Document:

Jammin Java Corp. 8-K

 

Exhibit 10.9 

 

Note: March 15, 2016

NEITHER THESE SECURITIES NOR THE SECURITIES
INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION IN RELIANCE UPON AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY,
MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. 

 

THIS NOTE DOES NOT REQUIRE PHYSICAL SURRENDER
OF THE NOTE IN THE EVENT OF A PARTIAL REDEMPTION OR CONVERSION. AS A RESULT, FOLLOWING ANY REDEMPTION OR CONVERSION OF ANY PORTION
OF THIS NOTE, THE OUTSTANDING PRINCIPAL SUM REPRESENTED BY THIS NOTE MAY BE LESS THAN THE PRINCIPAL SUM AND ACCRUED INTEREST SET
FORTH BELOW.

 

5% CONVERTIBLE PROMISSORY NOTE

 

OF

 

JAMMIN
JAVA CORP.

 

 

Issuance Date: March 15, 2016

Total Face Value of Note: $220,000

This
Note is a duly authorized Convertible Promissory Note of Jammin Java Corp. a corporation duly organized and existing under
the laws of the State of Nevada (the “Company”), designated as
the Company’s 5% Convertible Promissory Note due December 15, 2016 (“Maturity Date”) in the principal
amount of $220,000 (the “Note”).

For
Value Received, the Company hereby promises to pay to the order of Duck Duck Spruce, LLC or its registered assigns
or successors-in-interest (the “Holder”) the Principal Sum of $220,000 (the “Principal Sum”)
and to pay “guaranteed” interest on the principal balance hereof at an amount equivalent to 5% of the Principal Sum,
to the extent such Principal Sum and “guaranteed” interest and any other interest, fees, liquidated damages and/or
items due to Holder herein have been repaid or converted into the Company’s Common Stock (the “Common Stock”),
in accordance with the terms hereof. If the Company pays the Note off in full within 90 days following the Effective Date as per
the pre-payment terms detailed below, the Holder agrees to waive the 5% interest charge. The sum of $200,000 shall be remitted
and delivered to the Company, and $20,000 shall be retained by the Purchaser through an original issue discount (the “OID”)
for due diligence and legal bills related to this transaction. The OID is set at 10% of any consideration paid.

Additionally, as
an incentive to purchase this Note, Company will issue to the Holder 250,000 shares of the Company’s restricted common stock
(the “Restricted Shares”).

    	1 

    	 

    

In addition to the
“guaranteed” interest referenced above, and in the Event of Default pursuant to Section 2(a), additional interest will
accrue from the date of the Event of Default at the rate equal to the lower of 10% per annum or the highest rate permitted by law
(the “Default Rate”).

This Note will become
effective only upon the execution by both parties, including the execution of Exhibits B, C and D and the Irrevocable Transfer
Agent Instructions and delivery of the initial payment of consideration by the Holder (the “Effective Date”).

This Note may be
prepaid by the Company, in whole or in part, according to the following schedule:

	Days Since Effective Date	Prepayment Amount
	Under 30	105% of Principal Sum plus Accrued Interest
	31-60	110% of Principal Sum plus Accrued Interest
	61-90	115% of Principal Sum plus Accrued Interest
	91-120	120% of Principal Sum plus Accrued Interest
	121-150	125% of Principal Sum plus Accrued Interest
	151-180	130% of Principal Sum plus Accrued Interest

 

After 180 days from
the Effective Date this Note may not be prepaid without written consent from Holder, which consent may be withheld, delayed or
denied in Holder’s sole and absolute discretion. Whenever any amount expressed to be due by the terms of this Note is due
on any day which is not a Business Day (as defined below), the same shall instead be due on the next succeeding day which is a
Business Day.

For purposes hereof
the following terms shall have the meanings ascribed to them below:

“Business
Day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the City of New York
are authorized or required by law or executive order to remain closed.

“Conversion
Price” shall be equal to 65% of average of the two lowest closing prices of the Company’s common stock during
the 10 consecutive trading days prior to the date on which Holder elects to convert all or part of the Note. For the purpose of
calculating the Conversion Price only, any time after 4:00 pm Eastern Time (the closing time of the Principal Market) shall be
considered to be the beginning of the next Business Day. If the Company is placed on “chilled” status with the Depository
Trust Company (“DTC”), the discount shall be increased by 10%, i.e., from 35% to 45%, until such
chill is remedied. If the Company is not Deposits and Withdrawal at Custodian (“DWAC”) eligible through their
Transfer Agent and DTC’s Fast Automated Securities Transfer (“FAST”) system, the discount will be increased
by 5%, i.e., from 35% to 40%,. In the case of both, the discount shall be a cumulative increase of 15%, i.e.,
from 35% to 50%. Any default of this Note not remedied within the applicable cure period will result in a permanent additional
5% increase, i.e., from 35% to 40%, in addition to any other discount, as provided above, to the Conversion Price
discount. In the event that the Note is not in default at the time of a submission of a Conversion Notice to the Company, the Conversion
Price shall be subject to a floor price of $0.05.

    	2 

    	 

    

“Principal
Amount” shall refer to the sum of (i) the original principal amount of this Note (including the original issue discount,
prorated if the Note has not been funded in full), (ii) all guaranteed and other accrued but unpaid interest hereunder, (iii)
any fees due hereunder, (iv) liquidated damages, and (v) any default payments owing under the Note, in each case previously paid
or added to the Principal Amount.

“Principal Market”
shall refer to the primary exchange on which the Company’s common stock is traded or quoted.

“Trading
Day” shall mean a day on which there is trading or quoting for any security on the Principal Market.

“Underlying
Shares” means the shares of common stock into which the Note is convertible (including interest, fees, liquidated
damages and/or principal payments in common stock as set forth herein) in accordance with the terms hereof.

The following terms
and conditions shall apply to this Note:

Section 1.00

Conversion.

(a)

Conversion Right.
Subject to the terms hereof and restrictions and limitations contained herein, the Holder shall have the right beginning 180 days
from the Date of Execution, at the Holder’s sole option, at any time and from time to time to convert in whole or in part
the outstanding and unpaid Principal Amount under this Note into shares of Common Stock as per the Conversion Formula. The date
of any conversion notice (“Conversion Notice”) hereunder shall be referred to herein as the “Conversion
Date”.

(b)

Stock Certificates
or DWAC. The Company will deliver to the Holder, or Holder’s authorized designee, no later than 3 Trading Days after
the Conversion Date, a certificate or certificates (which certificate(s) shall be free of restrictive legends and trading restrictions
if the shares of Common Stock underlying the portion of the Note being converted are eligible under a resale exemption pursuant
to Rule 144(b)(1)(ii) and Rule 144(d)(1)(ii) of the Securities Act of 1933, as amended) representing the number of shares of Common
Stock being acquired upon the conversion of this Note. In lieu of delivering physical certificates representing the shares of Common
Stock issuable upon conversion of this Note, provided the Company’s transfer agent is participating in DTC’s FAST program,
the Company shall instead use commercially reasonable efforts to cause its transfer agent to electronically transmit such shares
issuable upon conversion to the Holder (or its designee), by crediting the account of the Holder’s (or such designee’s)
broker with DTC through its DWAC program (provided that the same time periods herein as for stock certificates shall apply).

(c)

Charges and Expenses.
Issuance of Common Stock to Holder, or any of its assignees, upon the conversion of this Note shall be made without charge to the
Holder for any issuance fee, transfer tax, legal opinion and related charges, postage/mailing charge or any other expense with
respect to the issuance of such Common Stock. Company shall pay all Transfer Agent fees incurred from the issuance of the Common
Stock to Holder, as well as any and all other fees and charges required by the Transfer Agent as a condition to effectuate such
issuance. Any such fees or charges, as noted in this Section that are paid by the Holder (whether from the Company’s delays,
outright refusal to pay, or otherwise), will be automatically added to the Principal Sum of the Note and tack back to the Effective
Date for purposes of Rule 144.

    	3 

    	 

    

(d)

Delivery Timeline.
If the Company fails to deliver to the Holder such certificate or certificates (or shares through the DWAC program) pursuant to
this Section (free of any restrictions on transfer or legends, if eligible) prior to 4 Trading Days after the Conversion Date,
the Company shall pay to the Holder as liquidated damages an amount equal to $1,000 per day, until such certificate or certificates
are delivered. The Company acknowledges that it would be extremely difficult or impracticable to determine the Holder’s actual
damages and costs resulting from a failure to deliver the Common Stock and the inclusion herein of any such additional amounts
are the agreed upon liquidated damages representing a reasonable estimate of those damages and costs. Such liquidated damages will
be automatically added to the Principal Sum of the Note and tack back to the Effective Date for purposes of Rule 144.

(e)

Reservation of Underlying
Securities. The Company covenants that it will at all times reserve and keep available for Holder, out of its authorized and
unissued Common Stock solely for the purpose of issuance upon conversion of this Note, free from preemptive rights or any other
actual contingent purchase rights of persons other than the Holder, four times the number of shares of Common Stock as shall
be issuable (taking into account the adjustments under this Section 1, but without regard to any ownership limitations contained
herein) upon the conversion of this Note (consisting of the Principal Amount) to Common Stock (the “Required Reserve”).
The Company covenants that all shares of Common Stock that shall be issuable will, upon issue, be duly authorized, validly issued,
fully-paid, non-assessable and freely-tradable (if eligible). If the amount of shares on reserve in Holder’s name at the
Company’s transfer agent for this Note shall drop below the Required Reserve, the Company will, within 2 Trading Days of
notification from Holder, instruct the transfer agent to increase the number of shares so that the Required Reserve is met, and
it is understood and acknowledged that if the Company’s transfer agent takes additional time to reflect the Required Reserve
that this will not result in a breach by the Company. In the event that the Company does not instruct the transfer agent to increase
the number of shares so that the Required Reserve is met, the Holder will be allowed, if applicable, to provide this instruction
as per the terms of the Irrevocable Transfer Agent Instructions attached to this Note. The Company agrees that the maintenance
of the Required Reserve is a material term of this Note and any breach of this Section 1.00(e) will result in a default of the
Note.

The Company agrees that
this is a material term of this Note and any breach of this Section 1.00(e) will result in a default of the Note.

(f)

Conversion Limitation.
The Holder will not submit a conversion to the Company that would result in the Holder beneficially owning more than 9.99% of the
then total outstanding shares of the Company (“Restricted Ownership Percentage”).

(g)

Conversion Delays. If the Company
fails to deliver shares in accordance with the timeframe stated in Section 1.00(b), the Holder, at any time prior to selling all
of those shares, may rescind any portion, in whole or in part, of that particular conversion attributable to the unsold shares.
The rescinded conversion amount will be returned to the Principal Sum with the rescinded conversion shares returned to the Company,
under the expectation that any returned conversion amounts will tack back to the Effective Date.

    	4 

    	 

    

(h)

Shorting and Hedging. Holder may
not engage in any “shorting” or “hedging” transaction(s) in the Common Stock prior to conversion or at
any time while holding shares of the Company’s Common Stock.

(i)

Conversion Right Unconditional.
If the Holder shall provide a Conversion Notice as provided herein, the Company’s obligations to deliver Common Stock shall
be absolute and unconditional, irrespective of any claim of setoff, counterclaim, recoupment, or alleged breach by the Holder of
any obligation to the Company.

Section 2.00

Defaults and Remedies.

(a)

Events of Default.
An “Event of Default” is: (i) a default in payment of any amount due hereunder which default continues for more
than 5 Trading Days after the due date; (ii) a default in the timely issuance of underlying shares upon and in accordance with
terms of Section 1.00, which default continues for 3 Trading Days after the Company has failed to issue shares or deliver stock
certificates within the 4th Trading Day following the Conversion Date; (iii) failure by the Company for 4 days after notice has
been received by the Company to comply with any material provision of this Note; (iv) failure of the Company to remain compliant
with DTC, thus incurring a “chilled” status with DTC; (v) if the Company is subject to any Bankruptcy Event; (vi) any
failure of the Company to satisfy its periodic “filing” obligations under Securities Exchange Act of 1934, as amended
(the “1934 Act”) and the rules and guidelines issued by OTC Markets News Service, OTCMarkets.com and their affiliates;
(vii) any failure of the Company to provide the Holder with information related to its corporate structure including, but not limited
to, the number of authorized and outstanding shares, public float, etc. within 1 Trading Day of request by Holder; (viii) failure
by the Company to maintain the Required Reserve in accordance with the terms of Section 1.00(e); (ix) failure of Company’s
Common Stock to maintain a closing bid price in its Principal Market for more than 3 consecutive Trading Days; (x) any delisting
from a Principal Market for any reason; (xi) failure by Company to pay any of its Transfer Agent fees in excess of $2,000 or to
maintain a Transfer Agent of record; (xii) failure by Company to notify Holder of a change in Transfer Agent within 24 hours of
such change; (xiii) any trading suspension imposed by the Securities and Exchange Commission (“SEC”) under
Sections 12(j) or 12(k) of the 1934 Act; or (xiv) failure by the Company to meet all requirements necessary to satisfy the availability
of Rule 144 to the Holder or its assigns, including but not limited to the timely fulfillment of its filing requirements as a fully-reporting
issuer registered with the SEC, requirements for XBRL filings, and requirements for disclosure of financial statements on its website
within 3 business days of notice by Holder.

(b)

Remedies. If
an event of default occurs, the outstanding Principal Amount of this Note owing in respect thereof through the date of acceleration,
shall become, at the Holder’s election, immediately due and payable in cash at the “Mandatory Default Amount”.
The Mandatory Default Amount means 130% of the outstanding Principal Amount of this Note. Commencing 5 days after the occurrence
of any Event of Default that results in the eventual acceleration of this Note, this Note shall accrue additional interest, in
addition to the Note’s “guaranteed” interest, at a rate equal to the lesser of 10% per annum or the maximum rate
permitted under applicable law. Finally, commencing 5 days after the occurrence of any Event of Default that results in the eventual
acceleration of this Note, an additional permanent 5% increase to the Conversion Price discount will go into effect. In connection
with such acceleration described herein, the Holder need not provide, and the Issuer 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 acceleration may be rescinded and
annulled by the Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the note until
such time, if any, as the Holder receives full payment pursuant to this Section 2.00(b). No such rescission or annulment shall
affect any subsequent event of default or impair any right consequent thereon. Nothing herein shall limit the Holder’s right
to pursue any other remedies available to it at law or in equity including, without limitation, a decree of specific performance
and/or injunctive relief with respect to the Issuer’s failure to timely deliver certificates representing shares of Common
Stock upon conversion of the Note as required pursuant to the terms hereof.

    	5 

    	 

    

Section 3.00

Representations and Warranties of
Holder.

Holder hereby represents and warrants
to the Company that:

(a)

Holder is an “accredited
investor,” as such term is defined in Regulation D of the Securities Act of 1933, as amended (the “1933
Act”), and will acquire this Note, the Restricted Shares and the Underlying Shares (collectively, the
“Securities”) for its own account and not with a view to a sale or distribution thereof as that
term is used in Section 2(a)(11) of the 1933 Act, in a manner which would require registration under the 1933 Act or any
state securities laws. Holder has such knowledge and experience in financial and business matters that such Holder is capable
of evaluating the merits and risks of the Securities. Holder can bear the economic risk of the Securities, has knowledge and
experience in financial business matters and is capable of bearing and managing the risk of investment in the Securities.
Holder recognizes that the Securities have not been registered under the 1933 Act, nor under the securities laws of any state
and, therefore, cannot be resold unless the resale of the Securities is registered under the 1933 Act or unless an exemption
from registration is available. Holder has carefully considered and has, to the extent Holder believes such discussion
necessary, discussed with its professional, legal, tax and financial advisors, the suitability of an investment in the
Securities for its particular tax and financial situation and its advisers, if such advisors were deemed necessary, and has
determined that the Securities are a suitable investment for it. Holder has not been offered the Securities by any form
of general solicitation or advertising, including, but not limited to, advertisements, articles, notices or other
communications published in any newspaper, magazine, or other similar media or television or radio broadcast or any seminar
or meeting where, to Holders’ knowledge, those individuals that have attended have been invited by any such or similar
means of general solicitation or advertising. Holder has had an opportunity to ask questions of and receive satisfactory
answers from the Company, or any person or persons acting on behalf of the Company, concerning the terms and conditions of
the Securities and the Company, and all such questions have been answered to the full satisfaction of Holder. The Company has
not supplied Holder any information regarding the Securities or an investment in the Securities other than as contained in
this Agreement, and Holder is relying on its own investigation and evaluation of the Company and the Securities and not on
any other information.

(b)

The Holder is a limited liability company
duly organized, validly existing and in good standing under the laws of the state of its incorporation and has all requisite corporate
power and authority to carry on its business as now conducted. The Holder is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

(c)

All corporate action has been taken on
the part of the Holder, its officers, directors and stockholders necessary for the authorization, execution and delivery of this
Note. The Holder has taken all corporate action required to make all of the obligations of the Holder reflected in the provisions
of this Note, valid and enforceable obligations.

    	6 

    	 

    

(d)

Each certificate or instrument representing
Securities will be endorsed with the following legend (or a substantially similar legend), unless or until registered under the
1933 Act:

THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE
144 PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES WHICH IS REASONABLY
SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.

Section 4.00

General.

(a)

Payment of Expenses.
The Company agrees to pay all reasonable charges and expenses, including attorneys’ fees and expenses, which may be incurred
by the Holder in successfully enforcing this Note and/or collecting any amount due under this Note.

(b) 

Assignment, Etc.
The Holder may assign or transfer this Note to any transferee at its sole discretion, subject to applicable law. This Note shall
be binding upon the Company and its successors and shall inure to the benefit of the Holder and its successors and permitted assigns.

(c)

Funding Window. The Company agrees
that it will not enter into a convertible debt financing transaction, including any “3(a)10” debt exchanges, with any
party other than the Holder for a period of 10 Trading Days following the Effective Date. The Company agrees that this is a material
term of this Note and any breach of this will result in a default of the Note.

(d)

Governing Law; Jurisdiction.

(i)

Governing Law. This
Note will be governed by and construed in accordance with the laws of the state of California without regard to any conflicts of
laws or provisions thereof that would otherwise require the application of the law of any other jurisdiction.

(ii)

Jurisdiction and Venue. Any dispute
or claim arising to or in any way related to this Note or the rights and obligations of each of the parties shall be brought only
in the state courts of California or in the federal courts located in San Diego County, California.

    	7 

    	 

    

(iii)

No Jury Trial. The Company hereto
knowingly and voluntarily waives any and all rights it may have to a trial by jury with respect to any litigation based on, or
arising out of, under, or in connection with, this Note.

(iv)

Delivery of Process by the Holder to
the Company. In the event of an action or proceeding by the Holder against the Company, and only by the Holder against the
Company, service of copies of summons and/or complaint and/or any other process that may be served in any such action or proceeding
may be made by the Holder via U.S. Mail, overnight delivery service such as FedEx or UPS, email, fax, or process server, or by
mailing or otherwise delivering a copy of such process to the Company at its last known attorney as set forth in its most recent
SEC filing.

(v)

Notices. Any notice required or permitted
hereunder (including Conversion Notices) must be in writing and either personally served, sent by facsimile or email transmission,
or sent by overnight courier. Notices will be deemed effectively delivered at the time of transmission if by facsimile or email,
and if by overnight courier the business day after such notice is deposited with the courier service for delivery.

(e)

No Bad Actor. No officer or director
of the Company would be disqualified under Rule 506(d) of the Securities Act of 1933, as amended, on the basis of being a “bad
actor” as that term is established in the September 13, 2013 Small Entity Compliance Guide published by the SEC.

(f)

Usury. If it shall be found that
any interest or other amount deemed interest due hereunder violates any applicable law governing usury, the applicable rate of
interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The
Company covenants (to the extent that it may lawfully do so) that it will not seek to claim or take advantage of any law that would
prohibit or forgive the Company from paying all or a portion of the principal, fees, liquidated damages or interest on this Note.

(g)

Terms of Future
Financings. So long as this Note is outstanding, upon any issuance by the Company or any of its subsidiaries of any
convertible debt security (whether such debt begins with a convertible feature or such feature is added at a later date) with
any conversion price term more favorable to the holder of such security or with a term in favor of the holder of such
security that was not similarly provided to the Holder in this Note, then the Company shall notify the Holder of such
additional or more favorable conversion price term and such conversion price term, at the Holder's option, shall become a
part of this Note and its supporting documentation. The types of conversion price terms contained in the other security that
may be more favorable to the holder of such security include, but are not limited to, terms addressing conversion discounts
and conversion look back periods.

[Signature Page to Follow.]

    	8 

    	 

    

IN WITNESS WHEREOF, the Company has caused this Convertible
Promissory Note to be duly executed on the day and in the year first above written.

 

	 	JAMMIN JAVA CORP.
	 	 	 
	 	 	 
	 	By:	/s/ Anh Tran
	 	 	 
	 	 	Name:	Anh Tran
	 	 	 
	 	 	Title:	President 
	 	 	 
	 	 	Email:	Anh@marleycoffee.com
	 	 	 
	 	 	Address:	 

 

This Convertible Promissory Note of March 15, 2016 is accepted
this 15 day of March, 2016 by

 

 

Duck Duck Spruce, LLC

 

 

	By:	/s/ Michael Sobeck	 
	 	Name:	Michael Sobeck	 
	 	Title: 	Manager	 

 

    	9 

    	 

    

EXHIBIT A

 

FORM OF CONVERSION NOTICE

 

(To be executed by the Holder in order to convert
all or part of that certain $220,000 Convertible Promissory Note identified as the Note)

 

DATE:

____________________________

 

FROM:

Duck Duck Spruce, LLC

Re:$220,000
Convertible Promissory Note (this “Note”) originally issued by Jammin Java Corp., a Nevada corporation, to Duck Duck
Spruce, LLC on March 15, 2016.

 

The undersigned on behalf of Duck Duck Spruce,
LLC, hereby elects to convert $_______________________ of the aggregate outstanding Principal Sum (as defined in the Note)
indicated below of this Note into shares of Common Stock, $0.001 par value per share, of Jammin Java Corp. (the “Company”),
according to the conditions hereof, as of the date written below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates
and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion,
except for such transfer taxes, if any. The undersigned represents as of the date hereof that, after giving effect to the conversion
of this Note pursuant to this Conversion Notice, the undersigned will not exceed the “Restricted Ownership Percentage”
contained in this Note.

	Conversion information:	 
	 	Date to Effect Conversion
	 	 
	 	 
	 	Aggregate Principal Sum of Note Being Converted
	 	 
	 	 
	 	Aggregate Interest on Amount Being Converted
	 	 
	 	 
	 	Remaining Principal Balance
	 	 
	 	 
	 	Number of Shares of Common Stock to be Issued
	 	 
	 	 
	 	Applicable Conversion Price
	 	 
	 	 
	 	Signature 
	 	 
	 	 
	 	Name
	 	 
	 	 
	 	Address

 

    	10 

    	 

    

EXHIBIT B

WRITTEN CONSENT OF THE BOARD OF DIRECTORS
OF

 JAMMIN JAVA CORP.

 

The undersigned, being directors of Jammin Java Corp., a Nevada
corporation (the “Company”), acting pursuant to the Bylaws of the Corporation, do hereby consent to, approve and adopt
the following preamble and resolutions:

Convertible Note with Duck Duck Spruce, LLC

The board of directors of the Company has reviewed and authorized
the following documents relating to the issuance of a Convertible Promissory Note in the amount of $220,000 with Duck Duck Spruce,
LLC.

The documents agreed to and dated March 15, 2016 are as follows:

5% Convertible Promissory Note of Jammin Java Corp.

Irrevocable Transfer Agent Instructions

Notarized Certificate of Corporate Secretary

Disbursement Instructions

IN WITNESS WHEREOF, the undersigned member(s) of the board
of the Company executed this unanimous written consent as of March 15, 2016.

 

_________________________________

By:

Its:

 

    	11 

    	 

    

EXHIBIT C

 

NOTARIZED CERTIFICATE OF CORPORATE SECRETARY
OF

 

JAMMIN JAVA CORP.

 

(Two Pages)

 

 

The undersigned, _______________________
is the duly elected Corporate Secretary of Jammin Java Corp., a Nevada corporation (the “Company”).

 

I hereby warrant and represent
that I have undertaken a complete and thorough review of the Company’s corporate and financial books and records, including,
but not limited to, the Company’s records relating to the following:

 

(A)

The issuance of
that certain convertible promissory note dated March 15, 2016 (the “Note Issuance Date”) issued to Duck Duck Spruce,
LLC (the “Holder”) in the stated original principal amount of $220,000 (the “Note”);

(B)

The Company’s Board of Directors
duly approved the issuance of the Note to the Holder;

(C)

The Company has not received and
does not contemplate receiving any new consideration from any persons in connection with any later conversion of the Note and the
issuance of the Company’s Common Stock upon any said conversion;

(D)

To my best knowledge and after completing
the aforementioned review of the Company’s stockholder and corporate records, I am able to certify that the Holder (and the
persons affiliated with the Holder) are not officers, directors, or directly or indirectly, ten percent (10.00%) or more stockholders
of the Company and none of said persons has had any such status in the one hundred (100) days immediately preceding the date of
this Certificate;

(E)

The Company’s Board of Directors
have approved duly adopted resolutions approving the Irrevocable Instructions to the Company’s Stock Transfer Agent dated
March 15, 2016;

(F)

Mark the appropriate selection:

___ The Company represents that it
is not a “shell company,” as that term is defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended,
and has never been a shell company, as so defined; or

___ The Company represents that (i)
it was a “shell company,” as that term is defined in Section 12b-2 of the Securities Exchange Act of 1934, as amended,
(ii) since ______, 201__, it has no longer been a shell company, as so defined, and (iii) on _______, 201__, it provided Form
10-type information in a filing with the Securities and Exchange Commission.

 

    	12 

    	 

    

(G)

I understand the constraints imposed
under Rule 144 on those persons who are or may be deemed to be “affiliates,” as that term is defined in Rule 144(a)(1)
of the Securities Act of 1933, as amended.

(H)

I understand that all of the representations
set forth in this Certificate will be relied upon by counsel to Duck Duck Spruce, LLC in connection with the preparation of a legal
opinion.

 

 

I hereby affix my signature to this Notarized
Certificate and hereby confirm the accuracy of the statements made herein.

 

 

	Signed:	 	 	Date:	 
	 	 	 	 	 
	Name:	 	 	Title: 	 

 

 

 

SUBSCRIBED AND SWORN TO BEFORE ME ON THIS
________ DAY OF ____________________ 2016.

 

 

Commission Expires:______________

____________________________________

Notary Public

 

 

    	13 

    	 

    

EXHIBIT D

 

	TO:	Duck Duck Spruce, LLC
	FROM:	Jammin Java Corp.
	DATE:	March 15, 2016
	RE:	Disbursement of Funds

 

Pursuant to that certain Note Purchase Agreement between the
parties listed above and dated March 15, 2016, a disbursement of funds will take place in the amount and manner described below:

 

	Please disburse to:	 
	Amount to disburse:	$200,000
	Form of distribution	Wire
	Name	Jammin Java Corp.
	Company Address	
         

         

         

	Wire Instructions:	
        Bank:

        ABA Routing Number:

        Account Number:

        SWIFT Code:

        Account Name:

        Phone:

 

TOTAL: $200,000

 

For: Jammin Java Corp.

 

 

	By:	 	 	Dated: March 15, 2016

 

Name:

Its:

 

    	14ex4-1.htm

 

Exhibit 4.1

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”) AND APPLICABLE STATE SECURITIES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.

Original Issue Date: March 18, 2016

Fixed Conversion Price (subject to adjustment herein): $0.80

Principal Amount: $222,222

Purchase Amount: $200,000

10% ORIGINAL ISSUE DISCOUNT

CONVERTIBLE PROMISSORY NOTE

DUE SEPTEMBER 18, 2017

THIS 10% ORIGINAL ISSUE DISCOUNT CONVERTIBLE PROMISSORY NOTE is one of a series of duly authorized and validly issued 10% Original Issue Discount Convertible Promissory Notes of CLS Holdings USA Inc., a Nevada corporation (the “Company”), having its principal place of business at 1435 Yarmouth Street, Boulder, Colorado 80304, designated as its 10% Original Issue Convertible Promissory Note due September 18, 2017 (this Note, the “Note” and, collectively with the other Notes of such series, the “Notes”).

FOR VALUE RECEIVED, the Company promises to pay to Old Main Capital, LLC or its registered and permitted assigns (the “Holder”), or shall have paid pursuant to the terms hereunder, the principal sum of $222,222 on September 18, 2017 (the “Maturity Date”) or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof.  This Note is subject to the following additional provisions:

Section 1.       Definitions.  For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement (as defined below) and (b) the following terms shall have the following meanings:

 

  

  

  

“Alternate Consideration” shall have the meaning set forth in Section 5(e).

“Alternate Conversion Price” means 52% of the lowest traded price during the twenty (20) Trading Day-period immediately prior to the applicable Conversion Date.

“Amortization Conversion Rate” means the lower of (a) the Fixed Conversion Price or (b) 75% of the lowest VWAP in the twenty (20) consecutive Trading Days ending on the Trading Day that is immediately prior to the applicable Conversion Date.

“Amortization Payment” shall have the meaning set forth in Section 2(e).

“Bankruptcy Event” means any of the following events: (a) the Company or any material Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any material Subsidiary thereof, (b) there is commenced against the Company or any material Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any material Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any material Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any material Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any material Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any material Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.

“Base Conversion Price” shall have the meaning set forth in Section 5(b).

“Beneficial Ownership Limitation” shall have the meaning set forth in Section 4(d).

“Buy-In” shall have the meaning set forth in Section 4(b)(v).

“Change of Control Transaction” means the occurrence after the date hereof of any of (a) 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 Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company (other than by means of conversion or exercise of the Notes and the Securities issued together with the Notes), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, (d) a replacement at one time or within a three year period of more than one-half of the members of the Board of Directors which is not approved by a majority of those individuals who are members of the Board of Directors on the Original Issue Date (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), or (e) the execution by the Company of an agreement to which the Company  is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (d) above.

 

  

2

  

“Conversion” shall have the meaning ascribed to such term in Section 4.

“Conversion Date” shall have the meaning set forth in Section 4(a).

“Conversion Schedule” means the Conversion Schedule in the form of Schedule 1 attached hereto.

“Conversion Shares” means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.

“Dilutive Issuance” shall have the meaning set forth in Section 5(b).

“Dilutive Issuance Notice” shall have the meaning set forth in Section 5(b).

“DTC” means the Depository Trust Company.

 

“DTC/FAST Program” means the DTC’s Fast Automated Securities Transfer Program.

“DWAC” means Deposit Withdrawal at Custodian as defined by the DTC.

 

“DWAC Eligible” means that (a) the Common Stock is eligible at DTC for full services pursuant to DTC’s Operational Arrangements, including, without limitation, transfer through DTC’s DWAC system, (b) the Company has been approved (without revocation) by the DTC’s underwriting department, (c) the Transfer Agent is approved as an agent in the DTC/FAST Program, (d) the Conversion Shares are otherwise eligible for delivery via DWAC, and (e) the Transfer Agent does not have a policy prohibiting or limiting delivery of the Conversion Shares via DWAC.

“Equity Conditions” means, during the period in question, (a) no Event of Default shall have occurred and be continuing, (b) on each Conversion Date, the average daily dollar volume of the Common Stock for the previous 20 trading days must be greater than $35,000, (c) the Company’s common stock must be DWAC eligible and not subject to “DTC chill”, and (d) the Company has timely filed (or obtained extensions in respect thereof and filed within the applicable grace period) all reports other than Form 8-K reports required to be filed by the Company after the date hereof pursuant to the Exchange Act.

 

  

3

  

“Event of Default” shall have the meaning set forth in Section 6(a).

“Fixed Conversion Price” shall have the meaning set forth in Section 4(b).

“Fundamental Transaction” shall have the meaning set forth in Section 5(e).

“Late Fees” shall have the meaning set forth in Section 2(c).

“Mandatory Default Amount” means the payment of 130% of the outstanding principal amount of this Note and accrued and unpaid interest hereon, in addition to the payment of all other amounts, costs, expenses and liquidated damages due in respect of this Note.

“New York Courts” shall have the meaning set forth in Section 7(d).

“Note Register” shall have the meaning set forth in Section 2(b).

“Notice of Conversion” shall have the meaning set forth in Section 4(a).

“Original Issue Date” means the date of the first issuance of this Note, regardless of any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Notes.

“Purchase Agreement” means the Securities Purchase Agreement, dated as of March 18, 2016 among the Company and the original Holders, as amended, modified or supplemented from time to time in accordance with its terms.

“Registration Rights Agreement” means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, among the Company and the original Holders, in the form of Exhibit B attached to the Purchase Agreement.

“Registration Statement” means a registration statement covering the resale of the Underlying Shares by each Holder.

“Securities Act” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

“Share Delivery Date” shall have the meaning set forth in Section 4(c)(ii).

“Successor Entity” shall have the meaning set forth in Section 5(e).

 

  

4

  

“VWAP” means, for any date, the price determined by the first of the following clauses that applies: (a) if the Common Stock is then listed or quoted on a Trading Market, the daily volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the Trading Market on which the Common Stock is then listed or quoted as reported by Bloomberg L.P. (based on a Trading Day from 9:30 a.m. (New York City time) to 4:02 p.m. (New York City time)), (b)  if the OTC Bulletin Board is a Trading Market, the volume weighted average price of the Common Stock for such date (or the nearest preceding date) on the OTC Bulletin Board, (c) if the Common Stock is not then listed or quoted for trading on the OTC Bulletin Board and if prices for the Common Stock are then reported in the “Pink Sheets” published by OTC Markets Group, Inc. (or a similar organization or agency succeeding to its functions of reporting prices), the most recent bid price per share of the Common Stock so reported, or (d) in all other cases, the fair market value of a share of Common Stock as determined by an independent appraiser selected in good faith by the holders of a majority in interest of the Securities then outstanding and reasonably acceptable to the Company, the fees and expenses of which shall be paid by the Company.

Section 2.       Amortization and Interest.

a) Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of 10% per annum. All interest payments hereunder will be payable in cash, or subject to the Equity Conditions, in cash or Common Stock in the Company’s discretion. Accrued and unpaid interest shall be due and payable on each Conversion Date and on the Maturity Date, or as otherwise set forth herein.

b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made.  Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the “Note Register”).

c) Late Fee.  All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 24% per annum or the maximum rate permitted by applicable law (the “Late Fees”) which shall accrue daily commencing three (3) Trading Days after the date such interest is due hereunder through and including the date of actual payment in full.

d) Prepayment.  At any time upon ten (10) days written notice (a “Prepayment Notice”) to the Holder, but subject to the Holder’s conversion rights set forth herein, the Company may prepay any portion of the principal amount of this Note and any accrued and unpaid interest. If the Company exercises its right to prepay the Note, the Company shall make payment to the Holder of an amount in cash equal to the sum of the then outstanding principal amount of this Note and interest multiplied by 130% within three (3) days after such ten-day period. If the Company does not make such payment within such three-day period, it shall be required to deliver a new Prepayment Notice, and repeat the procedures set forth in this section, prior to pre-paying any portion of this Note. The Holder may continue to convert the Note from the date notice of the prepayment is given until the date of the prepayment and any shares of Common Stock received by the Holder pursuant to such conversions shall remain subject to the Registration Rights Agreement.

 

  

5

  

e) Amortization and Installment Payments. At the earlier of the six (6) month anniversary of the Closing Date or two (2) Trading Days after the Effective Date of the Company’s Registration Statement on Form S-1, the Company shall redeem one twenty-fourth (1/24th) of the face amount of this Note then outstanding and any accrued but unpaid interest on a bi-weekly basis in accordance with the Amortization Schedule attached hereto as Schedule 2 (each, an “Amortization Payment”).  Each Amortization Payment shall, at the option of the Company, be made in cash or, subject to the Equity Conditions, in Common Stock pursuant to the Amortization Conversion Rate. Notwithstanding any provision in this Note to the contrary, the Company will not be required to make any Amortization Payment to the extent any such Amortization Payment would result in the Company making aggregate Amortization Payments in an amount greater than the balance of the Note. Any outstanding unpaid principal and accrued interest on this Note as of the Maturity Date will be due and payable on the Maturity Date and may be paid in cash or, in the Company’s discretion, subject to the Equity Conditions, in Common Stock.

Section 3.       Registration of Transfers and Exchanges.

 

a) Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same.  No service charge will be payable for such registration of transfer or exchange.

 

b) Investment Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations.

c) Reliance on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.

 

  

6

  

 

Section 4.       Conversion.

 

a) Voluntary Conversion. At any time after the Original Issue Date until this Note is no longer outstanding, this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, at any time and from time to time (subject to the conversion limitations set forth in Section 4(d) hereof).  The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a “Notice of Conversion”), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, the “Conversion Date”).  If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder.  No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required. To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion.  The Holder and the Company shall maintain a Conversion Schedule showing the principal amount(s) converted and the date of such conversion(s).  The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion.  In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof.

 

b) Conversion Price.  The conversion price in effect on any Conversion Date shall be equal to 80% of the lowest VWAP in the twenty (20) Trading Days prior to the Closing Date (the “Fixed Conversion Price”).  Notwithstanding anything herein to the contrary, at any time after the occurrence and during the continuance of any Event of Default the Holder may require the Company to, at such Holder’s option and otherwise in accordance with the provisions for conversion herein, convert all or any part of this Note into Common Stock at the Alternate Conversion Price.  All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such measuring period.  Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 6 hereof and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

  

7

  

c)  Mechanics of Conversion.

 

i. Conversion Shares Issuable Upon Conversion of Principal Amount.  The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted and any accrued and unpaid interest to be converted by (y) the Fixed Conversion Price.

ii. Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the “Share Delivery Date”), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the date on which such Conversion Shares are eligible to be sold under Rule 144 without the need for current public information and the Company has received an opinion of counsel to such effect reasonably acceptable to the Company (which opinion the Company will be responsible for obtaining at its own cost) shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Note, and (B) a bank check in the amount of accrued and unpaid interest (if the Company has elected to pay accrued interest in cash). Unless a certificate must be issued with a restricted legend, all certificate or certificates required to be delivered by the Company under this Section 4(c) shall be delivered electronically through the DTC or another established clearing corporation performing similar functions. If the Conversion Date is prior to the date on which such Conversion Shares are eligible to be sold under Rule 144 without the need for current public information the Conversion Shares shall bear a restrictive legend in the following form, as appropriate:

“[NEITHER] THIS SECURITY [NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE] HAS [NOT] BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON EXEMPTIONS FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND APPLICABLE STATE SECURIITES LAWS, AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM, AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS, AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY.  THIS SECURITY [AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY] MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT WITH A REGISTERED BROKER-DEALER OR OTHER LOAN WITH A FINANCIAL INSTITUTION THAT IS AN “ACCREDITED INVESTOR” AS DEFINED IN RULE 501(a) UNDER THE SECURITIES ACT OR OTHER LOAN SECURED BY SUCH SECURITIES.”

 

  

8

  

Notwithstanding the foregoing, commencing on such date that the Conversion Shares are eligible for sale under Rule 144 subject to current public information requirements, the Company, upon request of the Holder and at the expense of the Company, shall obtain a legal opinion to allow for such sales under Rule 144.

 

iii. Failure to Deliver Certificates.  If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date due to the Company's failure to instruct the Transfer Agent to issue the certificates on or before the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice.

 

iv. Obligation Absolute; Partial Liquidated Damages.  The Company’s obligations to instruct the Transfer Agent to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder.  In the event the Holder of this Note shall elect to convert any or all of the outstanding principal or interest amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought.  If the injunction is not granted, the Company shall promptly comply with all conversion obligations herein.   In the absence of seeking such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion.  If the Company fails for any reason to instruct the Transfer Agent to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, or at the option of the Holder, as an amount added to the outstanding balance of the Note, as liquidated damages and not as a penalty, $1,000 per Trading Day for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder’s right to pursue actual damages or declare an Event of Default pursuant to Section 6 hereof for the Company’s failure to instruct the Transfer Agent to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief.  The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.

 

  

9

  

 

v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to instruct the Transfer Agent to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder’s brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a “Buy-In”), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder’s total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its instruction requirements under Section 4(c)(ii).  For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000.  The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss.  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 instruct the Transfer Agent to deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.

 

  

10

  

 

vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to 300% of the Required Minimum for the sole purpose of issuance upon conversion of this Note and payment of interest on this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Notes), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Note and payment of interest hereunder.  The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable, and, at such times as a Registration Statement covering such shares is then effective under the Securities Act, will be registered for public resale in accordance with such Registration Statement.

vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note.  As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Fixed Conversion Price or round up to the next whole share.

viii. Transfer Taxes and Expenses.  The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid.  The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.

 

  

11

  

d) Holder’s Conversion Limitations.  The Company shall not effect any conversion of principal and/or interest of this Note, and a Holder shall not have the right to convert any principal and/or interest of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder’s Affiliates, and any Persons acting as a group together with the Holder or any of the Holder’s Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below).  For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes) beneficially owned by the Holder or any of its Affiliates.  Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder’s determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination.  In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.  For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company’s most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company’s transfer agent setting forth the number of shares of Common Stock outstanding.  Upon the written or oral request of a Holder, the Company shall within two (2) Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding.  In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The “Beneficial Ownership Limitation” shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder.  The Holder, upon not less than 61 days’ prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(d), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(d) shall continue to apply.  Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company.  The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.

 

  

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Section 5.       Certain Adjustments.

 

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

b) Subsequent Equity Sales.  If, at any time while this Note is outstanding,  the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the Fixed Conversion Price (such lower price, the “Base Conversion Price” and such issuances, collectively, a “Dilutive Issuance”) (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Fixed Conversion Price, such issuance shall be deemed to have occurred for less than the Fixed Conversion Price on such date of the Dilutive Issuance), then the Fixed Conversion Price shall be reduced to equal the Base Conversion Price.  Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, if a Dilutive Issuance involves issuance of both Common Stock and Common Stock Equivalents as units, no value will be attributed to Common Stock Equivalents and the Base Conversion Price will be deemed to be a price per each such unit.  Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance.  The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the “Dilutive Issuance Notice”).  For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder is entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.

 

  

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a) Subsequent Rights Offerings.  In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the “Purchase Rights”), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

b) Pro Rata Distributions.  During such time as this Note is outstanding, if the Company shall declare or make any dividend or other distribution of its assets (or rights to acquire its assets) to holders of shares of Common Stock, by way of return of capital or otherwise (including, without limitation, any distribution of cash, stock or other securities, property or options by way of a dividend, spin off, reclassification, corporate rearrangement, scheme of arrangement or other similar transaction) (a "Distribution"), at any time after the issuance of this Note, then, in each such case, the Holder shall be entitled to participate in such Distribution to the same extent that the Holder would have participated therein if the Holder had held the number of shares of Common Stock acquirable upon complete exercise of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date of which a record is taken for such Distribution, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the participation in such Distribution (provided, however, to the extent that the Holder's right to participate in any such Distribution would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficial ownership of any shares of Common Stock as a result of such Distribution to such extent) and the portion of such Distribution shall be held in abeyance for the benefit of the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).

 

  

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c) Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactions consummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a “Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the “Alternate Consideration”) receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note).  For purposes of any such conversion, the determination of the Fixed Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Fixed Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration.  If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction.  The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the “Successor Entity”) to assume in writing all of the obligations of the Company under this Note and the other Transaction Documents (as defined in the Purchase Agreement) in accordance with the provisions of this Section 5(e) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the “Company” shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.

 

  

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d) Calculations.  All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be.  For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.

e) Notice to the Holder.

i. Adjustment to Fixed Conversion Price.  Whenever the Fixed Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Fixed Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment.

 

ii. Notice to Allow Conversion by Holder.  If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.  To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K.  The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein.

 

  

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Section 6.       Events of Default.

a) “Event of Default” means, wherever used herein, any of the following events (whatever the reason for such event and whether such event 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 (A) the principal amount of any Note or (B) interest, liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default is not cured within two (2) Trading Days after notice to the Company;

ii. the Company shall fail to observe or perform any other covenant or agreement contained in the Notes (and other than a breach by the Company of its obligation to instruct the Transfer Agent to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (ix) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) five (5) Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company, or (B) ten (10) Trading Days after the Company has become aware of such failure;

iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated, including without limitation that certain Equity Purchase Agreement to be entered into between the Company and the Holder (and not covered by clause (vi) below);

iv. any representation or warranty made in this Note or in any other Transaction Document, shall be untrue or incorrect in any material respect as of the date when made or deemed made;

v. the Company or any material Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event (a "material Subsidiary shall mean a Subsidiary, the financial failure of which would have a Material Adverse Effect on the Company and all its Subsidiaries taken as a whole) (hereafter, a "Material Subsidiary");

 

  

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vi. the Company or any Material Subsidiary shall default (which default is not the subject of a good faith dispute by the Company) on any of its obligations under 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 that (a) involves an obligation greater than $250,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable;

vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five (5) Trading Days or the transfer of shares of Common Stock through the DTC is no longer available or “chilled” for longer that five (5) Trading Days, which, in each case, shall be extended to up to 15 days if the Company is diligently working to cure such failure after receipt of notice of the problem;

viii. the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);

ix. the Company shall fail for any reason to instruct the Transfer Agent to deliver certificates to a Holder prior to the third (3rd) Trading Day after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company’s intention to not honor requests for conversions of any Notes in accordance with the terms hereof;

x. the Company fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act such that it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable);

xi. the Company or any Material Subsidiary shall: (a) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, (b) admit in writing its inability to pay its debts as they mature, (c) make a general assignment for the benefit of creditors, (d) be adjudicated a bankrupt or be the subject of an order for relief under Title 11 of the United States Code or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute of any other jurisdiction or foreign country, or (e) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or (f) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing;

 

  

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xii. if any order, judgment or decree shall be entered, without the application, approval or consent of the Company or any Material Subsidiary, by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization of the Company or any Material Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the Company or any Material Subsidiary, or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) days;

xiii. the occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the Company or any Material Subsidiary having an aggregate fair value or repair cost (as the case may be) in excess of $500,000 individually or in the aggregate, and any such levy, seizure or attachment shall not be set aside, bonded or discharged within thirty (30) days after the date thereof, unless the Company shall have raised additional capital during such thirty (30) day period sufficient to cover the loss;

xiv. the Company shall fail to maintain sufficient reserved shares pursuant to Section 4.10 of the Purchase Agreement;

xv. the Company shall fail to file a preliminary Schedule 14A or Schedule 14C with the Commission to increase the number of authorized shares of Common Stock pursuant to Section 4.10 of the Purchase Agreement within fifteen (15) days following receipt of notice by the Holder;

xvi. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $50,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of forty-five (45) calendar days; or

xvii. the Company shall replace the Transfer Agent without the consent of the Holder, which consent shall not be unreasonably withheld or delayed.

b) Remedies Upon Event of Default. Subject to the Beneficial Ownership Limitation as set forth in Section 4(d), if any Event of Default occurs, then the outstanding principal amount of this Note, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become, at the Holder’s election, immediately due and payable in cash at the Mandatory Default Amount.  After the occurrence of any Event of Default that results in the eventual acceleration of this Note, the interest rate on this Note shall accrue at an additional interest rate equal to the lesser of 2% per month (24% per annum) or the maximum rate permitted under applicable law.  Upon the payment in full of the Mandatory Default Amount, the Holder shall promptly surrender this Note to or as directed by the Company.  In connection with such acceleration described herein, the Holder need not provide, and the Company hereby waives, any presentment, demand, protest or other notice of any kind, and the Holder may immediately and without expiration of any grace period enforce any and all of its rights and remedies hereunder and all other remedies available to it under applicable law.  Such acceleration may be rescinded and annulled by Holder at any time prior to payment hereunder and the Holder shall have all rights as a holder of the Note until such time, if any, as the Holder receives full payment pursuant to this Section 6(b).  No such rescission or annulment shall affect any subsequent Event of Default or impair any right consequent thereon.

 

  

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Section 7.            Miscellaneous.

 

a) 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 personally, by email, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address or email addresses set forth on the signature page hereto, or such other email addresses or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 7(a); provided that the failure to deliver a notice to each email address set forth on the signature page hereto shall not render such notice invalid so long as such notice was delivered to at least one of the email addresses set forth on the signature page hereto.  Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by email, or sent by a nationally recognized overnight courier service addressed to each Holder at the email addresses or address of the Holder appearing on the books of the Company, or if no such email addresses or address appears on the books of the Company, at the principal place of business of such Holder, as set forth in the Purchase 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 email addresses set forth on the signature pages attached hereto prior to 12:00 p.m. (New York City time) on any date and confirmed by telephone, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via email at the email addresses set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 12:00 p.m. (New York City time) on any Trading Day and confirmed by telephone, (iii) the second (2nd) 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.

 

b) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed.  This Note is a direct debt obligation of the Company.  This Note ranks pari passu with all other Notes now or hereafter issued under the terms set forth herein.

 

c) Lost or Mutilated Note.  If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.

 

  

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d) Governing Law.  All questions concerning the construction, validity, enforcement and interpretation of this Note 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 conflict of laws thereof.  Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the “New York Courts”).  Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), 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 such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding.  Each party hereby irrevocably waives 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 such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, 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 Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.

 

e) Amendments; Waiver.  Unless otherwise provided for hereunder, no provision of this Note may be amended, modified, supplemented or waived without the written consent of the Company and the Holder.  Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note.  The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion.

 

f) Severability.  If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and the parties shall use their reasonable efforts to reform any such invalid, illegal or unenforceable term to best express the original intentions of the parties.  If any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances.

 

  

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g) Usury. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.

 

h) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief.  The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder’s right to pursue actual damages for any intentional failure by the Company to comply with the terms of this Note.  The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company’s compliance with the terms and conditions of this Note.

i) Next Business Day.  Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.

j) Headings.  The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.

*********************

(Signature Pages Follow)

 

  

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IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by a duly authorized officer as of the date first above indicated.

	
CLS Holdings USA Inc.

 

 

 

	
Address for Notice:

 

CLS Holdings USA, Inc.

11767 S. Dixie Highway, Suite 115

Miami, Florida  33156

 

	
By:/s/Jeffrey Binder                 

    Name:  Jeffrey I. Binder

    Title:  Chairman and CEO

 

 

Phone Number (for confirmation of receipt of emails):

 

(305) ___________________________

 

 

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

 

Broad and Cassel

1 N. Clematis Street, Suite 500

West Palm Beach, FL 33401

Attention: Kathleen L. Deutsch, P.A.

 

 

	
conversionnotice@broadandcassel.com

 

 

  

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ANNEX A

NOTICE OF CONVERSION

The undersigned hereby elects to convert principal under the 10% Original Issue Discount Convertible Promissory Note due September 18, 2017 of CLS Holdings USA Inc., a Florida corporation (the “Company”), into shares of common stock (the “Common Stock”) of the Company according to the conditions hereof, as of the date written below.  If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith.  No fee will be charged to the holder for any conversion, except for such transfer taxes, if any.

By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.

The undersigned agrees to offer for sale and sell the Common Stock in compliance with all applicable securities laws, including but not limited to, offering the Common Stock for sale in accordance with the "plan of distribution" contained in the Registration Statement, suspending sales if the Company advises that the Prospectus is no longer effective or current, and complying with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock.

Conversion calculations:

Date to Effect Conversion:

Principal Amount of Note to be Converted:

Payment of Interest in Common Stock __ yes  __ no

If yes, $_____ of Interest Accrued on Account of Conversion at Issue.

Number of Shares of Common Stock to be Issued:

Signature:

Name:

Delivery Instructions:

 

 

 

  

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Schedule 1

CONVERSION SCHEDULE

This 10% Original Issue Discount Convertible Promissory Note due on September 18, 2017 in the original principal amount of $222,222 is issued by CLS Holdings USA Inc., a Nevada corporation.  This Conversion Schedule reflects conversions made under Section 4 of the above referenced Note.

Dated:

	
 

Date of Conversion

(or for first entry, Original Issue Date)

 

	
 

Amount of Conversion

	
 

Aggregate Principal Amount Remaining Subsequent to Conversion

(or original Principal Amount)

 

	
 

Company Attest

	  	
  

 

	  	  
	  	
  

 

	  	  
	
 

	
 

 

	 	  
	  	
  

 

	  	  
	  	
  

 

	  	  
	  	
  

 

	  	  
	  	
  

 

	  	  
	  	
  

 

	  	  
	  	
  

 

	  	  

 

 

  

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Schedule 2

AMORTIZATION SCHEDULE

 

	
Transaction

	
Amount

	
Timing

	
Principal Amount:

	
$222,222

	
March 18, 2016

	
Amortization Payments

	  	  
	
First Payment

	  	  
	
Second Payment

	  	  
	
Third Payment

	  	  
	
Fourth payment

	  	  
	
Fifth Payment

	  	  
	
Sixth Payment

	  	  
	
Seventh Payment

	  	  
	
Eighth Payment

	  	  
	
Ninth Payment

	  	  
	
Tenth Payment

	  	  
	
Eleventh Payment

	  	  
	
Twelfth Payment

	  	  
	
Thirteenth Payment

	  	  
	
Fourteenth Payment

	  	  
	
Fifteenth Payment

	  	  
	
Sixteenth payment

	  	  
	
Seventeenth Payment

	  	  
	
Eighteenth Payment

	  	  
	
Nineteenth Payment

	  	  
	
Twentieth Payment

	  	  
	
Twenty-First Payment

	  	  
	
Twenty-Second Payment

	  	  
	
Twenty-Third Payment

	  	  
	
Twenty-Fourth Payment

	  	  

 

  

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