PositiveID
POSITIVEID Corp (Form: 8-K, Received: 04/21/2017 16:02:19)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

 

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 17, 2017

 

POSITIVEID CORPORATION

(Exact name of registrant as specified in its charter)

 

Delaware   001-33297   06-1637809
(State or Other Jurisdiction of
Incorporation)
  (Commission
 File Number)
  (IRS Employer
 Identification Number)

 

1690 South Congress Avenue, Suite 201

Delray Beach, Florida 33445

(Address of principal executive offices) (zip code)

 

(561) 805-8000

(Registrant’s telephone number, including area code)

 

 

 

 

(Former Name or Former Address if Changed Since Last Report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions ( see General Instruction A.2. below):

 

[  ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

[  ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

[  ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

[  ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 

 

 
   

 

Cautionary Note on Forward-Looking Statements

 

This Current Report on Form 8-K (this “Report”) and any related statements of representatives and partners of the Company contain, or may contain, among other things, certain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such forward-looking statements involve significant risks and uncertainties. Such statements may include, without limitation, statements with respect to the Company’s plans, objectives, projections, expectations and intentions and other statements identified by words such as “projects,” “may,” “will,” “could,” “would,” “should,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” or similar expressions. These statements are based upon the current beliefs and expectations of the Company’s management and are subject to significant risks and uncertainties, including those detailed in the Company’s filings with the Securities and Exchange Commission (the “SEC”). Actual results may differ significantly from those set forth in the forward-looking statements. These forward-looking statements involve certain risks and uncertainties that are subject to change based on various factors (many of which are beyond the Company’s control). The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

 

Item 1.01 Entry into a Material Definitive Agreement.

 

On April 17, 2017, PositiveID Corporation (the “Company”) closed a Securities Purchase Agreement (“SPA”) with GHS Investments, LLC (the “Investor”), providing for the purchase of a Secured Convertible Promissory Note in the aggregate principal amount of up to $165,000 (the “Note”), with the first tranche funded being in the amount of $50,000. Subsequent tranches will be delivered to the Company approximately bi-weekly and at the sole discretion of GHS. The Note has a 10% original issuance discount to offset transaction, diligence and legal costs. The Note bears an interest rate of 10%, which is payable in the Company’s common stock based on the conversion formula (as defined below), and the maturity date for each funded tranche will be 12 months from the date on which the funds are received by the Company. The Note may be converted by GHS at any time into shares of Company’s common stock at a 37.5% discount off the lowest closing bid price for the Company’s common stock during the 20 trading days immediately preceding a conversion date. The Note is secured by all property of the Company. As set forth in the SPA, however, the Note ranks junior to the security interests of three other creditors of the Company.

 

The Note is a long-term debt obligation that is material to the Company. The Note may be prepaid in accordance with the terms set forth in the Note. The Note also contains certain representations, warranties, covenants and events of default including if the Company is delinquent in its periodic report filings with the SEC. If an event of default occurs, the amount of the principal and interest rate due under the Note increases and, at the option of GHS and in their sole discretion, GHS may consider the Note immediately due and payable.

 

The foregoing description of the terms of the SPA and Note does not purport to be complete and is qualified in its entirety by the complete text of the documents attached as Exhibit 10.1 and Exhibit 4.1 to this Current Report on Form 8-K.

 

Item 2.03 Creation of Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

 

The information provided in Item 1.01 of this Current Report on Form 8-K is incorporated herein by reference.

 

 
   

 

Item 3.02 Unregistered Sales of Equity Securities

 

The descriptions in Item 1.01 of the note issued by the Company that is convertible into the Company’s equity securities at the option of the holder of the note are incorporated herein. The issuance of the securities set forth herein was made in reliance on the exemption provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(a)(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by the Company; (d) the securities were not broken down into smaller denominations; (e) the negotiations for the issuance of the securities took place directly between the individual and the Company; and (f) the recipient of the securities is an accredited investor. Since April 13, 2017, the Company has issued, in reliance upon Section 4(a)(2) of the Securities Act, 1,346,888,219, shares of common stock pursuant to conversion notices of convertible redeemable notes outstanding totaling $84,180.51. The issuance of such convertible notes was previously disclosed in the Company’s periodic reports filed with the SEC.

 

Item 9.01 Financial Statements and Exhibits

 

Exhibit
Number
  Description
     
4.1   Form of 10% Convertible Redeemable Note, dated April 17, 2017, with GHS Investments, LLC
     
10.1   Form of Securities Purchase Agreement, dated April 17, 2017, with GHS Investments, LLC

 

 
   

 

SIGNATURES

 

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  POSITIVEID CORPORATION
     
Date: April 21, 2017 By: /s/ William J. Caragol
  Name: William J. Caragol
  Title: Chief Executive Officer

 

 
   

 

Exhibit 4.1

 

N E I T H E R T HE I SS U ANCE AND S A L E O F T HE SE CURI T I E S R E P R ESE N TE D BY T HIS NOTE NOR T HE SE CURI T I E S IN T O WHICH T H ES E SE CURI T I E S ARE CONV E R T I BL E HAVE B E E N R E G I S TE R E D UND E R T HE SE CURI T I E S ACT OF 1933, AS A M E N D E D, OR AP P L ICA B L E ST A T E S E CURI T I E S L AW S . TH E SE CURI T I E S M AY NOT B E O FF E R E D F OR S A LE , S O L D, T RAN S F E RR E D OR A SS I G N E D ( I) IN T HE A B SE NCE OF ( A) AN E F F E C T IVE R E G I ST RA T ION ST A TE M E NT F OR T HE SE CURI T I E S UND E R T HE S E CURI T I E S ACT OF 1933, A S A M E ND E D, OR ( B ) AN O P INION O F C OUN SE L ( WHICH COUN SE L S HA L L BE SELE C T E D B Y T HE HO L D E R ) , IN A GE N E RA LL Y ACC E P T A BL E F OR M , T HAT R E G I ST RA T ION IS NOT R E QUIR E D UND E R S AID ACT OR ( II) UN LES S S O L D P U R S UANT T O RU L E 144 OR RU L E 144A UND E R S AID AC T . NO T WI T H S T ANDING T HE F OR E G OI N G , T HE S E CURI T I E S M AY B E P LE D G E D IN CONN E C T ION WI T H A B ONA F I DE M AR G IN ACCOUNT OR O T H E R L OAN OR F IN A NCI N G AR R A N G E M E NT SE CUR E D B Y T HE S E CURI T I E S .

 

P r i n c i p al A m o un t : $165,000

Da te : April 17, 2017

 

FORM OF SECURED CONV E R T I BL E P RO M I SS ORY NO T E

 

PositiveID Corp. , ( h e re in a f t e r ca ll e d the Company ”) , h ere b y p r omis e s to p a y to the o r d e r of GHS Investments, LLC , a Nevada Limited Liability Company , or its r e g ist e r e d a ssi g ns ( the Hold e r ) t h e sum of $165,000 on the Maturity Date (as defined below), tog e th e r with a n y int e r e st a s s e t f o r th h ere in, a nd to p a y int e r e st on the unp a id p r in c ip a l b a l a n c e h e r e of a t t h e r a te o f Ten p e r ce nt ( 10 % ) ( t h e Int ere st R a t e ) p e r a nnum fr om the d a te h e r e of ( the Issue D a t e” ) until the s a me b ec om e s due a nd p a y a bl e , wh e th e r a t m a tu r ity or upon a c c e l era tion or b y p r e p a ym e nt or oth er wis e . This Note is being issued with a fifteen thousand dollar ($15,000) original issuance discount (“OID”) to offset transaction, diligence and legal costs.

 

The principal sum (and corresponding interests) due to the Holder shall be prorated based on the consideration actually paid by the Holder in accordance with the Securities Purchase Agreement of same date. The Company is not required to repay any unfunded portion of this Note. The Maturity Date for each funded tranche shall be Twelve (12) months from the date on which the funds are received by the Company.

 

This Note m a y not be p re p a id in w h ole or in p ar t e x ce pt a s oth er wise e x pli c it l y s e t f o r th h ere in.. I n t ere st sh a ll c omm e n c e a ccr ui n g on the d a te th a t the Note is f ul l y p a id a nd sh a ll be c omput e d on the b a sis of a 365 - d a y y e a r a nd the ac tu a l numb e r of d a ys e l a ps e d. All p a ym e nts d ue h e r e und e r ( to t h e e x t e nt not c onv er t e d into c o mmon sto c k) sh a ll be m a de in l a w f ul mon e y of the Unit e d S t a t e s of Am er i ca . Following any Event of Default, interest shall accrue at the lesser of Twenty Percent (20%) per annum or the maximum interest permitted by Law.

 

1  
 

 

All p a y m e nts sh a ll be m a de a t su c h a dd re ss as the Hold e r s h a ll h e r eaf t e r g ive to the Company b y w r itt e n noti c e m a de in acc o r d a n c e with the p r ovisions of this Not e . W h e n e v e r a ny a mount e x p re ss e d to be due b y the t er ms of this Note is due on a ny d ay whi c h is not a busin e ss da y , t h e s a me sh a ll inst ea d be due o n the n e x t su cc e e ding d a y wh i c h is a busin e ss d a y a nd, in the ca se of a ny int ere st p a y m e nt d a t e w hi c h is not the d a te o n whi c h this Note is p a id in f ull, the e x t e nsion o f the due d a te th ere of sh a ll not be t a k e n into acc ount f o r pu r po s e s of d e t er mining t h e a mount of int ere st due on su c h d a t e . As u s e d in this Not e , the t e r m busin e ss da y ” s h a ll m ea n a ny d a y ot h e r th a n a S a tu r d a y , S und a y or a day on whi c h c omm e r c i a l b a nks in the c i t y of N e w Y o r k , N e w Y o r k a r e a uth o r i z e d or r e qui re d by l a w or e x ec utive o r d e r to re m a in c los e d. E ac h ca pit a li z e d t er m us e d h ere i n, a nd not oth er wise d ef in e d, sh a ll h a v e the m ea ning a s cr i b e d thereto in the supporting documents of same date (attached hereto).

 

This Note is fre e fr om a ll t a x e s, li e ns, c l a ims a nd e n c umb ra n ce s with re sp e c t to the iss u e th ere of a nd sh a ll not be s ubj ec t to p r e e mptive r i g h ts or oth e r simil a r r i g hts of sh are hol d er s of t h e Company a nd will not impose p er son a l li a bili t y u p on the hold e r th e r e o f .

 

The f ollowing t er ms sh a l l a pp l y to this Not e :

 

A R T I C L E I . C ONVE R S I O N R I GH T S

 

1.1 C onv er sion R i g ht . The Hold e r sh a ll h a ve the r ight a nd a t a n y time from the execution of this Note to c onv er t a ll or a n y p ar t of t he outst a nding a nd unp a i d p r in c ip a l a mount of this Note into f ul l y p a id a nd non- a ss e s s a ble sh a r e s of C ommon S to c k, a s su c h C ommon S to c k e x ists on the Issue D a t e , or a n y s h are s o f c a pit a l sto c k or oth e r s ec u r iti e s of the Company into whi c h su c h C ommon S t o c k sh a ll h ereaf t e r be c h a ng e d or r e c l a ssi f i e d a t the c onv er sion p r i ce ( the C onv er sion P r i c e ) d e t er min e d a s p r ovid e d h ere in ( a C onv er sion ) ; p r ovid e d , how e v e r , th a t in no e v e nt sh a ll the Hold e r be e ntitl e d to c o nv er t a n y po r tion of this Note in e x ce ss of th a t po r tion of this Note up o n c onv e r sion of whi c h t h e sum of ( 1) the num b e r of sh a r e s of C ommon S to c k b e n ef i c i a l l y o wn e d b y the Hold e r a nd its aff ili a t e s ( oth e r th a n sh a re s of C ommon S to c k whi c h may be d ee m e d b e n ef i c i a l l y ow n e d th r o u gh the own er ship o f the u n c onv er t e d p o r tion of the Not e s or the un e x e r c is e d or un c onv e r t e d p o r tion of a n y ot h e r s e c u r i t y of the Company subj ec t to a lim i t a tion o n c onv er sion or e x erc ise a n a lo g ous to the limit a t ions c ont a in e d h ere in) a nd ( 2) the num b e r o f s h are s o f C ommon S to c k issu a ble upon t h e c on v e r sion of the po r tion of this Note with re sp ec t to whi c h the d e t er min a tion of this p r oviso is b e ing m a d e , would re sult in b e n ef i c i a l own e r ship b y the Hold e r a nd its aff ili a t e s of mo r e th a n 4.9 9 % of the outst a nding sh are s of C ommon S to c k. F or p u r pos e s o f the p r oviso to the imm e di a t e l y p re c e di n g s e nt e n ce , b e n ef i c i a l own e r ship sh a ll be d e t er min e d in acc o r d a n c e with S ec tion 1 3 ( d) of the S ec u r iti e s E x c h a n g e A c t of 1934, a s a m e nd e d ( the E x c h a n g e A c t ”) , a nd Re g ul a t i ons 13D - G th ere und er . The n umb e r of s h are s o f C ommon S to c k to be issu e d upon eac h c onv er sion of this Note sh a ll be d e t e r min e d b y dividing t h e C onv er sion Amount (a s d ef in e d b e low) b y the a ppli ca ble C onv er sion P r i c e th e n in effec t on the d a te sp ec i f i e d in the noti c e of c onv er sion, ( the Noti c e of C onv er sion ”) , d e liv ere d to the Company b y the Hold e r in a c c o r d a n c e with the S ec tions b e low; p r ovid e d th a t the Noti c e of C onv er sion is submitt e d b y fac simile or e- m a il ( or b y oth e r m ea ns re sulting in, or rea son a b l y e x p ec t e d to re sult in, no t i ce ) to the Company b ef o r e 6:00 p.m., N e w Yo r k, N e w Yo r k time on su c h c onv er sion d a te ( the C onv er sion D a t e”) . Notwithstanding the foregoing, the term “4.99%” above shall be replaced with “9.99%” following any Event of Default if the Holder, in its sole discretion and in writing, elects to demand the replacement. If the term “4.99%” is replaced with “9.99%” pursuant to the preceding sentence, such increase to “9.99%” shall remain at 9.99% until decreased by the Holder in writing.

 

2  
 

 

The n umb e r of s h are s o f C ommon S to c k to be issu e d upon eac h c onv er sion of this Note sh a ll be d e t e r min e d b y dividing t h e C onv er sion Amount (a s d ef in e d b e low) b y the a ppli ca ble C onv er sion P r i c e th e n in effec t on the d a te sp ec i f i e d in the noti c e of c onv er sion, ( the Noti c e of C onv er sion ”) , d e liv ere d to the Company b y the Hold e r in a c c o r d a n c e with the S ec tions b e low.

 

The t er m C onv e r sion Amount” m ea ns, with re sp e c t to a n y c on v er sion of this Not e , the s um of ( 1) the p r in c ip a l a mount of this Note to be c onv er t e d in su c h c o n v er sion plus ( 2) a t the Company s option, a c cr u e d a nd unp a id int ere st, if a n y, on su c h p r in c ip a l a mount a t the int ere st ra t e s p r ovid e d in this Note t o the C onv er sion D a t e , plus ( 3) a t the Company s option, D e fa ult Int e r e st, if a n y, on the a mo u nts ref e rre d to in the imm e di a t e l y p r ece di n g c l a us e s ( 1) a nd/ o r ( 2) plus ( 4) a t the Hol d er’ s opti o n, a n y a mounts ow e d to the Hold e r .

 

1.2 C onv er sion P r i ce .

 

(a ) C a l c ul a tion of C onv er s ion P r i ce . Holder, at its discretion, shall have the right to convert this Note in its entirety or in part(s) into common stock of the Company valued at a thirty-seven and a half percent (37.5%) discount off of the lowest closing bid price for the Company’s common stock during the twenty (20) trading days immediately preceding a conversion date, as reported by Quotestream Media.

 

If at any time after the execution of this Note, the Company experiences a “DTC Chill,” the Conversion Price Discount shall be increased by five percent (5%). If at any time following the execution of this Note, the Company becomes ineligible to participate in the DTC’s “DWAC” system, the Conversion Price Discount will be increased by five percent (5%). Following any Event of Default, the Conversion Price discount shall be increased by five percent (5%).

 

1.3 Autho r i z e d S h are s . The Company c o v e n a nts t h a t du r ing the p er iod the c onv er sion r i g ht e x ists the Company will re s e r ve fr om its a utho r i z e d a nd unissu e d C ommon S to c k a su ff i c i e nt numb e r of sh are s, f r e e fr om p r ee mptive r i g hts, to p r ovide f or the issu a n c e of C ommon S to c k upon the f ull c onv er sion of this N ote . The Company is re qui r e d a t a ll tim e s to h a ve a u t ho r i z e d a nd r e s er v e d three tim e s the num b e r o f sh are s th a t is ac tu a lly issu a ble upon f ull c on v er s i on of the Note ( b a s e d on the C onv er sion P r i c e of the Not e s in ef f ec t fr o m time to t i m e)( the R e s er v e d Amount ”) . T h e R e s er v e d Amount sh a ll be in cr e a s e d f r om time to time in acc o r d a n c e with the Company s oblig a tions.

 

3  
 

 

T h e Company r e p re s e nts t h a t upon issu a n ce , su c h sh a r e s will be du l y a nd v a lid l y issu e d, f ul l y p a id a nd non - a s s e ss a bl e . I n a ddition, if the Company sh a ll issue a n y s ec u r iti e s or m a k e a n y c h a n g e to its ca pit a l st r u c tu r e wh i c h would c h a nge the num b e r o f sh are s of C ommon S to c k into whi c h the Not e s sh a ll be c onv er tible a t the th e n c u r r e nt C onv er sion P r i ce , the Company sh a ll a t the s a me time m a ke p r op e r p r o v ision so th a t th ereaf t e r th er e sh a ll b e a s u ff i c i e nt numb e r of s h are s of C o mmon S to c k a utho r i z e d a nd re s er v e d, fr e e f r om p ree mptive r i g hts, f or c o nv er sion of the outst a nding Not e s.

 

The Company ( i) ac knowl e d g e s th a t it will i rre v o ca b l y inst r u c t its t ra ns f e r a g e nt to i s sue c e r ti f i ca t e s f or t h e C ommon S to c k issu a ble upon c onv er sion of this Not e , a nd ( ii) a g r ee s t h a t its issu a n c e of this No t e sh a ll c onstitute f ull a utho r i t y to its o ff i c er s a nd a g e nts who a r e c h a r g e d with the du t y of e x e c uting sto c k c er ti f i ca t e s to e x ec ute a nd issue the n ece ss a ry cer ti f i c a t e s f o r sh are s of C ommon S to c k in a c c o r d a n c e with the t er ms a nd c onditions of this Not e .

 

I f , a t a n y time the Company do e s not m a int a in the R e s er v e d Amount it will be c onsid ere d a n Ev e nt of D efa ult as defined in this Note.

 

1.4 M e thod of C onv er sion .

 

(a ) M ec h a ni cs of C onv e r sion . T his Note m a y be c onv e r t e d b y t h e Hol d e r in who l e or in p ar t a t a n y time fr om time to ti m e af t e r the I ssue D a t e , b y ( A ) submitting to the Company a Noti c e o f C onv er sion ( b y f a c simil e , e- m a il or oth e r rea son a b l e m e a ns of c o mmuni ca tion disp a t c h e d on the C onv e r sion D a t e p r ior to 6:00 p.m., N e w Yo r k, N e w Y o r k tim e ) .

 

( b) S u rre nd e r o f Note Upon C onv er sion . Notwithst a nding a n y thi n g to the c ont ra r y s e t f o r th h e r e in, upon c onv er sion of t his Note in acc o r d a n c e with the t er ms h ere o f , the Hold e r sh a ll not be re qui re d to p h y si c a lly su rre nd e r this Note to t h e Company unl e ss the e nti r e unp a id p r in c ip a l a mount of this Note is so c onv er t e d. The Hold e r a nd the Company sh a ll m a int a in rec o r ds showi n g t h e p r i n c ip a l a mount so c onv e r t e d a nd the d a t e s of su c h c onv e r sions or sh a ll use su c h oth e r m e t h od, r e a son a b l y s a tis f ac t or y to the Hold e r a nd the Company , so a s not to re qui r e p h y si ca l su r re n d e r of this Note upon e a c h su c h c on v er sion. In the e v e nt of a n y dispute or dis cre p a n c y , su c h rec o r d s of the Holder sh a ll, prima fa c i e , be c ont r olling a nd d e t e r min a tive in the a bs e n c e of m a ni fe st err o r . The Hold e r a nd a n y a ssi g n e e , b y a cce pt a n c e of this Not e , ac knowl e d ge a nd a g r e e th a t, b y r ea s o n of the p r ovisions of this p ar a g r a ph, f ollowi n g c onv er sion o f a po r tion of this Not e , the un p a id a nd un c on v er t e d p r in c i p a l a mount of this Note re p re s e nt e d b y this Note m a y b e l e ss th a n the a m o unt st a t e d on the fa c e h e r e o f .

 

4  
 

 

(c ) Pa y m e nt o f T a x e s . The Company sh a ll not b e r e qui re d to p a y a n y t a x whi c h m a y b e p a y a b l e in re sp ec t of a n y t r a ns f e r involv e d in the issue a nd d e liv e r y o f sh are s of C ommon S to c k or ot h e r s ec u r iti e s or p r op er t y on c onv er sion of this No t e in a n a me oth e r than th a t of the Hold e r ( o r in st ree t n a m e) , a nd the Company sh a ll not be re qu i re d to issue or d e liv e r a n y su c h sh a re s o r oth e r s ec u r iti e s or p r op er t y un l e ss a nd until the p e r son or p er sons ( oth e r t h a n the Hold e r or the c ustodi a n in whose st ree t n a me su c h sh are s a r e to be h e ld f or the Hold er’ s acc ount) r e qu e sting the i ssu a n c e th ere o f sh a ll h a ve p a id to the Company t h e a mount of a n y s u c h t a x or sh a ll h a ve e st a blish e d to the s a tis fac tion of the Company t h a t su c h t a x h a s b ee n p a id.

 

( d) D e liv e r y o f C ommon S to c k Upon C onv er sion . Upon r e ce ipt b y the Company fr om the Hold e r of a fac simile t r a nsmission or e- m a il ( or oth e r rea so n a ble m ea ns of c ommuni ca tion) of a Noti c e of C onv e r sion m ee ting the re qui re m e n ts f or c onv er sion a s p r ovid e d in this S ec tion, the Company sh a ll issue a nd d e liv e r or c a use to be issu e d a nd d e liv ere d to or upon the o r d e r of the Hold e r c e r ti f i ca t e s f or the C ommon S to c k issu a ble upon su c h c onv er sion within th re e ( 3) busin e ss d a ys a f t e r su c h re c e ipt ( the D e a dlin e” ) (a nd, sol e l y in the ca s e of c on v er sion o f the e nti r e unp a id p r i n c ip a l a mount h e re o f , su r r e nd e r of this No t e ) in acc o r d a n c e with the t er m s h ere of a nd the P u rc h a se Ag ree m e nt.

 

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

 

(e ) Obli g a tion of Company to D e liv e r C ommon S to c k . Upon r e ce ipt b y t h e Company of a N oti c e of C on v er sion, the Hold e r sh a ll be d ee m e d to be t h e hold e r of rec o r d of the C ommon S to c k issu a ble upon s u c h c onv e r sion, the outst a nding p r in c ip a l a mount a nd the a mount of ac c r u e d a nd unp a id int e re st on this Note sh a ll be r e du ce d to r ef l e c t su c h c onv er sion, a nd, unl e ss the Company d e fa ults on its obli g a tions und e r th i s A r ti c le I, a ll r i g hts with re sp e c t to the po r tion of this Note b e i n g so c onv er t e d sh a ll f o r thwi t h t er min a te e x ce pt the r i g ht to re c e ive the C ommon S to c k or oth e r s ec u r iti e s, ca sh or oth e r a ss e t s, a s h ere in p r ovid e d , on su c h c on v er sion. If the Hold e r sh a ll h a v e g i v e n a Noti c e o f C onv e r sion a s p r ovi d e d h e re in, the Company s oblig a tion to i s sue a nd d e liv e r the cer ti f i ca t e s f or C o mmon S to c k sh a ll be a bsolute a nd un c ondition a l, i rre sp ec tive o f the a b s e n c e of a ny ac tion by t h e Hold e r to e n f o r c e the s a m e , a ny w a iv e r or c o n s e nt with re sp ec t to a ny p r ovision th ere o f , the r ec ov e ry of a ny ju d g m e nt a g a inst a ny p er son o r a n y a c tion to e n f o r c e the s a m e , a ny fa ilu r e or d e lay in the e n f o r c e m e nt of a n y oth e r obli g a tion of the Company to the hold e r of rec o r d, or a ny s e to ff , c ount erc l a im, rec oupm e nt, limit a tion o r t er min a tion, or a n y b r eac h or a ll e g e d b r e ac h b y the Hold e r of a ny obli g a tion to the Company , a nd i r r e sp ec tive of a n y ot h e r c i rc umst a n c e w hi c h mi g ht oth e r wise limit su c h obli g a tion of the Company to the Ho l d e r in c on n ec tion with s u c h c onv e r sion. T h e C onv er sion D a te sp ec i f i e d in the Noti c e of C on v er sion sh a ll be the C on v er sion D a te so long a s the Noti c e of C onv er si o n is rece iv e d by t h e Company b e f o r e 6:00 p.m., N e w Yo r k, N e w Yo r k tim e , on su c h d a t e .

 

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(f ) D e liv e r y o f C ommon S to ck b y E l ec t r onic T r a n s fer . I n li e u of d e liv er ing p h y si c a l cer t i f i ca t e s re p re s e nti n g the C ommon S to c k issu a ble upon c onv er sion, p r ovid e d the Company is p ar ti c ip a ting in the D e posito r y T r ust C omp a n y ( DT C ) Fa st Autom a t e d S ec u r iti e s T ra ns f e r ( F A S T ) p r o g r a m, upon re q u e st of the Hold e r a nd its c ompli a n c e with the p r o visions c ont a in e d in S e c tion 1.1 a nd in this S ec t ion 1.4, the Company sh a ll use its b e st eff o r ts to ca use its t ra ns fe r a g e n t to e l ec t r oni ca l l y t r a ns m it the C o mmon S tock issu a ble upon c onv er si o n to the Hold e r b y c r e diting the a c c ount of Hold e r’ s B r ok e r with DTC th r ou g h its D e posit W ithd ra w a l Ag e nt C ommission (“ D W A C ) s y st e m.

 

( g) Fa ilu r e to D e liv e r C ommon S to c k P r ior to D ea dlin e . W ithout in a n y w a y limiting the H o ld er’ s r i g ht to pu r sue oth e r re m e d i e s, in c luding ac tu a l d a m a g e s a nd/or e quit a ble re li ef , the p ar t i e s a g re e th a t if d e liv e r y of the C ommon S to c k is s u a ble upon c onv er sion of this Note is not d e l i v ere d by the D e a dline the Company sh a ll p a y to the Hold e r $2,000 p e r d a y in c a sh, f or e ac h d a y b e yond the D e a dline th a t the Company f a ils to d e liv e r su c h C ommon S to c k. S u c h ca sh a mount sh a ll be p a id to Hold e r b y the f i f th d a y o f the month f ollowing the month in whi c h it h a s ac c r u e d o r , a t t h e option of the Hold e r ( b y w r itt e n noti c e to the Company by t h e f i r st d a y of t h e month f ollowing the month in whi c h it h a s a ccr u e d ) , s h a ll be a d d e d to the p r in c ip a l a m o unt of this Not e , in whi c h e v e nt int e re st s h a ll accr u e th ere on in a c c o r d a n c e with the t er ms of this Note a nd su c h a ddit i on a l p r in c ip a l a mount sh a ll be c onv er tible into C ommon S to c k in acc o r d a n c e with the t er ms of this Not e . The Company a g r e e s th a t the r i g ht to c on v er t is a v a l u a ble r i g ht to the Hold er . The d a m a g e s re sulting fr om a fa ilu re , a tt e mpt to fr ust ra t e , int erf e re n c e with su c h c onv er sion r i g ht ar e di ff i c ult if not impossible to qu a li f y.

 

A cc o r di n g l y the p ar t i e s a c knowl e d g e th a t t h e liquid a t e d d a m a g e s p r ovision c ont a in e d in this S ec tion ar e just i f i e d. Any delay or failure of performance by the Company hereunder shall be excused if and to the extent caused by Force Majeure. For purposes of this agreement, Force Majeure shall mean a cause or event that is not reasonably foreseeable and not caused by the Company, including acts of God, fires, floods, explosions, riots wars, hurricanes, etc.

 

1.5 C on cer ni n g the S h are s . The sh are s of C ommon S to c k issu a ble upon c onv er sion of this Note m a y not be sold o r t ra n s f erre d unl e ss ( i) su c h sh a re s a r e sold p u r su a nt to a n ef f ec tive r e g ist ra tion st a t e m e nt und e r the A c t or ( ii) the Company or i ts t ra ns fe r a g e nt sh a ll h a ve b e e n f u r nish e d with a n opinion of c ouns e l ( whi c h opinion sh a ll be in f o r m, subst a n c e a nd s c ope c ustom a r y f or op i nions of c ouns e l in c om p ara ble t ra n s ac tions) to the eff e c t th a t the sh are s to be sold or t ra ns fe r r e d m a y be sold or t r a n s fer r e d pu r su a nt to a n e x e mption fr om su c h r e g ist ra tion or ( iii) su c h sh are s ar e sold o r t ra n s f erre d pu r su a nt to R ule 1 44 und e r the A c t ( or a su cce ssor r ul e ) (“ R ule 1 44 ) or ( iv) su c h sh a r e s ar e t ra n s fe r re d to a n a f f ili a t e (a s d ef i n e d in R ule 144) of the Company who a g ree s to s e ll or o th er wise t ra ns f e r the sh a r e s on l y in a c c o r d a n ce with this S ec tion 1.5 a nd who is a n A ccre dit e d I n v e stor. E x ce pt a s oth er wise p r ovid e d herein (a nd subj ec t to the re mov a l p r ovisions s e t f o r th b e lo w ) , until s u c h time a s the sh a r e s of C ommon S to c k issu a ble upon c onv er sion o f this Note h a ve b ee n r e g ist e r e d und e r the A c t o r oth e r wise m a y be sold pu r su a nt to R ule 144 without a n y r e st r i c tion a s to the numb e r of s ec u r iti e s a s of a p ar ti c ul a r d a te th a t c a n th e n be i m m e di a t e l y sold, eac h c e r ti f i ca te f or sh are s o f C ommon S to c k issu a ble upon c on v er si o n of this Note t h a t h a s not b ee n so in c lud e d in a n e f f e c tive r e g ist ra tion st a t e m e nt or th a t h a s not b ee n sold pu r su a nt to a n e f fec tive r e g ist r a tion st a t e m e nt or a n e x e mption th a t p er mits re mo v a l of the l e g e nd, sh a ll b e a r a l e g e nd subst a nti a l l y in the f ollowing f o r m, a s a p p r op r i a t e :

 

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NE I T H E R T H E I S S UANC E AN D S A L E O F T H E S EC U R I T I ES RE P RE S ENTE D B Y T H IS CERT I F I CAT E N O R T H E S ECUR I T I E S I NT O W H I C H T H E SE S E CUR I T I E S AR E E X ERC IS A B L E H AV E B EE N REG IS TERE D UND E R T H E S ECUR I T I E S AC T O F 19 3 3, A S A M END E D , O R A P P L I CA B L E S TAT E S ECUR I T I E S LA WS. T H E S ECUR I T I E S M A Y N O T B E O F F ERE D F O R S ALE , S O LD , TRAN S F ERR E D O R A SSI GNE D ( I ) I N T H E A B S ENC E O F ( A ) A N E F F ECT I V E REG IS TRAT I O N S TATE M EN T F O R T H E S ECUR I T I E S UNDE R T H E S ECUR I T I E S AC T O F 1933, A S A M ENDED , O R ( B ) A N O P I N I O N O F C O UN S E L ( W H I C H C O UN S E L S H AL L B E S ELE C TE D BY T H E HO LDER ) , IN A GENERALL Y ACCE P TA B L E F O R M, T H A T REG IS TRAT I O N IS N O T RE Q U I RE D UND E R S A ID AC T O R ( II) UNLE SS S O L D P UR S UAN T T O RUL E 144 O R RUL E 144A UNDE R S A ID ACT . N O T WI T H S TAND I N G T H E F O REG O I NG , T H E S ECUR I T I E S M A Y B E P LEDGE D IN C O NNECT I O N W I T H A B O N A F I D E M ARG IN ACC O UN T O R O T H E R L O A N O R FI NANC I N G AR R ANG E M EN T S ECURE D B Y T H E S ECUR I T I E S.”

 

The l e g e nd s e t f o r th a b o ve sh a ll be re mo v e d a nd the Company s h a ll issue to the Hold e r a n e w cer ti f i c a te th er e f o r e f r e e of a n y t r a ns fe r l e g e nd i f ( i) the Company or its t ra n s fe r a g e nt sh a ll h a v e r e ce iv e d a n opinion of c oun s e l, in f o r m, subst a n c e a nd s c ope c ustom a ry f o r opinions of c ouns e l in c o mp ara ble t r a ns a c tions, to the e ff e c t th a t a public s a le or t ra ns f e r o f su ch C ommon S to c k m a y be m a de without r e g ist r a tion und e r the A c t, whi c h o pinion sh a ll be a c ce pt e d b y the C omp a n y so th a t the s a le or t ra ns f e r is ef f ec t e d or ( ii) in the ca s e of the C ommon S to c k issu a ble upon c on v er sion of this Not e , s u c h s e c u r it y is r e g ist ere d f or s a le b y t h e Hold e r und e r a n eff e c tive r e g ist r a tion st a t e m e nt f il e d und e r the A c t or oth er wise may b e sold pu r su a nt to R ule 144 without a n y r e st r i c t i on a s to the numb e r of s ec u r iti e s a s of a p ar ti c ul a r d a te th a t c a n th e n be imm e di a t e l y sold. I n t he e v e nt th a t the C o m p a n y do e s not ac c e pt the opinion of c ouns e l p r ovid e d b y the B u y e r with re sp e c t to the t ra ns f e r of S ec u r iti e s pu r su a nt to a n e x e mption fr om r e g ist ra tion, su c h a s R ule 144 or Re g u l a tion S , a t t he D e a dlin e , it will be c o nsid ere d a n Ev e nt o f D efa ult pu r s u a nt to this note.

 

1.6 E ffect o f C er t a in Ev e nts .

 

(a ) E ffec t of M e r g e r , C onsolid a tion, Et c . At t h e opt i on of the Hold er , the s a l e , c onv e y a n c e or disposition of a ll or sub s t a nti a l l y a ll of the a ss e ts of the Company , the eff e c tu a tion by the Company of a t ra n s ac tion or s e r i e s of r e l a t e d t r a ns ac tio n s in whi c h mo r e th an 50% of t h e voti n g po w e r of t h e Company is di s pos e d o f , o r the c onsol i d a tion, m e r g e r or oth e r busin e ss c ombin a tion of the Company with or into a n y oth e r P er son ( a s d ef in e d b e lo w ) or P er sons wh e n t h e Company is not t h e su r vivor sh a ll e ith er : ( i) be d ee m e d to be a n E v e nt of D efa ult (a s d ef in e d in A r ti c le I I I) p u r su a nt to whi c h the Company sh a ll be re qui re d to p a y to the Hold e r upon the c onsu m m a tion of a nd a s a c ondition to su c h t ra ns a c tion a n a mount e qu a l to the D efa ult Amount (a s d ef i n e d in A r ti c le II I) or ( ii) be t rea t e d pu r su a nt to S ec tion 1.6 ( b) h ere o f . P er son” sh a ll m ea n a n y individu a l, c o r p o ra t ion, limit e d li a bi l i t y c omp a n y , p ar tn er ship, a sso c i a tion, t r ust or oth e r e nti t y or o r g a ni z a tion.

 

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( b) Adjustm e nt Due to M e r g e r , C onsolid a tion, Et c . I f , a t a n y time wh e n this Note is issu e d a nd outst a nding a nd p r ior to c onv er sion of a ll of the Not e s, th er e sh a ll be a n y m e r g er , c onsolid a tion, e x c h a nge of s h are s, r e c a pit a li z a tion, re o r g a ni z a tion, or oth e r simil a r e v e nt, a s a re sult of whi c h sh a r e s of C o mmon S to c k of the Company s h a ll be c h a n g ed into the s a me o r a di f f e r e nt numb e r o f sh a re s o f a noth e r c l a ss or c l a ss e s o f sto c k or s e c u r iti e s of the Company or a noth e r e ntity, or in ca se of a n y s a le or c onvey a n c e of a ll or subst a nti a lly a ll of the a ss e ts of t h e Company oth e r th a n in c on n ec tion with a pl a n of c ompl e te liquid a tion of the Company , th e n the Hol d e r of this Note sh a ll th e r eaf t e r h a ve t h e r i g ht to r e ce ive upon c on v er sion of this Not e , upon the b a sis a nd upon the t er ms a nd c onditions sp ec i f i e d h ere in a nd in li e u o f the sh are s o f C ommon S to c k imm e di a t e l y th e r e to f o r e issu a ble upon c o nv er sion, su c h sto c k, s ec u r iti e s or a ss e ts whi c h the Hold e r would h a v e b ee n e ntitl e d to re c e ive in su c h t ra ns ac tion h a d this Note b ee n c on v er t e d in f ull imm e di a t e l y p r ior to su c h t r a ns ac tion ( without r e g ar d to a n y limit a tions on c onv er sion s e t f o r th h ere in ) , a nd in a n y su c h ca se a pp r op r i a te p r ovisions sh a ll be m a de with re s p ec t to t h e r i g hts a nd int e r e sts of the Hold e r o f this Note to the e nd th a t the p r ovisions h ere o f ( in c l u din g , without limit a tion, p r ovisions f or a djustm e nt of the C onv er sion P r i c e a nd of t h e numb e r of sh a r e s issu a ble up o n c onv er sion of the Not e ) sh a ll th e r eaf t e r be a ppli ca bl e , a s n e a r ly a s m a y b e p r ac ti ca ble in re l a tion to a n y s e c u r iti e s or a ss e ts th e r e a f t er d e liv era ble upon t h e c o n v er sion h e r e o f . T h e Company s h a ll not af f ec t a n y t r a ns ac tion d e s cr ib ed in this S ec tion 1.6 ( b) u nl e ss (a ) it f i r st g iv e s, to the e x t e nt p rac ti ca bl e , thi r ty ( 30) days p r ior w r itt e n noti c e ( but in a ny e v e nt a t l ea st f i f t ee n ( 1 5) days p r ior w r itt e n noti ce ) of the r ec o r d d a te of the sp ec i a l m ee ti n g of sh are hol d er s to a p pr ov e , or if th e r e is no su c h r e c o r d d a t e , the c onsumm a tion o f , su c h m e r g e r , c onsolid a tion, e x c h a n g e o f sh a re s, r eca pit a li z a tion, re o r g a ni z a tion or oth e r simil a r e v e nt or s a le of a ss e ts ( du r ing w hi c h time the Hold e r sh a ll be e ntitl e d to c onv er t this Not e ) a nd ( b) the r e sulting su c c e ssor or ac qui r ing e ntity ( if not the Company ) a ssum e s b y w r itt e n inst r um e nt the obli g a tions of this S ec tion 1.6 ( b ) . The a bo v e p r ovisions sh a ll simil ar ly a pply to su c c e ssive c o nsolid a tions, m er g e r s, s a l e s, t ra ns f e r s or s h ar e e x c h a ng e s.

 

(c ) Adjustm e nt Due to Dist r ibution . I f the Company sh a ll d ec l ar e or m a ke a n y dist r ibution of its a ss e ts ( or r i g hts to ac q ui r e its a ss e ts) to hold er s of C ommon S to c k a s a divid e nd, sto c k r e pu rc h a s e , b y w a y of re tu r n of ca pit a l or oth e r wise ( i n c luding a n y divid e nd or dist r ibution to the Company s s h are hol d er s in ca sh or sh a r e s ( o r r i g h t s to ac qui r e sh a re s) of ca pit a l sto c k of a subsi d i a r y ( i. e ., a spin - o f f) ) ( a Dist r ibution ”) , th e n t h e Hold e r of this Note sh a ll be e ntitl e d, upon a n y c onv e r sion of this Note af t e r the d a t e of r ec o r d f o r d e t e r mining sh are hold er s e ntitl e d to s u c h Dist r ibution, to re c e i ve the a mount o f su c h a s s e ts whi c h would h a ve b ee n p a y a ble to the Hold e r with re sp ec t to the sh are s of C ommon S to c k issu a ble upon su c h c onv er sion h a d su c h Ho l d e r b ee n the hold e r of s u c h sh are s of C ommon S to c k on the rec o r d d a te f or the d e t e r min a tion of sh are hold e r s e ntitl e d to su c h Dist r ibution.

 

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

 

(e ) P u rc h a se R i g hts . I f , a t a n y time w h e n a n y No t e s ar e issu e d a nd outst a ndin g , the Company issu e s a n y c onv er tible s ec u r iti e s or r i g hts to pu r c h a se sto c k, w ar r a nts, s ec u r iti e s or oth e r p r op e r t y ( the P u rc h a s e R i g ht s ) p r o ra ta to the rec o r d hold er s of a n y c l a ss of C ommon S to c k, th e n t he Hold e r of this Note will be e nti t l e d to ac qui re , upon the t er ms a ppli ca ble to su c h P u rc h a se R i g hts, the a g g r e g a te P u rc h a se R i g hts whi c h su c h Hold e r c ould h a ve ac qui re d if su c h Hold e r h a d h e ld the numb e r of sh are s of C ommon S to c k ac qui ra ble upon

 

c ompl e te c onv er sion of this Note ( without re g a r d to a n y limit a tions on c onv er sion c ont a in e d h ere in) imm e di a t e l y b ef o r e the d a te on whi c h a r e c o r d is t a k e n f o r the g r a nt, issu a n c e o r s a le of su c h P u rc h a se R i g hts o r , if no su c h rec o r d is t a k e n, the d a te a s of whi c h the rec o r d hold er s of C ommon S to c k ar e to be d e t er min e d f or t h e g ra nt, issue or s a le of su c h P u r c h a se R i g hts.

 

(f ) Noti c e of Adjustm e nts . Upon the o cc u r r e n c e o f eac h a djustm e nt or rea djustm e nt of the C onv er sion P r i c e a s a r e s u lt of the e v e nts d e s cr ib e d in this S ec tion 1.6, the Company , a t its e x p e ns e , sh a ll p r ompt l y c ompu t e su c h a djustm e nt or re a djustm e nt a nd p re p ar e a nd f u r nish to the Hold e r of a c e r ti f i ca te s e tti n g f o r th su c h a djustm e nt or rea djustm e nt a nd showing in d e t a il the f ac ts upon whi c h s u c h a dju s tm e nt or r ea djustm e nt is b a s e d. The Company sh a ll, upon the w r itt e n re qu e st a t a n y time of the Hold er , f u r nish to su c h Hold e r a like c e r ti f i ca te s e tting f o r th ( i) s u c h a d j ustm e nt or rea djustm e nt, ( ii) the C onv er sion P r i c e a t the time in eff e c t a nd ( iii) the numb e r of sh are s of C ommon S to c k a nd the a mount, if a n y, of oth e r s ec u r iti e s or p r op er t y whi c h a t the time would be r e ce iv e d up o n c onv er sion of the Not e .

 

1.7 Security As Security for the Company’s obligations contained herein and in all Notes issued by the Company to the Holder, the Holder shall be granted an unconditional secured interest in and to, any and all property of the Company and its subsidiaries, of any kind or description, tangible or intangible, whether now existing or hereafter arising or acquired until the balance of all Notes has been reduced to $0. However such security interest shall be behind the security interests previously in place with three other creditors as set forth in the Security Agreement dated August 11, 2016 (“Security Agreement”.

 

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1.8 S t a tus as S h are hold er . Upon submission of a N oti c e of C onv er sion b y a Hold er , ( i) the s h are s c ov ere d t h ere b y ( oth e r t h a n the s h are s, if a n y , w hi c h ca nnot be issu e d b eca use t h e ir issu a n c e w ould e x cee d su c h Hold e r s a llo ca t e d po r tion of t h e R e s er v e d Amount or M a x imum S h ar e Amount) sh a ll be d ee m e d c onv e r t e d into sh are s of C ommon S to c k a nd ( ii) the Hold er’ s r ights a s a Hold e r of su c h c onv er t e d p o r tion of this Note sh a ll cea se a nd t er min a t e , e x ce pting on l y the r ight to re c e ive c er ti f i c a t e s f or su c h sh a re s of C ommon S to c k a nd to a n y re m e di e s p r ovid e d h e r e in or oth er wise a v a il a ble a t l a w or in e quity to su c h Hold e r b eca use of a fa ilu r e b y t h e Company to c omply with the t er ms of this Not e . Notwithst a nding t h e f o r e goi n g, if a Hold e r h a s not r e ce iv e d cer ti f i c a t e s f or a ll s h are s of C ommon S to c k p r ior to the t e nth ( 10th) busin e ss day a f t e r the e x pi ra tion of the D e a dline with re sp e c t to a c onv e r sion of a n y po r tion of this Note f or a n y r ea son, th e n ( unl e ss t h e Hold e r oth er wise e l ec ts to r e t a in its st a tus a s a hol d er of C ommon S to c k b y so noti f y i n g the Company) the Hold e r s h a ll r e g a in the r ights of a Hold e r of this Note with re sp ec t to su c h un c onv er t e d po r ti o ns of this Note a nd the Company sh a ll, a s soon a s p r a c ti ca bl e , re tu r n su c h un c onv e r t e d Note to the Hold e r o r , if t h e Note h a s not b e e n su rre nd e re d, a djust its r e c o r ds to r ef l ec t t h a t su c h po r tion of this Note h a s not b ee n c on v er t e d. In a ll ca s e s, the Hold e r sh a ll re t a in a ll of its r ights a nd r e m e di e s ( in c luding, without limit a tion, ( i) the r ight to r ece i v e C onv er sion D e f a ult Pa y m e nts pu r su a nt to S ec tion 1.3 to the e x t e nt re qui re d th ere b y f or su c h C onv e r sion D efa ult a nd a n y subs e qu e nt C onv er sion D e f a ult a nd ( ii) the r ight to h a ve the C onv er sion P r i c e with re sp ec t to subs e qu e nt c onv er sions d e t er min e d in acc o r d a n c e with S ec tion 1.3) f or the Company s f a ilu r e to c on v er t this Not e .

 

1.9 P re p a y m e nt . Company may prepay this Note, in accordance with the following schedule: If within 60 calendar days from the execution of this Note, 120% of all outstanding principal and interest due on each outstanding Note in one payment; After 60 calendar days from the execution of the note and within 120 days from execution, 127.5% of all outstanding principal and interest due on each outstanding Note in one payment. Between 121 and 180 days from the date of execution, the Note may be prepaid for 135% of all outstanding amounts due on each outstanding Note in one payment. After 180 days from the date of execution the Note shall only be prepaid upon written approval from the Holder.

 

A R T I C L E I I . C E R T A I N C O V ENA N TS

 

2.1 Dist r ibutions on C a pit a l S to c k . S o long a s the Company sh a ll h a v e a n y obli g a tion und e r this No t e , the Company sh a ll not without the Hold er’ s w r itt e n c ons e nt (a ) p a y, d ec l a r e or s e t a p ar t f or su c h p a ym e nt, a n y di v id e nd or oth e r dist r ibut i on ( wh e th e r in ca sh, p r op er t y or oth e r s ec u r it i e s) on sh a re s o f c a pit a l sto c k oth e r t h a n divid e nds on sh are s o f C ommon S to c k sol e l y in the f o r m of a ddition a l sh a r e s of C ommon S to c k or ( b) d i rec t l y or indi r e c t l y or th r ou g h a n y subsidi a r y m a ke a n y oth e r p a ym e n t or dist r ibution in re sp e c t of its ca pit a l sto c k e x ce pt f or dist r ibutions pu r su a nt to a n y sh a r e hol d er s’ r i g hts pl a n whi c h is a pp r ov e d b y a m a jo r i t y of the Company s disint e re st e d di r e c to r s.

 

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2.2 R e st r i c tion on S to c k R e p u rc h a s e s . S o long a s the Company sh a ll h a ve a n y obli g a tion und e r this No t e , the Company sh a ll not without the Hold e r’ s w r itt e n c ons e nt r e d e e m, re pu rc h a se or oth e r wise ac qui r e ( wh e th e r f or c a s h or in e x c h a n g e f or p r o p er t y o r oth e r s e c u r iti e s or oth er wi s e ) in a n y o n e t ra ns ac tion or s e r i e s of r e l a t e d t ra n s ac tions a n y s h are s o f ca pit a l sto c k of the Company o r a n y w ar r a nts, r i g hts or options to pu rc h a se o r ac qu i r e a n y s u c h sh are s.

 

2.3 B o rr o win g s . S o long a s the Company sh a ll h a ve a n y obl i g a tion und e r this Not e , the Company s h a ll not, without providing the Ho l d er with the right of first refusal, c rea t e , in c u r , a ssume g u a ra nt e e , e nd o r s e , c o n tin g e nt l y a g r e e to pu r c h a se or ot h er wise b ec o me li a ble upon the obli g a tion of a n y p er s on, f i r m, p ar tn er ship, j oint v e ntu r e or c o r p or a tion, e x ce pt b y the e ndo r s e m e nt of n e g oti a b l e inst r um e nts f or d e posit or c oll ec tion, or su ffe r to e x ist a n y li a bili t y f o r bo rr ow e d mon e y , e x ce pt (a ) bo r r owi n g s in e x is t e n c e or c ommitt e d on the d a te h e re of a nd of whi c h the Issuer h a s in f o r m e d Hold e r in w r it i ng p r ior to the d a te h er e o f , ( b) in d e bt e dn e ss to t ra de c r e dito r s or f in a n c i a l institutions in c u rre d in the o r din a r y c ou r se of busin e ss or (c ) bo rr owi n g s, the p r o c ee ds of whi c h sh a ll be us e d to re p a y this Not e . Holder shall have 3 business days from receipt of the terms of any potential borrowings to confirm if they want to provide such financing on similar terms.

 

2.4 S a le of Ass e ts . S o lo n g a s the Company s h a ll h a ve a n y obli g a tion un d e r this Not e , the Company sh a ll not, without the Hold er’ s w r itt e n c on s e nt, s e ll, l ea se or oth e r wise dispose of a n y si g n i f i c a nt po r tion of its a ss e ts outside the o r din a ry c o u r se of busin e ss. Any c ons e nt to the dispositi o n of a n y a ss e ts may b e c ondition e d on a sp ec i f i e d use of the p r o c e e ds of disposition.

 

2.5 Adv a n ces a nd L o a ns . S o long a s the Company s h a ll h a ve a n y obl i g a tion und e r this Not e , the Company sh a ll not, without t he Hold er’ s w r itt e n c on s e nt, l e nd mon e y, g i v e cre dit or m a k e a d v a n ce s to a n y p er son, f i r m, joint v e ntu r e or c o r po r a tion, in c ludin g , without limit a tion, o ff i cer s, di rec to r s, e mpl o y e e s, subsidi ar i e s a nd aff ili a t e s of the Company , e x ce pt lo a ns, cre dits or a dv a n c e s (a ) in e x ist e n c e or c ommitt e d on the d a te h ere of a nd whi c h t h e Company h a s in f o r m e d Hold e r in w r iting p r ior to the d a te h e r e o f , ( b) m a de in the o r din a ry c ou r se of busin e ss o r ( c ) not in e x ce ss of $50,000.

 

A R T I C L E II I . EVENTS OF D E F AU LT

 

I f a n y of the f ollowing e v e nts of d efa ult ( e a c h, a n Ev e nt of D efa ult ) sh a l l o cc u r :

 

3.1 Fa ilu r e to P a y P r in c i p a l or I nt e re st . The Company fa ils to p a y the p r in c ip a l h ere o f or int ere st th ere on w h e n d u e on this Not e , wh e th e r a t m a tu r i t y , upon ac c e l era tion or oth e r wis e .

 

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3.2 C onv er sion a nd the S h are s . The Company f a ils to issue sh are s of C ommon S to c k to the Hold e r ( or a nnoun c e s or th rea t e ns in w r iti n g th a t it will not honor i t s obli g a tion to do so) upon e x erc ise b y the Hold e r of the c on v er sion r i g hts of the Hold e r in acc o r d a n c e with the t e r ms of this Not e , fa ils to t ra ns fe r or ca use its t r a ns fe r a g e nt to t ra ns fe r ( issu e ) (e l e c t r oni ca lly or in cer ti f i ca t e d f o r m) a ny cer ti f i c a te f or sh a r e s of C ommon S to c k issued to the Hold e r upon c onv e r sion of or oth e r wise p ur su a nt to this Note a s a nd wh e n r e qui re d by this Not e , the Company di re c ts its t ra ns fe r a g e nt not to t ra ns fe r or d e lays, imp a i r s, a nd/or hind er s its t ra ns fe r a g e nt in t ra ns fe r r ing ( or issui n g ) (e l e c t r o ni ca l l y or in cer ti f i ca t e d f o r m) a ny cer ti f i c a te f or sh are s of C ommon S to c k to be issu e d to the Hold e r upon c onv er sion of or oth er wise pu r su a nt to this Note a s a nd w h e n re qui re d by this Not e , o r fa ils to re mo v e ( o r di r e c t s its t ra ns fe r a g e nt not to re move o r imp a i r s, d e lays, a nd/or hind er s its t ra ns f e r a g e nt f r om r e movin g ) a ny r e st r i c tive l e g e nd ( o r to withd r a w a n y stop t ra ns f e r inst r u c t i ons in re s p ec t th e re o f ) on a ny cer ti f i c a te f or a ny sh are s of C ommon S to c k issu e d to the Hold e r upon c onv er sion of or ot h er wise pu r s u a nt to this Note a s a nd wh e n r e qui r e d b y this Note ( or m a k e s a n y w r itt e n a nnou n ce m e nt, st a t e m e nt or th rea t th a t it do e s not int e nd to honor the obl i g a tions d e s cr ib e d in this p a r a g r a p h ) a nd a ny su c h fa ilu r e sh a ll c ontinue un c u r e d ( or a ny w r itt e n a nnou n ce m e nt, st a t e m e nt o r t h rea t not to honor its obli g a tions sh a ll not be re s c ind e d in w r itin g ) f o r th re e ( 3) busin e ss d a ys af t e r the Hold e r sh a ll h a ve d e liv e r e d a Noti c e of C onv er sion. It is a n obli g a tion of the Company to re m a in c u rre nt in its obli g a tions to its t ra ns fe r a g e nt. It sh a ll be a n e v e nt of d e f a ult of this Not e , if a c onv e r sion of this Note is d e l a y e d, hind ere d or fr ust r a t e d due to a b a l a n c e ow e d by the Company to its t ra ns fe r a g e nt. If a t the option of the Hold er , the Hold e r a dv a n c e s a ny f unds to the Company s t ra ns f e r a g e nt in o r d e r to p r o c e ss a c on v er sion, su c h a dv a n ce d f unds sh a ll be p a id b y t h e Company to the Hold e r within f o r ty e i g ht ( 48) hou r s of a d e m a nd f r om the Hold er .

 

3.3 B r e ac h o f C ov e n a nts . The Company b r e a c h e s a n y c ov e n a nt o r oth e r t er m o r c ondition c ont a in e d in this Note a nd a n y c oll a t er a l do c um e nts in c ludi n g but not li m it e d to the P u rc h a se A g r e e m e nt .

 

3.4 B r e ach of R e p r e s e nt a t i ons a nd W arra nti e s . A n y re p r e s e nt a tion o r w ar r a n t y of the Company m a de h e r e in or in a n y a g r e e m e nt, st a t e m e nt or c e r ti f i ca te g i v e n in w r iting pu r su a nt h ere to or in c onn ec tion h e r e wi t h ( in c ludin g , without limit a tion, the P u rc h a se Ag ree m e n t ) , sh a ll be fa l se or misl ea ding in a n y m a t er i a l re sp e c t wh e n m a de a nd the b r e ac h of whi c h h a s ( o r with the p a ss a g e of time will h a v e ) a m a t e r i a l a dv e r se e ff e c t on the r i g hts of the Hold e r with re s p ec t to this Note or the P u rc h a se A g r ee m e nt.

 

3.5 R ece iv er or T r ust ee . T he Company or a n y su b sidi a r y of the Company sh a ll m a ke a n a ss i g nm e n t f or the b e n ef it of c re di t o r s, or a pp l y f o r or c on s e nt to the a ppointm e nt of a r e c e iv e r o r t r ust e e f o r it or f or a subst a nti a l p a r t of its p r op e r t y or busi n e ss, or su c h a r e c e iv e r or t r ust e e sh a ll oth er wi s e be a ppoint e d.

 

3.6 J ud g m e nts . A n y mon e y jud g m e nt, w r it or simil a r p r o ce ss sh a ll be e nt e r e d or f il e d a g a inst the Company o r a n y subsidi a r y of the Company or a n y of its p r op e r t y or ot h e r a ss e ts f or mo r e th a n $50 , 000, a nd sh a ll re m a in u n v aca t e d, unbon d e d or u n st a y e d f or a p er iod of tw e n t y ( 20) d a ys unl e s s oth er wise c ons e nt e d to b y the Hol d er , whi c h c ons e nt will not be un rea son a b l y withh e ld.

 

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3.7 B a nk r up t c y . B a nk r up t c y , insolv e n c y , re or g a ni z a tion or liquid a tion p r o cee di n g s o r oth e r p r o cee di n g s, volunt a r y o r i n volunt a r y , f or r e li e f un d e r a n y b a nk r upt c y l a w or a n y l a w f or the re l i e f of d e bto r s sh a ll be institut e d b y or a g a inst the Company or a n y subsidi a r y of t h e Company .

 

3.8 D e listing of C ommon S to c k . The Company s h a ll fa il to m a int a in in good standing the listing of the C ommon S to c k on the OTCQB or a n e q uiv a l e nt re pl a ce m e nt e x c h a ng e , the N a sd a q N a tion a l M ar k e t, the N a sd a q S m a ll C a p M ar k e t or the N e w Yo r k S to c k E x c h a n g e .

 

3.9 Fa ilu r e to C omp l y with the E x c h a n g e A c t . The Company sh a ll fa il to c omp l y, in a timely manner, with the re p o r ting re qui re m e nts of the E x c h a n g e A c t; a nd/or the Company sh a ll c ea se to be subj ec t to the re p o r ting r e qui re m e nts of t h e E x c h a n g e A c t.

 

3.10 L iquid a tion . A n y dissolution, liquid a t ion, or winding up of Company or a n y subst a nti a l po r tion of its busin e ss.

 

3.11 C e ss a tion of Op e r a tions . A n y ce s s a tion of op e r a tions b y Company or Company a dmits it is o t h er wise g e n era l l y un a b l e to p a y its d e bts a s su c h d e bts b ec ome d u e , p r ovid e d, how e v er , th a t a n y dis c losu r e of the Company s a bili t y to c ontin u e a s a g oi n g c on c er n” sh a ll not be a n a dmission th a t the Company ca nnot p a y its d e bts a s th e y b e c ome du e .

 

3.12 M a int e n a n ce o f Ass e ts . The fa ilu r e b y Company to m a int a in a n y m a t er i a l int e ll ec tu a l p r o p er t y r i g hts, p e r son a l, r ea l p r op er t y or oth e r a ss e ts whi c h a r e n ece s s a r y to c ondu c t its busin e ss ( w h e th e r now or in the f utu r e ) .

 

3.13 F in a n c i al S t a t e m e nt R e s t a t e m e nt . The re st a t e m e nt of a n y f in a n c i al st a t e m e nts f il e d b y the Company with the S EC f o r a n y d a te or p er iod f r om two y ea r s p r ior to the I ss u e D a te of this Note a nd until this Note is no long e r outst a ndi n g, if the re sult of su c h re st a t e m e nt would, b y c omp ar ison to the original f in a n c i a l st a t e m e nt, h a ve c onstitut e d a m a t er i a l a d v er se e ff e c t on the r i ghts of the Hold e r with re sp e c t to this Note or supporting documents.

 

3.14 R e v er se S plits . The Company e ff e c tu a t e s a re v er s e split of i ts C ommon S to c k without at least t w e n t y ( 20) d a y s p r ior w r i tt e n noti c e to the Hold er .

 

3.15 R e pl ace m e nt of T ra n s fer Ag e nt . I n the e v e nt th a t t he Company p r opos e s to re pl a c e its t ra ns f e r a g e n t, the Company fa ils to p r ovid e , p r ior to the e ffec tive d a te of su c h re pl a c e m e nt, a f ul l y e x ec ut e d I r re v o ca ble T ra n s fe r A g e nt I nst r u c tions in a f o r m a s initi a l l y d e liv ere d pu r s u a nt to the P u rc h a se A g r e e m e nt ( in c luding but not limit e d to the p r ovision to i rre vo c a b l y r e s er v e sh ar e s of C ommon S to c k in t he R e s er v e d Amount) si g n e d b y the su cce ssor t ra ns fe r a g e nt to Company a nd the Company .

 

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3.16 C r oss - D efa ult . Notwithst a nding a n y thing to the c ont ra r y c ont a in e d in this Note or the oth e r re l a t e d or c omp a nion d o c um e n t s, a b r eac h or d e fa ult b y the Company of a n y c ov e n a nt or oth e r t e r m o r c ondition c ont a in e d in a n y of the Oth e r A g r e e m e nts, af t e r the p a s s a ge of a ll a ppli ca ble noti c e a nd c u r e or g ra c e p e r iods, sh a ll, a t the option of the Holder, b e c onsid ere d a d efa ult un d e r this Note a nd the Ot h e r A g r ee m e nts, in whi c h e v e nt the Hold e r sh a ll be e ntitl e d ( but in no e v e nt re qui r e d) to a pp l y a l l r ights a nd r e m e di e s o f the Hold e r und e r the t er ms of this Note a nd t h e Oth e r A g r e e m e nts b y r ea son of a d e fa ult und e r s a id Oth e r A g r e e m e nt or h e r e und er . Oth e r Ag ree m e nts” m ea ns, c oll ec tiv e l y , a ll a g r ee m e nts a nd inst r um e nts b e tw ee n, a mong o r b y: ( 1) the Company , a nd, or f or the b e n ef it o f , ( 2 ) the Hold e r a nd a n y aff ili a te of the Hold e r , i n c luding, without limit a tion, p r omisso r y not e s; p r ovid e d, how e v er , the t er m Oth e r A g r ee m e nt s ” sh a ll not in c lude the r e l a t e d or c omp a nion d o c um e nts to this Not e . E ac h of the lo a n t ra ns ac t i ons will be cr oss - d efa ult e d with eac h oth e r lo a n t ra ns ac tion a nd with a ll oth e r e x isting a nd f utu r e d e bt of Company .

 

Upon the o cc u r re n c e a n d du r ing the c ontinu a tion of a n y Ev e nt of D ef a ult sp ec i f i e d in S ec tion 3.1 ( sol e l y with r e sp ec t to fa ilu r e to p a y t h e p r in c ip a l h ere of or int e re st th ere on wh e n due a t the M a tu r i t y D a t e ) , the Note sh a ll b ec ome i mm e di a t e l y due a nd p a y a ble a nd the Company sh a ll p a y to the Hold e r , in f ull s a tis fac tion o f its obli g a tions h e re und e r , a n a mount e q u a l to the D efa ult S um (a s d ef i n e d h ere in ) . U P O N THE O CC U RR EN C E AND DU R ING T HE C ON T INUA T ION O F ANY EVENT O F DE F A U LT SP E C I F IED IN S E C T ION 3.2, THE NOTE S H A LL B E C OME IMME D I A T E LY D U E AND P AY A B LE AN D THE COMPANY S H A LL P A Y TO T H E H O LDE R , IN F U LL S A T I S F A C T I O N O F ITS O B LIGA T IONS HE R EUNDE R , AN A MOUNT EQ UA L TO: ( Y) T HE D E F A U LT S UM ( AS DE F INED HE R E IN ) ; M U L T I P LI E D B Y ( Z) T W O ( 2 ) . Up o n the o c c u r r e n c e a nd du r i ng t h e c ontinu a tion o f a n y Ev e nt of D efa ult sp e c i f i e d in S ec tions 3.1 ( s o l e l y with r e sp ec t to f a ilu r e to p a y the p r i n c ip a l h ere of or int e re st th e re o n wh e n d u e on this No t e upon a T r a ding M ar k e t P re p a y m e nt Ev e nt pu r su a nt to S ec tion 1.7 o r upon ac c e l e r a tion ) , 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3 .12, 3.13, 3.14, a nd/or 3. 15 e x erc is a ble th r ough the d e liv e r y of w r itt e n noti c e to the Company b y su c h Hold er s ( the D e f a ult Noti ce ) , a nd upon the o cc u r re n c e of a n Ev e nt of D e f a ult sp ec i f i e d the re m a ini n g s ec tions of A r ti c l e s II I ( oth e r th a n f a ilu r e to p a y the p r in c ip a l h ere o f or int ere st th ere on a t the M a tu r i t y D a te sp e c i f i e d in S ec tion 3,1 h ere o f) , the Note sh a ll b ec ome imm e di a t e l y due a nd p a y a ble a nd the Company sh a ll p a y to the Hold er , in f ull s a tis fac tion of i t s obli g a tions h ere un d er , a n a mount e qu a l to the g r ea t e r of ( i) 150% tim e s the sum of ( w) the th e n outst a nding p r in c ip a l a mount of this Note plus ( x ) accr u e d a nd unp a id int ere st on the unp a id p r in c ip a l a mount of this Note to the d a te of p a y m e nt ( the M a n d a to r y P re p a y m e nt D a t e ) plus ( y ) D efa ult Int e r e st, if a n y , on the a mounts re f er r e d to in c l a us e s ( w) a nd/or ( x ) plus ( z ) a n y a mounts ow e d to the Hold e r pu r su a nt to S ec tions 1.3 a nd 1.4 ( g ) h e r e of ( the th e n outst a nding p r in c ip a l a mount of this Note to the d a te o f p a y m e nt plus the a mounts r ef e rre d to in c l a us e s ( x ) , ( y ) a nd ( z ) sh a ll c oll e c tiv e l y be known a s the D efa ult S um ) or ( ii) the p ar i t y v a lu e ” of the D e f a ult S um to be p re p a id, wh er e p ar i t y v a lue m ea ns ( a ) the hi g h e st numb e r o f sh a r e s of C ommon S to c k is s u a ble upon c onv er sion of or ot h er wise pu r su a nt to su c h D e f a ult S um in acc o r d a n c e with A r ti c le I, t r e a ting the T r a di n g D a y imm e di a t e l y p r e c e ding the M a nd a to r y P r e p a y m e nt D a te a s the “C onv er sion D a t e f o r pu r pos e s of d e t e r mining the low e st a ppli ca ble C o nv er sion P r i ce , unl e ss t h e D e f a ult Ev e nt ar is es a s a re sult of a b r e ac h in re sp e c t of a sp ec i f ic C o nv er sion D a t e in wh i c h ca se s u c h C onv e r sion D a te sh a ll be the C onv e r sion D a t e) , multipli e d b y ( b) the hi g h e st C losing P r i c e f or the C ommon S to c k du r ing t h e p er iod b e g inni n g on t h e d a te of f i r st o cc u rre n c e o f the Ev e nt of D efa ult a nd e nding one d a y p r ior to the M a nd a to r y P r e p a y m e nt D a te ( the D e fa ult Amount ) a nd a ll oth e r a mounts p a y a ble h e re u n d e r sh a ll imm e di a t e l y b ec ome due a nd p a y a bl e , a ll without d e m a nd, p re s e ntm e nt or noti ce , a ll of whi c h h e r e b y a r e e x p re ss l y w a iv e d, t o g e t h e r with a ll c osts, in c ludin g , without limit a tion, l e g a l f e e s a nd e x p e ns e s, of c oll ec tion, a n d the Hold e r sh a ll be e ntitl e d to e x erc ise a ll oth e r r i g hts a nd r e m e di e s a v a il a ble a t l a w or in e quit y .

 

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I f the Company fa ils to p a y t h e D efa ult Amount within f ive ( 5) busin e ss d a y s o f w r itt e n noti c e th a t su c h a mount is due a nd p a y a bl e , t h e n the Hold e r s h a ll h a ve t h e r i g ht a t a n y tim e , so long a s the Company r e m a ins in d efa ult (a nd so long a nd to the e x t e nt th a t th er e ar e s u ff i c i e nt a utho r i z e d sh a r e s ) , to r e qui r e the Company , up o n w r itt e n noti c e , to im m e di a t e l y issu e , in li e u of the D e f a ult Amount, the numb e r of s h are s o f C ommon S to c k of the Company e qu a l to the D efa ult Amount divid e d b y the C onv e r sion P r i c e t h e n in ef f ec t.

 

A R T I C L E I V. M I SC E L L AN E OUS

 

4.1 Fa ilu r e or I ndu l g e n c e N ot W a iv er . No f a ilu r e o r d e l a y on the p ar t of t h e Hold e r in t h e e x e r c ise of a ny pow e r , r i g ht o r p r ivil e g e h e re und e r sh a l l op era t e a s a w a iv e r th ere o f , nor sh a ll a n y sin g le or p ar ti a l e x erc ise of a ny su c h pow er , r i g h t or p r ivil e ge p r ec lu d e oth e r or f u r th e r e x erc i s e th ere of or of a ny oth e r r i g ht, pow e r or p r ivil e g e s. All r i g hts a nd re m e di e s e x isting h ere u nd e r ar e c umul a tive to, a nd not e x c lusive o f , a n y r i g hts or re m e di e s oth er wise a v a il a bl e.

 

4.2 Noti ce s . All noti ce s, d e m a nds, re qu e sts, c on s e nts, a pp r ov a ls, a nd oth e r c ommuni ca tions re qui r e d or p er mitt e d h ere un d e r sh a ll be in w r iting a nd, unl e ss oth er wise sp ec i f i e d h e r e in, sh a ll be ( i) p er son a l l y s er v e d, ( i i ) d e posit e d in the m a il, r e g ist e re d o r cer ti f i e d, re tu r n r e c e ipt re qu e s t e d, post a ge p r e p a id, ( iii) d e liv ere d b y re put a b l e a i r c ou r i e r s e r vi c e with c h a r g e s p re p a id, o r ( iv) t ra nsmitt e d b y h a nd d e liv e ry, t e l e g r a m, or f ac s i mil e , a dd re ss e d a s s et f o r th b e low o r to su c h o t h e r a d d re ss a s su c h p ar t y s h a ll h a ve sp ec i f i e d m ost rece nt l y b y w r itt e n noti ce . A n y noti c e or o t h e r c ommuni ca tion re qu i re d or p e r mitt e d to be g iv e n h e re und e r sh a ll b e d ee m e d e f fec tive ( a ) u p on h a nd d e liv e ry o r d e liv e ry b y f ac simil e , with acc u r a te c on f i r m a tion g e n era t e d b y the t r a nsmitting fac simile m ac hin e , a t the a dd re ss or numb e r d e si g n a t e d b e low ( if d e liv ere d on a busin e ss d a y du r i n g no r m a l busi n e s s hou r s wh e r e su c h noti c e is to be re c e iv e d ) , o r the f i r st busin e ss d ay f o l lowing s u c h d e liv e ry ( if d e liv ere d ot h e r th a n on a busin e ss d ay du r i n g no r m a l busin e ss hou r s wh er e su c h noti c e is to be re c e iv e d) or ( b) on the s ec ond busin e ss day f ollowing the d a te of m a iling b y e x p re ss c ou r i e r s er vi c e , f ul l y p re p a id, a dd re ss e d to su c h a dd re ss, o r upon ac tu a l r ece ipt of su c h m a ilin g , whi c h e v e r sh a ll f i r st o c c u r . The a d d re ss e s f or su c h c ommuni ca tions sh a ll b e :

 

15  
 

 

I f to the Company , to:

 

 

 

 

 

I f to the Hold e r :

 

GHS Investments, LLC.

420 Jericho

Turnpike Suite 207

Jericho, NY 11753

 

4.3 Am e ndm e nts . This Note a nd a n y p r ovision h e r e of m a y on l y be a m e nd e d b y a n inst r um e nt in w r iting sig n e d b y t h e Company a nd the Hold e r . T h e t er m Not e a nd a ll ref e re n c e th e r e to, a s us e d th r oughout this inst r um e nt, sh a ll m ea n this inst r um e nt (a nd the oth e r Not e s issu e d pu r su a nt to the P u rc h a se Ag ree m e nt) a s o r igin a l l y e x ec ut e d, or if l a t e r a m e nd e d or suppl e m e nt e d, th e n a s so a m e nd e d or suppl e m e nt e d.

 

4.4 Assi g n a bili t y . This N o te sh a ll be binding upon the Company a nd its su cce sso r s a nd a ss i g ns, a nd sh a ll inu r e to be the b e n ef it of the Hold e r a nd its su cce sso r s a nd a ssi g ns. Notwithst a nding a n y thi n g in this Note to t h e c on t r a r y , this Note may be pl e dg e d a s c oll a te ra l in c onn ec tion with a bona f ide m a r g in a cc o unt or oth e r l e nding arra n g e m e nt.

 

4.5 C ost of C oll ec tion . I f d efa ult is m a d e in the p a y m e nt o f this Not e , t h e Company s h a ll p a y the H old e r h e r e of c osts of c oll ec tion, in c luding r ea so n a ble a tto r n e y s’ f ee s.

 

4.6 Gov er ni n g L a w . This Note sh a ll b e g o v er n e d b y a nd c onst r u e d i n acc o r d a n c e with the l a ws of the S t a te of Nevada without re g a r d to p r in c ipl e s of c on f li c ts of l a ws. A n y ac tion b r o u g ht b y e ith e r p ar t y a g a inst the oth e r c on c e r ning the t ra ns a c tions c ont e mpl a t e d b y this Note sh a ll be b r o u g ht on l y i n the state or fe d e ral c ou r ts lo ca t e d in the County, City and State of New York. The p ar ti e s to this No t e h ere b y i r r e vo c a b l y w a ive a n y obj e c tion to ju r isdi c tion a nd v e n u e of a n y ac tion institut e d h e re und e r a nd sh a ll not a ss er t a n y d e f e nse b a s e d on l ac k o f ju r isdi c tion o r v e nue or b a s e d upon f orum non c on v e ni e ns . The Company a nd Hol d e r w a ive t r i a l b y ju r y. T he p re v a ili n g p ar t y sh a ll be e ntitl e d to rec ov er fr om the oth e r p ar t y its r ea son a ble a tto r n e y’s f e e s a nd c osts. In the e v e nt th a t a n y p r ovision of this Note or a n y oth e r a g r ee m e nt d e liv e re d in c onn ec tion h er e with is i n v a lid or un e n f o r c ea ble und e r a n y a ppli c a ble st a tute or r ule of l a w, th e n su c h p r ovision sh a ll be d ee m e d inop e r a tive to the e x t e nt th a t it m a y c on f li c t th ere with a nd sh a ll be d ee m e d modi f i e d to c on f o r m with su c h st a tute or r u l e of l a w. An y s u c h p r ovision whi c h m a y p r ove inv a lid or un e n f o rc e a ble un d e r a n y l a w sh a ll not af f ec t the v a lidi t y or e n f o rc e a bili t y of a n y ot h e r p r ovision of a n y a g r e e m e nt. E a c h p ar t y h ere b y i r r e vo c a b l y w a iv e s p er son a l s e r vi c e of p r o ce ss a nd c on s e nts to p r o ce ss b e i n g s er v e d in a n y suit, ac tion or p r o cee di n g in c on n ec tion with this A g r ee m e nt or a n y oth e r T ra ns a c tion Do c um e nt b y m a iling a c o p y th e r e of v i a r e g ist e r e d or c e r ti f i e d m a il o r o v er ni g ht d e liv e r y ( with e vid e n c e of d e liv e r y) to su c h p ar t y a t the a dd re ss in effec t f or noti ce s to it und e r this A g ree m e nt a nd a g r e e s th a t su c h s e r vi c e sh a ll c onstitute g o o d a nd su ff i c i e nt s er vi c e of p r o ce ss a nd noti c e th ere o f . Nothing c on t a in e d h ere in sh a ll be d ee m e d to li m it in a n y w a y a n y r i g ht to s er ve p r o c e ss in a n y oth e r m a nn e r p e r mitt e d b y l a w.

 

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4.7 C er t a in Amounts . W h e n e v e r p u r su a nt to this Note the Company is re qui re d to p a y a n a mo u nt in e x ce ss of the out s t a nding p r in c ip a l a mount ( or the po r tion th ere of re qui re d to be p a id a t t h a t tim e ) plus ac c r u e d a n d unp a id int e r e st plus D efa ult I n t ere st on su c h int ere st, the Company a nd the Hold e r a g re e th a t the ac tu a l d a m a g e s to the Hold e r fr om t h e rece ipt of c a sh paym e nt on this Note m a y b e di ff i c ult to d e t er mine a nd the a mount to be so p a id b y the Company re p re s e nts stipul a t e d d a m a g e s a nd not a p e n a lty a nd is i nt e nd e d to c omp e ns a te the Hold e r in p ar t f o r l o ss of the oppo r tunity to c onv er t this Note a nd to ear n a r e tu r n f r om the s a le of sh are s of C ommon S to c k ac qui re d upon c onv er sion of this Note a t a p r i c e in e x ce ss of the p r i c e p a id f or su c h sh a r e s pu r su a nt to this Not e . The Company a nd the H old e r h ere by a g re e th a t su c h a mount of stipul a t e d d a m a g e s is not pl a in l y dis p r opo r tion a te to the possible loss to the Hold e r fr om t h e r ece ipt of a ca sh pay m e nt without the oppo r tuni t y to c onv er t this Note into sh are s of C ommon S to c k.

 

4.8 P u rc h a se A g r e e m e nt . B y its a c c e pt a n c e of this Not e , e a c h p a r t y a g ree s to be bound b y t h e a ppli ca b le t er ms of the Securities P u rc h a se Ag ree m e nt, the Security Agreement and supporting documents.

 

4.9 Noti c e of C o r po ra te E v e nts . E x ce pt a s oth er wise p r ovid e d b e low, the Hold e r of this No t e sh a l l h a ve no r i g hts a s a H o ld e r of C ommon S to c k unl e ss a nd on l y to the e x t e nt th a t it c onv er ts th i s Note into C ommon S to c k. The Company s h a ll p r ovide the Hold e r with p r ior noti f i ca tion of a n y m ee ting of the Company s sh are hold er s ( a nd c op i e s of p r o x y m a t e r i a ls a nd oth e r in f o r m a tion s e nt to sh are hold er s ) . I n the e v e nt of a n y t a ki n g b y the Company of a rec o r d of its sh are hold e r s f or the pu r pose of d e t e r mining sh are hold e r s who ar e e ntitl e d to rece ive p a y m e nt of a n y divid e nd or oth e r dist r ibution, a ny r i g ht to subs cr ibe f o r , pu rc h a se o r oth er wise ac qui r e ( in c ludi n g b y w a y o f m e r g er , c onsolid a ti o n, rec l a ssi f i ca tion or r ec a pit a li z a tion) a n y s h ar e of a n y c l a ss or a n y ot h e r s ec u r iti e s or p r op er t y, or to rece ive a n y ot h e r r i g h t , or f or the pu r pose of d e t er mining sh a r e hold er s who ar e e ntitl e d to vo t e in c onn ec tion with a n y p r opos e d s a l e , l e a se o r c onvey a n c e of a ll or subst a nti a l l y a ll of the a ss e ts of the Company or a n y p r opos e d liquid a tion, dissolution or winding up of the Company , the Company sh a ll m a il a n oti c e to the Hold er , a t l ea st tw e n t y ( 20) d ays p r ior to the rec o r d d a te s p ec i f i e d th e re in ( or thi r t y ( 30) days p r ior to the c onsumm a tion of the t r a ns ac tion or e v e nt, whi c h e v e r is e a r li er) , of t h e d a te on whi c h a n y su c h rec o r d is to be t a k e n f or the pu r pose o f su c h di v id e nd, dist r ibution, r i g ht or oth e r e v e nt, a nd a b r i e f st a t e m e nt r e g ar di n g the a mount a nd c h a r a c t e r of su c h divid e nd, dist r ibution, r i g ht or ot h e r e v e nt to the e x t e nt known a t su c h tim e . The Company sh a ll m a ke a public a nnoun ce m e nt o f a n y e v e nt re qui r i n g noti f i c a tion to the Hold e r h ere und e r subst a nti a l l y s i mult a n e ous l y with the noti f i ca tion to the Hold e r in acc o r d a n c e with the t er ms of this S ec tion 4.9.

 

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4.10 R e m e di e s . The Company a c knowl e d g e s th a t a b re a c h b y it of its obli g a tions h ere un d e r w ill ca use i rre p a ra ble h a r m to the Hold er , b y viti a ting the int e nt a nd pu r pose of the t ra ns a c tion c ont e mpl a t e d h e r e b y . A cc o r di n g l y , t h e Company ac knowl e d g e s th a t the re m e d y a t l a w f or a b reac h of its obli g a tions und e r this Note will be inad e qu a te a nd a g r ee s, in the e v e nt o f a b re a c h or th rea t e n e d b r eac h b y the Company o f the p r ovisions of this Not e , th a t t h e Hold e r sh a ll be e ntitl e d, in a ddition to a ll oth e r a v a il a ble r e m e di e s a t l a w or in e qui t y , a nd in a ddition to the p e n a lti e s a ss e ss a ble h e r e in, to a n injun c tion or injun c tions re st ra ini n g , p re v e nting or c u r i n g a n y b r e ac h of this Note a nd to e n f o r c e sp ec i f i c a l l y the t er ms a nd p r ovisions th e r e o f , without the n ece ssi t y o f showing e c onomic loss a nd without a n y bond or oth e r s ec u r i t y b e ing re qui re d.

 

I N W I TNE S S W HE R EO F , Company h a s c a us e d t his Note to be s i g n e d in i ts n a me b y its du l y a utho r i z e d o ff i ce r :

 

  PositiveID Corp.
 
  B y :
  Print:  
  Title/Date:  

 

18  
 

 

Exhibit 10.1

 

FORM OF SECURITIES PURCHASE AGREEMENT

 

THIS PURCHASE AGREEMENT (“Agreement”) is made as of the 17 th day of April, 2017 by and between PositiveID Corp .,(the “Company”), and GHS Investments, LLC (the “Investor”).

 

Recitals

 

A. The Investor wishes to purchase from the Company and the Company wishes to sell and issue to the Investor, upon the terms and conditions stated in this Agreement:

 

1. Up to $165,000 of Convertible Securities, in the form of a Secured Convertible Promissory Note (the “Note”), attached hereto. Upon the Closing Date (as defined below) Investor shall cause $50,000 to be wired to the Company or its designee. Thereafter, subsequent tranches (“Subsequent Trances”) shall be delivered to the Company at the sole discretion of the Investor and in accordance with the following schedule:

 

$50,000 on or about April 28, 2017; and

$50,000 on or about May12, 2017.

 

In consideration of the mutual promises made herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

 

1. Definitions . In addition to those terms defined above and elsewhere in this Agreement, for the purposes of this Agreement, the following terms shall have the meanings set forth below:

 

Affiliate ” means, with respect to any Person, any other Person which directly or indirectly through one or more intermediaries Controls, is controlled by, or is under common control with, such Person.

 

Business Day ” means a day, other than a Saturday or Sunday, on which banks in New York City are open for the general transaction of business.

 

Common Stock Equivalents ” means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock.

 

Company’s Knowledge ” means the actual knowledge of the executive officers (as defined in Rule 405 under the 1933 Act) of the Company, after due inquiry.

 

 
 

 

Confidential Information ” means trade secrets, confidential information and know-how (including but not limited to ideas, formulae, compositions, processes, procedures and techniques, research and development information, computer program code, performance specifications, support documentation, drawings, specifications, designs, business and marketing plans, and customer and supplier lists and related information).

 

Control ” (including the terms “controlling”, “controlled by” or “under common control with”) means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

 

Intellectual Property ” means all of the following: (i) patents, patent applications, patent disclosures and inventions (whether or not patentable and whether or not reduced to practice); (ii) trademarks, service marks, trade dress, trade names, corporate names, logos, slogans and Internet domain names, together with all goodwill associated with each of the foregoing; (iii) copyrights and copyrightable works; (iv) registrations, applications and renewals for any of the foregoing; and (v) proprietary computer software (including but not limited to data, data bases and documentation).

 

Material Adverse Effect ” means a material adverse effect on (i) the assets, liabilities, results of operations, condition (financial or otherwise), business, or prospects of the Company and its Subsidiaries taken as a whole, or (ii) the ability of the Company to perform its obligations under the Transaction Documents.

 

Person ” means an individual, corporation, partnership, limited liability company, trust, business trust, association, joint stock company, joint venture, sole proprietorship, unincorporated organization, governmental authority or any other form of entity not specifically listed herein.

 

Purchase Price ” means up to three hundred thousand dollars ($150,000) representing a ten percent (10%) original issuance discount on the Note to offset transaction, diligence and legal costs.

 

SEC ” means the United States Securities and Exchange Commission.

 

Securities ” means the Note and the common shares issuable at conversion.

 

Subsidiary ” of any Person means another Person, an amount of the voting securities, other voting ownership or voting partnership interests of which is sufficient to elect at least a majority of its Board of Directors or other governing body (or, if there are no such voting interests, 50% or more of the equity interests of which) is owned directly or indirectly by such first Person.

 

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Transaction Documents ” means this Agreement, the Note, the Company Representation Letter, the Security Agreement and supporting documents.

 

1933 Act ” means the Securities Act of 1933, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

1934 Act ” means the Securities Exchange Act of 1934, as amended, or any successor statute, and the rules and regulations promulgated thereunder.

 

2. Purchase and Sale of the Securities . Subject to the terms and conditions of this Agreement, the Company shall sell and issue to the Investor a Convertible Note in the principal amount of $165,000.

 

2.1 Security As security for the Company’s obligations contained herein and in all Notes issued by the Company to the Holder, the Holder shall be granted an unconditional secured interest in and to, any and all property of the Company and its subsidiaries, of any kind or description, tangible or intangible, whether now existing or hereafter arising or acquired until the balance of all Notes has been reduced to $0. Following the Closing, the Investor is authorized to make all filings the Investor, in its discretion, deems necessary to evidence its security interests. However such security interest shall be behind the security interests previously in place with three other creditors as set forth in the Security Agreement dated August 11, 2016 (“Security Agreement”).

 

3. Closing . Upon confirmation that the other conditions to closing specified herein have been satisfied or duly waived by the Investor, the Company shall deliver to the Investor, a Note registered the name of the Investor and the Investor shall cause a wire transfer in same day funds to be sent to the account of the Company as instructed in writing by the Company, in an amount representing the Purchase Price for the Note(the “Closing Date”).

 

4. Representations and Warranties of the Company . The Company hereby represents and warrants to the Investor that, except as set forth in the schedules delivered herewith (collectively, the “Disclosure Schedules”):

 

4.1 Organization, Good Standing and Qualification . Each of the Company and its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite corporate power and authority to carry on its business as now conducted and to own its properties. Each of the Company and its Subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the conduct of its business or its ownership or leasing of property makes such qualification or leasing necessary unless the failure to so qualify has not and could not reasonably be expected to have a Material Adverse Effect. The Company’s Subsidiaries are listed on the Company’s public disclosures filed with the SEC.

 

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4.2 Authorization . The Company has full power and authority and, has taken all requisite action on the part of the Company, its officers, directors and stockholders necessary for (i) the authorization, execution and delivery of the Transaction Documents, (ii) authorization of the performance of all obligations of the Company hereunder or thereunder, and (iii) the authorization, issuance (or reservation for issuance) and delivery of the Securities The Transaction Documents constitute the legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

 

4.3 Capitalization . As of the date hereof, the authorized capital stock of the Company on the date hereof is 19,995,000,000; (b) the number of shares of capital stock issued and outstanding is 8,363,776,737; (c) the number of shares of capital stock issuable pursuant to the Company’s stock plans is 3,619,677; and (d) the number of shares of capital stock issuable and reserved for issuance pursuant to securities (other than the Securities) exercisable for, or convertible into or exchangeable for any shares of capital stock of the Company are 6,918,245,663. All of the issued and outstanding shares of the Company’s capital stock have been duly authorized and validly issued and are fully paid, nonassessable and free of pre-emptive rights. All of the issued and outstanding shares of capital stock of each Subsidiary have been duly authorized and validly issued and are fully paid, nonassessable and free of pre-emptive rights, were issued in full compliance with applicable state and federal securities law and any rights of third parties and are owned by the Company, beneficially and of record, subject to no lien, encumbrance or other adverse claim. No Person is entitled to pre-emptive or similar statutory or contractual rights with respect to any securities of the Company. Other than described herein and in the Company’s periodic reports filed with the SEC, there are no outstanding warrants, options, convertible securities or other rights, agreements or arrangements of any character under which the Company or any of its Subsidiaries is or may be obligated to issue any equity securities of any kind and except as contemplated by this Agreement, neither the Company nor any of its Subsidiaries is currently in negotiations for the issuance of any equity securities of any kind.

 

The issuance and sale of the Securities hereunder will not obligate the Company to issue shares of Common Stock or other securities to any other Person (other than the Investor) and will not result in the adjustment of the exercise, conversion, exchange or reset price of any outstanding security.

 

The Company does not have outstanding stockholder purchase rights or “poison pill” or any similar arrangement in effect giving any Person the right to purchase any equity interest in the Company upon the occurrence of certain events.

 

4.4 Valid Issuance . The issued Securities have been duly and validly authorized and, when issued and paid for pursuant to this Agreement, shall be free and clear of all encumbrances and restrictions (other than those created by the Investor), except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws. Upon the due conversion of the Debenture, the Converted Shares will be validly issued, fully paid and non-assessable free and clear of all encumbrances and restrictions, except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws and except for those created by the Investor. The Company has reserved a sufficient number of shares of Common Stock for issuance upon the exercise of the Debenture, free and clear of all encumbrances and restrictions, except for restrictions on transfer set forth in the Transaction Documents or imposed by applicable securities laws and except for those created by the Investor.

 

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4.5 Consents . The execution, delivery and performance by the Company of the Transaction Documents, and the offer, issuance and sale of the Securities require no consent of, action by or in respect of, or filing with, any Person, governmental body, agency, or official other than filings that have been made pursuant to applicable state securities laws, and post-sale filings pursuant to applicable state and federal securities laws which the Company undertakes to file within the applicable time periods. Subject to the accuracy of the representations and warranties of the Investor set forth in Section 5 hereof, the Company has taken all action necessary to exempt (i) the issuance and sale of the Securities, (ii) the issuance of the Shares upon due conversion of the Debenture, and (iii) the other transactions contemplated by the Transaction Documents from the provisions of any shareholder rights plan or other “poison pill” arrangement, any anti-takeover, business combination or control share law or statute binding on the Company or to which the Company or any of its assets and properties may be subject and any provision of the Company’s Articles of Incorporation or By-laws that is or could reasonably be expected to become applicable to the Investor as a result of the transactions contemplated hereby, including without limitation, the issuance of the Securities and the ownership, disposition or voting of the Securities by the Investor or the exercise of any right granted to the Investor pursuant to this Agreement or the other Transaction Documents.

 

4.6 Delivery of SEC Filings; Business . The Company has made available to the Investor through the EDGAR system, true and complete copies of the Company’s most recent Annual Report on Form 10-K for its last fiscal year (the “10-K”), and all other reports filed by the Company pursuant to the 1934 Act since the filing of the 10-K and prior to the date hereof (collectively, the “SEC Filings”). The SEC Filings are the only filings required of the Company pursuant to the 1934 Act for such period. The Company and its Subsidiaries are engaged in all material respects only in the business described in the SEC Filings and the SEC Filings contain a complete and accurate description in all material respects of the business of the Company and its Subsidiaries, taken as a whole.

 

4.7 Use of Proceeds . The net proceeds of the sale of the Note hereunder shall be used by the Company for working capital and general corporate purposes. The Company agrees that it shall not use the funds from this Agreement, at any time, to lend money, give credit or make advances to any officers, directors, employees, subsidiaries and affiliates of the Company.

 

4.8 No Conflict, Breach, Violation or Default . The execution, delivery and performance of the Transaction Documents by the Company and the issuance and sale of the Securities will not conflict with or result in a breach or violation of any of the terms and provisions of, or constitute a default under (i) the Company’s Articles of Incorporation or the Company’s Bylaws, both as in effect on the date hereof (true and complete copies of which have been made available to the Investor through the EDGAR system), or (ii)(a) any statute, rule, regulation or order of any governmental agency or body or any court, domestic or foreign, having jurisdiction over the Company, any Subsidiary or any of their respective assets or properties, or (b) any agreement or instrument to which the Company or any Subsidiary is a party or by which the Company or a Subsidiary is bound or to which any of their respective assets or properties is subject.

 

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4.9 Brokers and Finders . No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or an Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of the Company.

 

4.10 No Directed Selling Efforts or General Solicitation . Neither the Company nor any Person acting on its behalf has conducted any general solicitation or general advertising (as those terms are used in Regulation D) in connection with the offer or sale of any of the Securities.

 

4.11 No Integrated Offering . Neither the Company nor any of its Affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any Company security or solicited any offers to buy any security, under circumstances that would adversely affect reliance by the Company on Section 4(2) for the exemption from registration for the transactions contemplated hereby or would require registration of the Securities under the 1933 Act.

 

4.12 Private Placement . The offer and sale of the Securities to the Investor as contemplated hereby is exempt from the registration requirements of the 1933 Act.

 

5. Representations and Warranties of the Investor . The Investor hereby represents and warrants to the Company that:

 

5.1 Organization and Existence . Such Investor is a validly existing corporation, limited partnership or limited liability company and has all requisite corporate, partnership or limited liability company power and authority to invest in the Securities pursuant to this Agreement.

 

5.2 Authorization . The execution, delivery and performance by such Investor of the Transaction Documents to which such Investor is a party have been duly authorized and will each constitute the valid and legally binding obligation of such Investor, enforceable against such Investor in accordance with their respective terms, subject to bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and similar laws of general applicability, relating to or affecting creditors’ rights generally.

 

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5.3 Purchase Entirely for Own Account . The Securities to be received by such Investor hereunder will be acquired for such Investor’s own account, not as nominee or agent, and not with a view to the resale or distribution of any part thereof in violation of the 1933 Act, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the 1933 Act without prejudice, however, to such Investor s right at all times to sell or otherwise dispose of all or any part of such Securities in compliance with applicable federal and state securities laws . Nothing contained herein shall be deemed a representation or warranty by such Investor to hold the Securities for any period of time. Such Investor is not a broker-dealer registered with the SEC under the 1934 Act or an entity engaged in a business that would require it to be so registered.

 

5.4 Investment Experience . Such Investor acknowledges that it can bear the economic risk and complete loss of its investment in the Securities and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment contemplated hereby.

 

5.5 Disclosure of Information . Such Investor has had an opportunity to receive all information related to the Company requested by it and to ask questions of and receive answers from the Company regarding the Company, its business and the terms and conditions of the offering of the Securities. Such Investor acknowledges receipt of copies of the SEC Filings. Neither such inquiries nor any other due diligence investigation conducted by such Investor shall modify, amend or affect such Investor’s right to rely on the Company’s representations and warranties contained in this Agreement.

 

5.6 Restricted Securities . Such Investor understands that the Securities are characterized as “restricted securities” under the U.S. federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the 1933 Act only in certain limited circumstances.

 

5.7 Legends . It is understood that, except as provided below, certificates evidencing the Securities may bear the following or any similar legend:

 

(a) “The securities represented hereby may not be transferred unless (i) such securities have been registered for sale pursuant to the Securities Act of 1933, as amended, (ii) such securities may be sold pursuant to Rule 144(i), or (iii) the Company has received an opinion of counsel reasonably satisfactory to it that such transfer may lawfully be made without registration under the Securities Act of 1933 or qualification under applicable state securities laws.”

 

(b) If required by the authorities of any state in connection with the issuance of sale of the Securities, the legend required by such state authority.

 

5.8 Accredited Investor . Such Investor is an accredited investor as defined in Rule 501(a) of Regulation D, as amended, under the 1933 Act.

 

5.9 No General Solicitation . Such Investor did not learn of the investment in the Securities as a result of any public advertising or general solicitation.

 

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5.10 Brokers and Finders . No Person will have, as a result of the transactions contemplated by the Transaction Documents, any valid right, interest or claim against or upon the Company, any Subsidiary or an Investor for any commission, fee or other compensation pursuant to any agreement, arrangement or understanding entered into by or on behalf of such Investor.

 

6. Conditions to Closing .

 

6.1 Conditions to the Investor’s Obligations . The obligation of the Investor to purchase the Note at Closing is subject to the fulfillment to such Investor’s satisfaction, on or prior to the Closing Date, of the following conditions, any of which may be waived by the Investor:

 

(a) The representations and warranties made by the Company in Section 4 hereof qualified as to materiality shall be true and correct at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct as of such earlier date, and, the representations and warranties made by the Company in Section 4 hereof not qualified as to materiality shall be true and correct in all material respects at all times prior to and on the Closing Date, except to the extent any such representation or warranty expressly speaks as of an earlier date, in which case such representation or warranty shall be true and correct in all material respects as of such earlier date. The Company shall have performed in all material respects all obligations and conditions herein required to be performed or observed by it on or prior to the Closing Date.

 

(b) The Company shall have obtained any and all consents, permits, approvals, registrations and waivers necessary or appropriate for consummation of the purchase and sale of the Securities, and the consummation of the other transactions contemplated by the Transaction Documents, all of which shall be in full force and effect.

 

(c) No judgment, writ, order, injunction, award or decree of or by any court, or judge, justice or magistrate, including any bankruptcy court or judge, or any order of or by any governmental authority, shall have been issued, and no action or proceeding shall have been instituted by any governmental authority, enjoining or preventing the consummation of the transactions contemplated hereby or in the other Transaction Documents.

 

(d) The Company shall have executed and delivered the Convertible Note and supporting documentation.

 

(e) The Company shall have executed and delivered the Irrevocable Transfer Agent Instructions.

 

(f) No stop order or suspension of trading shall have been imposed by the public markets on which the Company’s common stock is traded or quoted, the SEC or any other governmental or regulatory body with respect to public trading in the Common Stock.

 

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6.2 Conditions to Obligations of the Company . The Company’s obligation to sell and issue the Note at Closing is subject to the fulfillment to the satisfaction of the Company on or prior to the Closing Date of the following conditions, any of which may be waived by the Company:

 

(a) The representations and warranties made by the Investor in Section 5 hereof, other than the representations and warranties contained in Sections 5.3, 5.4, 5.5, 5.6, 5.7, 5.8 and 5.9 (the “Investment Representations”), shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date. The Investment Representations shall be true and correct in all respects when made, and shall be true and correct in all respects on the Closing Date with the same force and effect as if they had been made on and as of said date. The Investor shall have performed in all material respects all obligations and conditions herein required to be performed or observed by them on or prior to the Closing Date.

 

(b) The Investor shall have delivered the Purchase Price to the Company in accordance with the schedule outlined herein.

 

6.3 Termination of Obligations to Effect Closing; Effects .

 

(a) The obligations of the Company, on the one hand, and the Investor, on the other hand, to effect the Closing shall terminate as follows:

 

(i) Upon the mutual written consent of the Company and the Investor;

 

(ii) By the Company if any of the conditions set forth in Section 6.2 shall have become incapable of fulfillment, and shall not have been waived by the Company;

 

(iii) By the Investor if any of the conditions set forth in Section 6.1 shall have become incapable of fulfillment, and shall not have been waived by the Investor; orprovided, however, that, except in the case of clause (i) above, the party seeking to terminate its obligation to effect the Closing shall not then be in breach of any of its representations, warranties, covenants or agreements contained in this Agreement or the other Transaction Documents if such breach has resulted in the circumstances giving rise to such party’s seeking to terminate its obligation to effect the Closing.

 

7. Survival and Indemnification .

 

7.1 Survival . The representations, warranties, covenants and agreements contained in this Agreement shall survive the Closing of the transactions contemplated by this Agreement.

 

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7.2 Indemnification . The Company agrees to indemnify and hold harmless each Investor and its Affiliates and their respective directors, officers, employees and agents from and against any and all losses, claims, damages, liabilities and expenses (including without limitation reasonable attorney fees and disbursements and other expenses incurred in connection with investigating, preparing or defending any action, claim or proceeding, pending or threatened and the costs of enforcement thereof) (collectively, “Losses”) to which such Person may become subject as a result of any breach of representation, warranty, covenant or agreement made by or to be performed on the part of the Company under the Transaction Documents, and will reimburse any such Person for all such amounts as they are incurred by such Person.

 

7 .3 Conduct of Indemnification Proceedings . Promptly after receipt by any Person (the Indemnified Person”) of notice of any demand, claim or circumstances which would or might give rise to a claim or the commencement of any action, proceeding or investigation in respect of which indemnity may be sought pursuant to Section 7.2, such Indemnified Person shall promptly notify the Company in writing and the Company shall assume the defense thereof, including the employment of counsel reasonably satisfactory to such Indemnified Person, and shall assume the payment of all fees and expenses; provided , however ,that the failure of any Indemnified Person so to notify the Company shall not relieve the Company of its obligations hereunder except to the extent that the Company is materially prejudiced by such failure to notify. In any such proceeding, any Indemnified Person shall have the right to retain its own counsel, but the fees and expenses of such counsel shall be at the expense of such Indemnified Person unless: (i) the Company and the Indemnified Person shall have mutually agreed to the retention of such counsel; or (ii) in the reasonable judgment of counsel to such Indemnified Person representation of both parties by the same counsel would be inappropriate due to actual or potential differing interests between them. The Company shall not be liable for any settlement of any proceeding effected without its written consent, which consent shall not be unreasonably withheld, but if settled with such consent, or if there be a final judgment for the plaintiff, the Company shall indemnify and hold harmless such Indemnified Person from and against any loss or liability (to the extent stated above) by reason of such settlement or judgment. Without the prior written consent of the Indemnified Person, which consent shall not be unreasonably withheld, the Company shall not affect any settlement of any pending or threatened proceeding in respect of which any Indemnified Person is or could have been a party and indemnity could have been sought hereunder by such Indemnified Party, unless such settlement includes an unconditional release of such Indemnified Person from all liability arising out of such proceeding.

 

8. Miscellaneous .

 

8.1 Successors and Assigns . This Agreement may not be assigned by a party hereto without the prior written consent of the Company or the Investor, as applicable, provided, however, that an Investor may assign its rights and delegate its duties hereunder in whole or in part to an Affiliate or to a third party acquiring some or all of its Securities in a private transaction without the prior written consent of the Company, after notice duly given by such Investor to the Company. The provisions of this Agreement shall inure to the benefit of and be binding upon the respective permitted successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

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8.2 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. This Agreement may also be executed via facsimile, which shall be deemed an original.

 

8.3 Titles and Subtitles . The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

8.4 Notices . Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given as hereinafter described (i) if given by personal delivery, then such notice shall be deemed given upon such delivery, (ii) if given by fax, then such notice shall be deemed given upon receipt of confirmation of complete transmittal, (iii) if given by mail, then such notice shall be deemed given upon the earlier of (A) receipt of such notice by the recipient or (B) three days after such notice is deposited in first class mail, postage prepaid, and (iv) if given by an internationally recognized overnight air courier, then such notice shall be deemed given one business day after delivery to such carrier. All notices shall be addressed to the party to be notified at the address as follows, or at such other address as such party may designate by ten days’ advance written notice to the other party:

 

If to the Company:

 

 

 

 

 

Attn: ______________________________

Fax: _______________________________

Tel:  __________________________________________

 

If to the Investor:

 

GHS Investments, LLC

420 Jericho Turnpike, Suite 420

Jericho, NY 11753

 

8.5 Expenses . The parties hereto shall pay their own costs and expenses in connection herewith. In the event that legal proceedings are commenced by any party to this Agreement against another party to this Agreement in connection with this Agreement or the other Transaction Documents, the party or parties which do not prevail in such proceedings shall severally, but not jointly, pay their pro rata share of the reasonable attorneys’ fees and other reasonable out-of-pocket costs and expenses incurred by the prevailing party in such proceedings.

 

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8.6 Amendments and Waivers . Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Investor. Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Securities purchased under this Agreement at the time outstanding, each future holder of all such Securities, and the Company.

 

8.7 Severability . Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof but shall be interpreted as if it were written so as to be enforceable to the maximum extent permitted by applicable law, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. To the extent permitted by applicable law, the parties hereby waive any provision of law which renders any provision hereof prohibited or unenforceable in any respect.

 

8.8 Entire Agreement . This Agreement, including the Exhibits and the Disclosure Schedules, and the other Transaction Documents constitute the entire agreement among the parties hereof with respect to the subject matter hereof and thereof and supersede all prior agreements and understandings, both oral and written, between the parties with respect to the subject matter hereof and thereof.

 

8.9 Further Assurances . The parties shall execute and deliver all such further instruments and documents and take all such other actions as may reasonably be required to carry out the transactions contemplated hereby and to evidence the fulfillment of the agreements herein contained.

 

8.10 Governing Law; Consent to Jurisdiction; Waiver of Jury Trial . This Agreement shall be governed by, and construed in accordance with, the internal laws of the State of Nevada, without regard to principles of conflicts of law. Each of the parties hereto irrevocably submit to the exclusive jurisdiction of any United States Federal court sitting in New York State over any action or proceeding arising out of or relating to this Agreement and the parties hereto hereby irrevocably agree that all claims in respect of such action or proceeding may be heard and determined in such Federal court. The parties hereto agree that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. The parties hereto further waive any objection to venue in the State of New York and any objection to an action or proceeding in the State of New York on the basis of forum non conveniens.

 

[signature page follows]

 

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IN WITNESS WHEREOF, the parties have executed this Agreement or caused their duly authorized officers to execute this Agreement as of the date first above written.

 

The Company: PositiveID Corp.
     
  By:             
  Name:  
  Title:  

 

The Investor: GHS Investments, LLC.
   
  By:  
    Member

 

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Disclosure Schedules/ Exhibits

 

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