Document:

biei_ex101.htm

EXHIBIT 10.1
  

NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECURED BY SUCH SECURITIES.
 
Original Issue Date: January 8, 2016
 
$131,250
 
10% CONVERTIBLE PROMISSORY NOTE
DUE October 8, 2016
 
THIS 10% CONVERTIBLE PROMISSORY NOTE is one of a series of duly authorized and validly issued 10% Convertible Promissory Notes of Premier Biomedical Inc. (the "Company"), having its principal place of business at P.O. Box 31374, El Paso, TX 79930, designated as its 10% Convertible Notes due October 8, 2016 (this Note, the "Note" and, collectively with the other Notes of such series, the "Notes").
 
FOR VALUE RECEIVED, the Company promises to pay, in cash, to Redwood Fund III Ltd. or its registered assigns (the "Holder"), or shall have paid pursuant to the terms hereunder, the principal sum of $131,250 on October 8, 2016 (the "Maturity Date") or such earlier date as this Note is required or permitted to be repaid as provided hereunder, and to pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note in accordance with the provisions hereof. This Note is subject to the following additional provisions:
 
Section 1. Definitions. For the purposes hereof, in addition to the terms defined elsewhere in this Note, (a) capitalized terms not otherwise defined herein shall have the meanings set forth in the Purchase Agreement and (b) the following terms shall have the following meanings:
 
"Alternate Consideration" shall have the meaning set forth in Section 5(d).
 
	 
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"Alternative Conversion Price" means 50% of the lowest traded price of the Common Stock in the fifteen (15) Trading Days prior to the Conversion Date.
 
"Bankruptcy Event" means any of the following events: (a) the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to the Company or any Significant Subsidiary thereof, (b) there is commenced against the Company or any Significant Subsidiary thereof any such case or proceeding that is not dismissed within 60 days after commencement, (c) the Company or any Significant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) the Company or any Significant Subsidiary thereof suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayed within 60 calendar days after such appointment, (e) the Company or any Significant Subsidiary thereof makes a general assignment for the benefit of creditors, (f) the Company or any Significant Subsidiary thereof calls a meeting of its creditors with a view to arranging a composition, adjustment or restructuring of its debts or (g) the Company or any Significant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any of the foregoing.
 
"Base Conversion Price" shall have the meaning set forth in Section 5(b).
 
"Beneficial Ownership Limitation" shall have the meaning set forth in Section 4(d). 
 
"Buy-In" shall have the meaning set forth in Section 4(c)(v).
 
"Change of Control Transaction" means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or "group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of effective control (whether through legal or beneficial ownership of capital stock of the Company, by contract or otherwise) of in excess of 50% of the voting securities of the Company (other than by means of conversion or exercise of the Notes and the Securities issued together with the Notes), (b) the Company merges into or consolidates with any other Person, or any Person merges into or consolidates with the Company and, after giving effect to such transaction, the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the Company or the successor entity of such transaction, (c) the Company sells or transfers all or substantially all of its assets to another Person and the stockholders of the Company immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after the transaction, or (d) the execution by the Company of an agreement to which the Company is a party or by which it is bound, providing for any of the events set forth in clauses (a) through (c) above.
 
	 
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"Conversion" shall have the meaning ascribed to such term in Section 4. 
 
"Conversion Date" shall have the meaning set forth in Section 4(a).
 
"Conversion Price" shall have the meaning set forth in Section 4(b).
 
"Conversion Schedule" means the Conversion Schedule in the form of Schedule 1 attached hereto.
 
"Conversion Shares" means, collectively, the shares of Common Stock issuable upon conversion of this Note in accordance with the terms hereof.
 
"Dilutive Issuance" shall have the meaning set forth in Section 5(b).
 
"Dilutive Issuance Notice" shall have the meaning set forth in Section 5(b).
 
"DTC" means the Depository Trust Company.
 
"DTC/FAST Program" means the DTC's Fast Automated Securities Transfer Program.
 
"DWAC Eligible" means that (a) the Common Stock is eligible at DTC for full services pursuant to DTC's Operational Arrangements, (b) the Company has been approved (without revocation) by the DTC's underwriting department, (c) the Transfer Agent is approved as an agent in the DTC/FAST Program, and (d) the Transfer Agent does not have a policy prohibiting or limiting delivery of the Conversion Shares via DWAC.
 
"Event of Default" shall have the meaning set forth in Section 6(a).
 
"Fundamental Transaction" shall have the meaning set forth in Section 5(d). 
 
"Late Fees" shall have the meaning set forth in Section 2(c).
 
	 
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"Mandatory Default Amount" means the payment of 130% of the outstanding principal amount of this Note and accrued and unpaid interest hereon, in addition to the payment of all other amounts, costs, expenses and liquidated damages due in respect of this Note.
 
"New York Courts" shall have the meaning set forth in Section 7(d).
 
"Note Register" shall have the meaning set forth in Section 2(b).
 
"Notice of Conversion" shall have the meaning set forth in Section 4(a).
 
"Original Issue Date" means the date of the first issuance of this Note, regardless of any transfers of any Note and regardless of the number of instruments which may be issued to evidence such Notes.
 
"Purchase Agreement" means the Securities Purchase Agreement, dated as of December 28, 2015 between the Company and the original Holder, as amended, modified or supplemented from time to time in accordance with its terms.
 
"Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of the Purchase Agreement, among the Company and the original Holders, in the form of Exhibit B attached to the Purchase Agreement.
 
"Registration Statement" means a registration statement covering the resale of the Underlying Shares by each Holder.
 
"Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
 
"Share Delivery Date" shall have the meaning set forth in Section 4(c)(ii).
 
"Successor Entity" shall have the meaning set forth in Section 5(d). 
 
	 
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Section 2. Interest. 
 
a) Payment of Interest in Cash or Kind. The Company shall pay interest to the Holder on the aggregate unconverted and then outstanding principal amount of this Note at the rate of 10% per annum, which interest amount shall be guaranteed. All interest payments hereunder will be payable in cash or Common Stock in the Holder's discretion. Accrued and unpaid interest shall be due and payable on each Conversion Date and on the Maturity Date, or as otherwise set forth herein. 
 
b) Interest Calculations. Interest shall be calculated on the basis of a 360-day year, consisting of twelve 30 calendar day periods, and shall accrue daily commencing on the Original Issue Date until payment in full of the outstanding principal, together with all accrued and unpaid interest, liquidated damages and other amounts which may become due hereunder, has been made. Interest hereunder will be paid to the Person in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note (the "Note Register").
 
c) Late Fee. All overdue accrued and unpaid interest to be paid hereunder shall entail a late fee at an interest rate equal to the lesser of 18% per annum or the maximum rate permitted by applicable law (the "Late Fees") which shall accrue daily from the date such interest is due hereunder through and including the date of actual payment in full. 
 
d) Prepayment. At any time upon ten (10) days written notice to the Holder, the Company may prepay any portion of the principal amount of this Note and any accrued and unpaid interest. If the Company exercises its right to prepay the Note, the Company shall make payment to the Holder of an amount in cash equal to the sum of the then outstanding principal amount of this Note and interest multiplied by 130%. The Holder may continue to convert the Note from the date notice of the prepayment is given until the date of the prepayment.
 
Section 3. Registration of Transfers and Exchanges. 
 
a) Different Denominations. This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be payable for such registration of transfer or exchange.
 
b) Investment Representations. This Note has been issued subject to certain investment representations of the original Holder set forth in the Purchase Agreement and may be transferred or exchanged only in compliance with the Purchase Agreement and applicable federal and state securities laws and regulations. 
 
	 
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c) Reliance on Note Register. Prior to due presentment for transfer to the Company of this Note, the Company and any agent of the Company may treat the Person in whose name this Note is duly registered on the Note Register as the owner hereof for the purpose of receiving payment as herein provided and for all other purposes, whether or not this Note is overdue, and neither the Company nor any such agent shall be affected by notice to the contrary.
 
Section 4. Conversion.
 
a) Voluntary Conversion. At any time after ninety (90) days after the date of this Note, this Note shall be convertible, in whole or in part, into shares of Common Stock at the option of the Holder, from time to time (subject to the conversion limitations set forth in Section 4(d) hereof). The Holder shall effect conversions by delivering to the Company a Notice of Conversion, the form of which is attached hereto as Annex A (each, a "Notice of Conversion"), specifying therein the principal amount of this Note to be converted and the date on which such conversion shall be effected (such date, the "Conversion Date"). If no Conversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that such Notice of Conversion is deemed delivered hereunder. No ink-original Notice of Conversion shall be required, nor shall any medallion guarantee (or other type of guarantee or notarization) of any Notice of Conversion form be required.To effect conversions hereunder, the Holder shall not be required to physically surrender this Note to the Company unless the entire principal amount of this Note, plus all accrued and unpaid interest thereon, has been so converted. Conversions hereunder shall have the effect of lowering the outstanding principal amount of this Note in an amount equal to the applicable conversion. The Holder and the Company shall maintain a Conversion Schedule showing the principal amount(s) converted and the date of such conversion(s). The Company may deliver an objection to any Notice of Conversion within one (1) Business Day of delivery of such Notice of Conversion. In the event of any dispute or discrepancy, the records of the Holder shall be controlling and determinative in the absence of manifest error. The Holder, and any assignee by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note may be less than the amount stated on the face hereof. 
 
b) Conversion Price. The conversion price (the "Conversion Price") in effect on any Conversion Date shall be equal to 60% of the lowest traded price of the Common Stock in the fifteen (15) Trading Days prior to the Conversion Date; provided that, except in the event the Alternative Conversion Price is applicable pursuant to the following sentence, the Conversion Price shall not be lower than $0.00005. Notwithstanding anything herein to the contrary, at any time after the occurrence of any Event of Default the Holder may require the Company to, at such Holder's option and otherwise in accordance with the provisions for conversion herein, convert all or any part of this Note into Common Stock at the Alternative Conversion Price. All such foregoing determinations will be appropriately adjusted for any stock dividend, stock split, stock combination, reclassification or similar transaction that proportionately decreases or increases the Common Stock during such measuring period. Nothing herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 6 hereof and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law. 
 
	 
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c) Mechanics of Conversion.
 
i. Conversion Shares Issuable Upon Conversion of Principal Amount. The number of Conversion Shares issuable upon a conversion hereunder shall be determined by the quotient obtained by dividing (x) the outstanding principal amount of this Note to be converted and any accrued and unpaid interest to be converted by (y) the Conversion Price.
 
ii. Delivery of Certificate Upon Conversion. Not later than three (3) Trading Days after each Conversion Date (the "Share Delivery Date"), the Company shall deliver, or cause to be delivered, to the Holder (A) a certificate or certificates representing the Conversion Shares which, on or after the date on which such Conversion Shares are eligible to be sold under Rule 144 without the need for current public information and the Company has received an opinion of counsel to such effect reasonably acceptable to the Company (which opinion the Company will be responsible for obtaining) shall be free of restrictive legends and trading restrictions (other than those which may then be required by the Purchase Agreement) representing the number of Conversion Shares being acquired upon the conversion of this Note, and (B) payment in the amount of accrued and unpaid interest (if the Company has elected or is required to pay accrued interest in cash). All certificate or certificates required to be delivered by the Company under this Section 4(d) shall be delivered electronically through the Depository Trust Company or another established clearing corporation performing similar functions. If the Conversion Date is prior to the date on which such Conversion Shares are eligible to be sold under Rule 144 without the need for current public information the Conversion Shares shall bear a restrictive legend in substantially 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."
 
Notwithstanding the foregoing, commencing on such date that the Conversion Shares are eligible for sale under Rule 144 subject to current public information requirements, the Company, upon request of the Holder, shall obtain a legal opinion to allow for such sales under Rule 144.
 
	 
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iii. Failure to Deliver Certificates. If, in the case of any Notice of Conversion, such certificate or certificates are not delivered to or as directed by the applicable Holder by the Share Delivery Date, the Holder shall be entitled to elect by written notice to the Company at any time on or before its receipt of such certificate or certificates, to rescind such Conversion, in which event the Company shall promptly return to the Holder any original Note delivered to the Company and the Holder shall promptly return to the Company the Common Stock certificates issued to such Holder pursuant to the rescinded Conversion Notice. 
 
iv. Obligation Absolute; Partial Liquidated Damages. The Company's obligations to issue and deliver the Conversion Shares upon conversion of this Note in accordance with the terms hereof are absolute and unconditional, irrespective of any action or inaction by the Holder to enforce the same, any waiver or consent with respect to any provision hereof, the recovery of any judgment against any Person or any action to enforce the same, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder or any other Person of any obligation to the Company or any violation or alleged violation of law by the Holder or any other Person, and irrespective of any other circumstance which might otherwise limit such obligation of the Company to the Holder in connection with the issuance of such Conversion Shares; provided, however, that such delivery shall not operate as a waiver by the Company of any such action the Company may have against the Holder. In the event the Holder of this Note shall elect to convert any or all of the outstanding principal or interest amount hereof, the Company may not refuse conversion based on any claim that the Holder or anyone associated or affiliated with the Holder has been engaged in any violation of law, agreement or for any other reason, unless an injunction from a court, on notice to Holder, restraining and or enjoining conversion of all or part of this Note shall have been sought and obtained, and the Company posts a surety bond for the benefit of the Holder in the amount of 150% of the outstanding principal amount of this Note, which is subject to the injunction, which bond shall remain in effect until the completion of arbitration/litigation of the underlying dispute and the proceeds of which shall be payable to the Holder to the extent it obtains judgment. In the absence of such injunction, the Company shall issue Conversion Shares or, if applicable, cash, upon a properly noticed conversion. If the Company fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by the Share Delivery Date, the Company shall pay to the Holder, in cash, as liquidated damages and not as a penalty, $1000 per Trading Day for each Trading Day after such Share Delivery Date until such certificates are delivered or Holder rescinds such conversion. Nothing herein shall limit a Holder's right to pursue actual damages or declare an Event of Default pursuant to Section 6 hereof for the Company's failure to deliver Conversion Shares within the period specified herein and the Holder shall have the right to pursue all remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief. The exercise of any such rights shall not prohibit the Holder from seeking to enforce damages pursuant to any other Section hereof or under applicable law.
 
	 
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v. Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Conversion. In addition to any other rights available to the Holder, if the Company fails for any reason to deliver to the Holder such certificate or certificates by the Share Delivery Date pursuant to Section 4(c)(ii), and if after such Share Delivery Date the Holder is required by its brokerage firm to purchase (in an open market transaction or otherwise), or the Holder's brokerage firm otherwise purchases, shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Conversion Shares which the Holder was entitled to receive upon the conversion relating to such Share Delivery Date (a "Buy-In"), then the Company shall (A) pay in cash to the Holder (in addition to any other remedies available to or elected by the Holder) the amount, if any, by which (x) the Holder's total purchase price (including any brokerage commissions) for the Common Stock so purchased exceeds (y) the product of (1) the aggregate number of shares of Common Stock that the Holder was entitled to receive from the conversion at issue multiplied by (2) the actual sale price at which the sell order giving rise to such purchase obligation was executed (including any brokerage commissions) and (B) at the option of the Holder, either reissue (if surrendered) this Note in a principal amount equal to the principal amount of the attempted conversion (in which case such conversion shall be deemed rescinded) or deliver to the Holder the number of shares of Common Stock that would have been issued if the Company had timely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted conversion of this Note with respect to which the actual sale price of the Conversion Shares (including any brokerage commissions) giving rise to such purchase obligation was a total of $10,000 under clause (A) of the immediately preceding sentence, the Company shall be required to pay the Holder $1,000. The Holder shall provide the Company written notice indicating the amounts payable to the Holder in respect of the Buy-In and, upon request of the Company, evidence of the amount of such loss. Nothing herein shall limit a Holder's right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Company's failure to timely deliver certificates representing shares of Common Stock upon conversion of this Note as required pursuant to the terms hereof.
 
	 
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vi. Reservation of Shares Issuable Upon Conversion. The Company covenants that it will, beginning with the earlier of the Effectiveness Date (as defined in the Registration Rights Agreement) or the Rule 144 Date (as defined in the Purchase Agreement), at all times reserve and keep available out of its authorized and unissued shares of Common Stock a number of shares of Common Stock at least equal to 300% of the Required Minimumfor the sole purpose of issuance upon conversion of this Note and payment of interest on this Note, each as herein provided, free from preemptive rights or any other actual contingent purchase rights of Persons other than the Holder (and the other holders of the Notes), not less than such aggregate number of shares of the Common Stock as shall (subject to the terms and conditions set forth in the Purchase Agreement) be issuable (taking into account the adjustments and restrictions of Section 5) upon the conversion of the then outstanding principal amount of this Note and payment of interest hereunder. The Company covenants that all shares of Common Stock that shall be so issuable shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
 
vii. Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of this Note. As to any fraction of a share which the Holder would otherwise be entitled to purchase upon such conversion, the Company shall at its election, either pay a cash adjustment in respect of such final fraction in an amount equal to such fraction multiplied by the Conversion Price or round up to the next whole share.
 
viii. Transfer Taxes and Expenses. The issuance of certificates for shares of the Common Stock on conversion of this Note shall be made without charge to the Holder hereof for any documentary stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that, the Company shall not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in a name other than that of the Holder of this Note so converted and the Company shall not be required to issue or deliver such certificates unless or until the Person or Persons requesting the issuance thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid. The Company shall pay all Transfer Agent fees required for same-day processing of any Notice of Conversion.
 
	 
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d) Holder's Conversion Limitations. The Company shall not effect any conversion of principal and/or interest of this Note, and a Holder shall not have the right to convert any principal and/or interest of this Note, to the extent that after giving effect to the conversion set forth on the applicable Notice of Conversion, the Holder (together with the Holder's Affiliates, and any Persons acting as a group together with the Holder or any of the Holder's Affiliates) would beneficially own in excess of the Beneficial Ownership Limitation (as defined below). For purposes of the foregoing sentence, the number of shares of Common Stock beneficially owned by the Holder and its Affiliates shall include the number of shares of Common Stock issuable upon conversion of this Note with respect to which such determination is being made, but shall exclude the number of shares of Common Stock which are issuable upon (i) conversion of the remaining, unconverted principal amount of this Note beneficially owned by the Holder or any of its Affiliates and (ii) exercise or conversion of the unexercised or unconverted portion of any other securities of the Company subject to a limitation on conversion or exercise analogous to the limitation contained herein (including, without limitation, any other Notes) beneficially owned by the Holder or any of its Affiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(e), beneficial ownership shall be calculated in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. To the extent that the limitation contained in this Section 4(d) applies, the determination of whether this Note is convertible (in relation to other securities owned by the Holder together with any Affiliates) and of which principal amount of this Note is convertible shall be in the sole discretion of the Holder, and the submission of a Notice of Conversion shall be deemed to be the Holder's determination of whether this Note may be converted (in relation to other securities owned by the Holder together with any Affiliates) and which principal amount of this Note is convertible, in each case subject to the Beneficial Ownership Limitation. To ensure compliance with this restriction, the Holder will be deemed to represent to the Company each time it delivers a Notice of Conversion that such Notice of Conversion has not violated the restrictions set forth in this paragraph and the Company shall have no obligation to verify or confirm the accuracy of such determination. In addition, a determination as to any group status as contemplated above shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder. For purposes of this Section 4(d), in determining the number of outstanding shares of Common Stock, the Holder may rely on the number of outstanding shares of Common Stock as stated in the most recent of the following: (i) the Company's most recent periodic or annual report filed with the Commission, as the case may be, (ii) a more recent public announcement by the Company, or (iii) a more recent written notice by the Company or the Company's transfer agent setting forth the number of shares of Common Stock outstanding. Upon the written or oral request of a Holder, the Company shall within two Trading Days confirm orally and in writing to the Holder the number of shares of Common Stock then outstanding. In any case, the number of outstanding shares of Common Stock shall be determined after giving effect to the conversion or exercise of securities of the Company, including this Note, by the Holder or its Affiliates since the date as of which such number of outstanding shares of Common Stock was reported. The "Beneficial Ownership Limitation" shall be 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock issuable upon conversion of this Note held by the Holder. The Holder, upon not less than 61 days' prior notice to the Company, may increase or decrease the Beneficial Ownership Limitation provisions of this Section 4(e), provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to the issuance of shares of Common Stock upon conversion of this Note held by the Holder and the Beneficial Ownership Limitation provisions of this Section 4(e) shall continue to apply. Any such increase or decrease will not be effective until the 61st day after such notice is delivered to the Company. The Beneficial Ownership Limitation provisions of this paragraph shall be construed and implemented in a manner otherwise than in strict conformity with the terms of this Section 4(d) to correct this paragraph (or any portion hereof) which may be defective or inconsistent with the intended Beneficial Ownership Limitation contained herein or to make changes or supplements necessary or desirable to properly give effect to such limitation. The limitations contained in this paragraph shall apply to a successor holder of this Note.
 
	 
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Section 5. Certain Adjustments.
 
a) Stock Dividends and Stock Splits. If the Company, at any time while this Note is outstanding: (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock Equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by the Company upon conversion of, or payment of interest on, the Notes), (ii) subdivides outstanding shares of Common Stock into a larger number of shares, (iii) combines (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares or (iv) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of the Company, then the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding any treasury shares of the Company) outstanding immediately before such event, and of which the denominator shall be the number of shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or re classification.
 
b) Subsequent Equity Sales. If, at any time while this Note is outstanding, the Company or any Subsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, or otherwise disposes of or issues (or announces any sale, grant or any option to purchase or other disposition), any Common Stock or Common Stock Equivalents entitling any Person to acquire shares of Common Stock at an effective price per share that is lower than the then Conversion Price (such lower price, the "Base Conversion Price" and such issuances, collectively, a "Dilutive Issuance") (if the holder of the Common Stock or Common Stock Equivalents so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at an effective price per share that is lower than the Conversion Price, such issuance shall be deemed to have occurred for less than the Conversion Price on such date of the Dilutive Issuance), then the Conversion Price shall be reduced to equal the Base Conversion Price. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. Notwithstanding the foregoing, no adjustment will be made under this Section 5(b) in respect of an Exempt Issuance. The Company shall notify the Holder in writing, no later than the Trading Day following the issuance of any Common Stock or Common Stock Equivalents subject to this Section 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricing terms (such notice, the "Dilutive Issuance Notice"). For purposes of clarification, whether or not the Company provides a Dilutive Issuance Notice pursuant to this Section 5(b), upon the occurrence of any Dilutive Issuance, the Holder will be entitled to receive a number of Conversion Shares based upon the Base Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to the Base Conversion Price in the Notice of Conversion.
 
	 
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c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at any time the Company grants, issues or sells any Common Stock Equivalents or rights to purchase stock, warrants, securities or other property pro rata to the record holders of any class of shares of Common Stock (the "Purchase Rights"), then the Holder will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which the Holder could have acquired if the Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on exercise hereof, including without limitation, the Beneficial Ownership Limitation) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights (provided, however, to the extent that the Holder's right to participate in any such Purchase Right would result in the Holder exceeding the Beneficial Ownership Limitation, then the Holder shall not be entitled to participate in such Purchase Right to such extent (or beneficial ownership of such shares of Common Stock as a result of such Purchase Right to such extent) and such Purchase Right to such extent shall be held in abeyance for the Holder until such time, if ever, as its right thereto would not result in the Holder exceeding the Beneficial Ownership Limitation).
 
d) Fundamental Transaction. If, at any time while this Note is outstanding, (i) the Company, directly or indirectly, in one or more related transactions effects any merger or consolidation of the Company with or into another Person, (ii) the Company, directly or indirectly, effects any sale, lease, license, assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer (whether by the Company or another Person) is completed pursuant to which holders of Common Stock are permitted to sell, tender or exchange their shares for other securities, cash or property and has been accepted by the holders of 50% or more of the outstanding Common Stock, (iv) the Company, directly or indirectly, in one or more related transactions effects any reclassification, reorganization or recapitalization of the Common Stock or any compulsory share exchange pursuant to which the Common Stock is effectively converted into or exchanged for other securities, cash or property, (v) the Company, directly or indirectly, in one or more related transactionsconsummates a stock or share purchase agreement or other business combination (including, without limitation, a reorganization, recapitalization, spin-off or scheme of arrangement) with another Person whereby such other Person acquires more than 50% of the outstanding shares of Common Stock (not including any shares of Common Stock held by the other Person or other Persons making or party to, or associated or affiliated with the other Persons making or party to, such stock or share purchase agreement or other business combination) (each a "Fundamental Transaction"), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for each Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction (without regard to any limitation in Section 4(e) on the conversion of this Note), the number of shares of Common Stock of the successor or acquiring corporation or of the Company, if it is the surviving corporation, and any additional consideration (the "Alternate Consideration") receivable as a result of such Fundamental Transaction by a holder of the number of shares of Common Stock for which this Note is convertible immediately prior to such Fundamental Transaction (without regard to any limitation in Section 4(d) on the conversion of this Note). For purposes of any such conversion, the determination of the Conversion Price shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable in respect of one (1) share of Common Stock in such Fundamental Transaction, and the Company shall apportion the Conversion Price among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental Transaction, then the Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this Note following such Fundamental Transaction. The Company shall cause any successor entity in a Fundamental Transaction in which the Company is not the survivor (the "Successor Entity") to assume in writing all of the obligations of the Company under this Note and the Purchase Agreement in accordance with the provisions of this Section 5(d) pursuant to written agreements in form and substance reasonably satisfactory to the Holder and approved by the Holder (without unreasonable delay) prior to such Fundamental Transaction and shall, at the option of the holder of this Note, deliver to the Holder in exchange for this Note a security of the Successor Entity evidenced by a written instrument substantially similar in form and substance to this Note which is convertible for a corresponding number of shares of capital stock of such Successor Entity (or its parent entity) equivalent to the shares of Common Stock acquirable and receivable upon conversion of this Note (without regard to any limitations on the conversion of this Note) prior to such Fundamental Transaction, and with a conversion price which applies the conversion price hereunder to such shares of capital stock (but taking into account the relative value of the shares of Common Stock pursuant to such Fundamental Transaction and the value of such shares of capital stock, such number of shares of capital stock and such conversion price being for the purpose of protecting the economic value of this Note immediately prior to the consummation of such Fundamental Transaction), and which is reasonably satisfactory in form and substance to the Holder. Upon the occurrence of any such Fundamental Transaction, the Successor Entity shall succeed to, and be substituted for (so that from and after the date of such Fundamental Transaction, the provisions of this Note and the other Transaction Documents referring to the "Company" shall refer instead to the Successor Entity), and may exercise every right and power of the Company and shall assume all of the obligations of the Company under this Note and the other Transaction Documents with the same effect as if such Successor Entity had been named as the Company herein.
 
	 
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e) Calculations. All calculations under this Section 5 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. For purposes of this Section 5, the number of shares of Common Stock deemed to be issued and outstanding as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of the Company) issued and outstanding.
 
f) Notice to the Holder.
 
i. Adjustment to Conversion Price. Whenever the Conversion Price is adjusted pursuant to any provision of this Section 5, the Company shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. 
 
ii. Notice to Allow Conversion by Holder. If (A) the Company shall declare a dividend (or any other distribution in whatever form) on the Common Stock, (B) the Company shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock, (C) the Company shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase any shares of capital stock of any class or of any rights, (D) the approval of any stockholders of the Company shall be required in connection with any reclassification of the Common Stock, any consolidation or merger to which the Company is a party, any sale or transfer of all or substantially all of the assets of the Company, or any compulsory share exchange whereby the Common Stock is converted into other securities, cash or property or (E) the Company shall authorize the voluntary or involuntary dissolution, liquidation or winding up of the affairs of the Company, then, in each case, the Company shall cause to be filed at each office or agency maintained for the purpose of conversion of this Note, and shall cause to be delivered to the Holder at its last address as it shall appear upon the Note Register, at least twenty (20) calendar days prior to the applicable record or effective date hereinafter specified, a notice stating (x) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption, rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled to such dividend, distributions, redemption, rights or warrants are to be determined or (y) the date on which such reclassification, consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities, cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice. To the extent that any notice provided hereunder constitutes, or contains, material, non-public information regarding the Company or any of the Subsidiaries, the Company shall simultaneously file such notice with the Commission pursuant to a Current Report on Form 8-K. The Holder shall remain entitled to convert this Note during the 20-day period commencing on the date of such notice through the effective date of the event triggering such notice except as may otherwise be expressly set forth herein. 
 
	 
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Section 6. Events of Default. 
 
a) "Event of Default" means, wherever used herein, any of the following events (whatever the reason for such event and whether such event shall be voluntary or involuntary or effected by operation of law or pursuant to any judgment, decree or order of any court, or any order, rule or regulation of any administrative or governmental body):
 
i. any default in the payment of (A) the principal amount of any Note or (B) interest, liquidated damages and other amounts owing to a Holder on any Note, as and when the same shall become due and payable (whether on a Conversion Date or the Maturity Date or by acceleration or otherwise) which default, solely in the case of an interest payment or other default under clause (B) above, is not cured within 3 Trading Days;
 
ii. the Company shall materially fail to observe or perform any other material covenant or material agreement contained in the Notes (other than a breach by the Company of its obligations to deliver shares of Common Stock to the Holder upon conversion, which breach is addressed in clause (ix) below) which failure is not cured, if possible to cure, within the earlier to occur of (A) 5 Trading Days after notice of such failure sent by the Holder or by any other Holder to the Company and (B) 10 Trading Days after the Company has become or should have become aware of such failure;
 
iii. a default or event of default (subject to any grace or cure period provided in the applicable agreement, document or instrument) shall occur under (A) any of the Transaction Documents or (B) any other material agreement, lease, document or instrument to which the Company or any Subsidiary is obligated (and not covered by clause (vi) below);
 
iv. any representation or warranty made in this Note, any other Transaction Documents, any written statement pursuant hereto or thereto or any other report, financial statement or certificate made or delivered to the Holder or any other Holder shall be untrue or incorrect in any material respect as of the date when made or deemed made;
 
	 
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v. the Company or any Significant Subsidiary (as such term is defined in Rule 1-02(w) of Regulation S-X) shall be subject to a Bankruptcy Event;
 
vi. the Company or any Subsidiary shall default on any of its obligations under any mortgage, credit agreement or other facility, indenture agreement, factoring agreement or other instrument under which there may be issued, or by which there may be secured or evidenced, any indebtedness for borrowed money or money due under any long term leasing or factoring arrangement that (a) involves an obligation greater than $100,000, whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtedness becoming or being declared due and payable prior to the date on which it would otherwise become due and payable; 
 
vii. the Common Stock shall not be eligible for listing or quotation for trading on a Trading Market and shall not be eligible to resume listing or quotation for trading thereon within five Trading Days or the transfer of shares of Common Stock through the Depository Trust Company System is no longer available or "chilled";
 
viii. the Company shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree to sell or dispose of all or in excess of 50% of its assets in one transaction or a series of related transactions (whether or not such sale would constitute a Change of Control Transaction);
 
ix. the Company does not meet the current public information requirements under Rule 144 in respect of the Registrable Securities (as defined in the Registration Rights Agreement);
 
x. if, during the Effectiveness Period (as defined in the Registration Rights Agreement), either (a) the effectiveness of the Registration Statement lapses for any reason or (b) the Holder shall not be permitted to resell Registrable Securities (as defined in the Registration Rights Agreement) under the Registration Statement for a period of more than 20 consecutive Trading Days or 30 non-consecutive Trading Days during any 12 month period; provided, however, that if the Company is negotiating a merger, consolidation, acquisition or sale of all or substantially all of its assets or a similar transaction and, in the written opinion of counsel to the Company, the Registration Statement would be required to be amended to include information concerning such pending transaction(s) or the parties thereto which information is not available or may not be publicly disclosed at the time, the Company shall be permitted an additional 10 consecutive Trading Days during any 12 month period pursuant to this Section 6(a)(x);
 
	 
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xi. the Company shall fail for any reason to deliver certificates to a Holder on or prior to the third Trading Day after a Conversion Date pursuant to Section 4(c) or the Company shall provide at any time notice to the Holder, including by way of public announcement, of the Company's intention to not honor requests for conversions of any Notes in accordance with the terms hereof; 
 
xii. the Company fails to file with the Commission any required reports under Section 13 or 15(d) of the Exchange Act such that it is not in compliance with Rule 144(c)(1) (or Rule 144(i)(2), if applicable);
 
xiii. if the Company or any Significant Subsidiary shall: (i) apply for or consent to the appointment of a receiver, trustee, custodian or liquidator of it or any of its properties, (ii) admit in writing its inability to pay its debts as they mature, (iii) make a general assignment for the benefit of creditors, (iv) be adjudicated bankrupt or insolvent or be the subject of an order for relief under Title 11 of the United States Code or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute of any other jurisdiction or foreign country, or (v) file a voluntary petition in bankruptcy, or a petition or an answer seeking reorganization or an arrangement with creditors or to take advantage or any bankruptcy, reorganization, insolvency, readjustment of debt, dissolution or liquidation law or statute, or an answer admitting the material allegations of a petition filed against it in any proceeding under any such law, or (vi) take or permit to be taken any action in furtherance of or for the purpose of effecting any of the foregoing;
 
xiv. if any order, judgment or decree shall be entered, without the application, approval or consent of the Company or any Significant Subsidiary, by any court of competent jurisdiction, approving a petition seeking liquidation or reorganization of the Company or any Subsidiary, or appointing a receiver, trustee, custodian or liquidator of the Company or any Subsidiary, or of all or any substantial part of its assets, and such order, judgment or decree shall continue unstayed and in effect for any period of sixty (60) days;
 
xv. the occurrence of any levy upon or seizure or attachment of, or any uninsured loss of or damage to, any property of the Company or any Subsidiary having an aggregate fair value or repair cost (as the case may be) in excess of $100,000 individually or in the aggregate, and any such levy, seizure or attachment shall not be set aside, bonded or discharged within thirty (30) days after the date thereof;
 
	 
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xvi. the Company shall fail to maintain sufficient reserved shares pursuant to Section 4(c)(vi);
 
xvii. any monetary judgment, writ or similar final process shall be entered or filed against the Company, any subsidiary or any of their respective property or other assets for more than $100,000, and such judgment, writ or similar final process shall remain unvacated, unbonded or unstayed for a period of 45 calendar days; or 
 
xviii. the Company has not filed a Schedule 14C with the Commission to increase the number of authorized shares of Common Stock to a number reasonably acceptable to the Holder within thirty (30) days after the first Closing Date and has not used its reasonable best efforts to cause such increase to become effective.

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

 
	 
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Section 7. Miscellaneous.
  
a) Notices. Any and all notices or other communications or deliveries to be provided by the Holder hereunder, including, without limitation, any Notice of Conversion, shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service, addressed to the Company, at the address set forth above, or such other facsimile number or address as the Company may specify for such purposes by notice to the Holder delivered in accordance with this Section 7(a). Any and all notices or other communications or deliveries to be provided by the Company hereunder shall be in writing and delivered personally, by facsimile, or sent by a nationally recognized overnight courier service addressed to each Holder at the facsimile number or address of the Holder as set forth in the Purchase Agreement or as appearing on the books of the Company, or such other facsimile number or address as the Holder may specify for such purposes by notice to the Company delivered in accordance with this Section 7(a). Any notice or other communication or deliveries hereunder shall be deemed given and effective on the earliest of (i) the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto prior to 12:00 p.m. (New York City time) on any date, (ii) the next Trading Day after the date of transmission, if such notice or communication is delivered via facsimile at the facsimile number set forth on the signature pages attached hereto on a day that is not a Trading Day or later than 12:00 p.m. (New York City time) on any Trading Day, (iii) the second Trading Day following the date of mailing, if sent by U.S. nationally recognized overnight courier service or (iv) upon actual receipt by the party to whom such notice is required to be given.
 
b) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, liquidated damages and accrued interest, as applicable, on this Note at the time, place, and rate, and in the coin or currency, herein prescribed. This Note is a direct debt obligation of the Company. This Note ranks paripassu with all other Notes now or hereafter issued under the terms set forth herein. 
 
c) Lost or Mutilated Note. If this Note shall be mutilated, lost, stolen or destroyed, the Company shall execute and deliver, in exchange and substitution for and upon cancellation of a mutilated Note, or in lieu of or in substitution for a lost, stolen or destroyed Note, a new Note for the principal amount of this Note so mutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of such Note, and of the ownership hereof, reasonably satisfactory to the Company.
 
	 
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d) Governing Law. All questions concerning the construction, validity, enforcement and interpretation of this Note shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflict of laws thereof. Each party agrees that all legal proceedings concerning the interpretation, enforcement and defense of the transactions contemplated by any of the Transaction Documents (whether brought against a party hereto or its respective Affiliates, directors, officers, shareholders, employees or agents) shall be commenced in the state and federal courts sitting in the City of New York, Borough of Manhattan (the "New York Courts"). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of the New York Courts for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of such New York Courts, or such New York Courts are improper or inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Note and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by applicable law. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Note or the transactions contemplated hereby. If any party shall commence an action or proceeding to enforce any provisions of this Note, then the prevailing party in such action or proceeding shall be reimbursed by the other party for its attorneys fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
 
e) Waiver. Any waiver by the Company or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of this Note. The failure of the Company or the Holder to insist upon strict adherence to any term of this Note on one or more occasions shall not be considered a waiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of this Note on any other occasion. Any waiver by the Company or the Holder must be in writing. 
 
	 
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f) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of this Note shall remain in effect, and if any provision is inapplicable to any Person or circumstance, it shall nevertheless remain applicable to all other Persons and circumstances. If it shall be found that any interest or other amount deemed interest due hereunder violates the applicable law governing usury, the applicable rate of interest due hereunder shall automatically be lowered to equal the maximum rate of interest permitted under applicable law. The Company covenants (to the extent that it may lawfully do so) that it shall not at any time insist upon, plead, or in any manner whatsoever claim or take the benefit or advantage of, any stay, extension or usury law or other law which would prohibit or forgive the Company from paying all or any portion of the principal of or interest on this Note as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Note, and the Company (to the extent it may lawfully do so) hereby expressly waives all benefits or advantage of any such law, and covenants that it will not, by resort to any such law, hinder, delay or impede the execution of any power herein granted to the Holder, but will suffer and permit the execution of every such as though no such law has been enacted.
 
g) Remedies, Characterizations, Other Obligations, Breaches and Injunctive Relief. The remedies provided in this Note shall be cumulative and in addition to all other remedies available under this Note and any of the other Transaction Documents at law or in equity (including a decree of specific performance and/or other injunctive relief), and nothing herein shall limit the Holder's right to pursue actual and consequential damages for any failure by the Company to comply with the terms of this Note. The Company covenants to the Holder that there shall be no characterization concerning this instrument other than as expressly provided herein. Amounts set forth or provided for herein with respect to payments, conversion and the like (and the computation thereof) shall be the amounts to be received by the Holder and shall not, except as expressly provided herein, be subject to any other obligation of the Company (or the performance thereof). The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder and that the remedy at law for any such breach may be inadequate. The Company therefore agrees that, in the event of any such breach or threatened breach, the Holder shall be entitled, in addition to all other available remedies, to an injunction restraining any such breach or any such threatened breach, without the necessity of showing economic loss and without any bond or other security being required. The Company shall provide all information and documentation to the Holder that is requested by the Holder to enable the Holder to confirm the Company's compliance with the terms and conditions of this Note.
 
h) Next Business Day. Whenever any payment or other obligation hereunder shall be due on a day other than a Business Day, such payment shall be made on the next succeeding Business Day.
 
i) Headings. The headings contained herein are for convenience only, do not constitute a part of this Note and shall not be deemed to limit or affect any of the provisions hereof.
 
*********************
(Signature Pages Follow)

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

	 
	 
	 
	
	 
	By:
	/s/ William A. Hartman
	 

	 
	Name:
	William A. Hartman
	 

	 
	Title:
	President
	 

	 
	 
	   
	 

	 
	Facsimile No. for delivery of Notices: _______________
	 

 
	 
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ANNEX A
 
NOTICE OF CONVERSION
 
The undersigned hereby elects to convert principal under the 10% Convertible Promissory Note due October 8, 2016 of Premier Biomedical Inc.(the "Company"), into shares of common stock (the "Common Stock"), of the Company according to the conditions hereof, as of the date written below. If shares of Common Stock are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer taxes payable with respect thereto and is delivering herewith such certificates and opinions as reasonably requested by the Company in accordance therewith. No fee will be charged to the holder for any conversion, except for such transfer taxes, if any. 
 
By the delivery of this Notice of Conversion the undersigned represents and warrants to the Company that its ownership of the Common Stock does not exceed the amounts specified under Section 4 of this Note, as determined in accordance with Section 13(d) of the Exchange Act.
 
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securities laws in connection with any transfer of the aforesaid shares of Common Stock. 
 
Conversion calculations: 
 
	 
	Date to Effect Conversion: ____________________
 
Principal Amount of Note to be Converted: ____________________
 
Payment of Interest in Common Stock __ yes __ no
If yes, $_____ of Interest Accrued on Account of Conversion at Issue.
 
Number of shares of Common Stock to be issued: ____________________
 
Signature: ____________________
 
Name: ____________________
 
Delivery Instructions: ____________________

 
	 
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Schedule 1
 
CONVERSION SCHEDULE
 
This 10% Convertible Promissory Note due on October 8, 2016 in the original principal amount of $131,250 is issued by Premier Biomedical Inc.This Conversion Schedule reflects conversions made under Section 4 of the above referenced Note.
 
Dated: 
 
	Date of Conversion
(or for first entry, Original Issue Date)
	Amount of Conversion
	Aggregate Principal Amount Remaining
Subsequent to Conversion
(or original Principal Amount)
	Company Attest

	 			
	 			
	 			
	 			
	 			
	 			
	 			
	 			
	 			

 
 
24Exhibit 10.1

 

EXECUTIVE EMPLOYMENT AGREEMENT

This EXECUTIVE EMPLOYMENT AGREEMENT (this "Agreement"), signed as of December 16, 2015, to be effective January 11, 2016 (the "Effective Date"), is made by and between Eos Petro, Inc., a Nevada corporation with its principal place of business at 1999 Avenue of the Stars, Suite 2520, Los Angeles, California 90067 (the "Company"), and Alan Gaines ("Executive"), an individual residing at 1999 Avenue of the Stars Suite 2520 Los Angeles, CA, 90067.  Company and Executive are each a "Party" to this Agreement and may be collectively referred to below as the "Parties."

RECITALS

A.            The Company desires to appoint Executive immediately to the position of Chief Executive Officer ("CEO") of the Company, and Executive desires to accept such appointment and position, under the terms and conditions of this Agreement.

AGREEMENT

NOW THEREFORE, in consideration of the foregoing, the mutual promises contained below and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the Parties, intending to be legally bound, agree as follows:

Section 1.                                                    Employment.

1.1            Employment and Duties.  The Company agrees to employ Executive as its CEO, and Executive agrees to accept such employment, all on the terms and conditions set forth in this Agreement.  Executive shall be responsible for overseeing all aspects of the day-to-day operation and management of the Company, and shall have such other duties and responsibilities as are typical of a CEO.  In addition, Executive shall have such other duties and responsibilities as may be specified from time to time by the Board of Directors of the Company (the "Board") and/or its delegate(s) or assignee(s).  Executive shall report to the Board or such other person(s) as directed by the Board from time to time.  At the request of the Board, Executive shall serve as an officer of any of the Company's parent, sister or subsidiary companies, with the same basic duties, at no additional consideration.  Executive will be based in Los Angeles, California.  Executive acknowledges and agrees that he will be required to travel as reasonably necessary in connection with his duties, including to locations in the United States and throughout the world.

1.2            Full Efforts.  Executive agrees to devote his full working time and efforts, and his ability, experience and talent, to the performance of his services, duties and responsibilities.  Executive shall perform all services to be rendered faithfully, use his best efforts to promote the business interests of the Company, act in the best interests of the Company and avoid any actual or potential conflicts of interest in the performance of his duties.  While employed by the Company, Executive shall not engage in any other business, profession or occupation, for compensation or otherwise, which conflicts either directly or indirectly with his rendering of services under this Agreement, as determined by the Board.  Notwithstanding the foregoing, Executive (i) may be a member of the board of directors (or comparable managing board) of two (2) companies, provided that such companies are not in competition with the Company or are in the energy sector, and (ii) Executive may participate in one or more companies engaged directly or indirectly in the media/entertainment industry. Nothing in this Agreement shall preclude Executive from engaging in charitable and community activities and managing passive personal investments, so long as such activities do not interfere with his duties and responsibilities, as determined by the Board.

1

1.3            No Conflicting Obligations.  Executive represents to the Company that the execution and delivery of this Agreement by Executive and the performance by Executive of his duties hereunder shall not constitute a breach of, violate or otherwise contravene the terms of any employment agreement, noncompetition agreement or other agreement or policy to which Executive is a party or otherwise bound.

1.4            Company Policies and Procedures.  Executive acknowledges and agrees that he is subject to the policies and procedures adopted by the Company from time to time, copies of which shall be provided to Executive.

Section 2.                                                    Term of Employment.

The term (the "Term") of Executive's employment under this Agreement is a two-year period, which shall begin on the Effective Date and terminate on December __, 2017, the second anniversary of the date of the Effective Date, unless terminated earlier in accordance with this Agreement.  Following the end of the Term, the Parties may, but are not obligated to, negotiate an option to renew Executive's employment for an additional two-year (2) period (the "Additional Term") upon sixty (60) days' written notice by either Party of an intention to renew Executive's employment for an Additional Term; provided, however that either Party may elect not to renew the Executive's employment in accordance with this Agreement.  The terms and conditions of any such Additional Term are to be agreed upon by the Parties and approved by the Board in its sole and absolute discretion prior to expiration of the Term.  If Executive's employment continues beyond the Term and an Additional Term has not been entered into, Executive's employment with the Company shall continue on an at-will basis until terminated by either Party and shall not be construed as a guarantee of employment.

Section 3.                                                    Compensation During Term.

The Company agrees to compensate Executive for the services rendered by him during the Term as follows:

3.1            Base Salary.  Executive's initial annual base salary ("Base Salary") shall be One Hundred Fifty Thousand Dollars ($150,000), and the Company shall pay Executive Twelve Thousand Five Hundred Dollars ($12,500) on the first business day of each month in accordance with the Company's customary payroll practices; provided, however, that, following the completion by the Company of an acquisition, when the Company has achieved EBITDA (as defined below) of One Million Five Hundred Thousand Dollars ($1,500,000), Executive's Base Salary shall be increased to Two Hundred Forty Thousand Dollars ($240,000), and the Company shall pay Executive Twenty Thousand Dollars ($20,000) on the first business day of each month in accordance with the Company's customary payroll practices. In the event the Company achieves an EBITDA of Ten Million Dollars ($10,000,000), Executive's annual Base Salary shall be increased to Four Hundred Twenty Thousand Dollars ($420,000.00), which shall become retroactive from the beginning of that same year during which such EBITDA is achieved.  Additionally, the Board may review Executive's Base Salary from time to time and may, but is not obligated to, increase Executive's Base Salary up to 10% annually during each anniversary of the Effective Date; any increase shall be determined and approved by the Board in its sole and absolute discretion.  Base Salary after the expiration of the Term, including Base Salary during any Additional Term, shall be in such amount and upon such terms and conditions to be determined and approved by the Board in its sole and absolute discretion prior to the expiration of the Term.

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3.2            Definition of EBITDA.  For purposes of this Agreement, "EBITDA" is defined herein as earnings before the deduction of interest, taxes, depreciation and amortization.  EBITDA shall be determined as of the end of any fiscal quarter or year in accordance with the Company's actual financial results as reported in its quarterly or annual financial statements.

3.3            Bonuses.

(a)              Achievement of EBITDA Following Acquisition.  Following the completion by the Company of an acquisition, when the Company has achieved EBITDA of One Million Five Hundred Thousand Dollars ($1,500,000), Executive shall be entitled to a bonus in the amount of the product of (x) Seven Thousand Five Hundred Dollars ($7,500) and (y) the number of months from the Effective Date until the achievement of such EBITDA target (subject to proration for partial months).

(b)            Discretionary Bonus.  Subject to the terms and conditions of this Agreement, during the Term, Executive may become eligible for an annual cash bonus determined and approved by the Board in its sole and absolute discretion.

(c)            Other Terms.  Executive must be an employee of the Company on the date of any bonus payment to be eligible for any bonus.  Bonus payments may be subject to other terms and conditions of bonus or incentive plans established by the Company from time to time.  Bonuses for a given year shall be determined and payable consistent with past practice, but in no event shall payment be later than thirty (30) days after the Company's financial statements are issued (or such other period as may be applicable pursuant to the "short-term deferral" rules under Section 409A of the Internal Revenue Code of 1986, as amended (the "Code") and applicable regulations).  Upon any substantive change in role or title for Executive, the Company agrees to review Executive's Base Salary and bonus compensation in good faith; provided, however, that the Company shall not be obligated to increase or change Executive's Base Salary and bonus compensation following such review.

(d)            After the Term.  Bonus eligibility and opportunities, if any, after the expiration of the Term may be in such amounts and subject to such terms and conditions to be determined and approved by the Board in its sole and absolute discretion prior to the expiration of the Term.

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3.4            Additional Compensation Terms.  In consideration of Executive's performance of his duties, the Company shall grant an option to purchase up to Four Million Five Hundred Thousand (4,500,000) shares of restricted common stock of the Company, substantially in the form attached hereto as Exhibit A (the "Option"). 1   All shares issued to Executive upon exercise of all or part of the Option ("Stock") are subject to the following terms and conditions:

(a)            Registration Rights.  The Parties agree that Stock issued to Executive shall carry the piggyback registration rights as set forth in the terms and conditions on the form attached hereto as Exhibit B, which shall be executed by the Parties hereto simultaneously with this Agreement.  Notwithstanding the foregoing, the Parties agree that the Stock shall not carry any registration rights while Executive is employed by the Company and shall only carry registration rights upon Executive's resignation for Good Reason (as defined below) or termination by the Company without Cause (as defined below), pursuant to Section 5 of this Agreement.

(c)            Restrictive Legend.  Executive understands and agrees that the certificate(s) for shares of Stock issued to Executive shall bear substantially the following legend until (a) such shares shall have been registered under the Securities Act of 1933, as amended (the "Securities Act") pursuant to a registration statement that has been declared effective; or (b) in the opinion of counsel reasonably acceptable to the Company, such shares may be sold without registration under the Securities Act as well as any applicable "Blue Sky" or state securities laws:

"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY APPLICABLE STATE SECURITIES LAWS.  SUCH SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT PURPOSES AND MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FILED BY THE ISSUER WITH THE SECURITIES AND EXCHANGE COMMISSION COVERING SUCH SECURITIES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED."

 

 

 

 

1 Exhibit A shall include the following terms and conditions: 1,500,000 shares in the Option shall vest immediately upon the Effective Date; 1,500,000 shares shall vest on the first anniversary date of the Effective Date; and 1,500,000 shares shall vest on the second anniversary of the Effective Date. All vested shares shall become exercisable at an exercise price of $1.00 per share. If Executive is terminated pursuant to Section 5.1 (Termination by the Company for Cause) or resigns pursuant to Section 5.6 of this Agreement (Resignation by Executive Other Than for Good Reason), then he shall (x) lose all right and claim to any portion of the Option which has not vested at the time of such resignation or termination, and (y) forfeit half of any portion of the Option which has vested but has not at such time been exercised. If Executive is terminated pursuant to Section 5.4 (Termination by the Company for Convenience) or resigns pursuant to Section 5.5 of this Agreement (Resignation by Executive for Good Reason), then all unvested portions of the Option shall vest immediately. Executive shall have the remainder of the Option term to exercise options on vested shares, except for 50% of the vested but unexercised options that are forfeited following a termination for cause or resignation other than for good reason. Executive shall not dispose of or transfer any shares of Stock while he remains an employee of the Company and for a period of six months thereafter. Executive may, at his option, exercise the Option in a cashless exercise transaction. The Option shall expire after five years.

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3.5            Withholding.  All compensation and other amounts payable to Executive pursuant to the terms and conditions of this Agreement, including, without limitation, Base Salary, bonuses, and Accrued Rights (as deemed below), are stated in gross amounts and shall be subject to all applicable withholding taxes, other normal payroll deductions and any other amounts required by any law, rule or regulation to be withheld.

3.6            Tax Advice.  Executive and his advisors, if any, have been afforded the opportunity to ask questions of the Company, and the Executive has sought such accounting, legal, and tax advice as he has considered necessary to make an informed decision with respect to Executive's rights and obligations under this Agreement.  Executive understands that he (and not the Company) shall be responsible for his own tax liabilities that may arise as a result of entering this Agreement.

Section 4.                                                    Employee Benefits.

4.1            Employee Benefit Programs, Plans, and Practices.  During the Term, Executive shall become eligible to participate in all employee medical, retirement and insurance benefit plans applicable to similarly situated employees of the Company, and such other plans as may from time to time be made available or applicable to employees of similar status, consistent with the policies of the Company.  Executive acknowledges and agrees that Executive's eligibility for medical insurance plans shall not commence until after the Company hires a Chief Financial Officer.  Thus, for the avoidance of doubt, Executive acknowledges and agrees that the Company shall not provide Executive with medical insurance until after the Company hires a Chief Financial Officer.  The Company shall also provide Executive with directors and officers liability insurance at the Company's expense.  During the Term, Executive shall be entitled to paid vacation and sick leave in accordance with the Company's vacation, holiday, and other pay-for-time-not-worked policies as in effect from time to time for similarly situated employees; provided that Executive shall be entitled to not less than two (2) weeks of paid vacation per year, prorated for partial years of employment, upon sixty (60) days' advance written notice to the Company.  Such benefit plans, policies, or other compensation and perquisite programs may be discontinued or changed from time to time in the sole and absolute discretion of the Company.

4.2            Expense Reimbursement.  The Company shall reimburse Executive, consistent with the Company's expense reimbursement policies and procedures and subject to receipt of appropriate documentation, for all reasonable and necessary out-of-pocket travel, business entertainment and other business expenses incurred or expended by him incident to the performance of his duties under this Agreement.

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Section 5.                                                    Termination of Employment.

5.1            Termination by the Company for Cause.  The Company may terminate Executive's employment for Cause in accordance with this Section 5.1.  The termination of Executive's employment shall not be deemed for Cause unless and until the Company delivers to the Executive written notice setting forth the grounds for such termination and Executive is given an opportunity, within ten (10) business days of receipt of such notice, to be heard before the Board, together with counsel of Executive's choosing.  For the purposes of this Agreement, when used in connection with the termination of Executive's employment with the Company, "Cause" shall mean: (i) Executive's failure to perform the material duties of his position (other than as a result of Disability (as defined below) including Executive's failure to devote appropriate business time, attention or effort to the faithful and diligent performance of Executive's duties; (ii) Executive's willful misconduct or gross negligence in the performance of his duties to the Company; (iii) any act of personal dishonesty taken by Executive in connection with Executive's responsibilities as an employee of the Company; (iv) acts of Executive which constitute willful fraud on the part of Executive in connection with his duties under this Agreement, including, but not limited to, misappropriation or embezzlement of Company funds; (v) a breach by Executive of any fiduciary duty or duty of loyalty owed to the Company; (vi) the commission by Executive of any felony or other crime involving moral turpitude; (vii) a material breach of Executive's obligations under any agreement entered into between Executive and the Company; (viii) a material breach of the written policies or procedures of the Company that have been communicated to Executive; (ix) any conduct in the performance of Executive's employment which Executive knows or should know violates applicable law or regulation or causes the Company to violate applicable law or regulation, including without limitation state, federal or foreign laws and regulations; (x) the refusal by Executive to: (1) follow any lawful directive of the Board or (2) otherwise to perform his duties; (xi) any violation of Section 7 of this Agreement; (xii) if Executive: (1) obstructs or impedes, (2) endeavors to influence, obstruct or impede, or (3) fails to materially cooperate with, any investigation authorized by the Board or any governmental or self-regulatory agency; or (xiii) any other material violation of this Agreement.

5.2            Upon Death.  This Agreement shall automatically terminate upon the death of Executive.

5.3            Upon Disability.  Upon the determination of Executive's Disability (as defined below), the Company may terminate Executive's employment or take such other action as may be appropriate, in its discretion, consistent with applicable law.  As used in this Agreement, "Disability" shall mean: any medically determinable physical or mental impairment that, with or without accommodation by the Company: (i) seriously interferes with the ability of Executive to perform his duties under this Agreement and can be expected to result in death or can be expected to last or has lasted for a continuous period of ninety (90) days or more, or for a cumulative discontinuous period of ninety (90) days or more during any 365-day period; or (ii) entitles Executive to receive income replacement benefits for a period of three (3) months or more under an accident and health plan covering employees of the Company.  In the event of any disagreement between Executive and the Company about whether he has a Disability, the question shall be submitted to an impartial and reputable physician selected by the Company and Executive.  The determination of the question of such Disability by such physician shall be final and binding on Executive and the Company for purposes of this Agreement.  The Company shall pay the reasonable fees and expenses of such determining physician.

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5.4            Termination by the Company for Convenience.  Notwithstanding any other provisions of this Agreement, the Company shall have the right at any time to terminate Executive's employment for reasons other than Cause, death, or Disability at the "Company's Convenience" upon written notice to Executive.

5.5            Resignation by Executive for Good Reason.  Executive shall have the right to resign for Good Reason in accordance with this Section 5.5.  For the purposes of this Agreement resignation by Executive as a result of the occurrence of any of the following without Executive's consent shall be deemed to constitute "Good Reason:" (i) a material diminution in Executive's title or duties as specified in this Agreement, which change is not made for purposes of serving the best interests of the Company; (ii) a material reduction in Executive's annual Base Salary or bonus opportunity (except for a reduction in a similar percent or amount applicable to all other similarly situated employees of the Company); or (iii) any material breach by the Company of any material provision of this Agreement or any material provision of any other agreement between the Executive and the Company.  By way of example, subject to the next sentence of this Section 5.5, if the Company were to fail pay or provide Executive any earned compensation, bonus or benefit, Executive would have the right to resign for Good Reason.  Notwithstanding the foregoing, Executive shall not resign for Good Reason without first providing the Company with written notice within thirty (30) days of the event that Executive believes constitutes Good Reason specifically identifying the acts or omissions constituting the grounds for Good Reason and a reasonable cure period of not less than thirty (30) days following the date of such notice.

5.6            Resignation by Executive Other Than for Good Reason.  Notwithstanding any other provisions of this Agreement, Executive shall have the right to resign other than for Good Reason, at any time upon sixty (60) days' prior written notice to the Company.

5.7            Effect of Termination on Compensation.

(a)            Termination by the Company for Convenience or Resignation by Executive for Good Reason.  In the event that Executive's employment with the Company is terminated pursuant to Section 5.4 (Termination by the Company for Convenience) or Executive resigns pursuant to Section 5.5 (Resignation by Executive for Good Reason), the Company shall pay the Executive a one-time cash severance payment of an amount equal to two (2) times Executive's Base Salary then in effect at the time of termination or resignation.  Further, the Company shall pay Executive the value of all accrued and unused vacation days, reimbursement for any unreimbursed business expenses properly incurred by Executive in accordance with Company policy prior to the date of termination, and any other payments or benefits (including any health insurance rights) required by applicable law (the foregoing, collectively, the "Accrued Rights").

(b)            Termination by the Company for Cause, Upon Death, Upon Disability or Resignation by Executive Other than for Good Reason.  In the event that Executive's employment with the Company is terminated pursuant to Section 5.1 (Termination by the Company for Cause), Section 5.2 (Upon Death), Section 5.3 (Upon Disability), or Section 5.6 (Resignation by Executive Other Than for Good Reason), the Company shall have no further liability to Executive under this Agreement other than to pay Executive the value of all Accrued Rights.

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(c)            Accrued Rights.  Any Accrued Rights or severance paid under this Section 5.7 shall be paid only upon Executive executing an Agreement and General Release, in the case of Section 5.7(a), substantially in the form attached hereto as Exhibit C-1, or, in the case of Section 5.7(b), substantially in the form attached hereto as Exhibit C-2 (either form, the "Release").  The Release shall become effective within thirty (30) days following the date of Executive's termination (the "Termination Date").  The Parties further agree that any payment of any Accrued Rights or severance shall not be made until five (5) days following execution of the Release.

5.8            Access to Company Offices.  From and after Executive's termination or resignation for any reason, Executive shall not be permitted access to the Company's offices, except as authorized in writing by the Board.

Section 6.                                                    Change of Control.

6.1            Definition.  For purposes of this Agreement, a "Change of Control" is defined herein as:

(A)       a merger or consolidation of the Company, other than a merger or consolidation in which the voting securities of the Company immediately prior to the merger or consolidation continue to represent (either by remaining outstanding or being converted into securities of the surviving entity) more than 50% of the combined voting power of Company or surviving entity immediately after the merger or consolidation with another entity;

(B)       a sale, exchange, lease, mortgage, pledge, transfer, or other disposition (in a single transaction or a series of related transactions) of all or substantially all of the assets of the Company which shall include, without limitation, the sale of assets or earning power aggregating more than 50% of the assets or earning power of the Company on a consolidated basis;

(C)      a reorganization, reverse stock split, or recapitalization of the Company which would result in any of the foregoing; or

(D)      a transaction or series of related transactions having, directly or indirectly.  the same effect as any of the foregoing.

6.2            Payments upon Change of Control.  Upon the occurrence of a Change of Control, and upon fulfillment of the following conditions: (1) the sale of the Company for a premium relative to the share price at the time of the Change of Control, and (2) the subsequent replacement of the Chief Operating Officer and either CEO or the President of the Company, Executive shall receive, at such time and in accordance with applicable law, then (a) all restricted stock and options of Executive that have not vested and have not been forfeited shall immediately vest upon a Change of Control; (b) if the Change of Control occurs during Executive's first year of his Term, the Company shall make a one-time cash payment of an amount equal to the greater of (i) One Million Dollars ($1,000,000) or (ii) two (2) times Executive's Base Salary then in effect at the time of the Change of Control; (c) if the Change of Control occurs during Executive's second year of his Term, the Company shall make a one-time cash payment of an amount equal to the greater of (i) Two Million Dollars ($2,000,000) or (ii) two (2) times Executive's Base Salary then in effect, and, if any bonus was earned in the previous year, the amount of the bonus then in effect; or (d) if the Change of Control occurs during or after Executive's third year of any Additional Term with the Company, the Company shall make a one-time cash payment of an amount equal to the greater of (i) Three Million Dollars ($3,000,000) or (ii) three (3) times Executive's Base Salary then in effect, and, if any bonus was earned in the previous year, the amount of the bonus then in effect.

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Section 7.                                                    Confidential Information; Trade Secrets; Non-Solicitation of Employees.

7.1            Agreement Not to Use or Disclose.  During the Term and thereafter, except in the good faith performance of Executive's duties under this Agreement or where required by law, statute, regulation or rule of any governmental body or agency, or pursuant to a subpoena or court order, Executive shall not, directly or indirectly, for Executive's own account or for the account of any other person or entity, use or disclose any Confidential Information (as defined below) or proprietary Trade Secrets (as defined below) of the Company to any third person or entity.  Executive agrees that he will not, without first obtaining the prior written permission of the Board: (a) directly or indirectly utilize any Confidential Information or Trade Secrets in his or her own business or for the benefit or any person or entity other than the Company; (b) develop, manufacture, license, and/or sell any produce that is based in whole or in part on Confidential Information or Trade Secrets; or (c) disclose such Confidential Information or Trade Secrets to any person or entity other than the Company.  If Executive loses or makes unauthorized disclosures of any Confidential Information or Trade Secret, he will immediately notify the Company and take all reasonable steps necessary to retrieve the lost or improperly disclosed Confidential Information.  If Executive is required in a civil, criminal, or regulatory proceeding to disclose any Confidential Information or any Trade Secret, Executive will give the Board prompt written notice of the request for information to permit the Company to seek an appropriate remedy or to waive the Executive's compliance with the provisions of this Agreement with respect to the request.  Upon the expiration or termination of Executive's employment, for any reason, whether voluntary or involuntary and whether by the Company or Executive, or at any time the Company may request, Executive shall (i) surrender to the Company all documents and data of any kind (including data in machine-readable form) or any reproductions (in whole or in part) of any items relating to Confidential Information or Trade Secrets and shall not make or retain any copy or extract of any of the foregoing, and (ii) confirm in writing that to his knowledge, after inquiry, no Confidential Information or Trade Secret exists on any computers, computer storage devices or other electronic media that were at any time within Executive's control (other than those which remain at, or have been returned to, the Company).

7.2            Confidential Information.  For purposes of this Agreement, "Confidential Information" means all information regarding the Company (which for purposes of this subsection shall mean and include all of the Company's subsidiaries and all affiliated companies and joint ventures connected by ownership to the Company at any time), any activity of the Company, the business of the Company or any customer of the Company (a) that is not generally known to persons not employed or retained (as employees or as independent contractors or agents) by the Company, (b) that is not generally disclosed by the practices of the Company to persons not employed by the Company, (c) that does not rise to the level of a Trade Secret, (d) that is the subject of reasonable efforts to keep it confidential, and (e) that has commercial value in Company's business.  Confidential Information shall, to the extent such information is not a Trade Secret and to the extent material, include, but not be limited to, product concepts, production techniques, technical information regarding the Company's products or services, suppliers, production processes and product/service development, operations techniques, product/service formulas, information concerning the Company's techniques for use and integration of its website and other products/services, current and future development and expansion or contraction plans of the Company, sale/acquisition plans and contacts, marketing plans and contacts, information concerning the legal affairs of the Company and information concerning the strategy, tactics and financial affairs of the Company.  Confidential Information shall not include information that has become generally available to the public, other than information that has become available as a result, directly or indirectly, of Executive's failure to comply with any of his obligations to the Company.  This definition shall not limit any definition of "confidential information" or any equivalent term under the Uniform Trade Secrets Act or any other state, local or federal law.

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7.3            Trade Secrets.  For purposes of this Agreement, "Trade Secrets" shall mean all secret, proprietary, or confidential information regarding the Company (which for purposes of this subsection shall mean and include all of the Company's subsidiaries and all affiliated companies and joint ventures connected by ownership to the Company at any time) or any activity of the Company that fits within the definition of "trade secrets" under the Uniform Trade Secrets Act or other applicable law.  Without limiting the foregoing or any definition of Trade Secrets, Trade Secrets protected under this Agreement shall include all source codes and object codes for the Company's software and all website design information to the extent that such information fits within the Uniform Trade Secrets Act; provided, however, that nothing in this Agreement is intended, or shall be construed, to limit the protections of any applicable law protecting trade secrets or other confidential information.  Trade Secrets shall not include information that has become generally available to the public, other than information that has become available as a result, directly or indirectly, of Executive's failure to comply with any of his obligations to the Company.  This definition shall not limit any definition of "trade secrets" or any equivalent term under the Uniform Trade Secrets Act or any other state, local or federal law.

7.4            Non-Solicitation of Employees.  During the Term and for twelve (12) months following the date of termination of Executive's employment for any reason, Executive shall not, directly or indirectly, recruit, solicit, or attempt to hire any employee of the Company or any of its affiliates or any person who was an employee of the Company or any of its affiliates at any time during the twelve (12) months immediately prior to the termination date of Employee's employment, assist in such hiring by any other person, encourage any such employee to terminate his or her relationship with the Company; provided that general public solicitations of employment shall not constitute a violation of this Section 7.4.

7.5            Non-Solicitation of Customers.  During the Term and for twelve (12) months following the date of termination of Executive's employment for any reason, Executive shall not, directly or indirectly, contact, attempt to contact, or meet with the Company's current or prospective customers for purposes of offering or accepting goods or services similar to or competitive with those offered by the Company.

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7.6            Non-Disparagement.  Executive agrees that he will not at any time make, publish, or communicate to any person or entity or in any public forum any defamatory or disparaging remarks, comments or statements concerning the Company, its businesses, any of its employees or officers and existing and prospective customers, suppliers and investors.   This Section 7.6 does not, in any way, restrict or impede Executive from exercising protected rights to the extent that such rights cannot be waived by agreement or from complying with any applicable law or regulation or a valid order of a court of competent jurisdiction or an authorized government agency, provided that such compliance does not exceed that required by the law, regulation or order. Executive shall promptly provide written notice of any such order to the Board.

7.7            Certain Remedies.   In the event Executive breaches any of the provisions of this Section 7, Executive agrees that Company shall be entitled to injunctive relief in addition to any other remedy to which the Company may be entitled.

7.8            Separate Covenants; Severability.  The covenants in this Section 7 shall be construed as separate covenants and to the extent any covenant is deemed by a court of competent jurisdiction to be invalid, illegal, void or unenforceable for any reason, such covenant shall be severed from this Agreement and it shall not affect the enforcement of any other covenant.

Section 8.                                                    Rights in Company Property; Inventions.

8.1            Executive recognizes the Company's proprietary rights in the tangible and intangible property of the Company and its affiliates and acknowledges that, notwithstanding the relationship of employment, Executive shall not obtain or acquire through such employment any personal property rights in any of the property of the Company or its affiliates, including but not limited to, any writing, communications, manuals, documents, instruments, contracts, agreements, files, literature, data, technical information, know-how, secrets, formulas, products, methods, procedures, processes, devices, apparatuses, trademarks, trade names, trade styles, service marks, logos, copyrights, patents, or other matters which are the property of the Company or its affiliates.

8.2            Executive agrees that during his employment by the Company, any and all discoveries, inventions, improvements and innovations (including all data and records pertaining thereto), whether or not patentable, copyrightable or reduced to writing, which Executive may have conceived or made, or may conceive or make, either alone or in conjunction with others and whether or not during working hours or by the use of the facilities of the Company or any of its affiliates, which are related or in any way connected with the business of the Company or any of its affiliates (the foregoing, collectively, "Inventions"), are and shall be the sole and exclusive property of the Company or its affiliates, except for those Inventions conceived by Executive prior to the date of this Agreement.  Executive shall promptly disclose all Inventions to the Company, shall execute at the request of the Company any assignments or other documents the Company may deem necessary to protect or perfect its or any of its affiliate's rights in or to the Inventions, and shall assist the Company, at the Company's expense, in obtaining, defending and enforcing the Company's or any of its affiliate's rights in or to the Inventions.  Executive hereby appoints the Company as his attorney-in-fact to execute on his behalf any assignments or other documents deemed necessary by the Company to protect or perfect its or any of its affiliate's rights to any Inventions.

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8.3            Executive and the Company recognize that this Agreement does not require assignment of any Invention that qualifies for protection under Section 2870 of the California Labor Code or any similar law of any other state.2

Section 9.                                                    Other Post-Termination Obligations.

During the Term of Executive's employment and for one (1) year after the termination of employment for any reason, or subject to ordinary court process, Executive shall, upon reasonable notice, use his reasonable best efforts to cooperate with the Company and its affiliates by providing such information and assistance as any of them may reasonably require, at the Company's expense, in connection with any litigation not commenced by or involving Executive as a party in which the Company or any of its affiliates is, or may become, a party.  For a period of up to six (6) months after termination of employment for any reason, Executive agrees to make himself available to perform such consulting and/or transition services as reasonably requested by the Company from time to time, all upon mutually acceptable terms.

Section 10.                                                    Compliance with IRC Section 409A.

Notwithstanding anything herein to the contrary, (i) if, at the time of Executive's termination of employment with the Company, Executive is a "specified employee" as defined in Section 409A of the Code and the deferral of the commencement of any payments or benefits otherwise payable hereunder as a result of such termination of employment is necessary in order to prevent any accelerated or additional tax under Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to Executive) until the date that is six (6) months following Executive's termination of employment with the Company (or the earliest date as is permitted under Section 409A of the Code without the imposition of any accelerated or additional tax) and (ii) if any other payments or benefits due to Executive hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or benefits shall be deferred if deferral will avoid such acceleration or additional tax, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, reasonably determined by the Board, that does not cause such an accelerated or additional tax and that preserves, to the greatest extent possible, the value (both in amount and considering promptness of payment), of such payment or other benefits to Executive.  In the event that payments under this Agreement are deferred pursuant to this Section in order to prevent any accelerated tax or additional tax under Section 409A of the Code, then such payments shall be paid at the time specified in this Section without interest.  The Company will consult with Executive in good faith regarding the implementation of the provisions of this Section; provided, that neither the Company nor any of its employees or representatives shall have any liability to Executive with respect thereto.  For purposes of Section 409A of the Code, any right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments, and references herein to Executive's "termination of employment" shall refer to Executive's separation of services with the Company within the meaning of Section 409A of the Code.  Notwithstanding anything to the contrary herein, except to the extent any expense, reimbursement or in-kind benefit provided pursuant to this Agreement does not constitute a "deferral of compensation" within the meaning of Section 409A of the Code: (x) the amount of expenses eligible for reimbursement or in-kind benefits provided to Executive during any calendar year will not affect the amount of expenses eligible for reimbursement or in-kind benefits provided to Executive in any other calendar year, (y) the reimbursements for expenses for which Executive is entitled to be reimbursed shall be made on or before the last day of the calendar year following the calendar year in which the applicable expense is incurred, and (z) the right to payment or reimbursement or in-kind benefits hereunder may not be liquidated or exchanged for any other benefit.

 

 

2 Labor Code Section 2870 provides: (a) Any provision in an employment agreement which provides that an employee shall assign, or offer to assign, any of his or her rights in an invention to his or her employer shall not apply to an invention that the employee developed entirely on his or her own time without using the employer's equipment, supplies, facilities, or trade secret information except for those inventions that either: (1) Relate at the time of conception or reduction to practice of the invention to the employer's business, or actual or demonstrably anticipated research or development of the employer; or (2) Result from any work performed by the employee for the employer. (b) To the extent a provision in an employment agreement purports to require an employee to assign an invention otherwise excluded from being required to be assigned under subdivision (a), the provision is against the public policy of this state and is unenforceable.

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Section 11.                                                    Agreement to Arbitrate.

11.1            Arbitration.  Subject to the exceptions described in this Agreement, any controversy, dispute or claim arising out of or relating to this Agreement or any breach of it (each a "Claim"), shall be settled by binding arbitration in accordance with the Employment Dispute Resolution Procedures of the selected arbitration group such as ADR, JAMS or American Arbitration Association ("AAA").  The Claims covered by this Agreement include, but are not limited to, claims for wages and other compensation, claims for breach of contract (express or implied), tort claims, claims for discrimination (including, but not limited to, race, sex, sexual orientation, religion, national origin, age, marital status, medical condition, and disability), harassment (including, but not limited to race, sex, sexual orientation, religion, national origin, age, marital status, medical condition, and disability), and claims for violation of any federal, state, or other government law, statute, regulation, or ordinance.  This provision shall not apply, however, to claims for workers' compensation or unemployment insurance benefits, or claims; nor shall it restrict Executive's right to submit claims to the Equal Employment Opportunity Commission or the Department of Fair Employment and Housing, as appropriate.  In addition, this agreement to arbitrate disputes set forth in this Section 11.1 does not prevent Executive from filing a charge or claim with any other governmental administrative agency as permitted by applicable law.

(a)            Selection of Arbitrator.  In the event of a claim, the Parties shall select an arbitrator mutually acceptable to each Party.  If the Parties cannot agree on an arbitrator within thirty (30) days, the Parties shall request from the applicable arbitration group a list of five (5) names drawn from its panel of employment arbitrators and each Party shall follow the striking procedure used by such arbitration group.

(b)            Procedure for Arbitration.  The arbitrator shall apply Nevada substantive law and the Nevada Evidence Code to the proceeding.  The demand for arbitration must be in writing and made within the applicable statute of limitations period.  The arbitrator shall have the authority to resolve discovery disputes, including, but not limited to, determining what constitutes reasonable discovery.  The arbitrator shall have all powers and remedies conferred by law, and shall prepare in writing and provide to the Parties a decision and award which includes factual findings and the conclusions upon which such award is based.

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(c)            Binding Arbitration.  Except as otherwise required by law, the decision of the arbitrator shall be binding and conclusive on the Parties.  Judgment upon the award rendered by the arbitrator may be entered in any court having proper jurisdiction.  The fees for the arbitrator and the arbitration forum shall be shared equally by the Parties hereto, unless Company is required to pay for them by law.  Each Party shall bear its, his or her own fees and costs incurred in connection with the arbitration except for any attorneys' fees or costs which are awarded by the Arbitrator pursuant this Agreement or statute which provides for recovery of such fees and/or costs; provided, however, Executive shall not be required to bear any type of expense that Executive would not be required to bear if he or she were bringing the action in court.  The arbitration and the Parties' agreement therefore shall be deemed to be self-executing, and if either Party fails to appear at any properly-noticed arbitration proceeding, an award may be entered against such Party despite said failure to appear.  Notwithstanding any other agreement between the Parties, any statutorily imposed remedies awarded to either Executive or Company pursuant to arbitration under this provision shall not be limited.

11.2            Waiver of Jury.  Both the Company and Executive understand and agree that by using arbitration to resolve any Claims between Executive and Company they are giving up any right that they may have to a judge or jury trial with regard to those Claims.  Both Parties acknowledge that they are entering into this Agreement voluntarily and have independently negotiated and agreed upon this Section 11.2.

Section 12.                                                    Legal Fees.

Each Party shall bear the costs of any legal fees and other fees and expenses which may be incurred in respect of enforcing his/its respective rights under this Agreement; provided, however, that the arbitrator, judge, or other tribunal presiding over a dispute may order that the non-prevailing Party shall pay all such fees and expenses for the prevailing Party.

Section 13.                                                    Assignment.

Executive understands that he has been selected for employment by the Company on the basis of his personal qualifications, experience and skills.  Executive agrees, therefore, that he shall not have the right to assign all or any portion of his rights or obligations under this Agreement.  The Company may assign its rights under this Agreement without the consent of Executive.  Subject to the foregoing, this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective heirs, legal representatives, successors and permitted assigns.

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Section 14.                                                    Severability.

In case any one or more of the provisions contained in this Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect the other provisions of this Agreement, and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.

Section 15.                                                    Survival.

The respective rights and obligations of the Parties shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. In particular, and without limiting the foregoing, the provisions of Sections 5, 7, 8, 9, 10 and 11 shall remain in effect as long as is necessary to give them effect.

Section 16.                                                    Notices.

Any notice required or permitted to be given under this Agreement shall be in writing and deemed given when actually delivered to the address in person or by any messenger or delivery service or mailed, postage prepaid, by registered or certified mail, addressed to the Party to receive such notice at the address set forth below or any other address substituted therefor by notice pursuant to these provisions.

If to the Company:

Eos Petro, Inc.

1999 Avenue of the Stars

Suite 2520

Los Angeles, CA 90067

Attention:                          Nikolas Konstant

Facsimile:                          (310) 552-1556

E-mail:                                    nkonstant@eos-petro.com

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

Baker & Hostetler LLP

11601 Wilshire Blvd., Suite 1400

Los Angeles, CA 90025

Attention:                          Jeffrey P. Berg

Facsimile:                          (310) 820-8859

E-mail:                                    jberg@bakerlaw.com

If to Executive:

1999 Avenue of the Stars Suite 2520

Los Angeles, California.  90067

Attention:                          Alan Gaines

Facsimile:                          __________

E-mail:                                   againes@eos-petro.com

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Section 17.                                                    Governing Law.

This Agreement has been executed and delivered in the State of California and its validity, interpretation, performance and enforcement shall be governed by the laws of said State without regard to principles of conflict of laws.  Executive and the Company each consent to the personal jurisdiction of the courts of the State of California and to venue in California.

Section 18.                                                    Entire Agreement.

This Agreement contains the entire understanding between the Parties and supersedes in all respects any prior or other agreement or understanding between the Company and Executive.  Under no circumstances shall Executive be entitled to any other payments or benefits of any kind, except for the payments and benefits described or referred to herein, unless otherwise agreed to by the Company and Executive in writing.

Section 19.                                                    Headings.

The Section headings herein are for reference purposes only and are not intended in any way to describe, interpret, define or limit the extent or intent of this Agreement or of any part hereof.

Section 20.                                                    Amendment; Waivers.

This Agreement may not be amended, modified or supplemented except by an agreement in writing signed by the Parties.  Waiver by any Party of any breach of this Agreement shall not operate or be construed as a continuing waiver or as a waiver of any subsequent breach.

Section 21.                                                    Counterparts.

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  Fax or PDF Signatures shall be valid and binding.

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Section 22.                                                    Construction.

Executive and the Company acknowledge that each Party to this Agreement has had the opportunity to be represented by counsel in connection with this Agreement and the matters contemplated by this Agreement.  Accordingly, any rule of law or decision which would require interpretation of any claimed ambiguities in this Agreement against the Party that drafted it has no application and is expressly waived.  In addition, the term "including" and its variations are always used in the non-restrictive sense (as if followed by a phrase such as "but not limited to").  The provisions of this Agreement shall be interpreted in a reasonable manner to affect the intent of the Parties.

[Remainder of this page left intentionally blank.]

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IN WITNESS WHEREOF, the Parties have duly executed this Agreement as of the Effective Date.

Company:

EOS PETRO, INC.,

a Nevada corporation

By:            /S/Nikolas Konstant

Name:            Nikolas Konstant

Title:            Chairman of the Board, CFO

Executive:

/S/            Alan Gaines

ALAN GAINES

[Signature page to Executive Employment Agreement]

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Exhibit A

[Stock Option Agreement]

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Exhibit B

[Registration Rights Agreement]

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Exhibit C-1

[Agreement and General Release]

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Exhibit C-2

[Agreement and General Release]

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