Document:

SUBSCRIBER:

	
DAVID HOCHMAN

 

 

 

 

 

 

 

NAKED BRAND GROUP, INC.

 

 

SUBSCRIPTION AGREEMENT

 

 

PLACEMENT AGENT

 

NOBLE FINANCIAL CAPITAL MARKETS

 

 

 

 

  

 

  

             

NAKED BRAND GROUP, INC.

 

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement (the “Subscription Agreement”) is entered into by and between Naked Brand Group, Inc., a Nevada Corporation (the “Company” or “Naked”), and the Subscriber(s) whose name appears on the signature page to this Subscription Agreement (the “Subscriber” and, together with other subscribers to the Offering (as hereinafter defined), “Investors”).

 

This Subscription Agreement is executed and delivered in connection with the offering (the “Offering”) of up to 240 units (each, a “Unit”), at a subscription price of $25,000 per Unit, for gross Offering proceeds of up to $6,000,000. Each Unit shall consist of (i) a convertible senior secured debenture in the principal amount of $25,000 (the “Convertible Debenture”), and (b) a five-year warrant (the “Warrant”) to purchase 166,667 shares of common stock (each, a “Share”) of the Company, par value $0.001 per share, which Warrant entitles the holder thereof to acquire an additional Share (the “Warrant Shares”) at an exercise price of $0.15 per Warrant Share, subject to adjustment. The Convertible Debentures, shares of common stock issuable upon conversion of the Convertible Debentures (the “Debenture Shares”), the Warrants and the Warrant Shares are collectively referred to as the “Securities.”

 

The Units are being offered to prospective Investors by the Company through Noble Financial Capital Markets (the “Placement Agent” or “Noble”) as exclusive Placement Agent for the Offering and by such other FINRA member selling agents as shall be engaged by Noble. The terms of the Offering and the Securities are more fully described in the Confidential Private Placement Memorandum dated May 2, 2014 (the “Memorandum”). The Company is offering the Units for sale on the terms described in the Memorandum on a “best efforts all or none basis” for the first 160 Units (the “Minimum Amount”) and a “best efforts” basis for the remaining 80 Units (the “Maximum Amount”) (plus an over-allotment option of 80 Units if the Maximum Amount is completed by the termination date) until all of the Units are sold or the Offering is withdrawn or terminated, whichever occurs first.

 

All subscription proceeds, including the purchase price for the Units being tendered by Subscriber contemporaneous herewith, will be held in escrow by U.S. Bank, National Association (the “Escrow Agent”) pursuant to an escrow agreement (the “Escrow Agreement”) among the Company, the Placement Agent and the Escrow Agent; and will be disbursed from escrow at one or more closings to be held from time to time at the direction of the Company and the Placement Agent provided that no Closing will occur until at least such time as the Escrow Agent has gross proceeds of at least the Minimum Amount (including the face amount of Bridge Notes issued by the Company being converted into the Offering). The Escrow Agent has been appointed for administrative convenience in connection with the remittance and delivery of subscription proceeds and related documentation. Investors will not be a party to the Escrow Agreement and the consent of Investors will not be required prior to disbursement of subscription proceeds from escrow.

 

This Subscription Agreement, the Qualified Investor Questionnaire (the “Questionnaire”) the form of the Warrant, the form of Security Agreement (the “Security Agreement”) and the form of Registration Rights Agreement (the “Registration Rights Agreement”) are exhibits to the Memorandum and are collectively referred to as the “Transaction Documents”).

 

	
A.

	
General.

 

1.           Subscriber hereby subscribes for and agrees to purchase from the Company, and the Company agrees to sell to Subscriber, the number of Units set forth on the signature page hereof.

 

2.           Subscriber herewith tenders to the Company the entire amount of the purchase price for Units subscribed for by check made payable to the order of “U.S. Bank, National Association, Escrow Agent for Naked Brand Group, Inc.,” or Subscriber has paid the entire amount of the purchase price by wire transfer of immediately available funds in accordance with wire transfer instructions furnished below:

 

 

U.S. Bank National Association

ABA# 091000022BNF: U.S. Bank Trust- TFMA/C: 180121167365

ATTN: TFM- Daryl Hosch

Ref: 209028000- Naked Brand Group

 

 

 

  

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3.           Subscriber herewith delivers to the Company a completed and signed Subscription Agreement (including a counterpart signature page to the Registration Rights Agreement and Security Agreement) and a completed and signed Questionnaire for the purchase of the Units.

 

The purchase price for the Units submitted to the Escrow Agent will be held for the Subscriber’s benefit. Subscriber will not become a holder of Convertible Debentures and Warrants until such time as Subscriber’s subscription is accepted by the Company and a Closing of the purchase and sale of the Units being subscribed for by Subscriber takes place. Until such time as Subscribers subscription is accepted or rejected, as the case may be, this subscription shall be irrevocable, except as provided below and Subscriber will not have access to his, her or its subscription funds.

 

	
B.

	
Securities offered have not been registered under the Securities Act of 1933, as amended

 

Subscriber acknowledges that (i) the Securities have not been registered under the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder (the “Securities Act”), or the securities laws of any state; (ii) absent registration, any resale or other transfer of any of the Securities must be made in compliance with the Securities Act; (iii) the Securities are being offered for sale in reliance upon exemptions from registration contained in the Securities Act and applicable state securities laws; and (iv) the Company’s reliance upon such exemption is based in part upon Subscriber’s representations, warranties and agreements contained in this Subscription Agreement and in the Questionnaire that Subscriber is delivering to the Company.

 

	
C.

	
Security

 

In accordance with the terms and the conditions of the Security Agreement, the Company agrees to secure repayment of the loan amount under the Convertible Debentures, all accrued and unpaid interest thereon and all other payments due thereunder, as well as all of the Company’s obligations thereunder by creating a Security Agreement for the benefit of all Investors. From time to time, Investor may demand, and the Company shall execute, such additional documents as may be reasonably necessary to maintain the security.

 

	
D.

	
Representations, Warranties, Acknowledgements and Agreements

 

1.           In order to induce the Company to accept this Subscription Agreement, Subscriber represents and warrants to, and acknowledges and covenants with, the Company as follows:

 

a.           Subscriber understands that (i) this Subscription Agreement may be accepted or rejected in whole or in part by the Company in its sole and absolute discretion, and (ii) this Subscription Agreement shall survive Subscriber’s death, disability or insolvency, except that Subscriber shall have no obligation in the event that this Subscription Agreement is rejected by the Company. In the event that the Company does not accept Subscriber’s subscription, or if the Offering is terminated for any reason, Subscriber’s subscription payment (or portion thereof, as the case may be) will be returned to Subscriber without interest thereon or deduction therefrom.

 

b.           Subscriber has carefully read the Memorandum and the exhibits thereto, including various filings by the Company with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, attached as exhibits to the Memorandum (the “SEC Documents,” and together with the Memorandum and the Transaction Documents, collectively, the “Offering Materials”). Subscriber has been advised to discuss with his, her, or its counsel the representations, warranties and agreements which Subscriber is making by signing this Subscription Agreement, the applicable limitations upon Subscriber’s resale of the Securities, and the investment, tax and legal consequences of this Subscription Agreement. No oral or written representations have been made and no oral or written information has been furnished to the Subscriber or Subscriber’s advisor(s) in connection herewith that were in any way inconsistent with the information set forth in the Offering Materials and Subscriber disclaims reliance on any statements made or information provided by the Company, the Placement Agent or any of their respective employees, counsel or agents or any other person or entity in the course of Subscriber’s consideration of an investment in the Units other than those set forth in the Offering Materials.

 

 

  

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c.           Subscriber understands that no federal or state agency has made any finding or determination regarding the fairness of the Offering, or any recommendation or endorsement of the Securities, the terms of this Offering or the adequacy of the Offering Materials.

 

d.           Subscriber is purchasing the Units for Subscriber’s own account, with the intention of holding the Units for investment purposes, with no present intention of dividing or allowing others to participate in this investment or of reselling or otherwise participating, directly or indirectly, in a distribution of the Securities; and Subscriber agrees not to make any sale, transfer or other disposition of any of the Securities without registration under the Securities Act and applicable state and provincial securities laws unless counsel acceptable to the Company is of the opinion that such registration is not required. Subscriber is not acquiring the Securities, or any interest therein, on behalf of another person and Subscriber, if an entity, was not formed for the purpose of purchasing the Units.

 

e.           Subscriber’s overall commitment to investments which are not readily marketable is not disproportionate to Subscriber’s net worth, and Subscriber’s investment in the Units will not cause such overall commitment to become excessive.

 

f.           Subscriber, if an individual, has adequate means of providing for his or her current needs and personal and family contingencies and has no need for liquidity in his or her investment in the Units.

 

g.           Subscriber is an “accredited investor” as that term is defined in Rule 501(a) under Regulation D promulgated by the SEC under the Securities Act. In addition, Subscriber is an “accredited investor” as defined by National Instrument 45-106 – Prospectus and Registration Exemptions adopted by the Canadian Securities Administrators. Subscriber is financially able to bear the economic risk of this investment, including the ability to hold the Securities for an indefinite period and can afford to sustain a complete loss of this investment.

 

h.           The address shown on the signature page to this Subscription Agreement is Subscriber’s principal residence if he or she is an individual, or its principal business address if a corporation or other entity.

 

i.           Subscriber, together with any offeree representatives of Subscriber (as identified in the Questionnaire) has such knowledge and experience in financial business matters as to be capable of evaluating the merits and risks of an investment in the Securities. Subscriber acknowledges that the Offering Materials may not contain all information that is necessary to make an investment decision with respect to the Company and the Units and that Subscriber must rely on his, her or its own examination of the Company and the terms and conditions of the Offering prior to making any investment decision with respect to the Units.

 

j.           Subscriber has been given the opportunity to ask questions of and receive answers from the Company and its executive officers concerning the business and operations of the Company and the terms, provisions, and conditions of the Offering and to obtain any such additional publicly available information that Subscriber deems necessary or advisable to verify the accuracy of the information contained in the Offering Materials, or such other information as Subscriber desired in order to evaluate an investment in the Company; and Subscriber availed himself, herself or itself of such opportunity to the extent considered appropriate in order to evaluate the merits and risks of the proposed investment.

 

k.           Subscriber has made an independent evaluation of the merits of the investment and acknowledges the highly speculative nature of an investment in the Units including, without limitation, the information under “Risk Factors” in the Memorandum.

 

l.           The information provided by Subscriber in the Questionnaire is true, complete and accurate and Subscriber has duly executed and delivered such Questionnaire and any applicable exhibits thereto.

 

 

  

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m.           Subscriber has taken no action that would give rise to any claim by any person for brokerage commissions, finders’ fees or the like relating to this Subscription Agreement or the transactions contemplated hereby (other than commissions to be paid by the Company to the Placement Agent or as otherwise described in the Offering Materials).

 

n.           Subscriber understands that the Securities will bear a legend substantially similar to the legend set forth immediately below until (i) such Securities shall have been registered under the Securities Act and effectively disposed of in accordance with a registration statement, or (ii) in the opinion of counsel reasonably satisfactory to the Company such securities may be sold without registration under the Securities Act:

 

	
“These securities have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), or the “blue sky” or securities laws of any state and may not be offered, sold, pledged, hypothecated, assigned or transferred except (i) pursuant to a registration statement under the Securities Act which has become effective and is current with respect to these securities, or (ii) pursuant to a specific exemption from registration under the Securities Act but only upon a holder thereof first having obtained the written opinion of counsel reasonably satisfactory to the Company, that the proposed disposition is consistent with all applicable provisions of the Securities Act as well as any applicable “blue sky” or similar securities laws.”

If the Subscriber is resident in Canada, the Securities will bear the additional legend set forth immediately below:

 

	
“The holder of the securities represented hereby must not trade the securities in or from a jurisdiction of Canada unless the conditions in Section 13 of Multilateral Instrument 51-105 issuers quoted in the U.S. over the counter markets are met.”

 

o.           Subscriber, if an individual, is at least 21 years of age.

 

p.           If at any time prior to issuance of the Securities to Subscriber, any representation or warranty of Subscriber shall no longer be true, complete and accurate, Subscriber promptly shall give written notice thereof to the Company providing full details.

 

q.           The Subscriber represents that the amounts invested by it in the Company in the Offering were not and are not directly or indirectly derived from activities that contravene federal, state or international laws and regulations, including anti-money laundering laws and regulations. Federal regulations and Executive Orders administered by OFAC prohibit, among other things, the engagement in transactions with, and the provision of services to, certain foreign countries, territories, entities and individuals. The lists of OFAC prohibited countries, territories, persons and entities can be found on the OFAC website at <http://www.treas.gov/ofac>. In addition, the programs administered by OFAC (the “OFAC Programs”) prohibit dealing with individuals or entities in certain countries regardless of whether such individuals or entities appear on the OFAC lists.

 

r.           Notwithstanding the place where this Subscription Agreement may be executed by any of the parties hereto, all of the terms, provisions, and conditions hereof shall be construed in accordance with and governed by the laws of the State of New York, without giving effect to its conflict of laws principles. Any dispute arising out of or in connection with the interpretation or enforcement of this Subscription Agreement, the other Offering Materials or Subscriber’s purchase of the Units, shall be exclusively adjudicated before a federal or state court located in New York, New York and the parties hereto exclusively submit to the exclusive jurisdiction and venue of the federal and state courts in New York, New York with respect to any action or legal proceeding commenced by any party, and irrevocably waive any objection they now or hereafter may have respecting the venue of any action or proceeding brought in such a court or respecting the fact that such court is an inconvenient forum and Subscriber consents to the service of process in any such action or legal proceeding by means of registered or certified mail, return receipt requested, in care of the address set forth below or such other address as Subscriber shall furnish in writing to the Company.

 

 

  

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s.           Subscriber hereby irrevocably waives trial by jury in any action or proceeding involving, directly or indirectly, any matter (whether sounding in tort, contract, fraud or otherwise) in any way arising out of or in connection with the interpretation or enforcement of this Subscription Agreement, the other Offering Materials or Subscriber’s purchase of the Units.

 

t.           Subscriber acknowledges that he, she or it understands the meaning and legal consequences of the representations, warranties and acknowledgments contained in this Subscription Agreement and in the Questionnaire, and hereby agrees to indemnify and hold harmless the Company, and each of its stockholders, officers, directors, affiliates, controlling persons, agents and representatives, from and against any and all loss, damage, expense, claim, action, suit or proceeding (including the reasonable fees and expenses of legal counsel) as incurred arising out of or in any manner whatsoever connected with (i) a breach of any representation or warranty of Subscriber contained in this Subscription Agreement or in the Questionnaire (ii) any sale or distribution by Subscriber in violation of the Securities Act or any applicable state and foreign securities laws or (iii) any untrue statement of a material fact made by Subscriber and contained herein or in the Questionnaire, or omission to state herein or in the Questionnaire, a material fact necessary in order to make the statements contained herein or in the Questionnaire, in light of the circumstances under which they were made, not misleading. Subscriber acknowledges that such damage could be substantial since (a) the Securities are being offered without registration under the Securities Act in reliance upon the exemption pursuant to Section 4(a)(2) and/or Regulation D of the Securities Act for transactions by an issuer not involving a public offering and, in various states, pursuant to exemptions from registration, (b) the availability of such exemptions is, in part, dependent upon the truthfulness and accuracy of the representations made by Subscriber herein and in its Questionnaire, and (c) the Company will rely on such representations in accepting Subscriber’s Subscription Agreement.

 

u.           Subscriber is not subscribing for the Units as a result of or subsequent to any advertisement, article, notice or other communication published in any newspaper, magazine or similar media or broadcast over television or radio, any seminar or meeting, or any solicitation of a subscription by a person not previously known to Subscriber in connection with investments in securities generally.

 

v.           Subscriber is not affiliated directly or indirectly with a member broker-dealer firm of the Financial Industry Regulatory Authority (“FINRA”) as an employee, officer, director, partner or shareholder or as a relative or member of the same household of an employee, director, partner or shareholder of a FINRA member broker-dealer firm, except as otherwise described on a separate sheet of paper submitted by Subscriber to the Company along with and as part of this completed Subscription Agreement.

 

w.           Subscriber represents that he, she or it has full power and authority (corporate, statutory or otherwise) to execute and deliver this Subscription Agreement, the other Transaction Documents and to purchase the Units. The execution, delivery and performance of this Subscription Agreement and the other Transaction Documents will not: (i) violate, conflict with or result in a default under any provision of the Certificate or By-Laws (or analogous organizational documents), if any, of Subscriber; or (ii) violate or result in a violation of, or constitute a default (whether after the giving of notice, lapse of time or both) under, any provision of any law, regulation or rule, or any order of, or any restriction imposed by any court or other governmental agency applicable to Subscriber. This Subscription Agreement and other Transaction Documents constitute the legal, valid and binding obligation of Subscriber, enforceable against Subscriber in accordance with their respective terms except to the extent that enforceability may be limited by applicable bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally and subject to general principles of equity (regardless of whether such enforcement is considered in a proceeding at law or at equity).

 

x.           Subscriber acknowledges and agrees that any subsequent trade in any of the Securities in or from any province or territory of Canada will be a distribution subject to the prospectus requirements of applicable provincial securities laws unless certain conditions are met, which conditions include, among others, a requirement that any certificate representing the any of the Securities (or ownership statement issued under a direct registration system or other book entry system) bear the restrictive legend specified in Multilateral Instrument 51-105 or National Instrument 45-102, as applicable (the “51-105 Legend”).  As Subscriber is not a resident of Canada, Subscriber undertakes not to trade or resell any of the Securities in or from Canada unless the trade or resale is made in accordance with Multilateral Instrument 51-105 or National Instrument 45-102, as applicable, and Subscriber understands and agrees that the Company and others will rely upon the truth and accuracy of these representations and warranties made in this Agreement and agrees that if such representations and warranties are no longer accurate or have been breached, Subscriber shall immediately notify the Company. By executing and delivering this Agreement and as a consequence of the representations and warranties made by Subscriber in this Agreement, Subscriber directs the Company not to include the 51-105 Legend on any certificates representing any of the Securities to be issued to Subscriber and, as a consequence, Subscriber will not be able to rely on the resale provisions of MI 51-105 or National Instrument 45-102, and any subsequent trade in any of the Securities in or from any jurisdiction of Canada will be a distribution subject to the prospectus requirements of applicable Canadian securities laws. If Subscriber wishes to trade or resell any of the Securities in or from any jurisdiction of Canada, Subscriber agrees and undertakes to return, prior to any such trade or resale, any certificate representing any of the Securities to the Company’s transfer agent to have the 51-105 Legend imprinted on such certificate or to instruct the Company’s transfer agent to include the 51-105 Legend on any ownership statement issued under a direct registration system or other book entry system.

 

 

  

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2.           In order to induce Subscriber to execute and deliver this Subscription Agreement, the Company represents and warrants to, and covenants with, Subscriber as follows:

 

a.           Subsidiaries. The Company’s Subsidiaries as of the date hereof are set forth in the SEC Documents. The Company owns, directly or indirectly, 100% of each Subsidiary and such ownership interest is, other than set out in the Security Agreement, free and clear of any liens, and all of the issued and outstanding shares of capital stock of each Subsidiary are validly issued, fully paid and non-assessable and free of preemptive and similar rights to purchase securities. Neither the Company nor the Subsidiaries are subject to any obligation (contingent or otherwise) to repurchase or otherwise acquire or retire any shares of the capital stock of any Subsidiary or any convertible securities, rights, warrants or options of the type described in the preceding sentence. Neither the Company nor any Subsidiary is party to, nor has any knowledge of, any agreement restricting the voting or transfer of any shares of the capital stock of any Subsidiary.

 

b.           Organization and Qualification. Each of the Company and each Subsidiary is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, and has the requisite power and authority to own and use its properties and assets and to carry on its business as currently conducted and contemplated to be conducted. Each of the Company and each Subsidiary is duly qualified to conduct business and is in good standing as a foreign corporation or other entity in each jurisdiction in which the nature of the business conducted or property owned by it makes such qualification necessary, except where the failure to be so qualified or in good standing, as the case may be, would not have or reasonably be expected to result in a material adverse effect on the business, condition (financial or otherwise), operations, prospects or property of the Company or a Subsidiary, taken as a whole (“Material Adverse Effect”), and no proceeding has been initiated in any such jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or curtail such power and authority or qualification.

 

c.           Authorization; Enforcement. The Company has the requisite corporate power and authority to enter into and to consummate the transactions contemplated by each of the Transaction Documents and otherwise to carry out its obligations hereunder and thereunder. The execution and delivery of each of the Transaction Documents by the Company and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by all necessary action on the part of the Company and no further action is required by the Company, the board of directors or the Company’s stockholders in connection therewith, other than in connection with the Required Approvals (as defined herein). Each Transaction Document to which it is a party has been (or upon delivery will have been) duly executed by the Company and, when delivered in accordance with the terms hereof and thereof, will constitute the valid and binding obligation of the Company, enforceable against the Company in accordance with its terms, except: (i) as may be limited by general equitable principles and applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors’ rights generally and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies.

 

d.           No Conflicts. The execution, delivery and performance by the Company of the Transaction Documents, the issuance and sale of the Securities and the consummation by it of the transactions contemplated hereby and thereby to which it is a party do not and will not: (i) conflict with or violate any provision of the Company’s or any Subsidiary’s certificate or articles of incorporation, bylaws or other organizational or charter documents, (ii) conflict with, or constitute a default (or an event that with notice or lapse of time or both would become a default) under, result in the creation of any lien upon any of the properties or assets of the Company or any Subsidiary, or give to others any rights of termination, amendment, acceleration or cancellation (with or without notice, lapse of time or both) of, any agreement, credit facility, debt or other instrument (evidencing a Company or Subsidiary debt or otherwise) or other understanding to which the Company or the Subsidiary is a party or by which any property or asset of the Company or the Subsidiary is bound or affected, or (iii) subject to the Required Approvals (as defined below), conflict with or result in a violation of any law, rule, regulation, order, judgment, injunction, decree or other restriction of any court or governmental authority to which the Company or a Subsidiary is subject (including federal and state securities laws and regulations), or by which any property or asset of the Company or a Subsidiary is bound or affected; except in the case of each of clauses (ii) and (iii), such as could not have or reasonably be expected to result in a Material Adverse Effect.

 

 

  

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e.           Filings, Consents and Approvals. Neither the Company nor any Subsidiary is required to obtain any consent, waiver, authorization or order of, give any notice to, or make any filing or registration with, any court or other federal, state, local or other governmental authority or other person in connection with the execution, delivery and performance by the Company of the Transaction Documents, other than the filing of a Current Report on Form 8-K and a Form D with the Securities and Exchange Commission (the “Commission”) and such filings as are required to be made under applicable state and foreign securities laws (the “Required Approvals”).

 

f.           Issuance of the Securities. Each of the Convertible Debenture and the Warrant are duly authorized and, when issued and paid for in accordance with the terms of the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, and free and clear of all liens other than restrictions on transfer provided for in the Transaction Documents. The Debenture Shares, upon the conversion of the Convertible Debenture, subject to stockholder approval of an increase in the Company’s authorized capitalization, to the extent necessary, duly authorized and, when issued and paid for in accordance with the terms of the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, and free and clear of all liens other than restrictions provided for in the Transaction Documents. The Warrant Shares issuable upon exercise of the Warrant, subject to stockholder approval of an increase in the Company’s authorized capitalization, to the extent necessary, have been duly authorized and, when issued and paid for in accordance with the applicable Transaction Documents, will be duly and validly issued, fully paid and non-assessable, free and clear of all liens other than restrictions on transfer provided for in the Transaction Documents. Subject to stockholder approval of an increase in the Company’s authorized capitalization, to the extent necessary, the Company has reserved from its duly authorized capital stock, such number of securities for issuance upon conversion or exercise of the Note and Warrant, as applicable.

 

g.           Capitalization; Additional Issuances. All of the issued and outstanding securities of the Company as of the date hereof are as set forth in the SEC Documents. Except as set forth in the SEC Documents, as of the date hereof, there are no outstanding agreements or preemptive or similar rights affecting the issuance of the Convertible Debentures and no outstanding rights, warrants or options to acquire, or instruments convertible into or exchangeable for, or agreements or understandings with respect to the sale or issuance of, the Convertible Debentures. The exercise price of any of the Company’s outstanding warrants and options are set forth in the SEC Documents.

 

h.           Litigation. Except as set forth in Schedule 2(h) , there are no actions or proceedings pending or, to the knowledge of the Company, threatened by or against Company or any of its Subsidiaries involving more than, individually or in the aggregate, Fifty Thousand Dollars ($50,000). There is no action, suit, inquiry, notice of violation, proceeding or investigation pending or, to the knowledge of the Company, threatened against or affecting the Company before or by any court, arbitrator, governmental or administrative agency or regulatory authority (federal, state, county, local or foreign) (collectively, an “Action”) which (i) adversely affects or challenges the legality, validity or enforceability of any of the Transaction Documents or the UCC Pledge or the issuance of the Securities or (ii) could, if there were an unfavorable decision, have or reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any director or officer thereof, is or has been the subject of any Action involving a claim of violation of or liability under federal or state securities laws or a claim of breach of fiduciary duty. There has not been, and to the knowledge of the Company, there is not pending or contemplated, any investigation by the Commission involving the Company or any current or former director or officer of the Company.

 

 

  

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i.           Regulatory Permits. Each of the Company and each Subsidiary possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as currently conducted or as contemplated to be conducted, except where the failure to possess such permits could not reasonably be expected to result in a Material Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary has received any notice of proceedings relating to the revocation or modification of any Material Permit.

 

j.           SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the twelve months preceding the date hereof (the foregoing materials being collectively referenced to as the “SEC Reports”) on a timely basis or has timely filed a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act and the rules and regulations of the Commission promulgated thereunder, and none of the SEC Reports, when filed, 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. The financial statements of the Company included in the SEC Reports comply in all material respects with the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with U.S. GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by U.S. GAAP, and fairly present in all material respects the financial position of the Company as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments.

 

k.           Private Placement. Assuming the accuracy of the Investors’ representations and warranties set forth herein, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to the Investors as contemplated hereby.

 

l.           No General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to Investors.

 

m.           Acknowledgment Regarding the Investors’ Purchase of Securities. The Company acknowledges and agrees that each Investor is acting solely in the capacity of an arm’s length Investor with respect to the Transaction Documents and the transactions contemplated thereby. The Company further acknowledges that no Investor is acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to the Transaction Documents and the transactions contemplated thereby and any advice given by any Investor or any of its representatives or agents in connection with the Transaction Documents and the transactions contemplated thereby is merely incidental to such Investor’s purchase of the Securities. The Company further represents to each Investor that the Company’s decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives.

 

n.           Compliance. Neither the Company nor any Subsidiary: (i) is in violation of any order of any court, arbitrator or governmental body or (ii) is or has been in violation of any statute, rule or regulation of any governmental authority, including without limitation all foreign, federal, state and local laws applicable to its business, except in each case as could not have or reasonably be expected to result in a Material Adverse Effect.

 

o.           Title to Assets. The Company and each Subsidiary have good and marketable title in all personal property owned by them that is material to the business of the Company and each Subsidiary, in each case, free and clear of all liens, except for liens previously granted by the Company, and listed on Schedule 2(o), liens that do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and each Subsidiary and liens for the payment of federal, state, foreign or other taxes, the payment of which is neither delinquent nor subject to penalties (“Permitted Liens”). Any real property and facilities held under lease by the Company and each Subsidiary are held by them under valid, subsisting and enforceable leases with which the Company and each Subsidiary are in compliance.

 

 

  

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NAKED BRAND GROUP, INC.

 

p.           Intellectual Property. The Company and each Subsidiary exclusively own all right, title and interest in, or possesses adequate and enforceable rights to use, all patents, patent applications, trademarks, trade names, service marks, internet domain names, together with the goodwill associated therewith, copyrights, rights, licenses, franchises, trade secrets, confidential information, processes, formulations, software and source and object codes (collectively, the “Intangibles”) necessary for the conduct of their businesses. To the best of the knowledge of the Company and the Subsidiary, neither the Company nor any Subsidiary has infringed upon the rights of others with respect to the Intangibles and neither the Company nor any Subsidiary have received notice that they have or may have infringed or are infringing upon the rights of others with respect to the Intangibles, or any notice of conflict with the asserted rights of others with respect to the Intangibles that could, individually or in the aggregate, or could reasonably be expected to have, have a Material Adverse Effect. “Exchange Act” shall mean the Securities Exchange Act of 1934, as amended or any successor federal statute, and the rules and regulations of the Commission issued under such Act, as they each may, from time to time, be in effect.

 

q.           Insurance. The Company and each Subsidiary is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and each Subsidiary are engaged. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect.

 

r.           Transactions With Affiliates and Employees. Except as may be described in the SEC Documents, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company, is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $10,000, other than for: (i) payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred in the ordinary course of business on behalf of the Company and (iii) other employee benefits, including stock option agreements, under any stock option plan of the Company.

 

s.           Certain Fees. Other than the cash placement fee and warrants issuable to Noble and certain selected dealers in connection with the Offering, no brokerage or finder’s fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other person with respect to the transactions contemplated by the Transaction Documents. Investor shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by the Transaction Documents.

 

t.           Investment Company. The Company is not, and is not an affiliate of, and immediately after receipt of payment for the Securities, will not be or be an affiliate of, an “investment company” within the meaning of the Investment Company Act of 1940, as amended.

 

u.           Tax Returns. Except for matters that would not, individually or in the aggregate, have or reasonably be expected to result in a Material Adverse Effect, the Company and each Subsidiary have filed all necessary federal, state and foreign income and franchise tax returns and has paid or accrued all taxes shown as due thereon, and the Company has no knowledge of a tax deficiency which has been asserted or threatened against the Company or any Subsidiary.

 

v.           Foreign Corrupt Practices. None of the Company, any Subsidiary or, to the knowledge of the Company, any agent or other person acting on behalf of the Company or any Subsidiary, has: (i) directly or indirectly, used any funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended.

 

 

  

Page 10

  

 

NAKED BRAND GROUP, INC.

 

w.           No Disagreements with Accountants or Lawyers. There are no disagreements of any kind presently existing, or reasonably anticipated by the Company to arise, between the Company and the accountants and lawyers formerly or presently employed by the Company which could affect the Company’s ability to perform any of its obligations under any of the Transaction Documents.

 

x.           Indebtedness. Except as disclosed in schedule 2(x), neither the Company nor any Subsidiary is in default with respect to, or liable under (x) any liabilities for borrowed money or amounts owed in excess of $100,000 (other than trade accounts payable incurred in the ordinary course of business), or (y) any guaranties, endorsements and other contingent obligations in respect of indebtedness of others, whether or not the same are or should be reflected in the Company’s balance sheet (or the notes thereto).

 

y.           Internal Controls. Except as disclosed in the SEC Documents, the Company is in compliance with the provisions of the Sarbanes-Oxley Act of 2002 currently applicable to the Company. The Company and each Subsidiary maintains a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with U.S. GAAP and to maintain asset accountability, (iii) access to assets is permitted only in accordance with management’s general or specific authorization, and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. The Company has established disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e) and 15d-15(e)) for the Company and designed such disclosure controls and procedures to ensure that material information relating to the Company, including the Subsidiaries, is made known to the certifying officers by others within those entities, particularly during the period in which the Company’s most recently filed periodic report under the Exchange Act, as the case may be, is being prepared. The Company’s certifying officers have evaluated the effectiveness of the Company’s controls and procedures as of the end of the period covered by the most recently filed periodic report under the Exchange Act (such date, the “Evaluation Date”). The Company presented in its most recently filed periodic report under the Exchange Act the conclusions of the certifying officers about the effectiveness of the disclosure controls and procedures based on their evaluations as of the Evaluation Date. Since the Evaluation Date, there have been no significant changes in the Company’s internal controls (as such term is defined in Item 308 of Regulation S-K) or, to the Company’s knowledge, in other factors that could significantly affect the Company’s internal controls. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with U.S. GAAP and the applicable requirements of the Exchange Act.

 

z.           OFAC. None of the Company, any Subsidiary or, to the knowledge of the Company, any director, officer, agent, employee or Affiliate of the Company is currently subject to any U.S. sanctions administered by the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”); and the Company will not, directly or indirectly, use the proceeds of the offering, or lend, contribute or otherwise make available such proceeds to any Subsidiary, joint venture partner or other person, for the purpose of financing the activities of any person currently subject to any U.S. sanctions administered by OFAC.

 

aa.           Full Disclosure. All of the disclosure furnished by or on behalf of the Company to the Investors regarding the Company, its business and the transactions contemplated hereby is true and correct and does not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading.

 

	
E.

	
Registration Rights

 

Naked has agreed that, within sixty (60) days following the final Closing of the Offering, it will file a registration statement under the Securities Act to register the resale of the Debenture Shares and Warrant Shares issued in the Offering, thereafter, it shall use its reasonable commercial efforts to cause the registration statement to be declared effective by the SEC within one hundred and fifty (150) days of the date of such final Closing. Execution by the Subscriber of the Registration Rights Agreement Counterpart Signature Page included as part of this Subscription Agreement shall constitute execution of the Registration Rights Agreement, the form of which is attached as Exhibit E to the Memorandum.

 

 

  

Page 11

  

 

NAKED BRAND GROUP, INC.

 

 

	
F.

	
Appointment of Collateral Agent; Indemnification of Collateral Agent.

 

a.           Appointment of Collateral Agent. Each Investor hereby appoints, authorizes and empowers CSD Holdings, LLC (the “Collateral Agent”) to act as the collateral agent and as representative, attorney-in-fact and agent, with full power of substitution, to act in the name, place and stead of each of Investor, to take all actions necessary or appropriate in its judgment for the accomplishment of the terms of any of the Transaction Documents, and to act on behalf of each Investor and to do or refrain from doing all such further acts and things, to make all decisions and determinations, and to execute, deliver and receive all such documents, as it shall deem necessary or appropriate in conjunction with any of the transactions contemplated by the Transaction Documents. This appointment may be terminated, and such termination shall be effective, upon the earlier of the Collateral Agent’s resignation as collateral agent and the written consent of the holders of a majority-in-interest of the Convertible Debentures.

 

b.           Limitation of Liability; Indemnification. In addition to any and all protections and rights that may be granted hereunder to the Collateral Agent as collateral agent, to the maximum extent permissible by law, the Collateral Agent will incur no liability with respect to any action or inaction taken or failed to be taken in connection with its services as the collateral agent, except its own willful misconduct or gross negligence. In all questions arising under any of the Transaction Documents, the Collateral Agent may rely on the advice of counsel of its choosing, and the Collateral Agent will not be liable to any party to any of the Transaction Documents or any other person or party for anything done, omitted or suffered in good faith by it in its capacity as the collateral agent based on such advice. Each of the Investors (a) agrees, jointly and severally, to indemnify, defend and save harmless the Collateral Agent from and against any and all loss, liability or expense (including the reasonable fees and expenses of outside counsel and experts and their staffs and all expense of document location, duplication and shipment) arising out of or in connection with the Collateral Agent’s execution and performance of its duties as collateral agent under any of the Transaction Documents (a “Collateral Agent Expense”), except to the extent that such Collateral Agent Expense is finally adjudicated to have been primarily caused by the gross negligence or willful misconduct of the Collateral Agent, in its capacity as collateral agent, and (b) acknowledges and agrees that the foregoing indemnities shall survive the Collateral Agent’s resignation as the collateral agent or the termination of any of the Transaction Documents. In no event shall the Collateral Agent, in its capacity as the collateral agent, be liable for special, indirect or consequential loss or damage of any kind whatsoever (including but not limited to lost profits), even if the Collateral Agent has been advised of the likelihood of such loss or damage and regardless of the form of action.

 

c.           Related Party. Each Investor acknowledges and agrees that (i) the Collateral Agents and its present or former members, employees, officers, managers, representatives and affiliates and the immediate family members of any of the foregoing persons are or may become in the future a party to or a beneficiary of a contract with the Company or have or may have in the future an interest in any property used or held for use by the Company or take actions that may conflict with the interest of the Investors (the “Affiliate Activities”), (ii) the Collateral Agent is not under any duty to disclose to any of the Investors or use on behalf of any of the Investors any information whatsoever about or derived from the Affiliate Activities or to account for any revenue or profits obtained in connection with the Affiliate Activities as a result of acting as an agent (or in any other capacity) hereunder and under any of the transaction agreements related to the Offering, and (iii) the Collateral Agent is not required to restrict any of its activities as a result of acting as an agent (or in any other capacity) hereunder and under any of the transaction agreements related to the Offering and that it may undertake any activities without further consultation with or notification to any of the Investors.

 

	
G.

	
Notice Provisions

 

Any and all notices, demands or requests required or permitted to be given under this Subscription Agreement shall be given in writing and sent, by certified U.S. mail, return receipt requested, by facsimile electronic mail, by hand, or by overnight courier, addressed to the parties hereto at their addresses set forth above or such other addresses as they may from time-to-time designate by written notice, given in accordance with the terms of this Section G, together with copies thereof as follows:

 

 

  

Page 12

  

 

NAKED BRAND GROUP, INC.

 

If to the Company:

 

Naked Brand Group Inc.

#2 34346 Manufacturers Way

Abbotsford, BC Canada V2S 7M1

Telephone: 604-855-4767

Email: ________________

Attention: President

 

In the case of Subscriber, to the address of Subscriber on the signature page to this Agreement.

 

Notice given as provided in this Section shall be deemed effective: (i) on the business day hand delivered (or, if it is not a business day, then the next succeeding business day thereafter), (ii) on the first business day following the sending thereof by overnight courier, and (iii) on the seventh calendar day (or, if it is not a business day, then the next succeeding business day thereafter) after the depositing thereof into the exclusive custody of the U.S. Postal Service. As used herein, the term business day (other than Saturday or Sunday) shall mean any day when commercial banks are open in the State of New York.

 

	
H.

	
Miscellaneous.

 

1.           This Subscription Agreement shall be binding upon and inure to the benefit of the parties hereto and to their respective heirs, legal representatives, successors and assigns.

 

2.           This Subscription Agreement supersedes all prior arrangements or understandings with respect thereto, whether oral or written. The terms and conditions of this Subscription Agreement shall inure to the benefit of and be binding upon the parties and their respective successors, heirs and assigns.

 

3.           The Offering Materials constitute the entire agreement between the Subscriber and the Company with respect to the subject matter hereof and supersede all prior oral or written agreements and understandings, if any, relating to the subject matter hereof. The terms and provisions of this Subscription Agreement may be waived, or consent for the departure therefrom granted, only by a written document executed by the party to be bound thereby.

 

4.           No term or provision contained herein may be modified, amended or waived except by written agreement or consent signed by the party or parties to be bound thereby. A waiver by either party of a breach of any provision of this Subscription Agreement shall not operate, or be construed, as a waiver of any subsequent breach by that same party.

 

5.           Subscriber acknowledges that the subscription made hereby is not binding upon the Company until the Company accepts it. The Company has the right to accept or reject this subscription in whole or in part in its sole and absolute discretion. If this subscription is rejected in whole, the Company shall return the purchase price to Subscriber, without interest or deduction, and the Company and Subscriber shall have no further obligation to each other by reason of this Subscription Agreement or the subscription made hereby.

 

6.           The representations, warranties and covenants of the Company and the Subscriber made in this Subscription Agreement shall survive the Closing and the execution and delivery hereof and delivery of the Securities.

 

7.           Each of the parties hereto shall pay its own fees and expenses (including the fees of any attorneys, accountants, appraisers or others engaged by such party) in connection with this Subscription Agreement, the other Transaction Documents and the transactions contemplated hereby whether or not the transactions contemplated hereby are consummated.

 

 

  

Page 13

  

 

NAKED BRAND GROUP, INC.

 

OFFERING INFORMATION, LEGENDS, AND NOTICES

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED BY THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION (THE “SEC”), OR ANY STATE REGULATORY AUTHORITY. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

 

IT IS INTENDED THAT THE SECURITIES OFFERED HEREBY WILL BE OFFERED TO ACCREDITED INVESTORS, AS DEFINED IN RULE 501 OF REGULATION D PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”).

 

THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND ARE BEING OFFERED PURSUANT TO AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS FOR NONPUBLIC OFFERINGS. SUCH EXEMPTIONS LIMIT THE NUMBER AND TYPES OF INVESTORS TO WHICH THE OFFERING WILL BE MADE AND RESTRICT SUBSEQUENT TRANSFERS OF THE SECURITIES SUCH SECURITIES MAY ONLY BE RESOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF IF, IN THE OPINION OF COUNSEL SATISFACTORY TO THE COMPANY, REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.

 

THE SECURITIES OFFERED HEREBY SHOULD BE CONSIDERED ONLY BY PERSONS WHO CAN AFFORD TO SUSTAIN A LOSS OF THEIR ENTIRE INVESTMENT. INVESTORS WILL BE REQUIRED TO REPRESENT THAT THEY ARE FAMILIAR WITH AND UNDERSTAND THE TERMS OF THIS OFFERING.

 

THE OFFEREE, BY ACCEPTING DELIVERY OF THE OFFERING MATERIALS, AGREES TO RETURN THE OFFERING MATERIALS AND ALL ACCOMPANYING OR RELATED DOCUMENTS TO THE COMPANY UPON REQUEST IF THE OFFEREE DOES NOT AGREE TO PURCHASE ANY OF THE SECURITIES OFFERED HEREBY.

 

ANY OFFERING MATERIALS SUBMITTED IN CONNECTION WITH THE PRIVATE PLACEMENT OF THE SECURITIES DO NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED. ANY REPRODUCTION OR DISTRIBUTION OF ANY OFFERING MATERIALS IN WHOLE OR IN PART, OR THE DIVULGENCE OF ANY OF THEIR CONTENTS, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY, IS PROHIBITED. ANY PERSON ACTING CONTRARY TO THE FOREGOING RESTRICTIONS MAY PLACE HIM/HERSELF AND THE COMPANY IN VIOLATION OF FEDERAL OR STATE SECURITIES LAWS.

 

NASAA UNIFORM LEGEND

 

IN MAKING AN INVESTMENT DECISION INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT, AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY WILL BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME.

 

 

  

Page 14

  

 

NAKED BRAND GROUP, INC.

 

FOR RESIDENTS OF FLORIDA

 

PURSUANT TO THE FLORIDA SECURITIES ACT, WHERE SALES ARE MADE TO FIVE OR MORE PERSONS IN FLORIDA, ANY SALE MADE SHALL BE VOIDABLE BY SUCH FLORIDA INVESTOR EITHER WITHIN THREE DAYS AFTER THE FIRST TENDER OF CONSIDERATION IS MADE BY SUCH INVESTOR TO THE ISSUER, AN AGENT OF THE ISSUER, OR AN ESCROW AGENT, OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH INVESTOR, WHICHEVER OCCURS LATER.

 

 

  

Page 15

  

 

NAKED BRAND GROUP, INC.

 

 

SIGNATURE PAGE FOR:

        

INDIVIDUAL INVESTOR

 

IN WITNESS WHEREOF, this Subscription Agreement has been executed by Subscriber and by the Company on the respective dates set forth below.

 

	
Signature

	 	
Signature (If Purchased Jointly)

	 
	  	 	  	 
	 /s/ David Hochman	 	 	 
	  	 	  	 
	
Print Name:  David Hochman

	 	
Print Name:  ____________________________________

	 
	  	 	  	 
	
Date:  June 4, 2014

	 	
Date:  _________________________________________

	 
	  	 	  	 
	
Social Security #:  XXX-XX-XXXX

	 	
Social Security #:  _________________________________

	 
	  	 	  	 
	
Residential Address:  15 Weston Hill Rd, Riverside, CT 06878

	 	
Residential Address:  ______________________________

	 
	  	 	  	 
	  	 	  	 
	
Telephone #:  917-922-5458

	 	
Telephone #:  ____________________________________

	 
	  	 	  	 
	
Fax # 203-344-9290

	 	
Fax #:  __________________________________________

	 
	  	 	  	 
	
Email:  dhochman@orchestramv.com

	 	
Email:  _________________________________________

	 
	  	 	  	 

 

	
EXACT Name in which Securities are to be issued:  DAVID HOCHMAN

	  
	  
	
Number of Units:  2

	  
	  	  
	
Purchase Price:  $ 50,000

	  

	
Form of Joint Ownership (if applicable):

	
o Tenants-in-Common

	
o Joint Tenants with Right of Survivorship

	
 

	  
	
o Other: __________________________________________________________________________________________________________________________

 

 

  

Page 16

  

 

NAKED BRAND GROUP, INC.

 

 

SIGNATURE PAGE FOR:

 

SUBSCRIPTION AGREEMENT ACCEPTANCE

 

 

NAKED BRAND GROUP, INC., a Nevada corporation

 

	
By:

	  	  
	  	  	  
	
Printed Name:

	  	  
	  	  	  
	
Title:

	  	  
	  	  	  
	
Dated:

	  	  

 

SUBSCRIPTION AGREEMENT NO: _____________________________

 

 

SUBSCRIBER: ____________________________________________

 

 

NUMBER OF UNITS: _____________________________________

 

 

PURCHASE PRICE: $ ___________________________________

 

 

 

  

Page 18

  

 

NAKED BRAND GROUP, INC.

 

 

COUNTERPART SIGNATURE PAGE FOR:

 

REGISTRATION RIGHTS AGREEMENT

 

 

IN WITNESS WHEREOF, this Registration Rights Agreement has been executed by Subscriber and by the Company on the respective dates set forth below.

 

	
Subscriber Signature(s):

	  	
Print Names of Subscriber(s):

	 	 	 
	  /s/ David Hochman	  	  David Hochman
	  	  	  

 

Dated:  June 4, 2014

 

 

Names must conform to signature page of the Subscription Agreement.

 

 

THE COMPANY:

 

NAKED BRAND GROUP, INC.

 

	By:	 	  
	 	
Name:

	  
	 	
Title:

	  
	 	  	  
	Dated:  ____________  ___, 2014	  

 

 

  

Page 19

  

 

NAKED BRAND GROUP, INC.

 

 

COUNTERPART SIGNATURE PAGE FOR:

 

SECURITY AGREEMENT

 

 

IN WITNESS WHEREOF, this Security Agreement has been executed by Subscriber and by the Company on the respective dates set forth below.

 

	
Subscriber Signature(s):

	  	
Print Names of Subscriber(s):

	 	 	 
	  /s/ David Hochman	  	  
	  	  	  

 

Dated:  June 4, 2014

 

Names must conform to signature page of the Subscription Agreement.

 

 

THE COMPANY:

   

NAKED BRAND GROUP, INC.

 

	By:	
 

	  
	 	
Name:

	  
	 	
Title:

	  
	 	  	  
	Dated:  ____________  ___, 2014	  

 

 

  

Page 20

  

 

 

 

PART I.

 

General Information

 

(All Subscribers Must Complete Part I)

 

Legal Name of the Subscriber(s):

 

	  David Hochman
	
 ̈       Legal Business Entity

	
þ       Natural Person

	
 ̈       Other:

	  
	
Tax Identification Number:

	  XXX-XX-XXXX
	  
	
 ̈       Legal Business Entity

	
 ̈       Natural Person

	
 ̈       Other:

	  
	
Tax Identification Number:

	  

Type of Investor(s) or Ownership (check one):

 

	
þ      INDIVIDUAL

	
 ̈      JOINT TENANTS WITH RIGHT OF SURVIVORSHIP

	
 ̈      TENANTS-IN-COMMON

	
 ̈      CORPORATION

	
 ̈      LIMITED LIABILITY COMPANY

	
 ̈      PARTNERSHIP

	
 ̈      LIMITED LIABILITY PARTNERSHIP

	
 ̈      LIMITED PARTNERSHIP

	
 ̈      TRUST

	
 ̈      “GRANTOR” TRUST

	
 ̈      OTHER (INDICATE):

	  

For a Natural Person:

 

	
Occupation or Profession:

	  Venture Capital
	
Current Employer:

	  Orchestra Medical Ventures
	
Nature of Business:

	  Investment Management
	
Current Position or Title:

	  Managing Director
	
Age:

	  39

For a Legal Business Entity:

 

	
Legal Business entity state of organization:

	  
	
Legal Business date of organization:

	  
	
Legal Business nature of activities:

	  

 

 

  

Page 2

  

 

Legal Address:                                            ̈  Business                              þ  Residential

 

	
Attention:

	  
	
First Line of Address:

	15 Weston Hill Rd.
	
Second Line of Address:

	 
	
City, State and Zip:

	Riverside, CT 06878

Mailing Address:                                           þ  same as above

 

	
Attention:

	  
	
First Line of Address:

	  
	
Second Line of Address:

	  
	
City, State and Zip:

	  

Contact Information:

 

	
Contact No 1:

	  917-922-5458

 ̈      Office Phone #                          ̈     Business Fax Phone #                       ̈Home Phone #               þ Mobile Phone #

 

	
Contact No 2:

	  646-367-5905

þ      Office Phone #                          ̈     Business Fax Phone #                       ̈Home Phone #                ̈ Mobile Phone #

 

	
Contact No 3:

	  

 ̈      Office Phone #                          ̈     Business Fax Phone #                      ̈Home Phone #                ̈ Mobile Phone #

 

FINRA Affiliation:

 

Please state whether you or any of your associates or affiliates

 

	
  

	
(i)

	
is a member of or a person associated with a member of FINRA;

	
  

	
(ii)

	
is an owner of stock or other securities of a FINRA member (other than purchased on the open market); or

	
  

	
(iii)

	
has made a subordinated loan to any FINRA member.

 

 ̈  YES                 þ  NO        DH          INITIAL HERE

 

If you marked yes to any of (i)-(iii) above, please describe the relevant facts below:

 

	  
	  
	  
	  

 

 

  

Page 3

  

 

Determination of Accredited Investor Status

 

TO QUALIFY AS AN ACCREDITED INVESTOR:  AN INVESTOR MUST INITIAL ONE OR MORE OF THE FOLLOWING:

 

	
  

	
(i)

	
I certify that I am an “accredited investor” because I an individual who either alone or with a spouse beneficially owns, directly or indirectly, financial assets (as defined below) having an aggregate realizable value that, before taxes but net of any related liabilities (exclusive of my principal residence), exceeds $1,000,000. Financial assets means (a) cash, (b) securities, or (c) a contract of insurance, a deposit or an evidence of a deposit that is not a security for the purposes of securities legislation.

 

þ  YES                   DH    INITIAL HERE

 

	
  

	
(ii)

	
I certify that I am an “accredited investor” because I had a net income before taxes which exceeded $200,000 in each of the two more recent calendar years or a net income before taxes combined with that of a spouse which exceeded $300,000 in each of those years and I, in either case, reasonably expect to exceed that net income level in the current calendar year.

 

þ YES                    DH   INITIAL HERE

 

	
  

	
(iii)

	
I certify that I am an “accredited investor” because I have, either alone or with a spouse, net assets of at least $5,000,000.

 

 ̈  YES                              INITIAL HERE

 

	
  

	
(iv)

	
I certify that I am an “accredited investor” being an entity in respect of which all of the owners of interests, direct, indirect or beneficial, except the voting securities required by law to be owned by directors, are persons that are accredited investors (as indicated above). IF THE ANSWER IS “YES,” THE PROSPECTIVE INVESTOR MUST PROVIDE A QUESTIONNAIRE FROM EACH OF ITS EQUITY OWNERS.

 

 ̈  YES                 ______ INITIAL HERE

 

	
  

	
(v)

	
I certify that I am an “accredited investor” being an entity, other than an investment fund, that had net assets of at least $5,000,000 as reflected on its most recently prepared financial statements.

 

 ̈  YES                 ______ INITIAL HERE

 

	
  

	
(vi)

	
I certify that I am an “accredited investor” being a person registered under securities legislation as an adviser or dealer.

 

 ̈  YES                 ______ INITIAL HERE

 

 

 

 

  

Page 4

  

PART III.

 

Offeree Representative

 

Although I am deemed an “accredited investor,” as I have represented above, I have relied upon an offeree representative to review the Memorandum and determine that an investment in the Company, for the amount that I have subscribed for, is prudent given the composition and size of my investment portfolio.

 

 ̈  YES                 ______ INITIAL HERE

 

If yes, I am providing the following information about my Offeree Representative:

 

	
Name:

	  
	
Address

	  
	
Profession

	  

 

 

 

  

Page 5

  

PART IV.

 

Signature

 

Individual Subscriber

 

By signing below, the undersigned represents that (i) the undersigned has read and confirmed the truth and accuracy of each of the above representations and warranties in this Questionnaire; (ii) the information contained herein may be relied upon; (iii) the undersigned will notify you immediately of any adverse change in any such information occurring prior to acceptance of its subscription; and the undersigned agrees to be bound by the restrictions on transfer of the Securities set forth above.

 

IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this 4th day of June, 2014.

 

Individual Subscriber

 

	/s/ David Hochman
	
Signature

	 
	 DAVID HOCHMAN
	
Printed Name

	 
	  
	
Signature of Additional Investor (i.e., joint tenant or tenant-in-common)

	  
	
Printed Name

	 
	  15 Weston Hill Rd, Riverside, CT 06878
	
(Address)

	  
	  
	  917-922-5458 (mobile)
	
(Telephone Number, indicate whether it is home, office or mobile)

	 
	 XXX-XX-XXXX
	
(S.S. Number)

	 
	 2
	
(Number of Units Subscribed for)

 

 

 

  

Page 6

  

PART IV (continued)

 

Signature

 

Corporate, Partnership Or Trust Subscriber

 

By signing below, the undersigned represents that (i) the undersigned has read and confirmed the truth and accuracy of each of the above representations and warranties in this Questionnaire; (ii) the information contained herein may be relied upon; (iii) the undersigned will notify you immediately of any adverse change in any such information occurring prior to acceptance of its subscription; and the undersigned agrees to be bound by the restrictions on transfer of the Securities set forth above.

 

IN WITNESS WHEREOF, the undersigned has executed this Questionnaire this ____ day of ________________, 2014.

 

CORPORATE, PARTNERSHIP OR TRUST SUBSCRIBER

 

	  
	
(Firm Name)

	 
	 
	 
	
By:

	  
	  	
(Signature)

	 	 
	  
	
(Name and Title)

	 
	  
	
(Firm Address)

	  
	  
	  
	
(Telephone Number)

	 
	  
	
(Taxpayer Identification Number)

	 
	  
	
(Number of Units Subscribed for)Exhibit 10.2

 

 

SERIES A SENIOR SECURED CONVERTIBLE DEBENTURE

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE 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. ANY TRANSFEREE OF THIS CONVERTIBLE DEBENTURE SHOULD CAREFULLY REVIEW THE TERMS OF THIS CONVERTIBLE DEBENTURE, INCLUDING SECTIONS 3(c)(iii) AND 14(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS CONVERTIBLE DEBENTURE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS CONVERTIBLE DEBENTURE.

 

THE HOLDER OF THE SECURITIES REPRESENTED HEREBY MUST NOT TRADE THE SECURITIES IN OR FROM A JURISDICTION OF CANADA UNLESS THE CONDITIONS IN SECTION 13 OF MULTILATERAL INSTRUMENT 51-105 ISSUERS QUOTED IN THE U.S. OVER THE COUNTER MARKETS ARE MET.

 

NAKED BRAND GROUP, INC.

 

6% SENIOR SECURED CONVERTIBLE DEBENTURE

 

	
Issuance Date: June 10, 2014

	
Original Principal Amount: U.S. $50,000

FOR VALUE RECEIVED, Naked Brand Group, Inc., a Nevada corporation (the “Company” or “Maker”), hereby promises to pay to the order of DAVID HOCHMAN or its registered assigns (“Holder”) the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate (as defined below) from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon the Maturity Date, or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This 6% Senior Secured Convertible Debenture (including any 6% Senior Secured Convertible Debenture issued in exchange, transfer or replacement hereof, this (“Convertible Debenture”) is one of an issue of 6% Senior Secured Convertible Debentures issued pursuant to the Subscription Agreement (as defined below) on the Initial Closing Date (as defined below) (collectively, the “Other Convertible Debentures”) and such other 6% Senior Secured Convertible Debentures, if any, that have been issued pursuant to the Subscription Agreement on one or more Additional Closing Dates that is not the Issuance Date (collectively, the “Additional Convertible Debenture”), and together with the Other Convertible Debentures, the (“Convertible Debenture”). Certain capitalized terms used herein are defined in Section 20.

 

1.           PAYMENTS OF PRINCIPAL. On June 10, 2017 (the “Maturity Date”), the Company shall pay to the Holder an amount in cash representing all the outstanding Principal, accrued and unpaid Interest and accrued and unpaid late charges on such Principal and Interest. The Company may not prepay any portion of the Convertible Debenture.

 

  

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2.           INTEREST; INTEREST RATE. (a) Interest on this Convertible Debenture shall commence accruing on the Issuance Date and shall be computed on the basis of a 360-day year and twelve 30-day months, on any outstanding Principal at the Interest Rate payable semi-annually beginning from the first such semi-annually date after the Issuance Date, on each conversion date (as to that principal amount then being converted) and on the Maturity Date (each, an “Interest Date”). Interest shall be payable on each Interest Date, to the Holder on the applicable Interest Date, in shares of Common Stock (“Interest Shares”) so long as there has been no Equity Conditions Failure; provided however, that the Company may, at its option following written notice to the Holder, pay Interest on any Interest Date in cash (“Cash Interest”) or in a combination of Cash Interest and Interest Shares. The Company shall deliver a written notice (each, an “Interest Election Notice”) to each holder of the Convertible Debentures on or prior to the Interest Notice Due Date (the date such notice is delivered to all of the holder, the “Interest Notice Date”) which notice (i) either (A) confirms that Interest to be paid on such Interest Date shall be paid entirely in Interest Shares or (B) elects to pay Interest as Cash Interest or a combination of Cash Interest and Interest Shares and specifies the amount of Interest that shall be paid as Cash Interest and the amount of Interest, if any, that shall be paid in Interest Shares and (ii) if the Company is paying all or any portion of Interest in Interest Shares, certifies that there has been no Equity Conditions Failure. If an Equity Conditions Failure has occurred as of the Interest Notice Date, then unless the Company has elected to pay such Interest as Cash Interest, the Interest Election Notice shall indicate that unless the Holder waives the Equity Conditions Failure, the Interest shall be paid as Cash Interest. Notwithstanding anything herein to the contrary, if no Equity Conditions Failure has occurred as of the Interest Notice Date but an Equity Conditions Failure occurs at any time prior to the Interest Date, (A) the Company shall provide the Holder a subsequent notice to that effect and (B) unless the Holder waives the Equity Conditions Failure, the Interest shall be paid as Cash Interest. Interest to be paid on an Interest Date in Interest Shares shall be paid in a number of fully paid and non-assessable shares (rounded to the nearest whole share in accordance herewith) of Common Stock equal to the quotient of (1) the amount of Interest payable on such Interest Date less any related Cash Interest paid on such Interest Date and (2) the Conversion Price in effect on the applicable Interest Date.

 

(b)           Intentionally Left Blank

 

(c)           Prior to the payment of Interest on an Interest Date, Interest on this Convertible Debenture shall accrue at the Interest Rate and be payable by way of inclusion of the Interest in the Conversion Amount on each Conversion Date in accordance herewith. From and after the occurrence and during the continuance of any Event of Default, the Interest Rate shall automatically be increased to fifteen percent (15.0%). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the calendar day immediately following the date of such cure; provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of such cure of such Event of Default. The Company shall pay any and all stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Interest Shares.

 

3.           CONVERSION OF CONVERTIBLE DEBENTURE. This Convertible Debenture shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock, on the terms and conditions set forth in this Section 3.

 

(a)           Conversion Right. Subject to the provisions of this Section 3, at any time the Holder shall be entitled to convert a minimum of twenty-five percent (25%) of the Original Principal Amount of this Convertible Debenture plus any accrued or unpaid Interest and unpaid late charges (or such amount as is then outstanding) into validly issued, fully paid and non-assessable shares of Common Stock in accordance with this Section 3, at the Conversion Rate. Notwithstanding the foregoing, the immediately preceding sentence shall not be applicable to a Holder who purchased $250,000 or more aggregate principal amount of Convertible Debentures. The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

  

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(b)           Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”). For the purposes of this Convertible Debenture, the following terms shall have the following meanings:

 

(i)           “Conversion Amount” means the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made, plus all accrued and unpaid Interest with respect to such portion of the Principal and accrued and unpaid late charges with respect to such portion of such Principal and such Interest; and.

 

(ii)           “Conversion Price” means, as of any Conversion Date or other date of determination (x) $0.075 per share (subject to adjustment as provided herein). For the avoidance of doubt, the Conversion Price shall be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

 

(c)           Mechanics of Conversion.

 

(i)           Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (each, a “Conversion Date”), the Holder shall deliver, pursuant to Section 20, for receipt on or prior to 5:30 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and/or such other person as the Company may from time to time direct. To effect conversions hereunder, the Holder shall not be required to physically surrender this Convertible Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversion hereunder shall have the effect of lowering the outstanding principal amount of this Convertible Debenture in an amount equal to the applicable conversion. No later than three (3) Business Days after each conversion date (the “Share Delivery Date”), Company shall cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares representing a number of Conversion Shares being acquired upon a conversion pursuant to the Conversion Notice. On or after the six month anniversary of the original issue date, if the Company is participant in the Deposit or Withdrawal at Custodian system (DWAC) of the Depository Trust Company, the Company shall deliver any certificate or certificates required to be delivered by the Company under this Section 3(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

(ii)           Intentionally Left Blank

  

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(iii)           Registration; Book-Entry. The Company shall maintain a register (the “Register”) for the recordation of the names and addresses of the holders of the Convertible Debentures and the principal amount of the Convertible Debentures held by such holders (the “Registered Convertible Debentures”). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company and the holders of the Convertible Debentures shall treat each Person whose name is recorded in the Register as the owner of a Convertible Debenture for all purposes (including, without limitation, the right to receive payments of Principal and Interest thereunder) notwithstanding notice to the contrary. Subject to compliance with applicable securities laws, a Registered Convertible Debenture may be assigned, transferred or sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a written request to assign, transfer or sell all or part of any Registered Convertible Debenture by the holder thereof, the Company shall record the information contained therein in the Register and issue one or more new Registered Convertible Debenture in the same aggregate principal amount as the principal amount of the surrendered Registered Convertible Debenture to the designated assignee or transferee pursuant herewith, provided that if the Company does not so record an assignment, transfer or sale (as the case may be) of all or part of any Registered Convertible Debenture within two (2) Business Days of its receipt of such a request, then the Register shall be automatically updated to reflect such assignment, transfer or sale (as the case may be). Notwithstanding anything to the contrary set forth in this Section 3, following conversion of any portion of this Convertible Debenture in accordance with the terms hereof, the Holder shall not be required to physically surrender this Convertible Debenture to the Company unless (A) the full Conversion Amount represented by this Convertible Debenture is being converted (in which event this Convertible Debenture shall be delivered to the Company following conversion thereof as contemplated by Section 3(c)(i)) or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Convertible Debenture upon physical surrender of this Convertible Debenture. The Holder and the Company shall maintain records showing the Principal, Interest and late charges converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Convertible Debenture upon conversion.

 

(iv)           Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of the Convertible Debentures for the same Conversion Date and the Company can convert some, but not all, of such portions of the Convertible Debentures submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of the Convertible Debentures electing to convert on such date, a pro rata amount of such holder’s portion of the Convertible Debentures submitted for conversion based on the principal amount of the Convertible Debentures submitted for conversion on such date by such holder relative to the aggregate principal amount of all of the Convertible Debentures submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Convertible Debenture, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance herewith.

  

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(d)           Limitations on Conversions. Notwithstanding anything to the contrary contained in this Convertible Debenture, this Convertible Debenture shall not be convertible by the Holder hereof, and the Company shall not affect any conversion of this Convertible Debenture or otherwise issue any shares of Common Stock pursuant hereto, to the extent (but only to the extent) that after giving effect to such conversion or other share issuance hereunder the Holder or any of its affiliates would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the Common Stock. To the extent the above limitation applies, the determination of whether this Convertible Debenture shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its Affiliates) and of which such securities shall be convertible, exercisable or exchangeable (as among all such securities owned by the Holder and its Affiliates) shall, subject to the Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to convert this Convertible Debenture, or to issue shares of Common Stock, pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. For purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to the Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Convertible Debenture. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Convertible Debenture or securities issued pursuant to the Subscription Agreement. By written notice to the Company, any Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder sending such notice and not to any other holder of the Convertible Debentures.

 

(e)           Automatic Conversions. Notwithstanding anything herein to the contrary the unconverted principal amount of Convertible Debentures, any outstanding accrued and unpaid interest and any unpaid late charges shall automatically convert into Conversion Shares if the Automatic Conversion Conditions have been satisfied. For the purposes of this paragraph, the Automatic Conversion Conditions are: (X) (i) the closing of any underwritten public offering with aggregate proceeds to the Company of at least $10,000,000 provided that valuation of the Company shall be at least $50,000,000; or (ii) the VWAP of the Company’s common stock exceeds $0.375 (subject to adjustment) per share for more than twenty (20) consecutive Trading Days following the Initial Closing Date.

 

(f)           Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if after actual receipt of an effective Conversion Notice the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 3(c), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 3(c). 

   

  

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For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/ or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof

 

4.           EVENT OF DEFAULT.

 

(a)           “Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

(i)           any default in the payment of the Principal, or the Interest, as and when the same shall become due and payable, for which there will be no cure period;

 

(ii)           Maker shall fail to observe or perform any obligation or shall breach any term or provision of this Convertible Debenture (other than Section 3(c)(ii)) and such failure or breach shall not have been remedied within ten (10) business days after the date on which notice of such failure or breach shall have been delivered (other than those occurrences described in other provisions of this Section 4 for which a different grace or cure period is specified, or for which no cure period is specified and which constitute immediate Events of Default);

 

(iii)           Maker shall fail to observe or perform any of its material obligations owed to the Holder or any other material covenant, agreement, representation or warranty contained in, or otherwise commit any material breach hereunder or in any other transaction document executed in connection herewith, including the Subscription Agreement, and such failure or breach shall not have been remedied within ten (10) business days after the date on which notice of such failure or breach shall have been delivered (other than those occurrences described in other provisions of this Section 4 for which a different grace or cure period is specified, or for which no cure period is specified and which constitute immediate Events of Default);

 

(iv)           Maker shall commence, or there shall be commenced against the Maker a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Maker commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Maker, or there is commenced against the Maker any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of thirty (30) days; or the Maker is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Maker suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of thirty (30) days; or the Maker makes a general assignment for the benefit of creditors; or the Maker shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Maker shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Maker shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Maker for the purpose of effecting any of the foregoing;

  

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(v)           Maker shall default in any of its respective obligations under any of the Convertible Debentures or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Maker, whether such indebtedness now exists or shall hereafter be created and such default shall result in indebtedness aggregating more than $200,000 becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; or

 

(vi)           except in connection with the transactions effected in connection with the Subscription Agreement, the Maker shall (a) be a party to any Change of Control Transaction (as defined below), (b) agree to sell or dispose all or in excess of 50% of its assets in one or more transactions (whether or not such sale would constitute a Change of Control Transaction), (c) redeem or repurchase more than a de minimis number of shares of Common Stock or other equity securities of the Maker, or (d) make any distribution or declare or pay any dividends (in cash or other property, other than common stock) on, or purchase, acquire, redeem, or retire any of the Maker’s capital stock, of any class, whether now or hereafter outstanding. For the purposes of this paragraph “Change of Control Transaction” means the occurrence of any of: (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the 1934 Act) of effective control (whether through legal or beneficial ownership of capital stock of the Maker, by contract or otherwise) of in excess of 51% of the voting securities of the Maker, (ii) a replacement at one time or over time of more than one-half of the members of the Maker’s board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), (iii) the merger of the Maker with or into another entity that is not wholly owned by the Maker, consolidation or sale of 33% or more of the assets of the Maker in one or a series of related transactions, or (iv) the execution by the Maker of an agreement to which the Maker is a party or by which it is bound, providing for any of the events set forth above in (i), (ii) or (iii).

 

(b)           If any Event of Default occurs and shall be continuing, the full Principal amount of this Convertible Debenture together with all of the Convertible Debentures, together with all accrued interest thereon, shall become, at the election of the Required Holders immediately due and payable in cash.

 

(c)           The Holder need not provide and the Maker hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by the Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

  

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5.           NEGATIVE COVENANTS. So long as any portion of the Principal of the Convertible Debentures, any accrued or unpaid Interest or late charges remains outstanding, the Maker will not, directly or indirectly, without the consent of the Required Holders:

 

(a)           other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind debt incurred by the Company in the ordinary course of business, not to exceed the higher of (i) $250,000 in the aggregate, or (ii) 5% of the principal balance of the Convertible Debentures;

 

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

 

(c)           amend its articles of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holder, unless the sole and exclusive purpose of such amendment of the Maker’s articles of incorporation, bylaws or other charter documents is to increase the authorized capitalization of the Maker;

 

6.           POSITIVE COVENANTS. So long as any portion of the Principal of the Convertible Debentures, any accrued or unpaid Interest or late charges remains outstanding, the Maker will not directly or indirectly, without the consent of the Required Holders:

 

(a)           enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Maker’s business and upon fair and reasonable terms no less favorable to the Maker than it would obtain in a comparable arm’s-length transaction with a person not an Affiliate;

 

(b)           repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of securities other than the Convertible Debentures subject to the prepayment provisions herein or as set forth on Schedule I hereto;

 

(c)           pay cash dividends or distributions on any equity securities of the Maker;

 

(d)           timely pay and discharge all of its material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings;

 

(e)           continue to engage in business of the same general type as now conducted by it and to preserve, renew and keep in full force and effect, its corporate existence and its assets, rights, privileges and franchises to the extent necessary or desirable in the normal conduct of business;

 

(f)           comply in all material respects with all applicable laws, ordinances, rules, regulations, decisions, orders and requirements of governmental authorities;

 

(g)           use of the proceeds from the sale of the Convertible Debentures solely for the purposes set forth in the Private Placement Memorandum issued in connection with the sale of the Convertible Debentures and for no other purposes;

 

(h)           notify Holder(s) promptly after the Maker shall obtain knowledge of any written notice of any legal or arbitral proceedings, and of all proceedings by or before any governmental authority, and each material development in respect of such legal or other proceeding affecting the Maker, except proceedings which, if adversely determined, would not reasonably be likely to have a material adverse effect on the business or prospects of the Company;

  

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(i)           keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities;

 

(j)           permit any representatives designated by Holder, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its business, assets, affairs, finances, prospects, and condition with its officers and independent accountants, all at such reasonable times during normal business hours and as often as reasonably requested;

 

(k)           promptly upon Holder’s written request therefor, deliver to Holder such documents and other evidence of the existence, good standing, foreign qualification and financial condition of the Maker as Purchaser shall request from time to time;

 

(1)           effect or enter into an agreement to effect any issuance by the Company of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. Notwithstanding the foregoing Section 6(k) shall not apply in respect of an Exempt Issuance except that no Variable Rate Transaction shall be an Exempt Issuance;

 

(m)           sell or grant any option to purchase or sell or grant any right to replace or otherwise dispose of or issue (or announces any sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock equivalent entitling any Person to acquire shares of Company Common Stock at an effective price per share that is lower than the then Conversion Price (if the Holder of Common Stock or Common Stock equivalent so issued shall at any time whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise due to warrants, options or rights per share which are issued in connection with such issuance, entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall deem to have occurred for less than the Conversion Price on such date of issuance). Notwithstanding the foregoing Section 6(k) shall not apply in respect of any Exempt Issuance; and

 

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

 

For the purposes of this Section 6, the following terms shall have the following meanings:

 

(i)           “Permitted Indebtedness” shall mean either (a) the indebtedness of the Maker existing on the date of issuance of this Convertible Debenture and set forth on Schedule II hereto;, (b) any indebtedness the proceeds of which are used to repay the Convertible Debentures in full, (c) indebtedness incurred in connection with discounted bills of exchange or the discounting or factoring of receivables for credit in each case incurred in the ordinary course of business consistent with past practice and (d) any indebtedness incurred in the ordinary course of business consistent with past practice or consented to by the Required Holders, which consent shall be binding upon the Holder.

  

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(ii)           “Permitted Lien” shall mean the individual and collective reference to the following: (a) liens for taxes, assessments and other governmental charges or levies not yet due or liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Maker) have been established in accordance with generally accepted accounting procedures, (b) liens imposed by law which were incurred in the ordinary course of business, such as carriers’, warehousemen’s and mechanics’ liens, statutory landlords’ liens, and other similar liens arising in the ordinary course of business, and (x) which do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Maker or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such lien, (c) purchase money security interests, and (d) liens previously granted by the Maker prior to the date hereof.

 

7.           ADJUSTMENTS.

 

(a)           Adjustment of Fixed Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision herewith, if the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Fixed Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision herewith, if the Company at any time on or after the Issuance Date combines (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Fixed Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7(a) shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7(a) occurs during the period that a Fixed Conversion Price is calculated hereunder, then the calculation of such Fixed Conversion Price shall be adjusted appropriately to reflect such event.

 

(b)           Failure to Increase Authorized Shares Reduction in Conversion Price. If the Company’s authorized shares of Common Stock are not increased to 450,000,000 shares by August 31, 2014 (the “Share Authorization Date”), then the Conversion Price shall be reduced by $0.005 (subject to a floor of $0.055) for each thirty (30) days or part thereof that such shareholder approval is not obtained.

 

(c)           Calculations. All calculations under this Section 7 shall be made by rounding to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

8.           NO WAIVER OF THE HOLDER’S RIGHTS. All payments of Principal and Interest shall be made without setoff, deduction or counterclaim. No delay or failure on the part of the Holder in exercising any of its options, powers or rights, nor any partial or single exercise of its options, powers or rights shall constitute a waiver thereof or of any other option, power or right, and no waiver on the part of the Holder of any of its options, powers or rights shall constitute a waiver of any other option, power or right. Maker hereby waives presentment of payment, protest, and all notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. Acceptance by the Holder of less than the full amount due and payable hereunder shall in no way limit the right of the Holder to require full payment of all sums due and payable hereunder in accordance with the terms hereof.

  

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9.           RESERVATION OF AUTHORIZED SHARES.

 

(a)           Reservation. Subject to the Company’s authorized share capital, the Company shall reserve out of its authorized and unissued Common Stock such number of shares of Common Stock as may be issued for all of the Convertible Debentures equal to [  ]% of the Conversion Rate of all of the Convertible Debentures as of the most recent Closing Date. After the earlier of the Authorized Share Increase Date and for so long as any of the Convertible Debentures are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Convertible Debentures, [  ]% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Convertible Debentures then outstanding, provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the “Required Reserve Amount”). The initial number of shares of Common Stock reserved for conversions of the Convertible Debentures and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Convertible Debentures based on the original principal amount of the Convertible Debenture held by each holder on the most recent Closing Date as of the applicable date of determination or increase in the number of reserved shares (as the case may be) (the “Authorized Share Allocation”). In the event that a holder shall sell or otherwise transfer any of such holder’s Convertible Debenture, each transferee shall be allocated a pro rata portion of such holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Convertible Debentures shall be allocated to the remaining holders of Convertible Debenture, pro rata based on the principal amount of the Convertible Debentures then held by such holders.

 

10.           VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Convertible Debenture, except as required by law (including, without limitation, Title 7 of the Nevada Revised Statutes) and as expressly provided in this Convertible Debenture.

 

11.           SECURITY. The obligation of the Company under this Convertible Debenture are secured by certain assets of the Maker pursuant to the certain Security Agreement, dated as of the date hereof, by and among the Company and the secured party secondary thereto. The Convertible Debentures shall be senior to all indebtedness of the Company except for that certain indebtedness administered by Kalamalka Partners, Ltd., as agent for certain lenders, as to which it shall rank pari passu.

 

12.           AMENDING THE TERMS OF THIS CONVERTIBLE DEBENTURE. The prior written consent of the Required Holders shall be required for any change or amendment to this Convertible Debenture. No consideration shall be offered or paid to the Holder to amend or consent to a waiver or modification of any provision of this Convertible Debenture unless the same consideration is also offered to all of the holders of the Convertible Debentures. The Holder shall be entitled, at its option, to the benefit of any amendment to any of the Convertible Debentures.

 

13.           TRANSFER. Subject to compliance with applicable securities laws, this Convertible Debenture and any shares of Common Stock issued upon conversion of this Convertible Debenture may be offered, sold, assigned or transferred by the Holder without the consent of the Company.

  

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14.           REISSUANCE OF THIS CONVERTIBLE DEBENTURE.

 

(a)           Transfer. If this Convertible Debenture is to be transferred, the Holder shall surrender this Convertible Debenture to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Convertible Debenture (in accordance herewith), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Convertible Debenture (in accordance herewith) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Convertible Debenture, acknowledge and agree that, by reason of the provisions herewith following conversion or redemption of any portion of this Convertible Debenture, the outstanding Principal represented by this Convertible Debenture may be less than the Principal stated on the face of this Convertible Debenture.

 

(b)           Lost, Stolen or Mutilated Convertible Debenture. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Convertible Debenture (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Convertible Debenture, the Company shall execute and deliver to the Holder a new Convertible Debenture (in accordance with Section 14(c)) representing the outstanding Principal.

 

(c)           Issuance of New Convertible Debenture. Whenever the Company is required to issue a new Convertible Debenture pursuant to the terms of this Convertible Debenture, such new Convertible Debenture (i) shall be of like tenor with this Convertible Debenture, (ii) shall represent, as indicated on the face of such new Convertible Debenture, the Principal remaining outstanding (or in the case of a new Convertible Debenture being issued pursuant to Section 14(a), the Principal designated by the Holder which, when added to the principal represented by the other new Convertible Debenture issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Convertible Debenture immediately prior to such issuance of new Convertible Debenture), (iii) shall have an issuance date, as indicated on the face of such new Convertible Debenture, which is the same as the Issuance Date of this Convertible Debenture, (iv) shall have the same rights and conditions as this Convertible Debenture, and (v) shall represent accrued and unpaid Interest and late charges on the Principal and Interest of this Convertible Debenture, from the Issuance Date.

 

15.           CUMULATIVE RIGHTS AND REMEDIES; USURY. The rights and remedies of the Holder expressed herein are cumulative and not exclusive of any rights and remedies otherwise available under this Convertible Debenture, or applicable law (including at equity). The election of the Holder to avail itself of any one or more remedies shall not be a bar to any other available remedies, which the Maker agrees the Holder may take from time to time. If it shall be found that any Interest due hereunder shall violate applicable laws governing usury, the applicable Interest Rate due hereunder shall be reduced to the maximum permitted rate of interest under such law

 

16.           GOVERNING LAW. All questions concerning the construction, validity, enforcement and interpretation of this Convertible Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Maker and the Holder agree that all legal proceedings concerning the interpretations, enforcement and defense of this Convertible Debenture shall be commenced in the state and federal courts sitting in The City of New York, County of New York (the “New York Courts”). Each of the Maker and the Holder hereby irrevocably submit to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder (including with respect to the enforcement of this Convertible Debenture), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each of the Maker and the Holder hereby irrevocably waive personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to the other at the address in effect for notices to it under this Convertible Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each of the Maker and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Convertible Debenture or the transactions contemplated hereby.

  

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17.           REQUIRED NOTICE TO THE HOLDER. The Holder is to be notified by the Maker, within three (3) business days, in accordance with the notice provisions in the Subscription Agreement, of the existence or occurrence, of any Event of Default.

 

18.           PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Convertible Debenture is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Convertible Debenture or to enforce the provisions of this Convertible Debenture or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Convertible Debenture, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements. The Company expressly acknowledges and agrees that no amounts due under this Convertible Debenture shall be affected, or limited, by the fact that the purchase price paid for this Convertible Debenture was less than the original Principal amount hereof.

 

19.           CONSTRUCTION; HEADINGS. This Convertible Debenture shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Convertible Debenture are for convenience of reference and shall not form part of, or affect the interpretation of, this Convertible Debenture. Terms used in this Convertible Debenture but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Subscription Date in such other Transaction Documents unless otherwise consented to in writing by the Holder.

 

20.           NOTICES. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered, by electronic mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 20. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered, by email, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Subscription Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email at the address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email at the address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

   

  

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21.           CERTAIN DEFINITIONS. For purposes of this Convertible Debenture, the following terms shall have the following meanings:

 

(a)           “Affiliate” means, as applied to any person, (a) any other person directly or indirectly controlling, controlled by or under common control with, that person, (b) any other person that owns or controls 10% or more of any class of equity securities (including any equity securities issuable upon the exercise of any option or convertible security) of that person or any of its Affiliates, or (c) any director, partner, officer, manager, agent, employee or relative of such person. For the purposes of this definition, “control” (including with correlative meanings, the terms “controlling,” “controlled by,” and “under common control with”), as applied to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person, whether through ownership of voting securities or by contract or otherwise

 

(b)           “Authorized Share Increase Date” means the date the Company increased the number of authorized shares of Common Stock to [450,000,000] shares of Common Stock (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction after the Subscription Date).

 

(c)           “Bloomberg” means Bloomberg, L.P.

 

(d)           “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(e)           “Closing Date” means, collectively, the Initial Closing Date and all Additional Closing Dates, if any.

 

(f)           “Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

(g)           “Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

(h)           “Equity Conditions” means during the period in question, (i) the Company shall duly honor all conversions scheduled to occur or occurring, (ii) the Company has an effective registration statement pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all the Conversion Shares issuable upon Conversion of the Convertible Debentures (and the Company believes in good faith, that such effectiveness shall continue uninterrupted for the foreseeable future), (iii) there is a sufficient number of authorized, but unissued or otherwise unreserved shares of common stock for the issuance of all the Conversion Shares, and (iv) there is no existing Event of Default or no Event of Default which, with the passage of time or with the giving of notice, would constitute an Event of Default.

  

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(i)           “Equity Conditions Failure” means that on any day during the period commencing ten (10) Trading Days prior to the applicable date of determination through the applicable date of determination, the Equity Conditions have not been satisfied (or waived in writing by the Requisite Holders).

 

(j)           “Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officer or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

 

(k)           “Initial Closing Date” shall have the meaning set forth in the Subscription Agreement.

 

(1)           “Interest Notice Due Date” means the second (2nd) Trading Day immediately prior to the applicable Interest Date.

 

(m)           “Interest Rate” means six percent (6.00%) per annum, as may be adjusted from time to time in accordance with Section 2.

 

(n)           “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

 

(o)           Intentionally Left Blank.

 

(p)           “Principal Market” means the OTCQB Market.

 

(q)           “Required Holders” means, at any given time, the holders of a majority of the aggregate principal amount of the Convertible Debentures, outstanding as of such time (excluding any Convertible Debenture held by the Company or any of its subsidiaries).

 

(r)           “SEC” means the United States Securities and Exchange Commission or the successor thereto.

 

(s)           “Subscription Agreement” means that certain subscription agreement, dated as of the Subscription Date, by and among the Company and the initial holders of the Convertible Debentures pursuant to which the Company issued the Convertible Debentures and certain share purchase warrants, as may be amended from time to time.

  

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(t)           “Trading Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder.

 

(u)           “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.

 

22.           DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Convertible Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to the Company or its Subsidiaries.

 

[signature page follows]

 

 

 

 

 

  

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IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to be duly executed as of the Issuance Date set out above.

 

	  	
NAKED BRAND GROUP, INC.

	  
	  	  	  	  
	  	  	  	  
	  	
By:

	
/s/ Joel Primus

	  
	  	  	
Joel Primus, President and Director

	  
	  	  	  	  

 

 

 

 

 

 

 

 

 

 

 

 

  

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EXHIBIT I

 

NAKED BRAND GROUP, INC.

CONVERSION NOTICE

 

Reference is made to the 6% Senior Secured Convertible Debenture (the “Convertible Debenture”) issued to the undersigned by Naked Brand Group, Inc., a Nevada corporation (the “Company”). In accordance with and pursuant to the Convertible Debenture, the undersigned hereby elects to convert the Conversion Amount (as defined in the Convertible Debenture) of the Convertible Debenture indicated below into shares of Common Stock, $0.001 par value per share (the “Common Stock”), of the Company, as of the date specified below. Capitalized terms not defined herein shall have the meaning as set forth in the Convertible Debenture.

 

	
Date of Conversion:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Aggregate Principal to be converted:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Aggregate accrued and unpaid Interest and accrued and unpaid late fees with respect to such portion of the aggregate Principal and such aggregate Interest to be converted:

	  	  	 
	  	  	  	 
	  	  	  	 
	
AGGREGATE CONVERSION AMOUNT TO BE CONVERTED:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Please confirm the following information:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Conversion Price:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Number of shares of Common Stock to be issued:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Please issue the Common Stock into which the Convertible Debenture is being converted in the following name and to the following address:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Issue to:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Facsimile Number:

	  	  	 
	  	  	  	 
	  	  	  	 

   

  

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Holder:

	  	  	 
	  	  	  	 
	  	  	  	 
	
By:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Title:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Dated:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Account Number:

	  	  	 
	  	  	  	 
	  	  	  	 
	
(if electronic book entry transfer)

	  	  	 
	  	  	  	 
	  	  	  	 
	
Transaction Code Number:

	  	  	 
	  	  	  	 
	  	  	  	 
	
(if electronic book entry transfer)

	  	  	 
	  	  	  	 
	  	  	  	 
	
Address:

	  	  	 
	
(if delivery of share certificates)

	  	  	 
	  	  	  	 
	  	  	  	 
	  	  	  	 
	 	 	 	 
	 	 	 	 

 

 

 

 

 

  

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SERIES A SENIOR SECURED CONVERTIBLE DEBENTURE

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL TO THE HOLDER (IF REQUESTED BY THE COMPANY), IN A FORM REASONABLY ACCEPTABLE TO THE COMPANY, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD OR ELIGIBLE TO BE 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. ANY TRANSFEREE OF THIS CONVERTIBLE DEBENTURE SHOULD CAREFULLY REVIEW THE TERMS OF THIS CONVERTIBLE DEBENTURE, INCLUDING SECTIONS 3(c)(iii) AND 14(a) HEREOF. THE PRINCIPAL AMOUNT REPRESENTED BY THIS CONVERTIBLE DEBENTURE AND, ACCORDINGLY, THE SECURITIES ISSUABLE UPON CONVERSION HEREOF MAY BE LESS THAN THE AMOUNTS SET FORTH ON THE FACE HEREOF PURSUANT TO SECTION 3(c)(iii) OF THIS CONVERTIBLE DEBENTURE.

 

THE HOLDER OF THE SECURITIES REPRESENTED HEREBY MUST NOT TRADE THE SECURITIES IN OR FROM A JURISDICTION OF CANADA UNLESS THE CONDITIONS IN SECTION 13 OF MULTILATERAL INSTRUMENT 51-105 ISSUERS QUOTED IN THE U.S. OVER THE COUNTER MARKETS ARE MET.

 

NAKED BRAND GROUP, INC.

 

6% SENIOR SECURED CONVERTIBLE DEBENTURE

 

	
Issuance Date: June 10, 2014

	
Original Principal Amount: U.S. $85,799

FOR VALUE RECEIVED, Naked Brand Group, Inc., a Nevada corporation (the “Company” or “Maker”), hereby promises to pay to the order of CSD Holdings LLC or its registered assigns (“Holder”) the amount set out above as the Original Principal Amount (as reduced pursuant to the terms hereof pursuant to redemption, conversion or otherwise, the “Principal”) when due, whether upon the Maturity Date (as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof) and to pay interest (“Interest”) on any outstanding Principal at the applicable Interest Rate (as defined below) from the date set out above as the Issuance Date (the “Issuance Date”) until the same becomes due and payable, whether upon the Maturity Date, or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). This 6% Senior Secured Convertible Debenture (including any 6% Senior Secured Convertible Debenture issued in exchange, transfer or replacement hereof, this (“Convertible Debenture”) is one of an issue of 6% Senior Secured Convertible Debentures issued pursuant to the Subscription Agreement (as defined below) on the Initial Closing Date (as defined below) (collectively, the “Other Convertible Debentures”) and such other 6% Senior Secured Convertible Debentures, if any, that have been issued pursuant to the Subscription Agreement on one or more Additional Closing Dates that is not the Issuance Date (collectively, the “Additional Convertible Debenture”), and together with the Other Convertible Debentures, the (“Convertible Debenture”). Certain capitalized terms used herein are defined in Section 20.

 

1.           PAYMENTS OF PRINCIPAL. On June 10, 2017 (the “Maturity Date”), the Company shall pay to the Holder an amount in cash representing all the outstanding Principal, accrued and unpaid Interest and accrued and unpaid late charges on such Principal and Interest. The Company may not prepay any portion of the Convertible Debenture.

 

  

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2.           INTEREST; INTEREST RATE. (a) Interest on this Convertible Debenture shall commence accruing on the Issuance Date and shall be computed on the basis of a 360-day year and twelve 30-day months, on any outstanding Principal at the Interest Rate payable semi-annually beginning from the first such semi-annually date after the Issuance Date, on each conversion date (as to that principal amount then being converted) and on the Maturity Date (each, an “Interest Date”). Interest shall be payable on each Interest Date, to the Holder on the applicable Interest Date, in shares of Common Stock (“Interest Shares”) so long as there has been no Equity Conditions Failure; provided however, that the Company may, at its option following written notice to the Holder, pay Interest on any Interest Date in cash (“Cash Interest”) or in a combination of Cash Interest and Interest Shares. The Company shall deliver a written notice (each, an “Interest Election Notice”) to each holder of the Convertible Debentures on or prior to the Interest Notice Due Date (the date such notice is delivered to all of the holder, the “Interest Notice Date”) which notice (i) either (A) confirms that Interest to be paid on such Interest Date shall be paid entirely in Interest Shares or (B) elects to pay Interest as Cash Interest or a combination of Cash Interest and Interest Shares and specifies the amount of Interest that shall be paid as Cash Interest and the amount of Interest, if any, that shall be paid in Interest Shares and (ii) if the Company is paying all or any portion of Interest in Interest Shares, certifies that there has been no Equity Conditions Failure. If an Equity Conditions Failure has occurred as of the Interest Notice Date, then unless the Company has elected to pay such Interest as Cash Interest, the Interest Election Notice shall indicate that unless the Holder waives the Equity Conditions Failure, the Interest shall be paid as Cash Interest. Notwithstanding anything herein to the contrary, if no Equity Conditions Failure has occurred as of the Interest Notice Date but an Equity Conditions Failure occurs at any time prior to the Interest Date, (A) the Company shall provide the Holder a subsequent notice to that effect and (B) unless the Holder waives the Equity Conditions Failure, the Interest shall be paid as Cash Interest. Interest to be paid on an Interest Date in Interest Shares shall be paid in a number of fully paid and non-assessable shares (rounded to the nearest whole share in accordance herewith) of Common Stock equal to the quotient of (1) the amount of Interest payable on such Interest Date less any related Cash Interest paid on such Interest Date and (2) the Conversion Price in effect on the applicable Interest Date.

 

(b)           Intentionally Left Blank

 

(c)           Prior to the payment of Interest on an Interest Date, Interest on this Convertible Debenture shall accrue at the Interest Rate and be payable by way of inclusion of the Interest in the Conversion Amount on each Conversion Date in accordance herewith. From and after the occurrence and during the continuance of any Event of Default, the Interest Rate shall automatically be increased to fifteen percent (15.0%). In the event that such Event of Default is subsequently cured, the adjustment referred to in the preceding sentence shall cease to be effective as of the calendar day immediately following the date of such cure; provided that the Interest as calculated and unpaid at such increased rate during the continuance of such Event of Default shall continue to apply to the extent relating to the days after the occurrence of such Event of Default through and including the date of such cure of such Event of Default. The Company shall pay any and all stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Interest Shares.

 

3.           CONVERSION OF CONVERTIBLE DEBENTURE. This Convertible Debenture shall be convertible into validly issued, fully paid and non-assessable shares of Common Stock, on the terms and conditions set forth in this Section 3.

 

(a)           Conversion Right. Subject to the provisions of this Section 3, at any time the Holder shall be entitled to convert a minimum of twenty-five percent (25%) of the Original Principal Amount of this Convertible Debenture plus any accrued or unpaid Interest and unpaid late charges (or such amount as is then outstanding) into validly issued, fully paid and non-assessable shares of Common Stock in accordance with this Section 3, at the Conversion Rate. Notwithstanding the foregoing, the immediately preceding sentence shall not be applicable to a Holder who purchased $250,000 or more aggregate principal amount of Convertible Debentures. The Company shall not issue any fraction of a share of Common Stock upon any conversion. If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of any Conversion Amount.

  

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(b)           Conversion Rate. The number of shares of Common Stock issuable upon conversion of any Conversion Amount pursuant to Section 3(a) shall be determined by dividing (x) such Conversion Amount by (y) the Conversion Price (the “Conversion Rate”). For the purposes of this Convertible Debenture, the following terms shall have the following meanings:

 

(i)           “Conversion Amount” means the portion of the Principal to be converted, redeemed or otherwise with respect to which this determination is being made, plus all accrued and unpaid Interest with respect to such portion of the Principal and accrued and unpaid late charges with respect to such portion of such Principal and such Interest; and.

 

(ii)           “Conversion Price” means, as of any Conversion Date or other date of determination (x) $0.075 per share (subject to adjustment as provided herein). For the avoidance of doubt, the Conversion Price shall be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction during the applicable calculation period.

 

(c)           Mechanics of Conversion.

 

(i)           Optional Conversion. To convert any Conversion Amount into shares of Common Stock on any date (each, a “Conversion Date”), the Holder shall deliver, pursuant to Section 20, for receipt on or prior to 5:30 p.m., New York time, on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the “Conversion Notice”) to the Company and/or such other person as the Company may from time to time direct. To effect conversions hereunder, the Holder shall not be required to physically surrender this Convertible Debenture to the Company unless the entire principal amount of this Debenture, plus all accrued and unpaid interest thereon, has been so converted. Conversion hereunder shall have the effect of lowering the outstanding principal amount of this Convertible Debenture in an amount equal to the applicable conversion. No later than three (3) Business Days after each conversion date (the “Share Delivery Date”), Company shall cause to be delivered, to the Holder a certificate or certificates representing the Conversion Shares representing a number of Conversion Shares being acquired upon a conversion pursuant to the Conversion Notice. On or after the six month anniversary of the original issue date, if the Company is participant in the Deposit or Withdrawal at Custodian system (DWAC) of the Depository Trust Company, the Company shall deliver any certificate or certificates required to be delivered by the Company under this Section 3(c) electronically through the Depository Trust Company or another established clearing corporation performing similar functions.

 

(ii)           Intentionally Left Blank

  

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(iii)           Registration; Book-Entry. The Company shall maintain a register (the “Register”) for the recordation of the names and addresses of the holders of the Convertible Debentures and the principal amount of the Convertible Debentures held by such holders (the “Registered Convertible Debentures”). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company and the holders of the Convertible Debentures shall treat each Person whose name is recorded in the Register as the owner of a Convertible Debenture for all purposes (including, without limitation, the right to receive payments of Principal and Interest thereunder) notwithstanding notice to the contrary. Subject to compliance with applicable securities laws, a Registered Convertible Debenture may be assigned, transferred or sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a written request to assign, transfer or sell all or part of any Registered Convertible Debenture by the holder thereof, the Company shall record the information contained therein in the Register and issue one or more new Registered Convertible Debenture in the same aggregate principal amount as the principal amount of the surrendered Registered Convertible Debenture to the designated assignee or transferee pursuant herewith, provided that if the Company does not so record an assignment, transfer or sale (as the case may be) of all or part of any Registered Convertible Debenture within two (2) Business Days of its receipt of such a request, then the Register shall be automatically updated to reflect such assignment, transfer or sale (as the case may be). Notwithstanding anything to the contrary set forth in this Section 3, following conversion of any portion of this Convertible Debenture in accordance with the terms hereof, the Holder shall not be required to physically surrender this Convertible Debenture to the Company unless (A) the full Conversion Amount represented by this Convertible Debenture is being converted (in which event this Convertible Debenture shall be delivered to the Company following conversion thereof as contemplated by Section 3(c)(i)) or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Convertible Debenture upon physical surrender of this Convertible Debenture. The Holder and the Company shall maintain records showing the Principal, Interest and late charges converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Convertible Debenture upon conversion.

 

(iv)           Pro Rata Conversion; Disputes. In the event that the Company receives a Conversion Notice from more than one holder of the Convertible Debentures for the same Conversion Date and the Company can convert some, but not all, of such portions of the Convertible Debentures submitted for conversion, the Company, subject to Section 3(d), shall convert from each holder of the Convertible Debentures electing to convert on such date, a pro rata amount of such holder’s portion of the Convertible Debentures submitted for conversion based on the principal amount of the Convertible Debentures submitted for conversion on such date by such holder relative to the aggregate principal amount of all of the Convertible Debentures submitted for conversion on such date. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Convertible Debenture, the Company shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute in accordance herewith.

  

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(d)           Limitations on Conversions. Notwithstanding anything to the contrary contained in this Convertible Debenture, this Convertible Debenture shall not be convertible by the Holder hereof, and the Company shall not affect any conversion of this Convertible Debenture or otherwise issue any shares of Common Stock pursuant hereto, to the extent (but only to the extent) that after giving effect to such conversion or other share issuance hereunder the Holder or any of its affiliates would beneficially own in excess of 9.99% (the “Maximum Percentage”) of the Common Stock. To the extent the above limitation applies, the determination of whether this Convertible Debenture shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its Affiliates) and of which such securities shall be convertible, exercisable or exchangeable (as among all such securities owned by the Holder and its Affiliates) shall, subject to the Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to convert this Convertible Debenture, or to issue shares of Common Stock, pursuant to this paragraph shall have any effect on the applicability of the provisions of this paragraph with respect to any subsequent determination of convertibility. For purposes of this paragraph, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “1934 Act”) and the rules and regulations promulgated thereunder. The provisions of this paragraph shall be implemented in a manner otherwise than in strict conformity with the terms of this paragraph to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to the Maximum Percentage limitation. The limitations contained in this paragraph shall apply to a successor Holder of this Convertible Debenture. The holders of Common Stock shall be third party beneficiaries of this paragraph and the Company may not waive this paragraph without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Business Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Convertible Debenture or securities issued pursuant to the Subscription Agreement. By written notice to the Company, any Holder may increase or decrease the Maximum Percentage to any other percentage not in excess of 9.99% specified in such notice; provided that (i) any such increase will not be effective until the 61st day after such notice is delivered to the Company, and (ii) any such increase or decrease will apply only to the Holder sending such notice and not to any other holder of the Convertible Debentures.

 

(e)           Automatic Conversions. Notwithstanding anything herein to the contrary the unconverted principal amount of Convertible Debentures, any outstanding accrued and unpaid interest and any unpaid late charges shall automatically convert into Conversion Shares if the Automatic Conversion Conditions have been satisfied. For the purposes of this paragraph, the Automatic Conversion Conditions are: (X) (i) the closing of any underwritten public offering with aggregate proceeds to the Company of at least $10,000,000 provided that valuation of the Company shall be at least $50,000,000; or (ii) the VWAP of the Company’s common stock exceeds $0.375 (subject to adjustment) per share for more than twenty (20) consecutive Trading Days following the Initial Closing Date.

 

(f)           Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if after actual receipt of an effective Conversion Notice the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 3(c), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Debenture in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 3(c). 

   

  

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For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Debenture with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder’s right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/ or injunctive relief with respect to the Company’s failure to timely deliver certificates representing shares of Common Stock upon conversion of this Debenture as required pursuant to the terms hereof

 

4.           EVENT OF DEFAULT.

 

(a)           “Event of Default”, wherever used herein, means any one of the following events (whatever the reason and whether it shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):

 

(i)           any default in the payment of the Principal, or the Interest, as and when the same shall become due and payable, for which there will be no cure period;

 

(ii)           Maker shall fail to observe or perform any obligation or shall breach any term or provision of this Convertible Debenture (other than Section 3(c)(ii)) and such failure or breach shall not have been remedied within ten (10) business days after the date on which notice of such failure or breach shall have been delivered (other than those occurrences described in other provisions of this Section 4 for which a different grace or cure period is specified, or for which no cure period is specified and which constitute immediate Events of Default);

 

(iii)           Maker shall fail to observe or perform any of its material obligations owed to the Holder or any other material covenant, agreement, representation or warranty contained in, or otherwise commit any material breach hereunder or in any other transaction document executed in connection herewith, including the Subscription Agreement, and such failure or breach shall not have been remedied within ten (10) business days after the date on which notice of such failure or breach shall have been delivered (other than those occurrences described in other provisions of this Section 4 for which a different grace or cure period is specified, or for which no cure period is specified and which constitute immediate Events of Default);

 

(iv)           Maker shall commence, or there shall be commenced against the Maker a case under any applicable bankruptcy or insolvency laws as now or hereafter in effect or any successor thereto, or the Maker commences any other proceeding under any reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction whether now or hereafter in effect relating to the Maker, or there is commenced against the Maker any such bankruptcy, insolvency or other proceeding which remains undismissed for a period of thirty (30) days; or the Maker is adjudicated insolvent or bankrupt; or any order of relief or other order approving any such case or proceeding is entered; or the Maker suffers any appointment of any custodian or the like for it or any substantial part of its property which continues undischarged or unstayed for a period of thirty (30) days; or the Maker makes a general assignment for the benefit of creditors; or the Maker shall fail to pay, or shall state that it is unable to pay, or shall be unable to pay, its debts generally as they become due; or the Maker shall call a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts; or the Maker shall by any act or failure to act expressly indicate its consent to, approval of or acquiescence in any of the foregoing; or any corporate or other action is taken by the Maker for the purpose of effecting any of the foregoing;

  

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(v)           Maker shall default in any of its respective obligations under any of the Convertible Debentures or any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement of the Maker, whether such indebtedness now exists or shall hereafter be created and such default shall result in indebtedness aggregating more than $200,000 becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; or

 

(vi)           except in connection with the transactions effected in connection with the Subscription Agreement, the Maker shall (a) be a party to any Change of Control Transaction (as defined below), (b) agree to sell or dispose all or in excess of 50% of its assets in one or more transactions (whether or not such sale would constitute a Change of Control Transaction), (c) redeem or repurchase more than a de minimis number of shares of Common Stock or other equity securities of the Maker, or (d) make any distribution or declare or pay any dividends (in cash or other property, other than common stock) on, or purchase, acquire, redeem, or retire any of the Maker’s capital stock, of any class, whether now or hereafter outstanding. For the purposes of this paragraph “Change of Control Transaction” means the occurrence of any of: (i) an acquisition after the date hereof by an individual or legal entity or “group” (as described in Rule 13d-5(b)(1) promulgated under the 1934 Act) of effective control (whether through legal or beneficial ownership of capital stock of the Maker, by contract or otherwise) of in excess of 51% of the voting securities of the Maker, (ii) a replacement at one time or over time of more than one-half of the members of the Maker’s board of directors which is not approved by a majority of those individuals who are members of the board of directors on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof), (iii) the merger of the Maker with or into another entity that is not wholly owned by the Maker, consolidation or sale of 33% or more of the assets of the Maker in one or a series of related transactions, or (iv) the execution by the Maker of an agreement to which the Maker is a party or by which it is bound, providing for any of the events set forth above in (i), (ii) or (iii).

 

(b)           If any Event of Default occurs and shall be continuing, the full Principal amount of this Convertible Debenture together with all of the Convertible Debentures, together with all accrued interest thereon, shall become, at the election of the Required Holders immediately due and payable in cash.

 

(c)           The Holder need not provide and the Maker hereby waives any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such declaration may be rescinded and annulled by the Holder at any time prior to payment hereunder. No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

  

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5.           NEGATIVE COVENANTS. So long as any portion of the Principal of the Convertible Debentures, any accrued or unpaid Interest or late charges remains outstanding, the Maker will not, directly or indirectly, without the consent of the Required Holders:

 

(a)           other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed money of any kind debt incurred by the Company in the ordinary course of business, not to exceed the higher of (i) $250,000 in the aggregate, or (ii) 5% of the principal balance of the Convertible Debentures;

 

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

 

(c)           amend its articles of incorporation, bylaws or other charter documents so as to adversely affect any rights of the Holder, unless the sole and exclusive purpose of such amendment of the Maker’s articles of incorporation, bylaws or other charter documents is to increase the authorized capitalization of the Maker;

 

6.           POSITIVE COVENANTS. So long as any portion of the Principal of the Convertible Debentures, any accrued or unpaid Interest or late charges remains outstanding, the Maker will not directly or indirectly, without the consent of the Required Holders:

 

(a)           enter into any transaction, including, without limitation, the purchase, sale, or exchange of property or the rendering of any service, with any Affiliate, except in the ordinary course of and pursuant to the reasonable requirements of the Maker’s business and upon fair and reasonable terms no less favorable to the Maker than it would obtain in a comparable arm’s-length transaction with a person not an Affiliate;

 

(b)           repay, repurchase or offer to repay, repurchase or otherwise acquire more than a de minimis number of securities other than the Convertible Debentures subject to the prepayment provisions herein or as set forth on Schedule I hereto;

 

(c)           pay cash dividends or distributions on any equity securities of the Maker;

 

(d)           timely pay and discharge all of its material obligations and liabilities, including, without limitation, tax liabilities, except where the same may be contested in good faith by appropriate proceedings;

 

(e)           continue to engage in business of the same general type as now conducted by it and to preserve, renew and keep in full force and effect, its corporate existence and its assets, rights, privileges and franchises to the extent necessary or desirable in the normal conduct of business;

 

(f)           comply in all material respects with all applicable laws, ordinances, rules, regulations, decisions, orders and requirements of governmental authorities;

 

(g)           use of the proceeds from the sale of the Convertible Debentures solely for the purposes set forth in the Private Placement Memorandum issued in connection with the sale of the Convertible Debentures and for no other purposes;

 

(h)           notify Holder(s) promptly after the Maker shall obtain knowledge of any written notice of any legal or arbitral proceedings, and of all proceedings by or before any governmental authority, and each material development in respect of such legal or other proceeding affecting the Maker, except proceedings which, if adversely determined, would not reasonably be likely to have a material adverse effect on the business or prospects of the Company;

  

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(i)           keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities;

 

(j)           permit any representatives designated by Holder, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its business, assets, affairs, finances, prospects, and condition with its officers and independent accountants, all at such reasonable times during normal business hours and as often as reasonably requested;

 

(k)           promptly upon Holder’s written request therefor, deliver to Holder such documents and other evidence of the existence, good standing, foreign qualification and financial condition of the Maker as Purchaser shall request from time to time;

 

(1)           effect or enter into an agreement to effect any issuance by the Company of Common Stock or Common Stock Equivalents (or a combination of units thereof) involving a Variable Rate Transaction. “Variable Rate Transaction” means a transaction in which the Company (i) issues or sells any debt or equity securities that are convertible into, exchangeable or exercisable for, or include the right to receive, additional shares of Common Stock either (A) at a conversion price, exercise price or exchange rate or other price that is based upon, and/or varies with, the trading prices of or quotations for the shares of Common Stock at any time after the initial issuance of such debt or equity securities or (B) with a conversion, exercise or exchange price that is subject to being reset at some future date after the initial issuance of such debt or equity security or upon the occurrence of specified or contingent events directly or indirectly related to the business of the Company or the market for the Common Stock, or (ii) enters into any agreement, including, but not limited to, an equity line of credit, whereby the Company may issue securities at a future determined price. Notwithstanding the foregoing Section 6(k) shall not apply in respect of an Exempt Issuance except that no Variable Rate Transaction shall be an Exempt Issuance;

 

(m)           sell or grant any option to purchase or sell or grant any right to replace or otherwise dispose of or issue (or announces any sale, grant or any option to purchase or other disposition) any Common Stock or Common Stock equivalent entitling any Person to acquire shares of Company Common Stock at an effective price per share that is lower than the then Conversion Price (if the Holder of Common Stock or Common Stock equivalent so issued shall at any time whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise due to warrants, options or rights per share which are issued in connection with such issuance, entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall deem to have occurred for less than the Conversion Price on such date of issuance). Notwithstanding the foregoing Section 6(k) shall not apply in respect of any Exempt Issuance; and

 

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

 

For the purposes of this Section 6, the following terms shall have the following meanings:

 

(i)           “Permitted Indebtedness” shall mean either (a) the indebtedness of the Maker existing on the date of issuance of this Convertible Debenture and set forth on Schedule II hereto;, (b) any indebtedness the proceeds of which are used to repay the Convertible Debentures in full, (c) indebtedness incurred in connection with discounted bills of exchange or the discounting or factoring of receivables for credit in each case incurred in the ordinary course of business consistent with past practice and (d) any indebtedness incurred in the ordinary course of business consistent with past practice or consented to by the Required Holders, which consent shall be binding upon the Holder.

  

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(ii)           “Permitted Lien” shall mean the individual and collective reference to the following: (a) liens for taxes, assessments and other governmental charges or levies not yet due or liens for taxes, assessments and other governmental charges or levies being contested in good faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of the Maker) have been established in accordance with generally accepted accounting procedures, (b) liens imposed by law which were incurred in the ordinary course of business, such as carriers’, warehousemen’s and mechanics’ liens, statutory landlords’ liens, and other similar liens arising in the ordinary course of business, and (x) which do not individually or in the aggregate materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business of the Maker or (y) which are being contested in good faith by appropriate proceedings, which proceedings have the effect of preventing the forfeiture or sale of the property or asset subject to such lien, (c) purchase money security interests, and (d) liens previously granted by the Maker prior to the date hereof.

 

7.           ADJUSTMENTS.

 

(a)           Adjustment of Fixed Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision herewith, if the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Fixed Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision herewith, if the Company at any time on or after the Issuance Date combines (by any stock split, stock dividend, stock combination, recapitalization or other similar transaction) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Fixed Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7(a) shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7(a) occurs during the period that a Fixed Conversion Price is calculated hereunder, then the calculation of such Fixed Conversion Price shall be adjusted appropriately to reflect such event.

 

(b)           Failure to Increase Authorized Shares Reduction in Conversion Price. If the Company’s authorized shares of Common Stock are not increased to 450,000,000 shares by August 31, 2014 (the “Share Authorization Date”), then the Conversion Price shall be reduced by $0.005 (subject to a floor of $0.055) for each thirty (30) days or part thereof that such shareholder approval is not obtained.

 

(c)           Calculations. All calculations under this Section 7 shall be made by rounding to the nearest cent or the nearest 1/100th of a share, as applicable. The number of shares of Common Stock outstanding at any given time shall not include shares owned or held by or for the account of the Company, and the disposition of any such shares shall be considered an issue or sale of Common Stock.

 

8.           NO WAIVER OF THE HOLDER’S RIGHTS. All payments of Principal and Interest shall be made without setoff, deduction or counterclaim. No delay or failure on the part of the Holder in exercising any of its options, powers or rights, nor any partial or single exercise of its options, powers or rights shall constitute a waiver thereof or of any other option, power or right, and no waiver on the part of the Holder of any of its options, powers or rights shall constitute a waiver of any other option, power or right. Maker hereby waives presentment of payment, protest, and all notices or demands in connection with the delivery, acceptance, performance, default or endorsement of this Note. Acceptance by the Holder of less than the full amount due and payable hereunder shall in no way limit the right of the Holder to require full payment of all sums due and payable hereunder in accordance with the terms hereof.

  

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9.           RESERVATION OF AUTHORIZED SHARES.

 

(a)           Reservation. Subject to the Company’s authorized share capital, the Company shall reserve out of its authorized and unissued Common Stock such number of shares of Common Stock as may be issued for all of the Convertible Debentures equal to [  ]% of the Conversion Rate of all of the Convertible Debentures as of the most recent Closing Date. After the earlier of the Authorized Share Increase Date and for so long as any of the Convertible Debentures are outstanding, the Company shall take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Convertible Debentures, [  ]% of the number of shares of Common Stock as shall from time to time be necessary to effect the conversion of all of the Convertible Debentures then outstanding, provided that at no time shall the number of shares of Common Stock so reserved be less than the number of shares required to be reserved by the previous sentence (without regard to any limitations on conversions) (the “Required Reserve Amount”). The initial number of shares of Common Stock reserved for conversions of the Convertible Debentures and each increase in the number of shares so reserved shall be allocated pro rata among the holders of the Convertible Debentures based on the original principal amount of the Convertible Debenture held by each holder on the most recent Closing Date as of the applicable date of determination or increase in the number of reserved shares (as the case may be) (the “Authorized Share Allocation”). In the event that a holder shall sell or otherwise transfer any of such holder’s Convertible Debenture, each transferee shall be allocated a pro rata portion of such holder’s Authorized Share Allocation. Any shares of Common Stock reserved and allocated to any Person which ceases to hold any Convertible Debentures shall be allocated to the remaining holders of Convertible Debenture, pro rata based on the principal amount of the Convertible Debentures then held by such holders.

 

10.           VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Convertible Debenture, except as required by law (including, without limitation, Title 7 of the Nevada Revised Statutes) and as expressly provided in this Convertible Debenture.

 

11.           SECURITY. The obligation of the Company under this Convertible Debenture are secured by certain assets of the Maker pursuant to the certain Security Agreement, dated as of the date hereof, by and among the Company and the secured party secondary thereto. The Convertible Debentures shall be senior to all indebtedness of the Company except for that certain indebtedness administered by Kalamalka Partners, Ltd., as agent for certain lenders, as to which it shall rank pari passu.

 

12.           AMENDING THE TERMS OF THIS CONVERTIBLE DEBENTURE. The prior written consent of the Required Holders shall be required for any change or amendment to this Convertible Debenture. No consideration shall be offered or paid to the Holder to amend or consent to a waiver or modification of any provision of this Convertible Debenture unless the same consideration is also offered to all of the holders of the Convertible Debentures. The Holder shall be entitled, at its option, to the benefit of any amendment to any of the Convertible Debentures.

 

13.           TRANSFER. Subject to compliance with applicable securities laws, this Convertible Debenture and any shares of Common Stock issued upon conversion of this Convertible Debenture may be offered, sold, assigned or transferred by the Holder without the consent of the Company.

  

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14.           REISSUANCE OF THIS CONVERTIBLE DEBENTURE.

 

(a)           Transfer. If this Convertible Debenture is to be transferred, the Holder shall surrender this Convertible Debenture to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Convertible Debenture (in accordance herewith), registered as the Holder may request, representing the outstanding Principal being transferred by the Holder and, if less than the entire outstanding Principal is being transferred, a new Convertible Debenture (in accordance herewith) to the Holder representing the outstanding Principal not being transferred. The Holder and any assignee, by acceptance of this Convertible Debenture, acknowledge and agree that, by reason of the provisions herewith following conversion or redemption of any portion of this Convertible Debenture, the outstanding Principal represented by this Convertible Debenture may be less than the Principal stated on the face of this Convertible Debenture.

 

(b)           Lost, Stolen or Mutilated Convertible Debenture. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Convertible Debenture (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Convertible Debenture, the Company shall execute and deliver to the Holder a new Convertible Debenture (in accordance with Section 14(c)) representing the outstanding Principal.

 

(c)           Issuance of New Convertible Debenture. Whenever the Company is required to issue a new Convertible Debenture pursuant to the terms of this Convertible Debenture, such new Convertible Debenture (i) shall be of like tenor with this Convertible Debenture, (ii) shall represent, as indicated on the face of such new Convertible Debenture, the Principal remaining outstanding (or in the case of a new Convertible Debenture being issued pursuant to Section 14(a), the Principal designated by the Holder which, when added to the principal represented by the other new Convertible Debenture issued in connection with such issuance, does not exceed the Principal remaining outstanding under this Convertible Debenture immediately prior to such issuance of new Convertible Debenture), (iii) shall have an issuance date, as indicated on the face of such new Convertible Debenture, which is the same as the Issuance Date of this Convertible Debenture, (iv) shall have the same rights and conditions as this Convertible Debenture, and (v) shall represent accrued and unpaid Interest and late charges on the Principal and Interest of this Convertible Debenture, from the Issuance Date.

 

15.           CUMULATIVE RIGHTS AND REMEDIES; USURY. The rights and remedies of the Holder expressed herein are cumulative and not exclusive of any rights and remedies otherwise available under this Convertible Debenture, or applicable law (including at equity). The election of the Holder to avail itself of any one or more remedies shall not be a bar to any other available remedies, which the Maker agrees the Holder may take from time to time. If it shall be found that any Interest due hereunder shall violate applicable laws governing usury, the applicable Interest Rate due hereunder shall be reduced to the maximum permitted rate of interest under such law

 

16.           GOVERNING LAW. All questions concerning the construction, validity, enforcement and interpretation of this Convertible Debenture shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each of the Maker and the Holder agree that all legal proceedings concerning the interpretations, enforcement and defense of this Convertible Debenture shall be commenced in the state and federal courts sitting in The City of New York, County of New York (the “New York Courts”). Each of the Maker and the Holder hereby irrevocably submit to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder (including with respect to the enforcement of this Convertible Debenture), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper. Each of the Maker and the Holder hereby irrevocably waive personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to the other at the address in effect for notices to it under this Convertible Debenture and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. Each of the Maker and the Holder hereby irrevocably waive, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Convertible Debenture or the transactions contemplated hereby.

  

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17.           REQUIRED NOTICE TO THE HOLDER. The Holder is to be notified by the Maker, within three (3) business days, in accordance with the notice provisions in the Subscription Agreement, of the existence or occurrence, of any Event of Default.

 

18.           PAYMENT OF COLLECTION, ENFORCEMENT AND OTHER COSTS. If (a) this Convertible Debenture is placed in the hands of an attorney for collection or enforcement or is collected or enforced through any legal proceeding or the Holder otherwise takes action to collect amounts due under this Convertible Debenture or to enforce the provisions of this Convertible Debenture or (b) there occurs any bankruptcy, reorganization, receivership of the Company or other proceedings affecting Company creditors’ rights and involving a claim under this Convertible Debenture, then the Company shall pay the costs incurred by the Holder for such collection, enforcement or action or in connection with such bankruptcy, reorganization, receivership or other proceeding, including, without limitation, attorneys’ fees and disbursements. The Company expressly acknowledges and agrees that no amounts due under this Convertible Debenture shall be affected, or limited, by the fact that the purchase price paid for this Convertible Debenture was less than the original Principal amount hereof.

 

19.           CONSTRUCTION; HEADINGS. This Convertible Debenture shall be deemed to be jointly drafted by the Company and the Holder and shall not be construed against any Person as the drafter hereof. The headings of this Convertible Debenture are for convenience of reference and shall not form part of, or affect the interpretation of, this Convertible Debenture. Terms used in this Convertible Debenture but defined in the other Transaction Documents shall have the meanings ascribed to such terms on the Subscription Date in such other Transaction Documents unless otherwise consented to in writing by the Holder.

 

20.           NOTICES. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered, by electronic mail, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 20. Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered, by email, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder appearing on the books of the Company, or if no such facsimile number or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Subscription Agreement. Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via email at the address set forth on the signature pages attached hereto prior to 5:30 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email at the address set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 5:30 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.

   

  

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21.           CERTAIN DEFINITIONS. For purposes of this Convertible Debenture, the following terms shall have the following meanings:

 

(a)           “Affiliate” means, as applied to any person, (a) any other person directly or indirectly controlling, controlled by or under common control with, that person, (b) any other person that owns or controls 10% or more of any class of equity securities (including any equity securities issuable upon the exercise of any option or convertible security) of that person or any of its Affiliates, or (c) any director, partner, officer, manager, agent, employee or relative of such person. For the purposes of this definition, “control” (including with correlative meanings, the terms “controlling,” “controlled by,” and “under common control with”), as applied to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person, whether through ownership of voting securities or by contract or otherwise

 

(b)           “Authorized Share Increase Date” means the date the Company increased the number of authorized shares of Common Stock to [450,000,000] shares of Common Stock (as adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction after the Subscription Date).

 

(c)           “Bloomberg” means Bloomberg, L.P.

 

(d)           “Business Day” means any day other than Saturday, Sunday or other day on which commercial banks in The City of New York are authorized or required by law to remain closed.

 

(e)           “Closing Date” means, collectively, the Initial Closing Date and all Additional Closing Dates, if any.

 

(f)           “Common Stock” means (i) the Company’s shares of common stock, $0.001 par value per share, and (ii) any capital stock into which such common stock shall have been changed or any share capital resulting from a reclassification of such common stock.

 

(g)           “Common Stock Equivalents” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including, without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exercisable or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

(h)           “Equity Conditions” means during the period in question, (i) the Company shall duly honor all conversions scheduled to occur or occurring, (ii) the Company has an effective registration statement pursuant to which the Holders are permitted to utilize the prospectus thereunder to resell all the Conversion Shares issuable upon Conversion of the Convertible Debentures (and the Company believes in good faith, that such effectiveness shall continue uninterrupted for the foreseeable future), (iii) there is a sufficient number of authorized, but unissued or otherwise unreserved shares of common stock for the issuance of all the Conversion Shares, and (iv) there is no existing Event of Default or no Event of Default which, with the passage of time or with the giving of notice, would constitute an Event of Default.

  

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(i)           “Equity Conditions Failure” means that on any day during the period commencing ten (10) Trading Days prior to the applicable date of determination through the applicable date of determination, the Equity Conditions have not been satisfied (or waived in writing by the Requisite Holders).

 

(j)           “Exempt Issuance” means the issuance of (a) shares of Common Stock or options to employees, officer or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise or exchange of or conversion of any securities issued hereunder and/or other securities exercisable or exchangeable for or convertible into shares of Common Stock issued and outstanding on the date of this Agreement, provided that such securities have not been amended since the date of this Agreement, provided that such securities have not been amended since the date of this Agreement to increase the number of such securities or to decrease the exercise, exchange or conversion price of such securities, and (c) securities issued pursuant to acquisitions or strategic transactions approved by a majority of the disinterested directors of the Company, provided any such issuance shall only be to a Person which is, itself or through its subsidiaries, an operating company in a business synergistic with the business of the Company and in which the Company receives benefits in addition to the investment of funds, but shall not include a transaction in which the Company is issuing securities primarily for the purpose of raising capital or to an entity whose primary business is investing in securities.

 

(k)           “Initial Closing Date” shall have the meaning set forth in the Subscription Agreement.

 

(1)           “Interest Notice Due Date” means the second (2nd) Trading Day immediately prior to the applicable Interest Date.

 

(m)           “Interest Rate” means six percent (6.00%) per annum, as may be adjusted from time to time in accordance with Section 2.

 

(n)           “Person” means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, any other entity or a government or any department or agency thereof.

 

(o)           Intentionally Left Blank.

 

(p)           “Principal Market” means the OTCQB Market.

 

(q)           “Required Holders” means, at any given time, the holders of a majority of the aggregate principal amount of the Convertible Debentures, outstanding as of such time (excluding any Convertible Debenture held by the Company or any of its subsidiaries).

 

(r)           “SEC” means the United States Securities and Exchange Commission or the successor thereto.

 

(s)           “Subscription Agreement” means that certain subscription agreement, dated as of the Subscription Date, by and among the Company and the initial holders of the Convertible Debentures pursuant to which the Company issued the Convertible Debentures and certain share purchase warrants, as may be amended from time to time.

  

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(t)           “Trading Day” means any day on which the Common Stock is traded on the Principal Market, or, if the Principal Market is not the principal trading market for the Common Stock, then on the principal securities exchange or securities market on which the Common Stock is then traded, provided that “Trading Day” shall not include any day on which the Common Stock is scheduled to trade on such exchange or market for less than 4.5 hours or any day that the Common Stock is suspended from trading during the final hour of trading on such exchange or market (or if such exchange or market does not designate in advance the closing time of trading on such exchange or market, then during the hour ending at 4:00:00 p.m., New York time) unless such day is otherwise designated as a Trading Day in writing by the Holder.

 

(u)           “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in the “pink sheets” by OTC Markets Group Inc. If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination, recapitalization or other similar transaction during such period.

 

22.           DISCLOSURE. Upon receipt or delivery by the Company of any notice in accordance with the terms of this Convertible Debenture, unless the Company has in good faith determined that the matters relating to such notice do not constitute material, non-public information relating to the Company or any of its Subsidiaries, the Company shall within one (1) Business Day after any such receipt or delivery publicly disclose such material, non-public information on a Current Report on Form 8-K or otherwise. In the event that the Company believes that a notice contains material, non-public information relating to the Company or any of its Subsidiaries, the Company so shall indicate to such Holder contemporaneously with delivery of such notice, and in the absence of any such indication, the Holder shall be allowed to presume that all matters relating to such notice do not constitute material, non-public information relating to the Company or its Subsidiaries.

 

[signature page follows]

 

 

 

 

 

  

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IN WITNESS WHEREOF, the Company has caused this Convertible Debenture to be duly executed as of the Issuance Date set out above.

 

	  	
NAKED BRAND GROUP, INC.

	  
	  	  	  	  
	  	  	  	  
	  	
By:

	
/s/ Joel Primus

	  
	  	  	
Joel Primus, President and Director

	  
	  	  	  	  

 

 

 

 

 

 

 

 

 

 

 

 

  

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EXHIBIT I

 

NAKED BRAND GROUP, INC.

CONVERSION NOTICE

 

Reference is made to the 6% Senior Secured Convertible Debenture (the “Convertible Debenture”) issued to the undersigned by Naked Brand Group, Inc., a Nevada corporation (the “Company”). In accordance with and pursuant to the Convertible Debenture, the undersigned hereby elects to convert the Conversion Amount (as defined in the Convertible Debenture) of the Convertible Debenture indicated below into shares of Common Stock, $0.001 par value per share (the “Common Stock”), of the Company, as of the date specified below. Capitalized terms not defined herein shall have the meaning as set forth in the Convertible Debenture.

 

	
Date of Conversion:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Aggregate Principal to be converted:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Aggregate accrued and unpaid Interest and accrued and unpaid late fees with respect to such portion of the aggregate Principal and such aggregate Interest to be converted:

	  	  	 
	  	  	  	 
	  	  	  	 
	
AGGREGATE CONVERSION AMOUNT TO BE CONVERTED:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Please confirm the following information:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Conversion Price:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Number of shares of Common Stock to be issued:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Please issue the Common Stock into which the Convertible Debenture is being converted in the following name and to the following address:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Issue to:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Facsimile Number:

	  	  	 
	  	  	  	 
	  	  	  	 

   

  

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Holder:

	  	  	 
	  	  	  	 
	  	  	  	 
	
By:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Title:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Dated:

	  	  	 
	  	  	  	 
	  	  	  	 
	
Account Number:

	  	  	 
	  	  	  	 
	  	  	  	 
	
(if electronic book entry transfer)

	  	  	 
	  	  	  	 
	  	  	  	 
	
Transaction Code Number:

	  	  	 
	  	  	  	 
	  	  	  	 
	
(if electronic book entry transfer)

	  	  	 
	  	  	  	 
	  	  	  	 
	
Address:

	  	  	 
	
(if delivery of share certificates)

	  	  	 
	  	  	  	 
	  	  	  	 
	  	  	  	 
	 	 	 	 
	 	 	 	 

 

 

 

 

 

 

Page 19

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