Document:

Exhibit 10.2

 

TRUST AGREEMENT

 

This Trust Agreement (the “Agreement”), is being entered into as of February 25, 2011, by and between MediaNet Group Technologies, Inc., a Nevada corporation (the “Company”) and BATISTA GUERRA Y ASOCIADOS, solely in their capacity as trustee (the “Trustee”).

 

WHEREAS, the Company would like to provide the investors in DubLi.com, LLC (the “DubLi.com Beneficiaries”) and various employees of Lenox Resources, LLC (the “Lenox Beneficiaries,” and together with the DubLi.com Beneficiaries, the “Beneficiaries”) a significant ownership interest in the Company since:  (i) virtually all of the DubLi.com Beneficiaries are former business associates of DubLi.com, LLC and current business
associates of DubLi Network, Ltd; (ii) virtually all of the Lenox Beneficiaries have been and are currently employees or consultants of the Company, (iii) notwithstanding the financial failure of DubLi.com, LLC, the Company believes that the DubLi.com, LLC business associates assisted the Company build brand awareness for the DubLi.com trade name; and (iv) consistent with many of their expectations, the Company likes the Beneficiaries to have a significant ownership interest in the entity which owns and is further developing the DubLi.com brand;

 

WHEREAS, the Company hereby proposes to transfer an aggregate of 63,393,933 restricted shares of the Company’s common stock (the 62,679,116 shares proposed to be issued to the DubLi.com Beneficiaries are individually referred to as the “DubLi Shares”; the 714,817 shares proposed to be issued to the Lenox Beneficiaries are individually referred to as the “Lenox Shares”; and together the DubLi Shares and the Lenox Shares are referred to as the “Loyalty Shares”) to a trust (the “Trust”)

 

WHEREAS, the Trust, after a holding period and certain conditions are met, will transfer the Loyalty Shares to the Dubli.com Beneficiaries and the Lenox Beneficiaries (the “Two Step Transfer”);

 

NOW, THEREFORE, in consideration of the mutual agreements of the parties contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged and affirmed, the parties hereby agree as follows:

 

ARTICLE I

 

DECLARATION OF TRUST

 

1.1           Grant of Loyalty Shares.  On March 28, 2011 (the “Initial Transfer Date”), the Company shall grant, assign, transfer, convey, deliver and set over the Loyalty Shares to the Trustee to be held subject to the terms and provisions set out below.  The Company shall cause its transfer agent to issue to the Trust a stock certificate evidencing the Loyalty Shares.  Upon the transfer of the Loyalty Shares to the Trust, and except as otherwise provided herein, such Loyalty Shares will be assets of the Trust, and the Trust shall have the sole and
exclusive right, title and interest in and possession of such Loyalty Shares.

 

1.2           Acceptance by Trustee.  The Trustee hereby accepts and confirms the following: (a) the appointment to serve as Trustee; (b) the transfer of the Loyalty Shares, and all right, title and interest therein, to the Trust; and (c) the obligations and duties imposed on him by this Agreement.  The Trustee agrees to receive, hold and distribute the Loyalty Shares in accordance with the terms and provisions set forth herein.

 

  

  

  

 

1.3           Name.   The trust created pursuant to the terms hereof shall be known as the “DubLi.com and Lenox Trust” and shall be referred to herein as the “Trust.”

 

1.4           Trust assets.  The entirety of the Loyalty Shares shall constitute the assets of the Trust.

 

1.5           Purpose of the Trust.  The objective of the Trust is to:  (a) accept and place all Loyalty Shares into the Trust; (b) keep and hold the Loyalty Shares during the Restricted Period (defined below); and (c) after the Restricted Period, transfer the Loyalty Shares to the Beneficiaries and/or the Company, all in accordance with the terms and provisions of this Agreement.  The Trust has no objective to continue or engage in the conduct of a trade or business except to the extent reasonably necessary to, and consistent with, the sole purpose of the Trust.  It shall
not be the objective or purpose of this Trust to, and the Trustee shall have no authority to, conduct any business activity except as reasonable and necessary to, and consistent with, the consummation of the transactions contemplated by the Share Transfer Agreement dated February 25, 2011 entered into by and between the Company, DubLi.com, LLC and Michael Hansen (the “Share Transfer Agreement”), attached hereto as Annex A.

  

1.6           Beneficiaries.  On or before the Initial Transfer Date, the Company shall identify to the Trustee the names and contact information of each of the Beneficiaries and the number of Loyalty Shares expected to be transferred to each Beneficiary after the Restricted Period.  No Beneficiary shall have any right, title or interest of any kind in the Loyalty Shares until such time, if ever, that the Trustee transfers Loyalty Shares to the subject Beneficiary in accordance with the terms of the Trust.

  

ARTICLE II

 

TERMINATION OF TRUST

 

2.1           Maximum Term.  The Trust shall terminate no later than the date that is three months following the end of the Restricted Period; provided, however, that, if necessary to accomplish the purpose of the Trust, the Trustee may, in its sole discretion, extend the term of the Trust for up to an additional six (6) months.

 

2.2           Winding Up and Discharge of the Trustee.  For purposes of winding up the affairs of the Trust at its termination, the Trustee shall continue to act as Trustee until his duties have been fully discharged.  After doing so, the Trustee, his agents, professionals and employees, if any, shall have no further duties or obligations hereunder, except as required by this Agreement or applicable law concerning the termination of a trust.

 

  

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ARTICLE III

 

OBLIGATIONS OF THE TRUSTEE

 

3.1          Initial Notice to Beneficiaries.  Within thirty (30) calendar days of the Initial Transfer Date, the Trustee shall provide each Beneficiary notice via electronic mail of the transactions contemplated by the Share Transfer Agreement.

 

3.2          Obligations During the Restricted Period.  Commencing on the Initial Transfer Date and continuing until March 28, 2012 (the “Restricted Period,”) the Trust shall hold and not transfer the Loyalty Shares.  During the Restricted Period, and the three months immediately thereafter, the Trust and the Trustee shall not:

 

(a)            acquire or attempt to acquire additional common stock or other securities of the Company;

 

(b)           vote the Loyalty Shares for any reason;

 

(c)           enter into any form of voting agreement to vote other shares of common stock of the Company or to allow another person to vote the Loyalty Shares;

 

(d)           influence or attempt to influence the votes of other shareholders of the Company;

 

(e)           propose nominees to the Company’s board of directors or solicit proxies with respect to the election of directors;

 

(f)           voluntarily pledge, encumber or in any other way subject the Loyalty Shares to any form of liens or security interests of any kind;

 

(g)           incur indebtedness of any kind, including but not limited to (a) any indebtedness for borrowed money and obligations, (b) any obligations evidenced by notes, bonds, debentures or similar instruments and (c) any indebtedness referred to in clauses (a) and (b) above secured by any lien upon or in property owned or held by the Trust, even though the Trust has not assumed or become liable for the payment of such indebtedness; nor

 

(h)           influence or control or attempt to influence or control, directly or indirectly, the direction of the management, policies or affairs of the Company.

 

3.3          Beneficiary Representation Affidavit; Information Memorandum.

 

(a)           At least sixty (60) calendar days prior to the end of the Restricted Period, the Trustee shall use its commercially reasonable efforts to provide to each Beneficiary via electronic mail: (i) a Beneficiary Representation Affidavit (the “Affidavit”), the form of which is attached hereto as Annex B; and (ii) an information memorandum that includes all of the information the Company would then be required to be provided to a non-accredited investor pursuant to Rule 502 promulgated pursuant to the Securities Act if the Loyalty Shares were being sold for cash at then
prevailing market prices (the “Information Memorandum”).

 

(b)           In order for any individual Beneficiary to receive a portion of the Loyalty Shares, such investor will be required to complete and execute an Affidavit and return such Affidavit to the Company at least fifteen calendar days prior to the end of the Restricted Period.

 

  

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3.4          Transfer to Beneficiaries.

 

(a)           Subject in all cases to Section 3.4(b) below, on the first business day following the end of the Restricted Period (the “Final Transfer Date”), the Trustee shall, subject to the terms and conditions set forth herein, use its commercially reasonable efforts to, subject to any applicable law, (i) transfer to each Beneficiary such number of Loyalty Shares as are identified to the Trust by the Company; (ii) to evidence such transfer, cause the Company’s transfer agent to, in either certificated or book
entry form, issue such number of Loyalty Shares as are identified to the Trust by the Company; and (iii) if requested, issue such shares free of any restrictive legends.

 

(b)           In the event that (i) notwithstanding the Trustee’s good faith efforts to contact and provide each Beneficiary in accordance with the terms of this agreement, any Beneficiary does not complete, execute and return the Affidavit at least fifteen calendar days prior to the end of the Restricted Period, (ii) the Trustee believes, or is notified by the Company that the Company believes, the transfer of Loyalty Shares to any Beneficiary would not be in compliance with any applicable law and/or such compliance with any applicable law may not be readily demonstrated, or (iii) the Trustee receives, or is notified by the Company that it has
received, comments from the SEC or any other comparable foreign or U.S. State regulator with respect to the transactions contemplated by this agreement (other than comments that are resolved to the satisfaction of the Trustee and the Company, in their respective sole and absolute discretion), then the Loyalty Shares that otherwise would have been transferred to such Beneficiary shall, subject to the Company’s written waiver otherwise, be:  (i) immediately returned to the Company free and clear of all liens; and (ii) cancelled.

 

ARTICLE IV

 

POWERS AND DUTIES OF THE LIQUIDATING TRUSTEE

 

4.1          Duties of Trustee.  The Trustee shall have such duties and responsibilities as are specified in this Agreement.

 

4.2          Authority of Trustee.  The Trust and the Trustee, as the representative of the Trust, shall be vested with all right, title and interest in and to the Loyalty Shares.  The Trustee shall have the authority and be empowered to take all steps necessary to consummate the Two Step Transfer of the Loyalty Shares in accordance with the terms and provisions of this Agreement.  In addition to the foregoing, the Trustee’s powers, duties, responsibilities and obligations shall include the following:

 

(a)           to act as Trustee under this Agreement;

 

(b)           to receive and hold the Loyalty Shares during the Restricted Period;

 

(c)           to object to the transfer of Loyalty Shares to any individual Beneficiary who fails to complete, execute and return the Affidavit at least fifteen calendar days prior to the end of the Restricted Period;

 

  

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(d)           to transfer the Loyalty Shares to the any individual Beneficiary in accordance with the terms and provisions contained in this Agreement

 

(e)           to prepare and file such tax reports and returns as may be required by federal, state or local taxing authorities;

 

(f)           to pay all expenses and make other necessary payments relating to the holding of the Loyalty Shares during the Restricted Period;

 

(g)           to take any and all other actions reasonably necessary or desireable to implement or consummate the Two Step Transfer; and

 

(h)           to exercise all powers and rights, and take all actions contemplated by or provided for under this Trust Agreement.

 

4.3          Register of Beneficiaries.  The Company shall provide the Trustee with a register (the “Register”) of the number of Loyalty Shares expected to be transferred to each Beneficiary and the names, addresses of such Beneficiaries as of the close of business on the Initial Transfer Date.  Thereafter, the Register will be maintained by the Trustee, and changes thereto will be made upon written notice by the Company submitted to the Trustee.  The Trustee shall not be liable for relying on
the accuracy of the Register, provided that the Trustee has properly maintained the Register in accordance with this Agreement.

 

ARTICLE V

 

LIABILITY OF LIQUIDATING TRUSTEE

 

5.1          Appointment.  The Trustee is BATISTA GUERRA Y ASOCIADOS, solely in his capacity as Trustee of the Trust and not otherwise.

 

5.2          Resignation.  The Trustee may resign by giving not less than sixty (60) days’ prior written notice thereof to the Company; provided, however, that such resignation shall not become effective until the appointment of a successor Trustee in accordance with Section 5.4 hereof.

 

5.3          Removal.  At any time the Company may remove the Trustee for cause.  For purposes of this Section 5.3, “cause” shall include, but not be limited to:  (i) an act of fraud, embezzlement, or theft in connection with the Trustee’s duties or in the course of his employment in such capacity, (ii) the intentional wrongful damage to the Trust assets, or (iii) gross negligence by the Trustee in connection with the performance of his duties under this Agreement.  If a Trustee
is removed pursuant to this Section 5.3, the Trustee shall continue to serve until a successor Trustee is appointed, and such appointment becomes effective, in accordance with Section 5.4 hereof.  If the Trustee is unwilling or unable to serve (i) by virtue of his inability to perform his duties under this Agreement due to death, illness, or other physical or mental disability, or (ii) for any other reason whatsoever other than for “cause,” subject to a final accounting, such Trustee shall be entitled to all accrued but unpaid fees, expenses, and other compensation, to the extent incurred, arising or relating to events occurring before his removal or resignation, and to any out-of-pocket expenses reasonably incurred in connection with
the transfer of all powers and duties and all rights to any successor Trustee.

 

  

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5.4          Appointment of Successor Trustee.  In the event of a vacancy by reason of the death or immediate removal of the Trustee or prospective vacancy by reason of resignation or removal, the Company shall have the right to nominate the successor Trustee.  Every successor Trustee appointed hereunder shall execute, acknowledge and deliver to the Company an instrument accepting such appointment subject to the terms and provisions hereof.  The successor Trustee, without any further act, shall become vested with all the rights, powers and duties of the Trustee; provided, however, that no Trustee shall be liable for the individual acts or omissions of any prior or later Trustee.

 

5.5          Continuity.  The death, resignation or removal of the Trustee shall not terminate the Trust or invalidate any action theretofore taken by the Trustee, and the successor Trustee agrees that the provisions of this Agreement shall be binding on and inure to the benefit of each successor Trustee and all his heirs and legal and personal representatives, successors or assigns.  In the event of the resignation or removal of the Trustee, such Trustee shall (i) execute and deliver by the Initial Transfer Date of his resignation or removal such documents, instruments and other
writings as may be reasonably required to effect the termination of such Trustee’s capacity under this Agreement and (ii) assist and cooperate in effecting the assumption of such Trustee’s obligations and functions by the successor Trustee.

 

5.6          Compensation.  The Trustee shall be paid a setup fee of US$ 150. For additional services, the Trustee shall be compensated on an hourly basis based on his normal and customary rates for such services and shall be entitled to reimbursement of expenses incurred.  Any accountants, attorneys, financial advisors, consultants, or other professionals retained or utilized by the Trustee (the “Trust Professionals”) shall be entitled to reasonable compensation for services rendered and reimbursement of
expenses incurred.  Compensation of the Trustee and the Trust Professionals shall be paid by the Company.  Any successor Trustee shall receive such reasonable compensation and reimbursement of expenses in the same manner as the initial Trustee.

 

5.7          Indemnification.  The Company shall indemnify and hold harmless the Trustee and the Trust against and with respect to any and all liabilities, losses, damages, claims, costs and expenses, including, but not limited to, attorneys’ fees, arising out of or due to their actions or omissions, or consequences of such actions or omissions, with respect to the Agreement and the consummation of the Two Step Transfer, provided that the foregoing indemnity shall not be available (i) with respect to any act of omission constituting gross negligence or willful misconduct of the Trust
or Trustee, (ii) in the event of a breach of this Agreement by the Trust or Trustee; or (iii) for any act of fraud or breach of trust.

 

5.8          Reliance by Trustee.  The Trustee may rely, and shall be fully protected in acting or refraining from acting if he relies, upon any resolution, statement, certificate, instrument, opinion, report, notice, request, consent, order, or other instrument or document that the Trustee reasonably believes to be genuine and to have been signed or presented by the proper party or parties or, in the case of cables, telecopies, e-mails and telexes, to have been sent by the proper party or parties, and the Trustee may conclusively
rely as to the truth of the statements and correctness of the opinions expressed therein.  The Trustee may consult with counsel and other professionals with respect to matters in their area of expertise, and any opinion of counsel shall be full and complete authorization and protection in respect of any action taken or not taken by the Trustee.  The Trustee shall be entitled to rely upon the advice of such professionals in acting or failing to act, and shall not be liable for any act taken or not taken in reliance thereon.

 

  

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5.9           Reliance by Persons Dealing with the Trustee.  In the absence of actual knowledge to the contrary, any person dealing with the Trustee shall be entitled to rely on the authority of the Trustee to act on behalf of the Trust and shall have no obligation to inquire into the existence of such authority.

 

ARTICLE VI

 

MISCELLANEOUS PROVISIONS

 

6.1           Definitions.  All capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Share Transfer Agreement.

 

6.2           Descriptive Headings.  The headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.

 

6.3           Amendment.  This Agreement may not be amended except by an instrument executed by the Trustee and the Company.

 

6.4           Governing Law.  This Agreement shall be governed by and construed in accordance with the laws of The Republic of Panama without regard to the rules of conflict of laws of any other jurisdiction.

 

6.5           Counterparts; Effectiveness.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original but all of which shall constitute one and the same agreement.  This Agreement shall become effective when each party hereto shall have received counterparts thereof signed by all the other parties hereto.

 

6.6           Severability; Validity.  If any provision of this Agreement or the application thereof to any person or circumstance is held invalid or unenforceable, the remainder of this Agreement, and the application of such provision to other persons or circumstances, shall not be affected thereby, and to such end, the provisions of this Agreement are agreed to be severable.

 

6.7           No Waiver by Trustee.  No failure by the Trustee to exercise or delay in exercising any right, power or privilege hereunder shall operate as a waiver, nor shall any single or partial exercise of any right, power or privilege hereunder preclude any further exercise thereof, or of any other right, power or privilege.

 

6.8           No Bond.  Notwithstanding any state law to the contrary, the Trustee (including any successor Trustee) shall be exempt from giving any bond or other security in any jurisdiction.

 

  

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6.9           Notices.  Any notice or other communication hereunder shall be in writing and shall be deemed given upon (i) confirmation of receipt of a facsimile transmission, (ii) confirmed delivery by a standard overnight carrier or when delivered by hand, or (iii) the expiration of five (5) business days after the day when mailed by registered or certified mail (postage prepaid, return receipt requested), addressed to the respective parties at the following addresses (or such other address for a party as shall be specified by like notice):

 

If to the Trustee:

 

BATISTA GUERRA Y ASOCIADOS

Calle 34 y Avenida Cuba

Edificio Victoria, Oficina 506

Panama, Republica de Panama

Facsimile No.: ______________

 

If to a Beneficiary:

 

To the name and address set forth in the Register, as amended from time to time in accordance with this Agreement.

If to the Company:

 

MediaNet Group Technologies, Inc.

5200 Town Center Circle, Suite 601

Boca Raton, FL 33486

Attention: Andreas Kusche

Facsimile No.: (561) 362-7703

6.10        Irrevocability.  The Trust is irrevocable.

 

6.11        Binding Effect. The terms of this Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and their respective successors.

 

Signature page follows.

 

  

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IN WITNESS WHEREOF, the parties hereto have executed and acknowledged this Agreement, as of the date first above written.

 

	  	
MEDIANET GROUP TECHNOLOGIES,

INC.

	  	  	  
	  	
By:

	  
	  	
Name:

	
Andreas Kusche

	  	
Title:

	
General Counsel

	  	
Address:

	
5200 Town Center Circle, Suite 601

	  	  	
Boca Raton, FL 33486

	  	  	  
	  	
BATISTA GUERRA Y ASOCIADOS, solely

in their capacity as Trustee of the Trust

	  	  	  
	  	
By:

	  
	  	
Name:

	
Michael Samaniego

	  	
Title:

	
Asociado

	  	
Address:

	
Calle 34 y Avenida Cuba, Edificio

Victoria, Oficina 506, Panama,

Republica de Panama

	  	  	  
	  	
Local Agent

	  	  	  
	  	
By:

	  
	  	
Name:

	
Radames Butcher

 

  

9Unassociated Document

 

COMPANY NOTE #1

	
$2,545,000.00

	
February 23, 2011

A5 LABORATORIES INC.

Secured Convertible Promissory Note

 

FOR VALUE RECEIVED, A5 Laboratories Inc., a Nevada corporation (the “Borrower”), hereby promises to pay to the order of John M. Fife, an individual, or his successors or assigns (the “Lender,” and together with the Borrower, the “Parties”), the principal sum of $2,545,000.00 together with all accrued and unpaid interest thereon, fees incurred or other amounts owing hereunder, all as set forth below
in this Secured Convertible Promissory Note (this “Note”). This Note is issued pursuant to that certain Note and Warrant Purchase Agreement of even date herewith, entered into by and between the Borrower and the Lender (the “Purchase Agreement”). Defined terms used herein but not otherwise defined shall have the meanings ascribed thereto in the Purchase Agreement.

 

1.           Principal and Interest Payments. Interest on the unpaid principal balance of this Note shall accrue at the rate of 6% per annum. Interest shall be computed on the basis of a 360-day year for the actual number of days elapsed. Upon the occurrence of a Trigger Event (as defined below), the Outstanding Balance (as defined below) of this Note shall accrue simple interest at the rate of 12.00% per annum from and after the date of the occurrence of the Trigger Event, whether before or after judgment. The Borrower shall pay to the Lender all outstanding amounts due hereunder in a payment due on or
before the date that is forty-eight (48) months from the date hereof (the “Maturity Date”). All payments owing hereunder shall be in lawful money of the United States of America delivered to the Lender at the address furnished to the Borrower for that purpose. All payments shall be applied first to (a) costs of collection, if any, then to (b) fees and penalties, if any, then to (c) accrued and unpaid interest, and thereafter (d) to principal. For purposes hereof, the term “Outstanding Balance” means the sum of the outstanding principal balance of this Note and any accrued but unpaid interest, collection and enforcement costs, and any other fees incurred under this Note.

 

2.           Original Issue Discount.  The Borrower acknowledges that the principal amount of this Note exceeds the Purchase Price (as defined in the Purchase Agreement) and that such excess is an original issue discount and shall be fully earned and charged to the Borrower upon the execution of this Note, and shall be paid to the Lender as part of the outstanding principal balance as set forth in this Note.   

 

  

  

  

 

3.           Conversion.

 

(a)           Optional Conversion. At any time or from time to time prior to payment in full of the entire Outstanding Balance, the Lender shall have the right, at the Lender’s option, to convert the Outstanding Balance, in whole or in part (the “Conversion Amount”), into shares of common stock, par value $0.001 per share (the “Common Stock”) of the
Borrower; provided, however, that the conversion by the Lender of the Outstanding Balance shall be exercisable in tranches (each, a “Tranche”), consisting of (1) an initial Tranche in an amount equal to $345,000 and any interest and/or fees accrued thereon under the terms of this Note and the other Transaction Documents (as defined in the Purchase Agreement), and (2) ten additional Tranches (each, a “Subsequent Tranche”) each in an amount equal to $220,000 and any interest or fees accrued thereon under the terms of this Note or the other Transaction Documents.  The first Subsequent Tranche
shall correspond to Buyer Note #1 (as defined in the Purchase Agreement), the second Subsequent Tranche shall correspond to Buyer Note #2 (as defined in the Purchase Agreement), and so forth through Buyer Note #10.  The Lender’s right to convert any of the Subsequent Tranches is conditioned upon the Lender’s payment in full of the Buyer Note corresponding to such Subsequent Tranche (upon the satisfaction of such condition, such Tranche becomes a “Conversion Eligible Tranche”). For the avoidance of doubt, a Conversion Eligible Tranche may be converted in whole or in part at any time subsequent to the first date on which such Subsequent Tranche becomes a Conversion Eligible Tranche.  At all times hereunder, any fees or penalties incurred including, without limitation,
any fees incurred in connection with a Trigger Effect (as defined below), shall be added to any then-current Conversion Eligible Tranche.  The number of shares of Common Stock to be issued upon a conversion hereunder shall be determined by dividing (a) the Conversion Amount by (b) the higher of (i) the Market Price (as defined below), or (ii) the Floor Price (as defined below) (the “Conversion Price”). For purposes hereof, the “Market Price” is defined as 80% (the “Conversion Factor”) of the average of the closing bid price (the “Closing
Bid”) for the three (3) Trading Days (as defined in the Purchase Agreement) with the lowest Closing Bids during the twenty (20) Trading Days immediately preceding the Conversion Date (as defined below); provided, however, that in the event the Market Price falls below $0.05 per share of Common Stock, the Conversion Factor shall be reduced by 10 percentage points (i.e., if the Conversion Factor were 80% immediately prior to such occurrence, it shall be reduced to 70% immediately after such occurrence).  For purposes hereof, the “Floor Price” is defined as $0.12. The trading data used to compute the Closing Bid shall be as reported by Bloomberg, LP (“Bloomberg”), or if such information is not then being reported by Bloomberg, then as reported by such other data information source as may be selected by the Lender.

 

(b)           Conversion Mechanics. In order to convert this Note into Common Stock, the Lender shall give written notice to the Borrower at its principal corporate office or the notice address provided in the Purchase Agreement (which notice, notwithstanding anything herein to the contrary, may be given via facsimile, email, or other means in the discretion of the Lender) pursuant to the forms attached hereto as Exhibit A (the “Conversion
Notice”) and Exhibit A-1 (the “Conversion Worksheet”) of the election to convert the same pursuant to this Section (the date on which a Conversion Notice is given, a “Conversion Date”).  Such Conversion Notice shall state the Conversion Amount, the number of shares of Common Stock to which the Lender is entitled pursuant to the Conversion Notice (the “Conversion Shares”), and the account into which the shares of Common Stock are to be deposited (the “Lender Account”).  The Borrower shall immediately, but in no event later than three (3) Trading Days after receipt of a Conversion Notice (the “Delivery Date”), deliver the Conversion Shares to the Lender Account. Notwithstanding anything to the contrary herein, all such deliveries of Conversion Shares shall be electronic, via DWAC.  In the event the Borrower fails to deliver the Conversion Shares on or before the Delivery Date, in addition to all other remedies available to the Lender hereunder or under any other Transaction Documents and at law or in equity, a penalty equal to 1.5% of the Conversion Amount shall be added to the balance of this Note per day until such Conversion Shares are delivered.  The conversion shall be deemed to have been made
immediately prior to the close of business on the date of the Conversion Notice, and the person or entity entitled to receive the shares of Common Stock upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date.

 

  

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(c)           No Fractional Shares. Conversion calculations pursuant to Section 3(a) shall be rounded up to the nearest whole share, and no fractional shares shall be issuable by the Borrower upon conversion of this Note. All shares issuable upon a conversion of this Note (including fractions thereof) shall be aggregated for purposes of determining whether such conversion would result in the issuance of a fractional share.

 

(d)           No Impairment.  The Borrower will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, 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 to be observed or performed hereunder by the Borrower, but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 and in the taking of all such action as may be necessary or appropriate in order to protect the
conversion rights of the Lender against impairment.

 

4.          Prepayment by the Borrower. So long as no Event of Default shall have occurred and the Borrower shall have a sufficient number of shares of Common Stock authorized to accommodate a conversion of the Outstanding Balance of this Note, the Borrower may, in its sole and absolute discretion and upon giving the Lender not less than five (5) Trading Days written notice (a “Prepayment Notice”), pay in cash all or any portion of the Outstanding Balance of this Note at any time prior to the Maturity Date, provided that in the event the Borrower elects to prepay all or any portion of the Outstanding Balance of this Note, it shall pay to the Lender 110% of the portion of the Outstanding Balance the Borrower elects to prepay. If the Borrower delivers a Prepayment Notice and fails to pay the specified prepayment amount due to the Lender within two (2) Trading Days following the date of prepayment set forth in the Prepayment Notice, the Borrower shall forever forfeit its right to repay this Note pursuant to this Section.

 

5.           Certain Adjustments. The number and class or series of shares into which this Note may be converted under Section 3 shall be subject to adjustment in accordance with the following provisions:

 

(a)           Computation of Adjusted Conversion Price.  Except as hereinafter provided, in case the Borrower shall at any time after the date hereof issue or sell any (i) shares of its Common Stock or preferred shares convertible into its Common Stock, or (ii) debt, warrants, options or other instruments or securities which are convertible into or exercisable for shares of Common Stock (together herein referred to as “Equity Securities”), in each case for consideration (or with a conversion price
or exercise price) per share of Common Stock less than the Conversion Price in effect immediately prior to the issuance or sale of such securities or instruments, or without consideration, other than for Excepted Issuances (as defined below), then forthwith upon such issuance or sale, the Conversion Price shall (until another such issuance or sale) be reduced to the price equal to the price (or conversion price or exercise price) of any such securities or instruments; provided, however, that in no event shall the Conversion Price be adjusted pursuant to this computation to an amount in excess of the Conversion Price in effect immediately prior to such computation.  For the purposes of this Section 5, the term Conversion Price shall mean the Conversion Price per share set forth in Section 3(a) hereof, as adjusted from
time to time pursuant to the provisions of this Section.

 

  

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“Excepted Issuances” shall mean, collectively, (i) the Borrower’s issuance of securities in connection with strategic license agreements and other partnering arrangements so long as such issuances are not for the purpose of raising capital and in which holders of such securities or debt are not at any time granted registration rights, and (ii) the Borrower’s issuance of Common Stock or the issuances or grants of options to purchase Common Stock to employees, directors, and consultants, pursuant to plans which are constituted on the date of this Note.

 

For purposes of any computation to be made in accordance with this Section 5, the following provisions shall be applicable:

 

(i)           In case of the issuance or sale of any shares of Equity Securities for a consideration part or all of which shall be cash, the amount of the cash consideration shall be deemed to be the amount of cash received by the Borrower for such shares (or, if shares of stock are offered by the Borrower for subscription, the subscription price, or, if either of such securities shall be sold to underwriters or dealers for public offering without a subscription price, the public offering price, before deducting therefrom any compensation paid or discount allowed in the sale, underwriting or purchase thereof by underwriters or dealers or other persons or
entities performing similar services), or any expenses incurred in connection therewith and less any amounts payable to security holders or any affiliate thereof, including, without limitation, any employment agreement, royalty, consulting agreement, covenant not to compete, earnout or contingent payment right or similar arrangement, agreement or understanding, whether oral or written; all such amounts shall be valued at the aggregate amount payable thereunder whether such payments are absolute or contingent and irrespective of the period or uncertainty of payment, the rate of interest, if any, or the contingent nature thereof.

 

(ii)          In case of the issuance or sale (otherwise than as a dividend or other distribution on any stock of the Borrower) of shares of Equity Securities for a consideration part or all of which shall be other than cash, the amount of the consideration therefor other than cash shall be deemed to be the value of such consideration as determined in good faith by the Board of Directors of the Borrower.

 

(iii)         Shares of Equity Securities issuable by way of dividend or other distribution on any capital stock of the Borrower shall be deemed to have been issued immediately after the opening of business on the day following the record date for the determination of stockholders entitled to receive such dividend or other distribution and shall be deemed to have been issued without consideration.

 

(iv)         The reclassification of securities of the Borrower other than shares of Equity Securities into securities including shares of Equity Securities shall be deemed to involve the issuance of such shares of Equity Securities for consideration other than cash immediately prior to the close of business on the date fixed for the determination of security holders entitled to receive such shares, and the value of the consideration allocable to such shares of stock shall be determined as provided in this Section 5.

 

  

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(v)           The number of shares of Equity Securities at any one time outstanding shall include the aggregate number of shares issued or issuable (subject to readjustment upon the actual issuance thereof) upon the exercise of then outstanding options, rights, warrants, and convertible and exchangeable securities.

 

(b)           Adjustment for Reorganization or Recapitalization. If, while this Note remains outstanding and has not been converted, there shall be a reorganization or recapitalization of the Borrower (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), all necessary or appropriate lawful provisions shall be made so that the Lender shall thereafter be entitled to receive upon conversion of this Note, the greatest number of shares of stock or other securities or property that a holder of the class of securities deliverable upon conversion
of this Note would have been entitled to receive in such reorganization or recapitalization if this Note had been converted immediately prior to such reorganization or recapitalization, all subject to further adjustment as provided in this Section 5. If the per share consideration payable to the Lender for such class of securities in connection with any such transaction is in a form other than cash or marketable securities, then the value of such consideration shall be determined in good faith by the Borrower’s Board of Directors. The foregoing provisions of this subsection shall similarly apply to successive reorganizations or recapitalizations and to the stock or securities of any other corporation that are at the time receivable upon the conversion of this Note. In all events, appropriate adjustment shall be made in
the application of the provisions of this Note (including adjustment of the conversion price and number of shares of Common Stock into which this Note is then convertible pursuant to the terms and conditions of this Note) with respect to the rights and interests of the Lender after the transaction, to the end that the provisions of this Note shall be applicable after that event, as near as reasonably may be, in relation to any shares or other property deliverable or issuable after such reorganization or recapitalization upon conversion of this Note.

 

(c)            Adjustments for Split, Subdivision or Combination of Shares. If the Borrower at any time while this Note remains outstanding and unconverted, shall split or subdivide any class of securities into which this Note may be converted into a different number of securities of the same class, the number of shares of such class issuable upon conversion of this Note immediately prior to such split or subdivision shall be proportionately increased and the conversion price for such class of securities shall be proportionately
decreased. If the Borrower at any time while this Note, or any portion hereof, remains outstanding and unconverted shall combine any class of securities into which this Note may be converted, into a different number of securities of the same class, the number of shares of such class issuable upon conversion of this Note immediately prior to such combination shall be proportionately decreased and the conversion price for such class of securities shall be proportionately increased.

 

(d)            Adjustments for Dividends in Stock or Other Securities or Property. If, while this Note remains outstanding and unconverted, the holders of any class of securities as to which conversion rights under this Note exist at the time shall have received, or, on or after the record date fixed for the determination of eligible stockholders, shall have become entitled to receive, without payment therefor, other or additional stock or other securities or property (other than cash) of the Borrower by way of dividend, then and in
each case, this Note shall represent the right to acquire, in addition to the number of shares of such class of security receivable upon conversion of this Note, and without payment of any additional consideration therefor, the amount of such other or additional stock or other securities or property (other than cash) of the Borrower that such holder would hold on the date of such conversion had such holder been the holder of record of the class of security receivable upon conversion of this Note on the date hereof and had thereafter, during the period from the date hereof to and including the date of such conversion, retained such shares and/or all other additional stock available to such holder as aforesaid during said period, giving effect to all adjustments called for during such period by the provisions of this Section 5.

 

  

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(e)           Adjustments for Spin Offs. If, at any time while any portion of this Note remains outstanding, the Borrower spins off or otherwise divests itself of a part of its business or operations or disposes of all or of a part of its assets in a transaction (the “Spin Off”) in which the Borrower, in addition to or in lieu of any other compensation received and retained by the Borrower for such business, operations or assets, causes securities of another entity (the “Spin Off Securities”) to be issued to security holders of the Borrower, the Borrower shall cause (i) to be reserved Spin Off Securities equal to the number thereof which would have been issued to the Lender had the entire balance of this Note outstanding on the record date (the “Record Date”) for determining the amount and number of Spin Off Securities to be issued to security holders of the Borrower been converted as of the close of business on the Trading Day immediately before the Record Date (the “Reserved Spin Off Shares”), and (ii) to be issued to the Lender on the conversion of all or any portion of this Note, such amount of the Reserved Spin Off Shares
equal to (x) the Reserved Spin Off Shares multiplied by (y) a fraction, of which (I) the numerator is the principal amount of the portion of the Outstanding Balance then being converted, and (II) the denominator is the entire Outstanding Balance of this Note. In the event of any Spin Off, (i) the Lender shall have the right to convert the Outstanding Balance by delivering a Conversion Notice to the Borrower within ten (10) days of receipt of notice of such Spin Off from the Borrower, or (ii) immediately upon the consummation of a Spin Off, all amounts owed hereunder shall accelerate and be immediately due and payable in the sole discretion of the Lender.

 

(f)            No Change Necessary. The form of this Note need not be changed because of any adjustment in the number of shares of Common Stock issuable upon its conversion.

 

6.           Further Adjustments. In case at any time or, from time to time, the Borrower shall take any action that affects the class of securities into which this Note may be converted under Section 3, other than an action described herein, then, unless such action will not have a material adverse effect upon the rights of the Lender, the number of shares of such class of securities (or other securities) into which this Note is convertible shall be adjusted in such a manner and at such time as shall be equitable under the
circumstances.

 

7.           Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment pursuant to Section 5 or Section 6, the Borrower at its sole expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Lender a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Lender, furnish or cause to be furnished to the Lender a like certificate setting forth (i) such adjustments and
readjustments, and (ii) the number and class of securities and the amount, if any, of other property which at the time would be received upon the conversion of this Note under Section 3.

 

  

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8.            Security. This Note is secured by that certain Security Agreement of even date herewith (the “Security Agreement”) executed by the Borrower in favor of the Lender encumbering certain assets of the Borrower, as more specifically set forth in the Security Agreement, all the terms and conditions of which are hereby incorporated into and made a part of this Note. This Note is further secured by a Stock Pledge Agreement (the “Pledge
Agreement”) of even date herewith in favor of the Lender made by Richard Azani, an individual (“Azani”), with respect to 15,000,000 shares of the Borrower’s Common Stock (the “Collateral Shares”), as more specifically set forth in the Pledge Agreement, all the terms and conditions of which are hereby incorporated and made a part of this Note. Furthermore, the Borrower’s obligations under this Note are personally guarantied by Azani pursuant to a separate Personal Guaranty of even date herewith executed by Azani for the benefit of the Lender (the “Guaranty”), all the terms and conditions of which are
hereby incorporated and made a part of this Note.

 

9.            Change of Control.  In the event of (i) any transaction or series of related transactions (including any reorganization, merger or consolidation) that results in the transfer of 50% or more of the outstanding voting power of the Borrower, or (ii) a sale of all or substantially all of the assets of the Borrower to another person or entity, this Note shall be automatically due and payable in cash. The Borrower will give the Lender not less than ten (10) business days prior written notice of the occurrence of any events referred to in this Section 9.

 

10.           Representations and Warranties of the Borrower.  In addition to the representations and warranties set forth in the Purchase Agreement, the Security Agreement, the Pledge Agreement, and the Guaranty, which are incorporated herein, the Borrower hereby represents and warrants to the Lender that:

 

(a)           The Borrower understands and acknowledges that the number of Conversion Shares issuable upon conversion of this Note will increase in certain circumstances. The Borrower further acknowledges that its obligation to issue Conversion Shares upon conversion of this Note in accordance with its terms is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Borrower;

 

(b)           The Borrower’s Common Stock is registered under Section 12(g) of the Securities Exchange Act of 1934 (the “Exchange Act”);

 

(c)           The Borrower is not and for at least the last 12 months prior to the date hereof has not been a “shell company,” as defined in paragraph (i)(1)(i) of Rule 144 or Rule 12(b)(2) of the Exchange Act;

 

(d)           The Borrower is subject to the reporting requirements of Section 13 or Section 15(d) of the Exchange Act and has filed all required reports under Section 13 or Section 15(d) of the Exchange Act during the 12 months prior to the date hereof (or for such shorter period that the Borrower was required to file such reports); and

 

  

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(e)           The issuance of this Note is duly authorized. Upon conversion in accordance with the terms of this Note, the Conversion Shares, when issued, will be validly issued, fully paid and non-assessable, free from all taxes, liens, claims, pledges, mortgages, restrictions, obligations, security interests and encumbrances of any kind, nature and description. The Borrower has reserved from its duly authorized capital stock the appropriate number of shares of Common Stock for issuance upon conversion of this Note as required by the terms of this Note.

 

11.           Affirmative and Negative Covenants. In addition to the covenants set forth in the Purchase Agreement, the Borrower covenants and agrees, while any amounts under this Note are outstanding, as follows:

 

(a)           The Borrower shall do all things necessary to preserve and keep in full force and effect its corporate existence including, without limitation, maintain all licenses or similar qualifications required by it to engage in its business in all jurisdictions in which it is at the time so engaged; and continue to engage in business of the same general type as conducted as of the date hereof; and continue to conduct its business substantially as now conducted or as otherwise permitted hereunder;

 

(b)           The Borrower shall pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property before the same shall become delinquent or in default, which, if unpaid, might reasonably be expected to give rise to liens or charges upon such properties or any part thereof, unless, in each case, the validity or amount thereof is being contested in good faith by appropriate proceedings and the Borrower has maintained adequate reserves with respect thereto in accordance with GAAP;

 

(c)           The Borrower shall comply in all material respects with all federal, state and local laws and regulations, orders, judgments, decrees, injunctions, rules, regulations, permits, licenses, authorizations and requirements (collectively, “Requirements”) of all governmental bodies, departments, commissions, boards, insurers, courts, authorities, officials or officers which are applicable to the Borrower or any of its properties, except where the failure to so comply would not have a Material Adverse Effect on the Borrower or any of its properties; provided, however, that nothing provided herein shall prevent the Borrower from contesting the validity or the application of any Requirements;

 

(d)           The Borrower shall keep proper records and books of account with respect to its business activities, in which proper entries, reflecting all of their financial transactions, are made in accordance with GAAP;

 

(e)           From the date hereof until the date that is six (6) months after the date that all the Conversion Shares either have been sold by the Lender, or may permanently be sold by the Lender without any restrictions pursuant to Rule 144 (the “Registration Period”), the Borrower shall file with the Securities and Exchange Commission (the “SEC”) in a timely manner all required reports under Sections 13 or 15(d) of the Exchange Act, as amended, and such reports shall conform to the
requirement of the Exchange Act and the SEC for filing thereunder;

 

  

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(f)           The Borrower shall furnish to the Lender so long as the Lender owns Common Stock, promptly upon request, (i) a written statement by the Borrower that it has complied with the reporting requirements of Rule 144, (ii) a copy of the most recent annual or quarterly report of the Borrower and such other reports and documents so filed by the Borrower, and (iii) such other information as may be reasonably requested to permit the Lender to sell such securities pursuant to Rule 144 without registration;

 

(g)           During the Registration Period, the Borrower shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would otherwise permit such termination;

 

(h)           On the date hereof and at all times prior to the repayment in full of this Note, the Borrower shall reserve the number of shares required by the Share Reserve (as defined in the Purchase Agreement) for the purpose of, among other things, the conversion of this Note.  The Borrower represents that it has sufficient authorized and unissued shares of Common Stock available to create the Share Reserve after considering all other commitments that may require the issuance of Common Stock. The Borrower shall take all action reasonably necessary to at all times have authorized, and reserved for the purpose of issuance, such number of shares of
Common Stock as shall be necessary to effect the full conversion of the Note multiplied by 2. If at any time the Share Reserve is insufficient to effect the full conversion of the Note, the Borrower shall increase the Share Reserve accordingly. If the Borrower does not have sufficient authorized and unissued shares of Common Stock available to increase the Share Reserve, the Borrower shall call and hold a special meeting of the stockholders within thirty (30) days of such occurrence, for the sole purpose of increasing the number of shares authorized. The Borrower’s management shall recommend to the stockholders to vote in favor of increasing the number of shares of Common Stock authorized. Management shall also vote all of its shares in favor of increasing the number of authorized shares of Common Stock. The Borrower shall use its best efforts to cause such additional shares of
Common Stock to be authorized so as to comply with the requirements of this paragraph;

 

(i)           The Borrower’s Common Stock shall be listed or quoted for trading on any of (a) NYSE Amex, (b) the New York Stock Exchange, (c) the Nasdaq Global Market, (d) the Nasdaq Capital Market, or (e) the Nasdaq OTC Bulletin Board (each, a “Primary Market”). The Borrower shall promptly secure the listing of all of its securities issuable under the terms of the Transaction Documents upon each national securities exchange and automated quotation system, if any, upon which the Common Stock is then listed (subject to official notice of issuance) and shall maintain
such listing of all securities from time to time issuable under the terms of the Transaction Documents;

 

(j)           The Borrower shall notify the Lender in writing, promptly upon learning thereof, of any litigation or administrative proceeding commenced or threatened against the Borrower involving a claim in excess of $100,000.00;

 

  

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(k)           The Borrower shall use the proceeds from this Note for working capital and general corporate purposes only; and

 

(l)            The Borrower shall notify the Lender in writing, promptly upon the occurrence of any Event of Default or any Trigger Event.

 

12.           Trigger Events. Upon each occurrence of any of the following events (each, a “Trigger Event”), (a) the Conversion Factor shall be reduced by 10 percentage points (i.e., if the Conversion Factor were 80% immediately prior to the occurrence of the Trigger Event, it shall be reduced to 70% upon the occurrence of a Trigger Event), (b) the Conversion Price shall be computed without regard to the Floor Price, and (c) this Note shall accrue interest at the rate of 1% per month, whether before or after judgment
(the “Trigger Effects”); provided, however, that (1) in no event shall the Trigger Effects be applied more than two times, and (2) 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:

 

(a)           Collateral Shares. The aggregate value of the Collateral Shares shall fall below $1,800,000 (valued at the Market Price of a share of Common Stock) at any time.

 

(b)           SEC Filings. The Borrower’s failure to timely make any filing required under Section 5(b)(i) of the Purchase Agreement.

 

(c)           Events of Default. The occurrence of any Event of Default hereunder (other than an Event of Default under Section 13(k)).

 

13.           Default. If any of the events specified below shall occur (each, an “Event of Default”) the Lender may by written notice to the Borrower declare the entire Outstanding Balance immediately due and payable without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding; provided, however, that upon the occurrence or existence of any Event of Default described in Section 13(f) or (g), immediately and without notice, all outstanding obligations payable by the Borrower hereunder shall automatically become immediately due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the other Transaction Documents to the contrary notwithstanding:

 

(a)           Failure to Pay. The Borrower’s failure to make any payment when due and payable under the terms of this Note including, without limitation, any payment of costs, fees, interest, principal or other amount due hereunder.

 

(b)           Transfer or Pledge of the Buyer Notes.  The Borrower shall sell, transfer, assign, pledge, hypothecate or otherwise alienate or encumber the Buyer Notes (as defined in the Purchase Agreement) in any way without the prior written consent of the Lender.

 

(c)           Failure to Deliver Shares.  The Borrower’s (or its transfer agent’s) failure to deliver the Conversion Shares as provided under Section 3(b) of this Note or the shares of Common Stock required to be delivered upon exercise of the Warrant.

 

  

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(d)           Breaches of Covenants. The Borrower 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.

 

(e)           Representations and Warranties. Any representation, warranty, certificate, or other statement (financial or otherwise) made or furnished by or on behalf of the Borrower to the Lender in writing included in this Note or in connection with any of the Transaction Documents, or as an inducement to the Lender 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 become false thereafter.

 

(f)            Failure to Pay Debts; Voluntary Bankruptcy. If any of the Borrower’s assets are assigned to its creditors, if the Borrower fails to pay its debts generally as they become due, or if the Borrower files any petition, proceeding, case or action for relief under any bankruptcy, reorganization, insolvency or moratorium law, rule, regulation, statute or ordinance (collectively, “Laws and Rules”), or any other Law and Rule for the relief of, or related to, debtors.

 

(g)           Involuntary Bankruptcy. If any involuntary petition is filed under any bankruptcy or similar Law or Rule against the Borrower, or a receiver, trustee, liquidator, assignee, custodian, sequestrator or other similar official is appointed to take possession of any of the assets or properties of the Borrower or any guarantor.

 

(h)           Governmental Action. If any governmental or regulatory authority takes or institutes any action that will materially affect the Borrower’s financial condition, operations or ability to pay or perform the Borrower’s obligations under this Note.

 

(i)            Share Reserve. The Borrower’s failure to maintain authorized but unissued shares of Common Stock equal to at least 200% of the number of shares of Common Stock that would be needed to fully convert this Note and exercise that certain Warrant to Purchase Shares of Common Stock issued in conjunction with the issuance of this Note at any given time.

 

(j)            Company Note #2. The occurrence of any Event of Default under that certain Secured Convertible Promissory Note known as Company Note #2 issued to the Lender pursuant to the Purchase Agreement.

 

(k)           Trigger Event. The occurrence of any Trigger Event (other than a Trigger Event under Section 12(c)) that is not cured by the Borrower within thirty (30) days of the occurrence thereof.

 

14.           Right of Offset. Notwithstanding anything to the contrary herein, the Borrower may at its option deduct and offset any amount owed by the Lender under the Buyer Notes from any amount owed by the Borrower under this Note, provided that the Borrower shall have delivered five (5) Trading Days’ written notice of such offset to the Lender.  In the event that the Borrower’s exercise of its offset rights under this Section 14 results in the full satisfaction of the Lender’s obligations under one or more of the
Buyer Notes, then the Borrower shall return to the Lender for cancellation such Buyer Note(s) or, in the event such Buyer Note(s) have been lost, stolen or destroyed, a lost note affidavit in a form reasonably acceptable to the Lender. Notwithstanding anything to the contrary herein, the foregoing right of offset shall not apply to any amount owed by the Borrower under this Note that has become part of a Conversion Eligible Tranche.

 

  

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15.           Ownership Limitation. Notwithstanding the provisions of this Note, if at any time after the date hereof, the Lender shall or would receive shares of Common Stock in payment of interest or principal under this Note or upon conversion of this Note, so that the Lender would, together with other shares of Common Stock held by him or his Affiliates (as defined in the Purchase Agreement), own or beneficially own by virtue of such action or receipt of additional shares of Common Stock a number of shares exceeding 9.99% of the number of shares of the Borrower’s Common Stock outstanding on
such date (the “9.99% Cap”), the Borrower shall not be obligated and shall not issue to the Lender shares of its Common Stock which would exceed the 9.99% Cap, but only until such time as the 9.99% Cap would no longer be exceeded by any such receipt of shares of Common Stock by the Borrower. The foregoing limitations are enforceable, unconditional and non-waivable.

 

16.           No Rights or Liabilities as Stockholder. This Note does not by itself entitle the Lender to any voting rights or other rights as a stockholder of the Borrower. In the absence of conversion of this Note, no provisions of this Note, and no enumeration herein of the rights or privileges of the Lender, shall cause the Lender to be a stockholder of the Borrower for any purpose.

 

17.           Unconditional Obligation. Subject to the terms of the Purchase Agreement, no provision of this Note shall alter or impair the obligation of the Borrower, 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 a direct obligation of the Borrower.

 

18.           Binding Effect. This Note shall be binding on the Parties and their respective heirs, successors, and assigns; provided, however, that the Borrower shall not assign its rights hereunder in whole or in part without the express written consent of the Lender.

 

19.           Governing Law; Venue. The terms of this Note shall be construed in accordance with the laws of the State of Utah as applied to contracts entered into by Utah residents within the State of Utah which contracts are to be performed entirely within the State of Utah.  With respect to any disputes arising out of or related to this Note, the Parties consent to the exclusive personal jurisdiction of, and venue in, the state courts in Utah (or in the event of federal jurisdiction, the United States District Court for Utah), and hereby waive, to the maximum extent permitted by law, any
objection, including any objection based on forum non conveniens, to the bringing of any such proceeding in such jurisdiction or to any claim that such venue of the suite, action or proceeding is improper.

 

20.           Severability. If any part of this Note is construed to be in violation of any law, such part shall be modified to achieve the objective of the Parties to the fullest extent permitted by law and the balance of this Note shall remain in full force and effect.

 

  

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21.           Attorneys’ Fees. If any action at law or in equity is necessary to enforce this Note or to collect payment under this Note, the Lender shall be entitled to recover reasonable attorneys’ fees directly related to such enforcement or collection actions.

 

22.           Amendments and Waivers; Remedies. No failure or delay on the part of a Party hereto in exercising any right, power or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy. The remedies provided for herein are cumulative and are not exclusive of any remedies that may be available to a Party hereto at law, in equity or otherwise. Any amendment, supplement or modification of or to any provision of this Note, any waiver of
any provision of this Note, and any consent to any departure by either Party from the terms of any provision of this Note, shall be effective (i) only if it is made or given in writing and signed by the Borrower and the Lender and (ii) only in the specific instance and for the specific purpose for which made or given.

 

23.           Notices. All notices, requests, demands, claims and other communications hereunder shall be in writing. Any notice, request, demand, claim or other communication hereunder shall be deemed duly given if it is sent by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient, as set forth in the Purchase Agreement. Any Party may send any notice, request, demand, claim or other communication hereunder to the intended recipient at the address set forth in the Purchase Agreement using any other means (including personal delivery, expedited
courier, messenger service, facsimile, ordinary mail, or electronic mail), but no such notice, request, demand, claim or other communication shall be deemed to have been duly given unless and until it actually is received by the intended recipient or receipt is confirmed electronically or by return mail.  Any Party may change the address to which notices, requests, demands, claims and other communications hereunder are to be delivered by giving the other Party notice in any manner herein set forth.

 

24.           Entire Agreement. This Note, together with the Security Agreement, the Pledge Agreement, the Guaranty, and the other Transaction Documents, contains the complete understanding and agreement of the Borrower and the Lender and supersedes all prior representations, warranties, agreements, arrangements, understandings, and negotiations. THIS NOTE, TOGETHER WITH THE SECURITY AGREEMENT, THE PLEDGE AGREEMENT, THE GUARANTY, AND THE OTHER TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF ANY ALLEGED PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

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IN WITNESS WHEREOF, the Borrower has executed this Note as of the date set forth above.

 

Exhibits

Exhibit A – Conversion Notice

Exhibit A-1 – Conversion Worksheet

	  	
A5 LABORATORIES INC.

	  	  
	  	
By:

	/s/ Richard Azani
	  	  	
Name:

	Richard Azani
	  	  	
Title:

	Chief Executive Officer

 

ACKNOWLEDGED, ACCEPTED AND AGREED:

 

LENDER:

 

	/s/ John M. Fife	  
	
John M. Fife, individually

	  

[Signature page to Secured Convertible Secured Promissory Note]

  

  

  

 

EXHIBIT A

JOHN M. FIFE

303 EAST WACKER DRIVE, SUITE 1200

CHICAGO, ILLINOIS 60601

Date:                                                                                             

	
A5 Laboratories Inc.

	
VIA FAX:

	  

Attn:  ____________

CONVERSION NOTICE

The above-captioned Lender hereby gives notice to A5 Laboratories Inc., a Nevada corporation (the “Company”), pursuant to that certain Secured Convertible Promissory Note made by the Company in favor of the Lender on February 23, 2011 (the “Note”), that the Lender 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.  Such conversion shall be based on
the Conversion Price set forth below. In the event of a conflict between this Conversion Notice and the Note, then the Note shall govern or, in the alternative, at the election of the Lender in its sole discretion, Lender may provide a new form of Conversion Notice to conform to the Note.

	 	
A.

	
Date of conversion: ____________

	 	
B.

	
Conversion #:   ____________

	 	
C.

	
Conversion Amount:   ____________

	
  

	
D.

	
Average of three lowest closing bid prices _____ (of last 20 trading days per Exhibit A-1)

	
  

	
E.

	
Conversion Factor:  80% (provided that in the event the Market Price falls below $0.05 per share of Common Stock, the Conversion Factor shall be reduced to 70%)

	
  

	
F.

	
Floor Price: $0.12

	
  

	
G.

	
Conversion Price:  _______________ (higher of  (i) D multiplied by E, or (ii) F)

	
  

	
H.

	
Conversion Shares:  _______________ (C divided by G)

	
  

	
I.

	
Remaining Note Balance:  ____________

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

	
Broker:

	  	  	
Address:

	  
	
DTC#:

	  	  	  	  
	
Account #:

	  	  	  	  
	
Account Name:

	  	  	  	  

Sincerely,

	  	  
	
John M. Fife, individually

	  

  

  

  

EXHIBIT A-1

CONVERSION WORKSHEET

	
Trading Day

	  	
Closing Bid Prices

	  	
Three Lowest (Yes or No)

	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	  	  	  	  	  
	
Average

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00185-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00185-of-00352.parquet"}]]