Document:

exhib10-1.htm

Exhibit 10.1

 

TapImmune Inc.

 

Convertible Promissory Note

 

 

Issuance Date: October 15, 2012 U.S. $[___]

FOR VALUE RECEIVED, TapImmune Inc., a Nevada corporation (the “Company”), hereby promises to pay to the order of [___], a [___] corporation, or its registered assigns (the “Holder”), the initial principal sum of $[___] (the “Original Principal Amount”), and any additional advances and other amounts that may accrue or become due under the terms of this Convertible Promissory Note (this “Note”) when due, whether upon the Maturity Date, on any Installment Date with respect to the Installment Amount due on such Installment Date (each as defined below), acceleration, redemption or otherwise (in each case in accordance with the terms hereof), and to pay interest (“Interest”) on any Outstanding Balance (as defined below) at the applicable interest rate as set forth herein, whether upon any Installment Date, the Maturity Date or acceleration, conversion, redemption or otherwise (in each case in accordance with the terms hereof). Certain capitalized terms used herein are defined in Section 27 hereof. For purposes hereof, the term “Outstanding Balance” means the Original Principal Amount, as reduced or increased, as the case may be, pursuant to the terms hereof for redemption, conversion or otherwise, plus any accrued but unpaid Interest, collection and enforcements costs, and any other fees or charges (including without limitation Late Charges (as defined below)) incurred under this Note or under the Agreement (defined below).

 

This Note is issued pursuant to that certain Securities Purchase Agreement dated October 15, 2012, as the same may be amended from time to time (the “Agreement”), by and between the Company and the Holder.

 

1. PAYMENTS OF PRINCIPAL; PREPAYMENT. On each Installment Date (which includes the Maturity Date), the Company shall pay to the Holder an amount equal to the Installment Amount due on such Installment Date in accordance with Section 8. Additionally, so long as no Event of Default (as defined below) shall have occurred, the Company may, in its sole and absolute discretion and upon giving the Holder not less than five (5) Trading Days written notice (a “Prepayment Notice”), pay in cash all or any portion of the Outstanding Balance at any time prior to the Maturity Date; provided that in the event the Company elects to prepay all or any portion of the Outstanding Balance, it shall pay to the Holder 125% of the portion of the Outstanding Balance the Company elects to prepay (the “Prepayment Premium”).

 

2. INTEREST; INTEREST RATE. The Company acknowledges that the Original Principal Amount of this Note exceeds the Purchase Price (as defined in the Agreement) and that such excess consists of (a) an original issue discount of $[___] and (b) the Transaction Expense Amount (as defined in the Agreement) in the amount of $[___], both of which shall be fully earned and charged to the Company as of the Issuance Date and paid to the Holder as part of the Original Principal Amount as set forth in this Note. Interest on the Outstanding Balance shall accrue from the date set forth above as the Issuance Date (the “Issuance Date”) at the rate of eight percent (8%) per annum, provided that upon the occurrence of an Event of Default, Interest shall accrue on the Outstanding Balance at the rate of eighteen percent (18%) per annum, as set forth in Section 4.2(d) hereof. All Interest calculations hereunder shall be computed on the basis of a 360-day year comprised of twelve (12) thirty (30) day months, shall compound daily and shall be payable in accordance with the terms of this Note.  Notwithstanding any provision to the contrary herein, in no event shall the applicable interest rate at any time exceed the maximum interest rate allowed under applicable law. All payments owing hereunder shall be in lawful money of the United States of America or Conversion Shares, as provided for herein, and delivered to Holder at the address furnished to the Company for that purpose. All payments shall be applied first to (a) costs of collection, if any, then to (b) fees and charges, if any, then to (c) accrued and unpaid Interest, and thereafter to (d) principal.

 

3. CONVERSION OF NOTE. At the option of the Holder, this Note is convertible into validly issued, fully paid and non-assessable shares of Common Stock, on the terms and conditions set forth in this Section 3.

 

3.1. Conversion Right.

 

(a) Subject to the provisions of Section 3.4, at any time or times on or after the Issuance Date, the Holder shall be entitled to convert any portion of the Outstanding Balance into validly issued, fully paid and non-assessable shares of Common Stock (the “Section 3 Conversion Shares”) in accordance with Section 3.3, calculated using the Conversion Rate (as defined below).

 

  

  

  

(b) The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares issuable upon each conversion of this Note shall be aggregated for purposes of determining whether such conversion would result in the issuance of a fractional share.  If the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall round such fraction of a share of Common Stock up to the nearest whole share. The Company shall pay any and all transfer, stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Section 3 Conversion Shares.

 

3.2. Conversion Rate. The number of Section 3 Conversion Shares issuable upon conversion of any portion of the Outstanding Balance pursuant to Section 3.1(a) shall be determined by dividing (x) the applicable Conversion Amount by (y) the Conversion Price (such formula is referred to herein as the “Conversion Rate”).

 

(a) “Conversion Amount” means the portion of the Outstanding Balance to be converted.

 

(b) “Conversion Price” means, as of any Conversion Date or other date of determination, $0.12, subject to adjustment as provided herein.

 

3.3. Mechanics of Conversion.

 

(a) Conversion Prior to Maturity Date. To convert any Conversion Amount into shares of Common Stock on any date, the Holder shall deliver (whether via email, facsimile or otherwise), for receipt on or prior to 11:59 p.m., New York time, on such date (a “Conversion Date”), a copy of an executed notice of conversion substantially in the form attached hereto as Exhibit A (the “Conversion Notice”) to the Company. If required by Section 3.3(c), within five (5) Trading Days following a conversion of this Note as aforesaid, the Holder shall surrender this Note to a reputable overnight courier for delivery to the Company (or an indemnification undertaking with respect to this Note in the case of its loss, theft or destruction as contemplated by Section 14.2). On or before the first (1st) Trading Day following the date of receipt of a Conversion Notice, the Company shall transmit by facsimile or email an acknowledgment of confirmation, in the form attached hereto as Exhibit B, of receipt of such Conversion Notice to the Holder and the Company’s transfer agent (the “Transfer Agent”). On or before the close of business on the third (3rd) Trading Day following the date of receipt of a Conversion Notice (the “Delivery Date”), the Company shall, provided that all DWAC Eligible Conditions are then satisfied, credit the aggregate number of Section 3 Conversion Shares to which the Holder shall be entitled to the account specified on the Conversion Notice via the DWAC system. If all DWAC Eligible Conditions are not then satisfied, the Company shall instead issue and deliver (via reputable overnight courier) to the address as specified in the Conversion Notice, a certificate, registered in the name of the Holder or its designee, for the number of Section 3 Conversion Shares to which the Holder shall be entitled; provided, however, that, in addition to any other rights or remedies that Holder may have under this Note, such number of shares issued by certificate rather than via the DWAC system shall be increased by 5% for each conversion  that occurs more than six (6) months after the Issuance Date.  For the avoidance of doubt, the Company has not met its obligation to deliver Section 3 Conversion Shares by the Delivery Date unless the Holder or its broker, as applicable, has actually received the shares electronically into the applicable account, or if the DWAC Eligible Conditions are not then satisfied, has actually received the certificate representing the applicable Section 3 Conversion Shares no later than the close of business on the relevant Delivery Date pursuant to the terms set forth above. If this Note is physically surrendered for conversion pursuant to Section 3.3(c) and the Outstanding Balance of this Note is greater than the principal portion of the Conversion Amount being converted, then the Company shall as soon as practicable and in no event later than three (3) Trading Days after receipt of this Note and at its own expense, issue and deliver to the Holder (or its designee) a new Note (in accordance with Section 14.4)) representing the Outstanding Balance not converted. The Person or Persons entitled to receive the shares of Common Stock issuable upon a conversion of this Note shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date. In the event of a partial conversion of this Note pursuant hereto, the principal amount converted shall be deducted from the Installment Amount(s) relating to the Installment Date(s) as set forth in the applicable Conversion Notice.

 

(b) Company’s Failure to Timely Deliver. Failure for any reason whatsoever to issue any portion of the Section 3 Conversion Shares to Holder by the applicable Delivery Date in the manner required under this Note shall be a “Conversion Failure”. Upon the occurrence of a Conversion Failure, in addition to all other remedies available to the Holder, (1) the Company shall pay in cash to the Holder on each day after such third (3rd) Trading Day that the issuance of such shares of Common Stock is not timely effected an amount equal to the greater of (A) $2,000.00 per day and (B) 2% of the product of (i) the sum of the number of Section 3 Conversion Shares not issued to the Holder on a timely basis and to which the Holder is entitled multiplied by (ii) the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the last possible date which the Company could have issued such shares of Common Stock to the Holder without violating Section 3.3(a); and (2) the Holder, upon written notice to the Company, may void its Conversion Notice with respect to, and retain or have returned (as the case may be) any portion of this Note that has not been converted pursuant to such Conversion Notice, provided that the voiding of a Conversion Notice shall not affect the Company’s obligations to make any payments which have accrued or are owed to the Holder prior to the date of such notice pursuant to this Section 3.3(b) or otherwise. Notwithstanding the foregoing, a Conversion Failure shall not exist to the extent Section 3 Conversion Shares are not issued by the Company in order to comply with the limitations set forth in Section 3.4 hereof. Upon the occurrence of a Conversion Failure (unless Holder elects to void the Conversion Notice), in addition to such failure being considered an Event of Default hereunder, for purposes of Section 7.1 the Company shall also be deemed to have issued the Section 3 Conversion Shares to Holder on the latest possible permitted date and pursuant to the terms set forth in this Section 3, with Holder entitled to all the rights and privileges associated with such deemed issued shares (the “Deemed Conversion Issuance”).

 

  

  

  

(c) Registration; Book-Entry. The Company shall maintain a register (the “Register”) for the recordation of the name and address of the holders of all or any portion of this Note and the principal amount of this Note held by such holder (the “Registered Note”). The entries in the Register shall be conclusive and binding for all purposes absent manifest error. The Company and the holder shall treat each Person whose name is recorded in the Register as the owner of this Note for all purposes (including, without limitation, the right to receive payments of principal and Interest hereunder) notwithstanding notice to the contrary. The Registered Note may be assigned, transferred or sold in whole or in part only by registration of such assignment or sale on the Register. Upon its receipt of a request to assign, transfer or sell all or part of the Registered Note by the holder thereof, the Company shall record the information contained therein in the Register and issue one or more new Registered Notes in the same aggregate principal amount as the principal amount of the surrendered Registered Note to the designated assignee or transferee pursuant to Section 14. Notwithstanding anything to the contrary in this Section 3.3(c), the Holder may assign this Note or any portion thereof to its Affiliate without delivering a request to assign or sell this Note to the Company and the recordation of such assignment or sale in the Register (a “Related Party Assignment”); provided, that (A) the Company may continue to deal solely with such assigning or selling Holder unless and until such Holder has delivered a request to assign or sell this Note or portion thereof to the Company for recordation in the Register; (B) the failure of such assigning or selling Holder to deliver a request to assign or sell such Note or portion thereof to the Company shall not affect the legality, validity, or binding effect of such assignment or sale; and (C) such assigning or selling Holder shall, acting solely for this purpose as a non-fiduciary agent of the Company, maintain a register (the “Related Party Register”) comparable to the Register on behalf of the Company, and any such assignment or sale shall be effective upon recordation of such assignment or sale in the Related Party Register.  Notwithstanding anything to the contrary set forth in this Section 3, upon conversion of any portion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Company unless (A) the entire Outstanding Balance of this Note is being converted (in which event this Note shall be delivered to the Company as contemplated by Section 3.3(a)) or (B) the Holder has provided the Company with prior written notice (which notice may be included in a Conversion Notice) requesting reissuance of this Note upon physical surrender of this Note. The Holder and the Company shall maintain records showing the Outstanding Balance and Late Charges converted and/or paid (as the case may be) and the dates of such conversions and/or payments (as the case may be) or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon conversion.

 

3.4. Limitations on Conversions.

 

(a) Notwithstanding anything to the contrary contained in this Note (except as set forth below in this subsection), this Note shall not be convertible by the Holder hereof, and the Company shall not effect any conversion of this Note or otherwise issue any shares of Common Stock pursuant to Section 3 or Section 8 hereof, to the extent (but only to the extent) that the Holder together with any of its Affiliates would beneficially own in excess of 4.99% (the “Maximum Percentage”) of the Common Stock outstanding.  Notwithstanding the forgoing, (i) if any of the DWAC Eligible Conditions are not then satisfied, the term “4.99%” shall be replaced in the preceding sentence with “9.99%” at such time as the Market Capitalization of the Common Stock is less than $3,000,000.00, but (ii) if all of the DWAC Eligible Conditions are then satisfied, the term “4.99%” shall be replaced in the preceding sentence with “9.99%” only at such time as the Market Capitalization of the Common Stock is less than $1,500,000.00.  For the avoidance of any doubt, notwithstanding any other provision contained herein, if the term “4.99%” is replaced with “9.99%” pursuant to the preceding sentence, such change to “9.99%” shall be permanent.  For purposes of this Agreement, the term “Market Capitalization of the Common Stock” shall mean the product equal to (i) the average VWAP of the Common Stock for the immediately preceding thirty (30) Trading Days, multiplied by (ii) the aggregate number of outstanding shares of Common Stock as reported on the Company’s most recently filed Form 10-Q or Form 10-K.

 

(b) To the extent the limitation set forth in subsection (a) immediately above applies, the determination of whether this Note shall be convertible (vis-à-vis other convertible, exercisable or exchangeable securities owned by the Holder or any of its Affiliates) and of which such securities shall be convertible, exercisable or exchangeable (as among all such securities owned by the Holder and its Affiliates) shall, subject to such Maximum Percentage limitation, be determined on the basis of the first submission to the Company for conversion, exercise or exchange (as the case may be). No prior inability to convert this Note, or to issue shares of Common Stock, pursuant to this Section 3.4 shall have any effect on the applicability of the provisions of this Section 3.4 with respect to any subsequent determination of convertibility. For purposes of this Section 3.4, beneficial ownership and all determinations and calculations (including, without limitation, with respect to calculations of percentage ownership) shall be determined in accordance with Section 13(e) of the 1934 Act (as defined in the Agreement) and the rules and regulations promulgated thereunder. The provisions of this Section 3.4 shall be implemented in a manner otherwise than in strict conformity with the terms of this Section 3.4 to correct this Section 3.4 (or any portion hereof) which may be defective or inconsistent with the intended Maximum Percentage beneficial ownership limitation herein contained or to make changes or supplements necessary or desirable to properly give effect to such Maximum Percentage limitation. The limitations contained in this Section 3.4 shall apply to a successor Holder of this Note. The holders of Common Stock shall be third party beneficiaries of this Section 3.4 and the Company may not waive this Section 3.4 without the consent of holders of a majority of its Common Stock. For any reason at any time, upon the written or oral request of the Holder, the Company shall within one (1) Trading Day confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding, including by virtue of any prior conversion or exercise of convertible or exercisable securities into Common Stock, including, without limitation, pursuant to this Note.

 

4. RIGHTS UPON EVENT OF DEFAULT.

 

4.1. Event of Default. Each of the following events shall constitute an “Event of Default”:

 

(a) Failure to Pay. The Company shall fail to make any payment when due and payable under the terms of this Note including, without limitation, any payment of costs, fees, interest, principal (including, without limitation, the Company’s failure to deliver any Installment Amount when due or to pay any redemption payments or amounts hereunder), or other amount due hereunder or under any other Transaction Document (as defined in the Agreement).

 

  

  

  

(b) Failure to Deliver or Process Shares. The Company (or its Transfer Agent, as applicable) (i) fails to issue Section 3 Conversion Shares by the Delivery Date; (ii) fails to issue any Pre-Installment Conversion Shares, Post-Installment Conversion Shares, Pre-Installment Certificated Shares, or Post-Installment Certificated Shares, as applicable, within the time periods required by Section 8; (iii) announces (or threatens in writing) that it will not honor its obligation to issue shares to Holder in accordance with Section 3 and/or Section 8 of this Note; (iv) fails to transfer or cause its Transfer Agent to transfer or issue (electronically or in certificated form, as applicable) any Section 3 Conversion Shares, Pre-Installment Conversion Shares, Post-Installment Conversion Shares, Pre-Installment Certificated Shares, or Post-Installment Certificated Shares, as applicable, issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note; (v) directs its Transfer Agent not to transfer, or delays, impairs, and/or hinders its Transfer Agent in transferring or issuing (electronically or in certificated form, as applicable) any Section 3 Conversion Shares, Pre-Installment Conversion Shares, Post-Installment Conversion Shares, Pre-Installment Certificated Shares, or Post-Installment Certificated Shares, as applicable, to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note; or (vi) as applicable, fails to remove (or directs its Transfer Agent not to remove or impairs, delays, and/or hinders its Transfer Agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any Section 3 Conversion Shares, Pre-Installment Certificated Shares or Post-Installment Certificated Shares as and when required by this Note (or makes any written announcement, statement or threat that it does not intend to honor any such obligations).

 

(c) Judgment.  A final judgment or judgments (excluding debt settlements pursuant to Section 3(a)(10) of the 1933 Act) for the payment of money aggregating in excess of $100,000 are rendered against the Company and/or any of its Subsidiaries and which judgments are not, within thirty (30) calendar days after the entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within thirty (30) calendar days after the expiration of such stay; provided, however, any judgment which is covered by insurance or an indemnity from a credit worthy party shall not be included in calculating the $100,000 amount set forth above so long as the Company provides the Holder a written statement from such insurer or indemnity provider (which written statement shall be reasonably satisfactory to the Holder) to the effect that such judgment is covered by insurance or an indemnity and the Company or such Subsidiary (as the case may be) will receive the proceeds of such insurance or indemnity within thirty (30) calendar days of the issuance of such judgment.

 

(d) Breach of Obligations; Covenants. The Company or its Subsidiaries, if any, shall fail to observe or perform any other covenant, obligation, condition or agreement contained in this Note or any of the other Transaction Documents, including without limitation (i) all reporting covenants and covenants to timely file all required quarterly and annual reports and any other filings required pursuant to Rule 144, and (ii) strict compliance with all provisions of Sections 3, 8, and 10 of this Note.

 

(e) Breach of Representations and Warranties. Any representation, warranty, certificate, or other statement (financial or otherwise) made or furnished by or on behalf of the Company to the Holder in writing included in this Note or in connection with any of the Transaction Documents, or as an inducement to the Holder to enter into this Note or any of the other Transaction Documents, shall be false, incorrect, incomplete or misleading in any material respect when made or furnished or becomes false thereafter.

 

(f) Receiver or Trustee. The Company shall make an assignment for the benefit of creditors, or apply for, or consent to, or otherwise be subject to, the appointment of a receiver, trustee, liquidator, assignee, custodian, sequestrator, or other similar official for a substantial part of its property or business.

 

(g) Failure to Pay Debts. If any of the Company’s assets are assigned to its creditors, or upon the occurrence of any default under, redemption of or acceleration prior to maturity of any Indebtedness of the Company or any of its Subsidiaries in an amount equal to $200,000 or more.

 

(h) Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Company.

 

(i) Delisting of Common Stock. The suspension from trading or the failure of the Common Stock to be trading on an Eligible Market for a period of five (5) consecutive Trading Days or for more than an aggregate of ten (10) Trading Days in any 365-day period.

 

(j) Liquidation. Any dissolution, liquidation, or winding up of the Company or any substantial portion of its business.

 

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

 

  

  

  

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

 

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

 

(n) Reverse Split. The Company effectuates a reverse split of its Common Stock without twenty (20) Trading Days prior written notice to the Holder.

 

(o) Replacement of Transfer Agent. In the event that the Company proposes to replace its Transfer Agent, the Company fails to provide, prior to the effective date of such replacement, a fully executed Transfer Agent Letter (as defined by the Agreement) in a form as required to be initially delivered pursuant to the Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock equal to the Transfer Agent Reserve (as defined in the Transfer Agent Letter)) signed by the successor transfer agent and delivered to the Company and the Holder.

 

(p) Governmental Action. If any governmental or regulatory authority takes or institutes any action against the Company, a Subsidiary, or an executive officer or director of the Company, that will materially affect the Company’s financial condition, operations or ability to pay or perform the Company’s obligations under this Note.

 

(q) Share Reserve. The Company’s failure to maintain the Share Reserve (as defined in the Agreement).

 

(r) Certification of Equity Conditions. A false or inaccurate certification (including, without limitation, a false or inaccurate deemed certification) by the Company that the Equity Conditions are satisfied, that there has been no Equity Conditions Failure or as to whether any Event of Default has occurred.

 

(s) DWAC Eligibility. The failure of any of the DWAC Eligible Conditions to be satisfied at any time during which the Company has obligations under this Note.

 

(t) Cross Default. Notwithstanding anything to the contrary contained in this Note or the other Transaction Documents, a breach or default by the Company of any covenant or other term or condition contained in (i) any of the other Transaction Documents, or (ii) any Other Agreements (defined below); shall, at the option of the Holder, be considered a default under this Note, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note. The Company hereby agrees to notify the Holder in writing within three (3) Trading Days after any such default; provided, however, any filing of an 8-K that identifies any such default shall not be deemed notice under this Section 4.1(t). “Other Agreements” means, collectively, (1) all existing and future agreements and instruments between, among or by the Company (or a Subsidiary), on the one hand, and the Holder (or an Affiliate of Holder), on the other hand, and (2) any financing agreement or a material agreement that affects the Company’s ongoing business operations. For the avoidance of doubt, all existing and future loan transactions between the Company and the Holder and its Affiliates will be cross-defaulted with each other loan transaction and with all other existing and future debt of the Company to the Holder.

 

 

  

  

  

Each subsection of this Section 4.1 shall be interpreted and applied independently, and no such subsection shall be deemed to limit or qualify any other subsection in any manner whatsoever.

 

4.2. Notice of an Event of Default; Redemption Right.

 

(a) Upon the occurrence of an Event of Default, the Company shall within one (1) Trading Day deliver written notice thereof via facsimile and reputable overnight courier (with next day delivery specified) (an “Event of Default Notice”) to the Holder.

 

(b) At any time and from time to time after the earlier of the Holder’s receipt of an Event of Default Notice and the Holder becoming aware of an Event of Default, the Holder may require the Company to redeem (regardless of whether such Event of Default has been cured) all or any portion of this Note by delivering written notice thereof (the “Event of Default Redemption Notice”) to the Company, which Event of Default Redemption Notice shall indicate the portion of the Outstanding Balance the Holder is electing to redeem (the “Default Redemption Amount”). Redemptions required by this Section 4.2(b) shall be made in accordance with the provisions of Section 10. Notwithstanding anything to the contrary in this Section 4, but subject to Section 3.4, until the Default Redemption Amount (together with Late Charges thereon) is paid in full pursuant to and in accordance with the terms set forth in Section 10; the Outstanding Balance (together with any Late Charges thereon), may be converted, in whole or in part from time to time, by the Holder into Common Stock pursuant to the other terms of this Note. In the event of a partial redemption of this Note pursuant hereto, the applicable Default Redemption Amount shall be deducted from the Installment Amount(s) relating to the applicable Installment Date(s) as set forth in the Event of Default Redemption Notice. Notwithstanding the foregoing, this Section 4.2(b) shall not apply to an Event of Default arising under Section 4.1(h) (Bankruptcy).

 

(c) Upon the occurrence of an Event of Default occurring under Section 4.1(h) due to the institution by or against the Company of any bankruptcy proceeding for relief under any bankruptcy law or any law for the relief of debtors, (i) the Outstanding Balance shall automatically increase to an amount equal to the Outstanding Balance immediately prior to such Event of Default multiplied by the Redemption Premium, and (ii) all amounts owed under this Note shall accelerate and be immediately due and payable, all without the need for any further notice to or action by any party hereunder.

 

(d) Upon the occurrence of any Event of Default, this Note shall thereafter accrue interest at the rate of 1.5% per month (or 18% per annum), compounding daily, whether before or after judgment; provided, however, that notwithstanding any provision to the contrary herein, in no event shall the applicable interest rate at any time exceed the maximum interest rate allowed under applicable law.

 

(e) Notwithstanding and in addition to any other provision contained herein, if Section 3 Conversion Shares are delivered to Holder in certificated form rather than electronic form, the Outstanding Balance shall automatically increase by an amount equal to the decline in Value (as defined below), if any, of such shares between the time the certificate representing such shares was required to be delivered to the Holder hereunder, and the date the certificate representing such shares becomes Free Trading. The Company agrees to use it best efforts to cause such shares to become Free Trading. “Value”, as used in this subsection, shall mean the five (5) Trading Day trailing average VWAP for the applicable shares.

 

5. RIGHTS UPON FUNDAMENTAL TRANSACTION.

 

5.1. Assumption. The Company shall not enter into or be party to a Fundamental Transaction unless (i) the Successor Entity assumes in writing all of the obligations of the Company under this Note and the other Transaction Documents in accordance with the provisions of this Section 5.1 pursuant to written agreements in form and substance satisfactory to the Holder and approved by the Holder, in its sole discretion, prior to such Fundamental Transaction, including agreements to 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, including, without limitation, having a principal amount and interest rate equal to the principal amounts then outstanding and the interest rates of this Note, having similar conversion rights as this Note and having similar ranking to this Note, and being satisfactory to the Holder in its sole discretion, (ii) the Successor Entity is a publicly traded corporation whose common stock is quoted on or listed for trading on an Eligible Market, and (iii) the Company has received the Holder’s prior written consent to enter into such Fundamental Transaction. Upon the occurrence of any 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. Upon consummation of a Fundamental Transaction, the Successor Entity shall deliver to the Holder confirmation that there shall be issued upon conversion or redemption of this Note at any time after the consummation of such Fundamental Transaction, in lieu of the shares of the Company’s Common Stock (or other securities, cash, assets or other property (except such items still issuable under Section 6, which shall continue to be receivable thereafter) issuable upon the conversion or redemption of this Note prior to such Fundamental Transaction), such shares of the publicly traded common stock (or their equivalent) of the Successor Entity (including its Parent Entity) which the Holder would have been entitled to receive upon the happening of such Fundamental Transaction had this Note been converted immediately prior to such Fundamental Transaction (without regard to any limitations on the conversion of this Note), as adjusted in accordance with the provisions of this Note. The provisions of this Section 5 shall apply similarly and equally to successive Fundamental Transactions and shall be applied without regard to any limitations on the conversion of this Note.

 

  

  

  

5.2. Notice of a Fundamental Transaction; Redemption Right. No sooner than twenty (20) Trading Days nor later than ten (10) Trading Days prior to the consummation of a Fundamental Transaction, but not prior to the public announcement of such Fundamental Transaction, the Company shall deliver written notice thereof via facsimile and reputable overnight courier to the Holder (a “Fundamental Transaction Notice”). At any time during the period beginning after the Holder’s receipt of a Fundamental Transaction Notice or the Holder becoming aware of a Fundamental Transaction if a Fundamental Transaction Notice is not delivered to the Holder in accordance with the immediately preceding sentence (as applicable) and ending on the later of twenty (20) Trading Days after (i) consummation of such Fundamental Transaction and (ii) the date of receipt of such Fundamental Transaction Notice, the Holder may require the Company to redeem all or any portion of this Note by delivering written notice thereof (“Fundamental Transaction Redemption Notice”) to the Company, which Fundamental Transaction Redemption Notice shall indicate the portion of the Outstanding Balance the Holder is electing to redeem (the “Fundamental Transaction Redemption Amount”). The Fundamental Transaction Redemption Amount shall be redeemed by the Company in cash pursuant to and in accordance with Section 10 and shall have priority to payments to stockholders in connection with such Fundamental Transaction. Notwithstanding anything to the contrary in this Section 5, but subject to Section 3.4, until the Fundamental Transaction Redemption Amount (together with any Late Charges thereon) is paid in full, the Outstanding Balance (together with any Late Charges thereon), may be converted, in whole or in part from time to time, by the Holder into Common Stock pursuant to Section 3. In the event of a partial redemption of this Note pursuant hereto, the Fundamental Transaction Redemption Amount shall be deducted from the Installment Amount(s) relating to the applicable Installment Date(s) as set forth in the Fundamental Transaction Redemption Notice.

 

6. DISTRIBUTION OF ASSETS; RIGHTS UPON ISSUANCE OF PURCHASE RIGHTS AND OTHER CORPORATE EVENTS.

 

6.1. Distribution of Assets. Without the prior written consent of Holder, the Company agrees not to declare or make any dividend or other distributions of its assets (or rights to acquire its assets) to any or all 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).

 

6.2. Purchase Rights. In addition to any adjustments pursuant to Section 7 below, if at any time the Company grants, issues or sells any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class 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 taking into account any limitations or restrictions on the convertibility of this Note) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder’s right to participate in any such Purchase Right would result in the Holder exceeding the Maximum Percentage, 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 Maximum Percentage).

 

6.3. Other Corporate Events. In addition to and not in substitution for any other rights hereunder, prior to the consummation of any Fundamental Transaction pursuant to which holders of shares of Common Stock are entitled to receive securities or other assets with respect to or in exchange for shares of Common Stock (a “Corporate Event”), the Company shall make appropriate provision to insure that the Holder will thereafter have the right to receive upon a conversion of this Note (i) in addition to the shares of Common Stock receivable upon such conversion, such securities or other assets to which the Holder would have been entitled with respect to such shares of Common Stock had such shares of Common Stock been held by the Holder upon the consummation of such Corporate Event (without taking into account any limitations or restrictions on the convertibility of this Note) or (ii) in lieu of the shares of Common Stock otherwise receivable upon such conversion, such securities or other assets received by the holders of shares of Common Stock in connection with the consummation of such Corporate Event in such amounts as the Holder would have been entitled to receive had this Note initially been issued with conversion rights for the form of such consideration (as opposed to shares of Common Stock) using a conversion rate for such consideration commensurate with the Conversion Rate. Provision made pursuant to the preceding sentence shall be in a form and substance satisfactory to the Holder. The provisions of this Section 6 shall apply similarly and equally to successive Corporate Events and shall be applied without regard to any limitations on the conversion or redemption of this Note.

 

  

  

  

7. RIGHTS UPON ISSUANCE OF SECURITIES.

 

7.1. Adjustment of Conversion Price upon Issuance of Common Stock. Except with respect to Excluded Securities, if and whenever on or after the Issuance Date the Company issues or sells Common Stock, Options, Convertible Securities, or upon any conversion or Deemed Issuance, or in accordance with subsections (a) through (f) below is deemed to have issued or sold, any shares of Common Stock (including without limitation the issuance or sale of shares of Common Stock owned or held by or for the account of the Company, but excluding any Excluded Securities issued or sold or deemed to have been issued or sold) for a consideration per share (the “New Issuance Price”) less than a price equal to the Conversion Price in effect immediately prior to such issue, conversion, or sale or deemed issuance or sale (such Conversion Price then in effect is referred to herein as the “Applicable Price”) (the foregoing a “Dilutive Issuance”), then, immediately after such Dilutive Issuance, the Conversion Price then in effect shall be reduced to an amount equal to the New Issuance Price.  For the avoidance of doubt, if the New Issuance Price is greater than the Applicable Price, there shall be no adjustment to the Conversion Price. For purposes of determining the adjusted Conversion Price under this Section 7.1, the following shall be applicable:

 

(a) Issuance of Options. If the Company in any manner grants or sells any Options and the lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Option or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the granting or sale of such Option for such price per share. For purposes of this Section 7.1(a), the “lowest price per share for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to any one share of Common Stock upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option and (y) the lowest exercise price set forth in such Option for which one share of Common Stock is issuable upon the exercise of any such Options or upon conversion, exercise or exchange of any Convertible Securities issuable upon exercise of any such Option minus (2) the sum of all amounts paid or payable to the holder of such Option (or any other Person) upon the granting or sale of such Option, upon exercise of such Option and upon conversion, exercise or exchange of any Convertible Security issuable upon exercise of such Option plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Option (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock or of such Convertible Securities upon the exercise of such Options or upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities.

 

(b) Issuance of Convertible Securities. If the Company in any manner issues or sells any Convertible Securities, and the lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof is less than the Applicable Price, then such share of Common Stock shall be deemed to be outstanding and to have been issued and sold by the Company at the time of the issuance or sale of such Convertible Securities for such price per share. For the purposes of this Section 7.1(b), the “lowest price per share for which one share of Common Stock is issuable upon the conversion, exercise or exchange thereof” shall be equal to (1) the lower of (x) the sum of the lowest amounts of consideration (if any) received or receivable by the Company with respect to one share of Common Stock upon the issuance or sale of the Convertible Security and upon conversion, exercise or exchange of such Convertible Security and (y) the lowest conversion price set forth in such Convertible Security for which one share of Common Stock is issuable upon conversion, exercise or exchange thereof minus (2) the sum of all amounts paid or payable to the holder of such Convertible Security (or any other Person) upon the issuance or sale of such Convertible Security plus the value of any other consideration received or receivable by, or benefit conferred on, the holder of such Convertible Security (or any other Person). Except as contemplated below, no further adjustment of the Conversion Price shall be made upon the actual issuance of such share of Common Stock upon conversion, exercise or exchange of such Convertible Securities, and if any such issue or sale of such Convertible Securities is made upon exercise of any Options for which adjustment of the Conversion Price has been or is to be made pursuant to other provisions of this Section 7.1, except as contemplated below, no further adjustment of the Conversion Price shall be made by reason of such issue or sale.

 

  

  

  

(c) Change in Option Price or Rate of Conversion. If the purchase or exercise price provided for in any Options, the additional consideration, if any, payable upon the issue, conversion, exercise or exchange of any Convertible Securities, or the rate at which any Convertible Securities are convertible into or exercisable or exchangeable for shares of Common Stock increases or decreases at any time, the Conversion Price in effect at the time of such increase or decrease shall be adjusted to the Conversion Price which would have been in effect at such time had such Options or Convertible Securities provided for such increased or decreased purchase price, additional consideration or increased or decreased conversion rate (as the case may be) at the time initially granted, issued or sold. For purposes of this Section 7.1(c), if the terms of any Option or Convertible Security that was outstanding as of the Issuance Date are increased or decreased in the manner described in the immediately preceding sentence, then such Option or Convertible Security and the shares of Common Stock deemed issuable upon exercise, conversion or exchange thereof shall be deemed to have been issued as of the date of such increase or decrease. No adjustment pursuant to this Section 7.1 shall be made if such adjustment would result in an increase of the Conversion Price then in effect.

 

(d) Calculation of Consideration Received. If any Option or Convertible Security is issued or deemed issued in connection with the issuance or sale or deemed issuance or sale of any other securities of the Company, together comprising one integrated transaction, (x) such Option or Convertible Security (as applicable) will be deemed to have been issued for consideration equal to the Black Scholes Consideration Value thereof and (y) the other securities issued or sold or deemed to have been issued or sold in such integrated transaction shall be deemed to have been issued for consideration equal to the difference of (I) the aggregate consideration received by the Company minus (II) the Black Scholes Consideration Value of each such Option or Convertible Security (as applicable). If any shares of Common Stock, Options or Convertible Securities are issued or sold or deemed to have been issued or sold for cash, the consideration received therefor will be deemed to be the net amount received by the Company therefor. If any shares of Common Stock, Options or Convertible Securities are issued or sold for a consideration other than cash, the amount of such consideration received by the Company will be the fair value of such consideration, except where such consideration consists of publicly traded securities, in which case the amount of consideration received by the Company for such securities will be the average VWAP of such security for the five (5) Trading Day period immediately preceding the date of receipt. If any shares of Common Stock, Options or Convertible Securities are issued to the owners of the non-surviving entity in connection with any merger in which the Company is the surviving entity, the amount of consideration therefor will be deemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares of Common Stock, Options or Convertible Securities (as the case may be). The fair value of any consideration other than cash or publicly traded securities will be determined jointly by the Company and the Holder. If such parties are unable to reach agreement within ten (10) Trading Days after the occurrence of an event requiring valuation (the “Valuation Event”), the fair value of such consideration will be determined within five (5) Trading Days after the tenth (10th) day following such Valuation Event by an independent, reputable appraiser jointly selected by the Company and the Holder. The determination of such appraiser shall be final and binding upon all parties absent manifest error and the fees and expenses of such appraiser shall be borne by the Company.

 

(e) Deemed Warrant Issuance. If Company fails to deliver warrant shares as required by a warrant issued to Holder pursuant to the Transaction Documents, in addition to such failure to act being considered an Event of Default hereunder, for purposes of this Section 7.1 the Company shall also be deemed to have issued the warrant shares to Holder on the applicable date set forth in the applicable warrant and pursuant to the terms set forth therein (the “Deemed Warrant Issuance”).

 

(f) Record Date. If the Company takes a record of the holders of shares of Common Stock for the purpose of entitling them (A) to receive a dividend or other distribution payable in Common Stock, Options or in Convertible Securities or (B) to subscribe for or purchase shares of Common Stock, Options or Convertible Securities, then such record date will be deemed to be the date of the issue or sale of the shares of Common Stock deemed to have been issued or sold upon the declaration of such dividend or the making of such other distribution or the date of the granting of such right of subscription or purchase (as the case may be).

 

  

  

  

7.2. Adjustment of Conversion Price upon Subdivision or Combination of Common Stock. Without limiting any provision of Section 5 or Section 7.1, if the Company at any time on or after the Issuance Date subdivides (by any stock split, stock dividend, recapitalization or otherwise) one or more classes of its outstanding shares of Common Stock into a greater number of shares, the Conversion Price in effect immediately prior to such subdivision will be proportionately reduced. Without limiting any provision of Section 5 or Section 7.1, if the Company at any time on or after the Issuance Date combines (by combination, reverse stock split or otherwise) one or more classes of its outstanding shares of Common Stock into a smaller number of shares, the Conversion Price in effect immediately prior to such combination will be proportionately increased. Any adjustment pursuant to this Section 7.2 shall become effective immediately after the effective date of such subdivision or combination. If any event requiring an adjustment under this Section 7.2 occurs during the period that a Conversion Price is calculated hereunder, then the calculation of such Conversion Price shall be adjusted appropriately to reflect such event.

 

7.3. Other Events. In the event that the Company (or any Subsidiary) shall take any action to which the provisions hereof are not strictly applicable, or, if applicable, would not operate to protect the Holder from dilution or if any event occurs of the type contemplated by the provisions of this Section 7 but not expressly provided for by such provisions (including, without limitation, the granting of stock appreciation rights, phantom stock rights or other rights with equity features), then the Company’s board of directors shall in good faith determine and implement an appropriate adjustment in the Conversion Price so as to protect the rights of the Holder, provided that no such adjustment pursuant to this Section 7.3 will increase the Conversion Price as otherwise determined pursuant to this Section 7, provided further that if the Holder does not accept such adjustments as appropriately protecting its interests hereunder against such dilution, then the Company’s board of directors and the Holder shall agree, in good faith, upon an independent investment bank of nationally recognized standing to make such appropriate adjustments, whose determination shall be final and binding and whose fees and expenses shall be borne by the Company.

 

8. COMPANY INSTALLMENT CONVERSION OR REDEMPTION. Beginning on the date that is two hundred ten (210) calendar days following the Issuance Date (the “Initial Installment Date”), and on each applicable Installment Date thereafter, the Company shall pay to the Holder of this Note the applicable Installment Amount due on such date by converting such Installment Amount in accordance with this Section 8 (a “Company Conversion”); provided, however, the Company may, at its option as described below, pay all or any part of such Installment Amount by redeeming such Installment Amount in cash (a “Company Redemption”) or by any combination of a Company Conversion and a Company Redemption so long as the entire amount of such Installment Amount due shall be converted and/or redeemed by the Company on the applicable Installment Date, subject to the provisions of this Section 8; provided further that the Company shall not be entitled to effect a Company Conversion with respect to any portion of such Installment Amount and shall be required to pay the entire amount of such Installment Amount in cash pursuant to a Company Redemption if on the applicable Pre-Installment Notice Due Date (defined below) or on the applicable Installment Date (as the case may be) there is an Equity Conditions Failure, and such failure is not waived by Holder as permitted herein.

 

8.1. General. On or prior to the date which is the twenty third (23rd) Trading Day prior to each Installment Date (each, a “Pre-Installment Notice Due Date”), the Company shall deliver written notice to the Holder substantially in the form attached hereto as Exhibit C-1 (each, a “Pre-Installment Notice”), and such Pre-Installment Notice shall (i) either (A) confirm that the applicable Installment Amount of this Note shall be converted in whole pursuant to a Company Conversion, or (B) (1) state that the Company elects to redeem, or is required to redeem in accordance with the provisions of this Note, in whole or in part, the applicable Installment Amount pursuant to a Company Redemption and (2) specify the portion of the applicable Installment Amount which the Company elects, or is required to redeem, pursuant to a Company Redemption (such amount to be redeemed in cash, the “Company Redemption Amount”) and the portion of the applicable Installment Amount, if any, with respect to which the Company will, and is permitted to, effect a Company Conversion (such amount of the applicable Installment Amount so specified to be so converted pursuant to this Section 8 is referred to herein as the “Company Conversion Amount”), which amounts when added together, must equal the entire applicable Installment Amount and (ii) if the applicable Installment Amount is to be paid, in whole or in part, pursuant to a Company Conversion, certify that there is not an Equity Conditions Failure as of the Pre-Installment Notice Due Date. Each Pre-Installment Notice shall be irrevocable and may not be revoked by the Company. If the Company does not timely deliver a Pre-Installment Notice on an applicable Pre-Installment Notice Due Date that complies with this Section 8, then the Company shall be deemed to have delivered on such Pre-Installment Notice Due Date an irrevocable Pre-Installment Notice confirming a Company Conversion of the entire Installment Amount payable as required hereunder and shall be deemed to have certified that there is not an Equity Conditions Failure as of the applicable Pre-Installment Notice Due Date. The applicable Company Conversion Amount (whether set forth in the applicable Pre-Installment Notice or by operation of this Section 8) shall be converted in accordance with Section 8.2 or Section 8.4, as applicable and the applicable Company Redemption Amount shall be redeemed in accordance with Section 8.3.

 

8.2. Mechanics of Company Conversion. Subject to Section 3.4, if the Company delivers a Pre-Installment Notice and elects, or is deemed to have delivered a Pre-Installment Notice and deemed to have elected, in whole or in part, a Company Conversion in accordance with Section 8.1, then this Section 8.2 shall apply. Notwithstanding the foregoing, if an Equity Conditions Failure has occurred as of the applicable Pre-Installment Notice Due Date, then the Company shall identify each such Equity Conditions Failure in the Pre-Installment Notice and request a waiver thereof from Holder pursuant to Section 8.6 hereof. (i) If such waiver is obtained, and all DWAC Eligible Conditions are then satisfied and a Company Conversion is not otherwise prohibited under any other provision of this Note, then the remainder of this Section 8.2 shall apply to the Company Conversion; (ii) if such waiver is obtained, but all DWAC Eligible Conditions are not then satisfied, then the remainder of this Section 8.2 shall not apply and the Company must deliver certificated Common Stock to Holder pursuant to Section 8.4 hereof; or (iii) if such waiver is not obtained, then the remainder of this Section 8.2 shall not apply and the Company must elect a Company Redemption and deliver cash to the Holder in an amount equal to the Installment Amount (or such lessor amount authorized by the Holder in writing) pursuant to Section 8.3 hereof. To the extent applicable as set forth above:

 

(a) No later than three (3) Trading Days after each applicable Pre-Installment Notice Due Date, the Company shall deliver to the Holder’s account the Pre-Installment Conversion Shares, and as to which the Holder shall be the owner thereof as of the applicable Pre-Installment Notice Due Date.

 

  

  

  

(b) No later than three (3) Trading Days after each Installment Date, the Company shall deliver to the Holder’s account a number of shares of Common Stock equal to the amount, if any, by which the Post-Installment Conversion Shares exceed the Pre-Installment Conversion Shares previously delivered to Holder, registered in the name of the Holder or its designee. So long as no Event of Default has occurred regarding payment, conversion or redemption under this Note (each a “Payment Default”), if the Pre-Installment Conversion Shares on the applicable Installment Date exceed the Post-Installment Conversion Shares, then the excess will be applied towards the next Conversion Shares to be issued by the Company (unless the Outstanding Balance has been reduced to zero, in which case Holder will return such excess shares to the Company). If a Payment Default has occurred and the Pre-Installment Conversion Shares for the applicable Installment Date exceed the Post-Installment Conversion Shares, then Holder shall not be required to return to the Company any of the excess shares or apply such excess shares to any future issuance or conversion of shares hereunder. The Company agrees to deliver to the Holder such information and calculations required under this Section 8.2(b) substantially in the form attached hereto as Exhibit C-2 (each, an “Installment Date Notice”).

 

(c) If an Event of Default occurs during any applicable Company Conversion Measuring Period (defined below), then Holder may elect to either (i) return any Pre-Installment Conversion Shares delivered in connection with the applicable Installment Date, or (ii) retain such Pre-Installment Conversion Shares and reduce the Outstanding Balance in connection therewith by an amount equal to the Market Price of such retained Pre-Installment Conversion Shares as of the Installment Date, but in no event shall such reduction be greater than the Company Conversion Amount used to calculate such Pre-Installment Conversion Shares.  “Company Conversion Measuring Period” means the period beginning on the applicable Pre-Installment Notice Due Date and ending on the applicable Installment Date.

 

(d) If no Equity Conditions Failure existed as of the Pre-Installment Notice Due Date, but an Equity Conditions Failure exists as of the applicable Installment Date, and such is not waived as permitted herein, or a Company Conversion is not otherwise permitted as of the Installment Date under any other provision of this Note, then, at the option of the Holder designated in writing to the Company, the Holder may require the Company to do any one or more of the following:

 

(i) the Company must redeem all or any part designated by the Holder of the Company Conversion Amount for which shares have not yet been delivered to Holder (such designated amount is referred to as the “Designated Redemption Amount”) and the Company shall pay to the Holder within three (3) Trading Days of such Installment Date, by wire transfer of immediately available funds, an amount in cash equal to the Redemption Premium multiplied by the Designated Redemption Amount (the “Designated Redemption Price”) (if the Company fails to pay the Designated Redemption Price by the third (3rd) Trading Day following such written notice to the Company, then such failure to pay shall be an Event of Default under Section 4.1(a) hereof), or

 

(ii) the Company Conversion shall be null and void with respect to the Company Conversion Amount for which shares have not yet been delivered to Holder, and Holder shall be entitled to all the rights of a holder of this Note with respect to such remaining Company Conversion Amount; provided, however, the Conversion Price for such remaining Company Conversion Amount shall thereafter be adjusted to equal the lesser of (Y) the Default Conversion Price as in effect on the date on which the Holder voided the Company Conversion and (Z) the Default Conversion Price that would be in effect on the date on which the Holder delivers a subsequent Conversion Notice relating thereto as if such date was an Installment Date.

 

(e) Notwithstanding anything to the contrary in this Section 8.2, but subject to Section 3.4, until the Company delivers Common Stock representing the Company Conversion Amount to the Holder pursuant to the terms of this Section 8.2, the Company Conversion Amount may be converted by the Holder into Common Stock pursuant to Section 3. In the event that the Holder elects to convert the Company Conversion Amount prior to the applicable Installment Date as set forth in the immediately preceding sentence, the Company Conversion Amount so converted shall be deducted from the Installment Amount(s) relating to the applicable Installment Date(s) as set forth in the applicable Conversion Notice.

 

(f) All Common Stock to be delivered to the Holder under this Section 8.2 shall be transferred via the DWAC system.  Failure to do so shall constitute an Event of Default under Section 4.1(b) hereof.

 

  

  

  

8.3. Mechanics of Company Redemption. If the Company elects, or is required to elect, a Company Redemption, in whole or in part, in accordance with Section 8.1 or Section 8.2, then the Company Redemption Amount, if any, which is to be paid to the Holder on the applicable Installment Date shall be redeemed by the Company on such Installment Date in an amount of cash, and the Company shall pay to the Holder on such Installment Date, by wire transfer of immediately available funds an amount, equal to the applicable Company Redemption Amount. If the Company fails to pay the applicable Company Redemption Amount on the applicable Installment Date, then, at the option of the Holder designated in writing to the Company (any such designation shall be a “Conversion Notice” for purposes of this Note), the Holder may require the Company to convert all or any part of the Company Redemption Amount at the Default Conversion Price (determined as of the date of such designation as if such date were an Installment Date). Conversions required by this Section 8.3 shall be made in accordance with the provisions of Section 3.3. Notwithstanding anything to the contrary in this Section 8.3, but subject to Section 3.4 and the Holder’s right to require the Company to convert all or any part of the Company Redemption Amount at the Default Conversion Price as set forth above, until the Company Redemption Amount (together with any Late Charges thereon) is paid in full, the Company Redemption Amount (together with any Late Charges thereon) may be converted, in whole or in part, by the Holder into Common Stock pursuant to Section 3. In the event the Holder elects to convert all or any portion of the Company Redemption Amount prior to the applicable Installment Date as set forth in the immediately preceding sentence, the Company Redemption Amount so converted shall be deducted from the Installment Amounts relating to the applicable Installment Date(s) as set forth in the applicable Conversion Notice.

 

8.4. DWAC Eligibility. If, when the Company delivers a Pre-Installment Notice and elects, or is deemed to have delivered a Pre-Installment Notice and deemed to have elected, in whole or in part, a Company Conversion in accordance with Section 8.1, and the DWAC Eligible Conditions are not then satisfied but Holder waives the corresponding Equity Conditions Failure pursuant to Section 8.6, then, in accordance with Section 8.2, although such status will constitute an Event of Default hereunder, shares required to be issued to the Holder under this Section 8 shall be issued (without limiting any of Holder’s rights with respect to the Event of Default) as follows:

 

(a) No later than three (3) Trading Days after delivery or deemed delivery (as applicable) of the applicable Pre-Installment Notice setting forth a Company Conversion Amount, the Company shall deliver to the Holder or its broker, via reputable overnight courier, the Pre-Installment Certificated Shares by original share certificate, registered in the name of the Holder or its designee; provided, however, that so long as shares are not provided electronically to the Holder under Section 8, the Pre-Installment Certificated Shares shall equal 150% of the number of Pre-Installment Conversion Shares that would otherwise be transferred electronically to the Holder.

 

(b) The Company agrees to use its best efforts to cause such shares to become Free Trading (the first date such occurs, the “Free Trading Date”). The Holder will notify the Company of the Free Trading Date via email within two (2) Trading Days after the occurrence of the Free Trading Date.

 

(c) Provided that there is no Equity Conditions Failure as of the date that is twenty-three (23) Trading Days after the applicable Free Trading Date (the “Certificated Shares Installment Date”) (or such failure is waived as permitted herein) and a Company Conversion is not otherwise prohibited under any other provision of this Note, no later than three (3) Trading Days after the applicable Certificated Shares Installment Date, the Company shall deliver to the Holder or its broker via reputable overnight courier the Post-Installment Certificated Shares, less the Pre-Installment Certificated Shares previously delivered to the Holder, by original share certificate, registered in the name of the Holder or its designee. So long as no Payment Default has occurred, if the Pre-Installment Certificated Shares for the applicable Certificated Shares Installment Date exceed the Post-Installment Certificated Shares, then the excess will be applied towards the next Conversion Shares to be issued by the Company (unless the Outstanding Balance has been reduced to zero, in which case Holder will return such excess shares to the Company). If a Payment Default has occurred and the Pre-Installment Certificated Shares for the applicable Certificated Shares Installment Date exceed the Post-Installment Certificated Shares, then Holder shall not be required to return to the Company any of the excess shares or apply such excess shares to any future issuance or conversion of shares hereunder.

 

8.5. Deemed Issuance. If Company fails to deliver shares as required by any portion of this Section 8, in addition to such failure to act being considered an Event of Default hereunder, for purposes of Section 7.1, the Company shall also be deemed to have issued the Pre-Installment Conversion Shares, Post-Installment Conversion Shares, Pre-Installment Certificated Shares, or Post-Installment Certificated Shares, as applicable, to Holder on the latest possible permitted date pursuant to the terms set forth in this Section 8, with Holder entitled to all the rights and privileges associated with such deemed issued shares (the “Deemed Installment Issuance”).

 

8.6. Waiver of Equity Conditions Failure. Notwithstanding anything in this Note to the Contrary, the Holder may waive in writing any Equity Conditions Failure, except for the Non-Waivable Equity Conditions (defined below).  For purposes of this Section 8, “Non-Waivable Equity Conditions” refers to (A) the Equity Condition set forth in Section 27.20(iv) (indicating that Holder may not own more than the Maximum Percentage set forth in Section 3.4 of this Note), and (B) the Equity Condition set forth in Section 27.20(v) (Common Stock may be issued without violating the rules of the Eligible Market). Any such waiver shall only be made for the purposes of permitting a Company Conversion to occur under this Section 8 and shall not be deemed a waiver of the underlying default or a continuing waiver of a future Equity Conditions Failure. Any such waiver shall not excuse the Company from the performance of any of its current or future obligations under this Note.

 

8.7. Preparation of Installment Notices. Because of the complexity of the calculations contemplated under this Note, the Holder may, at its sole discretion, prepare the Pre-Installment Notice and/or the Installment Date Notice for the benefit of the Company, including the calculation of Pre-Installment Conversion Shares, Post-Installment Conversion Shares, Pre-Installment Certificated Shares, Post-Installment Certificated Shares; provided, however, that no error or mistake in the preparation of such notices or information may be deemed a waiver of the Holder’s right to enforce the terms of this Note, even if such error or mistake arises from the Holder’s own calculation. Nothing in this Section shall be deemed an obligation of the Holder to prepare any such notices or information, or a waiver of any of its rights and remedies under this Note.

 

8.8. Transfer Fees. The Company shall pay any and all transfer, stamp, issuance and similar taxes that may be payable with respect to the issuance and delivery of Pre-Installment Conversion Shares, Post-Installment Conversion Shares, Pre-Installment Certificated Shares, and Post-Installment Certificated Shares.

 

  

  

  

9. NONCIRCUMVENTION. The Company hereby covenants and agrees that the Company will not, by amendment of its Certificate of Incorporation (as defined in the Agreement), bylaws, or through any reorganization, transfer of assets, consolidation, merger, scheme of arrangement, dissolution, issue or sale of securities, or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Note, and will at all times in good faith carry out all of the provisions of this Note and take all action as may be required to protect the rights of the Holder of this Note. Without limiting the generality of the foregoing, the Company (i) shall not increase the par value of any shares of Common Stock receivable upon conversion of this Note above the Conversion Price then in effect, (ii) shall take all such actions as may be necessary or appropriate in order that the Company may validly and legally issue fully paid and non-assessable shares of Common Stock upon the conversion of this Note, and (iii) shall, so long as this Note is outstanding, take all action necessary to maintain the Share Reserve (as defined in the Agreement).

 

10. HOLDER’S REDEMPTIONS. If the Holder has submitted to Company an Event of Default Redemption Notice in accordance with Section 4.2(b), then the Company shall pay to Holder in cash within ten (10) Trading Days after the Company’s receipt of such Event of Default Redemption Notice an amount equal to the Default Redemption Amount multiplied by the Redemption Premium (the “Event of Default Redemption Price”); provided, however, that the Redemption Premium may only be applied in computing the Event of Default Redemption Price with respect to the first two Events of Default under this Note, and not to any subsequent Events of Default. If the Holder has submitted to Company a Fundamental Transaction Redemption Notice in accordance with Section 5.2, then the Company shall pay to Holder in cash prior to the consummation of such Fundamental Transaction if such notice is received prior to the consummation of such Fundamental Transaction and within ten (10) Trading Days after the Company’s receipt of such notice otherwise, an amount equal to the Fundamental Transaction Redemption Amount multiplied by the Redemption Premium (the “Fundamental Transaction Redemption Price”). Notwithstanding anything in this Note to the contrary, such failure of the Company to pay the Redemption Price under this Section 10 shall not be considered a separate Event of Default hereunder. In the event that the Company does not pay the applicable Redemption Price to the Holder within the time period required, at any time thereafter and until the Company pays such unpaid Redemption Price in full, the Holder shall have the option, in lieu of redemption, to cancel the Event of Default Redemption Notice or the Fundamental Transaction Redemption Notice, as applicable, by written notice to the Company (the “Redemption Cancellation Notice”). Upon the Company’s receipt of a Redemption Cancellation Notice, (y) the Outstanding Balance of this Note as of the date of the Redemption Notice shall be increased by an amount equal to (1) the applicable Event of Default Redemption Price, or Fundamental Transaction Redemption Price (as the case may be), minus (2) the principal portion of the Outstanding Balance submitted for redemption; and (z) the Conversion Price of this Note shall be automatically adjusted with respect to each conversion under this Note effected thereafter by the Holder to the lowest of (A) 70% of the lowest Closing Bid Price of the Common Stock during the period beginning on and including the date on which the applicable Redemption Notice is delivered to the Company and ending on and including the date of the Redemption Cancellation Notice, (B) the Market Price as of the date of the Redemption Cancellation Notice, (C) the then current Market Price, and (D) the then current Conversion Price. The Holder’s delivery of a Redemption Cancellation Notice and exercise of its rights following such notice shall not affect the Company’s obligations to make any payments of Late Charges which have accrued prior to the date of such Redemption Cancellation Notice.

 

11. VOTING RIGHTS. The Holder shall have no voting rights as the holder of this Note, except as required by law and as expressly provided in this Note.

 

12. AMENDING THE TERMS OF THIS NOTE. The prior written consent of the Holder shall be required for any change or amendment to this Note.

 

13. TRANSFER. This Note and any shares of Common Stock issued upon conversion of this Note may be offered, sold, assigned or transferred by the Holder without the consent of the Company.

 

14. REISSUANCE OF THIS NOTE.

 

14.1. Transfer. If this Note is to be transferred, the Holder shall surrender this Note to the Company, whereupon the Company will forthwith issue and deliver upon the order of the Holder a new Note (in accordance with Section 14.4), registered as the Holder may request, representing the Outstanding Balance being transferred by the Holder and, if less than the entire Outstanding Balance is being transferred, a new Note (in accordance with Section 14.4) to the Holder representing the Outstanding Balance not being transferred.

 

14.2. Lost, Stolen or Mutilated Note. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Note (as to which a written certification and the indemnification contemplated below shall suffice as such evidence), and, in the case of loss, theft or destruction, of any indemnification undertaking by the Holder to the Company in customary and reasonable form and, in the case of mutilation, upon surrender and cancellation of this Note, the Company shall execute and deliver to the Holder a new Note (in accordance with Section 14.4) representing the Outstanding Balance.

 

  

  

  

14.3. Note Exchangeable for Different Denominations. This Note is exchangeable, upon the surrender hereof by the Holder at the principal office of the Company, for a new Note or Notes (in accordance with Section 14.4 and in principal amounts of at least $1,000) representing in the aggregate the Outstanding Balance of this Note, and each such new Note will represent such portion of such Outstanding Balance as is designated by the Holder at the time of such surrender.

 

14.4. Issuance of New Notes. Subject to Section 10, whenever the Company is required to issue a new Note pursuant to the terms of this Note, such new Note (i) shall be of like tenor with this Note, (ii) shall represent, as indicated on the face of such new Note, the Outstanding Balance (or in the case of a new Note being issued pursuant to Section 14.1 or Section 14.3, the portion of the Outstanding Balance designated by the Holder which, when added to the outstanding balance represented by the other new Notes issued in connection with such issuance, does not exceed the Outstanding Balance under this Note immediately prior to such issuance of new Notes), (iii) shall have an issuance date, as indicated on the face of such new Note, which is the same as the Issuance Date of this Note, (iv) shall have the same rights and conditions as this Note, and (v) shall represent accrued and unpaid Interest and Late Charges and other increases to the Outstanding Balance as permitted hereunder from the Issuance Date.

 

15. REMEDIES, CHARACTERIZATIONS, OTHER OBLIGATIONS, BREACHES AND INJUNCTIVE RELIEF. The remedies, including without limitation the Redemption Premium, Prepayment Premium, and all other charges, fees, and collection costs provided for 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 and consequential damages for any 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 (including, without limitation, compliance with Section 7).

 

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

 

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

 

18. FAILURE OR INDULGENCE NOT WAIVER. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privilege. No waiver shall be effective unless it is in writing and signed by an authorized representative of the waiving party.

 

19. DISPUTE RESOLUTION. In the case of a dispute as to the determination of the Conversion Price, Default Conversion Price, Pre-Installment Conversion Price, Conversion Rate, the Closing Bid Price, the Closing Sale Price, VWAP or fair market value (as the case may be) or the arithmetic calculation of Conversion Shares or the applicable Redemption Price (as the case may be), the Company or the Holder (as the case may be) shall submit the disputed determinations or arithmetic calculations (as the case may be) via facsimile (i) within two (2) Trading Days after receipt of the applicable notice giving rise to such dispute to the Company or the Holder (as the case may be) or (ii) if no notice gave rise to such dispute, at any time after the Holder learned of the circumstances giving rise to such dispute (including, without limitation, as to whether any issuance or sale or deemed issuance or sale was an issuance or sale or deemed issuance or sale of Excluded Securities). If the Holder and the Company are unable to agree upon such determination or calculation within two (2) Trading Days of such disputed determination or arithmetic calculation (as the case may be) being submitted to the Company or the Holder (as the case may be), then the Company shall, within two (2) Trading Days, submit via facsimile (a) the disputed determination of the Conversion Price, Default Conversion Price, Pre-Installment Conversion Price, Conversion Rate, the Closing Bid Price, the Closing Sale Price, VWAP or fair market value (as the case may be) to an independent, reputable investment bank selected by the Holder or (b) the disputed arithmetic calculation of the Conversion Shares or any Redemption Price (as the case may be) to the Company’s independent, outside accountant. The Company shall cause at its expense the investment bank or the accountant (as the case may be) to perform the determinations or calculations (as the case may be) and notify the Company and the Holder of the results no later than ten (10) Trading Days from the time it receives such disputed determinations or calculations (as the case may be). Such investment bank’s or accountant’s determination or calculation with respect to the disputes set forth in this Section 19 (as the case may be) shall be binding upon all parties absent demonstrable error.

 

  

  

  

20. NOTICES; PAYMENTS.

 

20.1. Notices. Whenever notice is required to be given under this Note, unless otherwise provided herein, such notice shall be given in accordance with the subsection of the Agreement titled “Notices.“  The Company shall provide the Holder with prompt written notice of all actions taken pursuant to this Note, including in reasonable detail a description of such action and the reason therefore. Without limiting the generality of the foregoing, the Company will give written notice to the Holder (i) immediately upon any adjustment of the Conversion Price, setting forth in reasonable detail, and certifying, the calculation of such adjustment and (ii) at least fifteen (15) Trading Days prior to the date on which the Company closes its books or takes a record (A) with respect to any dividend or distribution upon the Common Stock, (B) with respect to any grant, issuances, or sales of any Options, Convertible Securities or rights to purchase stock, warrants, securities or other property to all holders of shares of Common Stock, or (C) for determining rights to vote with respect to any Fundamental Transaction, dissolution or liquidation, provided in each case that such information shall be made known to the public prior to or in conjunction with such notice being provided to the Holder.

 

20.2. Currency. All dollar amounts referred to in this Note are in United States Dollars (“U.S. Dollars”), and all amounts owing under this Note shall be paid in U.S. Dollars. All amounts denominated in other currencies (if any) shall be converted into the U.S. Dollar equivalent amount in accordance with the Exchange Rate on the date of calculation. “Exchange Rate” means, in relation to any amount of currency to be converted into U.S. Dollars pursuant to this Note, the U.S. Dollar exchange rate as published in The Wall Street Journal on the relevant date of calculation (it being understood and agreed that where an amount is calculated with reference to, or over, a period of time, the date of calculation shall be the final date of such period of time).

 

20.3. Payments. Whenever any payment of cash is to be made by the Company to any Person pursuant to this Note, unless otherwise expressly set forth herein, such payment shall be made in lawful money of the United States of America by wire transfer of immediately available funds pursuant to wire transfer instructions delivered to Company by Holder from time to time. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a Trading Day, the same shall instead be due on the next succeeding day which is a Trading Day. Any amount due under the Transaction Documents which is not paid when due shall result in a late charge being incurred and payable by the Company in an amount equal to interest on such amount at the rate of eighteen percent (18%) per annum from the date such amount was due until the same is paid in full (“Late Charge”).

 

21. CANCELLATION. After repayment or conversion of the entire Outstanding Balance, this Note shall automatically be deemed canceled, shall be surrendered to the Company for cancellation and shall not be reissued.

 

22. WAIVER OF NOTICE. To the extent permitted by law, the Company hereby irrevocably waives demand, notice, presentment, protest and all other demands and notices in connection with the delivery, acceptance, performance, default or enforcement of this Note and the Agreement.

 

23. GOVERNING LAW. This Note shall be construed and enforced in accordance with, and all questions concerning the construction, validity, interpretation and performance of this Note shall be governed by, the internal laws of the State of Utah, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of Utah or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of Utah. The Company hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in Salt Lake City for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. In the event that any provision of this Note is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of this Note. Nothing contained herein shall be deemed or operate to preclude the Holder from bringing suit or taking other legal action against the Company or any of its Subsidiaries in any other jurisdiction to collect on the Company’s obligations to the Holder, to realize on any collateral or any other security for such obligations, or to enforce a judgment or other court ruling in favor of the Holder. THE COMPANY HEREBY IRREVOCABLY WAIVES ANY RIGHT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION WITH OR ARISING OUT OF THIS NOTE OR ANY TRANSACTION CONTEMPLATED HEREBY.

 

  

  

  

24. SEVERABILITY. If any provision of this Note is prohibited by law or otherwise determined to be invalid or unenforceable by a court of competent jurisdiction, the provision that would otherwise be prohibited, invalid or unenforceable shall be deemed amended to apply to the broadest extent that it would be valid and enforceable, and the invalidity or unenforceability of such provision shall not affect the validity of the remaining provisions of this Note so long as this Note as so modified continues to express, without material change, the original intentions of the parties as to the subject matter hereof and the prohibited nature, invalidity or unenforceability of the provision(s) in question does not substantially impair the respective expectations or reciprocal obligations of the parties or the practical realization of the benefits that would otherwise be conferred upon the parties.  The parties will endeavor in good faith negotiations to replace the prohibited, invalid or unenforceable provision(s) with one or more valid provisions, the effect of which comes as close as possible to that of the prohibited, invalid or unenforceable provision(s).

 

25. FEES AND CHARGES. The parties acknowledge and agree that upon Company’s failure to comply with the provisions of this Note, the Holder’s damages would be uncertain and difficult to estimate because of the parties’ inability to predict future interest rates, the Holder’s increased risk, and the uncertainty of the availability of a suitable substitute investment opportunity for the Holder. Accordingly, any fees, charges, and interest due under this Note, including without limitation the Prepayment Premium and the Redemption Premium, are intended by the parties to be, and shall be deemed, a reasonable estimate of the Holder’s actual loss of its investment opportunity and not a penalty, and shall not be deemed in any way to limit any other right or remedy Holder may have hereunder, at law or in equity.

 

26. UNCONDITIONAL OBLIGATION. Subject to the terms of the Agreement, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the coin or currency or where contemplated herein in shares of its Common Stock, as applicable, as herein prescribed.  This Note is the direct obligation of the Company and not subject to offsets, counterclaims, defenses, credits or deductions.

 

27. CERTAIN DEFINITIONS. For purposes of this Note, the following terms shall have the following meanings:

 

27.1. “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person, it being understood for purposes of this definition that “control” of a Person means the power directly or indirectly either to vote 10% or more of the stock having ordinary voting power for the election of directors of such Person or direct or cause the direction of the management and policies of such Person whether by contract or otherwise.

 

27.2. “Agreement” means that certain Securities Purchase Agreement, dated as of October 15, 2012, as may be amended from time to time, by and between the Company and the Holder, pursuant to which the Company issued this Note.

 

27.3. “Approved Stock Plan” means any stock option plan which has been approved by the Board of Directors of the Company, pursuant to which the Company’s securities may be issued to any employee, officer or director for services provided to the Company.

 

27.4. “Black Scholes Consideration Value” means the value of the applicable Option or Convertible Security (as the case may be) as of the date of issuance thereof calculated using the Black Scholes Option Pricing Model obtained from the “OV” function on Bloomberg utilizing (i) an underlying price per share equal to the Closing Sale Price of the Common Stock on the Trading Day immediately preceding the public announcement of the execution of definitive documents with respect to the issuance of such Option or Convertible Security (as the case may be), (ii) a risk-free interest rate corresponding to the U.S. Treasury rate for a period equal to the remaining term of such Option or Convertible Security (as the case may be) as of the date of issuance of such Option or Convertible Security (as the case may be), and (iii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from the HVT function on Bloomberg (determined utilizing a 365 day annualization factor) as of the Trading Day immediately following the date of issuance of such Option or Convertible Security (as the case may be).

 

  

  

  

27.5. “Bloomberg” means Bloomberg, L.P.

 

27.6. “Closing Bid Price” and “Closing Sale Price” means, for any security as of any date, the last closing bid price and last closing trade price, respectively, for such security on the Principal Market, as reported by Bloomberg, or, if the Principal Market begins to operate on an extended hours basis and does not designate the closing bid price or the closing trade price (as the case may be) then the last bid price or last trade price, respectively, of such security prior to 4:00:00 p.m., New York time, as reported by Bloomberg, or, if the Principal Market is not the principal securities exchange or trading market for such security, the last closing bid price or last trade price, respectively, of such security on the principal securities exchange or trading market where such security is listed or traded as reported by Bloomberg, or if the foregoing do not apply, the last closing bid price or last trade price, respectively, of such security in the over-the-counter market on the electronic bulletin board for such security as reported by Bloomberg, or, if no closing bid price or last trade price, respectively, is reported for such security by Bloomberg, the average of the bid prices, or the ask prices, respectively, of any market makers for such security as reported in “OTC Pink” by Pink OTC Markets Inc. (formerly Pink Sheets LLC), and any successor thereto. If the Closing Bid Price or the Closing Sale Price cannot be calculated for a security on a particular date on any of the foregoing bases, the Closing Bid Price or the Closing Sale Price (as the case may be) of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 19. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

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

 

27.8. “Contingent Obligation” means as to any Person, any direct or indirect liability, contingent or otherwise, of that Person with respect to any Indebtedness, lease, dividend or other obligation of another Person if the primary purpose or intent of the Person incurring such liability, or the primary effect thereof, is to provide assurance to the obligee of such liability that such liability will be paid or discharged, or that any agreements relating thereto will be complied with, or that the holders of such liability will be protected (in whole or in part) against loss with respect thereto.

 

27.9. “Conversion Shares” means shares of Common Stock issuable by the Company upon any conversion of this Note, including without limitation, Section 3 Conversion Shares, Pre-Installment Conversion Shares, Post-Installment Conversion Shares, Pre-Installment Certificated Shares, and Post-Installment Certificated Shares.

 

27.10. “Convertible Securities” means any stock, preferred stock, stock appreciation rights, phantom stock, equity related rights, equity linked rights, or other security (other than Options) that is at any time and under any circumstances, directly or indirectly, convertible into, exercisable or exchangeable for, or which otherwise entitles the holder thereof to acquire, any shares of Common Stock.

 

27.11. “Current Subsidiary” means any Person in which the Company on the Issuance Date, directly or indirectly, (i) owns any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing, collectively, “Current Subsidiaries.”

 

27.12. “Deemed Issuance” means (i) a Deemed Conversion Issuance as defined in Section 3.3(b) hereof, (ii) a Deemed Installment Issuance as defined in Section 8.5 hereof, and (iii) a Deemed Warrant Issuance as defined in Section 7.1(e) hereof.

 

27.13. “Default Conversion Price” means, with respect to a particular date of determination, the lower of (i) the Conversion Price then in effect and (ii) the Market Price as of the specified Pre-Installment Notice Due Date or the Installment Date, as applicable. All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction during any applicable Measuring Period.

 

27.14. “DTC” means the Depository Trust Company.

 

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

 

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

 

27.17. “DWAC Eligible Conditions” means that (i) 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, (ii) the Company has been approved (without revocation) by the DTC’s underwriting department, and (iii) the Transfer Agent is approved as an agent in the DTC/FAST Program.

 

27.18. “Eligible Market” means The New York Stock Exchange, NYSE Amex, the Nasdaq Global Select Market, the Nasdaq Global Market, the Nasdaq Capital Market, the OTC Bulletin Board, the OTCQX or the OTCQB, or the Principal Market. In no event shall quotations provided in OTC Pink by Pink OTC Markets Inc., or its successor, be considered an Eligible Market.

 

27.19. “Equity Conditions” means: (i) with respect to the applicable date of determination all of the Conversion Shares are freely tradable under Rule 144 or without the need for registration under any applicable federal or state securities laws (in each case, disregarding any limitation on conversion of this Note); (ii) on each day during the period beginning one month prior to the applicable date of determination and ending on and including the applicable date of determination (the “Equity Conditions Measuring Period”), the Common Stock (including all of the Conversion Shares) is listed or designated for quotation (as applicable) on an Eligible Market and shall not have been suspended from trading on an Eligible Market (other than suspensions of not more than two (2) Trading Days and occurring prior to the applicable date of determination due to business announcements by the Company); (iii) on each day during the Equity Conditions Measuring Period, the Company shall have delivered all shares of Common Stock issuable upon conversion of this Note on a timely basis as set forth in Section 3 hereof and all other shares of capital stock required to be delivered by the Company on a timely basis as set forth in the other Transaction Documents; (iv) any shares of Common Stock to be issued in connection with the event requiring determination may be issued in full without violating Section 3.4 hereof (the Holder acknowledges that the Company shall be entitled to assume that this condition has been met for all purposes hereunder absent written notice from the Holder); (v) any shares of Common Stock to be issued in connection with the event requiring determination may be issued in full without violating the rules or regulations of the Eligible Market on which the Common Stock is then listed or designated for quotation (as applicable); (vi) on each day during the Equity Conditions Measuring Period, no public announcement of a pending, proposed or intended Fundamental Transaction shall have occurred which has not been abandoned, terminated or consummated; (vii) the Company shall have no knowledge of any fact that would reasonably be expected to cause any of the Conversion Shares to not be freely tradable without the need for registration under any applicable state securities laws (in each case, disregarding any limitation on conversion of this Note); (viii) on each day during the Equity Conditions Measuring Period, the Company otherwise shall have been in material compliance with each, and shall not have breached any, term, provision, covenant, representation or warranty of any Transaction Document; (ix) without limiting clause (viii) above, on each day during the Equity Conditions Measuring Period, there shall not have occurred an Event of Default or an event that with the passage of time or giving of notice would constitute an Event of Default; (x) all DWAC Eligible Conditions shall be satisfied as of each applicable Pre-Installment Notice Due Date and Installment Date; (xi) on each Pre-Installment Notice Due Date and each Installment Date, the average and median daily dollar volume of the Common Stock on its Principal Market for the previous twenty-three (23) Trading Days shall be greater than $20,000.00; and (xii) the ten (10) day average VWAP of the Common Stock is greater than $0.05.

 

  

  

  

27.20. “Equity Conditions Failure” means, with respect to a particular date of determination, that on any day during the period commencing twenty three (23) Trading Days immediately prior to such date of determination and ending on such date of determination, the Equity Conditions have not been satisfied (or waived in writing by the Holder). If an Equity Conditions Failure is the result of an Event of Default, then the Equity Conditions Failure shall be deemed permanent and may not be cured by the Company.

 

27.21. “Excluded Securities” means any shares of Common Stock, options, or convertible securities issued or issuable (i) in connection with any Approved Stock Plan; provided that the option term, exercise price or similar provisions of any issuances pursuant to such Approved Stock Plan are not amended, modified or changed on or after the Issuance Date; and (ii) in connection with mergers, acquisitions, strategic licensing arrangements, strategic business partnerships or joint ventures, in each case with non-affiliated third parties and otherwise on an arm’s-length basis, the purpose of which is not to raise additional capital; provided, that such third parties are not granted any registration rights.  Notwithstanding the foregoing, any Common Stock issued or issuable to raise capital for the Company or its Subsidiaries, directly or indirectly, in connection with any transaction contemplated by clause (ii) above, including, without limitation, securities issued in one or more related transactions or that result in similar economic consequences, shall not be deemed to be Excluded Securities.

 

27.22. “Free Trading” means that (i) the certificate representing the applicable shares of Common Stock has been cleared and approved for public resale by the compliance departments of Holder’s brokerage firm and the clearing firm servicing such brokerage, and (ii) such shares are held in the name of the clearing firm servicing Holder’s brokerage firm and have been deposited into such clearing firm’s account for the benefit of Holder.

 

27.23. “Fundamental Transaction” means that (i) (1) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, consolidate or merge with or into (whether or not the Company or any of its Subsidiaries is the surviving corporation) any other Person, or (2) the Company or any of its Significant Subsidiaries shall, directly or indirectly, in one or more related transactions, sell, lease, license, assign, transfer, convey or otherwise dispose of all or substantially all of its respective properties or assets to any other Person, or (3) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, allow any other Person to make a purchase, tender or exchange offer that is accepted by the holders of more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company held by the Person or Persons making or party to, or associated or affiliated with the Persons making or party to, such purchase, tender or exchange offer), or (4) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, consummate a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with any other Person whereby such other Person acquires more than 50% of the outstanding shares of Voting Stock of the Company (not including any shares of Voting Stock of the Company 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), or (5) the Company or any of its Subsidiaries shall, directly or indirectly, in one or more related transactions, reorganize, recapitalize or reclassify the Common Stock, other than an increase in the number of authorized shares of the Company’s Common Stock, or (ii) any “person” or “group” (as these terms are used for purposes of Sections 13(d) and 14(d) of the 1934 Act and the rules and regulations promulgated thereunder) is or shall become the “beneficial owner” (as defined in Rule 13d-3 under the 1934 Act), directly or indirectly, of 50% of the aggregate ordinary voting power represented by issued and outstanding Voting Stock of the Company.

 

27.24. “GAAP” means United States generally accepted accounting principles, consistently applied.

 

27.25. “Indebtedness” of any Person means, without duplication (i) all indebtedness for borrowed money, (ii) all obligations issued, undertaken or assumed as the deferred purchase price of property or services, including, without limitation, “capital leases” in accordance with GAAP (other than trade payables entered into in the ordinary course of business), (iii) all reimbursement or payment obligations with respect to letters of credit, surety bonds and other similar instruments, (iv) all obligations evidenced by notes, bonds, debentures or similar instruments, including obligations so evidenced incurred in connection with the acquisition of property, assets or businesses, (v) all indebtedness created or arising under any conditional sale or other title retention agreement, or incurred as financing, in either case with respect to any property or assets acquired with the proceeds of such indebtedness (even though the rights and remedies of the seller or bank under such agreement in the event of default are limited to repossession or sale of such property), (vi) all monetary obligations under any leasing or similar arrangement which, in connection with GAAP, consistently applied for the periods covered thereby, is classified as a capital lease, (vii) all indebtedness referred to in clauses (i) through (vi) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any mortgage, lien, pledge, charge, security interest or other encumbrance upon or in any property or assets (including accounts and contract rights) owned by any Person, even though the Person which owns such assets or property has not assumed or become liable for the payment of such indebtedness, and (viii) all Contingent Obligations in respect of indebtedness or obligations of others of the kinds referred to in clauses (i) through (vii) above.

 

27.26. “Installment Amount” means the greater of (i) $56,666.66 (340,000.00 ÷ 6), plus the sum of any accrued and unpaid Interest as of the applicable Installment Date and accrued and unpaid Late Charges, if any, under this Note as of the applicable Installment Date, and any other amounts accruing or owing to Holder under this Note as of such Installment Date, and (ii) the then Outstanding Balance divided by the number of Installment Dates remaining prior to the Maturity Date. In the event the Holder shall sell or otherwise transfer any portion of this Note, the transferee shall be allocated a pro rata portion (based on the portion of this Note transferred compared with the Outstanding Balance of this Note as of the transfer date) of each unpaid Installment Amount hereunder.

 

27.27. “Installment Date” means the Initial Installment Date and the same day on each of the following calendar months following the Initial Installment Date, regardless of the occurrence of any Event of Default (or the issuance of any Redemption Cancellation Notice). If the Outstanding Balance is not paid on the Maturity Date, then in addition to any remedies available under the Transaction Documents, the Installment Dates will continue on the same day of each calendar month until the Outstanding Balance is paid in full, thus requiring the Company to continue to provide Pre-Installment Notices to the Holder pursuant to Section 8 hereof.

 

  

  

  

27.28. “Market Price” means 70% of the arithmetic average of the three (3) lowest Closing Bid Prices of the shares of Common Stock during the twenty (20) consecutive Trading Day period immediately preceding the date of such determination (the “Measuring Period”). All such determinations are to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction during such Measuring Period.

 

27.29. “Maturity Date” shall mean the date that is twelve (12) months after the Issuance Date.

 

27.30. “New Subsidiary” means, as of any date of determination, any Person in which the Company after the Issuance Date, directly or indirectly, (i) owns or acquires any of the outstanding capital stock or holds any equity or similar interest of such Person or (ii) controls or operates all or any part of the business, operations or administration of such Person, and all of the foregoing, collectively, “New Subsidiaries.”

 

27.31. “Options” means any rights, warrants or options to subscribe for or purchase shares of Common Stock or Convertible Securities.

 

27.32. “Parent Entity” of a Person means an entity that, directly or indirectly, controls the applicable Person and whose common stock or equivalent equity security is quoted or listed on an Eligible Market, or, if there is more than one such Person or Parent Entity, the Person or Parent Entity with the largest public market capitalization as of the date of consummation of the Fundamental Transaction.

 

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

 

27.34. “Post-Installment Certificated Shares” means a number of shares of Common Stock equal to one (1) times the greater of (i) the Post-Installment Conversion Shares calculated using the applicable Installment Date, and (ii) the Post-Installment Conversion Shares calculated using the Certificated Shares Installment Date (as if such date were the designated Installment Date).

 

27.35. “Post-Installment Conversion Price” means, with respect to a particular date of determination, the lower of (i) the Conversion Price then in effect and (ii) the Market Price for the applicable Installment Date. All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction during any applicable Measuring Period.

 

27.36. “Post-Installment Conversion Shares” means that number of shares of Common Stock that would be required to be delivered pursuant to Section 8 on an applicable Installment Date without taking into account the delivery of any Pre-Installment Conversion Shares. The Post-Installment Conversion Shares are equal to the quotient of (i) the Company Conversion Amount divided by (ii) the Post-Installment Conversion Price as of the applicable Installment Date.

 

27.37. “Pre-Installment Certificated Shares” means the number of shares of Common Stock to be delivered pursuant to Section 8.4(a).  The Pre-Installment Certificated Shares are equal to two (2) times the number of Pre-Installment Conversion Shares that would otherwise be required to be delivered to the Holder pursuant to Section 8.2(a) under the applicable Pre-Installment Notice.

 

27.38. “Pre-Installment Conversion Price” means, with respect to a particular date of determination, the lower of (i) the Conversion Price then in effect and (ii) the Market Price for the applicable Pre-Installment Notice Due Date. All such determinations to be appropriately adjusted for any stock split, stock dividend, stock combination or other similar transaction during any applicable Measuring Period.

 

27.39. “Pre-Installment Conversion Shares” means the number of shares of Common Stock to be delivered pursuant to Section 8.1. The Pre-Installment Conversion Shares are equal to the quotient of (i) the Company Conversion Amount divided by (ii) the Pre-Installment Conversion Price as of the applicable Pre-Installment Notice Due Date.

 

  

  

  

27.40. “Principal Market” means the OTCQB.

 

27.41. “Redemption Notices” means, collectively, Event of Default Redemption Notices and Fundamental Transaction Redemption Notices, and each of the foregoing, individually, a “Redemption Notice.”

 

27.42. “Redemption Premium” means 125%.

 

27.43. “Redemption Price” means either the Event of Default Redemption Price or the Fundamental Transaction Redemption Price, as the context requires or permits.

 

27.44. “SEC” means the United States Securities and Exchange Commission or the successor thereto.

 

27.45. “Significant Subsidiaries” means, as of any date of determination, collectively, all Subsidiaries that would constitute a “significant subsidiary” under Rule 1-02 of Regulation S-X promulgated by the SEC, and each of the foregoing, individually, a “Significant Subsidiary.”

 

27.46. “Subsidiaries” means, as of any date of determination, collectively, all Current Subsidiaries and all New Subsidiaries, and each of the foregoing, individually, a “Subsidiary.”

 

27.47. “Successor Entity” means the Person, which may be the Company, formed by, resulting from or surviving any Fundamental Transaction or the Person with which such Fundamental Transaction shall have been made, provided that if such Person is not a publicly traded entity whose common stock or equivalent equity security is quoted or listed for trading on an Eligible Market, Successor Entity shall mean such Person's Parent Entity.

 

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

 

27.49. “Voting Stock” of a Person means capital stock of such Person of the class or classes pursuant to which the holders thereof have the general voting power to elect, or the general power to appoint, at least a majority of the board of directors, managers, trustees or other similar governing body of such Person (irrespective of whether or not at the time capital stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency).

 

27.50. “VWAP” means, for any security as of any date, the dollar volume-weighted average price for such security on the Principal Market (or, if the Principal Market is not the principal trading market for such security, then on the principal securities exchange or securities market on which such security is then traded) during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg through its “Volume at Price” function or, if the foregoing does not apply, the dollar volume-weighted average price of such security in the over-the-counter market on the electronic bulletin board for such security during the period beginning at 9:30:01 a.m., New York time, and ending at 4:00:00 p.m., New York time, as reported by Bloomberg, or, if no dollar volume-weighted average price is reported for such security by Bloomberg for such hours, the average of the highest closing bid price and the lowest closing ask price of any of the market makers for such security as reported in “OTC Pink” by Pink OTC Markets Inc. (formerly Pink Sheets LLC), and any successor thereto. If the VWAP cannot be calculated for such security on such date on any of the foregoing bases, the VWAP of such security on such date shall be the fair market value as mutually determined by the Company and the Holder. If the Company and the Holder are unable to agree upon the fair market value of such security, then such dispute shall be resolved in accordance with the procedures in Section 19. All such determinations shall be appropriately adjusted for any stock dividend, stock split, stock combination or other similar transaction during such period.

 

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

 

29. MAXIMUM PAYMENTS. Nothing contained in this Note shall, or shall be deemed to, establish or require the payment of a rate of interest or other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other charges under this Note exceeds the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts owed by the Company to the Holder and thus refunded to the Company.

 

 

[Remainder of page intentionally left blank]

 

  

  

  

 

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

 

 

 

THE COMPANY:

TapImmune Inc.

By:                                                      

Name:                                                                

Title:                                                      

ACKNOWLEDGED, ACCEPTED AND AGREED:

[___]

By: _________________________

       

  

  

  

 

 

EXHIBIT A

[___]

TapImmune Inc.                                                           Date:                                           

Attn: _________________

1551 Eastlake Avenue East, Suite 100

Seattle, Washington 98102

CONVERSION NOTICE

The above-captioned Holder hereby gives notice to TapImmune Inc., a Nevada corporation (the “Company”), pursuant to that certain Convertible Promissory Note made by the Company in favor of the Holder on October 15, 2012 (the “Note”), that the Holder elects to convert the portion of the Note balance set forth below into fully paid and non-assessable shares of Common Stock of the Company as of the date of conversion specified below.  Said conversion shall be based on the Conversion Price set forth below.  In the event of a conflict between this Conversion Notice and the Note, the Note shall govern, or, in the alternative, at the election of the Holder in its sole discretion, the Holder may provide a new form of Conversion Notice to conform to the Note. Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.

 

	
  

	
A.

	
Date of conversion:

	
____________

	
  

	
B.

	
Conversion #:

	 	
____________

	
  

	
C.

	
Conversion Amount:

	
____________

	
  

	
D.

	
Conversion Price:  _______________

	
  

	
E.

	
Section 3 Conversion Shares:  _______________ (C divided by D)

	
  

	
F.

	
Remaining Outstanding Balance of Note:  ____________

 

$_________________ of the Conversion Amount converted hereunder shall be deducted from the Installment Amount(s) relating to the following Installment Date(s): __________________________________________.

Please transfer the Section 3 Conversion Shares electronically (via DWAC) to the following account:

Broker:                                                 Address:                      

DTC#:                                                 

Account #:                                                           

Account Name:                                                           

To the extent the Section 3 Conversion Shares are not able to be delivered to the Holder electronically via the DWAC system, please add additional certificated Common Stock equal to five percent (5%) of the number of Section 3 Conversion Shares so converted (per Section 3.3(a) of the Note), and deliver all such certificated shares to the Holder via reputable overnight courier after receipt of this Conversion Notice (by facsimile transmission or otherwise) to:

_____________________________________

_____________________________________

_____________________________________

Sincerely,

Holder:                      [___]

By: _________________________

       

  

  

  

EXHIBIT B

ACKNOWLEDGMENT

The Company hereby acknowledges this Conversion Notice and hereby directs _______________ to issue the above indicated number of shares of Common Stock in accordance with the Irrevocable Instructions to Transfer Agent dated October 15, 2012 from the Company and acknowledged and agreed to by ___________________.

 

	  
	
TapImmune Inc.

 

 

 

	
By: ________________________

	
Name: ______________________

	
Title: _______________________

 

  

  

  

EXHIBIT C-1

TapImmune Inc.

1551 Eastlake Avenue East, Suite 100

Seattle, Washington 98102

 

PRE-INSTALLMENT NOTICE

 

The above-captioned Company hereby gives notice to Tonaquint, Inc., a Utah corporation (the “Holder”), pursuant to that certain Convertible Promissory Note made by the Company in favor of the Holder on October 15, 2012 (the “Note”), of certain Company elections and certifications related to payment of the Installment Amount of $_________________ due on ___________, 201_ (the “Installment Date”). In the event of a conflict between this Installment Notice and the Note, the Note shall govern, or, in the alternative, at the election of the Holder in its sole discretion, the Holder may provide a new form of Installment Notice to conform to the Note.  Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.

 

PRE-INSTALLMENT ELECTIONS AND CERTIFICATIONS

AS OF THE PRE-INSTALLMENT NOTICE DUE DATE

	
A.  

	
COMPANY ELECTIONS

 

The Company elects to pay the Installment Amount as follows (check one):

 

	
______(i)

	
Redeeming the Installment Amount in cash in accordance with Section 8 of the Note (“Company Redemption”) (if selected, no other sections of this Notice need to be completed)

 

	
______(ii)

	
Converting the Installment Amount in accordance with Section 8 of the Note (“Company Conversion”) (if selected, complete Section B(1) and Section (C) of this Notice)

 

	
______(iii)

	
Combination of Company Redemption and Company Conversion (if selected, complete Section B(2) and Section (C) of this Notice)

 

	
B.  

	
COMPANY CONVERSION (if applicable)

 

	
1.  

	
Company Conversion:

 

	
  

	
A.

	
Pre-Installment Notice Due Date: ____________, 201_

	
  

	
B.

	
Company Conversion Amount:

	
_____________

	
  

	
C.

	
Pre-Installment Conversion Price:  _______________ (lower of (i) Conversion Price in effect and (ii) Market Price as of Pre-Installment Notice Due Date)

	
  

	
D.

	
Pre-Installment Conversion Shares:  _______________ (B divided by C)

	
  

	
E.

	
Excess shares to be applied from previous installment (if any): _____________

	
  

	
F.

	
Installment shares to be delivered: ________________ (D minus E)

	
  

	
G.

	
Remaining Note balance:  ____________

	
2.  

	
Combination of Company Redemption and Company Conversion (if elected above):

 

	
  

	
A.

	
Pre-Installment Notice Due Date: ____________, 201_

	
  

	
B.

	
Installment Amount:

	
____________

	
  

	
C.

	
Company Redemption Amount: _____________

	
  

	
D.

	
Company Conversion Amount: _____________ (B minus C)

	
  

	
E.

	
Pre-Installment Conversion Price:  _______________ (lower of (i) Conversion Price in effect and (ii) Market Price as of Pre-Installment Notice Due Date)

	
  

	
F.

	
Pre-Installment Conversion Shares:  _______________ (D divided by E)

	
  

	
G.

	
Excess shares to be applied from previous installment (if any): _____________

	
  

	
H.

	
Installment shares to be delivered: ________________ (F minus G)

	
  

	
I.

	
Remaining Note balance:  ____________

  

  

  

	
C.  

	
EQUITY CONDITIONS CERTIFICATION (if applicable)

 

	
1.  

	
Market Capitalization of the Common Stock:________________

 

(Check One)

 

	
2.  

	
_________The Company herby certifies that no Equity Conditions Failure exists as of the Pre-Installment Notice Due Date.

 

	
3.  

	
_________The Company hereby gives notice that an Equity Conditions Failure has occurred and requests a waiver from the Holder with respect thereto.  The Equity Conditions Failure is as follows:

 

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

 

Sincerely,

 

Company:  TapImmune Inc.

 

 

By: ___________________________________

 

Name: ______________________________

 

Title: _______________________________

 

  

  

  

 

EXHIBIT C-2

TapImmune Inc.

1551 Eastlake Avenue East, Suite 100

Seattle, Washington 98102

 

                                                                                           Date:                                           

INSTALLMENT DATE NOTICE

 

The above-captioned Company hereby gives notice to Tonaquint, Inc., a Utah corporation (the “Holder”), pursuant to that certain Convertible Promissory Note made by the Company in favor of the Holder on October 15, 2012 (the “Note”), of Post-Installment Conversion Shares and Equity Conditions Certifications related to _____________, 201_ (the “Installment Date”). In the event of a conflict between this Installment Notice and the Note, the Note shall govern, or, in the alternative, at the election of the Holder in its sole discretion, the Holder may provide a new form of Installment Notice to conform to the Note.  Capitalized terms used in this notice without definition shall have the meanings given to them in the Note.

 

POST-INSTALLMENT CONVERSION SHARES AND CERTIFICATIONS

AS OF THE INSTALLMENT DATE

	
1.  

	
POST-INSTALLMENT CONVERSION SHARES

 

	
A.  

	
Pre-Installment Notice Due Date: ____________, 201_

 

	
B.  

	
Company Conversion Amount:                                                        _____________

 

	
C.  

	
Post-Installment Conversion Price:  _______________ (lower of (i) Conversion Price in effect and (ii) Market Price as of Installment Date)

 

	
D.  

	
Post-Installment Conversion Shares:  _______________ (B divided by C)

 

	
E.  

	
Pre-Installment Conversion Shares delivered: ________________

 

	
F.  

	
Post-Installment Conversion Shares to be delivered: ________________ (only applicable if D minus E is greater than zero)

 

	
G.  

	
Pre-Installment Conversion Shares to be applied to next installment or returned:_________________ (only applicable if D minus E is less than zero and no Payment Default has occurred)

 

	
H.  

	
Pre-Installment Conversion Shares to be retained by the Holder because of a Payment Default: _________________ (only applicable if D minus E is less than zero and a Payment Default has occurred)

 

	
2.  

	
EQUITY CONDITIONS CERTIFICATION

 

	
A.  

	
Market Capitalization of the Common Stock:________________

 

(Check One)

 

	
B.  

	
_________The Company herby certifies that no Equity Conditions Failure exists as of the applicable Installment Date.

 

	
C.  

	
_________The Company hereby gives notice that an Equity Conditions Failure has occurred and requests a waiver from the Holder with respect thereto.  The Equity Conditions Failure is as follows:

 

____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

 

 

Sincerely,

 

Company:  TapImmune Inc.

 

 

By: ___________________________________

 

Name: _____________________________

 

Title: ______________________________Exhibit_10.107

EXHIBIT 10.107 

Midwest ISO                        Third Revised Service Agreement No.1926
FERC Electric Tariff,                    Superseding Second Revised Service Agreement No.1926
Fifth Revised Volume No. 1

Amendment and Restatement of the

April 1, 2001

DISTRIBUTION-TRANSMISSION
INTERCONNECTION AGREEMENT

by and between

Michigan Electric Transmission Company, LLC

as Transmission Provider

and

Consumers Energy Company

as Local Distribution Company

Effective:  June 1, 2012

1

TABLE OF CONTENTS

ARTICLE 1.        Definitions

ARTICLE 2.        Operational Requirements

ARTICLE 3:        Operation and Maintenance

ARTICLE 4.        Supervisory Control and Data Acquisition, SCADA

ARTICLE 5.        Revenue Metering

ARTICLE 6.        Protective Relaying and Control

ARTICLE 7.        Planning and Obligation to Serve

ARTICLE 8.        Transmission Service Level

ARTICLE 9.        New Construction and Modification

ARTICLE 10.        Access to Facilities

ARTICLE 11.        Notifications and Reporting

ARTICLE 12.        Safety

ARTICLE 13.        Environmental Compliance and Procedures

ARTICLE 14.        Billings and Payment

ARTICLE 15.        Applicable Regulations and Interpretation

ARTICLE 16.        Force Majeure

ARTICLE 17.        Indemnification

ARTICLE 18.        Insurance

ARTICLE 19.        Several Obligations

ARTICLE 20.        Confidentiality

ARTICLE 21.        Breach, Default and Remedies

ARTICLE 22.        Term

ARTICLE 23.        Assignment/Change in Corporate Identity

ARTICLE 24.        Subcontractors

ARTICLE 25.        Dispute Resolution

ARTICLE 26.        Miscellaneous Provisions

EXHIBIT 1.        Interconnection Points (Substations) Addendum 6, Final 09/23/11

2

EXHIBIT 2.        Contact Information for Local Distribution Company’s 
Representatives and Transmission Provider’s Representatives

EXHIBIT 3.        Special Manufacturing Contracts Influenced by Transmission 
System

EXHIBIT 4.        Metering Specifications

EXHIBIT 5.        Respective Ownership of Substation Facilities Since August 7, 2007 - Addendum 4, Final 11/28/11

EXHIBIT 6        Jointly Owned Assets - Ownership by Percent of Major Equipment Addendum 6, Final 11/28/11

3

Amendment  and Restatement of the
DISTRIBUTION TRANSMISSION INTERCONNECTION AGREEMENT

This Amendment and Restatement of the April 1, 2001 Distribution Transmission  Interconnection Agreement (“Agreement”) is entered into April 29, 2002, by and between the Michigan Electric Transmission Company, LLC, a Michigan corporation (“Transmission Provider”), having a place of business at 27175 Energy Way, Novi, Michigan 48377, and Consumers Energy Company (“Local Distribution Company”), a Michigan company, doing business in Michigan and having a place of business at One Energy Plaza, Jackson, Michigan,  49201.  Transmission Provider and Local Distribution Company are individually referred to herein as a “Party” and collectively as “Parties.”  This Agreement amends, restates and completely replaces the April 1, 2001 Distribution Transmission Interconnection Agreement between the Parties, effective on the date indicated above.

WHEREAS, Transmission Provider requires access to parts of Local Distribution Company’s assets, and Local Distribution Company requires access to parts of Transmission Provider’s assets; and

WHEREAS, the Parties have agreed to execute this mutually acceptable Agreement in order to provide interconnection of the Local Distribution Company with the Transmission Provider and to define the continuing rights, responsibilities, and obligations of the Parties with respect to the use of certain of their own and the other Party’s property, assets, and facilities.

NOW, THEREFORE, in consideration of their respective commitments set forth herein, and intending to be legally bound hereby, the Parties covenant and agree as follows:

ARTICLE 1.  Definitions

Wherever used in this Agreement with initial capitalization, the following terms shall have the meanings specified or referred to in this Article 1.

		
	1.1
	Administrative Committee means the committee established pursuant to Article 6 of the Operating Agreement dated April 1, 2001, as amended and restated, between Local Distribution Company and Transmission Provider.

		
	1.2
	Agreement means this Interconnection Agreement between Local Distribution Company and Transmission Provider, including all attachments hereto, as the same may be amended, supplemented, or modified in accordance with its terms

		
	1.3
	Black Start Capability shall mean a generating unit that is capable of starting without an outside electrical supply.

		
	1.4
	Black Start Plan shall mean a plan utilizing Black Start Capability designed and implemented by the Transmission Provider in conjunction with its interconnected generation and distribution customers, Distribution System Control, other electric systems, its Security Coordinator and ECAR, to energize portions of the Transmission System which are de-energized as a result of a widespread system disturbance.

		
	1.5
	Commission shall mean the Michigan Public Service Commission (MPSC), or its successor.

		
	1.6
	Confidential Information shall have the meaning set forth in Section 20.1 hereof.

		
	1.7
	Control Area shall mean an electric system, bounded by interconnection metering and telemetry.  Generation within the Control Area is directed to operate in a manner prescribed by guidelines established by ECAR and NERC and in accordance with Good Utility Practice to (a) maintain scheduled interchange with other Control Areas, (b) maintain the operating frequency and (c) provide sufficient generating capacity to maintain operating reserves.

		
	1.8
	Distribution System shall mean the equipment and facilities and the Interconnection Equipment owned by the Local Distribution Company and used to deliver power and energy to end users including transformers, switches, and feeders rated at Nominal Voltage of 138 kilovolts (kV) or less.

		
	1.9
	Distribution System Control shall mean the entity that has the ability and the obligation to operate the Distribution System Control Area to ensure that the aggregate electrical demand and energy requirements of the load is met at all times, taking into account scheduled and reasonably expected unscheduled outages of system elements.

4

		
	1.10
	Distribution System Control Area shall mean a Control Area whose load and generation, and other bulk power supply points are integrated by the Transmission System.

		
	1.11
	Distribution System Control Center shall mean the electric Distribution System Control Center(s) that is/are responsible for monitoring and controlling the Distribution System in real time.

		
	1.12
	Distribution Transformer shall mean an electrical transformer which, generally, has its secondary low-side windings rated at Nominal Voltage of less than 138 kV.

		
	1.13
	Due Diligence shall mean the exercise of good faith efforts to perform a required act on a timely basis and in accordance with Good Utility Practice using the necessary technical and personnel resources.

		
	1.14
	ECAR is an acronym, which stands for the East Central Area Reliability coordination agreement.  This is the Agreement under which Transmission Providers, who are signatories of the agreement, establish regional coordination practices and guides to govern the electric coordinated operation and reliability of the East Central Region of North America.

		
	1.15
	Effective Date shall mean the closing date as defined in the Membership Interests Purchase Agreement between the Parties.

		
	1.16
	Eligible Customer shall have the same meaning as that term is defined under the Transmission Provider’s OATT on file with the FERC.

		
	1.17
	Emergency means a condition or situation that in the reasonable good faith determination of the affected Party in accordance with Good Utility Practice contributes to an existing or imminent physical threat of danger to life or a significant threat to health, property or the environment.

		
	1.18
	Extended Outage shall mean an Unplanned Outage, in which facilities are automatically removed from service (typically by relay-action operating circuit breakers), with a duration of more than two (2) minutes.

		
	1.19
	FERC shall mean the Federal Energy Regulatory Commission or its successor federal agency.

		
	1.20
	Force Majeure shall have the meaning set forth under Article 16 hereof.

		
	1.21
	Forced Outage shall mean an Unplanned Outage, in which facilities are removed from service by operator intervention and not automatically such as by relay-action operating circuit breakers.

		
	1.22
	Good Utility Practice shall mean any of the practices, methods and acts engaged in or approved by a significant portion of the electric utility industry during the relevant time period, or any of the practices, methods and acts which, in the exercise of reasonable judgment in light of the facts known at the time the decision was made, could have been expected to accomplish the desired result at a reasonable cost consistent with good business practices, reliability, safety and expedition.  Good Utility Practice is not intended to be limited to the optimum practice, method, or act to the exclusion of all others, but rather includes all acceptable practices, methods, or acts generally accepted in the region.

		
	1.23
	Governmental Authority shall mean any foreign, federal, state, local or other governmental regulatory or administrative agency, court, commission, department, board, or other governmental subdivision, legislature, rulemaking board, tribunal, arbitrating body, or other governmental authority; provided such entity possesses valid jurisdictional authority to regulate the Parties and the terms and conditions of this Agreement.

		
	1.24
	ISO means Independent System Operator.

		
	1.25
	Interconnection Equipment shall mean all the equipment that is necessary for the interconnection of the Distribution System to the Transmission System which is located at the substations listed in Exhibit 1 hereto as it may be revised from time to time.

		
	1.26
	Interconnection Point(s) shall mean the point(s) at which the Distribution System is connected to the Transmission System, as set forth in Exhibit 1 hereto as it may be revised from time to time.

		
	1.27
	Interconnection Service shall mean the services provided by the Transmission Provider for the interconnection of the Distribution System with the Transmission System.  Interconnection Service does not include the right to transmission 

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service on the Transmission System, which service shall be obtained in accordance with the provisions of the Transmission Provider’s OATT.

		
	1.28
	Interconnection Standards shall be those standards provided by the Transmission Provider to the Local Distribution Company to establish and maintain interconnection operation in compliance with standards of NERC, ECAR, applicable state or federal regulations or by mutual agreement of the Parties.

		
	1.29
	Interest Rate shall mean an annual percentage rate of interest equal to the lesser of (a) the prime rate published by the Wall Street Journal (which represents the base rate on corporate loans posted by at least 75% of the nation’s banks) on the date due, plus 2%, or (b) the highest rate permitted by law.

		
	1.30
	Jointly Owned Assets shall mean those assets in which the Transmission Provider and Local Distribution Company have undivided ownership interests. Due to the nature of substation designs, many of the supporting substation assets (e.g., station batteries, fence, control houses, ground grid, yard stone, steel structures, and some protective relay equipment) cannot be separated by ownership and the Parties share in the ownership of such assets.  The respective ownership of such assets by substation is shown in Exhibit 6.

		
	1.31
	Knowledge shall mean actual knowledge of the corporate officers or managers of the specified Person charged with responsibility for the particular function as of the Effective Date of this Agreement, or, with respect to any certificate delivered pursuant to the Agreement, the date of delivery of the certificate.

		
	1.32
	Least-Cost shall mean the lowest Transmission System and Distribution System facility costs, over the life of the facility, to accommodate an improvement need while adequately providing for reliability, operating, and maintenance requirements.

		
	1.33
	Local Distribution Company shall mean Consumers Energy Company and its successors and assigns.

		
	1.34
	Local Distribution Company Provided Services shall mean those services provided by the Local Distribution Company for the Transmission Provider by mutual agreement or contract.

		
	1.35
	Local Distribution Company’s Representative shall be that  person(s) identified as the point of contact for day-to-day operations of the Distribution System, identified in Section 2.3.

		
	1.36
	Momentary Outage shall mean a Distribution or Transmission System (in whole or in part) interruption in service with a duration of two (2) minutes or less.

		
	1.37
	Momentary Outage Event shall mean one or more Momentary Outages within any 60-minute period that are attributable to the same root cause.

		
	1.38
	NERC shall mean the North American Electric Reliability Council or its successor.

		
	1.39
	Network Security shall mean the ability of the Transmission System to withstand sudden disturbances such as unforeseen conditions, electric short circuits or unanticipated loss of system elements consistent with reliability principles used to design, plan, operate, and assess the actual or projected reliability of an electric system that are established by any Governmental Authority, NERC or ECAR and which are implemented by Transmission Provider or required of Transmission Provider in compliance with Security Coordinator directives.

		
	1.40
	Network Security Condition shall mean a condition or situation in which, in the reasonable good faith determination of Transmission Provider, Network Security is not satisfied or is threatened.

		
	1.41
	Nominal Voltage shall mean an accepted standard voltage level offered by the Transmission Provider, at various points on the Transmission System, including but not limited to 120 kV, 138 kV and 345 kV.

		
	1.42
	Normal System Condition shall mean any operating conditions of the Transmission System other than an Emergency or Network Security Condition.

		
	1.43
	Open Access Transmission Tariff or OATT shall mean the Open Access Transmission Tariff of the Transmission Provider on file with the FERC.

6

		
	1.44
	Operating Committee means the committee established pursuant to Section 6.4.3 of the Operating Agreement dated April 1, 2001, as amended and restated, between Local Distribution Company and Transmission Provider.

		
	1.45
	Party or Parties shall have the meaning set forth in the introductory paragraph of this Agreement.

		
	1.46
	Person shall mean any individual, partnership, limited liability company, joint venture, corporation, trust, unincorporated organization, or governmental entity or any department or agency thereof.

		
	1.47
	Planned Outage shall mean action by (i) Local Distribution Company or Transmission Provider to take its equipment, facilities or systems out of service, partially or completely, to perform work on specific components that is scheduled in advance and has a predetermined start date and duration pursuant to the procedures set forth in Sections 3.9.1, 3.9.2, and 3.9.4.  Planned Outage shall not include the construction of new facilities or system elements, the modification of existing facilities or system elements addressed in Article 9, which includes, but is not limited to, activities associated with the construction of third party facilities or with the modifications required to accommodate third party facilities.

		
	1.48
	Planning Committee means the committee established pursuant to Section 6.4.3 of the Operating Agreement dated April 1, 2001, as amended and restated, between Local Distribution Company and Transmission Provider.

		
	1.49
	Protective Relay is a device which detects abnormal power system conditions and, in response, initiates automatic control action

		
	1.50
	Protective Relay System is a group of Protective Relays and associated sensing devices and communications equipment that detects system abnormalities and performs automatic control action to mitigate or reduce adverse effects of such abnormalities.

		
	1.51
	Qualified Personnel shall mean individuals trained for their positions in accordance with Good Utility Practice.

		
	1.52
	RTO means Regional Transmission Organization.

		
	1.53
	Regulated Substance means any contaminant, hazardous waste, hazardous substance, hazardous constituent, or toxic substance, as defined in the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 USC 9601 et seq, Resource Conservation and Recovery Act (RCRA), 42 USC 6901 et seq, Toxic Substances Control Act (TSCA), 15 USC 2601 et seq, The Michigan Natural Resources and Environmental Protection Act (MCLA 324.101 et seq); or any other similar statutes now or hereafter in effect.

		
	1.54
	Release shall mean, spill, leak, discharge, dispose of, pump, pour, emit, empty, inject, leach, dump, or allow to escape into or through the environment.

		
	1.55
	Revenue Quality Metering System shall mean a system which includes current and voltage instrument transformers, secondary wiring, test switches, meter transducer(s), meter and loss compensation as set forth in Article 5.

		
	1.56
	RTU - Remote Terminal Units shall mean a device connected by a communication system to one or more master computers with appropriate software placed at various locations to collect data and perform remote control.  It may also perform intelligent autonomous control of electrical systems and report the results back to the master computer(s).

		
	1.57
	Security Coordinator shall mean a NERC-approved entity that provides the security assessment and emergency operations coordination for one or more Control Areas or transmission providers and which has operational authority under NERC standards over the Transmission Provider.

		
	1.58
	Steady-State Voltage shall mean the value of a voltage after all transients have decayed to a negligible value.  The root-mean-square value in the steady-state does not vary with time.

		
	1.59
	Supervisory Control and Data Acquisition (SCADA) shall mean a system that provides data acquisition, supervisory control and alarm display and control from remote field locations to control centers.

		
	1.60
	Transmission Provider shall mean the Michigan Electric Transmission Company, LLC and its successors and assigns.

		
	1.61
	Transmission Provider’s Representative(s) shall be that person(s) identified as the point for contact for day-to-day operations of the Transmission System, identified in Section 2.3.

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	1.62
	Transmission System shall mean all the facilities of the Transmission Provider that perform a “Transmission” function, as defined in Section 1.1 of the Easement Agreement between the Parties, dated April 29, 2002, as modified by Section 3.4 of this Agreement.

		
	1.63
	Transmission System Operations Center(s) shall mean the electric Transmission System control center(s) that is/are responsible for monitoring and controlling the Transmission System in real time.

		
	1.64
	Unplanned Outage shall mean action by Local Distribution Company or Transmission Provider to take its equipment, facilities or systems out of service, partially or completely, due to an unanticipated failure, when such removal from service was not scheduled in accordance with Sections 3.9.1, 3.9.2, and 3.9.4.  Such removal from service may be automatic such as by relay-action operating circuit breakers or by operator intervention.  Momentary interruptions are excluded from the definition of Unplanned Outages.  Unplanned Outages include Forced Outages as well as Extended Outages.

ARTICLE 2.  Operational Requirements

		
	2.1
	Subject to the terms and conditions of this Agreement, Transmission Provider shall provide Local Distribution Company Interconnection Service for each Interconnection Point identified in Exhibit 1, from the Effective Date for the term of this Agreement.

		
	2.2
	The Interconnection Points between the Transmission System and Distribution System are listed in Exhibit 1.  It shall be the Transmission Provider’s responsibility to annually prepare an addendum to this exhibit that shows all new or modified interconnections.  The original Exhibit 1 and all addendums shall be retained for future reference.

		
	2.3
	Local Distribution Company’s Representatives and Transmission Provider’s Representatives are listed in Exhibit 2, as may be modified from time to time by either Party, giving written notice of changes regarding its Representative(s) to the other Party.

		
	2.4
	Interconnection Standards

		
	2.4.1
	The Interconnection Point(s) shall be established and maintained in accordance with Good Utility Practice and the applicable NERC, Federal, State, OATT and ECAR standards and policies for Transmission Provider service to Local Distribution Company.

		
	2.4.2
	Reactive Power. Transmission Provider and Local Distribution Company recognize and agree that they have a mutual responsibility for maintaining voltage at the Interconnection Points.  Transmission Provider is responsible for maintaining Transmission System voltage as listed in Sections 8.1, 8.2 and 8.3 and reasonably compensating for reactive power losses resulting from transmission service.  The Local Distribution Company is responsible for controlling Distribution System voltage and compensating for Distribution System reactive power losses and reactive power consumed by retail customers.  The Local Distribution Company may use a combination of static and dynamic reactive resources at various locations around the Transmission Provider’s system.  The Local Distribution Company’s and the Transmission Provider’s SCADA systems shall be used to determine the net exchange of reactive power on a total interconnections basis.  For those distribution substations where there are no SCADA facilities in place the reactive flows shall be determined from SCADA data on the connecting lines in conjunction with computer load flow simulations.  At load levels below 90% of peak the system should be designed such that the average power factor for the sum of all Interconnection Points is between 90% lagging and 90% leading (“peak” as used here shall refer to a current year’s maximum MW load for the Local Distribution Company).  For load levels above 90% of peak the power factor should be at 98% (lagging or leading), or better. If the power factor falls below this minimum the Planning Committee shall review available options and determine the best method of addressing any resulting system problems.

		
	2.5(a)
	The Local Distribution Company shall comply with Transmission Provider’s reasonable operating requirements or switching procedures.  The Local Distribution Company shall verbally notify the Transmission Provider if the Local Distribution Company is unable to comply with this Section at any time during the term of the Agreement.

		
	(b)
	The Transmission Provider shall comply with Local Distribution Company’s reasonable operating requirements or switching procedures.  The Transmission Provider shall verbally notify the Local Distribution Company if the Transmission Provider is unable to comply with this Section at any time during the term of the Agreement.  

8

		
	2.6
	Local Distribution Company shall comply with the requests, orders, directives and requirements of Transmission Provider in its role of implementing the directives of the Security Coordinator.  Any such requests, orders, directives or requirements of Transmission Provider must be (a) issued in accordance with Good Utility Practice, (b) not unduly discriminatory, (c) otherwise in accordance with applicable tariffs or applicable federal, state or local laws, (d) in conformance with NERC operating procedures, and (e) reasonably necessary to maintain the integrity of the Transmission System.

		
	2.7
	Load Shedding

		
	2.7.1
	Local Distribution Company shall comply, as part of a Control Area program, with installation of automatic underfrequency load shedding equipment and maintain compliance with the standards set forth in NERC and ECAR operating standards and policies at Transmission Provider’s expense.

		
	2.7.2
	The Transmission Provider may direct the Local Distribution Company to shed load to maintain the reliability and integrity of the Transmission System, in accordance with the OATT.  The Transmission Provider and the Local Distribution Company will comply with MPSC directives and will endeavor to minimize the impact on the Local Distribution Company customers.

		
	2.8
	Not a Reservation for Transmission Service

		
	2.8.1
	Local Distribution Company, or an Eligible Customer under the OATT, shall be responsible for making arrangements under the OATT for transmission and any ancillary services associated with the delivery of capacity and/or energy purchased or produced by the Local Distribution Company, which services shall not be provided under this Agreement.

		
	2.8.2
	Local Distribution Company and Transmission Provider make no guarantees to the other under this Agreement with respect to transmission service that is available under the Transmission Provider’s OATT or any other tariff under which transmission service may be available in the region.  Nothing in this Agreement shall constitute an express or implied representation or warranty with respect to the current or future availability of transmission service.  Should the Parties enter into an arrangement under the OATT or another tariff, any terms in this Interconnection Agreement that may be in conflict with that tariff shall be subordinate to the terms of that tariff.

ARTICLE 3.  Operation and Maintenance

		
	3.1
	The Operating Committee shall develop specific methods and procedures with respect to Local Distribution Company’s and Transmission Provider’s systems covering at least, but not limited to, the following areas:  safety, voltage control, outage planning and implementation, service restoration, emergency operations procedures, frequency controls, environmental matters, and maintenance planning and execution.

		
	3.2
	Exhibit 5 reflects ownership changes since August 7, 2007.  Exhibit 5 Wiring Diagrams (WDs) will be updated continuously in each Party’s Drawing Management System (DMS) which is shared between the Parties and approved by both Parties at least annually when Exhibit 6 is updated to show changes in ownership.  For purpose of this Section 3.2, such submission and approval of changes shall be in writing consistent with Section 11.1.  For current ownership (reflecting ownership changes since August 7, 2007), see the WDs in the DMS.  The original Exhibit 5 WDs and all updates will be retained for future reference.

		
	3.3
	All operation and maintenance activities will be the financial responsibility of the owning Party.  All operation and maintenance activities on Jointly Owned Assets will be under the direction and control of the Party that owns the greater percentage of the major equipment at that location.  In the case where both Parties own an equal share the Local Distribution Company shall have such direction and control.  The Parties’ respective share of responsibility for the costs of all operation and maintenance activities on Jointly Owned Assets shall be the same percentage as the percentage of major equipment owned by the Party in that substation as set forth in Exhibit 6 and its subsequent addendums.  All generation-related assets owned by the Local Distribution Company in a substation will be included as a part of the Local Distribution Company’s assets in making this calculation. Responsibilities related to third-party owned generation-related assets will be split according to the nominal operating voltage at the point of connection of the generation circuit. At 120kV and above the third-party generation-related assets will be included as a part of the Transmission Provider’s assets for purposes of making this calculation. Below 120 kV the third-party generation-related assets will be included as a part of the Local Distribution Company’s assets for purposes of making this calculation. Major equipment shall be defined as main power transformers, 

9

23 kV, 46 kV, 138 kV, and 345 kV circuit breakers, power system regulators and reclosers, and 46 kV and 138 kV capacitor banks. (Any three-phase installation of such equipment shall count as a single unit). Exhibit 6 will be updated with an addendum at least annually by the Transmission Provider and approved in writing by the Local Distribution Company to show all changes in equipment ownership in the joint substations.  The original Exhibit 6 and all addendums will be retained for future reference. In those substations where each Party owns assets each Party shall be financially responsible for its appropriate share of station power energy usage.

		
	3.4
	The Parties agree that the principles upon which the initial identification was made of facilities as being either Transmission or Distribution (See the definitions of “Transmission” and “Distribution” in Section 1.1 of the Amended and Restated Easement Agreement dated April 29, 2002 between the Parties) shall continue to be applied for the future unless modification is agreed to by both Parties.  Should future system modifications result in the reclassification of assets, the Parties agree to convey ownership of those assets to the appropriate Party.  However, no such reclassification shall affect how the other Sections of this Agreement are applied until there is a change in ownership of the facilities involved and until any related changes are made to this Agreement and its exhibits.  Upon such a change in ownership, the Planning Committee shall revise Exhibits 6 and/or 7 when needed to reflect the change in ownership.    The conveyed facilities shall be priced at 1.18 times the seller’s net plant value but in any case shall not be less than zero dollars (i.e. no payment from seller to purchaser will occur as a result of net plant value being less than zero).  As used herein, “net plant value” shall mean the asset’s original cost depreciated according to the seller’s accepted accounting method. In addition, should either Party plan to abandon or otherwise take out of service any facilities which could be of use as part of the other Party’s system, it shall offer to convey to the other Party such facilities before they are taken out of service under the same pricing formula outlined above.  All types of conveyances discussed in this paragraph shall be subject to the following conditions:

		
	(a)
	The Planning Committee shall within 12 months of the Effective Date of this Agreement develop appropriate timeframes and procedures for accomplishing such conveyances.

		
	(b)
	At least 12 months (or as close as feasible to 12 months) before implementing system modifications which would result in such a conveyance, the Party planning to do such modifications shall notify the other Party of such plans.  The other Party, if it wishes, shall then have 2 months within which to propose an alternative modification which is consistent with Good Utility Practice, which would reduce or eliminate the need for conveyances, and which would cost the Party seeking to do the modifications no more than the originally proposed modification.  If such an alternative is provided in a timely manner, the Party proposing to do the modification shall consider the alternative and shall not unreasonably refuse to pursue the alternative instead of the original proposal.

		
	(c)
	Possible impediments to timely conveying the property in question (e.g. difficulty in getting release from the conveyor’s indenture) shall be referred to the Administrative Committee.  The Administrative Committee is authorized to modify the requirements of this Section with regard to such a specific proposed modification however it deems appropriate in light of the possible impediment and other circumstances.

		
	3.5
	Each Party shall operate any equipment that might reasonably be expected to have impact on the operations of the other Party in a safe and efficient manner and in accordance with all applicable federal, state, and local laws, NERC operating practices, and Good Utility Practice, and otherwise in accordance with the terms of this Agreement.  Each Party shall comply with the reasonable requests, orders, directives and requirements of the other Party, which are authorized under this Agreement.

		
	3.6(a)
	Without limiting the generality of Section 3.5, Local Distribution Company shall own, operate and maintain its Distribution System in a manner in accordance with Good Utility Practice to prevent degradation of voltage or services of the Transmission System.  The Local Distribution Company shall be responsible for the costs to repair or replace the Distribution System and Local Distribution Company’s Interconnection Equipment.

		
	3.6(b)
	Without limiting the generality of Section 3.5, Transmission Provider shall own, operate and maintain its Transmission System in a manner in accordance with Good Utility Practice to prevent degradation of voltage or services of Local Distribution Company’s Distribution System.  The Transmission Provider shall be responsible for the costs to repair or replace the Transmission System and Transmission Provider’s Interconnection Equipment.

		
	3.6(c)
	Without limiting the generality of Section 3.5, Local Distribution Company or Transmission Provider, as appropriate pursuant to Section 3.3 hereof, shall operate and maintain Jointly Owned Assets in a manner in accordance with Good Utility Practice to prevent degradation of voltage or services to either Party. 

10

		
	3.7(a)
	Except during an Emergency, Local Distribution Company shall not, without prior Transmission Provider authorization, operate any Transmission Provider circuit, including transformer, line or bus elements. Local Distribution Company shall retain the right to operate Transmission Provider equipment during an Emergency for imminent personnel safety threat, to prevent damage to equipment or to maintain the integrity of the Distribution System.  When practical, prior to operation of such equipment, Local Distribution Company shall provide notice to the Transmission Provider.  The Local Distribution Company shall not operate any Transmission System circuit if upon notice the Transmission Provider expressly refuses to grant permission to the Local Distribution Company.  Within five (5) working days of such Emergency, Local Distribution Company shall provide written explanation of such Emergency to Transmission Provider.

		
	3.7(b)
	Except during an Emergency, Transmission Provider shall not, without prior Local Distribution Company authorization, operate any Local Distribution Company circuit, including transformer, line or bus elements.  Transmission Provider shall retain the right to operate Local Distribution Company equipment, during an Emergency for imminent personnel safety threat, to prevent damage to equipment or to maintain the integrity of the Transmission System.  When practical, prior to operation of such equipment, Transmission Provider shall provide notice to Local Distribution Company.  Transmission Provider shall not operate any Distribution System circuit. If upon notice the Local Distribution Company expressly refuses to grant permission to the Transmission Provider.  Within five (5) working days of such Emergency, Transmission Provider shall provide written explanation of such Emergency to Local Distribution Company.

		
	3.7(c)
	In an Emergency, joint facilities shall be operated by the Party able to first respond with Qualified Personnel.

		
	3.8
	Local Distribution Company and Transmission Provider shall design, install, test, calibrate, set, and maintain their respective Protective Relay equipment in accordance with Good Utility Practice, applicable federal, state or local laws and this Agreement, as set forth in Article 6 hereof.  In the case of jointly owned relaying equipment, the Party having direction and control pursuant to Section 3.3 hereof shall design, install, calibrate, set, and maintain Protective Relay equipment in accordance with Good Utility Practice.  Without limiting the generality of Section 3.5(c) above, costs for such work will be split between the Companies on a predetermined ownership percentage basis as set forth in the then-current version of Exhibit 6.

		
	3.9(a)
	If Transmission Provider reasonably determines that (i) any of Local Distribution Company’s Interconnection Equipment fails to perform in a manner in accordance with Good Utility Practice or this Agreement, or (ii) Local Distribution Company has failed to perform proper testing or maintenance of its Interconnection Equipment in accordance with Good Utility Practice or this Agreement, Transmission Provider shall give Local Distribution Company written notice to take corrective action.  Such written notice shall be provided by Transmission Provider to Local Distribution Company’s Representative as soon as practicable upon such determination.  If Local Distribution Company fails to initiate corrective action promptly, and in no event later than seven (7) days after the delivery of such notification, and if in Transmission Provider’s reasonable judgment leaving Local Distribution Company’s Distribution System connected with Transmission System would create an Emergency or Network Security Condition, Transmission Provider may, with as much prior verbal notification to Local Distribution Company and Distribution System Control as practicable, open only the Interconnection Point(s) needing corrective action connecting the Local Distribution Company and Transmission Provider until appropriate corrective actions have been completed by Local Distribution Company, as verified by Transmission Provider.  Prior to taking such action, Transmission Provider shall give appropriate consideration to the needs of the Local Distribution Company’s end-use customers.  Transmission Provider’s judgment with regard to an interruption of service under this paragraph shall be made in accordance with Good Utility Practice and subject to Section 3.1 hereto.  In the case of such interruption, Transmission Provider shall immediately confer with Local Distribution Company regarding the conditions causing such interruption and its recommendation concerning timely correction thereof.  Both Parties shall act promptly to correct the condition leading to such interruption and to restore the connection.

		
	3.9(b)
	If Local Distribution Company reasonably determines that (i) any of Transmission Provider’s Interconnection Equipment fails to perform in a manner in accordance with Good Utility Practice or this Agreement, or (ii) Transmission Provider has failed to perform proper testing or maintenance of its Interconnection Equipment in accordance with Good Utility Practice or this Agreement, Local Distribution Company shall give Transmission Provider written notice to take corrective action.  Such written notice shall be provided by Local Distribution Company to Transmission Provider’s Representative as soon as practicable upon such determination.  If Transmission Provider fails to initiate corrective action promptly, and in no event later than seven (7) days after the delivery of such notification, and if in Local Distribution Company’s reasonable judgment leaving Transmission System connected with Local Distribution Company’s Distribution System would create an Emergency, Local Distribution Company may, with as much prior verbal notification to Transmission Provider and Distribution System Control as practicable, open only the Interconnection Point(s) needing corrective action connecting the Transmission Provider and Local Distribution Company until appropriate corrective actions have been completed by Transmission Provider, as verified by Local Distribution Company.  Local Distribution Company’s judgment 

11

with regard to an interruption of service under this paragraph shall be made in accordance with Good Utility Practice and subject to Section 3.1 hereto.  In the case of such interruption, Local Distribution Company shall immediately confer with Transmission Provider regarding the conditions causing such interruption and its recommendation concerning timely correction thereof.  Both Parties shall act promptly to correct the condition leading to such interruption and to restore the connection.

		
	3.10
	Outages

		
	3.10.1
	Outage Authority and Coordination.  In accordance with Good Utility Practice, each Party may, in close cooperation with the other, remove from service its system elements that may impact the other Party’s system as necessary to perform maintenance or testing or to replace installed equipment.  Absent the existence of an Emergency, the Party scheduling a removal of a system element from service will schedule such removal on a date mutually acceptable to both Parties, in accordance with Good Utility Practice.

		
	3.10.2
	The Parties shall coordinate inspections, Planned Outages, and maintenance of their respective equipment, facilities and systems so as to minimize the impact on the availability, reliability and security of both Parties’ systems and operations when the outage is likely to have a materially adverse impact on the other Party’s system or the Local Distribution Company’s end-use customers.  Subject to the confidentiality provisions of Article 20, on or before October 1 of each year during the term hereof, the Parties shall exchange non-binding Planned Outage schedules for the following calendar year, which shall be developed and followed in accordance with Good Utility Practice, for the Distribution System and Transmission System.  The Parties shall communicate the outage schedules as promptly as possible, provided that in no event shall such schedule be provided less than fifteen (15) days prior to a Planned Outage.  The Parties shall keep each other updated regarding any changes to such schedules.

		
	3.10.3
	Unplanned Outages

		
	3.10.3.1
	Distribution System Unplanned Outage.  In the event of an Unplanned Outage of a system element of the Distribution System adversely affecting the Transmission System, the Local Distribution Company will act in accordance with Good Utility Practice to promptly restore that system element to service unless the Local Distribution Company obtains concurrence from the Transmission Provider that some deferral is reasonable, and this concurrence shall not be unreasonably withheld.  The Local Distribution Company shall plan and maintain its Distribution System such that the average length of distribution system outages having a direct impact on the Transmission System shall not exceed 166 minutes per event on an annual basis.  For any year in which the average outage duration exceeds this limit, the Local Distribution Company shall develop a plan to improve the outage restoration process and reduce outages and shall obtain the Transmission Provider’s concurrence with this plan.  Within forty-eight hours (48) of the beginning of any Unplanned Outage, the Local Distribution Company shall provide the Transmission Provider with a restoration plan.

		
	3.10.3.2
	Transmission System Unplanned Outage.  In the event of an Unplanned Outage of a system element of the Transmission System adversely affecting the Local Distribution Company’s Distribution System, the Transmission Provider will restore the system to normal as soon as possible unless the Transmission Provider obtains concurrence from the Local Distribution Provider that some deferral is reasonable, and this concurrence shall not be unreasonably withheld.  The Transmission Provider shall plan and maintain its Transmission System such that the average length of Transmission System outages having a direct impact on customers of the Local Distribution Company shall not exceed 166 minutes on an annual basis.  For any year in which the average outage duration exceeds this limit, the Transmission Provider shall develop a plan to improve the outage restoration process and reduce outages and shall obtain the Local Distribution Company’s concurrence with this plan.  Within forty-eight hours (48) of the beginning of any Unplanned Outage the Transmission Provider shall provide the Local Distribution Company with a restoration plan.  For any 138 kV system outage it is expected that the system will be restored to its normal configuration within seven (7) days; for any 345 kV system outage it is expected that the system will be restored to its normal configuration within thirty (30) days.  If it is expected that any Unplanned Outage will exceed these limits the Transmission Provider shall provide the Local Distribution Company with detailed information on measures being taken to minimize the outage time.

		
	3.10.4
	Planned Outages

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	3.10.4.1
	Distribution System Planned Outage.  In the event of a Planned Outage of a system element of the Distribution System adversely affecting the Transmission System, the Local Distribution Company will act in accordance with Good Utility Practice to promptly restore that system element to service in accordance with its schedule for the work that necessitated the Planned Outage.

		
	3.10.4.2
	Transmission System Planned Outage.  The Transmission Provider shall review all Transmission System Planned Outages with the Local Distribution Company.  In the event of a Planned Outage of a system element of the Transmission System adversely affecting the Local Distribution Company’s Distribution System, the Transmission Provider will act in accordance with Good Utility Practice to promptly restore that system element to service in accordance with its schedule for the work that necessitated the Planned Outage.

		
	3.11
	The Parties shall use best efforts in accordance with Good Utility Practice to coordinate operations in the event of any Forced or Planned Outage that affects the other Party’s system.

		
	3.12
	Black Start Plan Participation.  In accordance with Good Utility Practice, Local Distribution Company agrees to participate in Transmission Provider’s Black Start Plan for the Distribution System and the Transmission System, as well as any verification testing.

		
	3.13
	The Parties shall notify and make available in a timely manner, electric system modeling information necessary for the other Party to monitor, analyze, and protect its facilities in a real time environment, no less than 30 days prior to the energization of new or reconfigured network facilities.

ARTICLE 4.  Supervisory Control and Data Acquisition, SCADA

		
	4.1
	If the Transmission Provider chooses to operate its own SCADA system, or to make modifications or additions to the existing system, the following terms and conditions of this Article 4 will apply.

		
	4.2
	Interconnection Points containing SCADA and communications equipment installed prior to April 1, 2001, shall be considered to satisfy the terms and conditions of this article.  For those Interconnection Points that existed prior to April 1, 2001 that did not contain SCADA and communications equipment, and for new Interconnection Points installed after April 1, 2001 where SCADA and communications equipment is necessary for and requested by the Transmission Provider to perform monitoring, state estimation and contingency analysis, the Local Distribution Company shall install and operate such equipment at the Transmission Provider’s expense.  Each Interconnection Point or other mutually agreeable location with SCADA and communications equipment shall have one dedicated communications path to the Local Distribution Company’s control center for the RTU data.  The cost of the dedicated communications path and general use station phone shall be shared on an equal basis.  Additional data paths and communications equipment requested, either emanating from the substation, the Local Distribution Company’s control center, or the Transmission Provider’s control center, will be at the expense of the requestor.  This data and status information may be real time or with a time delay mutually acceptable to the Parties.  The method of providing this data and control will be via an industry standard protocol such as Inter-Control Center Protocol (ICCP) or other method agreed to by the Parties.  Such data may include, but not be limited to megawatts, megavars, voltage, amperes, device status, interchange schedule error, and communication system status.

		
	4.3
	The Transmission Provider reserves the right at its expense, to require, for new, or modified Local Distribution Company Interconnection Points, installation of a Transmission Provider’s RTU or installation of a dual port RTU to provide data and control directly to the Transmission Provider within the Local Distribution Company’s substation.  The Local Distribution Company will assist in furnishing desired inputs for the Transmission Provider’s RTU.

		
	4.4
	The operating metering system shall consist of instantaneous values of MW, MVAR, and voltage.

		
	4.4.1
	Values shall be inputted to a RTU or comparable communication device for communication with the Party having Control Area responsibility.

		
	4.4.2
	Transducers may utilize the voltage transformers and current transformer secondary circuits also utilized by the revenue metering equipment for a particular interconnection.  In such case, the performance criteria listed in Exhibit 4 of the Agreement, Metering Specifications, for the voltage transformers and the current transformers, shall apply.  Relaying class voltage transformers and or current transformers shall not be utilized unless mutually agreed between all the owners of the metering equipment and the Local Distribution Company.

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	4.4.3
	Transducers shall have maximum 0.3% inaccuracy.  Transducers shall be field calibrated as necessary but at least once every ten (10) years and documentation shall be retained showing the calibration results until next calibration.

		
	4.4.4
	Telemetry shall be maintained and calibrated such that overall inaccuracy of MW, MVAR, and voltage values is less than 1.0% of full scale.

		
	4.5
	To the extent new RTUs and associated communications equipment is to be installed, the Local Distribution Company shall install or facilitate installation of the RTU and associated communications equipment as soon as practicable, provided that installation shall be accomplished within a time period of no more than 270 days following notice by Transmission Provider or prior to commissioning of any new Interconnection Points.

ARTICLE 5.  Revenue Metering

		
	5.1
	Transmission Provider shall own, operate, test and maintain any metering equipment at the Interconnection Points, as required by this Article 5 not including any metering equipment owned by the Local Distribution Company for use in metering its end-use customers.  Transmission Provider and Local Distribution Company agree that, as to all Interconnection Points in existence as of the Effective Date, no new or different metering equipment or arrangements shall be required.  For existing Interconnection Points where low-side metering exists without loss compensation, the Parties will agree to adjust the metering data in such a manner to account for any real power losses between the location of the meter and the Interconnection Point.  To the extent existing metering equipment is replaced and when new metering equipment is installed at Interconnection Points in existence as of the Effective Date, such replacements or installations shall meet the standards set in Section 5.2.  Transmission Provider shall provide, install, own, operate, test and maintain the new metering equipment located at the Interconnection Points.

		
	5.2
	The Revenue Quality Metering System shall consist of all instrument transformers (current and voltage), secondary wiring, test switches, and meter(s) required to determine the metering values for record for any given metering point.

		
	5.2.1
	Metering shall be form 9, 3-element for 4-wire systems and form 5, 2-element for 3-wire systems.

		
	5.2.2
	Meters shall measure, at a minimum, megawatt hours and megavar hours and have bi-directional capability, where applicable.  All measured values shall have individual outputs where applicable and a minimum 35-day interval data recording capability for each measured value.

		
	5.2.3
	Whenever feasible, any new metering facilities shall be located at the same physical location as the Interconnection Point.  If it is not reasonable to have the metering facilities and the Interconnection Point at the same physical location, the metering data will be adjusted to account for real power losses between the location of the meter and the Interconnection Point.

		
	5.2.4
	Transmission Provider shall maintain records that demonstrate compliance with all meter tests and maintenance conducted in accordance with Good Utility Practice for the life of the Interconnection Point.  Local Distribution Company shall have reasonable access to the records.

		
	5.2.5
	For installations where the metering is performed using loss compensation, the factory certified test results of the power transformer, if available, including load, no-load losses and calculated meter loss calculations, shall be recorded in a written record.  Local Distribution Company shall have reasonable access to the records.

		
	5.2.6
	Transmission Provider shall maintain records of the factory certified test results, or the utility test shop test results, showing compliance of the meters with the applicable metering test standards. 

		
	5.2.7
	Transmission Provider’s Metering equipment shall be tested by Transmission Provider at its own expense not less than once every year, unless an extension of the testing cycle is agreed upon by the Parties.  The accuracy of such metering equipment shall be maintained by Transmission Provider in accordance with applicable regulatory standards.  At the request of either Party, special tests shall be made.  If any special meter test discloses the metering device to be registering within acceptable limits of accuracy as specified herein, then the Party requesting such special meter test shall bear the expense thereof.  Otherwise, the expense of such test shall be borne by the owner.  Representatives of either Party shall be afforded opportunity to be present at all routine or 

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special tests and upon occasions when any readings for purposes of settlements hereunder are taken from meters not producing an automatic record.

		
	5.2.8
	If, as a result of any test, any meter shall be found to be registering more than two (2) percent above or below one hundred (100) percent of accuracy, the account between the Parties hereto shall be corrected for a period equal to one-half of the elapsed time since the last prior test, according to the percentage of inaccuracy so found, except that if the meter shall have become defective or inaccurate at a reasonably ascertainable time since the last prior test of such meter, the correction shall extend back to such time.  No meter shall be left in service if found to be more than two (2) percent above or below one hundred (100) percent of accuracy.  Should metering equipment at any time fail to register, the energy delivered shall be determined from the best available data.  All meters shall be kept under seal, such seals to be broken only when the meters are to be tested or adjusted.

		
	5.2.9
	Test switches shall be installed to allow independent testing and/or replacement of each meter and transducer utilizing the secondary circuit so as not to interrupt the operation of other devices utilizing the secondary circuit.

		
	5.2.10
	In substations where an RTU or other remote data collecting and telecommunication device is present, meters shall have form C, 3-wire outputs with programmable values determined by the Transmission Provider for bi-directional MWHs and MVARs.

		
	5.2.11
	In the event an interconnection meter needs replacement or repair, a representative from Local Distribution Company shall be given a reasonable opportunity to be present during such repair or replacement.

ARTICLE 6.  Protective Relaying and Control

		
	6.1
	Transmission Provider and the Local Distribution Company shall, in accordance with Good Utility Practice, coordinate, review and approve all new Protective Relaying equipment, including equipment settings, Protective Relay schemes, drawings, and functionality associated with each Interconnection Point.  Protective Relaying equipment and schemes installed before the date of this agreement shall be considered to satisfy the terms and conditions of this Article 6.  When existing equipment or schemes are replaced or when new equipment or schemes are installed per this Article 6 or in association with new Interconnection Points, then the terms and conditions of Article 6 shall apply.  Each Party shall incur the expense for the work on its system.

		
	6.2
	To the extent that there is generation on the Distribution System which, in the reasonable judgment of either Party, may contribute material amounts of current to a fault on the Transmission System, the Local Distribution Company shall have and enforce standards to ensure the provision, installation and maintenance of relays, circuit breakers, and all other devices necessary to promptly remove any fault contribution of such generation to any short circuit occurring on the Transmission System and not otherwise isolated by the Transmission Provider equipment.  Such standards will be included in the Local Distribution Company’s connection requirements for generation.  Transmission Provider and Local Distribution Company shall not be responsible for protection of such generation.

		
	6.3
	Transmission Provider shall own, operate, maintain and test those Protective Relay Systems that control their breakers or equivalent protective devices.  Local Distribution Company shall own, operate, maintain, and test those Protective Relay Systems that control their breakers or equivalent protective devices governed by this Article 6.  The Parties shall maintain, and, as necessary, upgrade their respective Protective Relay Systems and shall provide the other Party with access to available copies of operation and maintenance manuals and test records for all relay equipment upon request.  The Transmission Provider will provide protective relay settings for the relays that control breakers or equivalent protective devices owned by the Local Distribution Company that also protect Transmission Provider’s equipment.  The Local Distribution Company will review and apply the settings.

		
	6.4
	The owner (Transmission Provider or Local Distribution Company) of the line will provide the relay communication channel necessary for line protection at its expense.  Owner will participate with other Party to test communication schemes upon request without charge.

		
	6.5
	The Parties shall test their respective relays associated with the Interconnection Points for correct calibration and operation.  Parties shall coordinate design, installation, operation, and testing of Protective Relay schemes to insure that such relays operate in a coordinated manner so as to not cause adverse operating conditions on the other Party’s system.

		
	6.6
	Local Distribution Company shall be responsible for Protective Relay maintenance, calibration and functional testing of relay systems that protect Local Distribution Company’s equipment associated with the Interconnection Points and that 

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protect Transmission Provider from Local Distribution Company’s Interconnection Equipment to the extent such calibration and testing are in accordance with Good Utility Practice.  All such maintenance and testing must be performed by Qualified Personnel selected by the Local Distribution Company.  In addition, Local Distribution Company shall allow Transmission Provider to conduct visual inspection of all Protective Relays and associated maintenance records directly related to the interconnection.  Related maintenance and operational records shall be maintained by the Local Distribution Company in accordance with Good Utility Practice.  Upon completion of Protective Relay calibration testing and relay functional testing, Local Distribution Company shall make available copies of test reports and related records for review by Transmission Provider upon request.  Local Distribution Company shall review test reports and document that Protective Relay System’s tests and settings, as shown on such test reports, have been done in accordance with the equipment’s specifications and Good Utility Practice.

		
	6.7(a)
	As Transmission Provider’s system protection requirements change, Transmission Provider will upgrade its Protective Relaying System in accordance with Good Utility Practice.  If these upgrades affect the serviceability and acceptability of the Protective Relaying Systems on the Interconnection Equipment which may be installed, owned, and operated by Local Distribution Company, the Local Distribution Company must upgrade its Protective Relay Systems at its expense (unless such modifications are required in association with the addition of generation to the system in which case Section 9.8 shall apply) as necessary to bring them into compatibility with that installed by Transmission Provider.  Transmission Provider shall give Local Distribution Company notice of such upgrade as soon as practicable prior to the anticipated date of such upgrade. Any proposed protective system upgrades shall be reviewed by the Planning Committee in accordance with Section 7.3 (vi) hereof.

		
	6.7(b)
	As Local Distribution Company’s system protection requirements change, Local Distribution Company will upgrade its Protective Relaying System in accordance with Good Utility Practice.  If these upgrades affect the serviceability and acceptability of the Protective Relaying Systems on the Interconnection Equipment which may be installed, owned, and operated by Transmission Provider, Transmission Provider must upgrade its Protective Relaying Systems at its expense (unless such modifications are required in association with the addition of generation to the system in which case Section 9.8 shall apply) as necessary to bring them into compatibility with that installed by Local Distribution Company.  Local Distribution Company shall give Transmission Provider notice of such upgrade as soon as practicable prior to the anticipated date of such upgrade. Any proposed protective system upgrades shall be reviewed by the Planning Committee in accordance with Section 7.3 (vi) hereof.

		
	6.8
	Local Distribution Company shall provide necessary space to install or expand relay panels for substation system protection if requested by Transmission Provider.  Any incremental costs required to accommodate such request shall be the responsibility of the Transmission Provider.

		
	6.9
	Transmission Provider shall provide the necessary space to install or expand relay panels for substation system protection if requested by Local Distribution Company.  Any incremental costs required to accommodate such request shall be the responsibility of the Local Distribution Company.

		
	6.10
	Each Party will provide access to the other to fault recorder, sequence of events and relay information such as dial up access of digital relays.

ARTICLE 7.  Planning and Obligation to Serve

		
	7.1
	Adequacy Obligation.  Subject to applicable regulatory approvals, including adherence to Least-Cost planning requirements and principles, adherence to applicable NERC, ECAR or other regional reliability council or successor organization’s reliability requirements, and all other applicable operating reliability criteria and subject to the oversight and direction of the appropriate RTO or ISO, the Transmission Provider shall operate, maintain, plan and construct its Transmission System in accordance with Good Utility Practice in order to:

		
	(i)
	deliver on a reliable basis the projected capacity and energy needs of all loads served by the Local Distribution Company’s Distribution System and dependent upon the Transmission Provider’s facilities for delivery of such energy to the Distribution System; 

		
	(ii)
	provide needed support to the Local Distribution Company where a transmission addition is the Least-Cost electric solution to an improvement need, including but not limited to, the reliability needs of the Local Distribution Company; and

16

		
	(iii)
	deliver energy from both existing and new generating facilities connected to and dependent upon Transmission Provider’s transmission of such energy

		
	7.2
	With regard to planning and construction of projects which affect Local Distribution Company and Local Distribution Company’s load-serving area, the Parties shall develop methods and procedures covering at least the following areas:

7.3

		
	(i)
	coordination between short-term and long-term distribution and transmission planning;

		
	(ii)
	developing and sharing computer simulation models needed to support Transmission Provider and Local Distribution Company planning activities;

		
	(iii)
	coordination of permitting (including local and state approvals) and siting;

		
	(iv)
	engineering and scheduling of new projects;

		
	(v)
	construction and inspection standards;

		
	(vi)
	information-sharing and priority-setting; and

		
	(vii)
	health and safety issues.

		
	7.3
	With respect to Local Distribution Company’s load-serving area, the Planning Committee, shall:

		
	(i)
	implement the methods and procedures developed pursuant to Section 7.2;

		
	(ii)
	review planning studies and reports regarding projects needed or proposed for the area in the next five (5) years, or as determined by the Planning Committee;

		
	(iii)
	recommend additional studies or evaluation of plans;

		
	(iv)
	follow Least-Cost planning principles in recommending specific projects; 

		
	(v)
	at least once every year, prepare a planning report which shall include in priority order a list of projects proposed by either Party for the next year, the estimated costs of such projects, and the timetable for such projects, including the in-service date; and

		
	(vi)
	review proposed programmatic changes to the electric system, including protective system upgrades

		
	7.4
	If the Parties agree upon the need for any such project, they shall cooperate and coordinate in seeking all necessary regulatory approvals for such project.  Transmission Provider shall coordinate and cooperate with Local Distribution Company with respect to all communications and commitments to municipal, county, and state agencies involved in such project.

		
	7.5
	If Local Distribution Company proposes construction of a transmission project and Transmission Provider does not agree that such project is needed, Local Distribution Company shall have the right to petition an appropriate RTO, ISO or applicable regulatory agency for a declaratory ruling on whether the proposed project is needed pursuant to Transmission Provider’s public-utility duty to plan and construct a reliable, adequate Transmission System.

		
	7.6
	Load Growth and Reliability Needs.  Transmission Provider is obligated to plan and install any Transmission System components that may be necessary, as determined by a Least-Cost planning process in accordance with Section 7.1 and consistent with the established and consistently applied reliability criteria of the Parties, to accommodate Local Distribution Company’s planned load growth and planned reliability improvements.  Transmission Provider will construct new interconnections to Local Distribution Company facilities in accordance with Transmission Provider’s planning criteria, other agreements in effect between the Parties, and Good Utility Practice.  Transmission Provider shall bear the responsibility for such planning and installing in accordance with this Article 7.  Transmission Provider’s obligations under this Section 7.6 shall include the planning and installation of any new Interconnection Points that may be necessary to accommodate Local Distribution Company’s planned load growth and planned reliability improvements.  Recovery of the cost of such additions shall be in accordance with the OATT or other applicable tariff.

17

		
	7.7
	Local Distribution Company shall be the first point of contact and the wire-services provider for end-use customers.

		
	7.8
	Transmission Provider shall annually submit to Local Distribution Company, no later than February 1 of each year:

		
	(i)
	Transmission Provider’s plans covering the next five (5) years, or as determined by the Planning Committee, for installing Transmission System components that may be necessary to accommodate Local Distribution Company’s planned load growth and reliability improvements as described in Section 7.6.  Transmission Provider’s plans shall include, but not be limited to, cost estimates and installation schedules for Transmission System components, and shall provide specific detail sufficient to allow Local Distribution Company to compare Transmission Provider’s plans with Local Distribution Company’s in-service requirements to meet its planned load growth and reliability needs.

		
	(ii)
	A description of any changes to the Local Distribution Company’s Distribution System that may be needed to accommodate Transmission Provider’s plans set forth in Section 7.8(i) will be requested by the Transmission Provider.

		
	(iii)
	Projected voltage levels under Normal System Conditions and Transmission Provider’s FERC 715 Planning criteria conditions at anticipated annual peak load and 80% of anticipated annual peak load for each Interconnection Point with planned additions for the next five (5) years, or as determined by the Planning Committee.

		
	7.9
	Local Distribution Company shall annually submit to Transmission Provider,

		
	(a)
	no later than December 1 of each year, the most recent actual summer and winter demands in megawatts (MW) and megavars (Mvar) for all Interconnection Points connected to the Transmission System at the time of the Transmission Provider’s most recent seasonal system peaks (Transmission Provider must provide the Local Distribution Company the day and hour of such peak no later than September 1); and

		
	(b)
	no later than February 1 of each year:

		
	(i)
	annual peak demand forecasts in MW for each Local Distribution Company Interconnection Point to the Transmission System for the next five (5) years, or as determined by the Planning Committee, together with corresponding projected power factors; and

		
	(ii)
	planned facility (new Interconnection Points) connections to the Transmission System for the next five (5) years, or as determined by the Planning Committee.

ARTICLE 8.  Transmission Service Level

		
	8.1
	Subject to applicable regulatory approvals, including adherence to Least-Cost planning requirements and principles, adherence to applicable NERC, ECAR or other regional reliability council or successor organization’s reliability requirements, and all other applicable operating reliability criteria and subject to the oversight and direction of the appropriate RTO or ISO, the Transmission Provider shall operate, maintain, plan and construct its Transmission System in accordance with Good Utility Practice to provide the following service levels:

		
	(i)
	A minimum Steady-State Voltage of 0.97 Per Unit (PU) at all Interconnection Points with Local Distribution Company with all influential Transmission Provider facilities in service (no contingency conditions);

		
	(ii)
	A minimum Steady-State Voltage of 0.92 PU at all Interconnection Points with the Local Distribution Company influenced by one or more Transmission Provider facilities out of service (contingency conditions);

		
	(iii)
	A maximum Steady-State Voltage of 1.05 PU at all Interconnection Points with the Local Distribution Company during all operating conditions;

		
	(iv)
	An adequate Transmission System that shall not load Local Distribution Company facilities above normal ratings during peak load conditions with all influential Transmission Provider facilities in service (no contingency conditions);

18

		
	(v)
	An adequate Transmission System that shall not load Local Distribution Company facilities above emergency ratings during peak load conditions with one or more influential Transmission Provider facilities out of service (contingency conditions); 

		
	(vi)
	On a three-year rolling average, experience no more than 0.357 Momentary Outage Events per 138 kV line protective zone (system average) and 0.743 Momentary Outage Events per 345 kV line protective zone (system average) per year. As used in this Article 8 the term “year” shall mean calendar year; and the term “line protective zone” is illustrated and defined as follows: Any given electrical fault on a transmission line will trip specific circuit breakers in a normally functioning system.  All of the possible line fault locations that will trip these specific circuit breakers constitute the same line protective zone.  Physically, a line protective zone consists of the conductors located between the current transformers that provide sensing to trip the circuit breakers for a line fault; 

		
	(vii)
	Experience no more than three (3) Momentary Outage Events on any given 138 kV line protective zone and two (2) Momentary Outage Events on any given 345 kV line protective zone per year;

		
	(viii)
	On a three-year rolling average, experience no more than 0.21 Unplanned Outages per 138 kV line protective zone (system average) and 0.18 Unplanned Outages per 345 kV line protective zone (system average) per year;

		
	(ix)
	Experience no more than four (4) Unplanned Outages on any given 138 kV line protective zone and three (3) Unplanned Outages on any given 345 kV line protective zone per year;

		
	(x)
	Should the Transmission Provider fail to meet any of the requirements of Section 8.1(vi) or 8.1(viii) by more than 10% two years in a row, the Transmission Provider shall pay, as liquidated damages and not as a penalty, to the Local Distribution Company, an amount equal to one half of one percent (0.5%) of the annual revenue paid by the Local Distribution Company under the applicable transmission tariff; such liquidated damages amount shall be based upon the revenue received in the second year of such failure.  Such liquidated damages amount shall be increased by one half of a percent (0.5%) for each additional 10% by which the Transmission Provider fails to meet the any of the given outage targets, up to a maximum of 4.0% of the annual revenue.  Outage events affecting 15% or more of transmission line protective zones within a 24-hour period will not be counted toward the requirements of Section 8.1. 

If transmission service does not meet the requirements of this Article 8, Transmission Provider shall present an action plan acceptable to the Local Distribution Company within sixty (60) days of non-compliance of this Article 8 to restore transmission service to the minimum standards as described in this Article 8 in a timely manner.  Should the Transmission Provider fail to correct the deficiency(s) within one year of notification from the Local Distribution Company, the Local Distribution Company shall have the right to take corrective action at the Transmission Provider’s expense. The Local Distribution Company shall defer taking such actions for corrective measures normally requiring longer than one year to complete, provided the Transmission Provider is diligently pursuing such measures. 

		
	8.2.
	Should the Michigan Public Service Commission (MPSC) adopt service quality standards that the Local Distribution Company must meet that are more stringent than current historical performance; and should the transmission service level provided by the Transmission Provider directly or indirectly influence the Local Distribution Company’s ability to meet such standards, the Local Distribution Company will promptly notify the Transmission Provider of such proposal and the Transmission Provider shall have an opportunity to participate either as a party or in cooperation with the Distribution Company, in any related MPSC hearings or proceedings. Subject to the foregoing and to any required approval by  FERC, the Transmission Provider shall be responsible for meeting its proportional share of the adopted service quality standard and for any penalties that might be assessed if the standards are not met.

		
	8.3.
	Transmission Provider shall be responsible for those compensable disruptions/interruptions caused by the Transmission Provider’s Transmission System to those Local Distribution Company customers under Special Manufacturing Contracts in existence at the time of execution of this document as set forth in Exhibit 3, including any contractual payments due.

ARTICLE 9.  New Construction and Modification

		
	9.1
	Subject to this Article 9, Transmission Provider may construct additional Transmission System elements or modify the existing Transmission System and Local Distribution Company may construct additional Distribution System elements 

19

or modify the existing Distribution System.  All such modifications and construction provided for herein, shall be conducted in accordance with Good Utility Practice and all applicable NERC and ECAR Standards.  The Party that modifies the system elements or constructs new system elements is obligated to maintain the transmission, distribution and communications capabilities of the other Party in accordance with Good Utility Practice to avoid or minimize any adverse impact on the other Party.  The Parties shall look to the operating history of the Local Distribution Company in the relevant geographic area prior to the Effective Date of this Agreement, where available, in determining what constitutes Good Utility Practice.

		
	9.2
	Notwithstanding the foregoing, no modifications to or new construction of facilities or access thereto, including but not limited to rights-of-way, fences, and gates, shall be made by either Party which might reasonably be expected to have a material effect upon the other Party with respect to operations or performance under this Agreement, without providing the other Party with sufficient information regarding the work prior to commencement to enable such Party to evaluate the impact of the proposed work on its operations.  The information provided must be of sufficient detail to satisfy reasonable Transmission Provider or Local Distribution Company review and operational requirements.  Each Party shall use reasonable efforts to minimize any adverse impact on the other Party.

		
	9.3
	If any Party intends to install any new facilities, equipment, systems, or circuits or any modifications to existing or future facilities, equipment, systems or circuits that could reasonably be expected to have a material effect upon the operation of the other Party, the Party desiring to perform said work shall, in addition to the requirements of Section 9.2, provide the other Party with drawings, plans, specifications and other necessary documentation for review at least 60 days prior to the start of the construction of any such installation.  This notice period shall not apply to modifications or new installations made to resolve or prevent pending Emergency or Network Security Conditions.

		
	9.4
	The Party reviewing any drawings, plans, specifications, or other necessary documentation for review shall promptly review the same and provide any comments to the performing Party no later than 30 days prior to the start of the construction of any installation. Unless system modifications are required in association with the addition of generation to the system (in which case Section 9.8 hereof shall apply) all such reviews shall be performed at no cost to either Party.  The performing Party shall incorporate all requested modifications to the extent required in accordance with Good Utility Practice and compliance with this Agreement.

		
	9.5
	Within 180 days following placing in-service of any modification or construction subject to this Article 9, the Party initiating the work shall provide “as built” drawings, plans and related technical data to the other Party.  Approval or review of any document referenced herein shall not relieve the initiating Party of its responsibility for the design or construction of any proposed facility, nor shall it subject the other Party to any liability, except with respect to the confidentiality provisions of Article 20.

		
	9.6
	Each Party shall, at its own expense, have the right to inspect or observe all maintenance activities, equipment tests, installation work, construction work, and modification work to the facilities of the other Party that could have a material effect upon the facilities or operations of the first Party.

		
	9.7
	Construction and installation of any facility shall meet all or exceed all environmental permitting requirements, reviews or approvals as required by Federal, State or local law prior to the installation of such facilities.  The Parties agree to coordinate environmental permitting related activities such as site review for regulated resources, permit application and project oversight (e.g. monitoring as applicable).

		
	9.8
	Whenever system modifications are required to connect generating facilities to either the Local Distribution Company’s or the Transmission Provider’s system it is expected that the party installing the generating facilities will normally be responsible for much or all of the associated costs.  The Parties agree to cooperate in sharing information regarding such projects and to individually make arrangements with the party adding the generation to obtain payment of all related costs as appropriate.

ARTICLE 10.  Access to Facilities

		
	10.1
	The Parties hereby agree to provide each other reasonable access to their respective property as may be necessary and appropriate to enable each Party to operate and maintain its respective facilities and equipment on such property.  Such right of access shall be provided in a manner so as not to unreasonably interfere with either Party’s ongoing business operations, rights, and obligations.

20

		
	10.2
	Each Party shall provide the other Party keys, access codes or other access methods necessary to enter the other Party’s facilities to exercise rights under this Agreement.  Access shall only be granted to Qualified Personnel.

ARTICLE 11.  Notifications and Reporting

		
	11.1
	Unless otherwise provided, any notice required to be given by either Party to the other Party in connection with this Agreement shall be given in writing:  (a) personally; (b) by facsimile transmission (if sender thereafter sends such notice to recipient by any of the other methods provided in this Section 11.1; (c) by registered or certified U.S. mail, return receipt requested, postage prepaid; or (d) by reputable overnight carrier, with acknowledged receipt of delivery; or (e) any other method mutually agreed by the Parties in writing.  Notice shall be deemed given on the date of receipt personally.  Notice sent by facsimile shall be deemed given on the date the transmission is confirmed by sender’s facsimile machine, so long as the facsimile is sent on a business day during normal business hours of the recipient.  Otherwise, the notice shall be deemed given on the next succeeding business day.  Notice provided by mail or overnight courier shall be deemed given at the date of acceptance or refusal of acceptance shown on such receipt.

		
	11.2
	Notice to the Transmission Provider shall be to the Transmission Provider’s Representative, at the addresses identified in Exhibit 2.  Notice to the Local Distribution Company shall be to the Local Distribution Company’s Representative, at the addresses identified in Exhibit 2.

		
	11.3
	Each Party shall provide prompt notice describing the nature and extent of the condition, the impact on operations, and all corrective action, to the other Party of any Emergency or Network Security Condition which may be reasonably anticipated to affect the other Party’s equipment, facilities or operations.  Either Party may take reasonable and necessary action, both on its own and the other Party’s system, equipment, and facilities, to prevent, avoid or mitigate injury, danger, damage or loss to its own equipment and facilities, or to expedite restoration of service; provided however, that the Party taking such action shall give the other Party prior notice, if at all possible, before taking any action on the other Party’s system, equipment, or facilities.

		
	11.4
	In the event of an Emergency or Network Security Condition contemplated by Section 11.3, each Party shall provide the other with such information, documents, and data necessary for operation of the Transmission System and Distribution System, including, without limitation, such information which is to be supplied to any Governmental Authority, NERC, ECAR, or Transmission System Operations Center or Distribution System Control Center.

		
	11.5
	In order to continue interconnection of the Distribution System and Transmission System, each Party shall promptly provide the other Party with all relevant information, documents, or data regarding the Distribution System and the Transmission System that would be expected to affect the Distribution System or Transmission System, and which is reasonably requested by NERC, ECAR, or any Governmental Authority.

		
	11.6
	For routine maintenance and inspection activities on either Parties system that will require major equipment or system outages, and could impact the other Party’s system, the Party performing the same shall provide the other Party with not less than seventy-two (72) hours prior notice, if practicable; provided that the provisions of Section 3.9 remain applicable to the outages, and said notice is in addition to, and does not substitute for, the requirements of Section 3.9 (maintenance and inspection activities in generating plant substations require 20 working days notification).

		
	11.7
	Transmission Provider shall notify Local Distribution Company prior to entering Local Distribution Company’s facilities for routine measurements, inspections and meter reads in accordance with the requirements of Section 11.6.  Local Distribution Company shall notify Transmission Provider prior to entering Transmission Provider’s facilities, including switchyards, for routine maintenance, operations, measurements, inspections and meter reads, in accordance with the requirements of Section 11.6.

		
	11.8
	Each Party shall provide prompt verbal notice to the other Party of any system alarm that applies to the other Party’s equipment, unless the system alarm is automatically sent to the other Party.

		
	11.9
	Each Party shall provide a report or a copy of the data from a system events recorder, SCADA system sequence of events or digital fault recorder that applies to the other Party’s equipment.

		
	11.10
	Each Party agrees to immediately notify the other Party verbally, and then in writing, of any labor dispute or anticipated labor dispute of which its management has actual Knowledge that might reasonably be expected to affect the operations of the other Party with respect to this Agreement.

21

ARTICLE 12.  Safety

		
	12.1
	Each Party agrees that all work performed by either Party that may reasonably be expected to affect the other Party shall be performed in accordance with Good Utility Practice and all applicable laws, regulations, safety standards, practices and procedures and other requirements pertaining to the safety of Persons or property, (including, but not limited to those of the Occupational Safety and Health Administration, the National Electrical Safety Code and those developed or accepted by Transmission Provider and Local Distribution Company for use on their respective systems) when entering or working in the other Party’s property or facilities or switching area.  A Party performing work within the boundaries of the other Party’s facilities must abide by the safety rules applicable to the site.

		
	12.2
	Each Party shall be solely responsible for the safety and supervision of its own employees, agents, representatives, and subcontractors.

		
	12.3
	Transmission Provider shall immediately report any injuries that occur while working on the Local Distribution Company’s property or facilities or switching area to appropriate agencies and the Local Distribution Company’s Site Representative.  Local Distribution Company shall immediately report any injuries that occur while working on the Transmission Provider’s property or facilities or switching area to appropriate agencies and the Transmission Provider’s Site Representative.  Each Party will provide the other with its clearing/tagging/lockout procedures.  For clearances requested or initiated by the Local Distribution Company on the Local Distribution Company’s equipment that utilizes the Transmission Provider’s equipment as an isolation device, Local Distribution Company procedures shall govern.  For clearances requested or initiated by the Transmission Provider on the Transmission Provider’s’ equipment that utilizes the Local Distribution Company’s equipment as an isolation device, Transmission Provider procedures shall govern.  Under no circumstances shall either Party remove the other Party’s protective tags without proper authorization.

ARTICLE 13.  Environmental Compliance and Procedures

		
	13.1
	Release Prevention and Response.  Each Party shall notify the other Party, verbally within 24 hours upon discovery of any Release of any Regulated Substance caused by the Party’s operations or equipment that impacts the property or facilities of the other Party, or which may migrate to, or adversely impact the property, facilities or operations of the other Party and shall promptly furnish to the other Party copies of any reports filed with any governmental agencies addressing such events.  Such verbal notification shall be followed by written notification within five (5) days.  The Party responsible for the Release of any Regulated Substance on the property or facilities of the other Party, or which may migrate to, or adversely impact the property, facilities or operations of the other Party shall be responsible for:  (1) the cost and completion of reasonable remediation or abatement activity for that Release, and; (2) required notifications to governmental agencies and submitting of all reports or filings required by environmental laws for that Release.  Advance written notification (except in Emergency situations, in which verbal, followed by written notification, shall be provided as soon as practicable) shall be provided to the other Party by the Party responsible for any remediation or abatement activity on the property or facilities of the other Party, or which may adversely impact the property, facilities, or operations of the other Party.  Except in Emergency situations such remediation or abatement activity shall be performed only with the consent of the Party owning the affected property or facilities.

		
	13.2
	The Parties agree to coordinate, to the extent necessary, the preparation of site plans, reports, environmental permits, clearances and notifications required by federal and state law or regulation, including but not limited to Spill Prevention, Control and Countermeasures (SPCC), Storm Water Pollution Prevention Plans (SWPP), Act 451 Part 31 Part 5 Rules, CERCLA, EPCRA, TSCA, soil erosion and sedimentation control plans (SESC) or activities, wetland or other water-related permits, threatened or endangered species reviews or management and archeological clearances or notifications required by any regulatory agency or competent jurisdiction.  Notification of permits applied for and/or received will occur in a timeframe manner suitable to the interests of both Parties.

ARTICLE 14.  Billings and Payment

		
	14.1
	Any invoices payable under this Agreement shall be provided to the other Party under this Agreement during the preceding month.  Invoices shall be prepared within a reasonable time after the first day of each month.  Each invoice shall delineate the month in which services were provided, shall fully describe the services rendered and shall be itemized to reflect the services performed or provided.  The invoice shall be paid within twenty (20) days of the invoice date, or the first business 

22

day thereafter if the payment date falls on other than a business day.  All payments shall be made in immediately available funds payable to the other Party, or by wire transfer to a bank of the Party being paid, provided that payments expressly required by this Agreement to be mailed shall be mailed in accordance with Section 14.2.

		
	14.2
	Any payments required to be made by Local Distribution Company under this Agreement shall be made to Transmission Provider at the following address:

Michigan Electric Transmission Company, LLC
P.O. Box 673971
Detroit, MI 48267-3971
                
Any payments required to be made by Transmission Provider under this Agreement shall be made to Local Distribution Company at the following address:

Consumers Energy Company
One Energy Plaza
Jackson, MI  49201
Attention:  Treasurer

		
	14.3
	The rate of interest on any amount not paid when due shall be equal to the Interest Rate in effect at the time such amount became due.  Interest on delinquent amounts shall be calculated from the due date of the invoice to the date of the payment.  When payments are made by mail, invoices shall be considered as having been paid on the date of receipt by the other Party.  Nothing contained in this article is intended to limit either Party’s remedies under Article 21 of this Agreement.

		
	14.4
	Payment of an invoice shall not relieve the paying Party from any responsibilities or obligations it has under this Agreement, nor shall such payment constitute a waiver of any claims arising hereunder.

		
	14.5
	If all or part of any bill is disputed by a Party, that Party shall promptly pay the amount that is not disputed and provide the other Party a reasonably detailed written explanation of the basis for the dispute pursuant to Article 26.  While the dispute is being resolved, the Parties shall continue to provide services and pay all invoiced amounts not in dispute.  Following resolution of the dispute, the prevailing Party shall be entitled to receive the disputed amount, as finally determined to be payable, along with interest accrued at the Interest Rate through the date on which payment is made, within ten (10) business days of such resolution.

		
	14.6
	Subject to the Confidentiality provisions of Article  20, within two (2) years following a calendar year, during normal business hours, Local Distribution Company and Transmission Provider shall have the right to audit each other’s accounts and records pertaining to transactions under this Agreement that occurred during such calendar year at the offices where such accounts and records are maintained; provided that the audit shall be limited to those portions of such accounts and records that reasonably relate to the services provided to the other Party under this Agreement for said calendar year.  The Party being audited shall be entitled to review the audit report and any supporting materials.  To the extent that audited information includes Confidential Information, the auditing Party shall keep all such information confidential pursuant to Article  20.

		
	14.7
	Neither Party shall be responsible for the other Party’s costs of collecting amounts due under this Agreement, including attorney fees and expenses and the expenses of arbitration.

ARTICLE 15.  Applicable Regulations and Interpretation

		
	15.1
	Each Party’s performance under this Agreement is subject to the condition that all requisite governmental and regulatory approvals for such performance are obtained in form and substance satisfactory to the other Party in its reasonable judgment.  Each Party shall exercise Due Diligence and shall act in good faith to secure all appropriate approvals in a timely fashion.

		
	15.2
	This Agreement and all rights, obligations, and performances of the Parties hereunder, are subject to present or future state or federal laws, regulations, or orders properly issued by state or federal bodies having jurisdiction.  When not in conflict with or pre-empted by Federal law, this Agreement shall be interpreted pursuant to the laws of the State of Michigan, exclusive of its conflicts of law principles.

23

ARTICLE 16.  Force Majeure

		
	16.1
	An event of Force Majeure means any act of God, labor disturbance, act of the public enemy, war, insurrection, riot, fire, storm or flood, explosion, breakage or accident to machinery or equipment, any curtailment, order, regulation or restriction imposed by governmental military or lawfully established civilian authorities, or any other cause beyond a Party’s reasonable control.  A Force Majeure event does not include an act of negligence or intentional wrongdoing.

		
	16.2
	If either Party is rendered unable, wholly or in part, by Force Majeure, to carry out its obligations under this Agreement, then, during the continuance of such inability, the obligation of such Party shall be suspended except that Transmission Provider’s and Local Distribution Company’s obligation under Section 16.3 of this Agreement to provide protection shall not be suspended.  The Party relying on Force Majeure shall give written notice of Force Majeure to the other Party as soon as practicable after such event occurs.  Upon the conclusion of Force Majeure, the Party heretofore relying on Force Majeure shall, with all reasonable dispatch, take all necessary steps to resume the obligation previously suspended.

		
	16.3
	Any Party’s obligation to make payments already owing shall not be suspended by Force Majeure.

ARTICLE  17.  Indemnification And Limitation on Liability

		
	17.1
	Each Party shall at all times assume all liability for, and shall indemnify and save the other Party harmless from any and all damages, losses, claims, demands, suits, recoveries, costs, legal fees, expenses for injury to or death of any Person or Persons whomsoever, or for any loss, destruction of or damage to any property of third persons, firms, corporations or other entities that occurs on its own system and that arises out of or results from, either directly or indirectly, its own facilities or facilities controlled by it, unless caused by the sole negligence, or intentional wrongdoing, of the other Party.

		
	17.2
	EXCEPT AS SET FORTH IN SECTION 8.3, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY SPECIAL, INCIDENTAL, EXEMPLARY, PUNITITIVE OR CONSEQUENTIAL DAMAGES SUCH AS, BUT NOT LIMITED TO, LOST PROFITS, REVENUE OR GOOD WILL, INTEREST, LOSS BY REASON OF SHUTDOWN OR NON-OPERATION OF EQUIPMENT OR MACHINERY, INCREASED EXPENSE OF OPERATION OF EQUIPMENT OR MACHINERY, COST OF PURCHASED OR REPLACEMENT POWER OR SERVICES OR CLAIMS BY CUSTOMERS, WHETHER SUCH LOSS IS BASED ON CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE.

ARTICLE  18.  Insurance

		
	18.1
	The Parties agree to maintain, at their own cost and expense, the following insurance coverages for the life of this Agreement in the manner and amounts, at a minimum, as set forth below:

		
	(a)
	Workers’ Compensation Insurance in accordance with all applicable State, Federal, and Maritime Law.

		
	(b)
	Employer’s Liability insurance in the amount of $1,000,000 per accident.

		
	(c)
	Commercial General Liability or Excess Liability Insurance in the amount of $25,000,000 per occurrence.

		
	(d)
	Automobile Liability Insurance for all owned, non-owned, and hired vehicles in the amount of $5,000,000 each accident.

		
	18.2
	A Party may, at its option, [A] be an approved self-insurer by the State of Michigan for the insurances required in 1.(a) and (d); and [B] maintain such deductibles and/or retentions under the insurance required in 1.(b) and (c) as is maintained by other similarly situated companies engaged in a similar business.  The Parties agree that all amounts of self-insurance, retentions and/or deductibles are the responsibility of, and shall be borne by, the Party whom makes such an election.

		
	18.3
	Within fifteen (15) days of the Effective Date and thereafter when requested, in writing, but not more than once every 12 months, during the term of this Agreement (including any extensions) each Party shall provide to the other Party properly executed and current certificates of insurance or evidence of approved self-insurance status with respect to all insurance required to be maintained by such Party under this Agreement.  Certificates of insurance shall provide the following information:

24

		
	(a)
	Name of insurance company, policy number and expiration date.

		
	(b)
	The coverage maintained and the limits on each, including the amount of deductibles or retentions, which shall be for the account of the Party maintaining such policy.

		
	(c)
	The insurance company shall endeavor to provide thirty (30) days prior written notice of cancellation to the certificate holder.

ARTICLE  19.  Several Obligations

		
	19.
	Except where specifically stated in this Agreement to be otherwise, the duties, obligations and liabilities of the Parties are intended to be several and not joint or collective.  Nothing contained in this Agreement shall ever be construed to create an association, trust, partnership, or joint venture or to impose a trust or partnership duty, obligation or liability or agency relationship on or with regard to either Party.  Each Party shall be individually and severally liable for its own obligations under this Agreement.

ARTICLE  20.  Confidentiality

		
	20.1(a)
	“Confidential Information” shall mean any confidential, proprietary or trade secret information of a plan, specification, pattern, procedure, design, device, list concept, policy or compilation relating to the present or planned business of a Party, which is designated in good faith as Confidential by the Party supplying the information, whether conveyed orally, electronically, in writing, through inspection or otherwise.  Confidential Information shall include, without limitation, all information relating to a Party’s technology, research and development, business affairs, and pricing, customer-specific load data that constitutes a trade secret, and any information supplied by either of the Parties to the other prior to the execution of this Agreement.

		
	(b)
	General.  Each Party will hold in confidence any and all Confidential Information unless (1) compelled to disclose such information by judicial or administrative process or other provisions of law or as otherwise provided for in this Agreement, or (2) to meet obligations imposed by FERC or by a state or other federal entity or by membership in NERC or ECAR (including other Transmission Providers).  Information required to be disclosed under (b)(1) or (b)(2) above, does not, by itself, cause any information provided by Local Distribution Company to Transmission Provider to lose its confidentiality.  To the extent it is necessary for either Party to release or disclose such information to a third party in order to perform that Party’s obligations herein, such Party shall advise said third party of the confidentiality provisions of this Agreement and use its best efforts to require said third party to agree in writing to comply with such provisions.  Transmission Provider will develop and file with FERC standards of conduct relating to the sharing of a market-related Confidential Information with and by Transmission Provider employees.

		
	(c)
	Term:  During the term of this Agreement, and for a period of three (3) years after the expiration or termination of this Agreement, except as otherwise provided in this Article 20, each Party shall hold in confidence and shall not disclose to any Person Confidential Information.

		
	(d)
	Standard of Care:  Each Party shall use at least the same standard of care to protect Confidential Information it receives as that it uses to protect its own Confidential Information from unauthorized disclosure, publication or dissemination.

		
	20.2
	Scope:  Confidential Information shall not include information that the receiving Party can demonstrate:  (1) is generally available to the public other than as a result of disclosure by the receiving Party (2) was in the lawful possession of the receiving Party on a non-confidential basis prior to receiving it from the disclosing Party; or (3) was supplied to the receiving Party without restriction by a third party, who, to the Knowledge of the receiving Party, after due inquiry was under no obligation to the disclosing Party to keep such information confidential; (4) was independently developed by the receiving Party without reference to Confidential Information of the disclosing Party; (5) is, or becomes, publicly known, through no wrongful act or omission of the receiving Party or breach of this Agreement; or (6) is required, in accordance with Section  20.1(b) of this Agreement, to be disclosed by any federal or state government or agency or is otherwise required to be disclosed by law or subpoena, or is necessary in any legal proceeding establishing rights and obligations under this Agreement.  Information designated as Confidential Information will no longer be deemed confidential if the Party that designated the information as confidential notifies the other Party that it no longer is confidential.

25

		
	20.3
	Order of Disclosure.  If a court or a government agency or entity with the right power, and apparent authority to do so requests or requires either Party, by subpoena, oral deposition, interrogatories, requests for production of documents, administrative order, or otherwise, to disclose Confidential Information, that Party shall provide the other Party with prompt notice of such request(s) or requirement(s) so that the other Party may seek an appropriate protective order or waive compliance with the terms of this Agreement.  The notifying Party shall have no obligation to oppose or object to any attempt to obtain such production except to the extent requested to do so by the disclosing Party and at the disclosing Party’s expense.  If either Party desires to object or oppose such production, it must do so at its own expense.  The disclosing Party may request a protective order to prevent any Confidential Information from being made public.  Notwithstanding the absence of a protective order or waiver, the Party may disclose such Confidential Information which, in the opinion of its counsel, the Party is legally compelled to disclose.  Each Party will use reasonable effort to obtain reliable assurance that confidential treatment will be accorded any Confidential Information so furnished.

		
	20.4
	Use of Information or Documentation.  Each Party may utilize information or documentation furnished by the disclosing Party and subject to Section 20.1 in any proceeding under Article 26 or in an administrative agency or court of competent jurisdiction addressing any dispute arising under this Agreement, subject to a confidentiality agreement with all participants (including, if applicable, any arbitrator) or a protective order.

		
	20.5
	Remedies Regarding Confidentiality.  The Parties agree that monetary damages by themselves will be inadequate to compensate a Party for the other Party’s breach of its obligations under this article.  Each Party accordingly agrees that the other Party is entitled to equitable relief, by way of injunction or otherwise, if it breaches or threatens to breach its obligations under this article.

ARTICLE 21.  Breach, Default and Remedies

		
	21.1
	General.  A breach of this Agreement (“Breach”) shall occur upon the failure by a Party to perform or observe a material term or condition of this Agreement.  A default of this Agreement (“Default”) shall occur upon the failure of a Party in Breach of this Agreement to cure such Breach in accordance with Section 21.4.

		
	21.2
	Events of Breach.  A Breach of this Agreement shall include:

		
	(a)
	The failure to pay any amount when due;

		
	(b)
	The failure to comply with any material term or condition of this Agreement, including but not limited to any material Breach of a representation, warranty or covenant made in this Agreement;

		
	(c)
	A Party’s abandonment of its work or the facilities contemplated in this Agreement;

		
	(d)
	If a Party:  (1) becomes insolvent; (2) files a voluntary petition in bankruptcy under any provision of any federal or state bankruptcy law or shall consent to the filing of any bankruptcy or reorganization petition against it under any similar law; (3) makes a general assignment for the benefit of its creditors; or (4) consents to the appointment of a receiver, trustee or liquidator;

		
	(e)
	Failure of either Party to provide information or data to the other Party as required under this Agreement, provided the Party entitled to the information or data under this Agreement requires such information or data to satisfy its obligations under this Agreement.

		
	21.3
	Continued Operation.  Except as specifically provided in this Agreement, in the event of a Breach or Default by either Party, the Parties shall continue to operate and maintain, as applicable, facilities and appurtenances that are reasonably necessary for the Transmission Provider to operate and maintain the Transmission System, or the Local Distribution Company to operate and maintain the Distribution System, in a safe and reliable manner.

		
	21.4
	Cure and Default.  Upon the occurrence of an event of Breach, the non-Breaching Party, when it becomes aware of the Breach, shall give written notice of the Breach to the Breaching Party and to any other Person a Party to this Agreement identifies in writing to the other Party in advance.  Such notice shall set forth, in reasonable detail, the nature of the Breach, and where known and applicable, the steps necessary to cure such Breach.  Upon receiving written notice of the Breach hereunder, the Breaching Party shall have thirty (30) days, to cure such Breach.  If the breach is such that it cannot be cured within thirty (30) days, the Breaching Party will commence in good faith all steps as are reasonable and appropriate to cure the Breach within such thirty (30) day time period and thereafter diligently pursue such action to completion.  In 

26

the event the Breaching Party fails to cure the Breach, or to commence reasonable and appropriate steps to cure the Breach, within thirty (30) days of becoming aware of the Breach, the Breaching Party will be in Default of the Agreement.  In the event of a Default, the non-Defaulting Party has the right to take whatever action at law or equity as may be permitted under this Agreement.

		
	21.5
	Right to Compel Performance.  Notwithstanding the foregoing, upon the occurrence of an event of Default, the non-Defaulting Party shall be entitled to Commence an action to require the Defaulting Party to remedy such Default and specifically perform its duties and obligations hereunder in accordance with the terms and conditions hereof, and exercise such other rights and remedies as it may have in equity or at law.

ARTICLE 22.  Term

		
	22.1
	Term.  This Agreement shall become effective as of the Effective Date and shall continue in full force and effect so long as any Interconnection Point is connected to the Transmission System, except that it may be terminated by mutual agreement of the Parties.

		
	22.2
	Material Adverse Change.

		
	(a)
	In the event of a material change in law or regulation that adversely affects, or may reasonably be expected to adversely affect, either Party’s performance under this Agreement, including but not limited to the following:

		
	(i)
	this Agreement is not accepted for filing by the FERC without material modification or condition;

		
	(ii)
	NERC or ECAR prevents, in whole or in part, either Party from performing any provision of this Agreement in accordance with its terms; or

		
	(iii)
	The FERC, the United States Congress, any state, or any federal or state regulatory agency or commission implements any change in any law, regulation, rule or practice which materially affects or is reasonably expected to materially affect either Party’s ability to perform under this Agreement.

The Parties will negotiate in good faith any amendment or amendments to the Agreement necessary to adapt the terms of this Agreement to such change in law or regulation, and the Transmission Provider shall file such amendment or amendments with FERC.

		
	(b)
	If the Parties are unable to reach agreement on any such amendments, then the Parties shall continue to perform under this Agreement to the maximum extent possible, taking all reasonable steps to mitigate any adverse effect on each other resulting from the Event.  If the Parties are unable to reach agreement on any such amendments, Transmission Provider shall have the right to make a unilateral filing with FERC to modify this Agreement pursuant to Section 205 of the Federal Power Act and Local Distribution Company shall have the right to make a unilateral filing with FERC to modify this Agreement pursuant to Section 206 of the Federal Power Act.  Each Party shall have the right to protest any such filing by the other Party and to participate fully in any proceeding before FERC.

		
	22.3
	Survival.  The applicable provisions of this Agreement shall continue in effect after expiration, cancellation or termination hereof to the extent necessary to provide for final billings, billing adjustments and the determination and enforcement of liability and indemnification obligations arising from acts or events that occurred while this Agreement was in effect.

ARTICLE 23.  Assignment/Change in Corporate Identity

		
	23.1
	Transmission Provider Assignment Rights.  Transmission Provider may not assign this Agreement or any of its rights, interests, or obligations hereunder without the prior written consent of Local Distribution Company, which consent shall not be unreasonably withheld; provided however, that Transmission Provider may assign this Agreement or any of its rights or obligations hereunder without the prior consent of Local Distribution Company and may assign this Agreement to any entity(ies) in connection with a merger, consolidation, or reorganization, provided that the surviving entity(ies) or assignee owns the Transmission System, agrees in writing to be bound by all the obligations and duties of Transmission Provider provided for in this Agreement and the assignee’s creditworthiness is equal to or higher than that of Transmission Provider.

27

		
	23.2
	Local Distribution Company Assignment Rights.  Local Distribution Company may not assign this Agreement or any of its rights, interests or obligations hereunder without the prior written consent of Transmission Provider, which consent shall not be unreasonably withheld; provided however, that Local Distribution Company may, without the consent of Transmission Provider, and by providing prior reasonable notice under the circumstances to Transmission Provider, assign, this Agreement to any entity(ies) in connection with a merger, consolidation, or reorganization, provided that the surviving entity(ies) or assignee owns the Local Distribution Company, agrees in writing to be bound by all the obligations and duties of Local Distribution Company provided for in this Agreement and the assignee’s creditworthiness is equal to or higher than that of Local Distribution Company.

		
	23.3
	Assigning Party to Remain Responsible.  Any assignments authorized as provided for in this article will not operate to relieve the Party assigning this Agreement or any of its rights, interests or obligations hereunder of the responsibility of full compliance with the requirements of this Agreement unless (a) the other Party consents, such consent not to be unreasonably withheld, and (b) the assignee agrees in writing to be bound by all of the obligations and duties of the assigning Party provided for in this Agreement.

		
	23.4
	This Agreement and all of the provisions hereof are binding upon, and inure to the benefit of, the Parties and their respective successors and permitted assigns.

ARTICLE 24.  Subcontractors

		
	24.1
	Nothing in this Agreement shall prevent the Parties from utilizing the services of subcontractors as they deem appropriate; provided, however, the Parties agree that, where applicable, all said subcontractors shall comply with the terms and conditions of this Agreement.

		
	24.2
	Except as provided herein, the creation of any subcontract relationship shall not relieve the hiring Party of any of its obligations under this Agreement.  Each Party shall be fully responsible to the other Party for the acts and/or omissions of any subcontractor it hires as if no subcontract had been made.  Any obligation imposed by this Agreement upon the Parties, where applicable, shall be equally binding upon and shall be construed as having application to any subcontractor.

		
	24.3
	No subcontractor is intended to be or shall be deemed a third-party beneficiary of this Agreement.

		
	24.4
	The obligations under this Article 26 shall not be limited in any way by any limitation on subcontractor’s insurance.

		
	24.5
	Each Party shall require its subcontractors to comply with all federal and state laws regarding insurance requirements and shall maintain standard and ordinary insurance coverages.

ARTICLE 25.  Dispute Resolution

		
	25.
	Any dispute between the parties arising out of or relating to this Contract or the breach thereof shall be brought to the Administrative Committee. If the Administrative Committee can resolve the dispute, such resolution shall be reported in writing to and shall be binding upon the Parties.  If the Administrative Committee cannot resolve the dispute within a reasonable time, the senior officer of Local Distribution Company or the senior officer of Transmission Provider may, by written notice to the senior officer of the other Party and the members of the Administrative Committee, withdraw the matter from consideration by the Administrative Committee and submit the same for resolution to the senior officers of the Parties.  If the senior officers of the Parties agree to a resolution of the matter, such resolution shall be reported in writing to, and shall be binding upon, the Parties; but if said senior officers fail to resolve the matter within five (5) Business Days after its submission to them, then the Parties agree to try in good faith to settle the dispute by mediation administered by the American Arbitration Association under its Commercial Mediation Rules before resorting to litigation.  

ARTICLE 26.  Miscellaneous Provisions

		
	26.1
	This Agreement shall constitute the entire Agreement between the Parties hereto relating to the subject matter hereof.  In all other respects, special contracts or superseding rate schedules shall govern Transmission Provider’s transmission service to Local Distribution Company.

28

		
	26.2
	No failure or delay on the part of Transmission Provider or Local Distribution Company in exercising any of its rights under this Agreement, no partial exercise by either Party of any of its rights under this Agreement, and no course of dealing between the Parties shall constitute a waiver of the rights of either Party under this Agreement.  Any waiver shall be effective only by a written instrument signed by the Party granting such waiver, and such shall not operate as a waiver of, or estoppel with respect to, any subsequent failure to comply therewith.

		
	26.3
	Nothing in this Agreement, express or implied, is intended to confer on any other Person except the Parties hereto any rights, interests, obligations or remedies hereunder.

		
	26.4
	In the event that any clause or provision of this Agreement or any part hereof shall be held to be invalid, void, or unenforceable by any court or Governmental Authority of competent jurisdiction, said holding or action shall be strictly construed and shall not affect the validity or effect of any other provision hereof, and the Parties shall endeavor in good faith to replace such invalid or unenforceable provisions with a valid and enforceable provision which achieves the purposes intended by the Parties to the greatest extent permitted by law.

		
	26.5
	The article and section headings herein are inserted for convenience only and are not to be construed as part of the terms hereof or used in the interpretation of this Agreement.

		
	26.6
	In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of authorship of any of the provisions of this Agreement.  Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise.  The word “including” in this Agreement shall mean including without limitation.

		
	26.7
	This Agreement may be executed in one or more counterparts, each of which shall be deemed an original.

		
	26.8
	Each Party shall act as an independent contractor with respect to the provision of services hereunder.

29

IN WITNESS WHEREOF, Transmission Provider and Local Distribution Company have caused this instrument to be executed by their duly authorized representatives as of the day and year first above written.

CONSUMERS ENERGY COMPANY

By:  /s/ Garrick J. Rochow        
Name: Garrick J. Rochow
Title: Vice President of Energy Delivery

MICHIGAN ELECTRIC TRANSMISSION COMPANY, LLC
By: ITC Holdings Corp., its manager

By:  /s/ Gregory Ioanidis            
Name: Gregory Ioanidis
Title: Vice President

30

EXHIBIT 1 - Interconnection Points (Substations) Addendum 6, Final 09/23/11

Substation

	
												
	1
	Abbe
	 
	44
	

	Brickyard
	 
	87
	Delhi
	 
	130
	Halsey

	2
	Acme (04/10)
	 
	45
	

	Briggs & Stratton
	 
	88
	Denso Jackson
	 
	131
	Haring

	3
	Alcona
	 
	46
	

	Broadmoor
	 
	89
	Derby
	 
	132
	Harvard Lake (06/09)

	4
	Alder Creek
	 
	47
	

	Bronco
	 
	90
	Discovery Way (4/11)
	 
	133
	Hazelwood

	5
	Alger
	 
	48
	

	Broughwell
	 
	91
	Dorr Corners
	 
	134
	Hemphill

	6
	Algoma
	 
	49
	

	Buck Creek 
	 
	92
	Dort
	 
	135
	Hendershot

	7
	Alma
	 
	50
	

	Buick Stewart
	 
	93
	Dow Corning
	 
	136
	Higgins

	8
	Almeda
	 
	51
	

	Bullock
	 
	94
	Dowling
	 
	137
	Hillman Cogen

	9
	Alpena
	 
	52
	

	Busch Road (02/08)
	 
	95
	Drake Road
	 
	138
	Hodenpyl

	10
	Alpine
	 
	53
	

	Calhoun 
	 
	96
	Duffield Rd
	 
	139
	Holland Road

	11
	Amber
	 
	54
	

	Camelot Lake 
	 
	97
	Dupont
	 
	140
	Hotchkiss

	12
	American Bumper
	 
	55
	

	Campbell 138
	 
	98
	Duquite
	 
	141
	HSC

	13
	Arthur (6/06)
	 
	56
	

	Canal
	 
	99
	Dutton
	 
	142
	Hubbard Lake (12/07)

	14
	Aubil Lake
	 
	57
	

	Cannon
	 
	100
	East Paris 
	 
	143
	Hubbardston Road (6/10)

	15
	Backus
	 
	58
	

	Carpenter Rd (8/06)
	 
	101
	East Tawas
	 
	144
	Hudsonville

	16
	Bagley
	 
	59
	

	Carter
	 
	102
	Easton
	 
	145
	Hughes Road

	17
	Bangor
	 
	60
	

	Cedar Springs
	 
	103
	Edenville
	 
	146
	Hull Street

	18
	Baraga (12/07)
	 
	61
	

	Cement City
	 
	104
	Ellis
	 
	147
	Iosco

	19
	Bard Road
	 
	62
	

	Chase
	 
	105
	Emmet
	 
	148
	Island Road

	20
	Barnum Creek
	 
	63
	

	Cheesman
	 
	106
	Englishville
	 
	149
	Jamestown

	21
	Barry
	 
	64
	

	Chicago
	 
	107
	Eureka
	 
	150
	Karn 138

	22
	Bass Creek
	 
	65
	

	Churchill
	 
	108
	Farr Road
	 
	151
	Kentwood

	23
	Batavia
	 
	66
	

	Clare
	 
	109
	Felch Road
	 
	152
	Keystone

	24
	Bay Road
	 
	67
	

	Claremont
	 
	110
	Filer City
	 
	153
	Kinderhook (05/07)

	25
	Bayberry
	 
	68
	

	Clearwater
	 
	111
	Fillmore
	 
	154
	Kipp Road

	26
	Beals Road
	 
	69
	

	Cleveland
	 
	112
	Forty Fourth Street
	 
	155
	Kraft

	27
	Becker
	 
	70
	

	Club
	 
	113
	Foundry
	 
	156
	Lafayette

	28
	Beecher
	 
	71
	

	Cobb
	 
	114
	Four Mile 
	 
	157
	Laundra (05/07)

	29
	Begole
	 
	72
	

	Cochran
	 
	115
	Gaines (5/06)
	 
	158
	Lawndale

	30
	Bell Road
	 
	73
	

	Cole Creek
	 
	116
	Gallagher
	 
	159
	Layton

	31
	Bennington
	 
	74
	

	Colony Farm
	 
	117
	Garfield
	 
	160
	Leoni

	32
	Beveridge
	 
	75
	

	Convis
	 
	118
	Gaylord
	 
	161
	Letts Road

	33
	Bilmar
	 
	76
	

	Cork Street
	 
	119
	Geddes (04/08)
	 
	162
	Lewiston

	34
	Bingham
	 
	77
	

	Cornell
	 
	120
	Gleaner
	 
	163
	Lindbergh

	35
	Black River
	 
	78
	

	Cottage Grove
	 
	121
	Grand Blanc BOC
	 
	164
	Livingston Peaker

	36
	Blackman
	 
	79
	

	Covert
	 
	122
	Gray Road (4/10)
	 
	165
	Lovejoy

	37
	Blackstone
	 
	80
	

	Cowan Lake
	 
	123
	Greenwood
	 
	166
	Ludington

	38
	Blinton
	 
	81
	

	Crahen (10/07)
	 
	124
	Grey Iron
	 
	167
	Malleable (decomm 10/07)

	39
	Blue Water
	 
	82
	

	Croton
	 
	125
	Grodi Road
	 
	168
	Manlius

	40
	Bluegrass
	 
	83
	

	David
	 
	126
	Grout 
	 
	169
	Marquette

	41
	Boardman
	 
	84
	

	Dean Road
	 
	127
	Hackett
	 
	170
	McGulpin

	42
	Boxboard
	 
	85
	

	Deja
	 
	128
	Hagadorn
	 
	171
	MCV

	43
	Bricker
	 
	86
	

	Delaney
	 
	129
	Hager Park
	 
	172
	Meadowbrooke

31

	
									
	173
	Mecosta
	 
	207
	

	Port Sheldon
	 
	241
	Tihart

	174
	Michigan
	 
	208
	

	Porter
	 
	242
	Tinsman

	175
	Michigan Power (MPLP)
	 
	209
	

	Portsmouth
	 
	243
	Tippy

	176
	Milham
	 
	210
	

	Price Road (09/07)
	 
	244
	Titus Lake

	177
	Mio
	 
	211
	

	Progress Street
	 
	245
	Trillium (06/07)

	178
	Monitor
	 
	212
	

	Race Street
	 
	246
	Trowbridge

	179
	Moore Road
	 
	213
	

	Raisin
	 
	247
	Twelfth Street

	180
	Morrow
	 
	214
	

	Ransom
	 
	248
	Twilight

	181
	Mullins
	 
	215
	

	Renaissance
	 
	249
	Twining

	182
	Neff Road
	 
	216
	

	Rice Creek
	 
	250
	Upjohn 

	183
	Nineteen Mile Road
	 
	217
	

	Riggsville
	 
	251
	Van Atta

	184
	North Belding
	 
	218
	

	Rivertown
	 
	252
	Van Buren (06/08)

	185
	North Corunna
	 
	219
	

	Riverview
	 
	253
	Vanderbilt

	186
	Northern Fibre
	 
	220
	

	Rockport/Presque Isle
	 
	254
	Vernon

	187
	Nugent Sand
	 
	221
	

	Roedel Road
	 
	255
	Verona

	188
	Oakland
	 
	222
	

	Rogue River (06/07)
	 
	256
	Vevay

	189
	Oceana
	 
	223
	

	Saginaw River
	 
	257
	Viking Lincoln

	190
	Orr Road (03/09)
	 
	224
	

	Samaria
	 
	258
	Vrooman

	191
	Packard
	 
	225
	

	Sanderson
	 
	259
	Wackerly

	192
	Palisades
	 
	226
	

	Savidge
	 
	260
	Warner

	193
	Parr Road
	 
	227
	

	Scott Lake
	 
	261
	Warren

	194
	Parshallville
	 
	228
	

	Seamless East/Seamless
	 
	262
	Washtenaw

	195
	Pasadena
	 
	229
	

	Sonoma (5/06)
	 
	263
	Wayland

	196
	Pavilion
	 
	230
	

	Spaulding
	 
	264
	Weadock

	197
	Pearline (CWIP)
	 
	231
	

	Spruce Road
	 
	265
	Wealthy Street

	198
	Pettis Road
	 
	232
	

	Stacey
	 
	266
	West Fenton (05/07)

	199
	Pigeon River/Rondo
	 
	233
	

	Stamping Plant
	 
	267
	Wexford

	200
	Pingree (10/08)
	 
	234
	

	Sternberg Road (5/11)
	 
	268
	White Lake

	201
	Piston Ring
	 
	235
	

	Steelcase
	 
	269
	White Road

	202
	Plaster Creek
	 
	236
	

	Stonegate
	 
	270
	Whiting

	203
	Plum (7/10)
	 
	237
	

	Stover
	 
	271
	Whittemore

	204
	Plymouth Street
	 
	238
	

	Stronach
	 
	272
	Willard

	205
	Plywood
	 
	239
	

	Summerton
	 
	273
	Withey Lake (5/06)

	206
	Port Calcite
	 
	240
	

	Thetford 138
	 
	274
	Zeeland

_________________________

Changes, relative to previous revisions (addendums), are shown in bold type.

New interconnections have (month/year) in-service date after substation name if their in-service date was after May of 2002.

Note, this list of substations is not necessarily a list of the true points of facility ownership change between the Transmission Provider and the Local Distribution Company.  This also is not a complete listing of all Local Distribution Company substations that have a 138 kV high-side supply voltage.

32

EXHIBIT 2 - Contact Information For Local Distribution Company’s
Representatives and Transmission
Provider’s Representatives

Local Distribution Company

Consumers Energy Company
4000 Clay Ave SW, PO Box 201
Grand Rapids, MI 49501-0201

Attn: Executive Manager of System Planning and Control

Transmission Provider

Michigan Electric Transmission Company, LLC:
27175 Energy Way
Novi, MI 48377

Attn:    Legal Department - Contracts 

33

EXHIBIT 3
	
														
	SPECIAL MANUFACTURING CONTRACTS INFLUENCED BY TRANSMISSON SYSTEM
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 

	CUSTOMER
	 
	SUBSTATION
	 
	PAYMENT PER DISRUPTION EVENT
	 
	 

	 
	 
	 
	 
	INTERRUPTION
	 
	VOLTAGE  SAG
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 

	GM
	 
	BUICK STEWART
	 
	$
	150,000
	

	 
	NOT APPLICABLE
	 
	 

	 
	 
	MALLEABLE
	 
	$
	150,000
	

	 
	NOT APPLICABLE
	 
	 

	 
	 
	FLORENCE ST.
	 
	$
	150,000
	

	 
	NOT APPLICABLE
	 
	 

	 
	 
	GRAND BLANC BOC
	 
	$
	100,000
	

	 
	NOT APPLICABLE
	 
	 

	 
	 
	GREY IRON
	 
	$
	150,000
	

	 
	NOT APPLICABLE
	 
	 

	 
	 
	STAMPING PLANT
	 
	$
	100,000
	

	 
	NOT APPLICABLE
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 

	DELPHI
	 
	HOLLAND RD.
	 
	$
	150,000
	

	 
	NOT APPLICABLE
	 
	 

	 
	 
	 
	 
	 
	 
	 
	 
	 

	NOTES FOR GM & DELPHI:
	 
	 
	 
	 
	 
	 

	 
	1. NO PAYMENTS FOR VOLTAGE SAGS.
	 
	 
	 
	 

	 
	2. CUMULATIVE ANNUAL PAYMENT IS CAPPED AT $3,000,000.
	 
	 

	 
	3. INITIAL TERM OF GM AND DELPHI CONTRACTS EXPIRE IN 2005.
	 
	 

	 
	4. CONTRACTS MAY BE EXTENDED TO 2010 BY MUTUAL AGREEMENT.
	 

	 
	 
	 
	 
	 
	 
	 
	 
	EVENT #

	DOW CORNING
	 
	CARTER
	 
	$
	(15,000
	)
	 
	$
	(15,000
	)
	 
	no events

	 
	 
	 
	 
	$
	15,000
	

	 
	—
	

	 
	1st /yr

	 
	 
	 
	 
	$
	15,000
	

	 
	$
	15,000
	

	 
	2nd/yr

	 
	 
	 
	 
	$
	55,000
	

	 
	NOT APPLICABLE
	 
	3rd/yr

	 
	 
	 
	 
	 
	 
	 
	 
	 

	DOW CORNING
	 
	DOW CORNING
	 
	$
	(25,000
	)
	 
	$
	(25,000
	)
	 
	no events

	 
	 
	 
	 
	$
	25,000
	

	 
	—
	

	 
	1st /yr

	 
	 
	 
	 
	$
	35,000
	

	 
	$
	25,000
	

	 
	2nd/yr

	 
	 
	 
	 
	$
	105,000
	

	 
	NOT APPLICABLE
	 
	3rd/yr

	 
	 
	 
	 
	 
	 
	 
	 
	 

	HEMLOCK
	 
	HSC
	 
	$
	(40,000
	)
	 
	$
	(20,000
	)
	 
	no events

	SEMICONDUCTOR
	 
	 
	$
	40,000
	

	 
	—
	

	 
	1st /yr

	 
	 
	 
	 
	$
	60,000
	

	 
	$
	20,000
	

	 
	2nd/yr

	 
	 
	 
	 
	$
	150,000
	

	 
	NOT APPLICABLE
	 
	3rd/yr

	 
	 
	 
	 
	 
	 
	 
	 
	 

	HEMLOCK
	 
	SILICON
	 
	NOT APPLICABLE
	$
	(15,000
	)
	 
	no events

	SEMICONDUCTOR
	 
	 
	NOT APPLICABLE
	—
	

	 
	1st /yr

	 
	 
	 
	 
	NOT APPLICABLE
	—
	

	 
	2nd/yr

	 
	 
	 
	 
	NOT APPLICABLE
	—
	

	 
	3rd/yr

	 
	 
	 
	 
	NOT APPLICABLE
	$
	15,000
	

	 
	4th/yr

	 
	 
	 
	 
	 
	 
	 
	 
	 

	NOTES FOR DOW CORNING & HEMLOCK SEMICONDUCTOR:
	 
	 
	 
	 

	 
	1. IF NO EVENTS IN A YEAR, PAYMENT IS MADE TO CONSUMERS.
	 
	 

	 
	2. MAXIMUM # OF PAYABLE EVENTS/YR IS 3 FOR INTERRUPTIONS & 1 FOR SAGS.

	 
	3. WEATHER RELATED EVENTS ARE NOT PAYABLE.
	 
	 

34

EXHIBIT 4 - Metering Specifications

Performance criteria:

		
	1.
	Meters shall meet or exceed the latest version of ANSI C12.16 (Standard for Solid State Electricity Meters) specifications for solid state metering.

		
	2.
	Current transformers used for metering shall meet or exceed an accuracy class of 0.3%.  Secondary connected burdens shall not exceed rated burden of any current transformer.  Current transformers shall comply with most current applicable ANSI Standards including C57.13 (IEEE Standard Requirements for Instrument Transformers) and C12.11 (Instrument Transformers for Revenue Metering 10 kV BIL through 350 kV BIL).  Meter installations shall comply with manufacturer’s accuracy and burden class information on the nameplate of each device.

		
	3.
	Voltage transformers used for metering shall meet or exceed an accuracy class of 0.3%.  Secondary connected burdens shall not exceed rated burden of any voltage transformer.  Voltage transformers shall comply with most current applicable ANSI Standards including C57.13 (IEEE Standard Requirements for Instrument Transformers), and C12.11 (Instrument Transformers for Revenue Metering 10 kV BIL through 350 kV BIL).  Meter installations shall comply with manufacturer’s accuracy and burden class information on the nameplate of each device.

		
	4.
	PT secondary circuits shall have a disconnect switch installed which provides a visible air gap for worker safety, and which allows for attachment of a protective safety tag.

35

EXHIBIT 5

Addendum 4 - Final 11/28/11

For ownership changes since August 7, 2007, refer to the drawings in each Party’s Drawing Management System (DMS), as discussed in Section 3.2 of this Agreement.

The WDs of the following substations have been revised since the last update of 6/10/10 (Addendum 3):

Consumers Energy (CE)    Michigan Electric Transmission Company (METC)
Batavia                Sternberg Road
Beals Road
Black River
Bullock
Cornell
Croton
Dort
Eureka
Four Mile
Gaylord
Halsey
Iosco
Lawndale
McGulpin
Milham
Morrow
North Belding
Oakland
Riggsville
Riverview
Saginaw River
Twining
Weadock
Wealthy Street
Wexford
White Lake
Whiting

36

EXHIBIT 6 - Jointly Owned Assets Ownership by Percent of Major Equipment Addendum 6 - Final 11/28/11

	
											
	 	Substations

	 	Jointly Owned Assets

	 	 Percentage Split by Major Equipment Count

	 	Substation Name
	Distribution
	Transmission
	Generation Owned by Local Distribution Company
	Third-Party Assets
	Last Revision Date

	 
	 	Alma
	66.67
	

	33.33
	

	 
	 
	10/24/2003

	 	 
	 
	 
	 
	 
	 

	 	Bard Road
	41.67
	

	58.33
	

	 
	 
	6/10/2010

	 	 
	 
	 
	 
	 
	 

	 	Batavia
	63.64
	

	36.36
	

	 
	 
	10/24/2003

	 	 
	 
	 
	 
	 
	 

	 	Beals Road
	84.62
	

	15.38
	

	 
	 
	6/10/2010

	 	 
	 
	 
	 
	 
	 

	 	Beecher
	82.50
	

	17.50
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Bingham
	90.91
	

	9.09
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Black River 1
	66.67
	

	25.93
	

	 
	7.40
	

	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Blackstone
	70.83
	

	29.17
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Bullock
	76.00
	

	24.00
	

	 
	 
	11/20/2008

	 	 
	 
	 
	 
	 
	 

	 	Claremont
	68.00
	

	32.00
	

	 
	 
	5/1/2002

	 	 
	 
	 
	 
	 
	 

	 	Cobb Plant
	47.22
	

	25.00
	

	27.78
	

	 
	5/1/2002

	 	 
	 
	 
	 
	 
	 

	 	Cornell
	66.67
	

	33.33
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Croton
	54.54
	

	31.82
	

	13.64
	

	 
	6/10/2010

	 	 
	 
	 
	 
	 
	 

	 	Delhi
	61.90
	

	38.10
	

	 
	 
	10/24/2003

	 	 
	 
	 
	 
	 
	 

	 	Dort 2
	68.18
	

	31.82
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Emmet
	92.31
	

	7.69
	

	 
	 
	5/1/2002

	 	 
	 
	 
	 
	 
	 

	 	Eureka
	88.89
	

	11.11
	

	 
	 
	6/10/2010

	 	 
	 
	 
	 
	 
	 

	 	Felch Road
	83.33
	

	16.67
	

	 
	 
	3/31/2006

	 	 
	 
	 
	 
	 
	 

	 	Four Mile
	73.33
	

	26.67
	

	 
	 
	3/16/2006

	 	 
	 
	 
	 
	 
	 

	 	Gaylord
	44.44
	

	44.44
	

	11.12
	

	 
	11/20/2008

	 	 
	 
	 
	 
	 
	 

	 	Halsey
	76.92
	

	23.08
	

	 
	 
	10/24/2003

	 	 
	 
	 
	 
	 
	 

	 	Hemphill
	64.29
	

	35.71
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	HSC
	33.33
	

	66.67
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Iosco
	83.33
	

	16.67
	

	 
	 
	5/30/2007

	 	 
	 
	 
	 
	 
	 

	 	Lawndale
	82.35
	

	17.65
	

	 
	 
	5/1/2002

	 	 
	 
	 
	 
	 
	 

	 	Marquette
	75.00
	

	25.00
	

	 
	 
	5/1/2002

	 	 
	 
	 
	 
	 
	 

	 	McGulpin 1
	55.56
	

	44.44
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Mecosta
	86.67
	

	13.33
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Milham
	76.47
	

	23.53
	

	 
	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

	 	Moore Road 3
	64.65
	

	10.00
	

	 
	25.35
	

	8/7/2007

	 	 
	 
	 
	 
	 
	 

	 	Morrow 1
	66.67
	

	23.33
	

	10.00
	

	 
	11/28/2011

	 	 
	 
	 
	 
	 
	 

37

	
										
	North Belding
	66.67
	

	33.33
	

	 
	 
	10/24/2003

	 
	 
	 
	 
	 
	 

	Oakland
	87.50
	

	12.50
	

	 
	 
	10/24/2003

	 
	 
	 
	 
	 
	 

	Ransom
	88.89
	

	11.11
	

	 
	 
	1/5/2005

	 
	 
	 
	 
	 
	 

	Rice Creek
	92.86
	

	7.14
	

	 
	 
	10/24/2003

	 
	 
	 
	 
	 
	 

	Riggsville
	75.00
	

	25.00
	

	 
	 
	11/20/2008

	 
	 
	 
	 
	 
	 

	Riverview
	93.75
	

	6.25
	

	 
	 
	10/24/2003

	 
	 
	 
	 
	 
	 

	Saginaw River
	57.89
	

	42.11
	

	 
	 
	11/20/2008

	 
	 
	 
	 
	 
	 

	Spaulding
	60.00
	

	40.00
	

	 
	 
	3/31/2006

	 
	 
	 
	 
	 
	 

	Stover
	85.71
	

	14.29
	

	 
	 
	11/20/2008

	 
	 
	 
	 
	 
	 

	Stronach 2
	66.67
	

	33.33
	

	 
	 
	5/24/2004

	 
	 
	 
	 
	 
	 

	Tihart
	73.33
	

	26.67
	

	 
	 
	1/31/2005

	 
	 
	 
	 
	 
	 

	Tippy
	33.33
	

	66.67
	

	 
	 
	11/13/2002

	 
	 
	 
	 
	 
	 

	Twining
	76.92
	

	23.08
	

	 
	 
	5/1/2002

	 
	 
	 
	 
	 
	 

	Verona
	60.87
	

	39.13
	

	 
	 
	3/31/2006

	 
	 
	 
	 
	 
	 

	Weadock
	35.14
	

	24.32
	

	40.54
	

	 
	3/16/2006

	 
	 
	 
	 
	 
	 

	Wealthy Street
	86.11
	

	13.89
	

	 
	 
	3/16/2006

	 
	 
	 
	 
	 
	 

	Wexford
	92.86
	

	7.14
	

	 
	 
	11/28/2011

	 
	 
	 
	 
	 
	 

	White Lake
	81.25
	

	18.75
	

	 
	 
	10/24/2003

	 
	 
	 
	 
	 
	 

	Whiting
	31.58
	

	31.58
	

	36.84
	

	 
	8/7/2007

_________________________

Changes, relative to previous revisions (addendums), are shown in bold type.

1 At 120kV and above, third-party related assets will be included as part of the Transmission Provider's assets for purposes of making this calculation.  Also, the third-party may share in the financial responsibility associated with O&M activities.

2  Third-party may share in the financial responsibility associated with O&M activities.

3 Below 120kV the third-party related assets will be included as part of the Local Distribution Company's assets for purposes of making this calculation.  Also, the third-party may share in the financial responsibility associated with O&M activities.

38

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00209-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00209-of-00352.parquet"}]]