnel and provide any testimony and access to its books and records in connection with, any Proceeding involving or relating to (a) any transaction contemplated hereby or (b) any action, activity, circumstance, condition, conduct, event, fact, failure to act, incident, occurrence, plan, practice, situation, status or transaction on or before the Closing Date involving the Company or its business.

[Balance of page intentionally left blank].

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[Signature page to Stock Purchase Agreement dated March 21, 2016]

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

		
	 
	

Seller:

The Enviromart Companies, Inc.

By: /s/ Laurence King

Name: Laurence King

Title: Chairman

Company:

Enviromart Industries, Inc.

By: /s/ George R. Adyns

Name: George Adyns

Title: President

	 
	

Purchaser:

/s/ Michael R. Rosa

Name: Michael R. Rosa, individually

	 
	 

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EXHIBIT A

CLOSING DATE BALANCE SHEET

15

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EXHIBIT B

RELEASE

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GENERAL RELEASE

This General Release is given by Michael R. Rosa, George Adyns and Enviromart Industries, Inc. (collectively, the “Releasors”) in connection with and pursuant to that certain Stock Purchase Agreement dated March 21, 2016 between the Michael R. Rosa, Enviromart Industries, Inc. and The Enviromart Companies, Inc. (“Purchase Agreement”). 

RECITALS

Capitalized terms used and not defined herein shall have the meaning ascribed to them in the Purchase Agreement.

This Release is being given in consideration of the Seller’s transfer to the Purchaser of the Company Shares, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and agreed.

The Releasors acknowledge and agree that the releases given hereby are a material inducement to the Seller’s entering into the Purchase Agreement.

AGREEMENT

1.

Recitals. The foregoing recitals are hereby incorporated into this Release.

2.

General Release. The Purchaser, George Adyns and the Company (together with its predecessors, successors, affiliates, subsidiaries, parent companies, DBA's, insurers, subcontractors, contractors, employees, former employees, directors, officers, shareholders, members and any other related entities) hereby fully release, remise, acquit and forever discharge the Seller (together with its predecessors, successors, affiliates, subsidiaries, parent companies, DBA's, insurers, attorneys, accountants, lenders, consultants, subcontractors, contractors, employees, former employees, directors, officers, shareholders, members and any other related entities) from any and all claims, demands, actions, causes of action, damages, obligations, losses and expenses of whatsoever kind or nature, known or unknown, choate or inchoate, directly or indirectly arising out of, or related to, any matter arising prior to the date hereof.  This release shall not apply to any claims or suits arising from or pertaining to the Purchase Agreement.  This release shall be binding from the date hereof to eternity.  The parties acknowledge that this release should receive full faith and credit from all courts and agencies.

[Balance of page intentionally left blank]

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[Signature Page to Release Agreement]

Executed by the parties as an instrument under seal as of __________, 2016.

Seller:

The Enviromart Companies, Inc.

By: _______________________

Name: Laurence King

Title: Chairman

Company:

Enviromart Industries, Inc.

By: ______________________

Name: George Adyns

Title: President

Purchaser:

______________________________

Name: Michael R. Rosa, individually

George Adyns

______________________________

Name: George Adyns, individually

18Exhibit 4.12

 

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS NOTE 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 SECURITIES COUNSEL TO THE COMPANY OR COUNSEL 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: $66,000

Date: January 5, 2015

CONVERTIBLE PROMISSORY NOTE

Brazil Minerals, Inc., (hereinafter called the "Company" or "BMIX"), hereby promises to pay to the order of WHC Capital, LLC, a Delaware limited liability company, or its registered assigns (the "Holder") the sum of $66,000, together with any interest as set forth herein, on January5, 2016 (the "Maturity Date"), and to pay interest on the unpaid principal balance hereof at the rate of ten percent (10%) per annum (the "Interest Rate") 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. There exists a six thousand dollar ($6,000) original issue discount on this Note.

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 eighteen percent (18%) 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) 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 Company 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 the supporting documents of same date (attached hereto).

 

Exhibit 4.12 -- Page 1

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 Company 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 and at any time during the period beginning on the date 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 Company 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 Company 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 Company, 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, (the "Notice of Conversion"), delivered to the Company by the Holder in accordance with the Sections 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 Company before 6:00 p.m., New York, New York time on such conversion date (the "Conversion Date"). 

Exhibit 4.12 -- Page 2

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 Company's option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Company'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.

1.2            Conversion Price.

(a)            Calculation of Conversion Price.     Holder, at its discretion, shall have the right to convert this Note in its entirety or in part(s) into common stock of the Company valued the lesser of (i) a Forty percent (40%) discount off of the lowest volume weighted average price for the Company's common stock, as reported by Quotestream ("VWAP") during the twenty (20) trading days immediately preceding a conversion date, as reported by Quotestream or (ii) $.07 per share.  

(b)            Conversion Price During Major Announcements. Notwithstanding anything contained in the preceding section to the contrary, in the event the Company (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Company 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 Company or (ii) any person, group or entity (including the Company) publicly announces a tender offer to purchase 50% or more of the Company'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. 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 has been made, the date upon which the Company (in the case of clause (i) above) or the person, group or entity  (in the case of clause (ii) above) consummates or publicly  announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

1.3            Authorized Shares.  The Company covenants that during the period the conversion right exists the Company 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. The Company is required at all times to have authorized and reserved three 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 Company's obligations.

  

Exhibit 4.12 -- Page 3

The Company represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Company 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 Company 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 Company (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 Company does not maintain the Reserved Amount it will be considered an Event of Default as defined in this Note.

1.4            Method of Conversion.

(a)            Mechanics of Conversion. 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 Company 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).

(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 Company unless the entire unpaid principal amount of this Note is so converted. The Holder and the Company 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 Company, 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 Company shall, prima facie, be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

(c)            Payment of Taxes. The Company 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 Company 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 Company the amount of any such tax or shall have established to the satisfaction of the Company that such tax has been paid.

 

Exhibit 4.12 -- Page 4

  

(d)            Delivery of Common Stock Upon Conversion.  Upon receipt by the Company 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, the Company 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.

Within five (5) business days of having received certificate(s) for common stock pursuant to a Notice of Conversion, Holder may elect to rescind the Notice of Conversion and return the shares, at Holder's expense, to the Company's Transfer Agent. In the event of such rescission, the principal amount outstanding under this Note shall be adjusted to include the Conversion Amount which was deducted from the Note as part of the rescinded Notice of Conversion.

(e)          Obligation of Company to Deliver Common Stock. Upon receipt by the Company 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 Company 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 Company'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 Company 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 Company, and irrespective of any other circumstance which might otherwise limit such obligation of the Company 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 Company 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  Company 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 Company 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 Broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system.

 

Exhibit 4.12 -- Page 5

(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 the Company shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Company fails to deliver such Common Stock; provided, however, that the Company shall not owe any such damages for any day as a result of the failure of the Company's transfer agent not to timely perform through no fault of the Company (it being understood that a failure of the transfer agent to perform as a result of a delinquency in the payment of the Company's bill shall be considered to be a fault of the Company) 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 Company 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 Company 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 are justified.  Any delay or failure of performance by the Company hereunder shall be excused if and to the extent caused by Force Majeure. For purposes of this agreement,  Force Majeure shall mean a cause or event that is not reasonably foreseeable and/or caused by the Company, including acts of God, fires, floods, explosions, riots wars, hurricanes, etc.

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 Company 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 Company who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor. Except as otherwise provided herein (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:

 

Exhibit 4.12 -- Page 6

"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),INAGENERALLYACCEPTABLEFORM,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 Company shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Company 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 this 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 Company, the effectuation by the Company of a transaction or series of related transactions in which more than50% of the voting power of the Company is disposed of, or the consolidation, merger or other business combination of the Company with or into any other Person (as defined below) or Persons when the Company is not the survivor shall either:  (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Company 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.

Exhibit 4.12 -- Page 7

(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 Company shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Company or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Company other than in connection with a plan of complete liquidation of the Company, 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 Company 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 Company) 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 Company 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 Company'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 Company sells 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 Company in such Dilutive Issuance. A forward stock split or stock dividend shall not be deemed to be a Dilutive Issuances.

 

 

Exhibit 4.12 -- Page 8

The Company shall be deemed to have issued or sold shares of Common Stock if the Company in any manner issues or grants any warrants, rights or options (not including employee stock option plans or the granting of stock or stock options to its Chief Executive Officer, directors or attorneys in lieu of cash compensation), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options") and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total amount, if any, received or receivable by the Company as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Company 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).  

Additionally, the Company shall be deemed to have issued or sold shares of Common Stock if the Company 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 Company 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 Company 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 Company 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.

 

Exhibit 4.12 -- Page 9

(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 Company, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.

1.7            Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Company 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 Company 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 Company 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 Company or any of its securities on the Company'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 Company 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 Company) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Company 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 Company's failure to convert this Note.

Exhibit 4.12 -- Page 10

1.9            Prepayment Maker may prepay this Note, in accordance with the following schedule: If within 180 calendar days of the execution of this Note, 130% of all outstanding principal and interest due on each outstanding Note in one payment; After 180 calendar days of this Note being executed, any prepayments must be approved by both parties in writing.

ARTICLE II. CERTAIN COVENANTS

2.1            Distributions on Capital Stock. So long as the Company shall have any obligation under this Note, the Company 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 Company's disinterested directors.

2.2            Restriction on Stock Repurchases. So long as the Company shall have any obligation under this Note, the Company 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 Company or any warrants, rights or options to purchase or acquire any such shares.

2.3            Sale of Assets. So long as the Company shall have any obligation under this Note, the Company shall not, without the Holder's written consent, sell, lease or otherwise dispose of more than $500,000 in book value (as of the Closing Date) 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 Company shall have any obligation under this Note, the Company 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 Company, except loans, credits or advances (a) in existence or committed on the date hereof and which the Company 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.

Exhibit 4.12 -- Page 11

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 Company 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 Company 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 Company 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 five (5) business days after the Holder shall have delivered a Notice of Conversion. It is an obligation of the Company 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 Company to its transfer agent and such balance is not paid within five (5) business days after the transfer agent delivery of such information to the Company. If at the option of the Holder, the Holder advances any funds to the Company's transfer agent in order to process a conversion, such advanced funds shall be paid by the Company to the Holder within forty eight (48) hours of a demand from the Holder.

3.3            Breach of Covenants.  The Company 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 Company from the Holder.

3.4      Breach of Representations and Warranties. Any representation or warranty of the Company 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.

 

Exhibit 4.12 -- Page 12

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

3.6            Judgments. Any money judgment, writ or similar process shall be entered or filed against the Company or any subsidiary of the Company 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 Company or any subsidiary of the Company.

3.8            Delisting of Common Stock. The Company shall fail to maintain the listing of the Common Stock on at least one of the OTC tiers 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 Company shall fail to comply with the reporting requirements of the Exchange Act; and/or the Company shall cease to be subject to the reporting requirements of the Exchange Act.

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

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

3.12            Maintenance of Assets.   The failure by Company 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 Company 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 original financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or supporting documents.

 

Exhibit 4.12 -- Page 13

3.14            Reverse Splits. The Company effectuates a reverse split of its

Common Stock without at least twenty (20) days prior written notice to the Holder.

3.15            Replacement of Transfer Agent. In the event that the Company proposes to replace its transfer agent, the Company 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 Company and the Company.

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 Company 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 Company, 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 Company, 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 Company 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 Company 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 COMPANY SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY TWO (2) AND IF PAYMENT IS MADE WITHIN THREE DAYS AFTER THE HOLDER GIVES THE COMPANY NOTICE OF SUCH DEFAULT, THE DEFAULT SUM.

 

Exhibit 4.12 -- Page 14

Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1, 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 Company 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 Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times 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 (150% of the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "Default Sum") or (ii) the "parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment  Date as  the "Conversion  Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "Default Amount") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

If the Company 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 Company remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Company, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Company 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.

Exhibit 4.12 -- Page 15

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 Company, to:

	 	 	 
	 	 	
Brazil Minerals, Inc,155 North Lake Avenue, Suite 800

	 	 	
Pasadena, California 91101

	 	 	
Attn: Marc Fogassa

	 	 	
E-mail: mf@brazil-minerals.com

	 	 	 
	 	 	 
	 	
If to the Holder:

	 	 	 
	 	 	
WHC Capital, LLC.

	 	 	
200 Stonehinge Lane Suite 3

	 	 	
Carle Place, NY 11514

	 	 	
Facsimile: 212.574.3326

4.3            Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Company 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 Company and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. 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

Company shall pay the Holder hereof costs of collection, including reasonable attorneys' fees.

Exhibit 4.12 -- Page 16

4.6            Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This Note shall be governed by, and construed in accordance with, the internal laws of the State of New York, without regard to principles of conflicts of law. THE COMPANY AND THE HOLDER WAIVE ANY RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREIN, INCLUDING CLAIMS BASED ON CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER COMMON LAW OR STATUTORY BASIS. The Company and the Holder hereby submit to the exclusive jurisdiction of the state and federal courts located in the County of New York, State of New York. If the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating to this Note or any of the transactions contemplated herein will be finally settled by binding arbitration in New York, New York in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one arbitrator appointed in accordance with said rules. The arbitrator shall apply New York law to the resolution of any dispute, without reference to rules of conflicts of law or rules of statutory arbitration. Judgment on the award rendered by the arbitrator may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph. The expenses of the arbitration, including the arbitrator's fees and expert witness fees, incurred by the parties to the arbitration, may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or a share) of such expenses, the Company and the Holder shall share equally in the payment of the arbitrator's fees as and when billed by the arbitrator.

4.7            Certain Amounts.   Whenever pursuant to this Note the Company 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 Company 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 Company 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 Company 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 Securities Purchase Agreement and supporting documents of same date.

Exhibit 4.12 -- Page 17

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 Company shall provide the Holder with prior notification of any meeting of the Company's shareholders (and copies of proxy materials and other information sent to shareholders).  In the event of any taking by the Company 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 Company or any proposed liquidation, dissolution or winding up of the Company, the Company 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 Company shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.

4.10            Remedies. The Company 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 Company 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 Company 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.

Exhibit 4.12 -- Page 18

IN WITNESS WHEREOF, Company has caused this Note to be signed in its name by its duly authorized officer:

	
Brazil Minerals, Inc.

	 	 
	 	 	 
	 	
By:

	
/s/Marc Fogassa

	 	 	 
	 	
Print:

	
Marc Fogassa

	 	 	 
	 	
Title/Date:

	
Chief Executive Office

 

 

  

 

 

 

 

Exhibit 4.12 -- Page 19

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