Exhibit A to Securities Purchase Agreement
Exhibit A to Securities
Purchase Agreement
THIS NOTE
HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
“ACT”), AND HAS BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN
CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION
OF THIS NOTE OR OF THE COMMON STOCK ISSUABLE UPON THE CONVERSION HEREOF MAY BE
EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL IN A FORM REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
| $300,000 |
August 1,
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For value received, Ethos
Environmental, Inc., a Nevada corporation (the “Company”), promises
to pay to MKM Opportunity Master Fund, Limited, a Cayman Islands corporation
(the “Holder”),
the principal sum of Three Hundred Thousand Dollars ($300,000), together with
interest as set forth herein. This Note is being issued pursuant to that certain
Securities Purchase Agreement dated concurrently herewith (the “Purchase Agreement”).
All capitalized terms used but not defined herein shall have the meanings given
to them in the Purchase Agreement. This Note is subject to the following terms
and conditions.
1. Maturity;
Payment due upon Maturity; Default. Unless converted as
provided in Section 3, this Note will automatically mature and be due and
payable on the six month anniversary of the date hereof (the “Maturity
Date”). The amount payable upon the maturity of this
Note shall be equal to one hundred twenty percent (120%) of the face value
hereof, or three hundred sixty thousand dollars ($360,000), in addition to any
accrued and unpaid interest as set forth in Section
2. Notwithstanding anything in the foregoing, the entire unpaid
principal sum of this Note, together with accrued and unpaid interest thereon,
shall become immediately due and payable upon an “Event of Default”,
which is: the insolvency of the Company, the failure of the Company to pay
interest as set forth in Section 2 hereof, the commission of any act of
bankruptcy by the Company, the execution by the Company of a general assignment
for the benefit of creditors, the filing by or against the Company of a petition
in bankruptcy or any petition for relief under the federal bankruptcy act or the
continuation of such petition without dismissal for a period of ninety (90) days
or more, or the appointment of a receiver or trustee to take possession of the
property or assets of the Company.
2. Interest. Interest
upon this Note shall be payable in cash monthly, in arrears, at a rate of ten
percent (10%) per annum, equivalent to one eighth and one-third percent
(0.81/3%) or two
thousand five hundred dollars ($2,500) monthly. Interest shall be
paid upon the first day of each month, commencing with September 1,
2008.
3. Conversion.
(a) Conversion.
(i) Conversion
on Maturity. Should the
Company not repay the Note in full prior to the Maturity Date, the entire
principal amount and accrued interest shall at the option of the Holder be
converted into shares of the Company’s common stock as of the Maturity Date at a
conversion rate of $0.25 per share or such other amount as determined in
accordance with Section 3(d) (such conversion rate, as adjusted, being the
“Conversion
Price”).
(ii) Conversion
upon Event of Default. Should there
occur an Event of Default as defined in Section 2, the Holder may in its sole
discretion elect to convert any portion of the principal amount and accrued and
unpaid interest into shares of the Company’s common stock at Conversion
Price.
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(b) Prepayment. The Company shall have
the right to prepay the principal and interest due under this Note, in full,
upon 10 days written notice to the Holder. During the 10 day notice period, the
Holder shall have the right to convert the entire principal amount of the Note
together with accrued interest into shares of the Company’s common stock. Should
the Holder elect to convert the entire principal and interest due under this
Note such conversion shall be at the Conversion Price.
(c) Mechanics
and Effect of Conversion. Upon conversion of this
Note pursuant to this Section 3, the Holder shall surrender this Note at the
principal offices of the Company or any transfer agent of the Company. At its
expense, the Company will, as soon as practicable thereafter, issue and deliver
to such Holder a certificate or certificates for the number of shares to which
such Holder is entitled upon such conversion, together with any other securities
and property to which the Holder is entitled upon such conversion under the
terms of this Note, including a check payable to the Holder for any accrued
interest due. Upon conversion of this Note, the Company will be forever released
from all of its obligations and liabilities under this Note with regard to that
portion of the principal amount being converted including without limitation the
obligation to pay such portion of the principal amount and accrued
interest.
(d) Weighted-Average
Anti-Dilution Protection.
(i) Stock
Dividends and Splits. If the Company, at any time while this Note is
outstanding: (A) pays a stock dividend or otherwise makes a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock (which, for avoidance of
doubt, shall not include any shares of Common Stock issued by the Company
pursuant to this Note or the other securities issued or to be issued in this
transaction), (B) subdivides outstanding shares of Common Stock into a larger
number of shares, (C) combines (including by way of reverse stock split)
outstanding shares of Common Stock into a smaller number of shares, or (D)
issues by reclassification of shares of the Common Stock any shares of capital
stock of the Company, then in each case the Conversion Price shall be multiplied
by a fraction of which the numerator shall be the number of shares of Common
Stock (excluding treasury shares, if any) outstanding immediately before such
event and of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such event and the number of shares issuable upon
conversion of this Note shall be proportionately and equitably
adjusted. Any adjustment made pursuant to this Section 3(d)(i) shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
(ii) Subsequent
Equity Sales. If at any time while this Note is outstanding the Company
shall offer, sell, grant any option to purchase or offer, sell or grant any
right to reprice its securities, or otherwise dispose of or issue (or announce
any offer, sale, grant or any option to purchase or other disposition) any
Common Stock or any securities of the Company or of any subsidiary of the
Company which would entitle the holder thereof to acquire at any time Common
Stock (hereinafter, “Common Stock
Equivalents”), 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, entitling any Person to acquire shares of Common Stock, at an
effective price per share less than the Conversion Price then in effect (such
issuances collectively, a “Dilutive Issuance”),
as adjusted hereunder (if the holder of the Common Stock or Common Stock
Equivalents so issued shall at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights per share which is issued in
connection with such issuance, be entitled to receive shares of Common Stock at
an effective price per share which is less than the Conversion Price, such
issuance shall be deemed to have occurred for less than the Conversion Price in
effect on such date of the Dilutive Issuance), then, the Conversion Price shall
be adjusted pursuant to the following formula:
NP = OP x [OB +
(AMT/OP)]
(OB+SI)
where
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NP is the
new Conversion Price;
OP is the
Conversion Price in effect immediately prior to such adjustment;
OB is the
number of shares of Common Stock outstanding prior to the Dilutive
Issuance;
AMT is
the dollar amount of the Dilutive Issuance, and
SI is the
number of shares of Common Stock issuable in the Dilutive Issuance.
The
Company shall notify the Holder in writing, no later than the business day
following the issuance of any Common Stock or Common Stock Equivalents subject
to this section, indicating therein the applicable information required by the
formula above (such notice the “Dilutive Issuance
Notice”).
(iii) Pro Rata
Distributions. If the Company, at any time during the term of
this Note, shall distribute to all holders of Common Stock evidences of its
indebtedness or assets (including cash and cash dividends) or rights or warrants
to subscribe for or purchase any security other than the Common Stock (which
shall be subject to Section 3(d)(ii) above), then in each such case the
Conversion Price shall be adjusted by multiplying the Conversion Price in effect
immediately prior to the record date fixed for determination of stockholders
entitled to receive such distribution by a fraction of which the denominator
shall be the Closing Price (defined below) determined as of the record date
mentioned above, and of which the numerator shall be such Closing Price on such
record date less the then per share fair market value at such record date of the
portion of such assets or evidence of indebtedness so distributed applicable to
one outstanding share of the Common Stock as determined by the Board of
Directors in good faith, or at the option of the Holder, by an independent
appraiser selected by the Holder. and reasonably acceptable to the
Company. In either case the adjustments shall be described in a
statement provided by the Company to the Holder of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever
any such distribution is made and shall become effective immediately after the
record date mentioned above. At the time of such adjustment, the
number of shares of common stock issuable following such adjustment shall be
equitably and proportionally adjusted upward.
As used
herein, “Closing
Price”, shall mean the first of the following clauses that
applies: (A) if, at the time of any such calculation, the Common
Stock is listed or quoted on the American Stock Exchange, or the New York Stock
Exchange, or the NASDAQ Market, the NASDAQ Capital Market or the Archipelago
Exchange, the Closing Price shall be the closing or last sale price reported for
the last business day immediately preceding the date of any such calculation;
(B) if, at the time of any such calculation, the Common Stock is quoted on the
OTC Bulletin Board or listed in the “Pink Sheets” published by the National
Quotation Bureau Inc. or a similar agency or organization succeeding to its
function or reporting prices, the Closing Price shall be the average of the high
closing bid and low ask prices reported for the last five (5) trading days
immediately preceding the date of any such calculation, or (C) in all other
cases, the Closing Price of a share of Common Stock shall be the price
determined by an independent appraiser selected in good faith by the Holder and
reasonably acceptable to the Company.
(iv) Adjustment
for Reorganization, Consolidation, Merger, etc. In the event
that the Company shall (A) effect a reorganization, (B) consolidate
with or merge into any other entity or (C) transfer all or substantially
all of its properties or assets to any other entity under any plan or
arrangement contemplating the dissolution of the Company, then, in each such
case, as a condition precedent to the consummation of such a transaction, proper
and adequate provision shall be made whereby the Holder of this Note, on the
conversion hereof as provided in this Section 3, at any time after the
consummation of any such reorganization, consolidation or merger or the
effective date of any such dissolution, shall receive in lieu of the shares of
Common Stock issuable on such conversion immediately prior to any such
consummation or effective date, the stock and other securities and property
(including cash) to which such Holder would have been entitled to receive upon
any such consummation or dissolution if the Holder had so converted this Note
immediately prior to such consummation or dissolution.
(v) Certificate
as to Adjustments. The computation of any adjustments
described in this Section shall be the sole responsibility of the Company, which
shall expeditiously prepare and mail to the Holder a notice setting forth the
nature of any necessary adjustment together with the basis thereof and the
calculations therefor. The Company shall immediately notify the
Holder of any information which bears on any of the events referenced in this
Section 3 and which may have an effect on the conversion of this
Note. If the Company issues a variable rate security, the Company
shall be deemed to have issued Common Stock or Common Stock Equivalents at the
lowest possible conversion or exercise price at which such securities may be
converted or exercised in the case of a Variable Rate Transaction (as defined
below).
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As used
herein, the term “Variable Rate
Transaction” shall mean a transaction in which the Company issues or
sells (i) any debt or
equity securities that are convertible into, exchangeable or exercisable for, or
include the right to receive additional shares of Common Stock either (A) at a conversion, exercise
or exchange rate or other price that is based upon and/or varies with the
trading prices of or quotations for the shares of Common Stock at any time after
the initial issuance of such debt or equity securities, or (B) with a conversion,
exercise or exchange price that is subject to being reset at some future date
after the initial issuance of such debt or equity security or upon the
occurrence of specified or contingent events directly or indirectly related to
the business of the Company or the market for the Common Stock (other than
pursuant to standard anti-dilution features) or (ii) enters into any
agreement, including, but not limited to, an equity line of credit, whereby the
Company may sell securities at a future determined price
(vi) Calculations.
All calculations under this Section 3 shall be made to the nearest cent or the
nearest 1/100th of a share, as the case may be. For purposes of this Section 3
the number of shares of Common Stock deemed to be issued and outstanding as of a
given date shall be the sum of the number of shares of Common Stock (excluding
treasury shares, if any) issued and outstanding.
(vii) Voluntary
Adjustment By Company. The Company may at any time during the term of
this Note reduce (but not increase) the then-current Conversion Price, as the
case may be, to any amount and for any period of time deemed appropriate by the
Board of Directors of the Company.
(viii) Notice to
Allow Conversion by Holder. If (A) the Company shall declare a dividend
(or any other distribution) on the Common Stock; or (B) the Company shall
declare a special nonrecurring cash dividend on or a redemption of the Common
Stock; or (C) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, of any compulsory share exchange whereby the Common Stock
is converted into other securities, cash or property; or (E) the Company shall
authorize the voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company; then, in each case, the Company shall cause to be
mailed to the Holder at its last address as it shall appear upon the books and
records of the Company, at least 20 calendar days prior to the applicable record
or effective date hereinafter specified, a notice stating (y) the date on which a
survey of the holders of record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distributions, redemption, rights or warrants are to be
determined or (z) the
date on which such reclassification, consolidation, merger, sale, transfer or
share exchange is expected to become effective or close, and the date as of
which it is expected that holders of the Common Stock of record shall be
entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, that the
unintentional failure to mail such notice or any unintentional defect therein or
in the mailing thereof shall not affect the validity of the corporate action
required to be specified in such notice. The Holder is entitled to
convert this Note during the 20-day period commencing on the date of such notice
to the effective date of the event triggering such notice.
(ix) Excluded
Events. Notwithstanding any other provision in this Section 3, the
Conversion Price shall not be adjusted by virtue of (a) the issuance of capital
stock to employees, consultants, officers or directors of the Company for
services and/or pursuant to stock purchase or stock option plans or agreements
approved by the Board (but not exceeding 20% of the Company's Common Stock
outstanding as of the date hereof for all such issuances in the aggregate), (b)
the issuance of securities to financial institutions, suppliers or lessors in
connection with commercial credit arrangements, equipment financings or similar
transactions in the ordinary course of business, or (c) the repurchase of Common
Stock shares from the Company's employees, consultants, advisors, service
providers, officers or Directors at such person's cost (or at such other price
as may be agreed to by the Company's Board of Directors).
4. Payment. All payments shall be
made in lawful money of the United States of America at such place as the Holder
hereof may from time to time designate in writing to the Company. Payment shall
be credited first to the accrued interest then due and payable and the remainder
applied to principal.
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5. Transfer;
Successors and Assigns. The terms and conditions
of this Note shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Notwithstanding the foregoing, the Holder
may not assign, pledge, or otherwise transfer this Note without the prior
written consent of the Company. Subject to the preceding sentence, this Note may
be transferred only upon surrender of the original Note for registration of
transfer, duly endorsed, or accompanied by a duly executed written instrument of
transfer in form satisfactory to the Company. Thereupon, a new note for the same
principal amount and interest will be issued to, and registered in the name of,
the transferee. Interest and principal are payable only to the registered holder
of this Note.
6. Governing
Law. This
Note shall be governed by, and construed in accordance with, the laws of the
State of New York, without regard to the conflicts of laws provisions
thereof. The Company hereby irrevocably and unconditionally submits,
for itself and its property, to the nonexclusive jurisdiction of the Supreme
Court of the State of New York sitting in New York County and of the United
States District Court of the Southern District of New York, and any appellate
court from any thereof, in any action or proceeding arising out of or relating
to this Note, or for recognition or enforcement of any judgment, and hereby
irrevocably and unconditionally agrees that all claims in respect of any such
action or proceeding may be heard and determined in such New York State or, to
the extent permitted by law, in such Federal court. The Company
hereby agrees 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 Company hereby irrevocably
and unconditionally waives, to the fullest extent it may legally and effectively
do so, any objection which it may now or hereafter have to the laying of venue
of any suit, action or proceeding arising out of or relating to this Note in any
court referred to above, and hereby irrevocably waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such court.
7. Notices. All notices and other
communications in respect of this Note (including, without limitation, any
modifications of, or requests, waivers or consents under, this Note) shall be
given or made in writing (including, without limitation, by facsimile) (a) in
the case of the Company, at the “Address for Notices” specified below its name
on the signature page hereof and (b) in the case of the Holder, at the address
for such purpose as shall have been most recently specified to the Company by
the Holder; or, as to either the Company or the Holder, at such other address as
shall be designated by such party in a notice to the other
party. Except as otherwise provided in this Note, all such
communications shall be deemed to have been duly given when transmitted by
facsimile or personally delivered or, in the case of a mailed notice, upon
receipt, in each case given or addressed as aforesaid.
8. Amendments
and Waivers. No provision of this
Note may be waived or amended except in a written instrument signed, in the case
of an amendment, by the Company and the Holder, or in the case of a waiver, by
the party against whom enforcement of any such waiver is sought. No
waiver of any default with respect to any provision shall be deemed to be a
continuing waiver in the future or a waiver of any subsequent default or a
waiver of any other provision, condition or requirement hereof, nor shall any
delay or omission of either party to exercise any right hereunder in any manner
impair the exercise of any such right.
9. Stockholders,
Officers and Directors Not Liable. In no event shall any
stockholder, officer or director of the Company be liable for any amounts due or
payable pursuant to this Note.
10. [This
Section 10 is intentionally left blank]
11. Rank;
Subsequent Financing. The Company
expressly acknowledges that the indebtedness evidenced by this Note shall rank
senior in right of payment to all other existing indebtedness of the
Company. The Company may not issue any debt or warrants senior to or
pari passu with this
Note without the prior consent of the Holder.
12. Action to
Collect on Note. If action is instituted
to collect on this Note, the Company promises to pay all costs and expenses,
including reasonable attorney’s fees, incurred in connection with such
action.
13. Successors
and Assigns. All agreements of
the Company in this Note shall bind its successors and permitted
assigns. This Note shall inure to the benefit of the Holder and its
permitted successors and assigns. The Company shall not delegate any
of its obligations hereunder without the prior written consent of
Holder.
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14. Loss of
Note. Upon
receipt by the Company of evidence satisfactory to it of the loss, theft,
destruction or mutilation of this Note or any Note exchanged for it, and
indemnity reasonably satisfactory to the Company (in case of loss, theft or
destruction) or surrender and cancellation of such Note (in the case of
mutilation), the Company will make and deliver in lieu of such Note a new Note
of like tenor, at the Company’s expense.
[SIGNATURE
PAGE FOLLOWS]
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| COMPANY: | |||
| ETHOS ENVIRONMENTAL, INC. | |||
| By: | |||
| ▇▇▇▇▇▇▇ de Vilmorin, CEO | |||
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Address
& Fax for Notice:
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Fax:
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