Document:

Exhibit 10.2

 

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

 

 

 

Principal Amount: $35,000

 

Date: November 3, 2020

 

 

PROMISSORY NOTE

 

Verde Bio Holdings, Inc., (hereinafter called the “Company”), hereby promises to pay to the order of GHS Investments, LLC, a Nevada Limited Liability Company, or its registered assigns (the “Holder”) the sum of $35,000 on the "Maturity Date", as defined below, together with any interest as set forth herein, and to pay interest on the unpaid principal balance hereof at the rate of ten percent (10%) (the “Interest Rate”) per  annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment  or otherwise. 

 

This Note is being issued with a ten percent (10%) issuance discount and with $2,000 being withheld by the Holder to offset transaction costs. The Maturity Date shall be nine (9) calendar months from the date the Purchase Price is received by the Company in accordance with the Securities Purchase Agreement of even date. 

 

This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Following any Event of Default, all amounts owing pursuant to this Note shall bear interest at the lower of (a) the rate of twenty percent (20%) per annum from the due date thereof until the same is paid  or (b) the maximum rate allowed by law (“Default Interest”).  Interest shall be computed on the basis of a 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extent not converted into common stock) shall be made in lawful money of the United States of America. 

All payments shall be made at such address as the Holder shall hereafter give to the Company by written notice made in accordance with the provisions of this Note.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date.  As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in the supporting documents of same date (attached hereto). 

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1Conversion Right.  The Holder shall have the right at any time following  execution of this Note, to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Company into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion  Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Company subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates  of more than 4.99% of the outstanding shares of Common Stock.  For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of  the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice  of conversion, (the “Notice of Conversion”), delivered to the Company by the Holder in accordance with the Sections below; provided that the Notice of Conversion is submitted by  facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Company before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”).   

The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice  of conversion, (the “Notice of Conversion”), delivered to the Company by the Holder in accordance with the Sections below.  

 

The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Company’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Company’s  option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder.

 

1.2Conversion Price. Subject to the adjustments described herein, and provided that no Event of Default (as defined below) has occurred, the Conversion Price shall equal to $ 0.0118, which equals 60% multiplied by the lowest Traded Price for the Common Stock on the Trading Day preceding the execution of the Note.(the “Fixed Conversion Price”) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). Notwithstanding anything herein to the contrary, upon delivery by the Holder to the Borrower of a Default Notice setting forth the Event of Default under the Note, the Fixed Conversion Price shall be extinguished and of no further force or effect and the Variable Conversion Price (as defined below) shall immediately and irrevocably be effective. The “Variable Conversion Price” shall mean 65% multiplied by the Market Price (as defined herein) (representing a discount rate of 35%) (the Variable Conversion Price or the Fixed Conversion Price, as applicable the “Conversion Price”). “Market Price” means the lowest Traded Price for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.  

 

To the extent the Conversion Price of the Borrower’s Common Stock closes below the par value per share, the Borrower will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Borrower agrees to honor all conversions submitted pending this adjustment. If the shares of the Borrower’s Common Stock have not been delivered within three (3) business days to the Holder, the Notice of Conversion may be rescinded. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCQB or on the principal securities exchange or other securities market on which the Common Stock is then being traded. If at any time the Conversion Price as determined hereunder for any conversion would be less than the par value of the Common Stock, then at the sole discretion of the Holder, the Conversion Price hereunder may equal such par value for such conversion and the Conversion Amount for such conversion may be increased to include Additional Principal, where “Additional Principal” means such additional amount to be added to the Conversion Amount to the extent necessary to cause the number of conversion shares issuable 

upon such conversion to equal the same number of conversion shares as would have been issued had the Conversion Price not been adjusted by the Holder to the par value price.

 

1.3Authorized Shares.   The Company covenants that during the period the conversion  right exists the Company will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note. The Company is required at all times to have authorized and reserved three times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”).  The Reserved Amount shall be increased from time to time in accordance with the Company’s obligations. 

 

The Company represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable.  In addition, if the Company shall issue any securities or make any change to its capital structure which would change the number of shares  of  Common  Stock  into  which  the  Notes  shall  be  convertible  at  the  then  current Conversion Price, the Company shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes.  

 

The Company (i) acknowledges that it will irrevocably instruct its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Company does not maintain the Reserved Amount it will be considered an Event of Default as defined in this Note. 

 

(b)Pro Rata Conversion; Disputes. In the event of a dispute as to the number of shares of Common Stock issuable to the Holder in connection with a conversion of this Note, the Borrower shall issue to the Holder the number of shares of Common Stock not in dispute and resolve such dispute. 

 

1.4Method of Conversion. 

 

(a)Mechanics of Conversion.  This Note may be converted by the Holder, in whole or in part, at any time following execution by  submitting  to  the  Company  a  Notice  of  Conversion  (by  facsimile,  e-mail  or  other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time). 

 

(b)Surrender of Note Upon Conversion.  Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be  required to physically surrender this Note to the Company unless the entire unpaid principal amount of this Note is so converted.  The Holder and the  

Company shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Company, so as not to require physical surrender of this Note upon each such conversion.  In the event of any dispute or discrepancy, such records of the Holder shall, prima facie, be controlling and determinative in the absence of manifest error. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

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

 

(d)Delivery of Common Stock Upon Conversion.   Upon receipt by the Company from the Holder of a facsimile transmission or e-mail (or other reasonable means of  communication)  of  a  Notice  of  Conversion  meeting  the  requirements  for  conversion  as provided in this Section, the Company shall  issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement. 

 

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

 

(e)Obligation of Company to Deliver Common Stock.  Upon receipt by the  Company of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid  interest on this Note shall be reduced to reflect such conversion, and, unless the Company defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion.  If the Holder shall have given a Notice of Conversion as provided herein, the  Company’s obligation  to issue and deliver the certificates for Common Stock shall  be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment  

against any person or any action to enforce the same, any failure or delay in the enforcement of any other  obligation  of  the  Company  to  the  holder  of  record,  or  any  setoff,  counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the  Holder of any obligation to the Company, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with such conversion.  The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Company before 6:00 p.m., New York, New York time, on such date.

 

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

 

(g)Failure to Deliver Common Stock Prior to Deadline.  Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the  Deadline the Company shall pay to the Holder $100 per day in cash, for each day beyond  the Deadline that the Company fails to deliver such Common Stock.  Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Company by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall  be  convertible  into  Common  Stock  in  accordance  with  the  terms  of  this  Note. The Company agrees that the right to convert is a valuable right to the Holder.  The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible  to  qualify. 

 

Accordingly  the  parties  acknowledge  that  the  liquidated  damages provision contained in this Section are justified.  Any delay or failure of performance by the Company hereunder shall be excused if and to the extent caused by Force Majeure. For purposes of this agreement,  Force Majeure shall mean a cause or event that is not reasonably foreseeable and not caused by the Company, including acts of God, fires, floods, explosions, riots wars, hurricanes, etc.  

 

1.5Concerning  the  Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless  (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Company or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or  

a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Company who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor. Except as otherwise provided herein (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

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

 

The legend set forth above shall be removed and the Company shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Company or its transfer agent shall have received an  opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock ssuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In  the event  that  the Company does  not  accept  the opinion  of counsel provided by the Holder with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to this note if the Company, if the Company does not provide a suitable opinion within two (2) business days. 

 

1.6Effect of Certain Events. 

 

(a)Effect of Merger, Consolidation, Etc.  At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Company, the effectuation by the Company of a transaction or series of related transactions in which more than 50% of the voting power of the Company is disposed of, or the consolidation, merger or other business  combination of the Company with or into any other Person (as defined below) or Persons when the Company  is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article III) pursuant to which the Company shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. “Person” shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization. 

 

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

 

(c) Adjustment Due to Distribution.  If the Company shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Company’s shareholders in  cash or shares (or rights to acquire shares) of capital 

stock of a subsidiary (i.e., a spin-off)) (a “Distribution”),  then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for  determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been  payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

(d)Adjustment Due to Dilutive Issuance. If, at any time when any Notes issued under the Securities Purchase Agreement of even date herewith are issued and outstanding, the Company issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock in connection with a financing transaction based on a price formula (the “Alternative Price Formula”) that is more favorable to the investor in such financing transaction than the formula for calculating the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a “Dilutive Issuance”), then immediately upon the Dilutive Issuance, the formula for the Conversion Price will be adjusted to match the Alternative Price Formula.  If it is unclear whether the Alternative Price Formula is better or worse, then Holder, in its sole discretion, may elect at the time of such issuance whether to switch to the Alternative Variable Price Formula or not. 

 

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

 

(f)Notice of Adjustments.  Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Company, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder of a  certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  The Company shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note. 

 

1.7Security  As Security for the Company's obligations contained herein and in all Notes issued by the Company to the Holder, following any Event of Default which remains uncured for one hundred twenty (120) calendar days, the Holder shall be granted an unconditional first priority interest in and to, any and all property of the Company and its subsidiaries, of any kind or description, tangible or intangible, whether now existing or hereafter arising or acquired until the balance of all Notes has been reduced to $0. "Any  

and all property," as described herein shall be inclusive of, but not limited to, assets reported by the Company on its SEC filings, cash, inventory, accounts receivable, intellectual property rights, equipment and or property. The Investor is authorized to make all filings the Investor, in its discretion, deems necessary to evidence its security interests.

 

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

 

1.9Prepayment.  Maker may prepay this Note upon 3 business days written notice. and in accordance with the following schedule: If within 60 calendar days from the execution of this Note, 110% of all outstanding principal and interest due on each outstanding Note in one payment;  On or after 60 calendar days from the execution of the Note and within 120 days from execution, 120% of all outstanding principal and interest due on each outstanding Note in one payment. Between 121 and 180 days from the date of execution, the Note may be prepaid for 125% of all outstanding amounts due on each outstanding Note in one payment  

 

Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the applicable prepayment amount to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the applicable prepayment amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

ARTICLE II.  CERTAIN COVENANTS

 

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

 

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

 

 

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

 

 

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

 

2.5Advances and Loans.  So long as the Company shall have any obligation under this Note, the Company shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers,  directors, employees, subsidiaries and affiliates of the Company, except loans, credits or advances (a) in  existence or committed on the date hereof and which the Company has informed Holder in writing prior to  the date hereof, (b) made in the ordinary course of business or (c) not in excess of $50,000 or (d) made as part of a strategic acquisition or investment. 

 

2.6Section 3(a)(9) or 3(a)(10) Transaction. So long as this Note is outstanding, the Borrower shall not, without the prior written consent of the Holder,  enter into any transaction  

or arrangement structured in accordance with, based upon, or related or pursuant to, in whole or in part, either Section 3(a)(9) of the Securities Act (a “3(a)(9) Transaction”) or Section 3(a)(l0) of the Securities Act (a “3(a)(l0) Transaction”). In the event that the Borrower does enter into, or makes any issuance of Common Stock related to a 3(a)(9) Transaction or a 3(a)(l0) Transaction while this Note is outstanding, a liquidated damages charge of 25% of the outstanding principal balance of this Note, but not less than Fifteen Thousand Dollars $15,000, will be assessed and will become immediately due and payable to the Holder at its election in the form of cash payment or addition to the balance of this Note.

 

2.7Preservation of Existence, etc. The Borrower shall maintain and preserve, and cause each of its Subsidiaries to maintain and preserve, its existence, rights and privileges, and become or remain, and cause each of its Subsidiaries (other than dormant Subsidiaries that have no or minimum assets) to become or remain, duly qualified and in good standing in each jurisdiction in which the character of the properties owned or leased by it or in which the transaction of its business makes such qualification necessary. 

 

2.8Non-circumvention. The Borrower hereby covenants and agrees that the Borrower will not, by amendment of its Certificate or Articles of Incorporation or 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 the provisions of this Note and take all action as may be required to protect the rights of the Holder. 

 

2.9 Repayment from Proceeds. While any portion of this Note is outstanding, if the Borrower receives cash proceeds from any source or series of related or unrelated sources, including but not limited to, from payments from customers, the issuance of equity or debt, the conversion of outstanding warrants of the Borrower, the issuance of securities pursuant to an equity line of credit of the Borrower or the sale of assets, the Borrower shall, within one (1) business day of Borrower’s receipt of such proceeds, inform the Holder of such receipt, following which the Holder shall have the right in its sole discretion to require the Borrower to immediately apply all or any portion of such proceeds to repay all or any portion of the outstanding amounts owed under this Note.  Failure of the Borrower to comply with this provision shall constitute an Event of Default.  In the event that such proceeds are received by the Holder prior to the Maturity Date, the required prepayment shall be subject to the terms of Section 1.9 herein. 

 

 

ARTICLE III.  EVENTS OF DEFAULT

 

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

 

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

 

3.2Conversion and the Shares.  The Company fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its  

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

 

3.3Breach of Covenants.   The Company breaches any covenant or other term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement. 

 

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

 

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

 

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

 

3.7Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law  

or any law for the relief of debtors shall be instituted by or against the Company or any subsidiary of the Company.

 

3.8Delisting of Common Stock / Bid Price. The Company shall fail, within 80 days of the execution of this Note, to maintain in good standing  the listing  of  the Common Stock on the OTC Markets or an equivalent replacement exchange, the Nasdaq  National Market, the Nasdaq SmallCap Market or the New York Stock Exchange or if the Company's shall lose the "bid" price for its common stock on any given trading day.  

 

3.9Failure to Comply with the Exchange Act. The Company shall fail, within 80 days of the execution of this Note, to timely comply with the reporting requirements of the Exchange Act; and/or the Company shall cease to be subject to the reporting requirements of the Exchange Act. 

 

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

 

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

 

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

 

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

 

3.14Reverse Splits. The Company effectuates a reverse split of its Common Stock without prior written notice to the Holder. 

 

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

 

3.16Cross-Default.  Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Company of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace  periods, shall, at the option of the Holder,  

be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or  hereunder. “Other  Agreements”  means,  collectively,  all  agreements  and  instruments between,  among  or by: (1) the Company, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not  include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Company.

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note  shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE COMPANY SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER,  AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on  this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3.15 exercisable through the delivery of written notice to the Company by such Holders (the “Default Notice”),  and upon the occurrence of an Event of Default specified the remaining sections of Articles III, the  Note shall become immediately due and payable and the Company shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) .

 

If the Company fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Company remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Company, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of  the Company equal to the Default Amount divided by the Conversion Price then in effect.

 

ARTICLE IV. MISCELLANEOUS

 

4.1Failure or Indulgence Not Waiver.  No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or  partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other  right, power or privileges. All rights and  

remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.

 

4.2Notices.   All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested, postage  prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand  delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice.  Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day duringnormal business hours where such notice is to be received) or (b) on the second business day following  the  date  of  mailing  by  express  courier  service,  fully  prepaid,  addressed  to  such address, or upon actual receipt of such mailing, whichever shall first occur.  The addresses for such communications shall be: 

 

 

 

If to the Company, to:

 

Verde Bio Holdings, Inc.

5 Cowboys Way, Suite 300

Frisco, Texas 75034

 

If to the Holder: 

 

GHS Investments, LLC. 

420 Jericho Turnpike

Suite 102

Jericho, NY 11753

 

4.3Amendments.  This Note and any provision hereof may only be amended by an instrument in writing signed by the Company and the Holder.  The term “Note” and all reference thereto, as used throughout this instrument, shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented, then as so amended or supplemented. 

 

4.4Assignability. This Note shall be binding upon the Company and its successors  and assigns, and shall inure to be the benefit of the Holder and its successors and assigns.  Notwithstanding anything in  this  Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin  account or other lending arrangement. 

 

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

4.6Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Nevada without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state or federal courts located in the County, City and State of New York.  The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Company and Holder waive trial by jury.  The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs.  In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be  deemed modified to conform with such statute or rule of law.  Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement.  Each party hereby irrevocably waives personal service of process and consents to process being served in any suit,  action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with  

evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient  service of process and notice thereof.  Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

4.7Certain Amounts.  Whenever pursuant to this Note the Company is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Company and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Company represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note.  The Company and the Holder hereby agree that such amount of stipulated  damages is not plainly disproportionate to the possible loss to the Holder from the receipt of a cash payment  without the opportunity to convert this Note into shares of Common Stock. 

 

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

 

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

 

4.10Remedies.  The Company acknowledges that a breach by it of its obligations  hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby.  Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in  

the event of a breach or threatened breach by the Company of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

 

 

 

 

 

 

SIGNATURE PAGE TO FOLLOW

 

 

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

 

 

	VERDE BIO HOLDINGS, INC.

	 

	 

	 

	By:  

	 

	 

	 

	Print:

	 

	 

	 

	Title/Date:Exhibit 10.1

 

GENIUS BRANDS INTERNATIONAL, INC.

190 N. Canon Drive, 4th Floor

Beverly Hills, CA 90210

 

November 15,
2020

 

PRIVATE AND CONFIDENTIAL

 

Via Email

 

ChizComm Ltd.

ChizComm USA Corp.

245 Fairview Mall Drive, Suite 301

North York, ON M2J 4TI

CANADA

 

Attn:       Mr. Harold Chizick, CEO

 

Dear Harold:

 

We are pleased to submit this offer by Genius
Brands International, Inc., a Nevada corporation (“GBI”), regarding its proposed acquisition of all of the equity
interests of (i) ChizComm Ltd., a corporation organized in Canada (“ChizComm Canada”), and (ii) ChizComm
USA Corp., a New Jersey corporation (“ChizComm USA” and, together with ChizComm Canada, “ChizComm”
or the “Company”).

 

The terms of our offer are set forth in
this letter (this “Letter”). GBI is prepared to move expeditiously to execute Definitive Agreements (as defined
below).

 

1.              
Transaction Value. At the closing of the Transaction (as defined herein), GBI would acquire from the equity
holders of the Company (the “Sellers”) for USD $12,000,000 (the “Transaction Value”)
all of the equity interests of the Company (the “Interests”), free and clear of all encumbrances other than
disclosed encumbrances like the office furniture lease, based upon a cash-free, debt-free (i.e., with no bank, institutional or
other loans) enterprise with, on closing, current net assets being no greater than current net liabilities (the “Transaction”).
We will structure the Transaction in a tax efficient manner, taking into account the interests of GBI,
the Company and the Sellers, which could include having GBI establish a Canadian or other business entity to be the purchaser of
the Company’s Interests (“Buyer”).

 

(A)          
At the closing of the Transaction, GBI will arrange for the payment to the Sellers of (i) USD $8.5 million dollars
in cash and (ii) USD $3.5 million dollars of unregistered common shares of GBI (the “Share Consideration”).

 

(B)          
The per share price used to determine the number of GBI shares to be issued to the Sellers for the Share Consideration would
be the closing price of the GBI shares on the day prior to the Closing. The shares issued by GBI hereunder will be unregistered
but saleable in trades beginning six (6) months after the closing per Rule 144 under the Securities Act of 1933, subject to the
restrictions below.

 

(C)          
For the avoidance of doubt, $2,000,000 of the Transaction Value is allocated to the customer acquisition of 2,000,000 new
subscribers for GBI’s Kartoon Channel.

 

 

 

    	 	 	 

     

    

 

Page Two

 

2.              
Additional Consideration. If during the four (4) year period commencing on the date of closing (the “earn
out period”):

 

(A)          
New Subscribers. If Sellers can demonstrate to GBI’s reasonable satisfaction that GBI acquired new users (downloads)
for GBI’s Kartoon Channel (“KC Users”), the Sellers or their designees shall receive up to USD $4,000,000
payable in GBI common shares priced at the time of grant.

 

i.                
On the first annual anniversary of the closing and each year thereafter during the earn out period, the number of new KC
Users, added over and above the number set forth in paragraph 1(C) above, shall be determined and USD $1.50 per KC User added
during that year shall be paid by GBI in additional GBI common shares to the Sellers or their designees. For example, if on the
first anniversary of the closing, KC Users are 500,000 greater than 2,000,000 as set forth above, the Additional Consideration
due Sellers would be USD $750,000 of GBI commons shares.

 

(B)          
EBITDA Based. Sellers or their designees shall receive up to USD $4,000,000 payable in GBI common shares priced
at the time of grant if the Company’s earnings before income tax, depreciation or amortization (“EBITDA”)
exceeds USD $1,000,000. As such, at the end of each calendar year commencing in 2021, if the Company’s EBITDA, as calculated
in accordance with generally accepted accounting principles, applied on a consistent basis for the Company exceed a base of USD $1,000,000
plus the EBITDA from each successive year, on a cumulative basis, then the Sellers or their designees shall be paid by GBI the
sum of USD $1.50 for each dollar of increased EBITDA payable in GBI common shares. For example, if for the year 2021 the Company’s
EBITDA is USD $1,500,000, then the Sellers shall be paid USD $750,000 payable in GBI common shares; and if for 2022 the
Company’s EBITDA is USD $2,000,000, the Additional Consideration shall be USD $750,000 payable in GBI common shares.

 

3.              
Conditions; Representation and Documentation.

 

(A)          
The parties expect to negotiate and execute mutually satisfactory definitive agreements (the “Definitive Agreements”).
We have attached all key purchase agreement terms as Exhibit A hereto.

 

(B)          
The Company represents and warrants that it (i) has disclosed to GBI all of its material liabilities and has no bank
or other loan or credit facilities; (ii) has no agreement which gives rise to any material payments or financial obligation
to a third party outside of the ordinary course of its business; (iii) has no agreement to lease equipment or real property
except for its office leases and furniture; (iv) has no outstanding tax obligations outside of those incurred in the ordinary
course of its business for this fiscal year; and (v) has no labor agreements or pension plans except as heretofore provided
to GBI. From and after the date of this Letter, GBI and its advisors shall have access to the Company’s
records on tax filings and litigation.

 

(C)          
GBI intends to keep the Company’s employees in place at closing at compensation levels comparable to current levels
(salary and benefits) and expects the Company’s management to use its reasonable best efforts to assist GBI to keep those
individuals in place.

 

4.              
Exclusivity. In consideration for the time and resources that GBI will devote to the Transaction, the Company
agrees that, for the period from the date of its acceptance of this Letter until the earlier of January 30, 2021 or closing of
the Transaction (the “Exclusivity Period”), it will not, and it will cause its affiliates and their respective
officers, directors, employees, representatives, agents, and equity holders (with the Company, each a “Company Party”)
not to pursue or enter into any agreements or arrangements with respect to a possible: (i) reorganization, dissolution, liquidation,
or recapitalization involving the Company; (ii) merger, consolidation, share exchange, or acquisition involving the Company;
(iii) sale of any material amount of assets of the Company (other than in the ordinary course of business and consistent with
past practice); (iv) direct or indirect acquisition or purchase of the Interests, including any capital stock or other equity
interests, or debt securities of the Company; (v) material dividend or stock repurchase; (vi) similar transaction or
business combination involving the Company or its business or its capital stock, securities or assets (however structured), or
(vii) other transaction the consummation of which would prevent, impede, or delay the consummation of the Transaction (each
of the above, an “Alternative Transaction”), or provide any information to any other party in connection therewith;
provided, that if a Definitive Agreement has not been executed prior to January 30, 2021, the Company may terminate the Exclusivity
Period at any time.

 

5.              
Conduct of Business; Access to Information. During the Exclusivity Period, the Company will conduct its business
and operations in the ordinary course of business and consistent with its prior business practices. The Company will provide GBI
and its representatives, agents, consultants and advisors with reasonable access during normal business hours to the properties,
personnel (including appropriate management and outside advisors), and financial, legal, accounting, tax, and other data and information
relating to the business, operations, and properties of Company.

 

 

 

    	 	 	 

     

    

 

Page Three

 

 

6.              
Fees and Expenses. The Company and GBI will pay their respective costs, fees and expenses incurred in connection
with the Transaction contemplated hereby.

 

7.              
Confidentiality. During the Exclusivity Period and prior to closing, the parties hereto will not, except as
otherwise required by law, without the consent of the other party, make any announcement about any Transaction to the public, or
otherwise disclose the existence of this Letter, the fact of the discussions among the parties concerning the Transaction, or the
specific terms of this Letter; provided, that nothing herein will prohibit sharing this Letter or the terms of the Transaction
with a party’s affiliates, equity holders, attorneys, accountants, employees or other representatives or advisors without
the written consent of the other party and provided that they are advised that such information is confidential and are directed
to abide by the provisions of this Paragraph 7.

 

8.              
Binding Effect; Governing Law; Counterparts; Authority. This Letter, including Exhibit A attached hereto,
is a statement of the parties’ agreement with respect to a Transaction. The parties shall use their good faith to reach Definitive
Agreements, but if they are unable to agree, they shall be bound to the terms of this Letter, which will constitute a binding and
enforceable purchase agreement among the parties hereto and their successors.

 

This Letter will be governed by and construed
in accordance with the internal laws (and not the laws of conflicts) of the State of New York. This Letter may be executed in one
or more counterparts (including by facsimile or .pdf), none of which need contain the signature of more than one party, and all
of which taken together will constitute one and the same agreement. This Letter constitutes the entire agreement between us and
supersedes all prior communications, agreements and understandings, written or oral, with respect to the subject matter hereof.
No party may assign this Letter without the other party’s consent, and any assignment without consent will be void. The Company
represents that it will not, by executing and complying with this Letter or pursuing the Transaction described herein, violate
the terms of any other agreement or obligation to which the Company is subject, and further represents and warrants that the Company
has taken all actions that may be necessary in order to make the binding provisions of this Letter legal, valid and binding obligations
of the Company.

 

Formalities aside, we look forward to our
continued participation in this process and are excited about the opportunity to work with you to achieve profitable growth and
sustained equity value creation.

 

If you are in agreement with the terms set
forth above and desire to proceed with the Transaction on that basis, please sign in the space provided below and return an executed
copy.

 

(Signature Pages Follow)

 

 

 

    	 	 	 

     

    

Page Four

 

 

	 	Sincerely,
	 	 
	 	GENIUS BRANDS INTERNATIONAL, INC.
	 	 
	 	 
	 	 
	 	By:  /s/ Andrew Heyward                                          
	 	       Andrew Heyward

 

 

Accepted, Acknowledged and Agreed

on this  15th  day of November, 2020

 

CHIZCOMM
LTD.

CHIZCOMM USA CORP.

By:  /s/ Harold Chizick                         

Harold Chizick, CEO

 

 

 

    	 	 	 

     

    

 

Exhibit A: Key Terms and Conditions

 

	Additional Consideration/	 
	Earn Out:	See paragraph 2 of the Letter.  Further, if the Company is sold by GBI during the four (4) year earn out period, GBI will ensure that the purchaser of the business assumes all obligations relating to the Additional Consideration to preserve for the Equity Holders the opportunity and right to receive the additional consideration.
	 	 
	Closing:	The Transaction will close on or after January 15, 2021 and before February 28, 2021 (the “Closing” or “Closing Date”).
	 	 
	Confidentiality:	The Equity Holders will be subject to a confidentiality provision that will survive indefinitely.
	 	 
	Employment Agreements:	At the Closing, senior executive employment agreements with a three (3) year term, with GBI having a two (2) year renewal option, shall be offered to:

 

 

		(i)	Harold Chizick at an annual base salary of USD $308,0000;

 

		(ii)	Jennifer Chizick at an annual base salary of USD $279,000;

 

		(iii)	Donna McNeil at an annual base sale of CDN $230,000 (ESOP Eligible); and

 

		(iv)	Kathleen Campisano at an annual base salary of USD $350,000 plus USD $100,000 of GBI common shares.

 

	 	Each of these agreements shall contain (i) such other benefits and terms as are found in the employment agreements which GBI has with its other senior executive employees; and (ii) change of control protection if the Company is sold by GBI to a third party during the term of the Agreement. The agreements will contain customary restrictive covenants and equity grant, forfeiture and clawback provisions.
	 	 
	Equity Holders’ Covenant:	The Equity Holders agree to not sell more than one-third (1/3) of the GBI shares they receive under this Agreement in any four (4) month period. In addition, the Equity Holders will agree to customary noncompetition and nonsolicitation covenants (in addition to the covenants contained in their employment agreements) for three (3) years. The agreements will also contain customary voting and standstill provisions, or reference to the execution of voting and standstill agreements, for any Equity Holders receiving GBI shares.
	 	 
	GBI Covenant:	During the four (4) year period following the Closing Date, GBI shall operate the Company as wholly-owned subsidiaries and its senior executives will be afforded operational independence, subject to GBI’s control and direction by its CEO and Board of Directors with regard to key performance indicators and budget maintenance.
	 	 
	Governing Law and	 
	Jurisdiction:	New York, with litigation in the state or federal courts located in New York State.
	 	 
	Indemnity:	All representations and warranties will survive for twelve (12) months following the Closing, other than certain agreed upon fundamental representations (the “Fundamental Reps”), which will survive indefinitely, and certain statute of limitations representations (the “SOL Reps”), which will survive until 30 days after the expiration of the applicable statute of limitations.  Post-closing covenants will survive in accordance with their terms.

 

 

 

    	 	 	 

     

    

 

	 	 
	 	After the Closing, the Equity Holders, severally and not jointly, will indemnify the Buyer for: (i) the Company’s or the Equity Holders’ breaches of representations and warranties; (ii) the Company’s or the Equity Holders’ breaches of covenants; (iii) pre-closing taxes (“Taxes”); (iv) any unpaid Company or Seller transaction expenses (“Unpaid Seller Expenses”); (v) any unpaid indebtedness (“Unpaid Indebtedness”); and (vi) fraud or intentional misrepresentation.
	 	 
	 	Buyer will not be entitled to indemnity for any breach of representation or warranty, other than the Fundamental Reps and
    the SOL Reps: (i) until the aggregate amount of all eligible claims exceeds 1.0% of the Transaction Value (the
    “Deductible”), after which the Equity Holders will be responsible for all eligible claims in excess of the
    Deductible; or (ii) in excess of 10.0% of the Transaction Value (the “General Cap”). For the avoidance of
    doubt, the Deductible and General Cap will not apply to indemnity claims arising out of breaches of Fundamental or SOL Reps
    (to which a cap equal to the Transaction Value will apply) or Taxes, Unpaid Seller Expenses, Unpaid Indebtedness, or fraud or
    intentional misrepresentation (to which no cap will apply).
	 	 
	 	Indemnified losses will be calculated after application of any received insurance proceeds actually received punitive
    damages may only be recovered by an indemnified party if owed to a third party.
	 	 
	 	Buyer will include a holdback of USD $1,200,000 of the share consideration for twelve (12) months (the “Holdback”) pending determination of the indemnity claims, if any.
	 	 
	Liabilities in	 
	Net Asset Calculation:	The Company has, in addition to all ordinary course operating expenses:

 

	 	(1)	furniture lease of approximately CDN $173,000, payable at the rate of CDN $3,500 per month for four (4)
    additional years, secured by the fixed asset of the Company; and
	 	 	 
	 	(2)	office lease obligations in Canada and New Jersey.

 

 

	Marketing:	The parties agree that the Company will, following the closing, assume all marketing activities and functions for GBI.
	 	 
	Purchase Price:	At closing, the Buyer will pay the Company a net purchase price (“Purchase Price”) of USD $12,000,000 (the “Transaction Value”) as set out in paragraph 1 of the Letter.
	 	 
	Representations	 
	and Warranties:	The Company and the Equity Holders will make mutually agreeable customary representations and warranties.  These representations and warranties will contain ordinary course of business qualifications and/or knowledge qualifiers.
	 	 
	 	Buyer will make mutually agreeable customary representations and warranties relating to Organization and Qualification; Authority, Power and Enforceability; Required Filings and Consents; Investment Intent; and No Brokers.
	 	 
	Structure and Parties:	The Transaction will be structured as a share purchase of all of the equity interests of ChizComm Ltd. and ChizComm USA Corp. (collectively, the “Company”).  GBI, Buyer, the Company and the Company’s equity holders (the “Equity Holders”) will be parties to the Definitive Agreements.
	 	 
	Transaction Expenses:	The Equity Holders will pay their respective costs, fees and expenses incurred in connection with the closing of the Transaction (e.g., legal fees, etc.).  Any regulatory filing fees will be borne by Buyer.  Inasmuch as the Equity Holders opt for a transaction that is structured as a stock purchase, there should be no sales tax due resulting from the transaction.

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