0001144204-13-001011.txt : 20130107 0001144204-13-001011.hdr.sgml : 20130107 20130107141915 ACCESSION NUMBER: 0001144204-13-001011 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 56 CONFORMED PERIOD OF REPORT: 20120930 FILED AS OF DATE: 20130107 DATE AS OF CHANGE: 20130107 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BLUE SPHERE CORP. CENTRAL INDEX KEY: 0001419582 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROGRAMMING, DATA PROCESSING, ETC. [7370] IRS NUMBER: 980550257 STATE OF INCORPORATION: NV FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 333-147716 FILM NUMBER: 13514757 BUSINESS ADDRESS: STREET 1: 35 ASUTA STREET, PO BOX 857 CITY: EVEN YEHUDA STATE: L3 ZIP: 40500 BUSINESS PHONE: 972-9-8917438 MAIL ADDRESS: STREET 1: 35 ASUTA STREET, PO BOX 857 CITY: EVEN YEHUDA STATE: L3 ZIP: 40500 FORMER COMPANY: FORMER CONFORMED NAME: Blue Sphere Corp DATE OF NAME CHANGE: 20100219 FORMER COMPANY: FORMER CONFORMED NAME: Jin Jie Corp. DATE OF NAME CHANGE: 20071128 10-K 1 v330956_10k.htm FORM 10-K

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

 

FORM 10-K

 

 

  

x FORM 10-K

 

  x

ANNUAL REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended September 30, 2012

 

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT

 

For the transition period from _________ to ________

 

Commission File No.  333-147716

  

 

Blue Sphere Corp.

(FORMERLY JIN JIE CORP.)

(Exact name of registrant as specified in its charter)

 

Nevada   98-0550257
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

35 Asuta Street, Even Yehuda, Israel 40500
(Address of principal executive offices)   (zip code)

 

972-9-8917438
(Registrant’s telephone number, including area code)

 

 
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(g) of the Exchange Act of 1934: Common

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes ¨  No x

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act of 1934.  Yes ¨ No x

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant filed such reports) and (2) has been subject to such filing requirements for the past 90 days.

 Yes x No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨   Accelerated filer ¨
Non-accelerated filer ¨ (Do not check if a smaller reporting company) Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 Yes ¨  No x

 

As at September 30, 2012, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $1,334,455.

 

State the number of shares outstanding of each of the issuer’s classes of common equity as of the latest practicable date:  As at December 26, 2012, there were 281,324,803 shares of common stock, par value $0.001 per share issued and outstanding.

 

 
 

 

TABLE OF CONTENTS

 

PART I        
         
Item 1.   Business   3
Item 1A.   Risk Factors   11
Item 1B.   Unresolved Staff Comments   11
Item 2.   Properties   11
Item 3.   Legal Proceedings   11
Item 4.   Submission of Matters to a Vote of Security Holders   11
         
PART II        
         
Item 5.   Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities   11
Item 6.   Selected Financial Data   12
Item 7.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   13
Item 7A.   Quantitative and Qualitative Disclosures About Market Risk   15
Item 8.   Financial Statements and Supplementary Data   15
Item 9.   Changes in and Disagreements with Accountants on Accounting and Financial Disclosure   33
Item 9A.   Controls and Procedures   33
Item 9B.   Other Information   34
         
PART III        
         
Item 10.   Directors, Executive Officers and Corporate Governance   34
Item 11.   Executive Compensation   35
Item 12.   Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters   38
Item 13.   Certain Relationships and Related Transactions, and Director Independence   39
Item 14.   Principal Accounting Fees and Services   39
         
PART IV        
         
Item 15.   Exhibits and Financial Statement Schedules   39

 

Our financial statements are stated in United States dollars (“U.S. $”, “$” or “USD”) and are prepared in accordance with United States Generally Accepted Accounting Principles (“GAAP”).  In this annual report, unless otherwise specified, all dollar amounts are expressed in United States dollars.

 

As used in this report, the terms “we”, “us”, “our”, “Blue Sphere” or the “Company” mean Blue Sphere Corp. and its wholly-owned subsidiaries, Eastern Sphere, Ltd. and Blue Sphere USA, Inc., unless the context otherwise requires.

 

Forward Looking Statements

 

This report contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors including, without limitation, (i) uncertainties regarding our ability to obtain adequate financing on a timely basis including financing for specific projects, (ii) the financial and operating performance of our projects after commissioning, (iii) uncertainties regarding the market for and value of carbon credits including carbon credits associated with industrial gases, (iv) political and governmental risks associated with the countries in which we operate, (v) unanticipated delays associated with project implementation including designing, constructing and equipping projects, as well as delays in obtaining required government permits and approvals, (vi) the development stage of our business and (vii) our lack of operating history. Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change.  Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.

 

2
 

 

PART I

 

Item 1.   Business

 

 Overview

 

We are a project integrator in the clean energy production and waste to energy markets. We aspire to become a key player in these global markets, working with enterprises with clean energy, waste to energy and related by-product potential to generate clean energy, soil amendments, compost and other by-products. We believe that these markets have tremendous potential insofar as there is an endless supply of waste that can be used to generate power and valuable by-products. Not only is there an endless supply of waste, but in most, if not all cases, disposing of such waste in most parts of the world today is a costly problem that requires an environmentally-damaging solution, such as landfilling. We offer a cost-effective, environmentally-safe alternative. Additionally, the demand for energy in virtually every country in the world is increasing every year and governments everywhere are welcoming and supporting such clean energy and waste to energy initiatives.

 

Our business is presently primarily focused on the United States, Africa and China.  We seek to generate revenue through sales of:

 

·Energy
·Tipping fees
·carbon credits
·energy efficiency technology
·project development services
·compost
·soil amendments
·other by-products

 

As a project integrator, we are partnering with owners of biomass waste, landfills, livestock and other animal farms, agricultural enterprises, liquid waste treatment plants and other high volume producers of organic material to produce clean energy.

 

Our comprehensive service solution consists of:

 

·managing the entire process of producing clean energy based on a BOO model (Build, Own and Operate)
·selecting the most suitable technology for the project
·arranging project financing (debt and equity)
·arranging feedstock supply
·devising and implementing ways for the project to become more energy efficient
·obtaining eligibility for and receive carbon credits, renewable energy credits and other ecologically-related benefits
·constructing and equipping the project on a turnkey basis
·managing the project for the duration of its revenue-producing life

 

We are currently focusing on seven projects for which we have signed, definitive agreements to own and implement such projects and which are in various stages of development:

 

United States

 

·Concord, NC Waste to Energy Anaerobic Digester 5.2 MW Plant
·Johnston, RI Waste to Energy Anaerobic Digester 3.2 MW Plant

 

Ghana

 

·Oti Sanitary Landfill Waste to Energy 1 MW Plant
·Sofokrom Sanitary Landfill Waste to Energy 1 MW Plant
·Oblogo/Mallam Landfill Waste to Energy 500 KW Plant
·Ablekuma Landfill Waste to Energy 250 KW Plant
·Accra General Landfill Waste to Energy 1 MW Plant

 

3
 

 

Please see Exhibits 10.12 and 10.13 for full copies of the Orbit agreements. Each of these projects are dependent upon, and will require, an infusion of significant capital, a portion of which, subject to our obtaining additional financing, we anticipate being required to contribute directly.  We anticipate a lead-time of at least six to twelve months from funding before any project becomes operational. We anticipate receipt of revenue from sales of electricity and other by-products as soon as such projects become operational.

 

In respect of our Concord and Johnston waste to energy projects in the United States, we have a 10% ownership interest in each project until such time as our financial partner in the project recoups 100% of its investment. After that, our ownership interest in these projects will be 50%.

 

We have a 20% ownership interest in our Oti Sanitary Landfill project in Ghana until such time as our partner in the project recoups 140% of its investment. After that, our ownership interest in the Oti project will be 50%.

 

Our ownership interest in our other projects will vary depending on a variety of factors.  In some cases, e.g., in respect of our Concord and Johnston projects, we will be required to pay a certain percentage of our profits to third-parties. 

 

In addition, we are engaged in discussions relating to a range of clean energy projects in the United States, Europe and Asia focusing mainly on waste to energy projects.

 

Our preferred mode of operation when we identify a project with potential is to sign a term sheet or other form of preliminary agreement, conduct due diligence and arrange financing and, if necessary, technology, equipment, procurement and construction party, feedstock supplies and off-takers and, if the result of due diligence is positive and we are successful in arranging financing, to sign a final, definitive project agreement.

 

Corporate History

 

We were incorporated in Nevada in July 2007 under the name Jin Jie Corp.  Prior to the second quarter of fiscal 2010 we were engaged in the business of developing and promoting automotive internet websites.  That business generated no revenue and accumulated a deficit of approximately $64,000.  During the second quarter of 2010, we changed our business model to our current business. In connection with such change, we took the following actions: (i) effective February 17, 2010, we changed our name to our current name by merging into our company a wholly-owned subsidiary formed for that purpose; (ii) effective February 17, 2010, we effected a 35-for-1 forward split of our authorized, issued, and outstanding common stock, increasing our authorized common stock from 50,000,000 shares to 1,750,000,000 shares and increasing our outstanding common stock from 1,900,000 shares to 66,500,000 shares; (iii) effective February 26, 2010, certain former shareholders of our company sold an aggregate of 34,800,000 shares of our common stock held by them, representing approximately 38% of our then outstanding stock, to new investors for an aggregate purchase price of $34,800; and, (iv) effective March 3, 2010, we entered into employment agreements with Shlomo Palas, our CEO, and Eliezer Weinberg, our then non-executive chairman of the board.  Mssrs. Palas and Weinberg were each granted two-year time-vested stock options to purchase 8,321,917 shares of common stock, representing 9% of our then outstanding shares, at an exercise price of $.001 per share. As at the date of this annual report, Mr. Palas owns 20,121,917 shares of common stock of the Company.

 

On March 3, 2010, Mssrs. Palas and Weinberg were elected as members of our board of directors, with Mr. Weinberg being elected as non-executive Chairman.  In April and May 2010, the remaining management and board members of our company prior to the change of business resigned. On October 25, 2010, we appointed Mark Radom as our Chief Carbon Officer. Mr. Radom serves in this capacity on a full-time basis and also acts as our general counsel. Mr. Radom is receives a monthly salary of U.S. $7,000 and is entitled to receive five percent of the net profits of any project he introduces to the Company and two percent of the net profits of any other project the Company implements. On August 23, 2011, Mr. Radom received 4,500,000 shares of common stock of the Company. In January 2012 Mr. Radom received another 500,000 shares of common stock of the Company. In November 2012, Mr. Radom received an additional 4,000,000 shares of common stock of the Company. As at the date of this annual report, Mr. Radom owns 9,000,000 shares of common stock of the Company, none of which are subject to any forfeiture.

 

4
 

 

On July 28, 2011, we appointed Roy Amizur our Executive Vice-President. Mr. Amizur. At such time, Mr. Amizur received 12,500,000 shares of common stock of the Company. If Mr. Amizur resigns from the Company prior to July 25, 2013, he will forfeit a pro rata portion of his shares back to the Company (the amount subject to forfeiture being equal to the number of days, which Mr. Amizur did not serve as Executive Vice-President out of the two year term of his management services agreement. In August 2011, Mr. Amizur received 1,075,000 shares of common stock as a bonus, which are not subject to any forfeiture. In November 2012, Mr. Amizur received an additional 5,000,000 shares of common stock, which are not subject to any forfeiture. As at the date of this annual report. Mr. Amizur owns 18,575,000 shares of common stock of the Company. As of July 2012, we agreed to start paying Mr. Amizur a monthly salary of U.S. $10,000.

 

On January 9, 2012, we appointed Shlomo Zakai as our new chief financial officer on a non-exclusive basis. Mr. Zakai is entitled to receive NIS 220 per hour for the work he performs for the Company. We have four persons providing us services on a full-time basis –our non-executive chairman, our chief executive officer, our executive vice-president and our chief carbon officer. We have three part-time employees – our chief financial officer, an office manager and a book-keeper. We have an advisory agreement with our non-executive chairman, a service agreement with our chief executive officer and executive vice-president and a consulting agreement with our chief carbon officer. We have no other employment or similar agreements with any of our employees.

 

In February 2012, our then non-executive chairman, Eliezer Weinberg, resigned from the board of directors. He no longer has any role in the Company. In his place, we appointed Joshua Shoham non-executive director and chairman of the board. Mr. Shoham received 4,000,000 shares of stock, which are subject to pro-rata forfeiture in the event that Mr. Shoham does not serve his full term of two years as director. In November 2012, Mr. Shoham received an additional 5,000,000 shares of common stock, which are not subject to any forfeiture. As at the date of this annual report, Mr. Shoham owns 9,000,000 shares of common stock of the Company. As of July 2012, we agreed to pay Mr. Shoham $10,000 per month plus VAT.

 

Since September 30, 2011, we have signed the following securities purchase agreements with Asher Enterprises, Inc., a Delaware corporation with a head office in New York (“Asher”), pursuant to which Asher has purchased an aggregate amount of U.S. $235,500 of our 8% convertible notes (collectively, the “Asher Notes”):

 

·$32,500 in aggregate principal amount on November 11, 2011
·$32,500 in aggregate principal amount on January 26, 2012
·$53,000 in aggregate principal amount on March 26, 2012
·$32,500 in aggregate principal amount on May 7, 2012
·$32,500 in aggregate principal amount on September 13, 2012
·$32,500 in aggregate principal amount on November 6, 2012

 

The Asher Notes are convertible into shares of common stock of the Company from time to time, and at any time, beginning after their respective issue dates and ending, absent any condition of default, on their respective maturity dates, which, in each case, are eight months after their issue dates. The conversion price is a substantial discount to the applicable market price. The Company has the right to prepay the Asher Notes under the certain conditions for 180 days following their issue date.

 

On December 14, 2011, we filed a registration statement on Form S-1 with the Securities Exchange Commission to register the resale of approximately 12.8 million shares of common stock Blue Sphere may issue to Centurion Private Equity, LLC (“Centurion”) pursuant to the terms of its $20 million equity line of credit (“Equity Facility”) opened in August 2011 with Centurion. We do not intend to take any action to cause this registration statement to become effective at any time.

 

On January 31, 2012, we lent an Israeli company, CTG Clean Technology Group Limited (the “Borrower”), U.S. $30,000 at an annual rate of interest of eight percent (8%). The purpose of this loan was to provide the borrower capital to continue its operations while we considered acquiring such company. On February 8, 2012, we received the cash to make such loan to the Borrower from a Cyprus company. The Borrower pledged the revenues from its Angolan waste-water project toward the repayment of the principal and interest of this loan. To-date, we have not received any payment whatsoever. However, we are in negotiations with CTG with respect to repayment of such loan together with accrued and unpaid interest. As of the date hereof, we are no longer considering any acquisition or transaction with the Borrower other than repayment of the loan.

 

On February 21, 2012, the Company executed a promissory note (the “Promissory Note”) pursuant to which it borrowed $30,000 from Jean-Marc Karouby, M.D., an individual residing in France (referred to herein as the “French Lender”). Part of the consideration for the Promissory Note was the issuance of 2,800,000 shares of common stock of the Company. In connection with such issuance of shares, the Company also granted to the French Lender piggy-back registration rights.

 

5
 

 

The maturity date of the Promissory Note is November 20, 2012. Under the terms of the Promissory Note, interest accrues on the basis of a 270-day year at a rate of 18% per annum or at a higher rate of 24% per annum if such higher rate is permissible under Nevada law. In November 2012, the Company paid back Dr. Karouby 100% of the outstanding principal and accrued interest on the Promissory Note.

 

On July 1, 2012, we signed a placement agreement with Fidelity Venture Capital Limited (“Fidelity”) pursuant to which Fidelity undertook to raise U.S. $1,000,000 in notes convertible into shares of common stock or more senior equity securities of the Company (if any) for a period of three and one half years at prices ranging from USD 0.02 cents to USD 0.10 cents per share or a discount of 20% of the then market price of the Company’s shares depending on when any such conversion is consummated (the “Fidelity Notes”). The Fidelity Notes will bear annual interest of 6.5% to be paid semi-annually in arrears. The Company has committed to pay off the outstanding principal of the Fidelity Notes by paying to the holders of such Fidelity Notes 7% of gross income and making certain pre-payments of the principal during the term of the notes. Each holder of Fidelity Notes are to receive shares of common stock of the Company worth USD 0.70 cents for each dollar it invested in the Fidelity Notes (the “Incentive Shares”). The Company has pledged the income from its projects to such holders as security to pay the Fidelity Notes in full. Fidelity will receive nine percent of the gross proceeds it raises for us. To-date, the Company has received an aggregate amount of U.S. $50,000 (less commissions) from sales of Fidelity Notes. In September 2012, the Company entered into a written investment agreement with another investor introduced to it by Fidelity for an aggregate amount of $150,000. Such investor never transferred any cash to the Company, however, which the Company deems to be a material breach of such agreement, rendering it null and void. Even if such investor subsequently decides to invest, the Company is no longer willing to accept any investment from such investor on the terms of such agreement.

 

On September 4, 2012, September 25, 2012 and October 14, 2012, we signed securities purchase agreements with a Belize corporation, with offices in Lichtenstein (“Belize Corp.”), pursuant to which Belize Corp. agreed to purchase an aggregate of $70,000 of our 7% convertible notes due in each case three months after their respective issue dates (the “Belize Notes”). The Belize Notes are convertible into shares of the Company at a discount to the applicable market price on the date of conversion. The Company has the right to prepay the Belize Notes under certain conditions for 90 days following their issue date.

 

In November 5, 2012 we entered into an agreement with a non-US investor to sell 30,000,000 shares of common stock at December 25, 2012 for an aggregated amount of $70,000, which we received.

 

On December 20 2012, we entered into an agreement with a non-US investor to sell 35,000,000 shares of common stock at a price of $0.00286 per share for $100,000, which we received and to purchase another 17,500,000 shares of common stock for $50,000 in January 2013 and another 17,500,000 shares of common stock for $50,000 in February 2013. Additionally, we (i) are obligated to issue such investor 10,000,000 shares of common stock in February 2013 at no additional cost and (ii) issue to such investor an option to purchase 7,500,000 shares of common stock for one year for 0.02 per share and to purchase 7,500,000 shares of common stock for two years at a price per share of $0.04.

 

Strategy

 

Our primary focus is providing tailored solutions internationally to produce clean energy out of waste. In this connection, we expect to generate revenue through sales of (i) thermal and electrical energy, (ii) energy efficiency technologies, (iii) project development services and (iv) by-products and from the receipt of tipping fees for accepting waste.

 

We offer potential project partners (e.g., owners of biomass waste, landfills, dairies, liquid waste treatment plants and farms) a turnkey or build, own and operate (BOO) project implementation in producing renewable energy and valuable by-products, such as soil amendments and compost. We will execute the process needed to make the project produce clean energy, and/or become more energy efficient, choose the most suitable technology, arrange for the financing, arrange for feedstock supplies and power and other by-product offtakers, oversee construction of the project, obtain eligibility for and sell greenhouse gas reduction credits and manage the project for its 20-25 year life.

 

We are currently focused on the United States, Africa and China. We have signed projects in the United States and Africa and a pipeline of projects in the United States, Africa and China. We are also in various stages of pursuing opportunities in Europe and elsewhere in Asia.

 

6
 

 

A component of the clean energy business in general and the waste to energy business in particular is greenhouse gas (“GHG”) offset credits. Thus far, each of our projects has the potential to generate revenue through the sale of such credits. Outside the United States, the Company’s GHG reduction activities operate under the rubric originally created by the Kyoto Protocol and implemented through the United Nations, the EU, and many national governments. Within the United States, the Company’s GHG reduction regime is based on the compliance market in California and the various corporations and voluntary buyers who have a specific objective to support climate change mitigation by buying carbon credits.

 

Another component of the clean energy and waste to energy business in the United States is renewable energy credits (“RECs”). A REC represents a MW/hr or Kw/hr of clean energy. Many states, including North Carolina and Rhode Island, the sites of our two US projects, require that their utilities prove that a portion of the energy they sell is produced from clean or renewable sources. A REC is used to demonstrate that the relevant unit of energy has a clean/renewable source. As such, utilities purchase RECs from producers of clean/renewable energy.

 

In respect of our African projects, we have signed an agreement with Vattenfall Energy Trading Netherlands N.V., a subsidiary of the Sweden’s national utility company, to purchase all carbon credits we will receive from our African waste to energy projects through 2020. In respect of our United States waste to energy projects, we are in negotiations with various companies to sell our credits for use in the California compliance market. In China, there is a domestic carbon credit market that we expect to provide a source of buyers for carbon credits from waste to energy projects that we will implement in the future.

 

In fact, from 2010 to the end of 2011, we were primarily focused on implementing carbon credit projects in the developing world under the auspices of the Kyoto Protocol. In this connection, we commenced our landfill projects in Ghana (as described more fully below) in 2011. However and despite starting what we hope is a promising set of landfill gas-to-energy projects in Africa, in the last quarter of 2011, we realized that we were positioned for a much greater opportunity: waste-to-energy.

 

Our model in respect of waste-to-energy is to build, own and operate. We first select projects with signed, long-term agreements with waste producers or waste haulers in respect of the feedstock, with national governments or electricity corporations in respect of the energy output and with private entities in respect of other project by-products (such as renewable energy credits, heat, compost and fertilizer), in each case, prior to initiation of such projects.

 

Our role is to integrate all activities and components that make up a project, providing a turnkey, one-stop shop solution and do everything needed to make our projects successful. We will work with and outsource key components of such projects to the Engineering Procurement Construction (“EPC”)/technology providers and other project participants that provide the best and most economical solution for each individual project. This will provide us the flexibility and freedom to tailor the best solution for each project. We will stay involved in managing and financing all aspects of the relevant project for its lifetime or until the project is sold, when that proves to be the best financial decision. This assures all of the involved parties - including waste producers, financing parties and EPC/technology providers and customers - that there is long-term overall continuity and responsibility for each project as a whole.

 

We are therefore now focusing most of our efforts and resources toward waste-to-energy projects. As described more fully below, we have signed definitive agreements in respect of two projects in the United States (North Carolina and Rhode Island), we have a binding option on eight more similar projects across the United States and are in the process of developing a pipeline of dozens more of such projects in the United States, China, Africa and elsewhere. There is a virtually endless supply of waste suitable for such projects and the demand for renewable energy in general and from such projects in particular is growing every year and exceeds the amount of renewable energy available to satisfy such demand.

 

Aiming to be distinctive in the “clean, green” market, Blue Sphere’s specific intentions are to:

 

·provide a one-stop, turn-key/build own and operate/transfer solution that is unique in the market today;
·identify and obtain the rights to lucrative projects without incurring material expense;
·deliver seamless and professional project implementation through a combination of its own expertise and the use of third-party experts with a track-record of success;
·be open to the use of any mature and well-known technology and, thus, be able to tailor make cost-efficient and effective solutions for each project;
·leverage its management’s more than 30 years of experience in successful implementation of large and complex projects in the developing world;

 

7
 

 

·build local and international teams to support each project;
·obtain political, property, non-performance and insolvency insurance for its projects; and
·to receive almost all of its revenues in dollars, euros and renminbi whether operating in the United States, Europe, China or other parts of the developing world.

 

Material Features of our Concessions (i.e., Rights to Perform Our Projects)

 

Although we can offer no assurances going forward, to-date, we have structured each of our projects as a binding option in our favor with our counter-parties granting us rights to implement and participate in such projects subject to: (i) our ability to obtain suitable financing and (ii) our right to suspend performance and/or terminate such agreements, in each case, without prejudice, if at any time, in our reasonable judgement, continuing performance of our obligations becomes economically unattractive.

 

We will own, manage and are responsible for the day-to-day operations and success of each of our projects. To the extent we will outsource any aspect of our projects, it will be under our control and supervision.

 

We have also negotiated control over the revenue streams in, all of our projects for their entire revenue earning life. Clean energy generation and sales are capable of continuing indefinitely – so long as there is a source of waste. Accordingly, we anticipate exercising control over and participating in such projects for so long as it remains profitable or beneficial for us to do so.

 

Competition

 

There are a number of other companies operating in the clean energy and waste to energy space. Such companies range from other project developers to service or equipment providers, buyers and/or investors. In contradistinction to the standard market approach in this space (i.e., being solely a project developer, service or equipment provider or a buyer or investor), and as referred to above, we seek to provide a one-stop shop, turn-key solution to project owners. In short, our business model is to initiate, finance, develop, bring the most appropriate technology and EPC party and manage all aspects of project implementation and sales of the project’s clean energy and by-products starting from identifying the opportunity and ending with terminating the project’s operations if and when its revenue-earning life is over. We believe that this one-stop shop approach is attractive to project owners and will differentiate us in a positive manner from our competition. In this connection, in August 2012, we signed a joint venture (“JV”) agreement with Biogas Nord AG (“BGN”), which is one of Germany’s largest anaerobic digestion (“AD”) companies with almost 400 AD installations in operation throughout the world, including the United States. Pursuant to our JV, we will jointly implement waste to energy projects in the United States where we contribute our business development skills and BGN contributes its know-how and financing. We believe that such JV enhances our one-stop shop capability and further distinguishes us from our competition.

 

Government Approval

 

Each of the projects we have signed to-date requires the approval of the relevant governments. In the United States, the standard required environmental permits relate to solid waste composting and air quality. We have prepared applications for the requisite US approvals and expect to submit such applications in the first calendar quarter of 2013. We understand that, while there is no official time limit in which these permits are to be issued, they typically take between two – six months. There are also construction and building permits. We are in the process of preparing construction and building permit applications, which, together with the environmental permits, we intend to submit to the relevant authorities in the first quarter of 2013.

 

In Ghana, a positive environmental impact assessment (“EIA”) is required for any project in the waste sphere. To generate energy, we will also need a license from the Ghanaian energy commission. We have completed an EIA for and received provisional approval for our first Ghanaian project. We applied for and received final government approvals in respect of all of our Ghanaian projects in December 2012..

 

8
 

 

Effect of Existing or Probable Government Regulations on Our Business

 

Our projects are located in jurisdictions in which there are no government regulations materially affecting our business. Other than the possibility that, in order to comply with air regulations in Rhode Island, we may be required to install NOx destruction equipment on the generators we expect to use in our Rhode Island project, we are not aware of any probable or proposed governmental regulations that, if enacted, will have a material impact on our business. If we are required to install such equipment, the cost will not be material to the Rhode Island project’s economic performance. Whether or not we are required to install such equipment will depend on an assessment to be made as part of the permitting project to ascertain expected levels of NOx emissions from the operation of the generators at the Johnston site. We will know the outcome of this assessment in 2013.

 

Costs and Effects of Compliance with Environmental Laws

 

We are aware of no costs or effects of compliance with environmental laws with respect to our business except for our Ghanaian projects and United States projects. Each Ghanaian project requires the performance of an EIA in order to receive government approval. We have performed an EIA in respect of our Oti Sanitary Landfill project, which was approved by the Ghanaian government in September 2012. We expect to perform an EIA for each of our Ghanaian projects as part of the preparation of materials we will submit to the United Nations in order to receive carbon credits. Each EIA will cost approximately $10,000. Each of our existing waste to energy projects in Concord, North Carolina and Johnston, Rhode Island will require two permits: (i) solid waste composting operation and (ii) air permit. The preparations of the applications to obtain such approvals will cost us an aggregate of approximately U.S. $60,000. The actual approvals themselves will cost approximately U.S. $20,000.

 

Business Development during Fiscal 2012

 

In October 2011, we signed a cooperation agreement with Pacific Portland Capital (“PPC”) pursuant to which PPC will source dairy farm projects at its own expense for us in the United States and elsewhere and assist us in implementing and operating such projects in exchange for an ownership stake in such projects (the size of which will depend on the extent to which PPC participates in the implementation and operation of such projects).

 

In November 2011, we signed a project agreement with the Takoradi-Sekondi Metropolitan Assembly and the J. Stanley Owusu Group (the largest Ghanaian waste delivery company and landfill operator) to implement a landfill gas extraction project at the Sofokrom Sanitary Landfill in Takoradi, Ghana under the rubric of the CDM of the Kyoto Protocol (“KP”). This project has renewable energy, compost and by-product potential and is eligible to receive carbon credits under the CDM of the KP.

 

We performed a pump test in January 2012 at our Oti Landfill site in Kumasi, Ghana, the results of which were satisfactory to us and our partner in the project, B Pure Environmental Group Ltd.

 

On January 18, 2012, Puresphere Limited, our joint venture with BPure (in which our stake is 50%), signed an emissions reduction purchase agreement (“ERPA”) with Vattenfall Energy Trading Netherlands N.V., a subsidiary of Vattenfall AB, a Swedish company and one of Europe’s biggest power producers (“Vattenfall”), in respect of up to nine emissions reduction projects in Ghana and Nigeria. Subject to the terms of this agreement, Vattenfall is obligated to purchase through 2020 the certified emissions reductions (“CERs”) to be received in respect of up to nine landfill sites at a discount to the market price on the date of delivery. Vattenfall has an option to purchase such CERs beyond 2020 in its discretion. Vattenfall has also committed to finance the costs of registering such landfill sites with the Executive Board (“EB”) of the Clean Development Mechanism (“CDM”) of the Kyoto Protocol in order to receive CERs. If the price per CER on the date of the first delivery thereof is less than Euro 8, then we will be obligated to reimburse Vattenfall certain of such registration costs.

 

Based on the results of the pump test and the execution of an ERPA with Vattenfall, we intend to proceed with the registration of the project with the EB of the CDM of the Kyoto Protocol and the required field work to install gas capture and power generation equipment. However, in the third quarter of 2012, we decided to wait until the feed-in tariff (the “FIT”) for landfill gas electricity is formally published before commencing construction of the project. We expect it to be published in the first quarter of 2013.

 

On April 2, 2012, we signed, through our 50%-owned subsidiary, Puresphere Ltd., a validation agreement with the Japan Consulting Institute (the “Validator”) in respect of our Oti Sanitary Landfill CDM Project and our African Landfill Programme of Activities. On April 24, 2012, we submitted a final programme of activities design document (“PoADD”) to the Validator in respect of the Oti Sanitary Landfill CDM Project. On April 28, 2012, the Validator uploaded the PoADD onto the applicable web site of the United Nations for the 30-day global stakeholder consultation. The Validator visited the site in June of 2012 and submited its validation report and request to register the project to the Executive Board of the CDM on December 24, 2012. The deadline for such submission is December 31, 2012.

 

9
 

 

On May 2, 2012, we signed a CPA confirmation with Vattenfall in respect of the Sofokrom Sanitary Landfill CDM Project in Takoradi, Ghana.

 

BPure is financing all of the foregoing activities (except those financed by Vattenfall pursuant to the ERPA) in accordance with and pursuant to the terms of joint venture with BPure.

 

We also commenced in March 2012 negotiations with General Electric in respect of the purchase, installation and operation of a generator-set at the Oti Landfill CDM Project for the purpose of electricity generation. In June 2012, we commenced negotiations with the Electricity Company of Ghana to enter into a long-term power purchase agreement for the sale of the electricity we intend to produce at the Oti site.

 

On June 14, 2012, we conducted an on-site feasibility study at the Sofokrom landfill in Takoradi, Ghana. The results of such study suggest that the Sofokrom site will become a viable CDM landfill gas-to-energy project when another 4-9 meters of waste is dumped on top of the existing cell so that it reaches a height of 10-15 meters (at the moment, it is only 6 meters high). This can take 2-4 years depending on waste dumping practices. As such, we are considering our options in terms of when to implement a project at this site or to find another site in Ghana or elsewhere in Africa to implement our second site in our African Landfill Programme of Activities.

 

On May 7, 2012, we signed a term sheet in respect of two biomass waste-to-energy projects in the United States: (i) one in Johnston, Rhode Island and (ii) one in Concord, North Carolina. The feedstock for the Johnston, Rhode Island project is expected to be 50,000 tons of organic food waste annually, which is expected to produce enough biogas to power a 3.2 MW generator. The feedstock for the Concord, North Carolina plant is expected to be 80,000 tons of organic food waste annually, which is expected to produce enough biogas to power a 5.2 MW generator.

 

On October 19, 2012, we signed a definitive project agreement in respect of both the North Carolina and Rhode Island sites pursuant to which we will receive full ownership of each of the entities that owns the rights to implement the respective projects. Owning the rights to implement a project means having (i) a signed power purchase agreement with the local utility, (ii) a signed feedstock agreement in respect of the quantity of feedstock that is sufficient to generate the site’s maximum power capacity, (iii) a valid and binding land lease or purchase agreement, (iv) valid and binding offer of debt finance, (v) all applicable permits, (vi) a valid offer to purchase the project’s applicable federal and state tax credits and (vii) anything else required to implement the given project. We are currently closing the open items above with a view toward commencing project construction at both sites in January 2013. There are no assurances that we will close the open items in a timely manner or at all. If we do implement such projects (whether in whole or in part), we will have an option on implementing other projects to be introduced to us by the original developer of the North Carolina and Rhode Island sites and who has a pipeline of eight additional waste to energy projects in the United States.

 

On November 1, 2012, our JV company with BGN signed a term sheet with an Israeli fund to finance the equity portion of our North Carolina and Rhode Island projects. Pursuant to such term sheet, we have also granted such fund an option to finance the next U.S. $10,000,000 in similar projects and a right of first refusal to finance the following U.S. $5,000,000 in similar projects, in each case, under different conditions.

 

To-date, we have both signed and binding power purchase agreements (“PPAs”) for both our North Carolina and Rhode Island sites. Our PPA for the North Carolina Project is for 15 years and is with a subsidiary of Duke Energy. Our PPA for the Rhode Island project is also for 15 years with an option to extend for 6 years and is with Narragansett Electric Company.

 

We have also signed feedstock agreements to deliver a minimum of 250 tons of organic waste per day to our North Carolina site and 150 tons of organic waste per day to our Rhode Island site with Skip Shapiro Enterprises, LLC and a signed letter of intent to deliver 250 tons of organic waste per day to our North Carolina site with Waste Connections Inc. In parallel, we are working with other suppliers of organic waste to locate other sources of organic feedstock so that we have multiple suppliers for amounts of feedstock in excess of our requirements for each of our sites.

 

We have also engaged Brown Gibbons & Lang, a reputable tax credit and debt financing arranger to secure for us a buyer for our federal investment tax credits for both projects and our North Carolina state tax credit of $2,500,000. In this connection, we received a term sheet in December 2012 from a tax credit buyer to buy both the federal investment tax credits and the North Carolina State tax credit, which we will generate from our US projects for over $11,000,000 in cash.

 

Pursuant to our JV with BGN, we will engage BGN to be the EPC for both the North Carolina and Rhode Island projects. The EPC contracts are under negotiation with BGN. One component of these contracts, however, is that BGN will provide a performance guarantee for each project that will be backed by a reputable, US insurance company.

 

10
 

 

Agreements in respect of the other components of these projects are in various stages of negotiation.

 

We are also continuing our efforts and initiatives to identify and secure the rights to implement biomass waste-to-energy projects at dairy farms in the United States and are in the initial stages of negotiations with several sites.

 

There can be no assurances that we will implement any biomass waste-to-energy project of any nature in the United States.

 

Item 1A. Risk Factors

 

As a small reporting company, we are not required to provide the information required by this item.

 

Item 1B. Unresolved Staff Comments

 

Not applicable.

 

Item 2. Properties

 

Our principal executive office is located at 35 Asuta St. Even Yehuda, Israel 40500, for which we pay the operating expenses but do not pay any rent.  We intend to obtain additional working space for and to be located near our projects as and when the level of activity of such projects warrants such action. Until such time, we believe that our property is adequate for our current and immediately foreseeable operating needs.

 

Item 3. Legal Proceedings

 

As of September 30, 2012, we were not a party to any legal proceedings of any kind.

 

Item 4. (Removed and Reserved)

 

 

PART II

 

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

 

Recent Sales of Unregistered Securities

 

On September 4, 2012, September 25, 2012 and October 14, 2012, we signed securities purchase agreements with a Belize corporation, with offices in Lichtenstein (“Belize Corp.”), pursuant to which Belize Corp. agreed to purchase an aggregate of $70,000 of our 7% convertible notes due in each case three months after their respective issue dates (the “Belize Notes”). The Belize Notes are convertible into shares of the Company at a discount to the applicable market price on the date of conversion. The Company has the right to prepay the Belize Notes under certain conditions for 90 days following their issue date.

 

In November 5, 2012 we entered into an agreement with a non-US investor to sell 30,000,000 shares of common stock at December 25, 2012 for an aggregated amount of $70,000, which we received.

 

On November 6, 2012, we issued a note in an aggregate principal amount of $32,500 to Asher. The outstanding principal amount and interest are convertible into shares of common stock of the Company.

 

On December 20 2012, we entered into an agreement with a non-US investor to sell 35,000,000 shares of common stock at a price of $0.00286 per share for $100,000, which we received and to purchase another 17,500,000 shares of common stock for $50,000 in January 2013 and another 17,500,000 shares of common stock for $50,000 in February 2013. Additionally, we (i) are obligated to issue such investor 10,000,000 shares of common stock in February 2013 at no additional cost and (ii) issue to such investor an option to purchase 7,500,000 shares of common stock for one year for 0.02 per share and to purchase 7,500,000 shares of common stock for two years at a price per share of $0.04.

 

11
 

 

Market Information

 

Our common stock is quoted on the OTC Bulletin Board under the symbol “BLSP”. The following quotations, which were obtained from siliconinvestor.com, reflect the high and low bids for our common stock for the periods indicated, based on inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. The first day on which our common stock traded under BLSP was March 16, 2010. Prior thereto, the name of our company was Jin Jie Corp. and its common stock traded under the symbol JIJE.

 

The high and low bid prices of our common stock for the periods indicated below are as follows:

 

 OTC Bulletin Board (1)

 

Quarter Ended  High   Low 
September 30, 2012  $0.012   $0.004 
June 30, 2012  $0.0299   $0.0033 
March 31, 2012  $0.06   $0.02 
December 31, 2011  $0.015   $0.04 
September 30, 2011  $0.09   $0.06 
June 30, 2011  $0.22   $0.17 
March 31, 2011  $0.31   $0.23 
December 31, 2010  $0.46   $0.45 
September 30, 2010  $0.47   $0.28 
June 30, 2010  $1.15   $0.25 
March 31, 2010  $1.23   $1.11 

December 31, 2009 no trades in our stock
September 30, 2009 no trades in our stock
June 30, 2009 no trades in our stock
March 31, 2009 no trades in our stock
December 31, 2008 no trades in our stock

 

 

(1) Over-the-counter market quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

 

Our common stock is issued in registered form. Nevada Agency and Transfer Company 50 West Liberty, Suite 880, Reno, Nevada (telephone 775 322 0626 and facsimile: 775 322 5623) is the registrar and transfer agent for our common stock.

 

Holders

 

On September 30, 2012, the stockholders’ list of our common stock showed 136 registered stockholders and 184,695,507 shares outstanding. On September 28, 2012, the last trading day of our fiscal year, the last reported sale price of our common stock on the National Association of Securities Dealers OTC Bulletin Board was $0.01 per share.

 

Dividends

 

We declared no dividends in the fiscal year ended September 30, 2012 and we do not intend to pay any cash dividends in the foreseeable future. Although there are no restrictions that limit our ability to pay dividends on our Common Stock, we intend to retain future earnings for use in our operations and the expansion of our business.

 

Item 6. Selected Financial Data

 

As a small reporting company, we are not required to provide the information required by this item.

 

12
 

 

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

OVERVIEW

 

Summary of Current Operations

 

Bluesphere has current and potential operations in renewable energy generation.

 

Clean Energy Generation

 

We are currently focusing on seven projects for which we have signed, definitive agreements to own and implement such projects and which are in various stages of development:

 

United States

 

·North Carolina Waste to Energy Anaerobic Digester 5.2 MW Plant
·Rhode Island Waste to Energy Anaerobic Digester 3.2 MW Plant

 

Ghana

 

·Oti Sanitary Landfill Waste to Energy 1 MW Plant
·Sofokrom Sanitary Landfill Waste to Energy 1 MW Plant
·Oblogo/Mallam Landfill Waste to Energy 500 KW Plant
·Ablekuma Landfill Waste to Energy 250 KW Plant
·Accra General Landfill Waste to Energy 1 MW Plant

 

Two of our seven projects are organic food waste to energy with compost as a by-product. The remaining five projects are landfill gas to energy projects. We are responsible for investing 100% of the project cost and managing the implementation and operation of each project. Our North Carolina project is expected to cost U.S. $25,000,000 and our Rhode Island project is expected to cost U.S. 17,000,0000. Each of the landfill gas projects is expected to cost between $1,500,000 to $2,000,000 for the landfill and/or compost components and another $1,500,000 to $2,000,000 for renewable energy generation. We expect to have more precise estimates after we conduct more detailed engineering studies of such projects.

 

In exchange for paying 100% of and managing each project’s implementation and operation, we and our financial partners will own 100% of each project and participate in revenue receipt from each project for so long as it produces revenue. Clean energy projects produce revenue for so long as power is generated and sold, which can continue indefinitely so long as there is a reliable source of waste to generate such power. We expect to receive adequate waste volumes for power generation for each of our projects for an indefinite period of time. In the case of our US projects, we have signed feedstock supply agreements for five year terms. In the case of our African projects, we have signed agreements to receive all applicable municipal waste for a minimum term of 21 years. We will seek to extend such waste supplies when the respective initial delivery terms are close to expiring.

 

In all but one of our African landfills, we have structured our project rights such that we will receive all revenue until we have been fully reimbursed for our investment and then we share the net profits with the other project participants in various proportions as time goes on. In the one landfill project exception in Ghana, we will receive 89.5% of the revenue until full reimbursement after which we will share the net profits with the other project participants in an increasing amount as time goes on. In any case, once there is project revenue, which should start from sales of power within six months to a year or commencing construction, all future expenses relating to our projects will be paid for out of project revenue.

 

We estimate the following average annual revenue (from sales of power, compost and carbon credits and tipping fees, as applicable) for the Company for each of our projects:

 

·North Carolina – U.S. $1,100,000
·Rhode Island – U.S. $820,000
·Oti Sanitary Landfill – U.S. $1,000,000
·Sofokrom Landfill – U.S. $600,000
·Oblogo/Mallam Landfill – $400,000

 

13
 

 

·Ablekuma – U.S. $250,000
·Accra General – U.S. $1,000,000

 

We estimate that the first carbon credit and electricity sale revenue for the African landfill projects will commence in 2014.

 

Based on recent progress across all signed projects, we expect to implement and commission our first projects in North Carolina and Rhode Island in 2013. We are waiting for the feed-in-tariff (“FIT”) for electricity to be officially announced in Ghana before proceeding with implmentation of our Ghanaian projects. The Ghanian FIT is expected to be announced at in the first quarter of 2013. In such case, and depending on the time of the year the FIT is formally announced, we may or may not succeed to commision the first of our Ghanaian projects in 2013.

 

Results of Operations

 

Revenue

 

We have recorded no revenue since inception.

 

General and administrative expenses

 

General and administrative expenses for the year ended September 30, 2012 were $3,604,000 as compared to $16,671,000 for the year ended September 30, 2010. The decrease is primarily attributable to the reduction in the expenses related to shares based compensations totalling $2,956,000 in the year ended September 30, 2012 compared to $16,058,000 in the year ended September 30, 2011

 

Net Loss

 

As a result of the above, we incurred a net loss of $3,668,000 for the year ended September 30, 2012, as compared to a net loss of $16,676,000 for the year ended September 30, 2011.  We anticipate losses in future periods.

 

Inflation

 

Our results of operations have not been affected by inflation and management does not expect that inflation risk would cause material impact on its operations in the future.

 

Seasonality

 

Our results of operations are not materially affected by seasonality and we do not expect seasonality to cause any material impact on our operations in the near future.

 

Critical Accounting Estimates

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires our management to make assumptions, estimates and judgments that affect the amounts reported in the financial statements, including the notes thereto, and related disclosures of commitments and contingencies, if any. We base our estimates on historical experience, where applicable, and other relevant factors that we believe are reasonable under the circumstances.

 

 

Liquidity

 

As of September 30, 2012, we had cash of $22,000 compared to $50,000 as of September 30, 2011. As of September 30, 2012, we had working capital deficit of $674,000 compared to $150,000 as of September 30, 2011. Management anticipates that existing cash resources, including the proceeds of the equity placements subsequent to September 30, 2012 described below will not be sufficient to fund our planned operations during the next 12 months. We estimate that, in order to fund our continued existence, we will require $1,000,000 in cash over the next 12 months. This does not include amounts we will have to invest in the implementation of our projects. Assuming we finance each project with 20% equity and 80% debt, we will require approximately $11,000,000 in additional capital to make equity investments in each of our projects. There is no assurance that we will be successful in financing our projects with 20% equity and 80% debt (such amounts could be more or less) and, even if successful, there is no assurance that we will raise such capital at all or in a timely manner.

 

14
 

 

In addition to requiring capital to fund our corporate activities, the capital needs of our project development activities will be significant and will likely require equity investment on our part. As a result, we are seeking to raise additional funds and any meaningful equity financing will likely result in significant dilution to our existing shareholders. There can be no assurance that additional funds will be available on terms acceptable to us, or at all. These conditions raise substantial doubt about our ability to continue to operate as a going concern. The financial statements contained in this report do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

  

Capital Resources

 

As at September 30, 2012, we had no commitments for any capital expenditures. Based on project agreements signed to-date, we anticipate the incurrence of such commitments during the fiscal year ending September 30, 2013. We expect to fund such commitments partly with equity to be contributed by us and partly with debt to be raised from financial institutions. In order to make any equity contribution, we will be forced to raise additional funds in the form of an equity investment in us of from external investors.

 

Off-Balance Sheet Arrangements

 

As at September 30, 2012, we had no off-balance sheet arrangements of any nature.

 

Market Risk and Contingent Liabilities

 

The Company is seeking to operate largely in the developing world (such as, e.g., countries in Africa, Central Asia and Southeast Asia), making it susceptible to changes in the economic, political, and social conditions therein. The developing world has experienced political, economic and social uncertainty in recent years, including an economic crisis characterized by increased inflation, high domestic interest rates, in some cases, negative economic growth, reduced consumer purchasing power and high unemployment. Currently, many of the countries in the developing world where we have projects have been pursuing economic stabilization policies, including the encouragement of foreign trade and investment and other reforms. In the last year, there was an overall improvement in the world (and, consequently, developing world) economic environment. Nevertheless, no assurance can be given that the countries in which we currently or will operate will continue to pursue these policies, that these policies will be successful if pursued or that these policies will not be significantly altered. In case of a decline in the world economy, political or social problems or a reversal of foreign investment policies, it is likely that any such change will have an adverse effect on the Company's results of operations and financial condition. Additionally, inflation may lead to higher wages and salaries for local employees and increases in the cost of materials, which would adversely affect the Company's profitability.

 

Risks inherent in foreign operations include nationalization, war, terrorism, and other political risks and risks of increases in foreign taxes or changes in U.S. tax treatment of foreign taxes paid and the imposition of foreign government royalties and fees.

 

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable.

 

Item 8.  Financial Statements and Supplementary Data

 

15
 

 

BLUE SPHERE CORP.

(A development stage company)

 

CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF SEPTEMBER 30, 2012

 

16
 

 

BLUE SPHERE CORP.

(A development stage company)

 

CONSOLIDATED FINANCIAL STATEMENTS

 

AS OF SEPTEMBER 30, 2012

IN U.S. DOLLARS

 

TABLE OF CONTENTS

 

  Page
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 3
   
CONSOLIDATED FINANCIAL STATEMENTS:  
Balance sheets as of September 30, 2012 and 2011 4
Statements of operations for the years ended September 30, 2012 and 2011;
and for the period from July 17, 2007 through September 30, 2012 5
Statements of changes in stockholders' deficit for the period from July 17, 2007 through
September 30, 2012 6
Statements of cash flows for the years ended September 30, 2012 and 2011;
and for the period from July 17, 2007 through September 30, 2012 7
Notes to interim financial statements 8-17

  

17
 

 

REPORT OF REGISTERED INDEPENDENT AUDITORS

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Blue Sphere Corp. (A Development Stage Company)

 

We have audited the accompanying consolidated balance sheets of Blue Sphere Corp. and its subsidiaries (a development stage company) as of September 30, 2012 and 2011, the related consolidated statements of operations, stockholders' equity, and cash flows for each of the two years in the period ended September 30, 2012 and for the period from May 17, 2007 (date of inception) to September 30, 2012. These financial statements are the responsibility of the Company's Board of Directors and management. Our responsibility is to express an opinion on the financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, based on our audit, such consolidated financial statements present fairly, in all material respects, the financial position of Blue Sphere Corp. and its subsidiaries as of September 30, 2012 and 2011 and the results of their operations, stockholders' equity and their cash flows for each of the two years in the period ended September 30, 2012 and for the period from May 17, 2007 (date of inception) to September 30, 2012, in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1a to the financial statements, the Company has incurred recurring losses from operations that raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1a. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Brightman Almagor Zohar & Co.

Certified Public Accountants

A Member Firm of Deloitte Touche Tohmatsu

 

Tel Aviv, Israel

December 26, 2012

  

TEL AVIV - MAIN OFFICE   RAMAT GAN   JERUSALEM   HAIFA   BEER SHEVA   EILAT
                     
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Tel Aviv, 67021   Ramat Gan, 52521   Jerusalem, 94390   P.O.B. 5648   Building No.10   P.O.B 583
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Tel: +972 (3) 608 5555   Tel: +972 (3) 755 1500   Tel: +972 (2) 501 8888   Tel: +972 (4) 860 7333   Tel: +972 (8) 690 9500   Tel: +972 (8) 637 5676
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info@deloitte.co.il   info-ramatgan@deloitte.co.il   info-jer@deloitte.co.il   info-haifa@deloitte.co.il   info-beersheva@deloitte.co.il   info-eilat@deloitte.co.il

 

Deloitte refers to one or more of Deloitte Touche Tohmatsu, a Swiss Verein, and its network of member firms, each of which is a legally separate and independent entity. Please see www.deloitte.com/about for a detailed description of the legal structure of Deloitte Touche Tohmatsu and its member firms.

 

Member of Deloitte Touche Tohmatsu

 

18
 

 

BLUE SPHERE CORP.

(A development stage company)

CONSOLIDATED BALANCE SHEETS

(U.S. dollars in thousands except share and per share data)

 

   September 30,   September
30,
 
   2012   2011 
Assets          
CURRENT ASSETS:          
Cash and cash equivalents  $22   $50 
Other current assets   43    17 
Total current assets   65    67 
           
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation   6    9 
Total assets  $71   $76 
Liabilities and Stockholders’ Equity (Deficit)          
CURRENT LIABILITIES:          
Accounts payables  $11   $9 
Other accounts payable   482    163 
Debentures and notes   246    45 
Total current liabilities   739    217 
           
STOCKHOLDERS' DEFICIT:          
Common shares of $0.001 par value each:          
Authorized: 1,750,000,000 shares at September 30, 2012 and September 30, 2011, Issued and outstanding: 184,695,507 shares and 116,725,297 shares at September 30, 2012 and September 30, 2011, respectively   184    117 
Additional paid-in capital   25,744    22,670 
Accumulated deficit during the development stage   (26,596)   (22,928)
Total Stockholders’ Equity (Deficit)   (668)   (141)
Total liabilities and Stockholders’ Equity (Deficit)  $71   $76 

 

The accompanying notes are an integral part of the consolidated financial statements.

 

19
 

 

BLUE SPHERE CORP.

(A development stage company)

CONSOLIDATED STATEMENTS OF OPERATIONS

(U.S. dollars in thousands except share and per share data)

 

           Cumulative 
           from July 17, 
   Year ended   2007 through 
   September 30   September 30, 
   2012   2011   2012 
             
OPERATING EXPENSES -               
General and administrative expenses *  $3,604  $16,671   $26,531
FINANCIAL EXPENSES (INCOME), net  54    5   55 
    3,658    16,676    26,586 
Other losses   10    -    10 
NET LOSS FOR THE PERIOD  $3,668  $16,676   $26,596
                
Net loss per common share - basic and diluted  $(0.02)  $(0.21)     
                
Weighted average number of common shares outstanding during the period - basic and diluted   153,662,115    78,311,612      

 

*In the years ended September 30, 2012 and 2011 - includes $2,956 thousands and $16,058 thousands, respectively of share-based compensation.

 

The accompanying notes are an integral part of the consolidated financial statements.

 

20
 

  

BLUE SPHERE CORP.

(A development stage company)

STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)

(U.S. dollars in thousands, except share and per share data)

 

               Accumulated     
   Common Stock, $0.00001 Par
Value
   Additional paid-
in
   deficit
during the
development
   Total
Stockholders'
 
   Shares   Amount   Capital   stage   Equity (deficit) 
                     
COMMON STOCK ISSUED, JULY 17, 2007 (DATE OF INCEPTION)   1,900,000   $2   $67   $-   $69 
CHANGES DURING THE PERIOD FROM JULY 17, 2007 THROUGH DECEMBER 31, 2011 (audited):                         
Issuance of common stock   471,948    -    198    -    198 
Share split of 35:1   64,600,000    65    (65)   -    - 
Common stock issued as direct offering costs   2,000,000    2    995    -    997 
Share based compensation   16,025,609    16    16,105    -    16,121 
Exercise of Options   8,321,917    8    -    -    8 
Share based compensation for services   23,405,823    24    5,370    -    5,394 
Net loss for the period   -    -    -    (22,928)   (22,928)
BALANCE AT SEPTEMBER 30, 2011 (audited)   116,725,297   $117   $22,670   $(22,928)  $(141)
CHANGES DURING THE YEAR ENDED SEPTEMBER 30, 2012 (audited):                         
Share based compensation   -    -    2,609    -    2,609 
Issuance of common stock   525,000    1    19    -    20 
Issuance of common stock in respect of issuance of convertible notes   36,526,376    37    129    -    166 
Share based compensation for services   14,275,000    13    333    -    346 
Exercise of Options   16,643,834    16    (16)   -    - 
Net loss for the period   -    -    -    (3,668)   (3,668)
BALANCE AT SEPTEMBER 30, 2012 (audited)   184,695,507   $184   $25,744   $(26,596)  $(668)

 

The accompanying notes are an integral part of the consolidated financial statements.

 

21
 

 

BLUE SPHERE CORP.

(A development stage company)

CONSOLIDATED STATEMENTS OF CASH FLOWS

(U.S. dollars in thousands)

 

           For the period 
           From July 17, 
   Year ended   2007 through 
   September 30   September 30, 
   2012   2011   2012 
CASH FLOWS FROM OPERATING ACTIVITIES:               
Profit (Net loss) for the period  $(3,668)  $(16,676)  $(26,596)
Adjustments required to reconcile net loss to net cash used in operating activities:               
Share based compensation expenses   2,609    10,665    18,730 
Depreciation   2    -    2 
Expenses  in respect of Convertible notes   19    -    19 
Issuance of shares for services   347    5,394    5,741 
Issuance of shares in respect of issuance of Convertible notes   52    -    52 
Receivables on account of shares   -    -    - 
Increase (decrease) in other current assets   (6)   7    (23)
Increase (decrease) in accounts payables   2    (106)   10 
Increase in other account payables   319    160    483 
Net cash used in operating activities   (324)   (556)   (1,582)
CASH FLOWS FROM INVESTING ACTIVITIES:               
Payment for purchasing of fixed assets   -    (1)   (9)
Net cash used in investing activities   -    (1)   (9)
CASH FLOWS FROM FINANCING ACTIVITIES:               
Proceeds from options exercise   -    8    8 
Loan granted   (30)   -    (30)
Loan received   30    -    30 
Proceeds from issuance of convertible notes   276    45    321 
Proceeds from stock issued for cash   20    199    1,284 
Net cash provided by financing activities   296    252    1,613 
                
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS   (28)   (305)   22 
                
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   50    355    - 
                
CASH AND CASH EQUIVALENTS AT     END OF PERIOD  $22   $50   $22 

 

The accompanying notes are an integral part of the consolidated financial statement

 

22
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES:

 

a.Going concern consideration:

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2012, the Company had approximately $22 thousand in cash, a negative working capital of approximately $674 thousand in working capital, a negative stockholders’ equity of approximately $668 thousand and an accumulated deficit of approximately $26,596 thousand. Management anticipates that their business will require substantial additional investments that have not yet been secured. The Company anticipates that the existing cash will not be sufficient to continue its operations through the next 12 months. Management is continuing in the process of fund raising in the private equity markets as the Company will need to finance future activities and general and administrative expenses. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability

 

b.General:

 

The Company was incorporated in the state of Nevada on July 17, 2007 and was in the business of developing and promoting automotive internet sites. During the second quarter of 2010 the management of the Company decided to change its business focus to that of Greenhouse Gas (GHG) emission reduction as well as a project integrator in the clean energy production and waste to energy markets. The Company seeks to generate revenue through sales of carbon credits, energy generation, project development and sale of byproducts.

 

The Company offers potential partners (owners of: landfills, coal mines, fertilizer factories, etc) a kind of turnkey operation in dealing with the emission reduction. The Company service consists of: executing the process needed in order to make the project eligible for carbon credits, choosing the most suitable technology to be applied, arranging for the financing, constructing and managing the project for its life. We operate primarily in countries from the former Soviet Union, China and the USA.

 

During the second quarter of 2012, the Company's 50%-owned subsidiary, Puresphere Ltd, commenced its operations. The results of its operations and balance sheet as of September 30, 2012 have not been material.

 

On September 13, 2012, the Company, together with Biogas Nord AG, a German public company listed on the Frankfurt Stock Exchange, established Bino Sphere LLC. The Company holds 75% of the rights of Bino Sphere. On October 19, 2012, Bino Sphere signed two definitive project agreements to acquire 100% of Orbit Energy Inc.’s right, title and interest in, to and under two waste to energy projects in the United States. Based on the signed agreement the Company would pay Orbit Energy Inc Development fee in the amount $900 thousand to the acquired North Carolina agreement and $600 thousands for the acquired Road Island agreement, in the event that the Company would succeed with financial closing in each of such projects. The results of Bino Sphere's operations and balance sheet as of September 30, 2012 have not been material.

 

23
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

c.Functional currency:

 

The currency of the primary economic environment in which the operations of the Company are conducted is the U.S dollar (“$” or “dollar").

 

Most of the Company’s expenses are incurred in dollars. Most of the Company’s external financing is in dollars. The Company holds most of its cash and cash equivalents in dollars. Thus, the functional currency of the Company is the dollar.

Since the dollar is the primary currency in the economic environment in which the Company operates, monetary accounts maintained in currencies other than the dollar are re-measured using the representative foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the rate in effect at the date of transaction. The effects of foreign currency re-measurement are reported in current operations (as “financial expenses - net) and have not been material to date.

 

d.Principles of consolidation:

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries..

Inter-company balances and transactions have been eliminated upon consolidation.

 

e.Cash equivalents:

 

Cash equivalents are short-term highly liquid investments which include short term bank deposit (up to three months from date of deposit), that are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired.

 

f.Property, plant and equipment:

 

Property, plant and equipment are stated at cost, less accumulated depreciation. Assets are depreciated using the straight-line method over their estimated useful lives.

Computers, software and electronic equipment are depreciated over three years. Tools and equipment are depreciated over five years. Furniture is depreciated over fourteen years.

 

g.Use of estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates

 

h.Share-base payments:

 

The Company accounts for awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as expense over the requisite service period, net of estimated forfeitures.

 

24
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

i.Loss per share:

 

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common shares and of common shares equivalents outstanding when dilutive. Common shares equivalents include: (i) outstanding stock options under the Company’s Long-Term Incentive Plan and warrants which are included under the treasury share method when dilutive, and (ii) Common shares to be issued under the assumed conversion of the Company’s outstanding convertible notes, which are included under the if-converted method when dilutive. The computation of diluted net loss per share for the years ended September 30, 2012, and 2011, does not include common share equivalents, since such inclusion would be anti-dilutive.

 

j.Deferred income taxes:

 

Deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect when those differences reverse. A valuation allowance in respect of deferred tax assets is provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has provided a full valuation allowance with respect to its deferred tax assets.

 

k.Comprehensive loss:

 

The Company has no component of comprehensive income loss other than net loss.

  

l.Newly issued accounting pronouncements:

 

None

 

25
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – DEBENTURES AND NOTES:

 

On September 16, 2011, the Company signed a securities purchase agreement with Asher Enterprises Inc., a Delaware corporation with a head office in New York (“Asher”), pursuant to which Asher purchased an aggregate amount of U.S. $45,000 of our 8% convertible notes (the “Notes”). The Notes are convertible into shares of common stock of the Company from time to time, and at any time, beginning March 14, 2012 and ending, absent any condition of default, on June 14, 2012, subject to the limitations and conditions set forth in the Notes. The Company has the right to prepay the Notes under the certain conditions for 180 days following the issue date. On each of November 11, 2011 and January 26, 2012, Asher purchased an additional U.S. $32,500 of our 8% convertible notes (for an aggregate total of U.S. $65,000). Such additionally-purchased notes, together with the Notes, are referred to as the “Asher Notes”.

 

On March 19, 2012 Asher transferred 100% of the Asher Notes to third parties. During April 2012, such third parties converted $110 thousand (i.e., 100% of the principal amount) of the Principal amount of the Asher Notes into 28,893,043 shares of the Company (a conversion price of $0.0039802 per share).

 

On March 26, 2012, and May 7, 2012 Asher purchased an additional U.S. $53,000 and $32,500, respectively of our 8% convertible notes.

 

On September 13, 2012 the Company signed on an additional U.S. $32,500, 8% convertible note with Asher. The funds for such note were not received as of the balance sheet date.

 

On July 1, 2012, the Company signed a placement agreement with Fidelity Venture Capital Limited (“Fidelity”) pursuant to which Fidelity undertook to raise U.S. $1,000,000 in notes convertible into shares of common stock or more senior equity securities of the Company (if any) for a period of three and one half years at prices ranging from USD 0.02 cents to USD 0.10 cents per share or a discount of 20% of the then market price of the Company’s shares depending on when any such conversion is consummated (the “Fidelity Notes”). The Fidelity Notes will bear annual interest of 6.5% to be paid semi-annually in arrears. The Company has committed to pay off the outstanding principal of the Fidelity Notes by paying to the holders of such Fidelity Notes 7% of gross income and making certain pre-payments of the principal during the term of the notes. Each holder of Fidelity Notes are to receive shares of common stock of the Company worth USD 0.70 cents for each dollar it invested in the Fidelity Notes (the “Incentive Shares”). The Company has pledged the income from its projects to such holders as security to pay the Fidelity Notes in full. Fidelity will receive nine percent of the gross proceeds it raises for the Company. To-date, the Company has received an aggregate amount of U.S. $50,000 (less commissions) from sales of Fidelity Notes.

 

On September 4, 2012 and September 25, 2012, we signed securities purchase agreements with Jelton Finance Corp., a Belize corporation, with offices in Lichtenstein (“Jelton”), pursuant to which Jelton agreed to purchase an aggregate of $45,000 of our 7% convertible notes due in each case three months after their respective issue dates (the “Jelton Notes”). The Jelton Notes are convertible into shares of the Company at a discount to the applicable market price on the date of conversion. The Company has the right to prepay the Jelton Notes under certain conditions for 90 days following their issue date. On October 14, 2012, after the balance sheet date, the Company has signed additional securities purchase agreements with Jelton in the amount of $25,000.

 

26
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 2 – RELATED PARTY TRANSACTIONS:

 

On March 3, 2010, the Company entered into employment agreements with Eliezer Weinberg the Company Chairman of the Board, Shlomo Palas the Company’s CEO and Shmuel Keshet the Company’s COO for a term of two years. The officers receive monthly remuneration at a gross rate of USD$10,000. The remuneration will increase to a gross monthly rate of USD$15,000 upon the completion of outsourced technical project reports (“PDDs”) for two projects. Each officer was granted stock options to acquire 8,321,917 or nine percent (9%) of common stock in the capital of the Company, exercisable at a par value (see note 7).

 

On July 28, 2011 the Board granted to Mr. Eliezer Weinberg and to Mr. Shlomo Palas 4,200,000 common shares each for their contributions to the Company.

 

On July 28, 2011 the company appointed Mr. Roy Amitzur as Executive Vice-President. Mr. Amizur is entitled to receive U.S. $10,000 plus VAT per month after he arranges an investment of no less than $450,000 in the Company and U.S. $15,000 plus VAT per month after he arranges an equity investment in the Company of no less than U.S. $2,000,000. He also received 12,500,000 common shares of the Company. If Mr. Amizur resigns from the Company prior to July 25, 2013, he will forfeit a pro rata portion of his shares back to the Company (the amount subject to forfeiture being equal to the number of days, which Mr. Amizur did not serve as Executive Vice-President out of the two year term of his management services agreement. As of July 2012, we agreed to start paying Mr. Amizur a monthly salary of U.S. $10,000.

 

Mr. Amizur also received 1,075,000 shares of common stock on August 23, 2011 for his extraordinary contributions to the Company.

 

The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available.

 

On August 31, 2011, the Company issued 1,308,325 common shares to Mr. Keshet, the Company's former chief operating officer who resigned from the Company, as compensation for his unpaid salaries. In addition the company agreed to accelerate the vesting of the remaining of his stock options amounted to 8,321,917 common shares.

 

In February 2012, Company's chairman, Eliezer Weinberg, resigned from the board of directors. In his place, the Board of Directors of the Company appointed Joshua Shoham non-executive director and chairman of the board. Mr. Shoham received 4,000,000 shares of stock, which are subject to pro-rata forfeiture in the event that Mr. Shoham does not serve his full term of two years as director. As of July 2012, the Company agreed to pay Mr. Shoham $10,000 per month plus VAT.

 

27
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – COMMON SHARES:

 

On November 3, 2011, the Company entered into a consulting agreement with He Mu for business development and project management in China in exchange for 3,000,000 shares of common stock (the "Shares").  The Shares are restricted for thirty-six (36) months following their issuance and are being held in Escrow for the entire thirty-six (36) month restricted period. The escrowed shares are subject to a claw-back provision so that if the agreement is terminated for any reason prior to the completion of 36 months, the amount of 83,333 shares will be returned to the Company for each month of such early termination.

 

During October 2011, the Company issued 525,000 common shares of the Company to an investor for total consideration of $20 Thousand.

 

On May 22, 2011, the Company and Bluebird Finance & Projects Ltd ("Bluebird") entered into a financing consulting services agreement according to which Bluebird will assist the Company with evaluating potential projects, review agreements, search for potential financing parties, accompany the Company in financing activities, etc. The agreement shall be valid for a period of 24 months and can be terminated by either party subject to a written notice of 60 days in advance. In consideration for Bluebird services, the Company will pay a monthly retainer fee of 15,000 common shares of the Company. In addition, the Company shall pay Bluebird a success fee of 2% for each executed financing round with a minimum of $50 thousand. During the quarter ended December 31, 2011 the Company issued 75,000 common shares in respect of the above agreement.

 

On October 11, 2011, the Company and Bluebird signed an amendment for the May 22, 2011 agreement according to it, in order to incentivize Bluebird to expand and enhance its efforts on behalf of the Blue Sphere, the Company shall issue the Bluebird (1) additional 500,000 common shares of the company upon signing of the amendment to the agreement (2) additional 500,000 common shares upon receipt of an investment or debt of at least $5,000 thousands and (3) additional 500,000 common shares upon receipt of an additional investment or debt of at least $5,000 thousands (total amount received of $10,000 thousand). On November 28, 2011 the Company issued to Bluebird 500,000 common shares under the above amendment to the agreement. The shares to be issued under the above amendment would be restricted for a period of 12 months from the date of issuance.

 

On January 5, 2012, the Company approved the issuance of 1,250,000 common shares of the Company to an investor for total consideration of $35 Thousand. The consideration for the shares has not yet been received to the date of the approval of the financial statements.

 

On February 1, 2012 the Company approved and granted 1,600,000 common shares of the Company for each of its Chief Executive Officer and the Chairman of the Board. In addition, the Company approved and granted 500,000 common shares of the Company for its Chief Carbon Officer and general counsel.

 

On February 6, 2012 the Company appointed Mr. Joshua Shoham as a director and issued him 2,000,000 common shares of the Company. The shares are subject to pro-rata forfeiture in the event that Mr. Shoham does not serve his full term of two years as director. In addition, on February 29, 2012 the Company appointed Mr. Shoham as the chairman of the board for a period of two years and granted him with additional 2,000,000 shares.

 

On February 20, 2012 Chief Executive Officer and the former Chairman of the Board exercised 16,643,834 options granted to them on May 13, 2010 into Company shares. The options exercise price was deducted from Company's debt to Chief Executive Officer and the former Chairman of the Board.

 

28
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 3 – COMMON SHARES: (continue)

 

On February 20, 2012 the Company approved the grant of 4,000,000 common shares to a consultant of which 2,000,000 shares are subject claw-back provision, according to which in the event that the Company has not closed 6 additional deals within 18 months from the effective date as detailed in the consulting agreement, such shares would be returned to the Company. The shares under such agreement have not yet been issued as of the date of the approval of the financial statements.

 

On February 21, 2012, the Company executed a promissory note (the “Promissory Note”) pursuant to which it borrowed $30,000 from Jean-Marc Karouby, M.D., an individual residing in France (the “French Lender”). Part of the consideration for the Promissory Note was the issuance of 2,800,000 shares of common stock of the Company. In connection with such issuance of shares, the Company also granted to the French Lender piggy-back registration rights. As a result, such shares may be registered under the S-1.

 

The maturity date of the Promissory Note is November 20, 2012. Under the terms of the Promissory Note, interest accrues on the basis of a 270-day year at a rate of 18% per annum or at a higher rate of 24% per annum if such higher rate is permissible under Nevada law. The Promissory Note is governed under the laws of Nevada. The default rate of interest under the Promissory Note is 35% per annum, and a default shall be declared upon a declaration by the Company of bankruptcy under Chapter 7 or Chapter 11 under the applicable federal United States bankruptcy laws or upon the failure to make payments when due on or before 10 days after an applicable due date. Monthly interest payments of $600 are due on or before the 20th of each month while the Promissory Note remains outstanding. In addition to payment of the default interest rate and principal, upon a default the Company shall also issue to the French Lender additional shares of its common stock equal to 150% of the value of the principal and interest due converted at the applicable trading price for the Company’s shares at the time of default. Cash payments due under the Promissory Note have been personally guaranteed by Shlomo Palas, the Company’s Chief Executive Officer.

 

On June 1, 2012 the Company issued to a consultant 1,000,000 shares. Such shares are restricted from transfer for a period of 12 months from the dates of its issuance.

 

During April 2012, third parties converted $110 thousand of the Principal amount of the Asher Notes into 28,893,043 shares of the Company (a conversion price of $0.0039802 per share) (see further information above).

 

On July 17, 2012 the Company issued to Fidelity 2,333,333 shares of the Company on account of the placement agreement with Fidelity.

 

On August 30, 2012 the Company issued to Jelton 2,500,000 shares of the Company on account of the security purchase agreement with Jelton.

 

29
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 4 – STOCK OPTIONS:

 

The 2010 share option plan was established On March 3, 2010.

 

Options to Directors and Employees:

 

On March 3, 2010, the Board of Directors of the Company granted of 24,965,751 options to three officers of the Company, exercisable for two years at exercise prices of $0.001 per share, to be vested by the end of each three month from the date of employment agreement signed on May 14, 2010.

 

The fair value of the stock options grants was estimated using the Black-Schooled option valuation model that used the following assumptions:

 

   % 
Dividend yield   0 
Risk-free interest rate   3.75%
Expected term (years)   2 
Volatility   177%

 

The fair value of the options granted above using the Black-Scholes model is $0.75 per option.

 

The following table presents the Company’s stock option activity for employees and directors of the Company for the years ended September 30, 2010 through 2012:

 

   Number of
Options 
and options
   Weighted
Average
Exercise
Price
 
Outstanding at September 30, 2010   24,965,751    0.001 
Granted   -    - 
Exercised   8,321,917    0.001 
Forfeited or expired   -    - 
Outstanding at September 30,2011   16,643,834    0.001 
Granted   -    - 
Exercised   16,643,834    0.001 
Forfeited or expired   -    - 
Outstanding at September 30,2012   -    - 
Number of options exercisable at September 30, 2012   -      
Number of options exercisable at  September 30, 2011   13,176,369      

 

Costs incurred in respect of stock based compensation for employees and directors, for the year ended September 30, 2012 and September 30, 2011 were $ 2,956 and $16,058thousand respectively.

 

As of September 30, 2012 there were no outstanding option and warrants.

 

30
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 5 – INCOME TAXES:

 

US resident companies are taxed on their worldwide income for corporate income tax purposes at a statutory rate of 35%. No further taxes are payable on this profit unless that profit is distributed. If certain conditions are met, income derived from foreign subsidiaries is tax exempt in the US under applicable tax treaties to avoid double taxation.

 

The income of the company's Israeli subsidiaries is taxed through 2009 at the rate of 26%. The corporate tax rates for 2010 and thereafter are as follows: 2010 - 25%, in the 2011 tax year – 24% and in the 2012 tax year and thereafter the applicable Companies Tax rate will be 25%.

 

The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are adjusted by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

Deferred income taxes reflect the net effects of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The breakdown of the deferred tax asset as of September 30 2012, 2011 and 2010 is as follows:

 

   2012   2011   2010 
   U.S dollars in thousands 
Deferred tax assets:               
Net operating loss carry-forward  $1,357   $386   $225 
Valuation allowance   (1,357)   (386)   (225)
   $0   $0   $0 

 

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Management has determined, based on its recurring net losses, lack of a commercially viable product and limitations under current tax rules, that a full valuation allowance is appropriate.

 

   U.S dollars
in thousands
 
Valuation allowance, September 30, 2011  $386 
Increase   971 
Valuation allowance, September 30, 2012  $1,357 

 

Carry forward losses of the Israeli subsidiary are approximately $971 thousand at September 30, 2012.

 

31
 

 

BLUE SPHERE CORP.

(A development stage company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NOTE 6 – NET LOSS PER SHARE DATA:

 

The shares issuable upon the exercise of options, and conversion of convertible notes and warrants, which have been excluded from the diluted per share amounts because their effect would have been anti-dilutive, include the following:

   September
30, 2012
   September
30, 2011
 
Options:          
Weighted average number, in thousands   -    16,644 
Weighted average exercise price  $-   $0.001 

 

NOTE 7 – OTHER LOSS:

 

On January 31, 2012, the Comapny lent an Israeli company, CTG Clean Technology Group Limited (the “Borrower”), U.S. $30,000 at an annual rate of interest of eight percent (8%). The purpose of this loan was to provide the borrower capital to continue its operations while the Company considered acquiring such company. On February 8, 2012, the Company received the cash to make such loan to the Borrower from a Cyprus company (JLS Investment Holding). The Borrower pledged the revenues from its Angolan waste-water project toward the repayment of the principal and interest of this loan. Management are in negotiations with CTG with respect to repayment of such loan together with accrued and unpaid interest, however, to-date, we have not received any payment whatsoever from the borrower. During the year ended September 30, 2012 the Company wrote-off $10,000 of such loan.

 

NOTE 8 – SUBSEQUENT EVENTS:

 

In November 5, 2012 the Company entered into an agreement with a non-US investor to sell 30,000,000 shares of common stock at December 25, 2012 for an aggregated amount of $70,000.

 

On December 20 2012, the Company entered into an agreement with a non-US investor to sell 35,000,000 shares of common stock at a price of $0.00286 per share for $100,000 and to purchase another 17,500,000 shares of common stock for $50,000 in January 2013 and another 17,500,000 shares of common stock for $50,000 in February 2013. Additionally, the Company (i) obligated to issue such investor 10,000,000 shares of common stock in February 2013 at no additional cost and (ii) issue to such investor an option to purchase 7,500,000 shares of common stock for one year for 0.02 per share and to purchase 7,500,000 shares of common stock for two years at a price per share of $0.04

 

On November 5, the Board of Directors of the Company approved the issuance of 6,000,000 shares of the Company to its Chief Executive officer, 5,000,000 shares to the Chairman of the Board, 5,000,000 shares to the Executive Vice-President and 4,000,000 shares to the Chief Carbon Officer and general counsel of the Company.

 

32
 

 

During October and November 2012, holders of $85.5 thousands of principal amount of Asher convertible notes converted their notes into 67,379,296 shares of the Company's common stock. The share issued to such holders does not represent 100% of the principal amount of such shares.

 

On November 6, 2012 Asher purchased an additional U.S. $32,500 of our 8% convertible notes.

 

Item 9.  Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 9A.  Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Our management, including our chief executive officer and chief financial officer, has evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2012. Based on such review, our chief executive officer and chief financial officer have determined that in light of their conclusion with respect to the effectiveness of our internal control over our financial reporting as of such date, we had in place effective controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure, and is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms.

 

Our management, under the supervision of our chief executive officer and chief financial officer, is responsible for establishing and maintaining adequate internal control over our financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act of 1934. The Company’s internal control over financial reporting is defined as a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over financial reporting includes policies and procedures that:

 

  £ pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and asset dispositions;

 

  £ provide reasonable assurance that transactions are recorded as necessary to permit the preparation of our financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

 

  £ provide reasonable assurance regarding the prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on our financial statements.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we evaluated the effectiveness of our internal control over financial reporting as of September 30, 20101 based on the framework for Internal Control-Integrated Framework set forth by The Committee of Sponsoring Organizations of the Treadway Commission. Management’s evaluation concluded that there were no material weaknesses with respect to segregation of duties that may not provide reasonable assurance regarding the reliability of internal control over financial reporting and may not prevent or detect misstatements.

 

Based on this evaluation, our management concluded that the Company’s internal controls over financial reporting were effective as at September 30, 2012.

 

It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

33
 

 

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Commission that permit us to provide only management’s report in this Annual report.

 

There were no changes in our internal controls over financial reporting identified with the evaluation thereof that occurred during the year ended September 30, 2012, that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

 

Item 9B.  Other Information

 

Not applicable.

 

Part III

 

Item 10.  Directors, Executive Officers and Corporate Governance

 

Joshua Shoham – Chairman of the Board

Mr. Shoham has extensive experience in senior executive management and in international business development in the USA, Europe and China. He held several General Manager positions, e.g. the General Manager of the Israeli subsidiary of International Paper (a Fortune 100 Company), and was co-founder of several high-tech startups (e.g. Infowrap Systems). Mr. Shoham was also a strategic market development consultant responsible for a range of transactions in the Israeli and Chinese traditional and high-tech industries, e.g. initiating a joint venture between Saifun Semiconductors and Infineon, which resulted in Infineon becoming an equity partner in Saifun and Saifun going public on NASDAQ. He has served for six years as a Board of Directors Member in Bio-Cell (TASE: BCEL), which reversed merged its activities into Protalix Biotherapeutics (AMEX: PLX; TASE: PLX). Mr. Shoham holds an MBA and a B.A. in Economics, both from the Hebrew University of Jerusalem, and an LL.B degree from the Faculty of Law of Tel-Aviv University.

 

Shlomo Palas – Chief Executive Officer and Director

Mr. Palas became our chief executive officer and director on March 3, 2010. Mr. Palas is a highly experienced entrepreneur who has held executive positions at a number of leading Israeli firms. He was a senior consultant with Mitzuv, a leading management consulting firm. For the past four years, Mr. Palas has specialized in the renewable and clean tech industries. He has gained significant experience in renewable and clean tech manufacturing, off-take contracts with leading petrol companies, legal/financial structuring, and fundraising for these industries. He has also developed a large network in private and government sectors in many cities across China. Mr. Palas served as chief executive officer of Becco Biofuels China Ltd., which was a company active in the biofuel industry. Mr. Palas participated in the establishment of the largest commercial algae farm in China together with one of China’s largest electrical utilities.

 

Roy Amizur – Executive Vice President
Mr. Amizur is an expert in clean technology and renewable energy production, especially in respect of water and water treatment, and has started-up, developed, managed and operated a number of companies in this space, including, but not limited to, Clean Technologies Group Ltd., Bio Pure Technology Ltd. and Aquarius Technologies Inc. Mr. Amitzur has significant experience in implementing BOT and turn-key projects in water technologies and water and waste water execution around the world.

 

Shlomo Zakai – Chief Financial Officer

Mr. Zakai is an expert in finances with many years of experience with U.S. public companies. He established his own accounting firm in 2004, providing a range of services to publicly traded companies as well as private companies, and he has served as controller and Chief Financial Officer of a number of private companies.  Mr. Zakai serves as the internal auditor of several Israeli traded companies and oversees Sarbanes-Oxley compliance in several U.S. and Israelis traded companies. He has worked as an accountant for nine years in the hi-tech department of Kost, Forer, Gabbay & Kasierer, an independent registered public accounting firm and a member firm of Ernst & Young Global, where he last served as a senior manager and worked with companies publicly traded on NASDAQ and in Israel.  Mr. Zakai is a CPA (Certified Public Accountant) and holds a B.A. in Accounting from the College of Management in Rishom Le'Zion.

 

34
 

 

Mark Radom – Chief Carbon Officer and General Counsel

Mr. Radom became our chief carbon officer on October 25, 2010. Mr. Radom has extensive experience in the carbon and renewable energy sector. He was legal counsel for a number of carbon and ecological project developers and was responsible for structuring joint ventures and advising on developing projects through the CDM/JI registration cycle and emission reduction purchase agreements. He advised aviation companies on the inclusion of aviation in the third phase of the EU ETS and was an executive of a European-based developer and integrator of carbon and ecological projects. Mr. Radom has experience in identifying and implementing promising industrial gas (N2O and SF6), methane (landfill, compost, coal mine, waste water and associated gas), fuel switch (from diesel to natural gas) and a range of renewable energy projects (wind, solar and biogas to energy). Mr. Radom has assisted in the preparation of project design documents and has prepared complex projects for validation. Prior to this, he worked on Wall Street and in the City of London as a US securities and capital markets lawyer where he represented sovereigns, global investment banks and fortune 500 companies across a broad range of capital raising and corporate transactions. He is a graduate of Duke University and Brooklyn Law School. Mr. Radom is admitted to practice law in New York and New Jersey and speaks fluent Russian.

  

    Position Held   Date First Elected or Appointed
Joshua Shoham   Chairman of the Board   February 4, 2012
Shlomo Palas   Chief Executive Officer   March 3, 2010
Roy Amizur   Executive Vice President   July 28, 2011
Shlomo Zakai   Chief Financial Officer   January 2, 2012
Mark Radom   Chief Carbon Officer   October 25, 2010

 

Mr. Palas is contractually obligated to devote no less than 75% of his time toward the development of the Company. In practice, Mr. Palas is devoting substantially more than 75% of his time to Bluesphere.

 

Significant Employees  

 

We do not currently have any other significant employees aside from the named executive officers (as defined under the caption “Executive Compensation” in Item 10 of this report).

 

Family Relationships  

 

Not applicable.

 

Involvement in Certain Legal Proceedings  

 

Our directors, executive officers and control persons have not been involved in any of the following events during the past ten years:

 

(1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time;

 

(2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);

 

(3) being subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; and

 

(4) being found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated.

 

Committees  

 

The company does not currently have a standing audit, nominating or compensation committee of the board of directors, or any committee performing similar functions. The company's board of directors currently performs the functions of audit, nominating and compensation committees.  

 

35
 

 

Item 11. Executive Compensation

 

The table set forth below summarizes the annual and long-term compensation for services payable to our executive officers during the fiscal years ended September 30, 2011 and 2012:

 

Summary Compensation

 

SUMMARY COMPENSATION TABLE FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2012

 

Name and Principal
Position
  Salary ($)   Bonus   Stock Awards ($)   Option Awards ($)  Non-Equity
Incentive Plan
Compensation
  Non-Qualified
Deferred
Compensation
Earnings
  All Other
Compensation
 
Shlomi Palas, CEO and Diector   120,000    Nil    48,000   Nil  Nil  Nil   168,000 
Eli Weinberg, Chairman of the Board(1)   78,322    Nil    48,000   Nil  Nil  Nil   126,322 
Alex Werber, Acting CFO(2)   8,395    Nil    Nil   Nil  Nil  Nil   8,395 
Shlomo Zakai, Acting CFO(2)   14,493    Nil    Nil   Nil  Nil  Nil   14,493 
Roy Amizur, Executive Vice President   Nil    Nil    Nil   Nil  Nil  Nil   Nil 
Mark Radom, Chief Carbon Officer   84,000    Nil    15,000   Nil  Nil  Nil   99,000 
Joshua Shoham, Chairman of the Board(1)   Nil    Nil    99,479   Nil  Nil  Nil   99,479 

 

1.On January 9, 2012, we appointed Shlomo Zakai as our new chief financial officer on a non-exclusive basis.
2.On February 2012, Mr. Weinberg resigned from the Board of Director. In his place, we appointed Joshua Shoham non-executive director and chairman of the board. Mr. Shoham received 4,000,000 shares of stock, which are subject to pro-rata forfeiture in the event that Mr. Shoham does not serve his full term of two years as director.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

Name  Number of
Securities
Underlying 
Unexercised
Options 
#
   Number of
Securities
Underlying
Unexercised
Options
#
   Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned 
Options
#
  Option
Exercise
Price
$
   Option
Expiration
Date
  Number of
Shares of
Stock That
Have Not
Vested
  Market
Value of
Shares of
Stock
That Have
Not
Vested
  Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares or
Other
Rights That
Have Not
Vested
  Equity
Incentive
Plan
Awards: 
Market or
Payout
Value of
Shares or
Other
Rights
That Have
Not Vested
    Exercisable    Unexercisable                       
Shlomi Palas, CEO and director   Nil    Nil   Nil   0.001   Nil  Nil  Nil  Nil  Nil
                                  
Eli Weinberg, director   Nil    Nil   Nil   0.001   Nil  Nil  Nil  Nil  Nil

 

36
 

 

SUMMARY COMPENSATION TABLE FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2011

 

Name and Principal
Position
  Salary ($)   Bonus   Stock Awards ($)   Option Awards ($)   Non-Equity
Incentive Plan
Compensation
  Non-Qualified
Deferred
Compensation
Earnings
  All Other
Compensation
 
Shlomi Palas, CEO and Diector   120,000    Nil    693,000    3,117,020   Nil  Nil   3,930,020 
Eli Weinberg, Chairman of the Board   120,000    Nil    693,000    3,117,020    
 
Nil
   
 
Nil
   3,930,020 
Alex Werber, Acting CFO(1)   19,000    Nil    Nil    

 

Nil

    
Nil
   
Nil
   19,000 
Shmuel Keshet, COO(2)   40,000    Nil    178,960    4,415,778    
Nil
   
Nil
   4,634,738 
Roy Amizur, Executive Vice President(3)   Nil    Nil    374,824    

 

Nil

    
Nil
   
Nil
   374,824 
Mark Radom, Chief Carbon Officer   89,500    Nil    65,096    

 

Nil

    
Nil
   
Nil
   154,596 
Amit Zilbershtein, CFO (non-active)   Nil    Nil    Nil    

 

Nil

    
Nil
   
Nil
   

 

Nil

 

  


3.Alex Werber formally left the Company in July 2011, but subsequently agreed to act as CFO through this annual report insofar as Mr. Werber was more familiar with the Company than Amit Zilbershtein, the new CFO.
4.Through August 31, 2011, when Mr. Keshet terminated his service as COO with the Company.
5.Roy Amizur is entitled to receive U.S. $10,000 plus VAT per month after he arranges the investment of at least U.S. $450,000 in the Company and U.S. $15,000 plus VAT after he arranges the investment of U.S. $2,000,000 in equity in the Company.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

Name  Number of
Securities
Underlying 
Unexercised
Options 
#
   Number of
Securities
Underlying
Unexercised
Options
#
   Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned 
Options
#
  Option
Exercise
Price 
$
   Option
Expiration
Date
  Number of
Shares of
Stock That
Have Not
Vested
  Market
Value of
Shares of
Stock
That Have
Not
Vested
  Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares or
Other
Rights That
Have Not
Vested
  Equity
Incentive
Plan
Awards: 
Market or
Payout
Value of
Shares or
Other
Rights
That Have
Not Vested
    Exercisable    Unexercisable                       
Shlomi Palas, CEO and director   19,764,553    5,201,198   Nil   0.001   May 13, 2012  Nil  Nil  Nil  Nil
                                  
Eli Weinberg, director   19,764,553    5,201,198   Nil   0.001   May 13, 2012  Nil  Nil  Nil  Nil
                                  
Shmuel Keshet,
COO
   Nil    Nil   Nil   0.001   Nil  Nil  Nil  Nil  Nil

  

Pension, Retirement or Similar Benefit Plans  

 

There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We do not have any material bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers.

 

37
 

 

On March 3, 2010, the Board of Directors authorized the adoption of a global share and option plan for the company (the “Global Share and Option Plan”).

 

Option/ SAR Grants  

 

The Company made no option grants in 2012.

 

Aggregated Option/ SAR Exercises in Last Fiscal Year and Fiscal Year-End Option/ SAR Values  

 

The Company made no option grants in 2012.

 

Long-Term Incentive Plan

 

There were no awards made to the executive officers in 2012.

 

Directors’ Compensation  

 

The directors currently receive no compensation for acting as directors. 

 

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

Principal Stockholders  

 

The following table sets forth, as of September 30, 2012, certain information with respect to the beneficial ownership of our common stock by each stockholder known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers. Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.

 

   Amount   Percentage 
   of Common   of 
   Shares   Class (3) 
Name and Address of Beneficial Owner 5% Shareholders          
Rachmani, Amir NO 19 Shamai St Jerusalem 91020 Israel (1)   20,000,000    10.6%
Directors and Executive Officers (2)          
Josh Shoham   9,000,000    4.7%
Shlomo Palas   20,121,917    10.6%
Roy Amizur   18,575,000    9.5%
Mark Radom   9,000,000    4.7%
All Directors and Executive Officers as a Group (4 Persons)         %

 


(1) Amir Rachmani holds shares on behalf of 17 unaffiliated investors.

 

(2) Each of our directors and executive officers may be reached at 35 Asuta Street, Even Yehuda, Israel 40500.

 

(3) Based on 184,695,507 shares of common stock outstanding as at September 30, 2012. Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock subject to options or warrants currently exercisable, or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.

 

38
 

 

Equity Compensation Plan Information

 

Other than the Global Share Incentive Plan (2010), we have not established any global equity compensation plans.

 

Changes in Control  

 

We are unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of our company.

 

Item 13.  Certain Relationships, Related Transactions and Director Independence

 

There were no related party transactions, other than salaries and fees paid to officers of the Company.

 

Item 14.  Principal Accounting Fees and Services

 

The following is a summary of the fees billed to the Company by the auditors for professional services rendered to our company for the fiscal year ended September 30, 2012:

 

   2012 
Audit Fees  $ 
Audit Related Fees   40,000 
Total Fees   40,000 

 

The Company does not have an audit committee and, as such, has not reviewed, considered or otherwise approved any such fees.

 

Item 15.  Exhibits, Financial Statement Schedules

 

No. Description
3.1 Articles of Incorporation
3.2 Articles of Merger
3.3 Certificate of Change
10.1 Carbon Credit Project Contract Acquisition Agreement
10.2 Termination Agreement
10.3 Global Share Incentive Plan (2010)
10.4 Josh Shoham Advisory Agreement
10.5 Shomo Palas Employment Agreement
10.6 JLS Management Services Agreement
10.7 Mark Radom Consulting Agreement
10.8 Mark Radom Amendment Agreement
10.9 Emissions Purchase Reduction Agreement
10.10 Orbit Term Sheet
10.11 Orbit Energy Charlotte Transfer Agreement
10.12 Orbit Energy Rhode Island Transfer Agreement
10.13 Orbit Energy Definitive Agreement Escrow Agreement
10.14 $32,500 Note to Asher Capital dated November 11, 2011
10.15 $32,500 Note to Asher Capital dated January 26, 2012
10.16 $53,000 Note to Asher Capital dated March 26, 2012
10.17 $32,500 Note to Asher Capital dated May 7, 2012
10.18 $32,500 Note to Asher Capital dated September 13, 2012
10.19 $32,500 Note to Asher Capital dated November 6, 2012
10.20 $20,000 Note to Jelton Finance dated September 4, 2012
10.21 $25,000 Note to Jelton Finance dated September 25, 2012
10.22 $25,000 Note to Jelton Finance dated October 14, 2012
10.23 Orbit Equity Binding Term Sheet
10.24 $70,000 Securities Purchase Agreement dated November 2012
31.1 Rule 13a–14(a)/15d–14(a) Certifications (ii) Rule 13a–14/15d–14 Certification Chief Executive Officer
31.2 Rule 13a–14(a)/15d–14(a) Certifications (ii) Rule 13a–14/15d–14 Certification Chief Financial Officer
32.1 Section 1350 Certification Chief Executive Officer
32.2 Section 1350 Certification Chief Financial Officer

 

39
 

 

SIGNATURES

 

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

 

 

BLUE SPHERE CORP.  
     
By: /s/ Shlomi Palas  
  President, Chief Executive Officer, Secretary and Director
  (Principal Executive Officer)  
  Date:  January 7, 2013  
     
By: /s/ Shlomo Zakai  
  Chief Financial Officer and Treasurer  
  (Principal Accounting Officer and Principal Financial Officer)
  Date:  January 7, 2013  

 

40

 

EX-3.1 2 v330956_ex3-1.htm EXHIBIT 3.1

 

STATE OF NEVADA 

ROSS MILLER

Secretary of State

SCOTT W. ANDERSON

Deputy Secretary

for Commercial Recordings

OFFICE OF THE

SECRETARY OF STATE

 

Certified Copy

  July 28, 2011

 

Job Number: C20110728-2024
Reference Number: 00003188131-75
Expedite:  
Through Date:  

 

The undersigned filing officer hereby certifies that the attached copies are true and exact copies of all requested statements and related subsequent documentation filed with the Secretary of State's Office, Commercial Recordings Division listed on the attached report.

 

Document Number(s) Description Number of Pages
20070491982-22 Articles of Incorporation 1 Pages/1 Copies
20100089610-77 Stock Split 1 Pages/1 Copies

 

 

Certified By: Chris Thomann

Certificate Number: C20110728-2024

You may verify this certificate

online at http://www.nvsos.gov/

 

Respectfully,

ROSS MILLER

Secretary of State

 

Commercial Recording Division

202 N. Carson Street

Carson City, Nevada 89701-4069

Telephone (775) 684-5708

Fax (775) 684-7138

 

 
 

 

 

 

 
 

 

ROSS MILLER

Secretary of Slate

204 North Carson Street, Suite 1

Carson City, Nevada 89701-4520

(775) 684 5708

Website: www.nvsos.gov

 

    Filed in the office of

Document Number

20100089610-77

   
Ross Miller

Filing Date and Time

02/11/2010 11:00 AM

Certificate of Change Pursuant  

Secretary of State

State of Nevada

Entity Number

E0515782007-5

to NRS 78.209      
       

 

USe BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

 

Certificate of Change filed Pursuant to NRS 78.209

For Nevada Profit Corporations

 

1. Name of corporation:

Jin Jie Corp.

 

2. The board of directors have adopted a resolution pursuant to NRS 78.209 and have obtained any required approval of the stockholders.

 

3. The current number of authorized shares and the par value, if any, of each class or series, if any, of shares before the change:

50,000,000 shares of common stock at $0.001 par value

 

4. The number of authorized shares and the par value, if any, of each class or series, if any, of shares after the change:

1,750,000,000 shares of common stock at $0.001 par value

 

5. The number of shares of each affected class or series, if any, to be issued after the change in exchange for each issued share of the same class or series:

35 new shares of common stock will be issued for every one old share of common stock

 

6. The provisions, if any, for the issuance of fractional shares, or for the payment of money or the issuance of scrip to stockholders otherwise entitled to a fraction of a share and the percentage of outstanding shares affected thereby:

No fractional shares will be issued, fractional shares will be rounded up to the next whole number.

 

7. Effective date of filing: (optional) February 17, 2010

 

8. Signature: (required) (must not be later than 90 days after the certificate is filed)

 

X   President
Signature of Officer   Title

 

IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.

 

  Nevada Secretary of State Stock Split
This form must be accompanied by appropriate fees. Revised: 3-8-09

 

 

 

EX-3.2 3 v330956_ex3-2.htm EXHIBIT 3.2

 

ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4520
(775) 684 5708
Website: www.nvsos.gov

  

    Filed in the office of Document Number
    20100089973-59
      Filing Date and Time
    Ross Miller 02/11/2010 11:00 AM
Articles of Merger   Secretary of State Entity Number
(PURSUANT TO NRS 92A.200)    State of Nevada E0515782007-5
Page 1      
       

  

USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

 

Articles of Merger

(Pursuant to NRS Chapter 92A - excluding 92A.200(4b))

 

1)Name and jurisdiction of organization of each constituent entitiy (NRS 92A.200). If there are more than four merging entities, check box ¨ and attach an 81/2“X 11” blank sheet containing the required information for each additional entity.

 

Blue Sphere Corporation  
   
Name of merging entity  
Nevada   Corporation
Jurisdiction Entity type*
Jin Jie Corp.  
   
Name of merging entity  
Nevada   Corporation
Jurisdiction Entity type*
   
Name of merging entity  
     
Jurisdiction Entity type*
   
Name of merging entity  
     
Jurisdiction Entity type*
and,  
Jin Jie Corp.  
   
Name of surving entity  
Nevada   Corporation  
Jurisdiction Entity type*

  

I hereby certify that the within instrument is
a true and correct copy of the instrument of
which it purports to be a true copy.
Given under my hand and seal of office [Illegible]
 
9th day of March A.D., 2010
 
A history public in and for the [Illegible]

 

* Corporation, non-profit corporation, limted parntership, limted-liablity company or business trust.

 

Filling Fee: $350.00

 

This form must be accompanied by appropriate fees. Nevada Secretary of State 92A Merger Page 1
  Revised: 10-16-09

  

 
 

  

ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4520
(775) 684 5708
Website: www.nvsos.gov

       
       
Articles of Merger      
(PURSUANT TO NRS 92A.200)       
Page 2      
       

  

USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

 

2)Forwarding address where copies of process may be sent by the Secretary of State of Nevada (If a foreign entity is the survivor in the merger - NRS 92A.1 90):

 

  Attn:  
     
  c/o:  
     
     
     

  

3)(Choose one)

 

xThe undersigned declares that a plan of merger has been adopted by each constituent entity (NRS 92A.200).

 

¨The undersigned declares that a plan of merger has been adopted by the parent domestic entity (NRS 92A. 180)

 

4)Owner’s approval (NRS 92A.200) (options a, b, or c must be used, as applicable, for each entity) (if there are more than four merging entities, check box £ and attach an 8 1/2” x 11” blank sheet containing the required information for each additional entity):

 

(a)Owner’s approval was not required from

 

Blue Sphere Corporation
Name of merging entity, If applicable
 
Jin Jie Corp.
Name of merging entity, If applicable
 
 
Name of merging entity, If applicable
 
Name of merging entity, If applicable
 
and, or;
 
Jin Jie Corp.
Name of surviving entity, If applicable

  

This form must be accompanied by appropriate fees. Nevada Secretary of State 92A Merger Page 2
  Revised: 10-16-09

   

 
 

 

ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4520
(775) 684 5708
Website: www.nvsos.gov

       
       
Articles of Merger      
(PURSUANT TO NRS 92A.200)       
Page 3      
       

  

USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

 

(b)The plan was approved by the required consent of the owners of *:

 

Blue Sphere Corporation
Name of merging entity, if applicable
 
Jin Jie Corp.
Name of merging entity, if applicable
 
 
Name of merging entity, if applicable
 
 
Name of merging entity, if applicable
 
and, or;
 
Jin Jie Corp.
Name of surviving entity, if applicable

 

* Unless otherwise provided in the certificate of trust of governing instrument of a business trust, a merger must be approved by all the trustees and beneficial owners of each business trust that is a constituent entity in the merger.

 

This form must be accompanied by appropriate fees. Nevada Secretary of State 92A Merger Page 3
  Revised: 10-16-09

  

 
 

 

ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4520
(775) 684 5708
Website: www.nvsos.gov

       
       
Articles of Merger      
(PURSUANT TO NRS 92A.200)       
Page 4      
       

  

USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

  

(c)Approval of plan of merger for Nevada non-profit corporation (NRS 92A-160):
   
  The plan of merger has been approved by the directors of the corporation and by each public officer or other person whose approval of the plan of merger is required by the articles of incorporation of the domestic corporation.

 

 
Name of merging entity, if applicable
 
 
Name of merging entity, if applicable
 
 
Name of merging entity, if applicable
 
 
Name of merging entity, if applicable
 
and, or;
 
 
Name of surviving entity, if applicable

 

This form must be accompanied by appropriate fees. Nevada Secretary of State 92A Merger Page 4
  Revised: 10-16-09

    

 
 

 

ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Nevada 89701-4520
(775) 684 5708
Website: www.nvsos.gov

       
       
Articles of Merger      
(PURSUANT TO NRS 92A.200)       
Page 5      
       

  

USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

  

5)Amendments, If any, to the articles or certificate of the surviving entity. Provide article numbers, if available. (NRS 92A.200)*:

 

Article I of the Articles of Incorporation of Jin Jie Corp. shall be amended to state that the name of the corporation is “Blue Sphere Corporation”
   
   
   

 

6)Location of Plan of Merger (check a or b):

 

x(a) The entire plan of merger is attached:

 

or,

 

¨(b) The entire plan of merger is on file at the registered office of the surviving corporation, limited-liability company or business trust, or at the records office address if a limited partnership, or other place of business of the surviving entity (NRS 92A.200).

 

  7) Effective date (optional)**: February 17, 2010  

  

* Amended and restated articles may be attached as an exhibit or integrated into the articles of merger. Please entitle them “Restated” or “Amended and Restated,” accordingly. The form to accompany restated articles prescribed by the secretary of state must accompany the amended and/or restated articles. Pursuant to NRS 92A.180 (merger of subsidiary into parent – Nevada parent owning 90% or more of subsidiary), the articles of merger may not contain amendments to the constituent documents of the surviving entity except that the name of the surviving entity may be changed.

 

** A merger takes effect upon filing the articles of merger or upon a later date as specified in the articles, which must not be more than 90 days after the articles are filed (NRS 92A. 240).

  

This form must be accompanied by appropriate fees. Nevada Secretary of State 92A Merger Page 5
  Revised: 10-16-09

 

 
 

 

 

 
 

 

SCHEDULE A

 

To the Agreement end Plan of Merger between

Blue Sphere and Jin Jie

 

Articles of Merger

 

 
 

 

AGREEMENT AND PLAN OF MERGER

 

THIS AGREEMENT dated as of February 3, 2010.

 

BETWEEN:

 

BLUE SPHERE CORPORATION, a Nevada corporation, having its office at 409 - 4th Floor, Tsui King House, Choi Lung Estate, Kowloon, Hong Kong

 

(“Blue Sphere”)

 

AND:

JIN JIE CORP-, a Nevada corporation, having its office at 409 - 4th Floor, Tsui King House, Choi Lung Estate, Kowloon, Hong Kong

 

(“Jin Jie”)

 

WHEREAS:

 

A.                   Blue Sphere is the wholly-owned subsidiary of Jin Jie;

 

B.                   The boards of directors of Blue Sphere and Jin Jie deem it advisable and in the best interests of their respective companies and shareholders that Blue Sphere be merged with and into Jin Jie, with Jin Jie remaining as the surviving corporation under the name “Blue Sphere Corporation”;

 

C.                   The board of directors of Blue Sphere has approved the plan of merger embodied in this Agreement; and

 

D.                   The board of directors of Jin Jie has approved the plan of merger embodied in this Agreement.

 

THEREFORE, in consideration of the mutual agreements and covenants set forth herein, the parties hereto do hereby agree to merge on the terms and conditions herein provided, as follows:

 

1.THE MERGER

 

1.1The Merger

 

Upon the terms and subject to the conditions hereof, on the Effective Date (as hereinafter defined), Blue Sphere shall be merged with and into Jin Jie in accordance with the applicable laws of the State of Nevada (the “Merger”). The separate existence of Blue Sphere shall cease, and Jin Jie shall be the surviving corporation under the name “Blue Sphere Corporarion” (the “Surviving Corporation”) and shall be governed by the laws of the State of Nevada.

 

 

 
 

 

1.2Effective Date

 

The Merger shall become effective on the date and at the time (the “Effective Date”) that:

 

(a)the Articles of Merger, in substantially the form annexed hereto as Schedule A, that the parties hereto intend to deliver to the Secretary of State of the State of Nevada, are accepted and declared effective by the Secretary of State of the State of Nevada; and

 

(b)after satisfaction of the requirements of the laws of the State of Nevada.

 

1.3Articles of Incorporation

 

On the Effective Date, the Articles of Incorporation of Jin Jie, as in effect immediately prior to the Effective Date, shall continue in full force and effect as the Articles of Incorporation of the Surviving Corporation except that Article 1 of the Articles of Incorporation of Jin Jie, as the Surviving Corporation, shall be amended to state that the name of the corporation is “Blue Sphere Corporation”.

 

1.4Bylaws

 

On the Effective Date, the Bylaws of Blue Sphere, as in effect immediately prior to the Effective Date, shall continue in full force and effect as the bylaws of the Surviving Corporation.

 

1.5Directors and Officer

 

The directors and officers of Jin Jie immediately prior to the Effective Date shall be the directors and officers of the Surviving Corporation, until their successors shall have been duly elected and qualified or until otherwise provided by law, the Articles of Incorporation of the Surviving Corporation or the Bylaws of the Surviving Corporation.

 

2.CONVERSION OF SHARES

 

2.1Common Stock of Jin Jie

 

Upon the Effective Date, by virtue of the Merger and without any action on the part of any holder thereof, each share of common stock of Jin Jie, par value of $0.001 per share, issued and outstanding immediately prior to the Effective Date shall be changed and converted into one fully paid and non-assessable share of the common stock of the Surviving Corporation, par value of $0.001 per share (the “Survivor Stock”).

 

 
 

 

2.2Common Stock of Blue Sphere

 

Upon the Effective Date, by virtue of the Merger and without any action on the part of the holder thereof, each share of common stock of Blue Sphere, par value of $0.01 per share, issued and outstanding immediately prior to the Effective Date shall be cancelled.

 

2.3Exchange of Certificates

 

Each person who becomes entitled to receive any Survivor Stock by virtue of the Merger shall be entitled to receive from the Surviving Corporation a certificate or certificates representing the number of Survivor Stock to which such person is entitled as provided herein.

 

3.EFFECT OF THE MERGER

 

3.1Rights, Privileges, etc.

 

On the Effective Date of the Merger, the Surviving Corporation, without further act, deed or other transfer, shall retain or succeed to, as the case may be, and possess and be vested with all the rights, privileges, immunities, powers, franchises and authority, of a public as well as of a private nature, of Blue Sphere and Jin Jie; all property of every description and every interest therein, and all debts and other obligations of or belonging to or due to each of Blue Sphere and Jin Jie on whatever account shall thereafter be taken and deemed to be held by or transferred to, as the case may be, or invested in the Surviving Corporation without further act or deed, title to any real estate, or any interest therein vested in Blue Sphere or Jin Jie, shall not revert or in any way be impaired by reason of this merger; and all of the rights of creditors of Blue Sphere and Jin Jie shall be preserved unimpaired, and all liens upon the property of Blue Sphere or Jin Jie shall be preserved unimpaired, and all debts, liabilities, obligations and duties of the respective corporations shall thenceforth remain with or be attached to, as the case may be, the Surviving Corporation and may be enforced against it to the same extent as if all of said debts, liabilities, obligations and duties had been incurred or contracted by it.

 

3.2FURTHER ASSURANCES

 

From time to time, as and when required by the Surviving Corporation or by its successors and assigns, there shall be executed and delivered on behalf of Blue Sphere such deeds and other instruments, and there shall be taken or caused to be taken by it such further other action, as shall be appropriate or necessary in order to vest or perfect in or to confirm of record or otherwise in the Surviving Corporation the title to and possession of all the property, interest, assets, rights, privileges, immunities, powers, franchises and authority of Blue Sphere and otherwise to carry out the purposes of this Agreement, and the officers and directors of the Surviving Corporation are fully authorized in the name and on behalf of Blue Sphere or otherwise to take any and all such action and to execute and deliver any and all such deeds and other instruments.

 

 
 

 

4.GENERAL

 

4.1Abandonment

 

Notwithstanding any approval of the Merger or this Agreement by the shareholders of Blue Sphere of Jin Jie or both, this Agreement may be terminated and the Merger may be abandoned at any time prior to the Effective Times, by mutual written agreement of Blue Sphere and Jin Jie.  

 

4.2Amendment

 

At any time prior to the Effective Date, this Agreement may be amended or modified in writing by the board of directors of both Blue Sphere and Jin Jie.

 

4.3Governing Law

 

This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of Nevada.

 

4.4Counterparts

 

In order to facilitate the filling and recording of this Agreement, the same may be executed in any number of counterparts, each of which shall be deemed to be an original.

 

4.5Electronic Means

 

Delivery of an executed copy of this Agreement by electronic facismile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Agreement as of the date hereof.

 

IN WITNESS WHEREOF, the parties hereto have entered into and Agreement as of the date see forth above.

 

BLUE SPHERE CORPORATION

 

Per:  
  Authorized Signatory  

 

JIN JIE CORP.

 

Per:  
  Authorized Signatory  

 

 

 

EX-3.3 4 v330956_ex3-3.htm EXHIBIT 3.3

 

A here by certify that the within instrument is
a true and correct copy of the instrument of
which it purports to be a true copy.
Given under my hand and seal of office this
 
9th day of March A.D., 2010
 
A history public in and for the [Illegible]

ROSS MILLER
Secretary of State
204 North Carson Street, Suite 1
Carson City, Neveda 89701-4520
(775) 684 5708
Website: www.nvsos.gov

 

    Filed in the office of Document Number
    20100089610-77
      Filing Date and Time
Certificate of Change Pursuant   Ross Miller 02/11/2010 11:00 Am
to NRS 78.209   Secretary of State Entity Number
    State of Nevada E0515782007-5

  

USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY

 

Ceritificate of Change filed Pursuant to NRS 78.209

For Nevada Profit Corporations

 

1. Name of corporation: 

Jin Jie Corp.

 

2. The board of directors have adopted a resolution pursuant to NRS 78.209 and have obtained any required approval of the stockholders.

 

3. The current number of authorized shares and the par value, if any, of each class or series, If any, of shares before the change:

50,000,000 shares of common stock at $0.001 par value

 

4. The number of authorized shares and the par value, if any, each class or series, if any, of shares after the change:

1,750,000,000 shares of common stock at $0.001 par value

 

5. The number of shares of each affected class or series, if any, to be issued after the change in exchange for each issued share of the same class or series:

35 new shares of common stock will be issued for every one old share of common stock

 

6. The provisions, If any, for the Issuance of fractional shares, or for the payment of money or the issuance of scrip to stockholders otherwise entitled to a fraction of a share and the percentage of outstanding shares affected thereby:

No fractional shares will be issued, fractional shares will be rounded to the next whole number.

 

7. Effective date of filing: (optional)February 17, 2010
 (must not be later than 90 days after the certificate is filed)

 

8. Signature: (required)

 

  President
Signature of Officer Title

 

IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.

 

This form must be accompanied by appropriate fees. Nevada Secretary of State Stock
  Revised: 3-5-09

 

 

EX-10.1 5 v330956_ex10-1.htm EXHIBIT 10.1

 

JIN JIE CORP.

409 - 4th Floor, Tsui King House

Choi Hung Estate
Hong Kong

 

January 14, 2010

 

Shlomo Palas ( I.D. 057313579 )

17 Etrog St.

Rosh Hayyn

Israel 48570 (“Palas”)

 

Samuel Keshet ( I.D. 030164529 )

19, Reuven St.

Zichron Ya’akov

Israel 30900 (“Keshet”)

 

Eliezer Weinberg ( I.D. 065137408 )

6, Hayarkon St.

Haifa

Israel 34465 (“Weinberg”)

 

(Palas, Keshet and Weinberg together are called the “Principals”)

 

Green Biofuels Holdings Ltd. an Israel company,

17 Hactrog Street

Rosh Hayin, Israel (“GBH”)

 

Cally Kai Lai Lai (“Lai”) and Wei Xiang Zeng (“Zeng”)

409 - 4th Floor, Tsui King House

Choi Hung Estate

Hong Kong

 

Dear Sirs:

 

RE:   Carbon Credit Project Contract Acquisition

 

This letter sets out our agreement (“Agreement”) reached among Jin Jie Corp. (“JJC”), with Palas, Keshet, Weinberg and GBH as Vendors (the “Vendors ") regarding the transfer and sale by GBH of all of the interest and rights to the assets and business of the GBH Carbon Credit Project, including know-how, trademarks, patents, agreements and all other assets (the "the GBH Carbon Credit Project Assets") to JJC, a company traded on the non-NASDAQ Over the Counter Bulletin Board, upon the terms and conditions set forth in this Agreement. At the time of this Agreement, the assets of the GBH Carbon Credit Project includes advanced stages of agreements for the turn key development of carbon reduction and carbon credit creation projects. Any contracts of GBH regarding the GBH Carbon Credit Project will be assigned to JJC at the closing, at no additional cost and will be deemed to have been acquired by JJC pursuant to this Agreement.

 

1
 

 

Acquisition

 

1.GBH hereby agrees to transfer to JJC all the GBH Carbon Credit Project Assets on the terms and subject to the conditions set out in this Agreement. The transaction will include assumption of any responsibilities of GBH related to the GBH Carbon Credit Project under signed agreements. The business and contracts of the GBH Carbon Credit Project will be referred to as the "GBH Business".

 

The Vendor will transfer the GBH Carbon Credit Project Assets directly to JJC or an operating subsidiary of JJC.

 

Consideration

 

2.In payment for the sale and transfer of the GBH Carbon Credit Project Assets to JJC, JJC will assume and carry out all GBH's responsibilities under the agreements for carbon reduction. The Principals may lend funds to GBH in order to commence certain of the said agreements and the parties acknowledge that JCC will use Financing (defined below) proceeds to repay same. The Principals will keep accurate records of the loans and expenditures made with loan proceeds to qualify for reimbursement.

 

Share Sales and JJC restructuring

 

3.Lai and Zeng are each the holders of 500,000 restricted shares of JJC. There are a total of 1,900,000 common shares and no preferred shares outstanding in the capital of JJC. JJC will split its common stock thirty five (35) for one such that Lai and Zeng will hold 35,000,000 common shares of restricted stock. Total JJC stock outstanding prior to the Financing will be 66,500,000 common shares. JJC will also change its name to Blue Sphere Corporation.

 

4.Lai and Zeng together will sell for a price of $0.001 per share to each of the Principals 5,584,000 common shares. Such shares will be fully vested and transferred on Closing.

 

5.Lai and Zeng together will sell for a price of $0.001 per share to each of Zetta Services Ltd. of BVI and Ehud Barzily Holding and Investments Ltd. of Israel ( together, the "Facilitators") 1,675,000 common shares. Such shares will be fully vested and transferred on Closing.

 

6.The total common share fully diluted position of JJC after transfer of the Lai and Zeng Shares as above and the Financing (described below) will be such that the Principals and Facilitators will have 20,102,000 out of 67,000,000 shares, or just over 30% of JJC, including the Financing initial shares will be newly issued restricted securities. Shares issued on exercise of the Financing warrants and later equity fundraisings will be in addition to the 67,000,000 shares. Lai and Zeng will cancel such of their shares as may be necessary to reach the 67,000,000 share capitalization indicated here.

 

7.The Principals and the Facilitators acknowledge that the Lai and Zeng shares will be restricted as to sale under US securities laws and will carry a restrictive legend indicating such restrictions. In addition, the Principals and the Facilitators agree that the Lai and Zeng shares transferred to them will be held in escrow by JJC's attorneys and may not be sold, encumbered or released to the Principals or the Facilitators for two years after Closing. At the end of the two year period the escrowed shares will be unconditionally released from escrow to their owners. However, if during the escrow period there is an offer from an arm's length third party to purchase or merge with the entire company, the Principals' and the Facilitators' shares will be released from escrow to tender to the offer for the company.

 

2
 

 

EquityFinancing

 

8.JJC will arrange for JJC to complete a financing prior to or upon Closing of $500,000 (the "Financing") comprising units priced at $0.50 per unit, each unit consisting of one share and one share purchase warrant. Each warrant will be exercisable at a price of $0.75 for five years.

 

9.The Financing net proceeds will be used in part to repay the Principal's loan, and for advance of the GBH Business and for working capital after Closing.

 

10.Within the next four to six months after Closing, JJC will raise an additional $500,000 either through exercise of Financing warrants or otherwise at market rates, which proceeds are to be used in the GBH Business.

 

Closing

 

11.Closing of the transactions contemplated herein (the "Closing") will occur on or before February 10, 2010 or on such other date as the parties may agree, at such place and time as determined by JJC, acting reasonably.

 

Due Diligence

 

12.JJC and the Vendors will each have the right, by the closing date, to conduct due diligence on the others in connection with the transactions contemplated hereunder. Each of JJC and the Vendors and their respective accountants, legal counsel and other representatives will have full access during normal business hours to the management, properties, books, records, contracts, commitments and other documents of the others and their subsidiaries in connection with the transactions contemplated herein.

 

Standstill Agreement

 

13.The Vendors agree that they will not for a period ending the earlier of Closing or February 10, 2010, negotiate with any party other than JJC as to the disposition or development or joint venture of the GBH Carbon Credit Project Assets. The parties may extend the term of this clause by mutual agreement.

 

3
 

 

Representations

 

14.The Vendors represent and warrant to JJC that:

 

(a)GBH will on or before Closing use its best efforts to transfer or cause to be transferred the GBH Carbon Credit Project Assets to JJC free and clear of any charges, encumbrances, liens or claims;

 

(b)the GBH Carbon Credit Project has property rights and interest in the GBH Carbon Credit Project Assets and holds interests in all aspects of the GBH Carbon Credit Project Assets, and to the best of the Vendors knowledge, the GBH Carbon Credit Project Assets do not infringe upon the intellectual rights of any other party.

 

14A.JJC represents and warrants to the Vendors that:

 

(a)On Closing JJC will be without liabilities other than legal fees accrued for the purpose of this transaction and accounting fees for required filings with the SEC in the maximum amount of $40,000, for which there will be sufficient funds in its treasury. There will be no claims or litigation outstanding against JJC;

 

(b)JJC should hold harmless and indemnify the Vendors for any future claims, if any, related to the period prior to the closing;

 

(c)JJC has filed all reports (other than Form 8-K reports) required under the Securities Exchange Act of 1934 for the preceding 12 months (or for a shorter period that JJC was required to file such reports and materials); and

 

(d)By 4 business days after Closing, JJC will file "Form 10 information" with the SEC reflecting its status as an entity that is no longer an issuer described in Rule 144(i)(1).

 

4
 

 

Closing Conditions

 

15.This Agreement and the Closing hereof is subject to the following:

 

(c)the Financing being closed or funds being held in escrow pending the Closing;

 

(d)JJC will have no liabilities other than those described in clause14A(a), and will be up to date in its filings with the SEC;

 

(e)The GBH Carbon Credit Project Assets will be assigned and delivered to JJC, with consent from the contracting partner;

 

(f)The Principals may appoint 2 representatives to the board of directors of JJC to take effect after Closing from a total of three directors.

 

(g)JJC having entered into employment agreements with each of the Principals on terms satisfactory to JJC and the respective Principals whereby the Principals will expend no less than 75% of their full time and energy on the GBH Business;

 

(h)each of the Principals having agreed not to compete with the GBH Business while employed and for a period of one year after they terminate employment with JCC; and

 

(i)no material adverse change will have occurred to the GBH Business or to JJC business

 

(j)JCC shall be liable and fully indemnify the Vendors for any claim whatsoever resulting from the filing of the 8-K with the SEC or any related report thereto. .

 

Pre and Post Closing Covenants

 

16.JJC and the Vendors hereby covenant to the other as follows:

 

(k)until Closing the Vendors will conduct the GBH Business in the ordinary and normal course; and

 

(l)the Vendors acknowledge that JJC will be required to provide substantial disclosure about the GBH Business and its management to the SEC and they agree to fully co-operate to provide in a timely manner such information and disclosure about the GBH Carbon Credit Project Assets and the GBH Business as JJC's legal counsel and auditors may request.

 

Binding Agreement

 

17.This Agreement is intended to be binding.

 

General

 

18.All dollar references are United States dollars.

 

19.JJC will pay the legal costs of the transaction for the acquisition of the GBH Carbon Credit Project Assets, and the costs to the Vendors of their complying with the terms of this Agreement, including without limitation their own lawyers for review of documents.

 

5
 

 

Our signatures below indicate our intention to be legally bound to the above terms.

 

JIN JIE CORP.

  

Per:    
Authorized Signatory    
     
Global Biofuels Holding Ltd.    
     
Per:    
Authorized Signatory    
     
   
Shlomo Palas   Shmuel Keshet
     
 
Eliezer Weinberg   Cally Kai Lai Lai
     
   
Wei Xiang Zeng    

 

6

 

EX-10.2 6 v330956_ex10-2.htm EXHIBIT 10.2

 

TERMINATION AGREEMENT

 

THIS TERMINATION AGREEMENT dated as of the 12th day of February, 2010.

 

AMONG:  
  Shlomo Palas ( I.D. 057313579 )
  17 Etrog St.
  Rosh Hayyn
  Israel 48570
   
  Samuel Keshet ( I.D. 030164529 )
  19, Reuven St.
  Zichron Ya'akov
  Israel 30900
   
  Eliezer Weinberg ( I.D. 065137408 )
  6, Hayarkon St.
  Haifa
  Israel 34465
   
  (Shlomo Palas, Samuel Keshet and Eliezer Weinberg together the “Principals”)
   
AND:  
   
  Jin Jie Corp.
  409 - 4th Floor, Tsui King House
  Choi Hung Estate
  Hong Kong
   
  (“JJC”)
   
AND:  
   
  Green Biofuels Holdings Ltd. an Israeli company,
  17 Hactrog Street  Rosh Hayin, Israel
   
  (“GBH”)
   
AND:  
   
  Cally Kai Lai Lai
  409 - 4th Floor, Tsui King House
  Choi Hung Estate Hong Kong
   
  (“Lai”)
   
AND:  
   
  Wei Xiang Zeng 
  409 - 4th Floor, Tsui King House
  Choi Hung Estate Hong Kong
   
  (“Zeng”)

  

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 WHEREAS:

 

A.The Principals, JJC, GBH, Lai and Zeng entered into a letter agreement dated January 13, 2010 (the “Letter Agreement”), regarding, among other things, the transfer and sale by GBH of all of the interest and rights to the assets and business of the GBH Carbon Credit Project, including know-how, trademarks, patents, agreements and all other assets (the "the GBH Carbon Credit Project Assets") to JJC;

 

B.The Principals, JJC, GBH, Lai and Zeng wish to mutually terminate the Letter Agreement and abandon the GBH Carbon Credit Project Assets acquisition; and

 

C.The Parties wish to enter into this termination agreement to confirm the termination of the Letter Agreement and to release each other from any and all obligations and liabilities pursuant to the Letter Agreement.

 

THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the premises and of the mutual covenants and agreements herein set forth, the parties covenant and agree as follows:

 

1.                     Termination of Letter Agreement. The Letter Agreement is hereby terminated and the GHB Carbon Credit Project Assets acquisition is hereby abandoned effective as of the date hereof.

 

2.                     Mutual Releases. Each of the parties hereto (the “Parties”) does hereby release the other from all liabilities and legal obligations of whatsoever kind and howsoever arising which either of them may now have or at any time hereafter can, shall or may have in any way resulting or arising from any cause, matter or thing existing up to the present time in connection with the Letter Agreement.

 

3.                     Final Termination Agreement. This Agreement and the other agreements to which this termination agreement refers, together with all exhibits, schedules and annexes attached to any of them, constitute the final, entire agreement among the parties and supersedes any prior oral or written and all contemporaneous oral proposals, commitments, promises, agreements or understandings between the parties with respect to the termination of the Letter Agreement and mutual release of the parties.

 

4.                    Further Assurances. The Parties will execute such further assurances and other documents and instruments and do such further and other things as may be necessary to implement and carry out the intent of this Agreement.

 

5.                    Successors and Assigns. This Agreement will enure to the benefit of and be binding upon the parties and their respective successors and assigns, as applicable.

 

6.                   Governing Law. This Agreement and the application or interpretation hereof will be governed exclusively by its terms and by the laws of the State of Nevada.

 

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7.                     Counterparts. This Agreement may be executed in one or more counterparts all of which together will constitute one and the same instrument.

 

8                      Electronic Means. Delivery of an executed copy of this Agreement by electronic facsimile transmission or other means of electronic communication capable of producing a printed copy will be deemed to be execution and delivery of this Agreement as of the date set forth above.

 

IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day and year first above written.

 

JIN JIE CORP.    
     
Per:    
  Authorized Signatory    
     
GREEN BIOFUELS HOLDINGS LTD.    
     
Per:      
  Authorized Signatory    
     
     
SHLOMO PALAS   SHMUEL KESHET
     
   
ELIEZER WEINBERG   CALLY KAI LAI LAI
     
   
WEI XIANG ZENG    

 

3

EX-10.3 7 v330956_ex10-3.htm EXHIBIT 10.3

  

Blue Sphere Corp.

 

Global Share Incentive Plan (2010)

 

1.          Name And Purpose.

 

1.1           This plan, which has been adopted by the Board of Directors of the Company, Blue Sphere Corp., as amended from time to time, shall be known as the Blue Sphere Corp. Global Share Incentive Plan (2010) (the “Plan”).

 

1.2           The purposes of the Plan are to attract and retain the best available personnel for positions of substantial responsibility, to provide additional incentive to Service Providers of the Company and its affiliates and subsidiaries, if any, and to promote the Company's business by providing such individuals with opportunities to receive Awards pursuant to the Plan and to strengthen the sense of common interest between such individuals and the Company's Stockholders.

 

1.3           Awards granted under the Plan to Service Providers in various jurisdictions may be subject to specific terms and conditions for such grants may be set forth in one or more separate appendix to the Plan, as may be approved by the Board of Directors of the Company from time to time.

 

2.          Definitions

 

Administrator” shall mean the Board of Directors or a Committee.

 

Appendix” shall mean any appendix to the Plan adopted by the Board of Directors containing country-specific or other special terms relating to Awards including additional terms with respect to grants of restricted stock and other equity-based Awards.

 

Award” shall mean a grant of Options or allotment of Shares or other equity-based award hereunder. All Awards shall be confirmed by an Award Agreement, and subject to the terms and conditions of such Award Agreement.

 

Award Agreement” shall mean a written instrument setting forth the terms applicable to a particular Award.

 

Board of Directors” shall mean the board of directors of the Company.

 

“Cause” shall have the meaning ascribed to such term or a similar term as set forth in the Participant’s employment agreement or the agreement governing the provision of services by a non-employee Service Provider, or, in the absence of such a definition: (i) conviction (or plea of nolo contendere) of any felony or crime involving moral turpitude or affecting the Company; (ii) repeated and unreasonable refusal to carry out a reasonable and lawful directive of the Company or of Participant’s supervisor which involves the business of the Company or its affiliates and was capable of being lawfully performed; (iii) fraud or embezzlement of funds of the Company or its affiliates; (iv) any breach by a director of his / her fiduciary duties or duties of care towards the Company; and (v) any disclosure of confidential information of the Company or breach of any obligation not to compete with the Company or not to violate a restrictive covenant.

 

Committee” shall mean a compensation committee or other committee as may be appointed and maintained by the Board of Directors, in its discretion, to administer the Plan, to the extent permissible under applicable law, as amended from time to time.

 

 
 

 

“Company” shall mean Blue Sphere Corp., a Nevada Corporation, and its successors and assigns.

 

“Consultant” means any entity or individual who (either directly or, in the case of an individual, through his or her employer) is an advisor or consultant to the Company or its subsidiary or affiliate.

 

Corporate Charter” shall mean the Certificate of Incorporation and By-laws of the Company, and any subsequent amendments or replacements thereto.

 

“Disability” shall have the meaning ascribed to such term or a similar term in the Participant's employment agreement (where applicable), or in the absence of such a definition, the inability of the Participant, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of the Participant’s position with the Company because of the sickness or injury of the Participant for a consecutive period of 90 days.

 

“Fair Market Value” shall mean, as of any date, the value of Shares, determined as follows:

 

(i) If the Shares are listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq Small Cap Market, the Fair Market Value of a Share of common stock of the Company shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the common stock) on the last market trading day prior to the day of determination, as reported in the Wall Street Journal or such other source as the Board deems reliable.

 

(ii) In the absence of such markets for the Shares, the Fair Market Value shall be determined in good faith by the Board.

 

“IPO” shall mean an initial offering of the Company’s Shares to the public in an underwritten offering under an applicable registration statement.

 

“Options” shall mean options to purchase Shares awarded under the Plan.

 

Participant” shall mean a recipient of an Award hereunder who executes an Award Agreement.

 

Restricted Stock” means an Award of Shares under this Plan that is subject to the terms and conditions of Section 7.

 

Service Provider” shall mean an employee, director, office holder or Consultant of the Company or its subsidiary or affiliate.

 

Shares” shall mean shares of common stock, par value US$ 0.0001 per share, of the Company.

 

Transaction” shall have the meaning set forth in Section 10.2.

 

3.          Administration of the Plan.

 

3.1           The Plan will be administered by the Administrator. If the Administrator is a Committee, such Committee will consist of such number of members of the board of directors of the Company (not less than two in number), as may be determined from time to time by the Board of Directors. The Board of Directors shall appoint such members of the Committee, may from time to time remove members from, or add members to, the Committee, and shall fill vacancies in the Committee however caused.

 

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3.2           The Committee, if appointed, shall select one of its members as its Chairman and shall hold its meetings at such times and places as it shall determine. Actions at a meeting of the Committee at which a majority of its members are present or acts approved in writing by all members of the Committee shall be the valid acts of the Committee. The Committee shall appoint a secretary, who shall keep records of its meetings and shall make such rules and regulations for the conduct of its business and the implementation of the Plan, as it shall deem advisable, subject to the directives of the Board of Directors and in accordance with applicable law.

 

3.3           Subject to the general terms and conditions of the Plan, and in particular Section 3.4 below, the Administrator shall have full authority in its discretion, from time to time and at any time, to determine (i) eligible Participants, (ii) the number of Options or Shares to be covered by each Award, (iii) the time or times at which the Award shall be granted, (iv) the vesting schedule and other terms and conditions applying to Awards, (v) the form(s) of written agreements applying to Awards, and (vi) any other matter which is necessary or desirable for, or incidental to, the administration of the Plan and the granting of Awards. The Board of Directors may, in its sole discretion, delegate some or all of the powers listed above to the Committee, to the extent permitted by applicable law, its Corporate Charter or other applicable law, rules and regulations.

 

3.4           No member of the Board of Directors or of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any Award granted hereunder. Subject to the Company’s decision and to all approvals legally required, each member of the Board or the Committee shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by him or her, or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the Plan unless arising out of such member’s own willful misconduct or bad faith, to the fullest extent permitted by applicable law. Such indemnification shall be in addition to any rights of indemnification the member may have as a director or otherwise under the Company’s Corporate Charter, any agreement, any vote of stockholders or disinterested directors, insurance policy or otherwise.

 

3.5           The interpretation and construction by the Administrator of any provision of the Plan or of any Option hereunder shall be final and conclusive. In the event that the Board appoints a Committee, the interpretation and construction by the Committee of any provision of the Plan or of any Option hereunder shall be conclusive unless otherwise determined by the Board of Directors. To avoid doubt, the Board of Directors may at any time exercise any powers of the Administrator, notwithstanding the fact that a Committee has been appointed.

 

3.6           The Administrator shall have the authority to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan and perform all acts, including the delegation of its responsibilities (to the extent permitted by applicable law and applicable stock exchange rules), as it shall, from time to time, deem advisable; to construe and interpret the terms and provisions of the Plan and any Award issued under the Plan (and any agreements relating thereto); and to otherwise supervise the administration of the Plan. The Administrator may correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any agreement relating thereto in the manner and to the extent it shall deem necessary to effectuate the purpose and intent of the Plan. Notwithstanding the foregoing, no action of the Administrator under this Section ‎3.6 not otherwise provided for herein or in an Award Agreement shall reduce the vested rights of any Participant without the Participant’s consent.

 

3.7           Without limiting the generality of the foregoing, the Administrator may adopt special appendices and/or guidelines and provisions for persons who are residing in or employed in, or subject to, the taxes of, any domestic or foreign jurisdictions, to comply with applicable laws, regulations, or accounting, listing or other rules with respect to such domestic or foreign jurisdictions.

 

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4.Eligible Participants.

 

4.1           No Award may be granted pursuant to the Plan to any person serving as a member of the Committee or to any other Director of the Company at the time of the grant, unless such grant is approved in the manner prescribed for the approval of compensation of directors under applicable law.

 

4.2           Subject to the limitation set forth in Section 4.1 above and any restriction imposed by applicable law, Awards may be granted to any Service Provider of the Company, whether or not a director of the Company or its affiliates. The grant of an Award to a Participant hereunder shall neither entitle such Participant to receive an additional Award or participate in other incentive plans of the Company, nor disqualify such Participant from receiving any additional Award or participating in other incentive plans of the Company.

 

5.Reserved Shares.

 

The Company shall determine the number of Shares reserved hereunder from time to time, and such number may be increased or decreased by the Company from time to time. Any Shares under the Plan, in respect of which the right hereunder of a Participant to purchase the same shall for any reason terminate, expire or otherwise cease to exist, shall again be available for grant as Awards under the Plan. Any Shares that remain unissued and are not subject to Awards at the termination of the Plan shall cease to be reserved for purposes of the Plan. Until termination of the Plan the Company shall at all times reserve a sufficient number of Shares to meet the requirements of the Plan.

 

6.Award Agreement.

 

6.1           The Board of Directors in its discretion may award to Participants Awards available under the Plan. The terms of the Award will be set forth in the Award Agreement. The date of grant of each Award shall be the date specified by the Board of Directors at the time such award is made, or in the absence of such specification, the date of approval of the award by the Board of Directors.

 

6.2           The Award Agreement shall state, inter alia, the number of Options or Shares or equity-based units covered thereby, the type of Option or Share-based or other grant awarded, any special terms applying to such Award (if any), including the terms of any country-specific or other applicable Appendix, as determined by the Board of Directors.

 

7.Restricted Stock and Other Equity-Based Awards.

 

7.1           Eligibility. Restricted Stock may be issued to all Participants either alone or in addition to other Awards granted under the Plan. The Administrator shall determine the eligible Participants to whom, and the time or times at which, grants of Restricted Stock will be made, the number of shares to be awarded, the purchase price (if any) to be paid by the Participant (subject to Section 7.2), the time or times at which such Awards may be subject to forfeiture (if any), the vesting schedule (if any) and rights to acceleration thereof, and all other terms and conditions of the Awards. The Administrator may condition the grant or vesting of Restricted Stock upon the attainment of specified performance targets or such other factors as the Administrator may determine, in its sole discretion. Unless otherwise determined by the Administrator , the Participant shall not be permitted to sell or transfer shares of Restricted Stock awarded under this Plan during a period set by the Administrator (if any) (the “Restriction Period”) commencing with the date of such Award, as set forth in the applicable Award agreement.

 

7.2           Terms. A Participant selected to receive Restricted Stock shall not have any rights with respect to such Award, unless and until such Participant has delivered a fully executed copy of the Award Agreement evidencing the Award to the Company and has otherwise complied with the applicable terms and conditions of such Award. The purchase price of Restricted Stock shall be determined by the Administrator, but shall not be less than as permitted under applicable law. Awards of Restricted Stock must be accepted within a period of 60 days (or such shorter period as the Administrator may specify at grant) after the grant date, by executing an Award Agreement and by paying whatever price (if any) the Administrator has designated thereunder.

 

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7.3           Legend. Each Participant receiving Restricted Stock shall be issued a share certificate in respect of such shares of Restricted Stock, unless the Administrator elects to use another system, such as book entries by the transfer agent, as evidencing ownership of Restricted Stock. Such certificate shall be registered in the name of such Participant, and shall bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Award, substantially in the following form (as well as other legend required by the Administrator pursuant to Section 19.3 below):

 

“The anticipation, alienation, attachment, sale, transfer, assignment, pledge, encumbrance or charge of the shares represented hereby are subject to the terms and conditions (including forfeiture) of the Blue Sphere Corp. Global Incentive Plan (2009), and an Award Agreement entered into between the registered owner and the Company dated ____________. Copies of such Plan and Award agreement are on file at Blue Sphere Corp.”

 

7.4           Custody. The Administrator may require that any share certificates evidencing such shares be held in custody by the Company until the restrictions thereon shall have lapsed, and that, as a condition of any Restricted Stock Award, the Participant shall have delivered a duly signed share transfer deed, endorsed in blank, relating to the Shares covered by such Award.

 

7.5           Rights as Stockholder. Except as provided in this Section and Section 7.4 above and as otherwise determined by the Administrator and set forth in the Award Agreement, the Participant shall have, with respect to the shares of Restricted Stock, all of the rights of a holder of Shares including, without limitation, the right to receive any dividends, the right to vote such shares and, subject to and conditioned upon the full vesting of shares of Restricted Stock, the right to tender such shares. Notwithstanding the foregoing, the payment of dividends shall be deferred until, and conditioned upon, the expiration of the applicable Restriction Period, unless the Administrator, in its sole discretion, specifies otherwise at the time of the Award.

 

7.6           Lapse of Restrictions. If and when the Restriction Period expires without a prior forfeiture of the Restricted Stock subject to such Restriction Period, the certificates for such shares shall be delivered to the Participant. All legends shall be removed from said certificates at the time of delivery to the Participant except as otherwise required by applicable law. Notwithstanding the foregoing, actual certificates shall not be issued to the extent that book entry recordkeeping is used.

 

7.7            Other Equity-Based Awards. Other equity-based awards (including, without limitation, restricted stock units and performance share awards) may be granted either alone or in addition to or other Awards granted under the Plan to all eligible Participants pursuant to such terms and conditions as the Administrator may determine, including without limitation, in one or more appendix adopted by the administrator and appended to this Plan.

 

8.Exercise of Options.

 

8.1           Options shall be exercisable pursuant to the terms under which they were awarded and subject to the terms and conditions of the Plan and any applicable Appendix, as specified in the Award Agreement.

 

8.2           The exercise price for each share to be issued upon exercise of an Option shall be such price as is determined by the Board in its discretion, provided that the price per Share is not less than the par value of each Share.

 

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8.3           An Option, or any part thereof, shall be exercisable by the Participant's signing and returning to the Company at its principal office (and to the Trustee, where applicable), a “Notice of Exercise” in such form and substance as may be prescribed by the Board of Directors from time to time, together with full payment for the Shares underlying such Option.

 

8.4           Each payment for Shares under an Option shall be in respect of a whole number of Shares, shall be effected in cash or by check payable to the order of the Company, or such other method of payment acceptable to the Company as determined by the Administrator, and shall be accompanied by a notice stating the number of Shares being paid for thereby.

 

8.5           Until the Shares are issued (as evidenced by the appropriate entry in the share register of the Company or of a duly authorized transfer agent of the Company) a Participant shall have no right to vote or right to receive dividends or any other rights as a shareholder shall exist with respect to such Shares, notwithstanding the exercise of the Option. The Company shall issue (or cause to be issued) such Shares promptly after the Option is exercised. No adjustment will be made for a dividend or other right the record date for which is prior to the date the Shares are issued, except as provided in Section 9 of the Plan.

 

8.6           To the extent permitted by law, if the Share is traded on a national securities exchange, The Nasdaq Share Market or quoted on a national quotation system sponsored by the National Association of Securities Dealers or otherwise publicly traded or quoted, payment for the Shares underlying an Option may be made all or in part by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company in payment of the exercise price (or the relevant portion thereof, as applicable) and any withholding taxes, or on such other terms and conditions as may be acceptable to the Administrator. No Shares shall be issued until payment has been made or provided for, as provided herein.

 

9.Termination of Relationship as Service Provider.

 

9.1            Effect of Termination; Exercise after Termination. Unless otherwise determined by the Administrator, if a Participant ceases to be a Service Provider, such Participant may exercise any outstanding Options within such period of time as is specified in the Award Agreement or the Plan to the extent that the Options are vested on the date of termination (but in no event later than the expiration of the term of the Option as set forth in the Option Agreement). If, on the date of termination, any Options are unvested, the Shares covered by the unvested portion of the Option shall revert to the Plan. If, after termination, the Participant does not exercise the vested Options within the time specified in the Award Agreement or the Plan, the Option shall terminate, and the Shares covered by such Option shall revert to the Plan.

 

In the absence of a provision specifying otherwise in the relevant Award Agreement, then:

 

(a)          in the event that the Participant ceases to be a Service Provider for any reason other than termination for Cause, or as a result of the Participant’s death or Disability: (i) the vested Options shall remain exercisable until the earlier of: (i) a period of three (3) months from the Date of Termination; or (ii) expiration of the term of the Option as set forth in Section 13; and (ii) all Restricted Stock still subject to restriction under the applicable Restriction Period, as set forth in the Award Agreement, shall be forfeited;

 

(b)          in the event that the Participant ceases to be a Service Provider as a result of the Participant’s death or Disability: (i) the vested Options shall remain exercisable until the earlier of: (i) a period of one (1) year from the Date of Termination; or (ii) expiration of the term of the Option as set forth in Section ‎13; and (ii) all Restricted Stock still subject to restriction under the applicable Restriction Period, as set forth in the Award Agreement, shall be forfeited;

 

(c)          in the event that the Participant ceases to be a Service Provider for Cause, (i) all Options will terminate immediately upon the date of such termination for Cause, such that the unvested portion of the Options will not vest, and the vested portion of the Options will no longer be exercisable; and (ii) all Restricted Stock still subject to restriction under the applicable Restriction Period as of the Date of Termination, as set forth in the Award Agreement, shall be forfeited.

 

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9.2           Date of Termination.         For purposes of the Plan and any Option or Option Agreement, and unless otherwise set forth in the relevant Award Agreement, the Date of Termination” (whether for Cause or otherwise) shall be the effective date of termination of the Participant's employment or engagement as a Service Provider.

 

9.3           Leave of Absence. Unless the Administrator provides otherwise, vesting of Awards granted hereunder shall be suspended during any unpaid leave of absence.

 

9.4           Change of Status. A Service Provider shall not cease to be considered as such in the case of any (a) leave of absence approved by the Company, or (b) transfers between locations of the Company or between the Company, and its parent, subsidiary, affiliate, or any successor thereof; or (c) changes in status (employee to director, employee to consultant, etc.) provided that such change does not affect the specific terms applying to the Service Provider’s Award.

 

10.Adjustments.

 

Upon the occurrence of any of the following described events, a Participant's rights to purchase Shares under the Plan shall be adjusted as hereinafter provided:

 

10.1        Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of Shares covered by each outstanding Award, and the number of Shares which have been authorized for issuance under the Plan but as to which no Options or other Award have yet been granted or which have been returned to the Plan upon cancellation or expiration of an Option or other Award, as well as the price per Share covered by each such outstanding Option, shall be proportionately adjusted for any increase or decrease in the number of issued Shares resulting from a share split, reverse share split, share dividend, combination or reclassification of the Shares, or any other increase or decrease in the number of issued Shares effected without receipt of consideration by the Company. The conversion of any convertible securities of the Company shall not be deemed to have been “effected without receipt of consideration.” Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the Company of shares of any class, or securities convertible into shares of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of Shares subject to an Option or other Award.

 

10.2         Merger, Acquisition, or Asset Sale.

 

   (a)   In the event of (i) a merger or consolidation of the Company with or into another corporation resulting in such other corporation being the surviving entity or the direct or indirect parent of the Company or resulting in the Company being the surviving entity and any other person or entity owning fifty percent (50%) or more of the outstanding voting power of the Company's securities by virtue of the transaction, (ii) an acquisition of all or substantially all of the shares of the Company, or (iii) the sale of all or substantially all of the assets of the Company (each such event, a “Transaction”), the unexercised or restricted portion of each outstanding Award shall be assumed or an equivalent Award or right substituted, by the successor corporation or an affiliate of the successor corporation, as shall be determined by such entity, subject to the subsequent sentence in this Section ‎10.2‎(a) and the remaining terms of the Plan. In the event that the successor corporation or a parent or subsidiary of the successor corporation does not provide for such an assumption or substitution of Options, the Administrator may determine, at its sole discretion, that all or a portion of the outstanding and unvested Options shall become exercisable in full on a date no later than ten (10) days prior to the date of consummation of the Transaction, provided that unless otherwise determined by the Administrator, the exercise of all Options that otherwise would not have been exercisable in the absence of a Transaction, shall be contingent upon the actual consummation of the Transaction.

 

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(b)   For the purposes of this Section ‎10.2, an Option shall be considered assumed or substituted if, following a Transaction, the option confers the right to purchase or receive, for each Share subject to the Option immediately prior to the Transaction, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Shares of the Company for each Share held on the effective date of the Transaction (and if holders were offered a choice of consideration, the type of consideration determined by the Administrator, at its sole discretion); provided, however, that if the consideration received in the Transaction is not solely common stock or ordinary shares (or the equivalent) of the successor corporation or its direct or indirect parent, the Administrator may, with the consent of the successor corporation, provide for the per share consideration to be received upon the exercise of the Option to be solely common stock or ordinary shares (or the equivalent) of the successor corporation or its direct or indirect parent equal in fair market value to the per share consideration received by holders of Shares in the Transaction, as determined by the Administrator.

 

(c)   In the event that the Board of Directors determines in good faith that, in the context of a Transaction, certain Options have no monetary value and thus do not entitle the holders of such Options to any consideration under the terms of the Transaction, the Board of Directors may determine that such Options shall terminate effective as of the effective date of the Transaction.

 

(d)   It is the intention that the Administrator’s authority to make determinations, adjustments and clarifications in connection with the treatment of Awards shall be interpreted as widely as possible, to allow the Administrator maximal power and flexibility to interpret and implement the provisions of the Plan in the event of Transaction, provided that the Administrator shall determine in good faith that a Participant’s rights are not thereby adversely affected without the Participant’s express written consent. Without derogating from the generality of the foregoing, the Administrator shall have the authority, at its sole discretion, to determine that the treatment of Options, whether vested or unvested, in a Transaction may differ among individual Participants or groups of Participants, provided that the overall economic impact of the different approaches determined by the Administrator shall be substantively equivalent as of the date of the closing of the Transaction.

 

11.Non-Transferability of Options and Shares.

 

11.1       No Option may be transferred other than by will or by the laws of descent and distribution, and during the Participant's lifetime an Option may be exercised only by such Participant.

 

11.2       Restricted Stock may not be assigned, transferred, pledged or mortgaged, other than by will or laws of descent and distribution, prior to the date on which the date on which any applicable restriction, performance or deferred period lapses. Shares for which full payment has not been made, may not be assigned, transferred, pledged or mortgaged, other than by will or laws of descent and distribution. For avoidance of doubt, the foregoing shall not be deemed to restrict the transfer of an Participant's rights in respect of Options or Shares purchasable pursuant to the exercise thereof upon the death of such Participant to such Participant’s estate or other successors by operation of law or will, whose rights therein shall be governed by Section 9.1(a) hereof, and as may otherwise be determined by the Administrator. Further restrictions on the transfer of Shares are set forth below in Section 21 below.

 

12.Term and Amendment of the Plan.

 

12.1         The Plan shall expire on the date which is ten (10) years from the date of its adoption by the Board of Directors (except as to Options outstanding on that date).

 

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12.2         Notwithstanding any other provision of the Plan, the Board (or a duly authorized Committee thereof) may at any time, and from time to time, amend, in whole or in part, any or all of the provisions of the Plan (including any amendment deemed necessary to ensure that the Company may comply with any regulatory requirement), or suspend or terminate it entirely, retroactively or otherwise; provided, however, that, except (x) to correct obvious drafting errors or as otherwise required by law or (y) as specifically provided herein, the rights of a Participant with respect to Awards granted prior to such amendment, suspension or termination, may not be reduced without the consent of such Participant. The Administrator may amend the terms of any Award theretofore granted, prospectively or retroactively, but except (x) to correct obvious drafting errors or as otherwise required by law or applicable accounting rules, or (y) as specifically provided herein, no such amendment or other action by the Committee shall reduce the rights of any Participant with respect to Awards without the Participant’s consent.

 

13.Term of Option.

 

Unless otherwise explicitly provided in an Award Agreement, if any Option, or any part thereof, has not been exercised and the Shares covered thereby not paid for within ten (10) years after the date on which the Option was granted, as set forth in the Award Agreement (or any other period set forth in the instrument granting such Option pursuant to Section 6), such Option, or such part thereof, and the right to acquire such Shares shall terminate, all interests and rights of the Participant in and to the same shall expire, and, in the event that in connection therewith any Shares are held in trust as aforesaid, such trust shall expire.

 

14.Continuance of Engagement.

 

Neither the Plan nor any offer of Shares or Options to a Participant shall impose any obligation on the Company or a related company thereof, to continue the employment or engagement of any Participant as a Service Provider, and nothing in the Plan or in any Option granted pursuant thereto shall confer upon any Participant any right to continue to serve as a Service Provider of the Company or a related company thereof or restrict the right of the Company or a related company thereof to terminate such employment or engagement at any time.

 

15.Governing Law.

 

The Plan and all instruments issued thereunder or in connection therewith, shall be governed by, and interpreted in accordance with, the laws of the State of Delaware.

 

16.Application of Funds.

 

The proceeds received by the Company from the sale of Shares pursuant to Options granted under the Plan will be used for general corporate purposes of the Company or any related company thereof.

 

17.Taxes.

 

17.1         Any tax consequences arising from the grant, or vesting or exercise of any Award, from the payment for Shares covered thereby, or from any other event or act (of the Company, and/or its affiliates, or the Participant), hereunder, shall be borne solely by the Participant. The Company and/or its affiliates shall withhold taxes according to the requirements under the applicable laws, rules, and regulations, including withholding taxes at source. Furthermore, the Participant shall agree to indemnify the Company and/or its affiliates and hold them harmless against and from any and all liability for any such tax or interest or penalty thereon, including without limitation, liabilities relating to the necessity to withhold, or to have withheld, any such tax from any payment made to the Participant. The Company or any of its affiliates may make such provisions and take such steps as it may deem necessary or appropriate for the withholding of all taxes required by law to be withheld with respect to Awards granted under the Plan and the exercise thereof, including, but not limited, to (i) deducting the amount so required to be withheld from any other amount (or Shares issuable) then or thereafter to be provided to the Participant, including by deducting any such amount from a Participant’s salary or other amounts payable to the Participant, to the maximum extent permitted under law and/or (ii) requiring the Participant to pay to the Company or any of its affiliates the amount so required to be withheld as a condition of the issuance, delivery, distribution or release of any Shares and/or (iii) by causing the exercise and sale of any Options or Shares held by on behalf of the Participant to cover such liability, up to the amount required to satisfy minimum statutory withholding requirements. In addition, the Participant will be required to pay any amount due in excess of the tax withheld and transferred to the tax authorities, pursuant to applicable tax laws, regulations and rules.

 

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17.2         The receipt of an Award and/or the acquisition of Shares issued upon the exercise of the Options may result in tax consequences. The description of tax consequences set forth in the Plan or any Appendix hereto does not purport to be complete, up to date or to take into account any special circumstances relating to a Participant.

 

17.3         THE PARTICIPANT IS ADVISED TO CONSULT WITH A TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF RECEIVING OR EXERCISING ANY AWARD IN LIGHT OF HIS OR HER PARTICULAR CIRCUMSTANCES.

 

18.Market Stand-Off

 

If so requested by the Company or any representative of the underwriters (the “Managing Underwriter”) in connection with any registration of the offering of any securities of the Company under the securities laws of any jurisdiction, the Participant shall not sell or otherwise transfer any Shares or other securities of the Company during a 180-day period or such other period as may be requested in writing by the Managing Underwriter and agreed to in writing by the Company (the “Market Standoff Period”) following the effective date of registration statement of the Company filed under such securities laws. The Company may require the Participant to execute a form of undertaking to this effect or impose stop transfer instructions with respect to securities subject to the foregoing restrictions until the end of such Market Standoff Period.

 

19.Conditions Upon Issuance of Shares.

 

19.1         Legal Compliance. Shares shall not be issued pursuant to the exercise of an Option or with respect to any other Award unless the exercise of such Option or grant of such Award and the issuance and delivery of such Shares shall comply with applicable laws and shall be further subject to the approval of counsel for the Company with respect to such compliance. The inability of the Company to obtain authority from any regulatory body having jurisdiction, which authority is deemed by the Company’s counsel to be necessary to the lawful issuance and sale of any Shares hereunder, shall relieve the Company of any liability in respect of the failure to issue or sell such Shares as to which such requisite authority shall not have been obtained.

 

19.2          Investment Representations. As a condition to the exercise of an Option or receipt of an Award, the Board may require the person exercising such Option or receiving such Award to represent and warrant at the time of any such exercise or the time of receipt of the Award that the Shares are being purchased only for investment and without any present intention to sell or distribute such Shares, and make other representations as may be required under applicable securities laws if, in the opinion of counsel for the Company, such representations are required, all in form and content specified by the Board.

 

19.3         Legend. The Administrator may require each person receiving Shares pursuant to an Award granted under the Plan to represent to and agree with the Company in writing that the Participant is acquiring the shares without a view to distribution thereof and such other securities law related representations as the Administrator shall request. In addition to any legend required by the Plan, the certificates for such shares may include any legend which the Administrator deems appropriate to reflect any applicable restrictions on transfer. All certificates for Shares delivered under the Plan shall be subject to such stock transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations and other requirements of any relevant securities authority, any stock exchange upon which the Shares are then listed or any national securities association system upon whose system the Shares are then quoted, any applicable securities law, and any applicable corporate law, and the Administrator may cause a legend or legends to be put on any such certificates to make appropriate reference to such restrictions.

 

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20.Proxy

 

The Company, at its sole discretion, may require that as a condition of grant of an Award or of exercise of an Option, the Participant be required to grant an irrevocable proxy to any appropriate person designated by the Company, to vote all Shares obtained by the Participant pursuant to an Award at all general meetings of Company, and to sign all written resolutions, waivers, consents etc. of the shareholders of the Company on behalf of the Participant, including the right to waive on behalf of the Participant all minimum notice requirements for meetings of shareholders of the Company. Such proxy shall remain in effect until the consummation of an IPO, and shall be irrevocable as the rights of third parties, including investors in the Company, depend upon such proxy. The proxy shall be personal to the Participant and shall not survive the transfer of the Participant’s Shares to a third-party transferee; provided, however, that upon a transfer of the Participant’s Shares to such a transferee (subject to the terms and conditions of the Plan concerning any such transfer), the transferee may be required to grant an irrevocable proxy to such appropriate person as the Company, in giving its approval to the transfer, so requires. The proxy may be contained in the Award Agreement of each Participant or otherwise as the Committee determines. If contained in the Award Agreement, no further document shall be required to implement such proxy, and the signature of the Participant on the Award Agreement shall indicate approval of the proxy thereby granted. The holder of the proxy shall be indemnified and held harmless by the Company against any cost or expense (including counsel fees) reasonably incurred by him/her, or any liability (including any sum paid in settlement of a claim with the approval of the Company) arising out of any act or omission to act in connection with the voting of the proxy unless arising out of his/her own fraud, bad faith or gross negligence, to the extent permitted by applicable law. Such indemnification shall be in addition to any rights of indemnification the holder of the proxy may have as a director, officer or otherwise under the Company's Certificate of Incorporation, by laws or any agreement, any vote of shareholders or directors, insurance policy or otherwise.

 

21.Additional Restrictions on Transfers of Shares.

 

[Until such time as the Shares are registered for trade to the public, a Participant shall not be permitted to transfer, sell, assign, pledge, hypothecate, or otherwise encumber or dispose of in any way (for the purposes of this Section 21, a “Transfer”) to one or more third parties pursuant to an understanding with such third parties any Shares, except as otherwise provided in this Plan, the applicable Award Agreement or as required under applicable law.

 

22.Miscellaneous.

 

Whenever applicable in the Plan, the singular and the plural, and the masculine, feminine and neuter shall be freely interchangeable, as the context requires. The Section headings or titles shall not in any way control the construction of the language herein, such headings or titles having been inserted solely for the purpose of simplified reference. Words such as “herein”, “hereof”, “hereto”, “hereinafter”, “hereby”, and “hereinabove” when used in the Plan refer to the Plan as a whole, including any applicable Appendices, unless otherwise required by context.

 

*                    *                 *

 

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EX-10.4 8 v330956_ex10-4.htm EXHIBIT 10.4

 

ADVISORY AGREEMENT

 

THIS AGREEMENT made this 1st day of July, 2012 (the “Effective Date”).

 

BETWEEN:

 

Blue Sphere Corporation, a Nevada company with a business office in Even Yehuda, Assuta Street, Israel.

 

(the “Company”)

 

AND:

 

Joshua Shoham from 18 Amir Gilboa Street Tel Aviv, Israel.

 

(the “Advisor”)

 

WHEREAS:

 

A.           The Company has proposed the Advisor to serve as the Strategic and Business Advisor of the Company while maintaining his role of Chairman of the Board of Director and Director with Eastern Sphere Ltd., an Israeli fully owned subsidiary of the Company

 

B.           The Advisor and the Company wish to formally record the terms and conditions upon which the Advisor will be hired by the Company and, each of the Company and the Advisor, have agreed to the terms and conditions set forth in this Agreement, as evidenced by their execution hereof; and

 

NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

 

Article 1
CONTRACT FOR SERVICES

 

1.1Engagement of Advisor. The Company hereby agrees to hire the Advisor in accordance with the terms and provisions hereof.

 

(i)          Term. Unless terminated earlier in accordance with the provisions hereof, this Agreement will commence on the date of execution hereof (the “Commencement Date”) and will continue for a period of Five (5) years from the Commencement Date (the “Term”).

 

(b)Service. The Advisor agrees to faithfully, honestly and diligently serve the Company and to devote the time, attention efforts to further the business and interests of the Company and utilize his professional skills and care during the Term.

 

 
 

 

1.2The Company acknowledges that the advisory services given by the Advisor are not on an exclusive basis and that the Advisor has other business activities.

 

1.3Duties:

 

(a)The advisory services plans will be prepared jointly by the Chief Executive Officer of the Company and the Advisor from time to time.

 

(b)The Advisor will assist the Company in the process of taking strategic decisions, in business development, in the preparation of annual budgets, in project's appraisal, in financial analyses and in deals' structuring. The Company will work in full transparency with the Advisor in order to facilitate his work as Strategic and Business Advisor and will disclose to him all information, data, agreements that are substantial to the Company's business and/or necessary for the Advisor's successful work.

 

Article 2
COMPENSATION

 

2.1Remuneration.

 

(a)For services rendered by the Advisor during the Term, the Advisor will be paid a monthly remuneration, payable within 10 days after the end of each month against an invoice, of US$10,000 + VAT (the “Fee”). Subsequently, the Fee will increase to a gross monthly rate of USD $15,000 + VAT. The Fee will be paid in NIS translated pursuant to the official representative rate of exchange of the US$ as published by the Bank of Israel on the payment date. The Advisor acknowledges that presently the Company doesn't have sufficient funds to pay for the advisory services and agrees that his fees will be registered in the Company's books as a loan given to the Company by the Advisor. Advisory fees will be accumulated in the Company's books as loan. Advisory fees will be paid by the Company when it will have the funds to do so, at the same time and priority as debts that will be paid to employees of the Company. The Advisor will have the option, at any time, to convert the above mentioned accumulated debt, or part of it into shares of the Company at the average traded price of the 10 days prior to the date of the request by the Advisor to exercise this option. This option will survive the Term of this agreement.

 

(b)In addition to the professional fees, the Company will grant Advisor additional compensation in the form of cash or shares in cases of extraordinary contribution by you to the benefit of the Company.

 

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(c)The Advisor’s position with the Company requires a special degree of personal trust, and the Company is not able to supervise the number of working hours of the Advisor; therefore the Advisor will not be entitled to any additional remuneration whatsoever for his work with the exception of that specifically set out in this Agreement.

 

2.2Incentive Plans. The Advisor will be entitled to participate in any bonus plan or incentive compensation plans for its employees, adopted by the Company.

 

2.3Expenses. The Advisor will be reimbursed by the Company for all reasonable business expenses incurred by the Advisor and pre-approved by the Company in connection with his duties. This includes, but not only, payments of expenses incurred when traveling abroad, per diem payments for travel abroad according to the rules set forth by the Israeli Tax Authorities and others.

 

Article 3
Insurance and Benefits

 

3.1Liability Insurance Indemnification. The Company will insure the Advisor (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at the Company's expense.

 

Article 4
CONFIDENTIALITY AND NON-COMPETITION

 

4.1Maintenance of Confidential Information.

 

(a)The Advisor acknowledges that, in the course of advisory hereunder, the Advisor will, either directly or indirectly, have access to and be entrusted with Confidential Information (whether oral, written or by inspection) relating to the Company or its respective affiliates, associates or customers.

 

(b)The Advisor acknowledges that the Company’s Confidential Information constitutes a proprietary right, which the Company is entitled to protect. Accordingly, the Advisor covenants and agrees that, as long as he works for the Company, the Advisor will keep in strict confidence the Company’s Confidential Information and will not, without prior written consent of the Company, disclose, use or otherwise disseminate the Company’s Confidential Information, directly or indirectly, to any third party.

 

(c)The Advisor agrees that, upon termination of his services for the Company, he will immediately surrender to the Company all Company Confidential Information then in his possession or under his control.

 

4.2Exceptions. The general prohibition contained in Section 4.1 against the unauthorized disclosure, use or dissemination of the Company’s Confidential Information will not apply in respect of any Company Confidential Information that:

 

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(a)is available to the public generally;

 

(b)becomes part of the public domain through no fault of the Advisor;

 

(c)is already in the lawful possession of the Advisor at the time of receipt of the Company’s Confidential Information; or

 

(d)is compelled by applicable law to be disclosed, provided that the Advisor gives the Company prompt written notice of such requirement prior to such disclosure and provides assistance at the request and expense of the Company, in obtaining an order protecting the Company’s Confidential Information from public disclosure.

 

4.3Non Competition. The Advisor agrees and undertakes that he will not, so long as this agreement is in force, become financially interested in or be employed by business or venture that competes directly with the Company’s business.

 

4.4No Solicitation.

 

(a)“Customer”: For the purposes of this Agreement, “Customer” means any Person who is, at any time during the Term of this agreement, a customer of the Company.

 

(b)The Advisor covenants and undertakes that he will not, at any time during the Term of this Agreement for any reason, directly or indirectly, in any way:

 

(i)          solicit, hire or engage the services of any employee of the Company or its affiliates or persuade or attempt to persuade any such individual to terminate his employment or relationship with the Company or any of its Affiliates;

 

(ii)         persuade or attempt to persuade any Customer to restrict, limit or discontinue purchasing or retaining the services provided by the Company or any of its affiliates to any such Customer or to reduce the amount of business which any such Customer has customarily done, or contemplates doing, with the Company or any of its affiliates in respect of the Company’s business, or to solicit or take away, or attempt to solicit or take away, from the Company or any of its affiliates any of its Customers in respect of the Company’s business.

 

Article 5
termination

 

This agreement may be terminated for Cause by any of the parties with a prior notice of 12 months.  Cause is defined as the Advisor conviction of, or plea of guilty to any crime involving dishonesty, fraud or moral turpitude. During the notice period, both parties to this Agreement will fulfil their duties and obligations under this Agreement. It is agreed that, in the event of termination of this agreement, neither the Company, nor the Advisor will be entitled to any notice, or payment in excess of that specified in this Article 5.

 

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Article 6
Mutual Representations

 

6.1The Advisor represents and warrants to the Company that the execution and delivery of this Agreement and the fulfillment of the terms hereof

 

(a)will not constitute a default under or conflict with any agreement or other instrument to which he is a party or by which he is bound, and

 

(b)do not require the consent of any person or entity.

 

6.2The Company represents and warrants to the Advisor that this Agreement has been duly authorized, executed and delivered by the Company and that the fulfillment of the terms hereof

 

(a)will not constitute a default under or conflict with any agreement of other instrument to which it is a party or by which it is bound, and

 

(b)do not require the consent of any person of entity.

 

6.3Each party hereto warrants and represents to the other that this Agreement constitutes the valid and binding obligation of such party enforceable against such party in accordance with its terms subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless if enforcement is sought in proceeding in equity or at law).

 

Article 7
notices

 

7.1Notices. All notices required or allowed to be given under this Agreement must be made either personally by delivery to or by facsimile transmission to the address as hereinafter set forth or to such other address as may be designated from time to time by such party in writing:

 

(a)in the case of the Company, to:

 

Blue Sphere Corporation

35 Assuta Street, Even Yehuda, Israel

   

(b)and in the case of the Advisor, to the Advisors’s last residence address known to the Company.

 

5
 

 

7.2Change of Address. Any party may, from time to time, change its address for service hereunder by written notice to the other party in the manner aforesaid.

 

Article 8
GENERAL

 

8.1Further Assurances. Each party hereto will promptly and duly execute and deliver to the other party such further documents and assurances and take such further action as such other party may from time to time reasonably request in order to more effectively carry out the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created hereby.

 

8.2Waiver. No provision hereof will be deemed waived and no breach excused, unless such waiver or consent excusing the breach is made in writing and signed by the party to be charged with such waiver or consent. A waiver by a party of any provision of this Agreement will not be construed as a waiver of a further breach of the same provision.

 

8.3Amendments in Writing. No amendment, modification or rescission of this Agreement will be effective unless set forth in writing and signed by the parties hereto.

 

8.4Assignment. Except as herein expressly provided, the respective rights and obligations of the Advisor and the Company under this Agreement will not be assignable by either party without the written consent of the other party and will, subject to the foregoing, enure to the benefit of and be binding upon the Advisor and the Company and their permitted successors or assigns. Nothing herein expressed or implied is intended to confer on any person other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

8.5The Company acknowledges and agrees that the Advisor may submit to the Company invoices from a company that employs him in lieu of invoices on his name. The Advisor confirms that any such invoice will replace his own invoice and he agrees that his fees will be paid by the Company to third parties provided that it is done as per his instructions to the Company.

 

8.6Severability. In the event that any provision contained in this Agreement is declared invalid, illegal or unenforceable by a court or other lawful authority of competent jurisdiction, such provision will be deemed not to affect or impair the validity or enforceability of any other provision of this Agreement, which will continue to have full force and effect.

 

8.7Headings. The headings in this Agreement are inserted for convenience of reference only and will not affect the construction or interpretation of this Agreement.

 

6
 

 

8.8Number and Gender. Wherever the singular or masculine or neuter is used in this Agreement, the same will be construed as meaning the plural or feminine or a body politic or corporate and vice versa where the context so requires.

 

8.9Time. Time is of the essence in this Agreement.

 

8.10Governing Law. This Agreement will be construed and interpreted in accordance with the laws of the State of Israel applicable therein, and each of the parties hereto expressly attorns to the jurisdiction of the courts of the State of Israel. The sole and exclusive place of jurisdiction in any matter arising out of or in connection with this Agreement will be the applicable Tel-Aviv court.

 

IN WITNESS WHEREOF

 

the parties hereto have executed this Agreement effective as of the date and year first above written.

 

Per:      
  Blue Sphere Corporation   Joshua Shoham
       
Name: Shlomo Palas    
       
Title:  Chief Executive Officer    

 

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EX-10.5 9 v330956_ex10-5.htm EXHIBIT 10.5

  

EMPLOYMENT AGREEMENT

 

THIS AGREEMENT made this 29th day of February, 2012 (the “Effective Date”).

 

BETWEEN:

 

Blue Sphere Corporation, a Nevada company with a business office in Even Yehuda, Israel,

 

(the “Company”)

 

AND:

 

Shlomo Palas, an individual currently residing at Rosh Ha’ayin, Israel.

 

(the “Executive”)

 

WHEREAS:

 

A.         The Company has engaged the Executive to serve in the role of Chief Executive Officer of the Company on March 3rd, 2010 for a term of 2 years ("Previous Agreement");

 

B.          The above Previous Agreement is expiring on March 3rd, 2012.

 

C.          The Company and the Executive wish to extend the Previous Agreement subject to updated terms and conditions as set forth in this Agreement ("Agreement")

 

NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the premises and the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

 

Article 1
CONTRACT FOR SERVICES

 

1.1Engagement of Executive. The Company hereby agrees to employ the Executive in accordance with the terms and provisions hereof.

 

(i)Term. Unless terminated earlier in accordance with the provisions hereof, the term of employment under this Agreement will commence on the date of execution hereof (the “Commencement Date”) and will continue for an indefinite period of time (the “Term”).

 

1.2Service. The Executive agrees to faithfully, honestly and diligently serve the Company and to devote the Executive’s time, attention and best efforts to further the business and interests of the Company during the Term. The Company acknowledges that the Executive is engaged in other business activities that commenced prior to this agreement and the Executive declares that these other activities will not be an obstacle to the commitments he is undertaking under this agreement.

 

 
 

 

1.3Duties. The Executive’s services hereunder will be provided on the basis of the following terms and conditions:

 

(a)Reporting directly to the Board of Directors of the Company, the Executive will serve as the Chief Executive Officer of the Company;

 

(b)The Executive will be responsible for setting the overall corporate direction for the Company, including establishing and maintaining budgets for the Company and ensuring that the Company has adequate capital for its operations, marketing and general corporate activities, all subject to any applicable law and to instructions provided by the Board of Directors of the Company from time to time;

 

The Executive will plan and direct the organization's activities to achieve stated/agreed targets and standards for financial and trading performance, quality, culture and legislative adherence. He will recruit, select and develop executive team members and direct functions and performance via the executive team.

 

(c)The Executive will play a leading role in fundraising activities

 

(d)The Executive will faithfully, honestly and diligently serve the Company and cooperate with the Company and utilize maximum professional skill and care to ensure that all services rendered hereunder are to the satisfaction of the Company, acting reasonably, and the Executive will provide any other services not specifically mentioned herein, but which by reason of the Executive’s capability, the Executive knows or ought to know to be necessary to ensure that the best interests of the Company are maintained.

 

(e)The Executive will assume, obey, implement and execute such duties, directions, responsibilities, procedures, policies and lawful orders as may be determined or given from time to time by the Company.

 

(f)The Executive will report the results of his duties hereunder to the Company as it may request from time to time.

 

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Article 2
COMPENSATION

 

2.1Remuneration.

 

(a)For services rendered by the Executive during the Term, the Executive will be paid a monthly remuneration, payable within 10 days after the end of each month against an invoice, at a gross monthly rate of US$10,000 + VAT (the “Fee”). Subsequently, the Fee will increase to a gross monthly rate of USD $15,000 + VAT, when the Company will have reasonable financial capabilities to increase these fees. The Fee will be paid in NIS translated pursuant to the official representative rate of exchange of the US$ as published by the Bank of Israel on the payment date. Any deductions required to be made by the Company and submitted to relevant tax or other authorities will be deducted at source. Payments may be made through an Israeli Subsidiary.

 

(b)The Executive’s position with the Company is included among the positions of management or those requiring a special degree of personal trust, and the Company is not able to supervise the number of working hours of the Executive; therefore the provisions of the Israel Hours of Work and Rest Law - 1951, will not apply to the Executive and he will not be entitled to any additional remuneration whatsoever for his work with the exception of that specifically set out in this Agreement.

 

2.2Incentive Plans

 

2.3A. The Executive will be entitled to participate in any bonus plan or incentive compensation plans for its employees, adopted by the Company.

 

B. In an event of a merger or acquisition by a third party of substantially all the Company, or in an event of completed transaction effecting a merger, consolidation, reorganization, restructuring; purchase of substantially all of another entity or such entity's assets, business properties or securities; or purchase by the Company of such other entity's business unit, which transaction creates the result that the Company's shareholders immediately prior to such transaction do not own a majority of the shares in either the Company or any surviving entity immediately after the transaction (but does not include a transaction which is normally considered a pure financing, being issuance of shares for cash) or other “exit event” for other shareholders of the Company (each such event an “Exit”), in which Exit the Executive will be entitled to exercise any Stock Options in his possession (if any) and join with customary rights of “tag-along” and shall be entitled to sell the entirety of his common shares at the Exit price per share of the selling shareholders in such Exit.

 

2.4Expenses. The Executive will be reimbursed by the Company for all reasonable business expenses incurred by the Executive and pre-approved by the board in connection with his duties within previously approved budgets upon submission of a monthly statement of expenses. This includes, but not only, payments of expenses incurred when traveling abroad, per diem payments for travel abroad according to the rules set forth by the Israeli Tax Authorities and others.

 

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2.5Vacation; Recreation Pay. The Executive will be entitled to cumulative paid vacations of twenty (20) days per year. In addition, the Executive will be entitled to sick leave according to applicable law, but will not be entitled to Recreation Pay. The Executive will not be entitled to any other benefits whatsoever.

 

2.6Annual Review. The compensation payable and the method of payment to the Executive under this Article 2 will be reviewed after 1 year from the date of this agreement by the Board of the Company.

 

Article 3
Insurance and Benefits

 

3.1Liability Insurance Indemnification. The Company will insure the Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at the Company's expense.

 

Article 4
CONFIDENTIALITY AND NON-COMPETITION

 

4.1Maintenance of Confidential Information.

 

(a)“Confidential Information”: For the purposes of this Agreement, “Confidential Information” shall include all information of a confidential nature, that has been or will be disclosed to the Executive by the Company or any person or entity on its behalf, and includes, without limitation, any and all developments, trade secrets, inventions, innovations, techniques, processes, formulas, drawings, designs, products, systems, creations, improvements, documentation, data, specifications, technical reports, customer lists, supplier lists, distributor lists, distribution channels and methods, retailer lists, reseller lists, employee information, financial information, sales or marketing plans, competitive analysis reports and any other thing or information whatsoever, whether copyrightable or uncopyrightable or patentable or unpatentable.

 

(b)The Executive acknowledges that, in the course of employment hereunder, the Executive will, either directly or indirectly, have access to and be entrusted with Confidential Information (whether oral, written or by inspection) relating to the Company or its respective affiliates, associates or customers.

 

(c)The Executive acknowledges that the Company’s Confidential Information constitutes a proprietary right, which the Company is entitled to protect. Accordingly, the Executive covenants and agrees that, during the Term and for a period of two years thereafter, the Executive will keep in strict confidence the Company’s Confidential Information and will not, without prior written consent of the Company, disclose, use or otherwise disseminate the Company’s Confidential Information, directly or indirectly, to any third party.

 

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(d)The Executive agrees that, upon termination of his services for the Company, he will immediately surrender to the Company all Company Confidential Information then in his possession or under his control.

 

4.2Exceptions. The general prohibition contained in Section 4.1 against the unauthorized disclosure, use or dissemination of the Company’s Confidential Information will not apply in respect of any Company Confidential Information that:

 

(a)is available to the public generally;

 

(b)becomes part of the public domain through no fault of the Executive;

 

(c)is already in the lawful possession of the Executive at the time of receipt of the Company’s Confidential Information; or

 

(d)is compelled by applicable law to be disclosed, provided that the Executive gives the Company prompt written notice of such requirement prior to such disclosure and provides assistance at the request and expense of the Company, in obtaining an order protecting the Company’s Confidential Information from public disclosure.

 

4.3Fiduciary Obligation. The Executive declares that the Executive’s relationship to the Company is that of fiduciary, and the Executive agrees to act towards the Company and otherwise behave as a fiduciary of the Company.

 

4.4Non Competition. The Executive agrees and undertakes that he will not, so long as he is employed by the Company and for a period of 12 months following termination of his employment for whatever reason, directly or indirectly, as owner, partner, joint venture, stockholder, employee, broker, agent, principal, corporate officer, director, licensor or in any other capacity whatever engage in, become financially interested in, be employed by, or have any connection with any business or venture that competes with the Company’s business, including any business which, when this Agreement terminates, the Company contemplates in good faith to be materially engaged in within 12 months thereafter, provided that the Company has taken demonstrable actions to promote such engagement or that the Company’s Board of Directors has adopted a resolution authorizing such actions prior to the date of termination; provided, however, that Executive may own securities of any corporation which is engaged in such business and is publicly owned and traded but in an amount not to exceed at any one time one percent (1%) of any class of stock or securities of such company, so long as he has no active role in the publicly owned and traded company as director, employee, consultant or otherwise.

 

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4.5No Solicitation.

 

(a)“Customer”: For the purposes of this Agreement, “Customer” means any Person who is, at any time during the Term and for a period of 12 months following termination of the Executive’s employment for any reason, a customer of the Company or any of its affiliates that the Executive knew or ought reasonably to have known was a customer of the Company or any of its affiliates, or any Person with whom contact is made during such period for the purpose of persuading such Person to become a customer of the Company or any of its affiliates, provided that the Executive knew or ought reasonably to have known such contact was made.

 

(b)“Person”: For the purposes of this Agreement, “Person” means an individual, corporation, partnership, trustee, trust, unincorporated association, organization, syndicate, joint venture, limited liability company, executor, administrator or other legal or personal representative, government entity or any other entity recognized by law.

 

(c)The Executive covenants and undertakes that he will not, at any time during the Term and for a period of 12 months following termination of his employment for any reason, directly or indirectly, in any way:

 

(i)solicit, hire or engage the services of any employee or consultant the Company or its affiliates or persuade or attempt to persuade any such individual to terminate his employment or relationship with the Company or any of its Affiliates;

 

(ii)persuade or attempt to persuade any Customer to restrict, limit or discontinue purchasing or retaining the services provided by the Company or any of its affiliates to any such Customer or to reduce the amount of business which any such Customer has customarily done, or contemplates doing, with the Company or any of its affiliates in respect of the Company’s business, or to solicit or take away, or attempt to solicit or take away, from the Company or any of its affiliates any of its Customers in respect of the Company’s business.

 

4.6Remedies. The parties to this Agreement recognize that any violation or threatened violation by the Executive of any of the provisions contained in this Article 4 will result in immediate and irreparable damage to the Company and that the Company could not adequately be compensated for such damage by monetary award alone. Accordingly, the Executive agrees that, in the event of any such violation or threatened violation, the Company will, in addition to any other remedies available to the Company at law or in equity, be entitled as a matter of right to apply to such relief by way of restraining order, temporary or permanent injunction and to such other relief as any court of competent jurisdiction may deem just and proper.

 

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4.7Reasonable Restrictions. The Executive agrees that all restrictions in this Article 4 are reasonable and valid in order to protect the business and proprietary interests of the Company, both as to the duration of time and any geographic limitation therein provided, based on the present business, plans and prospects of the Company and that compliance with the provisions of this Agreement will be unduly burdensome on him or deprive him of a means of livelihood.

 

Article 5
termination

 

5.1Definitions

 

(a)Cause”: For the purposes of this Agreement, “Cause” means that the Executive has:

 

(i)committed an intentional act of fraud, embezzlement or theft in connection with the Executive’s duties or in the course of the Executive’s employment with the Company;

 

(ii)intentionally and wrongfully damaged property of the Company, or any of its respective affiliates, associates or customers;

 

(iii)intentionally or wrongfully disclosed any of the Confidential Information;

 

(iv)made material personal benefit at the expense of the Company without the prior written consent of the management of the Company;

 

(v)accepted shares or options or any other gifts or benefits from a vendor without the prior written consent of the management of the Company;

 

(vi)fundamentally breached any of the Executive’s material covenants contained in this Agreement; or

 

(vii)willfully and persistently, without reasonable justification, failed or refused to follow the lawful and proper directives of the Company specifying in reasonable detail the alleged failure or refusal and after a reasonable opportunity for the Executive to cure the alleged failure or refusal.

 

(b)“Terminated For No Cause”. For the purposes of this Agreement, “Terminated For No Cause” means any event of termination that is not a result of the events described in clause 5.1(a) above.

 

(c)“Intentional”: For the purposes of this Agreement, an act or omission on the part of the Executive will not be deemed “intentional,” if it was due to an error in judgment or negligence, but will be deemed “intentional” if done by the Executive not in good faith and without reasonable belief that the act or omission was in the best interests of the Company, or its respective affiliates, associates or customers.

 

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(d)“Disability”: For the purposes of this Agreement, "Disability" will mean any physical or mental illness or injury as a result of which the Executive remains absent from work for a period of six (6) successive months, or an aggregate of six (6) months in any twelve (12) month period. Disability will occur upon the end of such six-month period.

 

5.2 Termination For Cause or Disability. This Agreement may be terminated at any time by the Company without notice, for Cause or in the event of the Disability of Executive.

 

5.3 Termination For No Cause. This agreement may be Terminated For No Cause by any of the parties with a prior notice of 6 months.

 

5.4 Severance for Termination With Cause. If the Company terminates the Executive’s employment for Cause, then the Company will not be obligated to pay the Executive any severance payments or provide any notice whatsoever to the Executive.

 

5.5 Limitation of Damages. It is agreed that, in the event of termination of employment, neither the Company, nor the Executive will be entitled to any notice, or payment in excess of that specified in this Article 5.

 

5.6 Return of Materials. Within three (3) days of any termination of employment hereunder, or upon any request by the Company at any time, the Executive will return or cause to be returned any and all Confidential Information and other assets of the Company (including all originals and copies thereof), which “assets” include, without limitation, hardware, software, keys, security cards and backup tapes that were provided to the Executive either for the purpose of performing the employment services hereunder or for any other reason. The Executive acknowledges that the Company’s Confidential Information and the assets are proprietary to the Company, and the Executive agrees to return them to the Company in the same condition as the Executive received such Confidential Information and assets.

 

5.7 Effect of Termination. Sections 4, 5.5 and 8.11 hereto will remain in full force and effect after termination of this Agreement, for any reason whatsoever

 

Article 6
Mutual Representations

 

6.1The Executive represents and warrants to the Company that the execution and delivery of this Agreement and the fulfillment of the terms hereof

 

(a)will not constitute a default under or conflict with any agreement or other instrument to which he is a party or by which he is bound, and

 

(b)do not require the consent of any person or entity.

 

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6.2The Company represents and warrants to Executive that this Agreement has been duly authorized, executed and delivered by the Company and that the fulfillment of the terms hereof

 

(a)will not constitute a default under or conflict with any agreement of other instrument to which it is a party or by which it is bound, and

 

(b)do not require the consent of any person of entity.

 

6.3Each party hereto warrants and represents to the other that this Agreement constitutes the valid and binding obligation of such party enforceable against such party in accordance with its terms subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless if enforcement is sought in proceeding in equity or at law).

 

Article 7
notices

 

7.1Notices. All notices required or allowed to be given under this Agreement must be made either personally by delivery to or by facsimile transmission to the address as hereinafter set forth or to such other address as may be designated from time to time by such party in writing:

 

(a)in the case of the Company, to:


Blue Sphere Corporation

35 Assuta Street

Even Yehuda, Israel

 

(b)and in the case of the Executive, to the Executive’s last residence address known to the Company.

 

7.2Change of Address. Any party may, from time to time, change its address for service hereunder by written notice to the other party in the manner aforesaid.

 

Article 8
GENERAL

 

8.1Entire Agreement. As of from the date hereof, any and all previous agreements, written or oral between the parties hereto or on their behalf relating to the employment of the Executive by the Company are null and void. The parties hereto agree that they have expressed herein their entire understanding and agreement concerning the subject matter of this Agreement and it is expressly agreed that no implied covenant, condition, term or reservation or prior representation or warranty will be read into this Agreement relating to or concerning the subject matter hereof or any matter or operation provided for herein.

 

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8.2Personal Agreement. The provisions of this Agreement are in lieu of the provisions of any collective bargaining agreement, and therefore, no collective bargaining agreement will apply with respect to the relationship between the parties hereto (subject to the applicable provisions of law).

 

8.3Further Assurances. Each party hereto will promptly and duly execute and deliver to the other party such further documents and assurances and take such further action as such other party may from time to time reasonably request in order to more effectively carry out the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created hereby.

 

8.4Waiver. No provision hereof will be deemed waived and no breach excused, unless such waiver or consent excusing the breach is made in writing and signed by the party to be charged with such waiver or consent. A waiver by a party of any provision of this Agreement will not be construed as a waiver of a further breach of the same provision.

 

8.5Amendments in Writing. No amendment, modification or rescission of this Agreement will be effective unless set forth in writing and signed by the parties hereto.

 

8.6Assignment. Except as herein expressly provided, the respective rights and obligations of the Executive and the Company under this Agreement will not be assignable by either party without the written consent of the other party and will, subject to the foregoing, enure to the benefit of and be binding upon the Executive and the Company and their permitted successors or assigns. Nothing herein expressed or implied is intended to confer on any person other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

8.7Severability. In the event that any provision contained in this Agreement is declared invalid, illegal or unenforceable by a court or other lawful authority of competent jurisdiction, such provision will be deemed not to affect or impair the validity or enforceability of any other provision of this Agreement, which will continue to have full force and effect.

 

8.8Headings. The headings in this Agreement are inserted for convenience of reference only and will not affect the construction or interpretation of this Agreement.

 

8.9Number and Gender. Wherever the singular or masculine or neuter is used in this Agreement, the same will be construed as meaning the plural or feminine or a body politic or corporate and vice versa where the context so requires.

 

8.10Time. Time is of the essence in this Agreement.

 

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8.11Governing Law. This Agreement will be construed and interpreted in accordance with the laws of the State of Israel applicable therein, and each of the parties hereto expressly attorns to the jurisdiction of the courts of the State of Israel. The sole and exclusive place of jurisdiction in any matter arising out of or in connection with this Agreement will be the applicable Tel-Aviv court.

 

8.12Enurement. This Agreement is intended to bind and enure to the benefit of the Company, its successors and assigns, and the Executive and the personal legal representatives of the Executive.

 

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

 

Per: /s/ Joshua Shoham   /s/ Shlomo Palas
  Blue Sphere Corporation   Shlomo Palas
       
Name:  Joshua Shoham    
       
Title:      

 

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EX-10.6 10 v330956_ex10-6.htm EXHIBIT 10.6

 

Management Services Agreement

 

THIS AGREEMENT made this 25th day of July, 2011 (the “Effective Date”).

 

BETWEEN:

 

Blue Sphere Corporation, a company incorporated in Nevada, USA (theCompany”)

 

AND:

 

JLS, a company incorporated in Cyprus with a business office in Florinis 7, Nicosia, Cyprus

 

("JLS")

 

ANDRoy Amitzur, an individual with residence in Bratislava, Slovakia (the "Executive")

 

All together: "The Parties"

 

WHEREAS:

 

A.            The Company has agreed to engage JLS to provide management services to the Company: and

 

B.             JLS and the Company wish to formally record the terms and conditions upon which JSL will render management services to the Company; and

 

C.  JLS has agreed to assign the Executive, who is engaged with JLS, and the Executive has agreed, to provide management services to the Company and to devote at least 75% of the Executive's time for the management services to the Company; and

 

D.  The company declares that its business is in the field of GHG emission reduction and in renewable energy with projects world wide.

 

E.  The Executive declares that he has significant experience in business general management, funds raising and project financing ; and

 

F.             JLS, the Executive and the Company has agreed that the Executive will not be entitled to any compensation of any kind from the Company and that any compensation for the services rendered by the Executive will be paid only to JLS;

 

NOW THEREFORE THIS AGREEMENT WITNESSES that, in consideration of the promises and the mutual covenants and agreements herein contained, the parties hereto covenant and agree as follows:

 

 
 

 

Article 1
CONTRACT FOR SERVICES

 

1.1Engagement of Executive. The Company hereby agrees to engage JLS and the Executive in accordance with the terms and provisions hereof.

 

(a).  Term. Unless terminated earlier in accordance with the provisions hereof, the term of engagement under this Agreement will commence on the Effective Date and will continue for a period of two (2) years from the Effective Date (the “Term”). The Company may terminate this Agreement by giving 30 days written notice to JLS and/or the Executive if it has not entered into agreements with investors that have supplied to the Company equity financing for the total amount of at least $1,000,000 on or before July 15, 2012 or after a mutually pre-agreed extended period of 6 months from the effective date if JLS and the Executive requests such extension ("The Condition"). For the avoidance of doubt, the above mentioned target financing of $ 1 million referred to in The Condition means equity financing of $1 million directly to the Company and not to any of its projects or subsidiaries.

 

 

 

(b).  Service. The Executive agrees to faithfully; honestly and diligently serve the Company and to devote most of his time, attention and best efforts to further the business and interests of the Company during the Term. It is agreed that the Executive will devote at least 75% of his time to the Company

 

1.2Duties. The Executive’s services hereunder will be provided on the basis of the following terms and conditions:

 

(a)Reporting directly to the Chief Executive Officer of the Company, the Executive will serve as Executive Vice President of the Company;

 

(b)It is agreed that as first priority, the Executive will focus on funds raising and on marketing the Company in the financial communities. The Executive will plan, develop and implement funds raising strategy for the short term and the long term so as to enable meet performance plans within agreed budgets and timescales given by the CEO. He will establish and maintain appropriate systems and tools for follow up, monitor, update and extend the Company's involvement and reputation within the financial capital markets. He will report on opportunities, development plans and achievements within agreed formats and timescales. The Executive will manage and control funds raising expenditure within agreed budgets. He will contribute to the evaluation of strategy, development and performance of the Company in co-operation with the executive team.

 

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(c). After achieving The Condition and other targets in the financial markets as defined jointly by the Executive and the management of the Company, the Executive will devote more of his time in general management tasks as part of the leading team of the Company, primarily marketing tasks and participation in projects management.

 

Article 2
COMPENSATION

 

2.1Remuneration.

 

(a)For services rendered by the Executive during the Term, JLS will be paid a monthly fee, payable within 10 days after the end of each month against an invoice, at a gross monthly rate of US$10,000 + VAT when applicable (the “Fee”). It is agreed that JLS will be entitled to fees only after the Company has raised an aggregate amount of at least $450,000 . Subsequently, the Fee will increase to a gross monthly rate of USD $15,000 + VAT (when applicable) after the Company has raised an aggregate equity investment against its shares of $2,000,000. Payments may be made through the Israeli subsidiary of the Company.

 

(b)The Executive agrees that only JLS will be entitled to the full compensation for his services rendered to the Company, being it in cash or in shares or in any other way, and this compensation will be paid only to JLS and that he will not have any claim whatsoever to the Company on compensation for the services rendered provided that full payment therefore is actually made to JLS and that he is fully compensated by JLS for any service that he will render to the Company.

 

(c)The Executive’s position with the Company is included among the positions of management or those requiring a special degree of personal trust, and the Company is not able to supervise the number of working hours of the Executive; and he and JLS will not be entitled to any additional remuneration whatsoever for his work with the exception of that specifically set out in the Agreement between the Company and JLS.

 

(d)JLS and the Executive take full responsibility on any tax liabilities that they might have as a result of the rendering of services to the Company. JLS and the Executive hereby undertakes responsibility on any claim against the Company for any tax liabilities that may arise.

 

2.2Shares' Allocation.

 

(a)“JLS Shares”: For the purposes of this Agreement, “JLS Shares” means nine point nine (9.9%) percent of the common shares in the capital of the Company as of the Effective Date to vest in accordance with this paragraph 2.2.

 

3
 

 

(b)As of the Commencement Date, the Company will issue to JLS Company's shares ("JLS Shares"), exercisable at a price of $0.001 per share. JLS Shares may not be sold for two years after the Effective Date and will be trusted in escrow for two years from the Effective Date. The Company undertakes to make all filings and to take all steps, in the same manner as it will act for the first investors that will join the Company as new shareholders as from the Effective Date, to ensure that all the JLS shares will be freely tradable and to ensure they will remain freely tradable after the escrow period.

 

(c)The total amount of JLS Shares granted to JLS as per Section 2(a) above and any additional shares that may be granted to JLS after the Effective Date will be vested in equal parts, on a quarterly basis commencing the Effective Date and ending 24 months thereafter, a total of 8 quarters.

 

(d)In case that the Executive will resign from the Company, JLS will receive only the JLS Shares that have vested on the effective date of resignation. In case that the Executive will cease to be Executive of the Company due to termination by the Company for reason of not meeting The Condition by July 15, 2012, 50% of the JLS Shares will be vested and if the termination occurs after the 6 month agreed extension without the Condition being met, 75% of the JLS shares will be vested . In the event that the Condition is met by July 15, 2012 or any agreed extension, all JLS Shares will automatically be vested, In the event that the engagement of the Executive is terminated for Cause (defined below), none of the JLS Shares will be vested. In the event of termination of the Agreement by JLS and the Executive or termination of the Agreement by the Company except for Cause, all vested shares according to this Section 2.2 will be released from escrow at termination date and freely tradable. All JLS Shares not vested will be returned to the Company.

 

(e)It is agreed that It is JLS and the Executive responsibility to pay any tax liabilities that may arise as a result of granting JLS Shares by the Company, and it is agreed that the Company will not be liable to any of the Executive's personal tax liabilities that may occur due to JLS Shares allocation nor to any corporate tax liabilities due to JLS Shares allocation.

 

2.3Incentive Plans JLS and the Executive will be entitled to participate at similar terms as the other executives of the Company in bonus plans or incentive compensation plans for its employees, adopted by the Company or any of its subsidiaries.

 

2.4Expenses. The Executive will be reimbursed by the Company for all reasonable business expenses incurred by the Executive and pre-approved by the CEO in connection with his duties within previously approved budgets upon submission of a monthly statement of expenses. This includes, but not only, payments of expenses incurred when traveling abroad, per diem payments for travel abroad.

 

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2.5Liability Insurance Indemnification. The Company will insure the Executive (including his heirs, executors and administrators) with coverage under a standard directors' and officers' liability insurance policy at the Company's expense with a run-off period of seven (7) years following termination of his engagement and will provide the Executive with a customary officer indemnification agreement.

 

Article 3
CONFIDENTIALITY AND NON-COMPETITION

 

3.1Maintenance of Confidential Information.

 

(a)“Confidential Information”: For the purposes of this Agreement, “Confidential Information” shall include all information of a confidential nature, that has been or will be disclosed to JLS and/or the Executive by the Company or any person or entity on their behalf, and includes, without limitation, any and all developments, trade secrets, inventions, innovations, techniques, processes, formulas, drawings, designs, products, systems, creations, improvements, documentation, data, specifications, technical reports, customer lists, supplier lists, distributor lists, distribution channels and methods, retailer lists, reseller lists, employee information, financial information, sales or marketing plans, competitive analysis reports and any other thing or information whatsoever, whether copyrightable or non copyrightable or patentable or non patentable.

 

(b)JLS and the Executive acknowledge that, in the course of services rendering hereunder, JLS and/or the Executive will, either directly or indirectly, have access to and be entrusted with Confidential Information (whether oral, written or by inspection) relating to the Company or its respective affiliates, associates or customers.

 

(c)JLS and the Executive acknowledge that the Company’s Confidential Information constitutes a proprietary right, which the Company is entitled to protect. Accordingly, JLS and the Executive covenant and agree that, during the Term and for a period of two years thereafter, JLS and the Executive will keep in strict confidence the Company’s Confidential Information and will not, without prior written consent of the Company, disclose, use or otherwise disseminate the Company’s Confidential Information, directly or indirectly, to any third party.

 

(d)JLS and the Executive agree that, upon termination of the services for the Company, they will immediately surrender to the Company all Company Confidential Information then in their possession or under their control.

 

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3.2Exceptions. The general prohibition contained in Section 4.1 against the unauthorized disclosure, use or dissemination of the Company’s Confidential Information will not apply in respect of any Company Confidential Information that:

 

(a)is available to the public generally;

 

(b)becomes part of the public domain through no fault of the Executive;

 

(c)is already in the lawful possession of the Executive at the time of receipt of the Company’s Confidential Information; or

 

(d)is compelled by applicable law to be disclosed, provided that the Executive and/or JLS give the Company prompt written notice of such requirement prior to such disclosure and provides assistance at the request and expense of the Company, in obtaining an order protecting the Company’s Confidential Information from public disclosure.

 

3.3Fiduciary Obligation. JLS and the Executive declare that their relationship to the Company is that of fiduciary, and they agree to act towards the Company and otherwise behave as fiduciary of the Company.

 

3.4Non Competition. JLS and the Executive agree and undertake that they will not, so long as they render services to the Company and for a period of 12 months following termination of services render for whatever reason, directly or indirectly, as owner, partner, joint venture, stockholder, employee, broker, agent, principal, corporate officer, director, licensor or in any other capacity whatever engage in, become financially interested in, be employed by, or have any connection with any business or venture that competes with the Company’s business, including any business which, when this Agreement terminates, the Company contemplates in good faith to be materially engaged in within 12 months thereafter, provided that the Company has taken demonstrable actions to promote such engagement or that the Company’s Board of Directors has adopted a resolution authorizing such actions prior to the date of termination; provided, however, that JLS and the Executive may own securities of any corporation which is engaged in such business and is publicly owned and traded but in an amount not to exceed at any one time one percent (3%) of any class of stock or securities of such company, so long as he has no active role in the publicly owned and traded company as director, employee, consultant or otherwise. The above will not apply to the Executive in his capacity as a director, President and shareholder of CTG Clean Technology Group Ltd. and its daughter companies.

 

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3.5No Solicitation.

 

(a)“Customer”: For the purposes of this Agreement, “Customer” means any Person who is, at any time during the Term and for a period of 12 months following termination of the Executive’s work with the Company for any reason, a customer of the Company or any of its affiliates that the JLS and/or the Executive knew ..

 

(b)“Person”: For the purposes of this Agreement, “Person” means an individual, corporation, partnership, trustee, trust, unincorporated association, organization, syndicate, joint venture, limited liability company, executor, administrator or other legal or personal representative, government entity or any other entity recognized by law.

 

(c)JLS and the Executive covenant and undertake that they will not, at any time during the Term and for a period of 12 months following termination of this agreement for any reason, directly or indirectly, in any way:

 

(i)solicit, hire or engage the services of any employee or consultant the Company or its affiliates or persuade or attempt to persuade any such individual to terminate his employment or relationship with the Company or any of its Affiliates;

 

(ii)persuade or attempt to persuade any Customer to restrict, limit or discontinue purchasing or retaining the services provided by the Company or any of its affiliates to any such Customer or to reduce the amount of business which any such Customer has customarily done, with the Company or any of its affiliates in respect of the Company’s business, or to solicit or take away, or attempt to solicit or take away, from the Company or any of its affiliates any of its Customers in respect of the Company’s business.

 

3.6Remedies. The parties to this Agreement recognize that any violation or threatened violation by JLS and/or the Executive of any of the provisions contained in this Article 4 will result in immediate and irreparable damage to the Company and that the Company could not adequately be compensated for such damage by monetary award alone. Accordingly, JLS and the Executive agree that, in the event of any such violation or threatened violation, the Company will, in addition to any other remedies available to the Company at law or in equity, be entitled as a matter of right to apply to such relief by way of restraining order, temporary or permanent injunction and to such other relief as any court of competent jurisdiction may deem just and proper.

 

3.7Reasonable Restrictions. JLS and the Executive agree that all restrictions in this Article 4 are reasonable and valid in order to protect the business and proprietary interests of the Company, both as to the duration of time and any geographic limitation therein provided, based on the present business, plans and prospects of the Company and that compliance with the provisions of this Agreement will be unduly burdensome on him or deprive him of a means of livelihood.

 

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Article 4
termination

 

4.1Definitions

 

(a)Cause”: For the purposes of this Agreement, “Cause” means that JLS and/or the Executive have:

 

(i)committed an intentional act of fraud, embezzlement or theft in connection with the Executive’s duties or in the course of the Executive’s work with the Company;

 

(ii)intentionally and wrongfully damaged property of the Company, or any of its respective affiliates, associates or customers;

 

(iii)intentionally or wrongfully disclosed any of the Confidential Information;

 

(iv)made material personal benefit at the expense of the Company in breach of his fiduciary duty to the Company without the prior written consent of the CEO ;

 

(v)accepted shares or options or any other gifts or benefits from a vendor without the prior written consent of the CEO;

 

(vi)fundamentally breached any of the JLS or Executive’s material covenants contained in this Agreement and after a reasonable opportunity for JLS or the Executive to cure the alleged breach; or

 

(vii)persistently, without reasonable justification, failed or refused to follow the lawful and proper directives of the Company and after a reasonable opportunity for JLS or the Executive to cure the alleged failure or refusal.

 

(b)“Terminated For No Cause”. For the purposes of this Agreement, “Terminated For No Cause” means any event of termination that is not a result of the events described in clause 5.1(a) above.

 

(c)“Intentional”: For the purposes of this Agreement, an act or omission on the part of JLS or the Executive will not be deemed “intentional,” if it was due to an error in judgment or negligence, but will be deemed “intentional” if done by JLS or the Executive not in good faith and without reasonable belief that the act or omission was in the best interests of the Company, or its respective affiliates, associates or customers.

 

(d)“Disability”: For the purposes of this Agreement, "Disability" will mean any physical or mental illness or injury as a result of which the Executive remains absent from work for a period of six (6) successive months, or an aggregate of six (6) months in any twelve (12) month period. Disability will occur upon the end of such six-month period.

 

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4.2 Termination For Cause or Disability. This Agreement may be terminated at any time by the Company without notice, for Cause or in the event of the Disability of the Executive.

 

4.3 Termination For No Cause. This agreement may be Terminated For No Cause by any of the parties with a prior notice of 3 months. During the notice period, both parties to this Agreement will fulfil their duties and obligations under this Agreement.

 

4.4 Severance for Termination With Cause. If the Company terminates the Executive’s services rendering for Cause, then the Company will not be obligated to pay the Executive or JLS any severance payments or provide any notice whatsoever to the JLS or the Executive.

 

4.5 Limitation of Damages. It is agreed that, in the event of termination of services, neither the Company, nor JLS nor the Executive will be entitled to any notice, or payment in excess of that specified in this Article 5.

 

4.6 Return of Materials. Within three (3) days of any termination of services hereunder, or upon any request by the Company at any time, JLS and the Executive will return or cause to be returned any and all Confidential Information and other assets of the Company (including all originals and copies thereof), which “assets” include, without limitation, hardware, software, keys, security cards and backup tapes that were provided to JLS or the Executive either for the purpose of performing the services hereunder or for any other reason. JLS and the Executive acknowledge that the Company’s Confidential Information and the assets are proprietary to the Company, and JLS and the Executive agree to return them to the Company in the same condition as JLS or the Executive received such Confidential Information and assets.

 

4.7 Effect of Termination. Sections 2.2, 3, 4.5 and 8.11 hereto will remain in full force and effect after termination of this Agreement, for any reason whatsoever

 

Article 5
Mutual Representations

 

5.1JLS and the Executive represent and warrant to the Company that the execution and delivery of this Agreement and the fulfillment of the terms hereof

 

(a)will not constitute a default under or conflict with any agreement or other instrument to which he is a party or by which he is bound, and

 

(b)do not require the consent of any person or entity.

 

5.2The Company represents and warrants that this Agreement has been duly authorized, executed and delivered by the Company and that the fulfillment of the terms hereof

 

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(a)will not constitute a default under or conflict with any agreement of other instrument to which it is a party or by which it is bound, and

 

(b)do not require the consent of any person of entity.

 

5.3Each party hereto warrants and represents to the other that this Agreement constitutes the valid and binding obligation of such party enforceable against such party in accordance with its terms subject to applicable bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights generally, and subject, as to enforceability, to general principles of equity (regardless if enforcement is sought in proceeding in equity or at law).

 

Article 6
notices

 

6.1Notices. All notices required or allowed to be given under this Agreement must be made either personally by delivery to or by facsimile transmission to the address as hereinafter set forth or to such other address as may be designated from time to time by such party in writing:

 

(a)in the case of the Company, to:


Blue Sphere Corporation

35 Asuta St. Even Yehuda,

P.O.B 857, Israel 40500

 

(b) in the case of JLS, to Florinis 7, Greg Tower, 6th floor, 1065, Nicosia, Cyprus.

 

(c) and in the case of the Executive Kastielska 2, Bratislava 821 05, Slovakia

 

6.2Change of Address. Any party may, from time to time, change its address for service hereunder by written notice to the other party in the manner aforesaid.

 

Article 7
GENERAL

 

7.1Entire Agreement. As of from the date hereof, any and all previous agreements, written or oral between the parties hereto or on their behalf relating to the contracting of JLS or the Executive by the Company are null and void. The parties hereto agree that they have expressed herein their entire understanding and agreement concerning the subject matter of this Agreement and it is expressly agreed that no implied covenant, condition, term or reservation or prior representation or warranty will be read into this Agreement relating to or concerning the subject matter hereof or any matter or operation provided for herein.

 

10
 

 

7.2Personal Agreement. The provisions of this Agreement are in lieu of the provisions of any collective bargaining agreement, and therefore, no collective bargaining agreement will apply with respect to the relationship between the parties hereto (subject to the applicable provisions of law).

 

7.3Further Assurances. Each party hereto will promptly and duly execute and deliver to the other party such further documents and assurances and take such further action as such other party may from time to time reasonably request in order to more effectively carry out the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created hereby.

 

7.4Waiver. No provision hereof will be deemed waived and no breach excused, unless such waiver or consent excusing the breach is made in writing and signed by the party to be charged with such waiver or consent. A waiver by a party of any provision of this Agreement will not be construed as a waiver of a further breach of the same provision.

 

7.5Amendments in Writing. No amendment, modification or rescission of this Agreement will be effective unless set forth in writing and signed by the parties hereto.

 

7.6Assignment. Except as herein expressly provided, the respective rights and obligations of JLS, the Executive and the Company under this Agreement will not be assignable by either party without the written consent of the other party and will, subject to the foregoing, enure to the benefit of and be binding upon JLS, the Executive and the Company and their permitted successors or assigns. Nothing herein expressed or implied is intended to confer on any person other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement.

 

7.7Severability. In the event that any provision contained in this Agreement is declared invalid, illegal or unenforceable by a court or other lawful authority of competent jurisdiction, such provision will be deemed not to affect or impair the validity or enforceability of any other provision of this Agreement, which will continue to have full force and effect.

 

7.8Headings. The headings in this Agreement are inserted for convenience of reference only and will not affect the construction or interpretation of this Agreement.

 

7.9Number and Gender. Wherever the singular or masculine or neuter is used in this Agreement, the same will be construed as meaning the plural or feminine or a body politic or corporate and vice versa where the context so requires.

 

7.10Time. Time is of the essence in this Agreement.
11
 

 

Governing Law. This Agreement shall be interpreted and performed in accordance with the laws of the State of New York and the parties agree, notwithstanding the principles of conflicts of law, that the internal laws of the State of New York shall govern and control the validity, interpretation, performance, and enforcement of this Agreement

 

7.11Enurement. This Agreement is intended to bind and enure to the benefit of the Company, its successors and assigns, JLS and the Executive and the personal legal representatives of JLS and the Executive.

 

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

 

Per:     Per:  
Blue Sphere Corporation   JLS  
         

 

Name:     Name:  
         
Title:        

 

     
Per:           
The Executive  
   
Name: Roy Amitzur  

 

12

EX-10.7 11 v330956_ex10-7.htm EXHIBIT 10.7

 

BS AND MR PROJECT MANAGEMENT AND BUSINESS DEVELOPMENT AGREEMENT

 

THIS AGREEMENT (this “Agreement”) is dated 22 February 2010 and is entered into by and between Blue Sphere Corporation, a corporation organised under the laws of Nevada (together with its affiliates, “BS”), and Mark Radom, an individual residing in Israel (“MR”). Reference is made to the MPV and Blue Sphere Corporation Assignment and Conveyance Agreement dated of even date herewith between BS and Carbon MPV Limited (the “AC Agreement”). Capitalised terms used but not defined herein have the meanings assigned to such terms in the AC Agreement.

 

Whereas, Carbon MPV Limited has assigned and conveyed to BS its right, title and interest in, to and under the Potential Projects pursuant to the AC Agreement; and

 

Whereas, BS desires to retain MR as an independent contractor to perform project management services with respect to such Projects and to identify and source new Projects and MR accepts and agrees to such retention;

 

Now, therefore, in consideration of the mutual premises and covenants contained herein, and subject to the terms and conditions hereof, and intending to be legally bound, the parties hereto agree as follows:

 

1.          Project Management Services and Business Development

 

1.1On the terms and subject to the conditions of this Agreement, BS hereby enlists and retains MR as an independent contractor to perform (or procure the performance of) all work (or part of it, as requested by BS) necessary or desirable with respect to Projects that are assigned and conveyed to BS in such a manner as to ensure a smooth and successful implementation and to expedite and optimize registration and receipt of carbon credits and receipt of other revenues therefrom; among other things, such services will include selecting third-party services, goods and technology providers, overseeing the registration process, overseeing the project implementation and managing the relationship between and respective performance by of all participating parties and the generation of new business relating to carbon credit and ecological projects (the “Services”). MR will have the right to use its reasonable discretion in making decisions regarding the performance of the Services subject to a pre-agreed action plan and to prior consultation with BS, whose decision in its sole discretion in such matters will be final. MR will report to BS on a day to day ongoing basis on work performed and on any event that may affect its business. The reporting method will be defined by the parties at a later stage.

 

1.2Respecting the generation of new business relating to carbon credit and ecological projects, BS and MR will use their best efforts to develop guidelines and/or criteria, which MR will follow in incurring any expense toward developing new business.

 

1.3MR acknowledges and agrees that the generation of new business relating to carbon credit and ecological projects is performed for behalf of BS for compensation and consequently all new potential projects or project leads of any nature generated by MR shall be the sole exclusive property of BS and all information related thereto shall be considered to be the Confidential Information (as defined below) of BS.

 

1
 

 

1.4In exchange for the provision of such management and business development services, BS agrees to cover and pay for 100% of the reasonable costs and expenses to be incurred by MR in the course of providing such services according to a pre-agreed budget and procedure to be agreed by the parties in writing. While it is envisioned that such costs will primarily consist of travel, accommodation, telecommunication and office expenses, the parties acknowledge and agree that other costs of an unknown nature may arise in the course of managing the Projects. In addition to covering 100% of such costs and expenses incurred by MR acting pursuant to the agreed procedures of the parties as shall be established, subject to the following sentence, BS will pay MR US$7,000 per month (the “Advance Payment”) in accordance with instructions to be provided by MR and agreed upon by BS and continuing until the earlier of (i) this Agreement is terminated in accordance with its terms or (ii) until the date on which income from carbon credits is generated. It is agreed that, in the event that the U.S. dollar falls in value as of the date hereof against the Israeli shekel by 10% or more, the Advance Payment amount (i.e., U.S. $7,000 per month) shall be adjusted upward to compensate MR for the exchange rate change. Any amounts constituting the Advance Payment paid to MR pursuant to this Section 1.4 shall be deducted from the first (and if necessary subsequent) cash to be paid to MR pursuant to Section 1.2 of the AC Agreement. For the avoidance of doubt, it is agreed that BS will continue to pay 100% of the reasonable costs and expenses to be incurred pursuant to this Agreement pursuant to the pre-approved budget and as long as the expenses are made according to BS procedures for so long as this Agreement is in force.

 

1.5The Fee is inclusive of all applicable Taxes. “Taxes” are defined as - all taxes applicable to the transaction contemplated hereunder or resulting therefrom, including, without derogating from the generality of the above, income taxes, profit taxes, withholding taxes and any other compulsory payment applicable under any applicable law. In addition, BS shall have the right to deduct or withhold from any fee to be paid, any such taxes, charges or levies, in respect of which such deduction or withholding is required to be made according to any applicable law or jurisdiction.

 

1.6BS will include MR in a future grant of options to employees and will be considered a senior manager for the purpose of such grant. .

 

1.7MR agrees that it will keep confidential and not disclose to (and require its representatives or any parties it works with in connection with any transaction to keep confidential and not disclose to) any other person any information that it receives that is designated as confidential as well as information derived therefrom (“Confidential Information”) unless authorised to do so by the BS or required to do so by law. MR acknowledges and agrees that the generation of new business relating to carbon credit and ecological projects is performed for behalf of BS for compensation and consequently all new potential projects or project leads of any nature generated by MR shall be the sole exclusive property of BS and all information related thereto shall be considered to be the Confidential Information (as defined below) of BS. MR further agrees to refrain from taking any action (and to cause its representatives or any parties it works with in connection with any transaction to refrain from taking any action) using the Confidential Information that will have the effect or the potential effect of circumventing or pre-empting, to any degree, the disclosing party’s full and unfettered use of and benefit from its Confidential Information. MR shall only put any of such Confidential Information to its own use after receiving proper, explicit and prior authorization from BS, in writing, to do so. It is hereby agreed that (i) the identity of any financier or investor providing finance for any transaction contemplated hereby is Confidential Information and (ii) MR shall not make any use whatsoever of the contacts brought by BS, including its clients, government officials, facilitators or any parties using these connections unless it has BS’s consent thereto.

 

2.          Covenants

 

2.1Each party shall render assistance in handling applications for approvals, permits and licenses and similar formalities necessary for the establishment and operation of their legal and commercial relationship.

 

2.2Each party agrees to execute, on request, all other documents and instruments as the other Party shall reasonably request, and to take any actions, which are reasonably required or desirable to carry out obligations imposed under, and effect the purposes of, this Agreement.

 

2.3Each party agrees to use its reasonable commercial efforts to accomplish the purpose of this Agreement and to comply with all applicable laws and regulations.

 

2
 

 

2.4MR represents and warrants that he has no outstanding agreement or obligation that is in conflict with any of the provisions of this Agreement or the rendering of the Services, or that would preclude him from complying with the provisions hereof and that he will not enter into any agreement or undertake any obligation which will create such a conflict of interests. Furthermore, MR hereby expressly certifies and represents that in performing the Services to BS he is not in breach of any obligation towards any third party.

 

3.          Entry into Force and Term

 

Subject to the following sentence, this Agreement shall enter into force from the date hereof and will terminate on the earlier of (i) 25 years from the date on which this Agreement enters into force or (ii) the Kyoto Protocol, as amended or extended, terminates or (iii) 15 April 2010 unless MPV delivers by such time to BS at least two signed Project agreements and two signed project memoranda of understanding.

 

After 15 April 2010, BS may terminate this Agreement on 90 days’ written notice to MR for any reason or no reason at all. After 1 March 2011, MR may terminate this Agreement on 90 days’ written notice to BS for any reason or no reason at all. Either party may terminate by written notice to the other party if the other party materially breaches this Agreement and fails to cure such breach within fourteen (14) calendar days of receiving written notice thereof. Any and all rights to accrued benefits or obligations to be performed after such time shall survive any termination hereof.

 

4.          Miscellaneous

 

No provision of this Agreement may be amended, modified or waived only in writing signed by MR or a duly authorized officer of BS. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all previous agreements and understandings, written or oral, between the parties or their affiliates or agents with respect to the subject matter hereof. The headings in this Agreement are for convenience of reference only, and shall not alter or affect the meaning of any provision. Each party acknowledges that it has not relied upon any representation of the other party, except for any representation made by such party under the express terms of this Agreement, in entering into and undertaking the obligations imposed by this Agreement. This Agreement shall be construed, interpreted and enforced in accordance with the substantive laws of Israel. The parties agree that any action brought to resolve any controversy arising under or relating to this Agreement shall be subject to the non-exclusive jurisdiction of the courts of Israel and any court which may hear appeals from those courts in relation to any disputes arising out of or in connection with this Agreement. No Party shall be liable under this Agreement, for consequential, indirect, special, or punitive damages.

 

5.          Transfer to Affiliate

 

BS acknowledges that MR may open a new company and that, once opened and registered, BS agrees that MR may transfer and convey all of his rights, obligations, title and interest in, to and under this Agreement to such company without the need for any further action or consent on the part of BS (it being understood that such company will formally acknowledge such transfer and conveyance for its own internal purposes).

 

6.          Severability

 

Should any part of this Agreement be rendered or declared invalid by a court or arbitrator of competent jurisdiction, such invalidation of such part or portion of this Agreement will not invalidate the remaining portions thereof and they shall remain in full force and effect. It is further agreed that if part of this Agreement is determined to be invalid, either party may open negotiations solely with respect to a substitute for such part within two (2) weeks after such determination has been made.

 

3
 

 

7           Independent Contractor

 

7.1 The relationship between BS and MR, or any on its behalf, is that of independent contractor. Neither MR nor any on its behalf shall be deemed to be the agents, partners or employees of BS. Neither Party shall have the right, power or authority to bind the other Party, enter into an agreement, grant a promise, provide warranties, guarantees or commitments, transact any business in the other Party's name or in its behalf or incur any liability for or on behalf of the other Party, and each Party shall remain an independent contractor and responsible for its own actions.

 

7.2 All employees, representatives, subcontractors or any person engaged, by MR subject to the terms hereof, will be deemed under the complete control of MR and notwithstanding anything to the contrary, this Agreement will not be interpreted as creating any contractual relationship, including employment relationship, between any such employee, representative or subcontractor or any such other person and BS. MR shall be solely responsible for the safety of its own employees, representatives or subcontractors or any such other person, at all times during the performance of the Services.

 

7.3 In the event that MR, or any on its behalf, shall claim, and a competent court determines pursuant to such claim, the existence of an employment relation between BS and MR or any on its behalf, despite the Parties' explicit intention as reflected in this Agreement, and consequently resolves that MR, or any on its behalf, is an employee of BS and therefore is entitled to further payments or benefits, then MR agrees to indemnify BS and hold BS harmless from any liability, damages or costs (including reasonable attorney's fees) incurred by BS as a result of such claim.

 

7.4 MR hereby warrants and represents that it is aware that BS has entered into this Agreement in reliance on MR's status as an independent contractor, as set forth in Section 7.1 .

 

7.5 MR shall not be entitled to exclusivity in the provision of the Services and BS shall be entitled at its sole discretion to request any other entity to provide the Services.

 

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

 

  Mark Radom
   
 
   
  Blue Sphere Corporation
   
 
   
  By:
  Title:  CEO

 

4

 

EX-10.8 12 v330956_ex10-8.htm EXHIBIT 10.8

 

AMENDMENT NO. 1 TO THE MPV AND BS ASSIGMENT AND CONVEYANCE AGREEMENT

 

THIS AMENDMENT (this “Amendment”) is dated 19 October 2010 and is entered into by and between Blue Sphere Corporation, a corporation organised under the laws of Nevada (together with its affiliates, “BS”), and Carbon MPV Limited, a limited company organised under the laws of Cyprus, “MPV”).

 

Whereas, BS and MPV entered into a certain agreement assigning the rights to perform the carbon credit projects listed in Annex A thereto on 24 February 2010 (the “Assignment Agreement”);

 

Whereas, BS and MPV desire to amend such Assignment Agreement in order to provide for the financing of such carbon credit projects;

 

Now, therefore, in consideration of the mutual premises and covenants contained herein, and subject to the terms and conditions hereof, and intending to be legally bound, the parties hereto agree as follows:

 

1.Amendment of the Assignment Agreement

 

1.1The parties agree that notwithstanding anything else to the contrary in the Assignment Agreement and subject to Section 1.2 below, MPV shall receive from projects or transactions that it or its affiliates introduce to BS 5% of the net profits of BS therefrom and from all other projects or transactions 2.5% of the net profits of BS, in each case, as and when such profits are realised and for so long as such profits are received and/or realised. In the event of a sale of BS or the relevant project or transaction, MPV shall receive 3% of the proceeds therefrom.

 

1.2MPV shall receive 7.5% of BS’s net profits in respect of those projects in which MPV’s maximum share was marked as 7.5% in the Assignment Agreement,

 

1.3Clauses 1.2 and 1.4 in the Assignment Agreement are null and void.

 

1.4Section 4 of the Assignment Agreement shall survive any termination thereof or hereof.

 

1.5All other terms of the Assignment Agreement are hereby ratified and accepted by both BS and MPV and remain in full force and effect.

 

2.Miscellaneous

 

2.1 No provision of this Agreement may be amended, modified or waived only in writing signed by a duly authorized officer of MPV and BS.

 

2.2 This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all previous agreements and understandings, written or oral, between the parties or their affiliates or agents with respect to the subject matter hereof.

 

2.3 This Agreement shall be construed, interpreted and enforced in accordance with the substantive laws of Israel. The parties agree that any action brought to resolve any controversy arising under or relating to this Agreement shall be subject to the non-exclusive jurisdiction of the courts of Tel Aviv, Israel and any court which may hear appeals from those courts in relation to any disputes arising out of or in connection with this Agreement.

 

2.4 No Party shall be liable under this Agreement, for consequential, indirect, special, or punitive damages.

 

1
 

 

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

 

  Carbon MPV Limited
   
  By: Mark Radom
   
  Title:
   
 
   
  Blue Sphere Corporation
   
   
  By:  Shlomi Palas
  Title:  CEO

 

2

 

EX-10.10 13 v330956_ex10-10.htm EXHIBIT 10.10

  

CDM Emission Reductions

Purchase Agreement

 

by and between

 

Puresphere Ltd.

 

and

 

Vattenfall Energy Trading Netherlands N.V.

 

dated

 

16 January 2012

 

 
 

 

TABLE OF CONTENTS

 

ARTICLE I    
     
DEFINITIONS; INTERPRETATION; HEADINGS; SCHEDULES  
     
Section 1.01 Definitions 5
Section 1.02 Interpretation; Headings; Schedules 11
     
ARTICLE II    
     
CONDITIONS PRECEDENT  
     
Section 2.01 Conditions Precedent 12
Section 2.02 Waiver 13
Section 2.03 Date for fulfilling conditions 13
Section 2.04 Progress report 13
     
ARTICLE III    
     
PURCHASE AND SALE AND INCLUSION OF ADDITIONAL CPAs  
     
Section 3.01 Purchase and Sale of Certified Emission Reductions 13
Section 3.02 Eligibility and Equivalent Rate 13
Section 3.03 Purchase and Sale of Non-Eligible ERs 13
Section 3.04 Delivery Amount 14
Section 3.05 Delivery to a Third Party 14
Section 3.06 Inclusion of additional CPAs 14
    14
ARTICLE IV    
     
PRICE AND PAYMENT  
     
Section 4.01 Unit Price 15
Section 4.02 Payment 15
Section 4.03 Form of Payment 15
Section 4.04 Costs and Payment for Project costs 15
Section 4.05 Taxes 16
     
ARTICLE V    
     
VALIDATION AND REGISTRATION; BASELINE  
     
Section 5.01 Validation by the Designated Operational Entity 16
Section 5.02 Validation and Registration 16
Section 5.03 Baseline 17
     
ARTICLE VI    
     
MONITORING PLAN  
     
Section 6.01 Monitoring Plan 17
Section 6.02 Monitoring Report 17
Section 6.03 Amendments to Monitoring Plan 18

 

2
 

 

ARTICLE VII    
     
INITIAL VERIFICATION, VERIFICATION AND CERTIFICATION  
     
Section 7.01 General Requirements 18
Section 7.02 Designated Operational Entity 18
Section 7.03 Initial Verification 18
Section 7.04 Verification and Certification 18
     
ARTICLE VIII    
     
PROJECT OPERATION AND MANAGEMENT  
     
Section 8.01 Project Operation and Management 18
     
ARTICLE IX    
     
CERTIFIED EMISSION REDUCTIONS  
     
Section 9.01 Authorisation 19
Section 9.02 General Communication 19
Section 9.03 Establishment of Account 19
Section 9.04 Delivery of CERs 19
Section 9.05 Transfer of Legal Title 19
     
ARTICLE X    
     
REPRESENTATIONS AND WARRANTIES  
     
Section 10.01 Seller Representations  
Section 10.02 Buyer Representations 20
    21
ARTICLE XI    
     
FAILURE TO GENERATE OR TRANSFER THE DELIVERY AMOUNT  
     
Section 11.01 Production Failure or Transfer Failure 21
     
ARTICLE XII    
     
RIGHTS IN THE EVENT OF GROSS NEGLIGENCE, FRAUD OR WILFUL MISCONDUCT  
     
Section 12.01 Rights in the Event of Gross Negligence, Fraud or Wilful Misconduct 22
     
ARTICLE XIII    
     
EVENTS OF DEFAULT  
     
Section 13.01 Events of Default 22
     
ARTICLE XIV    
     
TERMINATION  
     
Section 14.01 Suspension on Default 23
Section 14.02 Termination on Default 23
Section 14.03 Non-Default Termination 23
Section 14.04 Cost on default and on Non-Default Termination 24
Section 14.05 Automatic Termination 24

 

3
 

 

ARTICLE XV    
     
MISCELLANEOUS PROVISIONS  
     
Section 15.01 Amendments to the Agreement 24
Section 15.02 Confidentiality 24
Section 15.03 Notices 25
Section 15.04 Evidence of Authority 25
Section 15.05 Assignment 25
Section 15.06 Survival of Provisions 25
Section 15.07 Execution in counterparts; Language 25
Section 15.08 Entire Agreement 25
Section 15.09 Severability 26
Section 15.10 Governing Law 26
Section 15.11 Arbitration 26
Section 15.12 Waiver of Sovereign immunity 26
    26
SCHEDULES  
     
Schedule 1 Description of the Project 27
Schedule 2 Costs and Expenses 28
Schedule 3 Key Commercial Terms 29

 

4
 

 

EMISSION REDUCTIONS PURCHASE AGREEMENT 

 

Puresphere Ltd. a company incorporated under the laws of Israel, with its registered address at c/o BPure, Ltd., 114 Yigal Alon St., Tel Aviv, Israel 67892 (the “Seller")

 

and

 

Vattenfall Energy Trading Netherlands N.V., a company with limited liability incorporated under the laws of the Netherlands, with its registered address at Spaklerweg 20, 1096 BA Amsterdam, the Netherlands, (the "Buyer") 

 

WHEREAS:

 

A.The Host Country has ratified the United Nations Framework Convention on Climate Change (the "UNFCCC") and has approved the Protocol that was adopted at the Third Conference of the Parties to the UNFCCC in Kyoto, Japan on December 11, 1997 (the "Kyoto Protocol").

 

B.The Seller intends to carry out the Project, as described in Schedule 1 and the Programme of Activities Design Document, which is expected to result in reduction in greenhouse gas emissions that are additional to any that would occur in the absence of the Project.


C.The Seller wishes to sell, and the Buyer wishes to purchase, upon the terms and conditions of this Emission Reductions Purchase Agreement (this "Agreement"), Certified Emission Reductions generated by the Project.

  

The Parties hereby agree as follows:

 

ARTICLE I

 

Definitions; Interpretation; Headings; Schedules

 

Section 1.01 Definitions

 

Unless the context otherwise requires, the following capitalised terms shall have the following meanings wherever used in this Agreement and its preamble:

 

“Adaptation Share of Proceeds” means the deduction of 2% of the certified emission reductions (CERs) generated by the project each year used to fund measures in developing country Parties to the Protocol that will assist them in adapting to the adverse effects of climate change as set by the COP in 17/CP.7 or any other deduction that in the future will replace the Adaptation Share of Proceeds.

 

“Administration Share of Proceeds” means a charge of:

(i) USD 0.10 per CER for the first 15,000 tonnes of CO2 equivalent for which issuance is requested in a given year;

(ii) USD 0.20 per CER for any amount in excess of 15,000 tonnes of CO2 equivalent for which issuance is requested in a given year (7/CMP.1, paragraph 37) or any other charge that in the future will replace the Administration Share of Proceeds.

 

5
 

 

“Advance Payment” means a payment, which the Buyer will make to cover certain costs and expenses, in accordance with Section 4.04 (b) in conjunction with Schedule 2. 

 

"Bankruptcy Proceedings" means, in relation to any person:

 

(a)the making of an assignment or arrangement for the benefit of creditors;

 

(b)the filing of a petition or commencement of proceedings under any bankruptcy or similar law, or having such a petition filed against such person, which petition is not dismissed for a period of 30 days;

 

(c)the levy of an attachment for execution against the whole or any material part of its assets;

 

(d)such person becoming (or is, or could be, deemed by law or a court to be) insolvent or unable to pay its debts; or

 

(e)such person stops, suspends or threatens to stop or suspend payment of all or a material part of its indebtedness or begins negotiations or takes any other step with a view to the deferral, rescheduling or other readjustment of all or a material part of its indebtedness.

 

"Baseline" means the scenario that reasonably represents the anthropogenic emissions by sources of GHGs that would occur in the absence of the Project as described in the International Rules.

 

"Baseline Study" means a written report of the Baseline prepared as part of the Programme of Activities Design Document.

 

"Buyer's Account" means an account established or nominated by the Buyer in the CDM Registry or a National Registry, as notified in writing by the Buyer to the Seller from time to time, to which CERs are to be Delivered and includes any other registry or account under any International Rules or other international or national regimes as the Buyer may direct as notified in writing by the Buyer to the Seller from time to time as specified in Schedule 3.

 

“Buyer’s Replacement Costs” means the liquidated damages payable by Seller pursuant to Section 3.05 or Section 12.01 and shall be calculated in accordance with Section 3.05 (c).

 

“Business Day” means a day on which the banks in the capital city of the Host Country, in Israel and The Netherlands are open for general business.

 

"Carbon Dioxide Equivalent" or "CO2e" means the base reference for the determination of global warming potential of Greenhouse Gases in units of carbon dioxide.

 

“CDM Executive Board” means the executive board of the Clean Development Mechanism that is constituted under Article 12, paragraph 4 of the Kyoto Protocol.

 

“CDM Programme Activity” or “CPA” means individual project units that can be added to

a registered PoA under the CDM.

 

"Certification" and "Certified" each means the written assurance by the Designated Operational Entity that, during a specified time period, the Project has achieved the GHG Reductions as reported in the Verification Report.

 

"Certification Report" means a report submitted by the Designated Operational Entity to the CDM Executive Board containing the Designated Operational Entity's Certification.

 

6
 

 

"Certified Emission Reduction" or "CER" is a unit, allowance or other right eligible for compliance purposes under the EU-ETS issued pursuant to the CDM and / or the International Rules which is equal to one tonne CO2e, together with all rights, title and interest in, and other associated benefits arising or occurring in relation to such CER which term, for the avoidance of doubt shall include Contract CERs.

 

"Clean Development Mechanism" or "CDM" means the mechanism referred to in Article 12 of the Kyoto Protocol.

 

"Commissioning" or "Commissioned" means the satisfactory completion of the Project by the Seller in accordance with such procedures and tests as from time to time constitute usual and prudent industry standards and practices to demonstrate to the reasonable satisfaction of the Buyer that the Project is capable of commercial operation and of generating GHG Reductions for the purpose of, inter alia, this Agreement.

 

"Consents" means any consent, authorisation, registration, filing, license, permit, approval, agreement, authority or exemption from, by or with a competent authority, required for the construction, maintenance and operation of the Project.

 

"Contract CERs" has the meaning given to it in Schedule 3.

 

“Coordinating” or “Managing Entity” or “CME” means the key private or public entity responsible for the operational and management arrangements of a PoA in the CDM, for the drafting of PoA documents and for the monitoring of emission reductions.

 

"COP/MOP" means the Conference of the Parties to the UNFCCC serving as the Meeting of the Parties to the Kyoto Protocol.

 

"Crediting Period" means the period in which GHG Reductions from the Baseline are Verified and Certified by a Designated Operational Entity for the purpose of Issuance of CERs and which shall commence after the first Emission Reductions are generated by the Project.

 

“Delivery or Delivered” means the completed delivery of the applicable number of CERs to be forwarded by the Seller to the Buyer’s Account under this Agreement and in accordance with the International Rules.

 

"Delivery Amount" means all of the CERs generated by the Project in each Year. An estimation of the volume to be Delivered per Year is stipulated in Schedule 3.

 

"Delivery Date" means each Delivery Date as specified in Schedule 3 of the Agreement.

 

“Delivery Period” means the period as indicated in Schedule 3.

 

“Designated National Authority” or “DNA” In accordance with the provisions of paragraphs 37 (a) and 40 (a) of the CDM modalities and procedures, the registration of a Project can only take place once approval letters (“LoA’s”) are obtained from DNAs that are authorised by the UNFCCC.

 

"Designated Operational Entity" or "DOE" means an entity designated by the COP/MOP, based on the recommendation by the Executive Board as qualified to Validate proposed CDM project activities or to Verify and Certify GHG Reductions.

 

“Directive” The Directive 2003/87/EC of the European Parliament and the Council of October 13,2003 establishing a scheme for greenhouse gas emissions allowance trading and amending Council Directive 96/61/EC, as amended from time to time.

 

"Emission Reductions" or "ERs" means any right, interest, credit, entitlement, benefit or allowance to emit (present or future) arising from or in connection with any GHG Reduction by the Project and includes any right that may be created under any regulatory or legal regime as a result of the GHG Reductions whatsoever.

 

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“Environmental Impact Assessment” means an assessment of the possible positive or negative impact that a proposed CPA may have on the environment, together consisting of the natural, social and economic aspects. 

 

"EU Allowance” or “EUA" means an "allowance" as defined by the European Parliament and of the Council in Directive 2003/87/EC of 13 October 2003 establishing a scheme for greenhouse gas emission allowance trading (the "EU Emissions Trading Scheme" or "EU ETS"), as amended from time to time.

 

"Euro" or "" means the lawful currency of the participating member states of the European Union that have adopted the single currency in accordance with the Treaty establishing the European Community, as amended by the Treaty on the European Union.

 

"Event of Default" has the meaning ascribed thereto in Section 13.01.

 

"Executive Board" or “EB” means the executive board of the Clean Development Mechanism that is established pursuant to the International Rules.

 

"Expiry Date" means the date, which is two months after the date on which payment is made by the Buyer for the last Delivery Amount to be delivered pursuant to this Agreement as stipulated in Schedule 3.

 

“Focal Point” means the entity nominated to the Executive Board by the Project Participant(s) responsible for the communication with the Executive Board with respect to the Project under the Modalities of Communication submitted to the Executive Board, pursuant to Section 9.01 of this Agreement.

 

“Force Majeure” means, in respect of all Parties, any occurrence of Physical Force Majeure or one or more of the following event(s) or circumstance(s) (only) which are beyond the reasonable control of the affected Party acting (and having acted) in accordance with prudent operating practice and which results in or causes the failure of the affected Party to perform any of its obligations under this Agreement:

 

act of the public enemy, war declared or undeclared, threat of war, terrorist act, blockade, revolution, riot, insurrection, civil commotion or public demonstration, provided that a lack of funds shall not be treated as an event of Force Majeure.

 

"Global Warming Potentials" means the global warming potentials used to calculate the carbon dioxide equivalence of Greenhouse Gases as accepted or subsequently revised in accordance with Article 5 of the Kyoto Protocol.

 

"Greenhouse Gases" or "GHGs" means the six gases listed in Annex A to the Kyoto Protocol.

 

"GHG Reduction" means the removal, limitation, reduction, avoidance, sequestration or mitigation of GHGs emissions.

 

Gross Negligence” means any act or omission, whether deliberate or not, which in the circumstances (including both the probability and seriousness of the consequences likely to result) would be regarded by those familiar with both the Project activity and surrounding circumstances (including without limitation the Sellers obligations under this Agreement) as amounting to the reckless disregarding of the consequences, being more fundamental than a failure to exercise proper skill and care.

 

"Host Country" means the country as stated in Schedule 1.

 

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"Initial Verification Report" means a report commissioned by the DOE at the earliest reasonable date after the physical commissioning of the Project to ensure all Monitoring Plan-mandated data collection and management systems are in place to allow subsequent successful Verification and Certification of the GHG Reductions.

 

“International Transaction Log” means the electronic system established and maintained by the Convention Secretariat under the International Rules to monitor, inter alia, the validity of the transaction of CERs between Kyoto Protocol parties.

 

"International Rules" means the UNFCCC, the Kyoto Protocol, the Marrakesh Accords and any relevant decisions, guidelines, modalities and procedures made pursuant to them (including any decisions of the Executive Board), and any such successor international agreements, treaties or accords or any other international scheme or recognised standard under which CERs are or will be created, to the extent such international arrangements create CERs eligible for compliance purposes under the EU-ETS.

 

"Issuance of CERs" means the issuance of CERs by the CDM registry administrator of the specified quantity of CERs into the pending account of the Executive Board in the CDM registry, upon being instructed to do so by the Executive Board.

 

"Kyoto Protocol" means the protocol to the UNFCCC adopted at the Third Conference of the Parties to the UNFCCC in Kyoto, Japan on December 11, 1997 as may be amended.

 

"Letter of Approval" or “LoA” means the letter through which the Host Country inter alia approves the Project for the purposes of Article 12 of the Kyoto Protocol.

 

“Market Spot Price” means either:

 

(a) the average of the published closing prices for CER spot delivery contracts traded on the Relevant Exchange calculated over a five (5) Trading Day period beginning on the Trading Day following the relevant Delivery Date; or

 

(b) where there is no Relevant Exchange contract for Delivery of CERs for that period, the average of three (3) quotations for the market price for CERs to be Delivered on the relevant Delivery Date as obtained from three (3) independent third party brokers selected by the Buyer and agreed to by the Seller.

 

"Marrakech Accords" means Decision 2/CP.7 through Decision 24/CP.7 inclusive of the COP in its seventh session, held at Marrakech, Morocco from October 29 to November 10, 2001.

 

“Modalities of Communication” or “MoC” means the document submitted to the Executive Board nominating the Focal Point and the manner in which communications with the Executive Board will be governed.

 

"Monitoring" means activities of collecting and recording data in accordance with any relevant standards or conditions provided for under the International Rules that allow the assessment of the GHG Reductions resulting from the Project pursuant to the terms of the Monitoring Plan.

 

"Monitoring Plan" means the Monitoring Plan which is part of the Programme of Activities Design Document and developed according to the requirements and regulations of the International Rules.

 

"Monitoring Report" means a report provided by the Seller setting out the amount of GHG Reductions generated by the Project during the previous Year conducted in accordance with the Monitoring Plan and suitable for the responsible DOE to issue a Certification Report.

 

“Non-Eligible ERs” means ERs generated by the Project which are not eligible under the EU-ETS for the Buyers compliance purpose.

 

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"Payment" means the amount set out in Section 4.02.

 

Physical Force Majeure” means (except to the extent that any of the same arise from an electrical or mechanical breakdown at the Project) the occurrence of excessive lightning, fire, storm, flood, earthquake, accumulation of snow or ice or explosion or acts of Third Parties which are beyond the reasonable control of the affected Party acting (and having acted) in accordance with prudent operating practice and which results in or causes the failure of the affected Party to perform any of its obligations under this Agreement.

 

“Production Failure” means the failure to generate the Delivery Amount of GHG Reductions in a given Year.

 

“Programme of Activities” or “PoA” means an umbrella structure including a number of

CPAs (which can increase during the lifetime of a PoA) which can be registered as a single project under the CDM as further described in EB 47, Annex 29, paragraph 3.

 

"Project" means the project as described in Schedule 1 of this Agreement named Landfill Gas Programme of Activities in Ghana, which initially includes the CPA Oti Sanitary Landfill. Additional CPA’s can be included in the Project if accepted by the Buyer according to the procedure set out in Section 3.06.

 

"Project Commissioning Date" means the date as indicated in Schedule 1.

 

"Programme of Activities Design Document" or "PoADD" means a description of the Project submitted for Validation in accordance with the International Rules.

 

“Project Participant” means an entity authorised by a Designated National Authority to participate in a CDM project activity and listed by the CDM Executive Board as such in relation to that project activity.

 

"Registration" or "Registered" means the formal acceptance by the Executive Board of a Project as a CDM project activity.

 

“Relevant Exchange” means either:

 

(a) BlueNext SA or the European Climate Exchange (ECX), whichever exchange has the greater trading volume for CER spot delivery contracts (in terms of the value of CER spot delivery contracts traded) in the 30 Trading Days prior to the relevant Delivery Date; or

 

(b) such other exchange as may be agreed by the Parties in writing.

 

“Sellers Cash Account” means the account as stipulated in Schedule 3.

 

"Taxes" means all national, state, regional, provincial, local, foreign and other net income, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, lease, service, service use withholding, payroll, employment, excise, severance, stamp, occupation, premium, property, windfall profits, fuel, gas import, customs, duties or other taxes, fees, assessments or charges of any kind whatsoever imposed by any governmental entity, whether in effect at the time of this Agreement or thereafter imposed, together with any interest and any penalties, additions to tax or additional amounts with respect thereto.

 

"tCO2e" means metric tonnes of Carbon Dioxide Equivalent.

 

"Third Party" means a party other than the Buyer and the Seller.

 

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“Trading Day” means any day other than a Saturday, Sunday or public holiday on which the Relevant Exchange is open for general business.

 

"Transfer Failure" means the failure, for any reason, of the Seller to have Delivered to the Buyer a number of CERs equivalent to the Delivery Amount for a particular Year that were Issued by the UNFCCC as per the Monitoring Report for that particular Year.

 

“Transfer System Failure” means a failure of the central systems or processes established under the International Rules, including the CDM registry, the CITL and/or the International Transaction Log, beyond the control of the Parties that prevents transfer of the CERs into the Buyer's Registry Account under, and in accordance with, the International Rules, which the Parties can not overcome after using all reasonable efforts, but does not include the situation where the CDM Executive Board can Issue CERs into the Buyer's temporary Registry Account in the CDM Registry.

 

“Unauthorised Transfer” means any transfer by the Seller of CERs generated through the Project to a Third Party other than Buyer or Buyer’s designated party.

 

“Unauthorised Transfer Amount” means the amount of CERs generated by the Project subject to an Unauthorised Transfer;

 

"United Nations Framework Convention on Climate Change" or "UNFCCC" means the United Nations Framework Convention on Climate Change adopted in New York on May 9, 1992.

 

"Unit Price” means the price in Euro for each Contract CER measured in tCO2e as defined in Schedule 3.

 

"Validation" and "Validated" each means the process of independent evaluation of the Project by a DOE against the requirements of the CDM in accordance with the International Rules.

 

"Validation Report" means a written report prepared by the DOE of the Validation.

 

"Verification" and "Verified" each means the periodic independent review and ex post determination by a DOE of GHG Reductions monitored in accordance with the Monitoring Plan that have occurred during the relevant period as a result of the Project being carried out in accordance with the International Rules.

 

"Verification Report" means a written report prepared by the DOE of the Verification, which independently assesses the Monitoring Report and the amount of GHG Reductions generated by the Project for the preceding monitoring period.

 

"Year" means a calendar year commencing January first (1st) and ending December thirty-first (31st).

 

Section 1.02 Interpretation; Headings; Schedules

 

(a)In this Agreement unless the context requires another meaning, a reference:

 

(i)to any document (including this Agreement) is to that document as varied, amended, novated, ratified or replaced from time to time;

 

(ii)to any Party includes that Party's executors, administrators, successors and permitted assigns, including any person taking by way of novation and, in the case of a trustee, includes any substituted or additional trustee;

 

(iii)to the singular includes the plural and vice versa, and to a gender includes all genders;

 

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(iv)to a Party means a Party to this Agreement, and to an Article, Section or Schedule is to an Article, Section or Schedule of this Agreement (unless specified otherwise); and

 

(v)to any International Rules, statute or to any treaty or statutory provision includes any statutory modification or re-enactment of it or any treaty or statutory provision substituted for it, and all protocols, rules, modalities, guidelines, procedures, ordinances, by-laws, regulations, rules and statutory instruments (however described) issued under it.

 

(b)The terms of this Agreement shall be interpreted in a manner that is consistent with the International Rules.

 

(c)The Schedules to this Agreement are an integral part hereof.

 

(d)The headings of the Articles and Sections are inserted for convenience of reference only and do not affect the interpretation of this Agreement.

 

ARTICLE II

 

Conditions Precedent

 

Section 2.01 Conditions Precedent

 

The rights and obligations of Delivery and Payment of CERs are conditional upon each of the following occurring:

 

(a)the grant of all necessary Consents and such Consents being in full force and effect;

 

(b)the Seller has provided the Buyer with a signed statement of Modalities of Communication with the Executive Board and the UNFCCC secretariat confirming that the Buyer will be the Sole Focal Point for all communications with the Executive Board before the Project being submitted for Registration;

 

(c)the Project to be Commissioned and operational;

 

(d)The first CPA (Oti Sanitary Landfill) has achieved Commissioning by 1 December 2012 and is capable of generating CERs;

 

(e)The second CPA has achieved Commissioning by 1 December 2013 and is capable of generating CERs;

 

(f)At least two CPAs (including Oti Sanitary Landfill) have been included in the Project by 1 December 2013;

 

(g)the Project to be positively Validated and successfully Registered;

 

(h)the Buyer to be authorised by the DNA of the Netherlands to participate in the Project;

 

(i)the Host Country to issue the Letter of Approval which shall include the Buyer as a Project Participant; and

 

(j)the Buyer has obtained all internal approvals from its board of directors, for which it will use its reasonable efforts to obtain promptly after this Agreement is executed.

 

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Section 2.02   Waiver

 

The conditions set forth in Section 2.01 sub-sections a - j (inclusive) are for the benefit of, and may only be waived or deferred by, the Buyer.

 

Section 2.03    Date for fulfilling conditions

 

If not all conditions set forth in Section 2.01 sub a, b, c, d, g, h and i have been satisfied (or waived) by the Buyer before 1 December 2012,or, if the conditions set forth in Section 2.01 sub sub e and f have not been satisfied (or waived) before, 1 December 2013, this Agreement shall not become binding and enforceable. If the condition in Section 2.01 sub j has not been satisfied (or waived) by the Buyer 2 months after the Date of this Agreement, this Agreement shall not become binding and enforceable. Following non-fulfillment of any conditions precedent under this section, the Parties will have no further rights or obligations under this Agreement, unless as otherwise provided in this Agreement.

 

Section 2.04    Progress report

 

The Seller shall provide a report every 60 calendar days following the date of this Agreement or at such other time as the Buyer may reasonably request, setting out the Seller’s progress toward fulfilling the conditions precedent set forth in Section 2.01 and relevant actions taken or events occurring since the latest such report and a statement of reasonable expectations as to whether and when each such condition precedent that has not yet been fulfilled will be fulfilled.

 

ARTICLE III

 

Purchase and Sale and Inclusion of Additional CPAs

 

Section 3.01   Purchase and Sale of Certified Emission Reductions

 

The Seller agrees to sell and deliver to the Buyer and the Buyer agrees to purchase and accept from the Seller the Delivery Amount of Contract CERs. All Contract CERs to be Delivered under this Agreement shall be net of the Adaption Share of Proceeds.

 

Section 3.02   Eligibility and Equivalent Rate

 

Each individual CER shall be eligible under the EU-ETS and for the Buyer’s compliance purposes under the EU-ETS shall be required to be equivalent to one EUA. If an exchange rate for CERs vis-à-vis EUAs is introduced under the International Rules, indicating the amount of CERs necessary to qualify as the equivalent of one EUA for Buyer’s compliance purposes under the EU-ETS (the “EUA Equivalent Rate”), the purchase price for CERs will be determined by dividing the Unit Price by such EUA Equivalent Rate.

  

Section 3.03   Purchase and Sale of Non-Eligible ERs 

 

(a)If the CERs generated by the Project are not eligible under the EU-ETS for the Buyer’s compliance purposes, the Seller grants the Buyer the right, but not the obligation, to purchase any Non-Eligible ERs.

 

(b)The Buyer may exercise its right to purchase such Non-Eligible ERs for all or part of the Non-Eligible ERs issued or to be issued in respect of the Project by serving the Seller an exercise notice.

 

(c)The Parties agree that all terms and conditions, procedures and any remedies regarding any purchase of Non-Eligible ERs pursuant to this Section 3.03 will be analogous to the terms and conditions, procedures and remedies applicable to the purchase of CERs as set out under this Agreement (except for the Unit Price as provided for in Schedule 3). For purpose of this Section 3.03 all references to “CER” in this Agreement shall be deemed references to Non-Eligible ERs and all terms and conditions in this Agreement applicable to CERs (except for the Unit Price) shall be read and construed accordingly.

 

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(d)In the event that the Buyer does not exercise its right to agree to purchase all the Non-Eligible ERs then the Seller may sell the Non-Eligible ERs to a third party buyer.

 

 

Section 3.04 Delivery Amount

 

During the Delivery Period the Seller shall have the Project generate the Delivery Amount set out in Schedule 3 and have Contract CERs corresponding to these GHG Reductions issued and Delivered to the Buyer at the given Delivery Date according to Schedule 3. 

 

Section 3.05 Delivery to a Third Party

 

(a)If CERs generated through the Project are Delivered to a Third Party other than Buyer or Buyer’s designated party ("Unauthorised Transfer"), then in addition to Buyer’s remedies provided under this Agreement, the Seller shall pay mark to market damages per CER to Buyer as liquidated damages (“Buyer’s Replacement Costs").

 

(b)As soon as the Buyer becomes aware of an actual Unauthorised Transfer it may, at its absolute discretion and by notice to the Seller calculate and require the Seller to pay to it Buyer’s Replacement Costs within 20 Business Days of that notification.

 

(c)Buyer’s Replacement Costs shall be calculated as the sum of:

 

(i)an amount equal to the product of:

 

(a)the Market Spot Price less the Unit Price; and

 

(b)the Unauthorised Transfer Amount; plus

 

(ii)the amount of such reasonable costs and expenses which the Buyer incurs in respect of the Unauthorised Transfer Amount (including broker fees, recovery costs, commissions and legal fees), plus

 

(iii)an administrative fee of EUR 1.50 for each undelivered Contract CER.

 

Section 3.06 Inclusion of additional CPAs

 

(a)The Seller shall notify the Buyer in writing if they wish to add an additional CPA to the Project. Such notification shall include detailed information about the CPA and the estimated delivery amount per year for the additional CPA. Schedule 4 sets out a non-exhaustive list of additional CPAs to be included in the Project.

 

(b)Upon receipt of the notification, the Buyer shall have 60 Business Days to approve the additional CPA. If the Buyer approves the additional CPA, the Parties shall sign a written confirmation, which shall be attached as Schedule 5 to this Agreement (the “Confirmation Schedule”). The Confirmation Schedule shall include condition precedents regarding the positive outcome of the Environmental Impact Assessment and a schedule regarding annual and total expected Delivery Amount.

 

(c)Upon signature of the Confirmation Schedule and fulfilment of the conditions precedents, the CPA will be included in the Project and all references to the Project in this Agreement will be deemed to be a reference to the Project including the additional CPA.

 

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(d)All communication under this Section 3.06 shall be in writing and it will be in the Buyers sole discretion to approve or not approve an additional CPA as part of the Project. No additional CPA shall be approved unless the Buyer has expressed its approval in the Confirmation Schedule.

 

(e)The cost in relation to additional CPAs is set out in Section 4.04 and Schedule 2.

 

(f)If the Buyer rejects an additional CPA, the Seller shall be at liberty to Commission such CPA and sell and deliver its CERs to another purchaser without having to make any accounting to or grant any participation to the Buyer in any revenues or CERs from such CPA except to the extent that the Buyer has made a direct payment for the CPA-DD in respect of such CPA and as described in sub-paragraph (f) below. In the case where the Buyer made a payment in respect of such CPA, the Seller will reimburse the Buyer 100% of such costs out of the proceeds it receives from the sale of the CERs of such CPA.

 

(g)In addition, the Seller will use its reasonable endeavours to comply with any requirements to be imposed by the DOEs retained by the Parties hereto to provide validation and verification services in order to enable such DOEs to fulfil their contractual obligations in respect of those CPAs that the Seller has accepted.

  

ARTICLE IV

 

Price and Payment

 

Section 4.01 Unit Price

 

The Buyer shall pay the Seller the Unit Price as set out in Schedule 3.

  

Section 4.02 Payment for CERs

 

(a)The Payment shall be equal to the sum of the number of the Delivered Contract CERs multiplied by the Unit Price.

 

(b)The Buyer agrees to pay in accordance with the terms of this Agreement the Payment within 20 Business Days after receipt of the invoice from the Seller (such invoice to be issued after Delivery).

  

Section 4.03 Form of Payment

 

Payments will be made by the Buyer in Euros to the Seller’s Cash Account or to the order of the Seller.

 

Section 4.04 Costs and Payment for Project costs

 

(a)Schedule 2 sets out the payment schedule and which Party (the Seller or the Buyer) will bear the costs and expenses in connection with the Project and any additional CPAs including but not limited to Environmental Impact Assessment, Validation, Registration, Verification and PoADD drafting (a “Cost Item”). In the event that Schedule 2 does not arrange for certain costs and charges to be paid by the Seller or the Buyer or in the event that the cost for a Cost Item exceeds the Maximum Cost (as indicated in Schedule 2), these costs shall be for the account of the Seller.

 

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(b)To the extent that it is stipulated in Schedule 2 that the relevant costs and expenses are to be refunded by the Seller to the Buyer, the payments made by the Buyer in view of these costs and expenses are to be considered as an Advance Payment. The Advance Payment shall be evidenced with a copy of the relevant invoices and will be deducted from the payments of CERs due by the Buyer to the Seller from the Deliveries of Contract CERs. [redacted]. Notwithstanding the above, if all or part of the Advance Payment made within two (2) years from the date of this Agreement have not been deducted from such payments of CERs during such two-year period, then the Seller shall automatically and promptly reimburse the remaining Advance Payment to the Buyer within five (5) Business Days after notification from the Buyer to do so. In addition, in case of termination of the Agreement following an Event of Default where the Seller is the defaulting party or an Event of Gross Negligence, Fraud or Wilful Misconduct in accordance with Section 12.01 or a Force Majeure in accordance with Section 14.03, the Seller shall reimburse to the Buyer the Advance Payment.

 

(c)Schedule 2 also sets out when a Party shall pay the cost or expense (“Payment Milestone”) as mentioned in Section 4.04 (a). Upon a Payment Milestone, the Paying Party shall pay the cost by wire transfer to the party’s (as indicated in Schedule 2) bank account on the thirtieth (30th) Business Day following the end of the calendar month during which the Payment Milestone occurred. The payment is subject to receipt of the corresponding invoice (being understood that no payment shall be made before expiry of a fifteen (15) Business Days period following receipt of each invoice).

 

(d)Notwithstanding Section 4.04 (b), should the outcome of the Environmental Impact Assessment for a CPA be negative, the cost and expenses paid by the Buyer for that CPA shall be repaid by the Seller to the Buyer according to the payment procedure in Section 4.04 (c).

 

 

(e)Each Party will bear its own costs and expenses in connection with the preparation, negotiation and execution of this Agreement.

 

(f)The Seller will pay the Administrative Share of Proceeds for all CERs Delivered.

 

Section 4.05 Taxes

 

Any Taxes that may be payable with regard to (i) the Project and (ii) the sale, purchase and transfer of CERs on or before Delivery of CERs pursuant to this Agreement shall be borne by the Seller. Any Taxes arising after Delivery of CERs shall be borne by the Buyer. 

 

ARTICLE V

 

Validation and Registration; Baseline

 

Section 5.01 Commencement of PoADD and Validation by the Designated Operational Entity

 

The Seller shall commence the preparation of the PoADD and first CPA within fifteen (15) business days from the date hereof and shall select and contract with a DOE to undertake Validation of the Project in mutual agreement with the Buyer and evidenced by a written approval in the form of a notice sent by the Buyer to the Seller.

 

Section 5.02 Validation and Registration

 

(a)The Seller shall prepare the Programme of Activities Design Document, including the Baseline Study, and submit the Programme of Activities Design Document in English and any supporting documents as meant in paragraph 37 of Decision 17/CP.7 of the Marrakesh Accords and any other relevant International Rules to the DOE for Validation in mutual agreement with the Buyer and evidenced by a written approval in the form of a notice sent by the Buyer to the Seller.

 

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(b)The Seller shall, after the written approval of the Buyer (in the form of a notice sent by Buyer to the Seller) instruct the DOE to submit a request for Registration to the Executive Board in the form of a Validation Report. In the event that (i) the DOE determines that the Project does not meet Validation requirements, or (ii) the Executive Board does not accept Registration of such Project, then the Seller shall make appropriate revisions and resubmit such Project for Validation and subsequent Registration if requested by the Buyer by a written notice.

 

Section 5.03 Baseline

 

In the event that a renewal of the Baseline is required by the International Rules at any time, the Seller shall arrange for such renewal of the Baseline if requested by the Buyer by a written notice. 

 

ARTICLE VI

 

Monitoring Plan

 

Section 6.01 Monitoring Plan

 

The Seller shall:

 

(i)fully implement the Monitoring Plan according to the requirements of the UNFCCC no later than the date of Commissioning;

 

(ii)install, operate and maintain the facilities and equipment, and employ and train staff, necessary for gathering all such data as may be required by the Monitoring Plan;

 

(iii)establish and maintain data measurement and collection systems for all indicators listed in the Monitoring Plan;

 

(iv)observe, implement and meet all other requirements contained in the Monitoring Plan, in particular those pertaining to environmental and social performance and operational management systems; and

 

(v)ensure the Project is maintained and prepared to allow for Verification and Certification as required by the Monitoring Plan.

 

Section 6.02 Monitoring Report

 

(a) Each Year the Seller shall, within 30 calendar days after the end of that Year and prior to sending it to the DOE provide the Buyer with a Monitoring Report; and

 

(b) The Seller will provide the Buyer every 3 months with a report on the status of the Project and expected CER production on an informal basis.

 

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Section 6.03 Amendments to Monitoring Plan

 

The Buyer and Seller may introduce amendments to the Monitoring Plan:

 

(a)when such amendments are necessary to reflect any guidelines for Monitoring, Verification and reporting under International Rules;

 

(b)when such amendments appear warranted by concerns identified by the DOE; or

 

(c)in the event that a renewal of the Project Baseline in accordance with the provisions of Section 5.03 leads to an outcome which is substantially different from that in the Verification Report.

 

(d)The Seller will pay the cost of any post-registration physical changes and/or revisions in Monitoring Plan formats and reporting as required and any post-registration DOE related costs necessary for any possible re-Validation if this is required by the UNFCCC or the DOE that carries out the Verification of the Monitoring Reports.

 

ARTICLE VII

 

Initial Verification, Verification and Certification

 

Section 7.01   General Requirements

 

All GHG Reductions generated by the Project, until the end of the term of this Agreement, shall be subject to (possible) Initial Verification, Verification and Certification by a DOE in accordance with and subject to the provisions of this Section 7.

 

Section 7.02    Designated Operational Entity

 

Subject to the Buyer’s written approval, the Seller shall contract with and instruct the DOE to undertake the (Initial) Verification and Certification of the GHG Reductions.

 

Section 7.03    Initial Verification

 

(a)At least 30 days prior to the Commissioning of the Project, the Seller shall notify the Buyer in writing of the expected Project Commissioning Date.

 

(b)If requested by the Buyer, the Buyer shall instruct the DOE to carry out the Initial Verification on the Project.

 

(c)In the event that the Initial Verification Report indicates that the Project is not in compliance with the International Rules on monitoring requirements and, in the opinion of the DOE, there is no reasonable prospect of such compliance being obtained within a further 6 months then the Buyer may terminate this Agreement by giving notice to the Seller.

 

Section 7.04 Verification and Certification

 

(a)Subject to the Buyer’s approval, the Seller shall instruct and contract with a DOE to undertake the Verification and Certification of the GHG Reductions in each Year within 15 calendar days after receipt by the Buyer of the Monitoring Report.

 

(b)In the event that there is a discrepancy between the Monitoring Report and the Verification Report, the Verification Report shall prevail.

 

ARTICLE VIII

 

Project Operation and Management

 

Section 8.01 Project Operation and Management

 

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The Seller shall:

 

(a)carry out the Project with due diligence and efficiency and in conformity with appropriate administrative, financial, engineering and environmental practices and all other relevant requirements of this Agreement including without limitation the requirements of Section 6.01;

 

(b)carry out the Project in accordance with the applicable International Rules;

 

(c)at all times operate and maintain its plant, machinery, equipment and other property, and from time to time, promptly as needed, make all necessary repairs and renewals thereof, all in accordance with sound engineering, financial and environmental practices and the requirements of Section 6.01;

 

(d)satisfy any obligations in respect of applications for all Consents and authorisations required by applicable law to implement, operate and maintain the Project;

 

(e)keep the Project insured in accordance with applicable law and prudent industry practice, which may be in the form of self-insurance; and

 

(f)be responsible of informing the Buyer about additional CPAs and act as a CME pursuant to the International Rules.

 

ARTICLE IX

 

Certified Emission Reductions

 

Section 9.01   Authorisation

 

The Buyer shall be nominated as sole Focal Point.

 

Section 9.02   General Communication

 

The Parties agree that the Buyer shall become Project Participant and the sole Focal Point for all communications with regard to the Project with the Executive Board and the UNFCCC Secretariat; in particular with regard to instructions regarding allocations of CERs upon Issuance of CERs. Nevertheless, all communications from the Focal Point to the Executive Board shall be copied to the Seller. All communications received from the Executive Board shall be forwarded to the Seller by the Buyer. Any Executive Board communications sent or received by the Seller concerning the Project shall be forwarded to the Buyer within two weeks after sending the communications to or receiving the communications from the EB.

 

Section 9.03   Establishment of Account

 

The Seller shall, if directed by the Buyer, establish an account to hold CERs.

 

Section 9.04   Delivery of CERs

 

Delivery of CERs under this Agreement takes place upon receipt of CERs into the Buyer's Account.

 

Section 9.05   Transfer of Legal Title

 

The entire legal and beneficial title to the Contract CERs will pass to the Buyer upon Delivery whereby transfer of risk shall take place, except that, in the event of Transfer System Failure, the entire legal and beneficial title to Contract CERs will be deemed to pass to the Buyer on receipt of the relevant Certification Report by the CDM Executive Board.

 

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ARTICLE X

 

Representations and Warranties

 

Section 10.01 Seller Representations

 

The Seller represents and warrants to the Buyer in each of the following terms as at the date of this Agreement and at the Project Commissioning Date:

 

(a)The Seller is duly organised and validly existing under the laws of Israel and is qualified to conduct its business in the Host Country;

 

(b)The execution, delivery and performance of this Agreement are within its powers, have been duly authorised by all necessary action and do not violate or conflict with or require any consent or waiver under any of the terms or conditions in its governing documents or any material contract to which it is a party or by which any of its assets are bound or affected, or any law, rule, regulation, order, statement of claim, judgment, decree or other legal or regulatory determination applicable to it;

 

(c)All Consents necessary for:

 

(i)the Seller to perform their obligations under this Agreement; and

 

(ii)the conduct of the business of the Seller and the construction, maintenance and operation of the Project, have been obtained and are in full force and effect. As of the Project Commissioning Date, the Seller has not received any notice of violation of any material Consents relating to the Project;

 

(d)This Agreement constitutes legal, valid and binding obligations of the Seller enforceable in accordance with its terms;

 

(e)There are no Bankruptcy Proceedings pending or being contemplated by the Seller or, to its knowledge, threatened against the Seller;

 

(f)There are no claims, actions, proceedings or investigations pending or, to the Seller knowledge, threatened against or relating to the Seller before any competent authority that may materially adversely affect its ability to perform this Agreement;

 

(g)The Seller is not subject to any judgment, rule, order, statement of claim, injunction or decree of competent authority that materially adversely affects its ability to perform this Agreement;

 

(h)This Agreement, the execution and delivery of this Agreement and the fulfillment and compliance with the terms of this Agreement by the Seller will not materially conflict with any of, or require the consent of any person under, any loan or security agreement, or other material agreement to which the Seller is a party;

 

(i)All information regarding the Project delivered from the Seller to the Buyer is true and accurate;

 

(j)All Projects should have all governmental permits and approvals according to the Host Country laws and regulations, which means that the licenses and permits necessary for construction and development have been obtained;

 

(k)The Seller shall not, during the term of this Agreement, enter into any contract or accept any obligation inconsistent or incompatible with its obligations under this Agreement;

 

(l)The Seller has all unencumbered rights, title and interest to all CERs generated by the Project;

 

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(m)The Seller has not sold, will not sell, transferred, assigned, licensed, disposed of, granted or otherwise created any interest or encumbrances in the CERs, to any Third Party; and

 

(n)The Seller embraces the UN Global Compact's ten principles (http://www.unglobalcompact.org/aboutthegc/thetenprinciples/index.html) in the conduction of its businesses and the Project in particular.

 

Section 10.02   Buyer Representations

 

The Buyer represents and warrants to the Seller in each of the following terms as at the date of this Agreement and at the Project Commissioning Date:

 

(a)It is duly organised and validly existing under the laws of The Netherlands and is qualified to conduct its business in The Netherlands;

 

(b)The execution, delivery and performance of this Agreement are within its powers, have been duly authorised by all necessary action and do not violate or conflict with or require any consent or waiver under any of the terms or conditions in its governing documents or any material contract to which it is a party or by which any of its assets are bound or affected, or any law, rule, regulation, order, statement of claim, judgment, decree or other legal or regulatory determination applicable to it;

 

(c)This Agreement constitutes the legal, valid and binding obligations of the Buyer enforceable in accordance with its terms;

 

(d)There are no Bankruptcy Proceedings pending or being contemplated by it or, to its knowledge, threatened against the Buyer;

 

(e)There are no claims, actions, proceedings or investigations pending or, to the Buyer’s knowledge, threatened against or relating to the Buyer before any competent authority that may materially adversely affect its ability to perform this Agreement;

 

(f)The Buyer is not subject to any outstanding judgment, rule, order, statement of claim, injunction or decree of competent authority that materially adversely affects its ability to perform this Agreement; and

 

(g)This Agreement, the execution and delivery of this Agreement and the fulfillment and compliance with the terms of this Agreement by the Buyer will not materially conflict with any of, or require the consent of any person under, any loan or security agreement, or other material agreement, to which the Buyer is a party.

 

ARTICLE XI

 

Failure to Generate or Transfer the Delivery Amount

 

Section 11.01   Production Failure or Transfer Failure

 

Should the Seller know, or reasonably anticipate, at any point in time that there will be or has been a Production Failure or a Transfer Failure in respect of any given Year, then the Seller shall immediately give a notice to the Buyer advising the Buyer of this existing or anticipated failure. The notice must include the following information:

 

(i)details as to the Seller's failure (or anticipated failure, as the case may be) to generate the Delivery Amount or to have the requisite number of CERs Delivered to the Buyer;

 

21
 

 

(ii)the total shortfall of GHG Reductions;

 

(iii)the likely delay before the shortfall can be recovered and the extent to which the Delivery Amount for the subsequent Year is to be affected; and

 

(iv)any other details requested by the Buyer, which is related to the performance of the Agreement.

  

ARTICLE XII

 

Rights in the Event of Gross Negligence, Fraud or Wilful Misconduct

 

Section 12.01  Rights in the Event of Gross Negligence, Fraud or Willful Misconduct

 

Where a Production Failure or Transfer Failure occurs as a result of the Seller’ Gross Negligence, Fraud or Wilful Misconduct, then the Buyer shall be entitled to terminate the Agreement, and;

 

(i)the Seller shall be liable for the Buyer’s Replacement Costs; and
(ii)recover from the Seller any Advanced Payment pursuant to Section 4.04 and Schedule 2 in connection with the Project, which have been paid by the Buyer.

 

ARTICLE XIII

 

Events of Default

 

Section 13.01   Events of Default

 

(a)The occurrence at any time with respect to a Party of any of the following events constitutes an Event of Default with respect to such Party:

 

(ii)the Party fails to pay when due any amount payable by it (under this Agreement and such failure is not remedied within ten (10) Business Days after written notice of such failure is given to such Party;

 

(iii)the Party fails to comply in any material respect with or perform in any material respect any of its other obligations under this Agreement other than the events that are specifically and expressly covered elsewhere in this Section 13.01 and (if it is capable of remedy) such failure is not remedied to the reasonably satisfaction of the other Party within ten (10) Business Days after written notice of such failure is given to the Party by such other Party;

 

(iv)any representation or warranty made or repeated or deemed to have been made or repeated by the Party in this Agreement proves to have been incorrect of misleading (in any material respect when made or repeated or deemed to have been made or repeated);

 

(v)the commencement of Bankruptcy Proceedings in respect of the Party;

 

(vi)the Seller fails to maintain all necessary Consents in respect of the Project or the performance of its obligations under this Agreement or fails to comply with all applicable laws;

 

(vii)in respect of the Seller, the failure to notify the Project Commissioning Date;

 

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(viii)the dissolution or liquidation of the Seller or changes in the ownership structure of the Seller in a manner that detrimentally affects its ability to carry out the Project in the reasonable opinion of the Buyer;

 

(ix)in respect of the Seller, the DOE determines during Verification that the Project does not comply and cannot be made compliable with the requirements of the International Rules;

 

(x)material delay in the construction of the Project (i.e. by more than 6 months) or other materially adverse change in the status of the Project construction or delay in the commencement of initial operations; or

 

(xi)Project Commissioning Date delayed by more than 12 months.

 

(b)If the Event of Default is Delivery to Third Parties, the remedies under Section 12.01 (Rights in the Event of Gross Negligence, Fraud or Wilful Misconduct) will be applicable.

 

ARTICLE XIV

 

Termination

 

Section 14.01   Suspension on Default

 

Upon the occurrence of any Event of Default or at any time thereafter while such Event of Default subsists, the non-defaulting Party may by notice to the defaulting Party suspend performance of its obligations under this Agreement. If, prior to the exercise of rights under Section 14.02, such Event of Default is remedied, the notice served under this Section 14.01 shall be deemed to be withdrawn automatically.

 

Section 14.02   Termination on Default

 

Upon the occurrence of an Event of Default or at any time thereafter while such Event of Default subsists (subject to any applicable grace period), the non-defaulting Party may terminate this Agreement ten (10) Business Days after the giving of written notice to the defaulting Party of its intention so to terminate.

 

Section 14.03    Non-Default Termination

 

The Seller or Buyer may terminate this Agreement on or at any time after the occurrence of any of the following events:

 

(a)the Seller’s or Buyer's obligations under this Agreement being suspended by reason of (i) an event of Force Majeure (other than Physical Force Majeure) continuing for more than 150 consecutive calendar days or for more than 180 calendar days in any Year or (ii) an event of Physical Force Majeure continuing for a period in excess of 180 calendar days in any Year; or

 

(b)a change in law that renders the Agreement illegal or unenforceable or results in a Party becoming unable to perform its obligations under this Agreement (except to the extent that the Parties agree to amend this Agreement pursuant to Section 15.09).

 

The Seller or Buyer may terminate this Agreement on or at any time after the occurrence of the following event:

 

(c)the Authorising Annex I Party withdraws from the Kyoto Protocol or revokes its Authorisation for the Buyer with respect to the Project and the Buyer fails, prior to the next scheduled Delivery Date, to obtain Authorisation from another Annex I Party with respect to the Project that would allow it to take Delivery of the CERs or on that scheduled Delivery Date.

 

23
 

 

Section 14.04   Cost on Default

 

Upon the occurrence of an Event of Default in respect of the Seller or at any time thereafter while such Event of Default subsists, the Buyer has the right to require the Seller to reimburse the Seller any cost and expenses pursuant to Section 4.04 and Schedule 2 in connection with the Project, which has been paid by the Buyer.

 

Section 14.05    Automatic Termination

 

This Agreement shall terminate automatically on the Expiry Date.

 

ARTICLE XV

 

Miscellaneous Provisions

 

Section 15.01  Amendments to the Agreement

 

Except as otherwise provided herein, this Agreement may not be amended except by a written agreement executed between the Parties.

 

Section 15.02  Confidentiality

 

The Parties shall treat the terms of this Agreement and all information provided under or in connection with it (collectively, “Confidential Information”) as confidential and may not either disclose Confidential Information or use it other than for bona fide purposes connected with the Agreement without the prior written consent of the other Party, except that consent is not required for disclosure to:

 

(a)directors or employees of a Party, as long as they in turn are required by that Party to treat the Confidential Information as confidential in favour of the other Party on terms substantially the same as those set out in this Section 15.02;

 

(b)persons professionally engaged by a Party, as long as they (i) are subject to statutory professional secrecy rules or similar legal concepts under applicable law, or (ii) in turn are required by that Party to treat the Confidential Information as confidential in favour of the other Party on terms substantially the same as those set out in this Section 15.02;

 

(c)the extent legally required by any government, agency or regulatory authority having jurisdiction over that Party (it being understood that Seller is subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, and, as such, is permitted to make disclosure of information required thereunder);

 

(d)any bank, other financial institution or rating agency to the extent required in relation to the financing of a Party’s business activities, as long as the bank or other financial institution or rating agency, as the case may be, is required by that Party to treat the Confidential Information as confidential in favour of the other Party on terms substantially the same as those set out in this Section 15.02;

 

(e)the extent required by any applicable laws, judicial process or the rules and regulations of any regulated market or recognised stock exchange;

 

(f)any intended assignee of the rights and interests of a Party under this Agreement or to a person intending to acquire an interest in a Party or that Party’s holding company as long as the intended assignee or acquirer in turn is required by that Party to treat the Confidential Information as confidential in favour of the other Party on terms substantially the same as those set out in this Section 15.02;

 

24
 

 

 

(g)the extent that the Confidential Information is in or lawfully comes into the public domain other than by breach of this Section 15.02; or

 

(h)price reporting agencies for the calculation of an index as long as the identity of the other party is not revealed. It must also be a precondition of the disclosure agreement between a Party and the price reporting agency that only the price is released by the price reporting agency and not the identity of either Party.

 

Section 15.03   Notices

 

(a)Any notice, communication, statement, request or correspondence required or permitted under the terms of this Agreement shall be in writing, in the English language (it being understood that any such communication in a language other than English shall be of no force and effect), and shall be delivered personally, or via courier, mail, or facsimile to the address and telecopier numbers provided in Schedule 3.

 

(b)Any notice, communication, statement, request or correspondence made or delivered by a Party to the other Party hereunder will only be effective:
(i)if by way of fax, when received in legible form
(j)if by way of electronic mail, when it has been delivered to the relevant address; or
(ii)If by way of letter, when it has been delivered at the relevant address.

 

Section 15.04 Evidence of Authority

 

The Parties shall furnish to each other sufficient evidence of the authority of the person or persons who will, on their behalf, take any action of execute any documents required or permitted to be taken or executed by the respective Parties under this Agreement, and the authenticated specimen signature of each such person.

 

Section 15.05 Assignment

 

Subject to the following sentence, neither Party may assign or transfer its rights or obligations under this Agreement to any party without the prior written consent of the other Party.

 

Section 15.06 Survival of Provisions

 

The respective rights and obligations of the Parties contained within Sections 15.02, 15.03, 15.06, 15.10, 15.11 and 15.12 will survive any termination under this Agreement.

 

Section 15.07 Execution in counterparts; Language

 

This Agreement shall be executed in two counterparts in the English language, each of which shall be an original.

 

Section 15.08 Entire Agreement

 

This Agreement constitutes the entire agreement and understanding of the Parties with respect to its subject matter and supersedes and extinguishes any representations previously given or made with respect to its subject matter other than those given or made in the Agreement, but nothing in this section 15.08 limits or excludes any liability for fraud in relation to those representations.

 

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Section 15.09 Severability

 

If any provision or part of a provision of this Agreement is found by a court, arbitrator or other authority of competent jurisdiction to be void or unenforceable, that provision or part of a provision is to be deemed deleted from this Agreement and the remaining provisions to continue in full force and effect. The Parties shall in this event seek to agree upon a valid and enforceable provision or part of a provision to replace the provision or part of a provision found to be void and unenforceable.

 

Section 15.10 Governing Law

 

This Agreement is governed by and to be construed in accordance with the laws of England and Wales.

 

Section 15.11 Arbitration

 

The Parties agree that any difference or dispute arising under, out of or in connection with this Agreement that the Parties are unable to settle between themselves is to be resolved by arbitration. Arbitration shall take place in accordance with the Rules of Arbitration of the International Chamber of Commerce applicable at the time of commencement of arbitration and the arbitration shall take place in London. The language of the arbitration shall be English and the number of arbitrators shall be three. The decision of the arbitrators shall be final and binding upon the Parties.

 

Section 15.12 Waiver of Sovereign Immunity

 

Each Party hereby irrevocably agrees that, to the extent it or any of its assets or property has or hereafter may acquire any right of immunity as against the other Party or any other Person from any legal proceedings to enforce or collect upon this Agreement or related to any of its other liabilities or obligations in connection with this Agreement or the Project, it hereby expressly and irrevocably waives and agrees not to assert any such immunity.

 

IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be duly executed as of the date first above written.

 

Puresphere Ltd.  
   
   
/s/ Yoav Ben Yehuda, Chairman  
16 January 2012  
   
   
/s/ Shlomi Palas, General Manager  
16 January 2012  
   
Vattenfall Energy Trading Netherlands N.V.  
   
   
   
/s/ Steven Asplin, Managing Director  
16 January 2012  

 

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SCHEDULE 1

 

DESCRIPTION OF THE PROJECT

 

Name of the Project (as in the PoADD):  

Landfill Gas Programme of Activities in Ghana

     
Description of the Project:  

Capture, destruction and/or utilisation of methane gas formed in and emitted from those landfills in Ghana. As at the date of this Agreement, the Project includes the CPA Oti Sanitary Landfill in Kumasi. The Parties agree that the maximum number of CPAs to be included shall be nine (9) and the inclusion of a new CPA into the Project shall follow the procedure in Section 3.06. It is the intention of the Seller to commence the Project with the Oti Sanitary Landfill in Kumasi followed by the Sofokrom site in Takoradi. The order of inclusion of other sites will be based on commercial factors.

 

Host Country:  

Ghana

 

Location:  

Oti Sanitary Landfill: The landfill is located in Kumasi, Ghana with a postal address of PO Box 1916, Kumasi, Ghana. The landfill’s geo-coordinates are: 6° 41' 0" North, 1° 37' 0" West. 

 

Others: to be communicated later as and when the decision to include them in the Project is made.

     

Project Commissioning date:

 

  1 December 2012

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SCHEDULE 2

 

Cost and Expenses

 

Cost Item  

Paying

Party

 

Refunded

by the

Seller on

Delivery

 

Maximum

Cost

  Payment Milestone  

Payment

to

PoADD drafting   £ Buyer £  Seller   ¨   TBD   XXX   Seller
Additional CPA drafting   £ Buyer £ Seller   ¨   TBD   XXX   Seller
PoADD Validation   £ Buyer £ Seller   ¨   TBD   As agreed with DOE   DOE
Registration   £ Buyer £ Seller   ¨   TBD   As per UNFCCC   UNFCCC
1st Verification*   £ Buyer £ Seller    ¨*   TBD   As agreed with DOE   DOE
Yearly Verifications   £ Buyer £ Seller    ¨*   TBD   As agreed with DOE   DOE
Environmental Impact Assessment   £ Buyer (first two only; all others the responsibility of Seller)    ¨*   TBD   To be determined by the Buyer   To be determined by the Buyer

 

* See Section 4.04 (b)

28
 

 

SCHEDULE 3

 

Key Commercial Terms

 

29
 

 

Total expected Delivery Amount  in respect of the first CPA (Oti Sanitary Landfill) plus increasing amounts as new cells are added at Oti and new CPAs join the project.  The figures for Oti Sanitary Landfill below are only in respect of the existing cells, which is approximately 35% of the landfill.   The actual figures will be larger as the new cells are added.

 

Delivery Date

and annual

expected

Delivery

Amount

Year Annual expected Delivery Amount  Delivery Date
  2012   By March 31, 2013
  2013   By March 31, 2014
  2014   By March 31, 2015
  2015   By March 31, 2016
  2016   By March 31, 2017
  2017   By March 31, 2018
  2018   By March 31, 2019
  2019   By March 31, 2020
  2020   By March 31, 2021

 

Delivery Period March 31, 2013 through March 31, 2021 in respect of CERs generated from 2012 through and including 2020.
Contract CERs

100% of the CERs Issued in respect of GHG Reductions generated under the Project during the Delivery Period.

 

Unit Price XXX% of the Market Spot Price
Buyer's  Account To be provided in a separate writing
Seller’s Cash Account To be provided in a separate writing
Address for notices For the Seller:
   
  Address: Puresphere Ltd.
                         
   
   
   
   
  For the Buyer:
   
  Address: Vattenfall Energy Trading Netherlands N.V.
   
   

 

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Schedule 4

 

Potential CPAs to Be Included in the Project

 

It is intended that Takoradi Current and New will be one CPA each and not two separate CPAs. Please see below.

 

Name of landfill Size Timing to Sign
with landfill
owner
Expected
CERs (annual
average
through 2020)
Notes
Accra 2013 To be determined Signed in November 2010   This will be the new site to receive 900+ tons of organic waste per day starting in 2013.  It will be semi-engineered with cells and international waste management practice.  The current plan is to set up a transfer station in Accra to sort and recycle the non-organic component of the waste.   The landfill will receive the organic waste only.  This site will be suitable for a CDM project in 2017.

Takoradi (current)

 

 

5 hectares Signed in October 2011   Sofokrom is an existing landfill that is closing at the end of 2012.  Dumping started in 2007.  It has 15 meters average depth.  There is on-site recycling of rubber.  The site has received an average of 600 tons per day since opening in the beginning of 2007.
Takoradi (new) 10+ hectares Signed in October  2011   Immediately next to the existing site is a new, engineered landfill site that is going to open in the beginning of 2012.  It is designed to receive waste for up to 15 years. It is lined and will be of comparable quality to Oti in Kumasi.  It is going to be operated by the same company that is operating Oti and will be operated to the same standard.  Every day, the new waste will be compacted and covered.  There are 3 phases to the new, engineered site.  Each phase has 3 cells.  Each phase will last for 5 years.  Each cell in the new phase is expected to have a depth of 10 meters when it is closed.

 

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Tema (new) 10 hectares August 2011   200 meters away from Tema current site is a new site to be opened in 2012.  It is a semi-engineered site and will consist of 8 cells and will receive waste for 9 years.  It will be operated by the same company that is operating Oti in Kumasi and the Takoradi sites (above) and, again, to the same standard.  It is semi-engineered in that it has everything that Oti has except that it is not expected to be lined.  This site has a leachate treatment system.
Saba 4-5 hectares (larger than Oblogo 1 in the study) and 25 meters depth (old limestone quarry) 2012   This is the first of 2 Accra landfill sites receiving waste today.  It receives more than 1,000 tons of MSW per day.  It will close in 2013.  It will be suitable for a CDM project in 2-3 years.
Ablekuma 3-4 hectares (comparable to Oblogo 1 in the site study) and 50 meters deep (it is an old lime-stone quarry) Signed in June 2011   This is the second of 2 Accra landfill sites receiving waste today.  It receives more than 1,000 tons of MSW per day.  It will close in 2013.  It will become suitable for a CDM project in 3-4 years.  This site will have a leachate treatment system installed.
Tamale To be determined 2012   We are starting negotiations now on this site and are waiting for verified information.

 

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Oblogo/Mallam 6-7 hectares in an old limestone quarry site and is 30-50 meters deep Signed in November 2010   This site consists of four separate, but adjacent sites, which, together, received over 1,000 tons of MSW per day for several years.
Nigerian sites To be determined 2012   Puresphere is traveling to Nigeria in early August 2011 to commence negotiations and work on the various Lagos sites being offered to us.

 

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Schedule 5

 

CPA Confirmation Schedule

 

 

[Page intentionally left blank]

 

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EX-10.11 14 v330956_ex10-11.htm EXHIBIT 10.11

 

Orbit Energy Concord, NC and Johnston, RI Facilities Acquisition Term Sheet

 

Except with respect to the provisions labeled “Confidentiality”, “Exlcusivity”, “Costs and Fees”, and “Governing Law”, respectively, which shall be legally binding upon execution of this Term Sheet, this Term Sheet shall become legally binding only upon the satisfactory completion of due diligence, tax and legal review and documentation by the parties and the entry into a definitive, final agreement between Bluesphere Corporation and Orbit Energy, Inc. or its affiliate.

  

Project The biogas energy co-generation facilities to be located in Concord, North Carolina and Johnston, Rhode Island.
   
Target Closing Date 40 days after the exclusivity period (described below) commences, subject to any additional time necessary to secure debt financing, negotiate and enter into a definitive agreement and any other extensions provided for in this Term Sheet.
   
Orbit Orbit Energy, Inc., Orbit Energy Charlotte, LLC, Orbit Energy Rhode Island, LLC and their respective affiliates.
   
BSC Blue Sphere Corporation, a Nevada corporation.  BSC may be substituted herein by an affiliate or subsidiary and all references to BSC herein shall be construed to mean and include BSC and/or any such affiliates or subsidiaries.
   
BSC Financing BSC hereby represents and warrants that it has or has access to the equity funds required to finance the Project, the exact amount of which will be determined based on and after due diligence is performed (although such amount is estimated by Orbit to be approximately $9,000,000 – i.e., $5,000,000 in respect of the NC Project and $4,000,000 in respect of the Rhode Island Project).
   
Transaction Structure Subject at all times to the revenue allocation in the paragraph below, Orbit will transfer to BSC its full right, title and interest in, to and under Orbit Energy Charlotte, LLC, Orbit Energy Rhode Island, LLC (each an “LLC”) in respect of each site comprising the Project.  BSC hereby agrees to operate each LLC with full transparency and in good faith vis-à-vis Orbit’s economic participation in each LLC, giving Orbit reasonable access to all financial records and information.  In this connection, BSC will prepare an operating agreement for each LLC, which will contain provisions relating to accounting standards and transparency.  Orbit will receive copies of each such LLC operating agreement.

 

 
 

 

  A $1,500,000 development fee will be paid to Orbit within 15 days after signing a definitive agreement in respect of the Project.
   
  Bluesphere is entitled to recoup its investment in full before any distributions of any nature are made.  After Bluesphere recoups its investment, Bluesphere shall receive each year for the life of the Project all distributable cash up to a 30% IRR, which for the avoidance of doubt, will take into account and be computed on the basis of any and all benefits from tax credits and depreciation benefits.  Any distributable amount above such 30% IRR will be allocated 30% to Orbit and 70% to Bluesphere.
   
  Each LLC will purchase a digester and license the applicable digester technology from Orbit for its respective site.
   
  Orbit and BSC will jointly manage the Project.  Orbit will be responsible for the day-to-day operations subject to the supervision of BSC.  BSC will arrange for a management fee of $250,000 per site to be paid on an annual basis.  Orbit will receive 75% of such amount and BSC 25% of such amount.  The management fees in respect of a Project site will start to be paid after such Project site is commissioned and in operation.

 

Conditions to BSC’s obligation to acquire the Project - execution of a definitive agreement consistent with the terms hereof
  - satisfactory completion of due diligence, including, but not limited to, feedstock contracts and arrangements
  - each LLC owns or holds all relevant Project Rights (defined below)
  - Debt finance firm commitment from a bank or financial institution

 

Project Rights Orbit will cause each LLC to obtain all relevant rights, title and interest and obligations (including, but not limited to the feedstock supply agreements, any off-take agreements, PPAs, debt financing arrangements, any and all rights relating to the land/property of the Project site, eligibility to receive the federal 1603 tax credit, RECs, carbon credits, depreciation/amortization credits/benefits and other grants and all local consents, permissions and/or authorisations, including all permits and approval as such may be required for the Project from time to time) in, to and under each site comprising the Project.

 

 
 

 

   
Project Management Orbit’s proprietary anaerobic digester technology will be licensed to the LLCs on a non-exclusive basis to be used at each site comprising the Project. 
   
  BSC has the right to select and engage the EPC party, other equipment and technology to be used in the Project,
   
  Orbit will participate in the management, operation and maintenance of the Project, subject, in each case, to BSC’s supervision and control.
   
Due Diligence Subject to the terms contained in the heading “Exclusivity” below, the due diligence process will start upon receipt of a full set of due diligence materials, including signed PPAs, signed feedstock agreements, proof of land ownership/entitlement and debt termsheets/offers, and will terminate no later than 30 days thereafter.
   
  Orbit will promptly provide BSC copies of all documentation entered into and/or other information and materials relating to the Project.
   
  In this connection, BSC will send to Orbit a list of documents and/or other information that Orbit shall provide BSC within 3 days from the receipt thereof.
   
Exclusivity Subject to the following sentence, the exclusivity period shall be for a period of 30 days from the date on which BSC has received from Orbit a full set of due diligence materials as described above under the heading “Due Diligence”.  It is agreed and acknowledged that such exclusivity period shall be extended for so long as necessary to obtain definitive and binding debt and feedstock agreements and the finalization and entry into a definitive Project agreement so long as BSC has indicated to Orbit in writing that it is prepared to enter into and sign a definitive agreement in respect of the Project subject to the entry into definitive agreements in respect of the debt component and feedstock supply.

 

 
 

 

  During the exclusivity period, Orbit will not discuss or offer equity participation in the Project to any other party without the express, prior written consent of BSC.
   
Option Upon signing a definitive agreement with Orbit for the Project, BSC shall be granted an option to participate in the next two projects using Orbit’s anaerobic digester technology to be signed or secured by Orbit or any of its affiliates on terms and conditions similar to this Term Sheet.  For a term of two years thereafter, BSC shall have a right of first refusal to acquire, finance or otherwise participate in any and all additional projects using Orbit’s anaerobic digester technology to take place at additional facilities under contract with Orbit upon terms no less favourable than agreed to by any third-party. 
   
Representations and Warranties Customary for this type of transaction.
   
Confidentiality The terms of this Term Sheet, any information that would reasonably be considered to be confidential and disclosed by or on behalf of Orbit or its affiliates to BSC or its affiliates or agents in connection with or during the course of the negotiation of the definitive agreement contemplated hereby, and the potential relationship between the parties shall be considered Confidential Information.  The parties shall not disclose any Confidential Information to any third party (except as set forth below) and shall only use Confidential Information to evaluate the transaction contemplated by this Term Sheet. The parties agree that this term shall be binding as between them, and shall remain in force for a period of five (5) years after the date that this Term Sheet is executed by Orbit and BSC, respectively.
   
  Notwithstanding anything else to the contrary herein, BSC shall have the right to disclose the existence of this term sheet and the terms and conditions hereof (to the minimum extent possible) if necessary to satisfy its reporting obligations under the U.S. Securities Exchange Act of 1934, as amended, and/or to potential financiers and Project sub-contractors.

 

 
 

 

Governing Law and Forum This Term Sheet shall be interpreted and construed in accordance with the laws of the State of New York.
   
Costs and Fees Each party will bear its own costs and expenses in connection with the negotiation and execution of this Term Sheet, conduct of due diligence, provision of information and materials and other actions relating to and leading up to the execution and delivery of a binding Project agreement.
   
Closing Upon successful completion of due diligence, BSC will present a draft definitive agreement in respect of the transactions contemplated hereby, which the parties will negotiate in good faith with a view toward signing as expeditiously as practicable.  During any negotiations, the exclusivity described above shall be extended for so long as such negotiations are ongoing, but shall terminate immediately upon Orbit’s notice to BSC that such negotiations have ceased.

 

Accepted and agreed by the parties set forth below.

 

Dated:  May 6, 2012  
   
Orbit Energy, Inc.  
   
   
By:  
Title:  
   
Blue Sphere Corporation  
   
   
By:  
Title:  

 

 

 

EX-10.12 15 v330956_ex10-12.htm EXHIBIT 10.12

 

ORBIT ENERGY CHARLOTTE, LLC PURCHASE AGREEMENT

 

This Orbit Energy Charlotte, LLC Purchase Agreement (this “Agreement”) is made and entered into as of October __, 2012, (the “Effective Date”) by and between Bluesphere Corporation, a Nevada corporation (“Purchaser”), and Orbit Energy, Inc., a North Carolina corporation (“Seller”).

 

RECITALS

 

A.           Seller has established Orbit Energy Charlotte, LLC (the “LLC”) to implement an anaerobic digestion and energy generation project in Concord, North Carolina or at an alternate site in North Carolina (the “Project”).

 

B.           In accordance with the terms of this Agreement, Seller desires to sell and transfer 100% of its right, title and interest in, to and under the LLC to Purchaser and Purchaser desires to purchase and accept 100% of the right, title and interest in, to and under the LLC for the purpose of implementing the Project.

 

Now, therefore, the parties hereby agree as follows.

 

1.          RECITALS. The foregoing recitals are incorporated by reference as if fully set forth herein.

 

2.          SALE AND PURCHASE OF THE LLC.

 

2.1           Terms of Sale and Purchase; Purchaser Option. Subject to the terms and conditions of this Agreement, Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from Seller, 100% of its right, title and interest in, to and under the LLC, which owns and holds the right to implement the Project, in exchange for the compensation set forth on Annex A hereto (the “Purchase Price”). Notwithstanding anything else to the contrary herein, Purchaser shall have an option (exercisable in its sole discretion) (i) to terminate this Agreement without any liability to Seller or (ii) to delay the closing for so long as it deems necessary if at any time Anwar Shareef is not chief executive officer and majority shareholder of Seller.

 

2.2           LLC Transfer in Escrow. Within 10 days of the date hereof, Seller agrees to deposit in escrow a signed agreement in form and substance acceptable to Purchaser (the “Transfer Agreement”) transferring 100% of the right, title and interest in, to and under the LLC to Purchaser. The Transfer Agreement will be dated the date on which it is signed and delivered to the escrow agent. The original, signed copy of the Transfer Agreement will be released by the escrow agent and irrevocably delivered to Purchaser on the date of the Closing (as defined below). In this connection, Purchaser will prepare a draft escrow agreement reflecting the foregoing and select an escrow agent reasonably acceptable to Seller and the parties will use their best efforts to finalize and enter into such escrow agreement within 10 days of the date hereof. If the Closing does not take place in accordance with the terms hereof, Seller will receive back the original, signed copy of the transfer agreement 180 days from the date hereof or when Purchaser notifies Seller in writing that it has irrevocably decided not to proceed, whichever is earlier.

 

 
 

 

2.3           Seller’s Covenants. Seller is obligated to deliver or demonstrate at or prior to the Closing: (i) valid and binding feedstock agreement(s) in form and substance acceptable to Purchaser, (ii) a valid and binding power purchase agreement (in respect of which there is reasonable time to satisfy all timing and milestone requirements and which is in form and substance acceptable to Purchaser in its sole discretion), (iii) submitted applications in respect of required permits, (iv) a valid, signed and binding agreement or debt commitment letter in respect of debt finance on terms and conditions acceptable to Purchaser in its sole discretion, (v) valid and binding lease and/or purchase agreement (in form and substance acceptable to Purchaser in its sole discretion) in respect of the land on which the Project will be located and (vi) valid and binding agreement in respect of the equipment, procurement and construction for and on behalf of the Project in form and substance acceptable to Purchaser in its sole discretion. The foregoing items (i) – (vi) are collectively referred to as the “Seller Conditions”.

 

2.4           Purchaser Condition.         Purchaser is obligated to deliver at or prior to the Closing a tax credit and depreciation sale agreement or other agreement monetizing the Project’s applicable tax credits and depreciation benefits (the “Purchaser Condition”).

 

2.5           Closing Timing. If any of the Seller Conditions or Purchaser Condition is not fulfilled or delivered in time for the Closing, the Closing shall be moved to such date that is three business days after the last Purchaser Condition and/or Seller Condition has been fulfilled or delivered in the sole discretion of Purchaser. Section 3.2 below shall be amended accordingly without any further action from any party hereto.

 

2.6           HSAD License. Seller hereby grants Purchaser an unconditional and irrevocable, non-exclusive license to use Seller’s high solids anaerobic digestion (HSAD) technology consisting of a proprietary process that uses an anaerobic digester design developed by the U.S. Department of Energy and subsequently modified by Seller in combination with the proprietary bacteria to be supplied by Seller (the “Technology”) at the Project site for so long as the Project is in operation (the “License”). Purchaser may freely sell or transfer the License in the event of a sale or transfer of its rights in the Project to another party. If the license is to be granted by another party, then Seller will deliver within 5 days of the date hereof a signed license agreement from such party.

 

2.7           Purchaser Support of Seller. (a) Purchaser hereby agrees to support Seller to meet certain Project deadlines by taking such measures and making such payments as Purchaser shall deem necessary or expedient to implement the Project in a timely manner. Purchaser will use its reasonable efforts to cause itself to be reimbursed for any such payments made by it out of the equity funds to be invested in the Project. However, if for any reason Purchaser is not so reimbursed, then Purchaser shall be entitled to deduct any amount not reimbursed to it out of the development fee described on Annex A hereto.

 

(b) Subject to the following sentence, Purchaser also agrees to use its reasonable efforts to reimburse Seller out of the equity funds to be invested in the Project for certain expenses already incurred by Seller, as described in more detail on Annex B hereto (the “Annex B Expenses”). Seller and Purchaser agree that there will be no obligation to make any reimbursement of any nature whatsoever unless and until Seller delivers to Purchaser documentary evidence in form and substance satisfactory to Purchaser in its sole discretion as to the amount, timing and nature of each Annex B Expense. Seller and Purchaser further agree that the Annex B Expenses are the sole expenses for which Seller will receive any reimbursement. Seller hereby waives any and all claims it may have for any reimbursement now or in the future except for claims relating to the Annex B Expenses.

 

 
 

 

3.          CLOSING.

 

3.1           Conditions to Closing. Notwithstanding anything else herein to the contrary and for the avoidance of doubt, the parties agree that the Closing will take place if (and only if) the Purchaser Condition and the Seller Conditions have been delivered or satisfied at or prior to the Closing.

 

3.2           Closing. The parties will use their reasonable efforts to fulfill all applicable conditions and close in 2012 (as extended by Section 2.5 above). After the fulfillment of all conditions, Seller and Purchaser agree to accomplish the following transactions (the “Closing”):

 

3.2.1           Evidence of all Conditions being satisfied. At the Closing, each party will deliver evidence that the conditions applicable to it have been satisfied or delivered.

 

3.2.2           Transfer of the LLC. Purchaser will receive out of escrow the Transfer Agreement reflecting the transfer to it of 100% of the right, title and interest in, to and under the LLC and Seller will enter into, sign and deliver any and all agreements and take any and all actions necessary or helpful to accomplish the foregoing.

 

3.3           Post-Closing Actions.         After the Closing, Seller will record (or will assist Purchaser in recording, if necessary) the ownership of the LLC in the name of Purchaser and deliver to Purchaser evidence (satisfactory to Purchaser in its sole discretion) of such recordation within five business days of the Closing. Purchaser will have 15 days from the date of receipt of such recordation to pay Seller the development fee described on Annex A hereto.

 

3.4           No Adverse Change.         It is understood and agreed that Purchaser’s obligations under this Agreement are at all times subject to the absence of any material, adverse changes in the commercial, legal and/or financial prospects of the Project in the sole discretion of Purchaser so that, by way of example without limitation, if, at any point in time, whether before or during Project implementation, there is not a valid and binding lease or property purchase agreement in form and substance acceptable to Purchaser, then Purchaser shall have no obligation to close, make any payments or investment or continue with the Project (as applicable).

 

4.          PROJECT MANAGEMENT. Seller hereby agrees to manage the implementation and operation of the Project subject, in each case, to (i) any agreements entered into or to be entered into in respect of the Project by Purchaser and (ii) the supervision and control of Purchaser. Seller’s management of the implementation and operation of the Project shall consist of (i) reporting to all applicable authorities, (ii) permit compliance and renewal, (iii) presence at the site, advice and assistance in operation of the Project, in each case, as required or helpful, (iv) ongoing identification of feedstock sources, compost off-takers and other third-parties participating in the Project and (v) such other actions as may be required or desirable in the reasonable discretion of either Seller or Purchaser for the management of the Project. Seller shall manage the project as a reasonably prudent operator. Seller shall receive an annual fee of U.S. $187,500 for providing such management services.

 

 
 

 

5.          REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Purchaser as follows.

 

5.1           No Broker-Dealer. Except for the involvement of Pacific Portland Capital, Seller has not effected this transfer of the LLC by or through any intermediaries.

 

5.2           Title to the LLC. Seller has valid marketable title to the LLC, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest (“Encumbrances”). Upon the sale and transfer of the LLC, and payment therefor, in accordance with the provisions of this Agreement, Purchaser will acquire valid marketable title to the LLC, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest.

 

5.3           Consents. All consents, approvals, authorizations and orders required for the execution and delivery of this Agreement and the transfer of the LLC under this Agreement have been obtained and are in full force and effect.

 

5.4           Authority. Seller has full legal right, power and authority to enter into and perform its obligations under this Agreement and to transfer the LLC under this Agreement, and Seller is not obligated to transfer the LLC to any other person or entity. Seller has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization as the type of entity that it purports to be and all corporate or other entity actions necessary to authorize the transactions contemplated by this Agreement have been duly taken. The person(s) executing and delivering this Agreement on behalf of Seller are duly authorized to do so.

 

5.5           Intellectual Property. Seller owns or holds a valid license to any and all intellectual property relating to the Technology and has full authority to grant the License. Purchaser’s use of the Technology and License and/or any subsequent transfer thereof will not infringe on the rights of any third parties or give rise to any claims on the part of any third-parties.

 

6.          COMPLIANCE WITH LAWS AND REGULATIONS. The sale and transfer of the LLC and the implementation and management of the Project will be subject to and conditioned upon compliance by Purchaser with all applicable state and federal laws and regulations at the time of such sale, transfer, implementation and/or management.

 

7.          GENERAL PROVISIONS.

 

7.1           Successors and Assigns; Assignment. Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives. Each party hereto may assign its rights in, to and under this Agreement with the consent of the other party with such consent not to be unreasonably withheld or delayed.

 

 
 

 

7.2           Governing Law. This Agreement will be governed by and construed in accordance with the laws of the Commonwealth of North Carolina without giving effect to its body of laws pertaining to conflict of laws.

 

7.3           Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States; or (c) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by express courier. All notices not delivered personally will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set forth below the signature lines of this Agreement or at such other address as such other party may designate by one of the indicated means of notice herein to the other party hereto. A “business day” shall be a day, other than Saturday or Sunday, when the banks in the city of New York are open for business.

 

7.4           Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.

 

7.5           Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Agreement.

 

7.6           Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.

 

7.7           Severability. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.

 

 
 

 

7.8           Amendment and Waivers. This Agreement may be amended only by a written agreement executed by each of the parties hereto. No amendment of or waiver of, or modification of any obligation under this Agreement will be enforceable unless set forth in a writing signed by the party against which enforcement is sought. Any amendment effected in accordance with this section will be binding upon all parties hereto and each of their respective successors and assigns. No delay or failure to require performance of any provision of this Agreement shall constitute a waiver of that provision as to that or any other instance. No waiver granted under this Agreement as to any one provision herein shall constitute a subsequent waiver of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual performance specifically waived.

 

7.9           Confidentiality. Each of Seller and Purchaser agrees that it will keep confidential and will not disclose or use for any purpose any information about the terms of this Agreement and the transactions contemplated hereby and any confidential information obtained from the Company in connection herewith, unless any such information (a) is known or becomes known to the public in general (other than as a result of a breach of this Agreement by the disclosing party), or (b) is or has been made known or disclosed to the disclosing party by a third party without a breach of any confidentiality obligations by such third party; provided, however, that either Seller or Purchaser may disclose such information (i) to its attorneys, accountants, consultants, financiers and other professionals to the extent necessary to obtain their services in connection with the transfer and ownership of the LLC or the implementation of the Project; (ii) to any affiliate in the ordinary course of business, provided that such affiliate agrees to maintain the confidentiality of such information in accordance herewith; or (iii) as may be required by law, provided that the disclosing party promptly notifies the other parties hereto in advance of such disclosure and agrees to cooperate to take reasonable steps to minimize the extent of any such required disclosure.

 

7.10         Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement. This Agreement may be executed and delivered by facsimile or other means of electronic delivery and upon such delivery the signature will be deemed to have the same effect as if the original signature had been delivered to the other party.

 

7.11         Expenses. Each party hereto shall pay its own expenses in connection with this Agreement.

 

7.12         Specific Performance. Unless this Agreement has been terminated, each party to this Agreement acknowledges and agrees that any breach by it of this Agreement shall cause any (or either) of the other parties irreparable harm which may not be adequately compensable by money damages. Accordingly, except in the case of termination, in the event of a breach or threatened breach by a party of any provision of this Agreement, each party shall be entitled to seek the remedies of specific performance, injunction or other preliminary or equitable relief, without having to prove irreparable harm or actual damages. The foregoing right shall be in addition to such other rights or remedies as may be available to any party for such breach or threatened breach, including but not limited to the recovery of money damages.

 

7.13         Indemnification/Pledge. Seller hereby agrees to indemnify and hold harmless Purchaser from any claims, damages, losses, liabilities and/or costs (including, for the avoidance of doubt, reasonable counsel fees) relating to or arising out of Purchaser’s use of the Technology or License. To the extent that Seller lacks the funds to fulfill its indemnity obligations hereunder, Seller hereby pledges its rights, title and interest in, to and under the Technology to Purchaser for Purchaser’s full and unfettered use until such time as Purchaser has been made whole and recouped any losses, costs or other out-of-pocket amounts.

 

 
 

 

Costs of Enforcement. If any party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings against any other party to this Agreement, the non-prevailing party or parties named in such legal proceedings shall pay all costs and expenses incurred by the prevailing party or parties, including, without limitation, all reasonable attorneys’ fees.

 

7.14         IN WITNESS WHEREOF, Seller and Purchaser have each executed this Stock Transfer Agreement as of the Effective Date.

  

SELLER:     PURCHASER:  
         
By:     By:  
         
Address:     Address:  
         
       
       
       

 

Attachments:

Annex A – Compensation to Seller

Annex B – Seller Expenses

Annex C – Wire Instructions

 

 
 

 

ANNEX A

 

1. Seller to receive a $900,000 development fee, less any amounts not reimbursed to Purchaser in accordance with Section 2.7 of the Agreement, to be paid to it within 15 days after Seller irrevocably transfers and, if applicable, records 100% of the right, title and interest in, to and under the LLC to Purchaser.

 

2. Seller will participate in the distributable cash of the LLC as follows:

 

·Purchaser will be entitled to recoup its investment in full before any distributions of any nature are made to Seller.
·After Purchaser recoups its investment, Purchaser shall receive all distributable cash from the Project until it achieves a 30% internal rate of return (“IRR”), which for the avoidance of doubt, will take into account and be computed on the basis of any and all benefits from tax credits and depreciation. Any distributable cash above such 30% IRR will be allocated 30% to Seller and 70% to Purchaser.

 

 
 

 

ANNEX B

 

[to be inserted by Anwar: the same list as was in the pdf in the email except only those relating to Concord; the Johnston expenses will be covered in the Johnston definitive agreement]

 

 
 

 

ANNEX C

 

WIRE INSTRUCTIONS

Company Wire Instructions

 

Beneficiary Name: Orbit Energy, Inc.
Beneficiary Account:  
Beneficiary Bank:  
Bank Address:  
   
   
ABA Routing Number:  
Swift Code:  

 

Note: Please include Seller's name in the reference field.

 

 

 

EX-10.13 16 v330956_ex10-13.htm EXHIBIT 10.13

 

ESCROW AGREEMENT

 

AGREEMENT (this “Agreement”) dated November 2, 2012 by and among Bluesphere Corporation, a Nevada corporation (“BSC”), Orbit Energy Inc., a North Carolina corporation (“Orbit”), and Lawrence C. Hersh, Esq., an attorney based in Rutherford, New Jersey (“Escrow Agent”).

 

WITNESSETH:

 

WHEREAS, Orbit and BSC have entered into (i) the Orbit Energy Charlotte, LLC Purchase Agreement and (ii) the Orbit Energy Rhode Island, LLC Purchase Agreement, in each case, dated October 19, 2012 (the “Orbit Definitive Agreements”) to transfer 100% of Orbit’s right, title and interest in, to and under Orbit Energy Charlotte, LLC and Orbit Energy Rhode Island, LLC (the “LLCs”) to BSC.

 

WHEREAS, Orbit and BSC desire to establish an escrow arrangement with Escrow Agent in connection with which Orbit shall deliver the Orbit Energy Charlotte, LLC Transfer Agreement (attached hereto as Annex A) and the Orbit Energy Rhode Island, LLC Transfer Agreement (attached hereto as Annex B) to Escrow Agent for safe-keeping and further delivery either to BSC or back to Orbit, in each case, in accordance with the terms and conditions of this Agreement.

 

WHEREAS, Orbit and BSC each represent and warrant to Escrow Agent that it understands and has not stated to any individual or entity that Escrow Agent’s duties will include anything other than those duties stated in this Agreement.

  

 
 

  

NOW, THEREFORE, IT IS AGREED as follows:

 

1.          Delivery of the Transfer Agreements. Orbit hereby agrees to deliver five (5) original, signed copies to Escrow Agent of each of the Orbit Energy Charlotte, LLC Transfer Agreement and the Orbit Energy Rhode Island, LLC Transfer Agreement (together, the “Transfer Agreements”) to Escrow Agent at the address provided below and Escrow Agent hereby agrees to accept such Transfer Agreements, hold them in escrow and deliver them onward in accordance with the terms and conditions hereof. Escrow Agent’s address is 17 Sylvan St., Suite 102B, Rutherford, NJ 07070. In addition, Orbit shall scan and email a signed copy of each Transfer Agreement to the attention of Escrow Agent at: lh@hershlegal.com. Escrow Agent shall confirm receipt of both the scanned copies of the Transfer Agreements and the originals to Orbit and BSC.

 

2.          Release and Delivery of the Transfer Agreements. (a) Subject to Section 2(d) below, Escrow Agent shall promptly release and deliver all original copies and the scanned copy of the Orbit Energy Charlotte, LLC Transfer Agreement to BSC upon receipt of the following (in each case, in respect of Orbit Energy Charlotte, LLC):

 

(i) a signed feedstock agreement;

 

(ii) a signed power purchase agreement;

 

(iii) a signed debt commitment letter or debt agreement in respect of debt finance;

 

(iv) a signed lease and/or purchase agreement in respect of the land on which the project will be located; and

 

(v) a signed equipment, procurement and construction agreement.

 

2
 

  

(b) Escrow Agent shall promptly release and deliver all original copies and the scanned copy of the Orbit Energy Rhode Island, LLC Transfer Agreement to BSC upon receipt of the following (in each case, in respect of Orbit Energy Rhode Island, LLC):

 

(i) a signed feedstock agreement;

 

(ii) a signed power purchase agreement;

 

(iii) a signed debt commitment letter or debt agreement in respect of debt finance;

 

(iv) a signed lease and/or purchase agreement in respect of the land on which the project will be located; and

 

(v) a signed equipment, procurement and construction agreement.

 

(c) The parties agree that the agreements or materials to be sent or shown to Escrow Agent in satisfaction of 2(a) and (b) above may be called something else or referred to differently in such agreements or materials, so long as the substance of such agreements or materials refers to or includes the relevant subject matter. By way of example only, the feedstock agreement may be called something other than a feedstock agreement, but will still be accepted by Escrow Agent so long as it refers to feedstock being delivered to the relevant project site.

 

(d) If BSC has not sent or shown Escrow Agent the agreements or materials in Section 2(a) or 2(b) above by Tuesday, April 9, 2013, then Escrow Agent will deliver all copies of the Transfer Agreements back to Orbit.

 

3.          Acceptance by Escrow Agent. The Escrow Agent hereby accepts and agrees to perform its obligations hereunder, provided that:

 

3
 

  

(a)          The Escrow Agent may act in reliance upon any signature or electronic mail believed by it to be genuine, and may assume that any person who has been designated by BSC to give any written instructions, notice or receipt, or make any statements in connection with the provisions hereof has been duly authorized to do so. Escrow Agent shall have no duty to make inquiry as to the genuineness, accuracy or validity of any statements or instructions or any signatures on statements or instructions.

 

(b)          Escrow Agent may act relative hereto in reliance upon advice of counsel in reference to any matter connected herewith. Escrow Agent shall not be liable for any mistake of fact or error of judgment or law, or for any acts or omissions of any kind, unless caused by its willful misconduct or gross negligence.

 

(c)          Orbit and BSC each agree to indemnify and hold Escrow Agent harmless from and against any and all claims, losses, costs, liabilities, damages, suits, demands, judgments or expenses (including but not limited to reasonable attorney’s fees) claimed against or incurred by Escrow Agent, in good faith, arising out of or related, directly or indirectly, to this Escrow Agreement unless caused by a breach of this Escrow Agreement by the Escrow Agent or by the Escrow Agent’s gross negligence or willful misconduct.

 

(d)          Conflict Waiver. Orbit and BSC each hereby acknowledges that Escrow Agent has a pre-existing friendship with one of the members of BSC and Orbit waives any claims it may have in this connection.

 

(e)          In the event that Escrow Agent shall be uncertain as to its duties or rights hereunder, Escrow Agent shall be entitled to (i) refrain from taking any action other than to keep safely the Escrow Cash until it shall be directed otherwise by a court of competent jurisdiction, or (ii) deliver the Escrow Cash to a court of competent jurisdiction.

 

4
 

  

4.          Resignation of Escrow Agent. Escrow Agent may not resign unless and until Orbit and BSC have identified and entered into an agreement with a substitute escrow agent. Upon notice thereof signed by Orbit and BSC, Escrow Agent shall promptly deliver the Transfer Agreements to such successor and shall thereafter have no further obligations hereunder. In such case, Escrow Agent shall forfeit 100% of its fee hereunder.

 

5.          Termination. Orbit and BSC may terminate the appointment of the Escrow Agent hereunder upon written notice (signed by both Orbit and BSC) specifying the date upon which such termination shall take effect, which date shall be at least 30 days from the date of such notice. In the event of such termination, Orbit and BSC shall, within 30 days of such notice, appoint a successor escrow agent and the Escrow Agent shall, upon receipt of written instructions signed by Orbit and BSC turn over to such successor escrow agent all of the copies of the Transfer Agreements.

 

6.          Compensation. Unless Escrow Agent resigns at any time, Escrow Agent shall be entitled for the duties to be performed by it hereunder to a fee of $1,000 which fee shall be paid by BSC promptly upon the earlier of the delivery of the Transfer Agreements to it or back to Orbit.

 

8.          Notices. All notices, requests, demands and other communications required or permitted to be given hereunder shall be in writing and shall be deemed to have been duly given if sent by hand-delivery, by facsimile (followed by first-class mail), by nationally recognized overnight courier service or by registered or certified mail, return receipt requested, in each case costs prepaid, or email to the addresses set forth below.

  

5
 

  

If to BSC:


Blue Sphere Corp.         
35 Asuta Street
Even Yehuda, Israel 40500
Attention: Mr. Shlomo Palas, CEO

Email: shlomi@bluespherecorporate.com
 

With a copy to:

 

Mark Radom
Nachal Maor 1, Suite 2
Ramat Bet Shemesh, Israel 99623
Email: mark@bluespherecorporate.com

 

If to Orbit

 

Orbit Energy Inc.
3301 Benson Dr. Suite 401

Raleigh, NC 27609 USA
Email: ashareef@orbitenergyinc.com

 

If to Escrow Agent:

 

Lawrence C. Hersh, Esq.

17 Sylvan St., Suite 102B

Rutherford, NJ 07070

Email: lh@hershlegal.com

  

9.          General.

 

(a)          This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York applicable to agreements made and to be entirely performed within such State without regard to choice of law principles.

 

(b)          This Agreement sets forth the entire agreement and understanding of the parties with respect to the matters contained herein and supersedes all prior agreements, arrangements and understandings relating thereto.

 

6
 

  

(c)          All of the terms and conditions of this Agreement shall be binding upon, and inure to the benefit of and be enforceable by, the parties hereto, and their respective successors and assigns.

 

(d)          This Agreement may be amended, modified, superseded or canceled, and any of the terms or conditions hereof may be waived, only by a written instrument executed by each party hereto or, in the case of a waiver, by the party waiving compliance. The failure of any party at any time or times to require performance of any provision hereof shall in no manner affect its right at a later time to enforce the same. No waiver of any party of any condition, or of the breach of any term contained in this Agreement, whether by conduct or otherwise, in any one or more instances shall be deemed to be or construed as a further or continuing waiver of any such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement. No party may assign any rights, duties or obligations hereunder unless all other parties have given their prior written consent.

 

(e)          If any provision included in this Agreement proves to be invalid or unenforceable, it shall not affect the validity of the remaining provisions.

 

(f)          This Agreement and any amendment or modification of this Agreement may be executed in several counterparts or by separate instruments and all of such counterparts and instruments shall constitute one agreement, binding on all of the parties hereto.

 

10.         Form of Signature. The parties hereto agree to accept a facsimile transmission copy of their respective actual signatures as evidence of their actual signatures to this Agreement and any amendment or termination of this Agreement.

  

[SIGNATURE PAGE FOLLOWS IMMEDIATELY]

 

7
 

  

IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first set forth above.

 

  Bluesphere Corporation
     
  By:
  Name: Shlomo Palas
  Title: Chief Executive Officer
   
  Orbit Energy Inc.
     
  By:  
  Name:  Anwar Shareef
  Title: Chief Executive Officer

  

Escrow Agent  
     
By:  
  Name:  Lawrence C. Hersh  
  Title:  

  

 
 

 

Annex A

 

[Orbit Energy Charlotte, LLC Transfer Agrement]

 

 
 

 

Annex B

 

[Orbit Energy Rhode Island, LLC Transfer Agrement] 

 

 

 

EX-10.14 17 v330956_ex10-14.htm EXHIBIT 10.14

 

ORBIT ENERGY RHODE ISLAND, LLC PURCHASE AGREEMENT

 

This Orbit Energy Rhode Island, LLC Purchase Agreement (this “Agreement”) is made and entered into as of October 19, 2012, (the “Effective Date”) by and between Bluesphere Corporation, a Nevada corporation (“Purchaser”), and Orbit Energy, Inc., a North Carolina corporation (“Seller”).

 

RECITALS

 

A.           Seller has established Orbit Energy Rhode Island, LLC (the “LLC”) to implement an anaerobic digestion and energy generation project in Johnston, Rhode Island, or at an alternate site in Rhode Island (the “Project”).

 

B.           In accordance with the terms of this Agreement, Seller desires to sell and transfer 100% of its right, title and interest in, to and under the LLC to Purchaser and Purchaser desires to purchase and accept 100% of the right, title and interest in, to and under the LLC for the purpose of implementing the Project.

 

Now, therefore, the parties hereby agree as follows.

 

1.          RECITALS. The foregoing recitals are incorporated by reference as if fully set forth herein.

 

2.          SALE AND PURCHASE OF THE LLC.

 

2.1           Terms of Sale and Purchase; Purchaser Option. Subject to the terms and conditions of this Agreement, Seller hereby agrees to sell to Purchaser, and Purchaser hereby agrees to purchase from Seller, 100% of its right, title and interest in, to and under the LLC, which owns and holds the right to implement the Project, in exchange for the compensation set forth on Annex A hereto (the “Purchase Price”). Notwithstanding anything else to the contrary herein, Purchaser shall have an option (exercisable in its sole discretion) (i) to terminate this Agreement without any liability to Seller or (ii) to delay the closing for so long as it deems necessary if at any time Anwar Shareef is not chief executive officer and majority shareholder of Seller.

 

2.2           LLC Transfer in Escrow. Within 10 days of the date hereof, Seller agrees to deposit in escrow a signed agreement in form and substance acceptable to Purchaser (the “Transfer Agreement”) transferring 100% of the right, title and interest in, to and under the LLC to Purchaser. The Transfer Agreement will be dated the date on which it is signed and delivered to the escrow agent. The original, signed copy of the Transfer Agreement will be released by the escrow agent and irrevocably delivered to Purchaser on the date of the Closing (as defined below). In this connection, Purchaser will prepare a draft escrow agreement reflecting the foregoing and select an escrow agent reasonably acceptable to Seller and the parties will use their best efforts to finalize and enter into such escrow agreement within 10 days of the date hereof. If the Closing does not take place in accordance with the terms hereof, Seller will receive back the original, signed copy of the transfer agreement 180 days from the date hereof or when Purchaser notifies Seller in writing that it has irrevocably decided not to proceed, whichever is earlier.

 

 
 

 

2.3           Seller’s Covenants. Seller is obligated to deliver or demonstrate at or prior to the Closing: (i) valid and binding feedstock agreement(s) in form and substance acceptable to Purchaser, (ii) a valid and binding power purchase agreement (in respect of which there is reasonable time to satisfy all timing and milestone requirements and which is in form and substance acceptable to Purchaser in its sole discretion), (iii) submitted applications in respect of required permits, (iv) a valid, signed and binding agreement or debt commitment letter in respect of debt finance on terms and conditions acceptable to Purchaser in its sole discretion, (v) valid and binding lease and/or purchase agreement (in form and substance acceptable to Purchaser in its sole discretion) in respect of the land on which the Project will be located and (vi) valid and binding agreement in respect of the equipment, procurement and construction for and on behalf of the Project in form and substance acceptable to Purchaser in its sole discretion. The foregoing items (i) – (vi) are collectively referred to as the “Seller Conditions”.

 

2.4           Purchaser Condition.         Purchaser is obligated to deliver at or prior to the Closing a tax credit and depreciation sale agreement or other agreement monetizing the Project’s applicable tax credits and depreciation benefits (the “Purchaser Condition”).

 

2.5           Closing Timing. If any of the Seller Conditions or Purchaser Condition is not fulfilled or delivered in time for the Closing, the Closing shall be moved to such date that is three business days after the last Purchaser Condition and/or Seller Condition has been fulfilled or delivered in the sole discretion of Purchaser. Section 3.2 below shall be amended accordingly without any further action from any party hereto.

 

2.6           HSAD License. Seller hereby grants Purchaser one unconditional and irrevocable, non-exclusive license to use Seller’s high solids anaerobic digestion (HSAD) technology consisting of a proprietary process that uses an anaerobic digester design developed by the U.S. Department of Energy and subsequently modified by Seller in combination with the proprietary bacteria to be supplied by Seller (the “Technology”) at the Project site for so long as the Project is in operation (the “License”). Purchaser may freely sell or transfer the License in the event of a sale or transfer of its rights in the Project to another party. If the license is to be granted by another party, then Seller will deliver within 5 days of the date hereof a signed license agreement from such party.

 

2.7           Purchaser Support of Seller. (a) Purchaser hereby agrees to support Seller to meet certain Project deadlines by taking such measures and making such payments as Purchaser shall deem necessary or expedient to implement the Project in a timely manner. Purchaser will use its reasonable efforts to cause itself to be reimbursed for any such payments made by it out of the equity funds to be invested in the Project. However, if for any reason Purchaser is not so reimbursed, then Purchaser shall be entitled to deduct any amount not reimbursed to it out of the development fee described on Annex A hereto.

 

(b) Subject to the following sentence, Purchaser also agrees to reimburse Seller out of the equity funds to be invested in the Project for certain expenses already incurred by Seller, as described in more detail on Annex B hereto (the “Annex B Expenses”). Seller and Purchaser agree that there will be no obligation to make any reimbursement of any nature whatsoever unless and until Seller delivers to Purchaser documentary evidence in form and substance satisfactory to Purchaser in its sole discretion as to the amount, timing and nature of each Annex B Expense. Seller and Purchaser further agree that the Annex B Expenses are the sole expenses for which Seller will receive any reimbursement. Seller hereby waives any and all claims it may have for any reimbursement now or in the future except for claims relating to the Annex B Expenses.

 

 
 

 

3.          CLOSING.

 

3.1           Conditions to Closing. Notwithstanding anything else herein to the contrary and for the avoidance of doubt, the parties agree that the Closing will take place if (and only if) the Purchaser Condition and the Seller Conditions have been delivered or satisfied at or prior to the Closing.

 

3.2           Closing. The parties will use their reasonable efforts to fulfill all applicable conditions and close in 2012 (as extended by Section 2.5 above). After the fulfillment of all conditions, Seller and Purchaser agree to accomplish the following transactions (the “Closing”):

 

3.2.1        Evidence of all Conditions being satisfied. At the Closing, each party will deliver evidence that the conditions applicable to it have been satisfied or delivered.

 

3.2.2        Transfer of the LLC. Purchaser will receive out of escrow the Transfer Agreement reflecting the transfer to it of 100% of the right, title and interest in, to and under the LLC and Seller will enter into, sign and deliver any and all agreements and take any and all actions necessary or helpful to accomplish the foregoing.

 

3.3           Post-Closing Actions.   After the Closing, Seller will record (or will assist Purchaser in recording, if necessary) the ownership of the LLC in the name of Purchaser and deliver to Purchaser evidence (satisfactory to Purchaser in its sole discretion) of such recordation within five business days of the Closing. Purchaser will have 15 days from the date of receipt of such recordation to pay Seller the development fee described on Annex A hereto.

 

3.4           No Adverse Change.  It is understood and agreed that Purchaser’s obligations under this Agreement are at all times subject to the absence of any material, adverse changes in the commercial, legal and/or financial prospects of the Project in the sole discretion of Purchaser so that, by way of example without limitation, if, at any point in time, whether before or during Project implementation, there is not a valid and binding lease or property purchase agreement in form and substance acceptable to Purchaser, then Purchaser shall have no obligation to close, make any payments or investment or continue with the Project (as applicable).

 

4.          PROJECT MANAGEMENT. Seller hereby agrees to manage the implementation and operation of the Project subject, in each case, to (i) any agreements entered into or to be entered into in respect of the Project by Purchaser and (ii) the supervision and control of Purchaser. Seller’s management of the implementation and operation of the Project shall consist of (i) reporting to all applicable authorities, (ii) permit compliance and renewal, (iii) presence at the site, advise and assistance in operation of the Project, in each case, as required or helpful, (iv) ongoing identification of feedstock sources, compost off-takers and other third-parties participating in the Project and (v) such other actions as may be required or desirable in the reasonable discretion of either Seller or Purchaser for the management of the Project. Seller shall manage the project as a reasonably prudent operator. Seller shall receive an annual fee of U.S. $187,500 for providing such management services.

 

 
 

 

5.          REPRESENTATIONS AND WARRANTIES OF SELLER. Seller represents and warrants to Purchaser as follows.

 

5.1           No Broker-Dealer. Except for the involvement of Excelsior Capital, Seller has not effected this transfer of the LLC by or through any intermediaries.

 

5.2           Title to the LLC. Seller has valid marketable title to the LLC, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest (“Encumbrances”). Upon the sale and transfer of the LLC, and payment therefor, in accordance with the provisions of this Agreement, Purchaser will acquire valid marketable title to the LLC, free and clear of any pledge, lien, security interest, encumbrance, claim or equitable interest.

 

5.3           Consents. All consents, approvals, authorizations and orders required for the execution and delivery of this Agreement and the transfer of the LLC under this Agreement have been obtained and are in full force and effect.

 

5.4           Authority. Seller has full legal right, power and authority to enter into and perform its obligations under this Agreement and to transfer the LLC under this Agreement, and Seller is not obligated to transfer the LLC to any other person or entity. Seller has been duly organized and is validly existing in good standing under the laws of the jurisdiction of its organization as the type of entity that it purports to be and all corporate or other entity actions necessary to authorize the transactions contemplated by this Agreement have been duly taken. The person(s) executing and delivering this Agreement on behalf of Seller are duly authorized to do so.

 

5.5           Intellectual Property. Seller owns or holds a valid license to any and all intellectual property relating to the Technology and has full authority to grant the License. Purchaser’s use of the Technology and License and/or any subsequent transfer thereof will not infringe on the rights of any third parties or give rise to any claims on the part of any third-parties.

 

6.          COMPLIANCE WITH LAWS AND REGULATIONS. The sale and transfer of the LLC and the implementation and management of the Project will be subject to and conditioned upon compliance by Purchaser with all applicable state and federal laws and regulations at the time of such sale, transfer, implementation and/or management.

 

7.          GENERAL PROVISIONS.

 

7.1           Successors and Assigns; Assignment. Except as otherwise provided in this Agreement, this Agreement, and the rights and obligations of the parties hereunder, will be binding upon and inure to the benefit of their respective successors, assigns, heirs, executors, administrators and legal representatives. Each party hereto may assign its rights in, to and under this Agreement with the consent of the other party with such consent not to be unreasonably withheld or delayed.

 

 
 

 

7.2           Governing Law. This Agreement will be governed by and construed in accordance with the laws of the Commonwealth of North Carolina without giving effect to its body of laws pertaining to conflict of laws.

 

7.3           Notices. Any and all notices required or permitted to be given to a party pursuant to the provisions of this Agreement will be in writing and will be effective and deemed to provide such party sufficient notice under this Agreement on the earliest of the following: (a) at the time of personal delivery, if delivery is in person; (b) one (1) business day after deposit with an express overnight courier for United States deliveries, or two (2) business days after such deposit for deliveries outside of the United States; or (c) three (3) business days after deposit in the United States mail by certified mail (return receipt requested) for United States deliveries. All notices for delivery outside the United States will be sent by express courier. All notices not delivered personally will be sent with postage and/or other charges prepaid and properly addressed to the party to be notified at the address set forth below the signature lines of this Agreement or at such other address as such other party may designate by one of the indicated means of notice herein to the other party hereto. A “business day” shall be a day, other than Saturday or Sunday, when the banks in the city of New York are open for business.

 

7.4           Further Assurances. The parties agree to execute such further documents and instruments and to take such further actions as may be reasonably necessary to carry out the purposes and intent of this Agreement.

 

7.5           Titles and Headings. The titles, captions and headings of this Agreement are included for ease of reference only and will be disregarded in interpreting or construing this Agreement. Unless otherwise specifically stated, all references herein to “sections” and “exhibits” will mean “sections” and “exhibits” to this Agreement.

 

7.6           Entire Agreement. This Agreement and the documents referred to herein constitute the entire agreement and understanding of the parties with respect to the subject matter of this Agreement and supersede all prior understandings and agreements, whether oral or written, between or among the parties hereto with respect to the specific subject matter hereof.

 

7.7           Severability. If any provision of this Agreement is determined by any court or arbitrator of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such provision will be enforced to the maximum extent possible given the intent of the parties hereto. If such clause or provision cannot be so enforced, such provision shall be stricken from this Agreement and the remainder of this Agreement shall be enforced as if such invalid, illegal or unenforceable clause or provision had (to the extent not enforceable) never been contained in this Agreement. Notwithstanding the forgoing, if the value of this Agreement based upon the substantial benefit of the bargain for any party is materially impaired, which determination as made by the presiding court or arbitrator of competent jurisdiction shall be binding, then both parties agree to substitute such provision(s) through good faith negotiations.

 

 
 

 

7.8           Amendment and Waivers. This Agreement may be amended only by a written agreement executed by each of the parties hereto. No amendment of or waiver of, or modification of any obligation under this Agreement will be enforceable unless set forth in a writing signed by the party against which enforcement is sought. Any amendment effected in accordance with this section will be binding upon all parties hereto and each of their respective successors and assigns. No delay or failure to require performance of any provision of this Agreement shall constitute a waiver of that provision as to that or any other instance. No waiver granted under this Agreement as to any one provision herein shall constitute a subsequent waiver of such provision or of any other provision herein, nor shall it constitute the waiver of any performance other than the actual performance specifically waived.

 

7.9           Confidentiality. Each of Seller and Purchaser agrees that it will keep confidential and will not disclose or use for any purpose any information about the terms of this Agreement and the transactions contemplated hereby and any confidential information obtained from the Company in connection herewith, unless any such information (a) is known or becomes known to the public in general (other than as a result of a breach of this Agreement by the disclosing party), or (b) is or has been made known or disclosed to the disclosing party by a third party without a breach of any confidentiality obligations by such third party; provided, however, that either Seller or Purchaser may disclose such information (i) to its attorneys, accountants, consultants, financiers and other professionals to the extent necessary to obtain their services in connection with the transfer and ownership of the LLC or the implementation of the Project; (ii) to any affiliate in the ordinary course of business, provided that such affiliate agrees to maintain the confidentiality of such information in accordance herewith; or (iii) as may be required by law, provided that the disclosing party promptly notifies the other parties hereto in advance of such disclosure and agrees to cooperate to take reasonable steps to minimize the extent of any such required disclosure.

 

7.10        Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts, each of which when so executed and delivered will be deemed an original, and all of which together shall constitute one and the same agreement. This Agreement may be executed and delivered by facsimile or other means of electronic delivery and upon such delivery the signature will be deemed to have the same effect as if the original signature had been delivered to the other party.

 

7.11         Expenses. Each party hereto shall pay its own expenses in connection with this Agreement.

 

7.12         Specific Performance. Unless this Agreement has been terminated, each party to this Agreement acknowledges and agrees that any breach by it of this Agreement shall cause any (or either) of the other parties irreparable harm which may not be adequately compensable by money damages. Accordingly, except in the case of termination, in the event of a breach or threatened breach by a party of any provision of this Agreement, each party shall be entitled to seek the remedies of specific performance, injunction or other preliminary or equitable relief, without having to prove irreparable harm or actual damages. The foregoing right shall be in addition to such other rights or remedies as may be available to any party for such breach or threatened breach, including but not limited to the recovery of money damages.

 

7.13         Indemnification/Pledge. Seller hereby agrees to indemnify and hold harmless Purchaser from any claims, damages, losses, liabilities and/or costs (including, for the avoidance of doubt, reasonable counsel fees) relating to or arising out of Purchaser’s use of the Technology or License in Project. To the extent that Seller lacks the funds to fulfill its indemnity obligations hereunder, Seller hereby pledges its rights, title and interest in, to and under the Technology to Purchaser for Purchaser’s full and unfettered use until such time as Purchaser has been made whole and recouped any losses, costs or other out-of-pocket amounts.

 

 
 

 

 

Costs of Enforcement. If any party to this Agreement seeks to enforce its rights under this Agreement by legal proceedings against any other party to this Agreement, the non-prevailing party or parties named in such legal proceedings shall pay all costs and expenses incurred by the prevailing party or parties, including, without limitation, all reasonable attorneys’ fees.

 

7.14         IN WITNESS WHEREOF, Seller and Purchaser have each executed this Stock Transfer Agreement as of the Effective Date.

 

SELLER:   PURCHASER:  
       
By: Anwar Shareef, CEO   By:  
         
Address: Orbit Energy, Inc.   Address:  
         
3301 Benson Dr., Suite 401    
     
Raleigh, NC 27609    

 

Attachments:

Annex A – Compensation to Seller

Annex B – Seller Expenses

Annex C – Wire Instructions

 

 
 

 

ANNEX A

 

1. Seller to receive a $600,000 development fee, less any amounts not reimbursed to Purchaser in accordance with Section 2.7 of the Agreement, to be paid to it within 15 days after Seller irrevocably transfers and, if applicable, records 100% of the right, title and interest in, to and under the LLC to Purchaser.

 

2. Seller will participate in the distributable cash of the LLC as follows:

 

·Purchaser will be entitled to recoup its investment in full before any distributions of any nature are made to Seller.
·After Purchaser recoups its investment, Purchaser shall receive all distributable cash from the Project until it achieves a 30% internal rate of return (“IRR”), which for the avoidance of doubt, will take into account and be computed on the basis of any and all benefits from tax credits and depreciation. Any distributable cash above such 30% IRR will be allocated 30% to Seller and 70% to Purchaser.

 

 
 

 

ANNEX B

 

Johnston Project incurred cost:

 

Project Development Security  $45,000 
Interconnection Application Fee   2,500 
Interconnection Prep - Kupper Engr.   3,938 
SW Composting Permit Fee   1,000 
SW Composting Permit - Fuss & O'Neill Support   4,808 
Attorney Fees – PLDW   11,630 
Attorney Fees – Bost (est.)   15,000 
Preliminary Design Support – ATI   2,556 
TOTAL  $86,432 

 

 
 

 

ANNEX C

 

WIRE INSTRUCTIONS

Company Wire Instructions

 

Beneficiary Name: Orbit Energy, Inc.  

Beneficiary Account: 0094345120

 

 

Beneficiary Bank: Regions Bank

 

 
Bank Address: 4900 Falls of Neuse Road, Suite 100  
Raleigh, NC 27609  
   
ABA Routing Number: 062005690  
Swift Code: UPNBUS44  

 

Note: Please include Seller's name in the reference field.

 

 

EX-10.15 18 v330956_ex10-15.htm EXHIBIT 10.15

 

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

 

Principal Amount: $32,500.00 Issue Date: November 11, 2011
   
Purchase Price: $32,500.00  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, BLUE SPHERE CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $32,500.00 together with any interest as set forth herein, on August 16, 2012 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 
 

  

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

 
 

  

1.2 Conversion Price.

 

Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (as defined herein) (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

 
 

  

Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

 

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

 
 

  

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

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

 

 
 

  

Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

 

Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

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

 

 
 

  

Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

 
 

  

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

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 Effect of Certain Events.

 

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

 

 
 

  

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

 

Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

 
 

 

 (d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes 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 for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than 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 Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

 
 

 

 Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

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

 

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

 

1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

 

 
 

 

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

 

1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thiry (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

 Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thiryt-one (31) days following the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the issue date and ending one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

 

ARTICLE II. CERTAIN COVENANTS

 

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

 

 
 

  

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

 

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

 

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

 

2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.

 

ARTICLE III. EVENTS OF DEFAULT

 

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

 

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

 

 
 

 

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

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

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

 

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

 

 
 

 

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

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

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

 

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

 

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

 

3.14  Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

 
 

 

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

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

 
 

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

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

 

ARTICLE IV. MISCELLANEOUS

 

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

 

 
 

  

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

 

If to the Borrower, to:

 

BLUE SPHERE CORP.

 

35 Asuta Street

 

Even Yehuda, Israel 40500

 

Attn: SHLOMO PALAS, Chief Executive Officer

 

facsimile:

 

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

 

[enter name of law firm] Attn: [attorney name] [enter address line 1] [enter city, state, zip] facsimile: [enter fax number]

 

If to the Holder:

 

ASHER ENTERPRISES, INC.

 

1 Linden Pl., Suite 207 Great Neck, NY. 11021 Attn: Curt Kramer, President facsimile: 516-498-9894

 

 
 

  

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

 

Naidich Wurman Birnbaum & Maday, LLP

 

80 Cuttermill Road, Suite 410

 

Great Neck, NY 11021 facsimile: 516-466-3555

 

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

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

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

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

 
 

  

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

 

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

 

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

 

 
 

  

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this November 11, 2011.

 

  BLUE SPHERE CORP.
     
  By:  
     
    SHLOMO PALAS
     
    Chief Executive Officer

 

EXHIBIT A

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $    principal amount

 

of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of November 11, 2011 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

¨The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

 

Name of DTC Prime Broker: Account Number:

 

 
 

 

¨The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

 ASHER ENTERPRISES, INC. 1 Linden Pl., Suite 207

 

Great Neck, NY. 11021

 

Attention: Certificate Delivery

 

(516) 498-9890

 

Date of Conversion:

 

Applicable Conversion Price: $
Number of Shares of Common Stock to be Issued

 

Pursuant to Conversion of the Notes: _
Amount of Principal Balance Due remaining

 

Under the Note after this conversion:

 

ASHER ENTERPRISES, INC.

 

By:

 

Name: Curt Kramer Title: President

 

Date:
1 Linden Pl., Suite 207 Great Neck, NY. 11021

 

 
 

EX-10.16 19 v330956_ex10-16.htm EXHIBIT 10.16

 

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

 

Principal Amount: $32,500.00 Issue Date: January 26, 2012
Purchase Price: $32,500.00  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, BLUE SPHERE CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $32,500.00 together with any interest as set forth herein, on October 30, 2012 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 
 

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

 
 

 

1.2 Conversion Price.

 

Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (as defined herein) (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

 

 
 

 

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

 
 

 

Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

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

 

Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

 

Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

 
 

 

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

 

Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

 
 

 

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

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 Effect of Certain Events.

 

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

 

 
 

 

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

 

Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

 
 

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes 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 for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than 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 Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

 
 

 

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

 

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

 

1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

 

 
 

 

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

 

1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thiry (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thiryt-one (31) days following the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the issue date and ending one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

 

 
 

 

 

ARTICLE II. CERTAIN COVENANTS

 

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

 

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

 

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

 

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

 

2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.

 

ARTICLE III. EVENTS OF DEFAULT

 

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

 

 
 

 

 

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

 

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

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

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

 

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

 

 
 

 

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

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

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

 

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

 

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

 

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

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

 

 
 

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

 
 

 

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

 

ARTICLE IV. MISCELLANEOUS

 

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

 

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

 

 
 

 

If to the Borrower, to:

BLUE SPHERE CORP.

35 Asuta Street

Even Yehuda, Israel 40500

Attn: SHLOMO PALAS, Chief Executive Officer

facsimile:

 

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

 

[enter name of law firm] Attn: [attorney name] [enter address line 1] [enter city, state, zip] facsimile: [enter fax number]

 

If to the Holder:

 

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207 Great Neck, NY. 11021 Attn: Curt Kramer, President facsimile: 516-498-9894

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

 

Naidich Wurman Birnbaum & Maday, LLP

80 Cuttermill Road, Suite 410

Great Neck, NY 11021 facsimile: 516-466-3555

 

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

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

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

 

 
 

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

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

 

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

 

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

 

 
 

 

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this January 26, 2012.

 

  BLUE SPHERE CORP.
   
  By:
  SHLOMO PALAS
  Chief Executive Officer

EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of January 26, 2012 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

¨The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

 

Name of DTC Prime Broker: Account Number:

 

¨The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

 
 

 

ASHER ENTERPRISES, INC. 1 Linden Pl., Suite 207

Great Neck, NY. 11021

Attention: Certificate Delivery

(516) 498-9890

 

Date of Conversion:

Applicable Conversion Price: $
Number of Shares of Common Stock to be Issued

Pursuant to Conversion of the Notes: _
Amount of Principal Balance Due remaining

Under the Note after this conversion:

 

ASHER ENTERPRISES, INC.

 

By:

Name: Curt Kramer Title: President

Date:
1 Linden Pl., Suite 207 Great Neck, NY. 11021

 

 
 

 

EX-10.17 20 v330956_ex10-17.htm EXHIBIT 10.17

 

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

 

Principal Amount: $53,000.00 Issue Date: March 26, 2012
Purchase Price: $53,000.00  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, BLUE SPHERE CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $53,000.00 together with any interest as set forth herein, on December 28, 2012 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 
 

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

 
 

 

1.2 Conversion Price.

 

Calculation of Conversion Price. The conversion price (the
“Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (as defined herein) (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

 

 
 

 

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

 
 

 

Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

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

 

Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

 

Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

 
 

 

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

 

Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

 
 

 

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

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

1.6 Effect of Certain Events.

 

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

 

 
 

 

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

 

Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

 
 

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes 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 for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than 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 Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

 
 

 

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

 

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

 

1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

 

 
 

 

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

 

1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thiry (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thiryt-one (31) days following the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the issue date and ending one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

 

 
 

 

ARTICLE II. CERTAIN COVENANTS

 

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

 

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

 

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

 

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

 

2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.

 

ARTICLE III. EVENTS OF DEFAULT

 

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

 

 
 

 

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

 

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

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

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

 

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

 

 
 

 

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

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

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

 

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

 

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

 

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

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

 

 
 

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

 
 

 

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

 

ARTICLE IV. MISCELLANEOUS

 

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

 

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

 

 
 

 

If to the Borrower, to:

 

BLUE SPHERE CORP.

35 Asuta Street

Even Yehuda, Israel 40500

Attn: SHLOMO PALAS, Chief Executive Officer

facsimile:

 

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

 

[enter name of law firm] Attn: [attorney name] [enter address line 1] [enter city, state, zip] facsimile: [enter fax number]

 

If to the Holder:

 

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207 Great Neck, NY. 11021 Attn: Curt Kramer, President facsimile: 516-498-9894

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

 

Naidich Wurman Birnbaum & Maday, LLP

80 Cuttermill Road, Suite 410

Great Neck, NY 11021 facsimile: 516-466-3555

 

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

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

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

 

 
 

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

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

 

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

 

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

 

 
 

 

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this March 26, 2012.

 

  BLUE SPHERE CORP.
   
  By:
    SHLOMO PALAS
    Chief Executive Officer

 

EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of March 26, 2012 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

£ The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

 

Name of DTC Prime Broker: Account Number:

 

£The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

 
 

 

ASHER ENTERPRISES, INC. 1 Linden Pl., Suite 207

Great Neck, NY. 11021

Attention: Certificate Delivery

(516) 498-9890

 

Date of Conversion:

Applicable Conversion Price: $
Number of Shares of Common Stock to be Issued

Pursuant to Conversion of the Notes: _
Amount of Principal Balance Due remaining

Under the Note after this conversion:

 

ASHER ENTERPRISES, INC.

 

By:

Name: Curt Kramer Title: President

Date:
1 Linden Pl., Suite 207 Great Neck, NY. 11021

 

 

 

EX-10.18 21 v330956_ex10-18.htm EXHIBIT 10.18

 

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

 

Principal Amount: $32,500.00           Issue Date: May 7, 2012

Purchase Price: $32,500.00

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, BLUE SPHERE CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $32,500.00 together with any interest as set forth herein, on February 11, 2013 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 
 

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

 
 

 

1.2 Conversion Price.

 

Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (as defined herein) (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

 

 
 

 

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

 
 

 

Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

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

 

Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

  

 
 

 

Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

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

 

Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

 
 

 

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

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 Effect of Certain Events.

 

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

 

 
 

 

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

 

Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

 
 

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes 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 for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than 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 Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

 
 

 

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

 

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

 

1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

 

 
 

 

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

 

1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thiry (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thiryt-one (31) days following the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the issue date and ending one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

 

 
 

 

ARTICLE II. CERTAIN COVENANTS

 

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

 

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

 

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

 

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

2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.

 

ARTICLE III. EVENTS OF DEFAULT

 

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

 

 
 

 

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

 

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

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

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

 

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

 

 
 

 

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

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

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

 

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

 

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

 

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

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

 

 
 

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

 
 

 

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

 

ARTICLE IV. MISCELLANEOUS

 

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

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

 

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

 

 
 

 

If to the Borrower, to:

 

BLUE SPHERE CORP.

35 Asuta Street

Even Yehuda, Israel 40500

Attn: SHLOMO PALAS, Chief Executive Officer

facsimile:

 

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

 

[enter name of law firm] Attn: [attorney name] [enter address line 1] [enter city, state, zip] facsimile: [enter fax number]

 

If to the Holder:

 

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207 Great Neck, NY. 11021 Attn: Curt Kramer, President facsimile: 516-498-9894

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

 

Naidich Wurman Birnbaum & Maday, LLP

80 Cuttermill Road, Suite 410

Great Neck, NY 11021 facsimile: 516-466-3555

 

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

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

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

 

 
 

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party herebyirrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

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

 

 
 

 

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

 

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

 

 
 

 

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this May 7, 2012.

 

  BLUE SPHERE CORP.
   
  By:  
    SHLOMO PALAS
    Chief Executive Officer

 

EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $   principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of May 7, 2012 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

¨The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

 

Name of DTC Prime Broker: Account Number:

 

¨The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

 
 

 

ASHER ENTERPRISES, INC. 1 Linden Pl., Suite 207

Great Neck, NY. 11021

Attention: Certificate Delivery

(516) 498-9890

 

Date of Conversion:

Applicable Conversion Price: $
Number of Shares of Common Stock to be Issued

Pursuant to Conversion of the Notes: _
Amount of Principal Balance Due remaining

Under the Note after this conversion:

 

ASHER ENTERPRISES, INC.

 

By:

Name: Curt Kramer Title: President

Date:
1 Linden Pl., Suite 207 Great Neck, NY. 11021

 

 
 

 

EX-10.19 22 v330956_ex10-19.htm EXHIBIT 10.19

 

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

 

Principal Amount: $32,500.00           Issue Date: September 13, 2012

Purchase Price: $32,500.00

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, BLUE SPHERE CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $32,500.00 together with any interest as set forth herein, on June 18, 2013 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 
 

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

 
 

 

1.2 Conversion Price.

 

Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (as defined herein) (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

 

 
 

 

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

 
 

 

Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

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

 

Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

  

 
 

 

Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

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

 

Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

 
 

 

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

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 Effect of Certain Events.

 

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

 

 
 

 

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

 

Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

 
 

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes 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 for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than 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 Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

 
 

 

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

 

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

 

1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

 

 
 

 

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

 

1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thiry (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thiryt-one (31) days following the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the issue date and ending one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

 

 
 

 

ARTICLE II. CERTAIN COVENANTS

 

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

 

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

 

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

 

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

2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.

 

ARTICLE III. EVENTS OF DEFAULT

 

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

 

 
 

 

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

 

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

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

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

 

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

 

 
 

 

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

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

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

 

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

 

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

 

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

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

 

 
 

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

 
 

 

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

 

ARTICLE IV. MISCELLANEOUS

 

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

 

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

 

 
 

 

If to the Borrower, to:

 

BLUE SPHERE CORP.

35 Asuta Street

Even Yehuda, Israel 40500

Attn: SHLOMO PALAS, Chief Executive Officer

facsimile:

 

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

 

[enter name of law firm] Attn: [attorney name] [enter address line 1] [enter city, state, zip] facsimile: [enter fax number]

 

If to the Holder:

 

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207 Great Neck, NY. 11021 Attn: Curt Kramer, President facsimile: 516-498-9894

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

 

Naidich Wurman Birnbaum & Maday, LLP

80 Cuttermill Road, Suite 410

Great Neck, NY 11021 facsimile: 516-466-3555

 

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

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

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

 

 
 

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party herebyirrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

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

 

 
 

 

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

 

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

 

 
 

 

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this September 13, 2012.

 

  BLUE SPHERE CORP.
   
  By:  
    SHLOMO PALAS
    Chief Executive Officer

 

EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $   principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of September 13, 2012 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

¨The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

 

Name of DTC Prime Broker: Account Number:

 

¨The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

 
 

 

ASHER ENTERPRISES, INC. 1 Linden Pl., Suite 207

Great Neck, NY. 11021

Attention: Certificate Delivery

(516) 498-9890

 

Date of Conversion:

Applicable Conversion Price: $
Number of Shares of Common Stock to be Issued

Pursuant to Conversion of the Notes: _
Amount of Principal Balance Due remaining

Under the Note after this conversion:

 

ASHER ENTERPRISES, INC.

 

By:

Name: Curt Kramer Title: President

Date:
1 Linden Pl., Suite 207 Great Neck, NY. 11021

 

 

 

EX-10.20 23 v330956_ex10-20.htm EXHIBIT 10.20

 

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

 

Principal Amount: $32,500.00           Issue Date: November 6, 2012

Purchase Price: $32,500.00

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, BLUE SPHERE CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation, or registered assigns (the “Holder”) the sum of $32,500.00 together with any interest as set forth herein, on August 8, 2013 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 
 

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”); provided, however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 4.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence, beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and Regulations 13D-G thereunder, except as otherwise provided in clause (1) of such proviso. The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date”). The term “Conversion Amount” means, with respect to any conversion of this Note, the sum of (1) the principal amount of this Note to be converted in such conversion plus (2) at the Borrower’s option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus (3) at the Borrower’s option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder’s option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.

 

 
 

 

1.2 Conversion Price.

 

Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower’s securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications, extraordinary distributions and similar events). The "Variable Conversion Price" shall mean 55% multiplied by the Market Price (as defined herein) (representing a discount rate of 45%). “Market Price” means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the ten (10) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. “Trading Price” means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the “OTCBB”) as reported by a reliable reporting service (“Reporting Service”) designated by the Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the “pink sheets” by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. “Trading Day” shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.

 

Conversion Price During Major Announcements. Notwithstanding anything contained in Section 1.2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower’s Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the “Announcement Date”), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section 1.2(a). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person, group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.

 

 
 

 

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the “Reserved Amount”). The Reserved Amount shall be increased from time to time in accordance with the Borrower’s obligations pursuant to Section 4(g) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

 
 

 

Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

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

 

Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

 

Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

 
 

 

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

 

Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

 
 

 

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

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

1.6 Effect of Certain Events.

 

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

 

 
 

 

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

 

Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

 
 

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes 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 for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than 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 Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

 
 

 

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

 

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

 

1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the “Maximum Share Amount”), which shall be 4.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued, if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower’s ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.

 

 
 

 

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

 

1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thiry (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thiryt-one (31) days following the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

 
 

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the issue date and ending one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.

 

 
 

 

ARTICLE II. CERTAIN COVENANTS

 

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

 

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

 

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

 

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

 

2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000. 

 

 
 

 

ARTICLE III. EVENTS OF DEFAULT

 

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

 

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

 

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

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

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

 

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

 

 
 

 

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

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq SmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

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

 

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

 

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

 

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

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

 

 
 

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

 
 

 

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

 

ARTICLE IV. MISCELLANEOUS

 

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

 

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

 

 
 

 

If to the Borrower, to:

 

BLUE SPHERE CORP.

35 Asuta Street

Even Yehuda, Israel 40500

Attn: SHLOMO PALAS, Chief Executive Officer

facsimile:

 

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

 

[enter name of law firm] Attn: [attorney name] [enter address line 1] [enter city, state, zip] facsimile: [enter fax number]

 

If to the Holder:

 

ASHER ENTERPRISES, INC.

1 Linden Pl., Suite 207 Great Neck, NY. 11021 Attn: Curt Kramer, President facsimile: 516-498-9894

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

 

Naidich Wurman Birnbaum & Maday, LLP

80 Cuttermill Road, Suite 410

Great Neck, NY 11021 facsimile: 516-466-3555

 

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

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.

 

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

 

 
 

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party herebyirrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.

 

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

 

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

 

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

 

 
 

 

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this November 6, 2012.

 

  BLUE SPHERE CORP.
   
  By:  
    SHLOMO PALAS
    Chief Executive Officer

 

EXHIBIT A

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $   principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of November 6, 2012 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

¨The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC Transfer”).

 

Name of DTC Prime Broker: Account Number:

 

¨The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

 
 

 

ASHER ENTERPRISES, INC. 1 Linden Pl., Suite 207

Great Neck, NY. 11021

Attention: Certificate Delivery

(516) 498-9890

 

Date of Conversion:

Applicable Conversion Price: $
Number of Shares of Common Stock to be Issued

Pursuant to Conversion of the Notes: _
Amount of Principal Balance Due remaining

Under the Note after this conversion:

 

ASHER ENTERPRISES, INC.

 

By:

Name: Curt Kramer Title: President

Date:
1 Linden Pl., Suite 207 Great Neck, NY. 11021

 

 

 

EX-10.21 24 v330956_ex10-21.htm EXHIBIT 10.21

  

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

 

Principal Amount: $20,000.00 Issue Date: September 4, 2012
Purchase Price: $20,000.00  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, BLUE SPHERE CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of JELTON FINANCE CORP., a Belize corporation, or registered assigns (the “Holder”) the sum of $20,000.00 together with any interest as set forth herein, on December 4, 2012 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of seven percent (7%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid when due shall bear interest at the rate of twenty percent (20%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 
 

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is ninety (90) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined in accordance with Section 1.2 below, as notified to the Borrower in the form of a notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date

 

1.2 Conversion Price.

 

(a) Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall be the pro rata portion of 21,500,000 shares of Common Stock of the Borrower so that, by way of example, if the Holder converts 100% of the outstanding and unpaid principal amount of this Note, then the Holder will receive 21,500,000 shares of Common Stock of the Borrower. If the Holder converts 50% of the outstanding and unpaid principal amount of this Note into shares of Common Stock of the Borrower, the Holder will receive 10,750,000 shares of Common Stock of the Borrower.

 

2
 

 

1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note (the “Reserved Amount”). The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

3
 

 

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

 

(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

 

4
 

 

(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

(f) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, or other interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

5
 

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

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

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

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1.6 Effect of Certain Events.

 

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

 

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

 

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(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes 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 for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than 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 Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

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Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

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

 

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

 

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

 

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1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thirty (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

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Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thirty-one (31) days following the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

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Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the issue date and ending one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

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ARTICLE II. CERTAIN COVENANTS

 

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

 

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

 

2.3 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.

 

 

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ARTICLE III. EVENTS OF DEFAULT

 

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

 

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

 

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

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

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

 

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

 

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

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the NasdaqSmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

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

 

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

 

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

 

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder. 

 

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

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

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Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

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

 

ARTICLE IV. MISCELLANEOUS

 

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

 

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

 

If to the Borrower, to:

BLUE SPHERE CORP.

35 Asuta Street

Even Yehuda, Israel 40500

Attn: SHLOMO PALAS, Chief Executive Officer
email: shlomi@bluespherecorporate.com

 

If to the Holder:

Jelton Finance Corp.

Withfield Tower

3rd Floor

4792 Coney Drive, PO Box 1777

Belize City

Belize

IBC 43707

Email:malika@netvision.net.il

 

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

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bonafide margin account or other lending arrangement.

 

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

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Israel without regard to principles of conflicts of laws.

 

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

 

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

 

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

 

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this September 4, 2012.

 

  BLUE SPHERE CORP.
     
  By:  

 

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EXHIBIT A NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $______________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of September 4, 2012 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

¨The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

Jelton Finance Corp.

Withfield Tower

3rd Floor

4792 Coney Drive, PO Box 1777

Belize City

Belize

IBC 43707

Email:malika@netvision.net.il

 

Date of Conversion:   ______________ 
Applicable Conversion Price:   $_____________ 
Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes:    ______________ 
Amount of Principal Balance Due remaining Under the Note after this conversion:   ______________ 

 

JELTON FINANCE CORP.  
     
By:    
Name:    
Title:    

Date:    

  

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EX-10.22 25 v330956_ex10-22.htm EXHIBIT 10.22

  

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

 

Principal Amount: $25,000.00 Issue Date: September 25, 2012
Purchase Price: $25,000.00  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, BLUE SPHERE CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of JELTON FINANCE CORP., a Belize corporation, or registered assigns (the “Holder”) the sum of $25,000.00 together with any interest as set forth herein, on December 25, 2012 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of seven percent (7%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid when due shall bear interest at the rate of twenty percent (20%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 
 

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is ninety (90) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined in accordance with Section 1.2 below, as notified to the Borrower in the form of a notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date

 

1.2 Conversion Price.

 

(a) Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall be the pro rata portion of 37,500,000 shares of Common Stock of the Borrower so that, by way of example, if the Holder converts 100% of the outstanding and unpaid principal amount of this Note, then the Holder will receive 37,500,000 shares of Common Stock of the Borrower. If the Holder converts 50% of the outstanding and unpaid principal amount of this Note into shares of Common Stock of the Borrower, the Holder will receive 18,750,000 shares of Common Stock of the Borrower.

 

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1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note (the “Reserved Amount”). The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

 

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

 

(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

 

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(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

(f) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, or other interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

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1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

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

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

 

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1.6 Effect of Certain Events.

 

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

 

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

 

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(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes 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 for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than 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 Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

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Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

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

 

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

 

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

 

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1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thirty (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

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Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thirty-one (31) days following the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

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Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the issue date and ending one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

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ARTICLE II. CERTAIN COVENANTS

 

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

 

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

 

2.3 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.

 

 

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ARTICLE III. EVENTS OF DEFAULT

 

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

 

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

 

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

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

 

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

 

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

 

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

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the NasdaqSmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

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

 

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

 

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

 

3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder. 

 

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

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

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Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

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

 

ARTICLE IV. MISCELLANEOUS

 

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

 

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

 

If to the Borrower, to:

BLUE SPHERE CORP.

35 Asuta Street

Even Yehuda, Israel 40500

Attn: SHLOMO PALAS, Chief Executive Officer
email: shlomi@bluespherecorporate.com

 

If to the Holder:

Jelton Finance Corp.

Withfield Tower

3rd Floor

4792 Coney Drive, PO Box 1777

Belize City

Belize

IBC 43707

Email:malika@netvision.net.il

 

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

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bonafide margin account or other lending arrangement.

 

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

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Israel without regard to principles of conflicts of laws.

 

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

 

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

 

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

 

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this September 25, 2012.

 

  BLUE SPHERE CORP.
     
  By:  

 

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EXHIBIT A NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $______________________ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of September 25, 2012 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

¨The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

Jelton Finance Corp.

Withfield Tower

3rd Floor

4792 Coney Drive, PO Box 1777

Belize City

Belize

IBC 43707

Email:malika@netvision.net.il

 

Date of Conversion:   ______________ 
Applicable Conversion Price:   $_____________ 
Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes:    ______________ 
Amount of Principal Balance Due remaining Under the Note after this conversion:   ______________ 

 

JELTON FINANCE CORP.  
     
By:    
Name:    
Title:    

Date:    

  

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EX-10.23 26 v330956_ex10-23.htm EXHIBIT 10.23

 

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

 

Principal Amount: $25,000.00 Issue Date: October 14, 2012
Purchase Price: $25,000.00  

 

CONVERTIBLE PROMISSORY NOTE

 

FOR VALUE RECEIVED, BLUE SPHERE CORP., a Nevada corporation (hereinafter called the “Borrower”), hereby promises to pay to the order of JELTON FINANCE CORP., a Belize corporation, or registered assigns (the “Holder”) the sum of $25,000.00 together with any interest as set forth herein, on January 14, 2013 (the “Maturity Date”), and to pay interest on the unpaid principal balance hereof at the rate of seven percent (7%) (the “Interest Rate”) per annum from the date hereof (the “Issue Date”) until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise. This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note, which is not paid when due shall bear interest at the rate of twenty percent (20%) per annum from the due date thereof until the same is paid (“Default Interest”). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the “Common Stock”) in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term “business day” shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the “Purchase Agreement”).

 

 
 

 

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

 

The following terms shall apply to this Note:

 

ARTICLE I. CONVERSION RIGHTS

 

1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is ninety (90) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article III) pursuant to Section 1.6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non-assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the “Conversion Price”) determined as provided herein (a “Conversion”). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined in accordance with Section 1.2 below, as notified to the Borrower in the form of a notice of conversion, in the form attached hereto as Exhibit A (the “Notice of Conversion”), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m., New York, New York time on such conversion date (the “Conversion Date

 

1.2 Conversion Price.

 

(a) Calculation of Conversion Price. The conversion price (the “Conversion Price”) shall be the pro rata portion of 37,500,000 shares of Common Stock of the Borrower so that, by way of example, if the Holder converts 100% of the outstanding and unpaid principal amount of this Note, then the Holder will receive 37,500,000 shares of Common Stock of the Borrower. If the Holder converts 50% of the outstanding and unpaid principal amount of this Note into shares of Common Stock of the Borrower, the Holder will receive 18,750,000 shares of Common Stock of the Borrower.

 

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1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note (the “Reserved Amount”). The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.

 

If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

 

1.4 Method of Conversion.

 

(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by (A) submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.

 

(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.

  

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

 

(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the “Deadline”) (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.

 

(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion, and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided, on such conversion. If the Holder shall have given a Notice of Conversion as provided herein, the Borrower’s obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination, or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.

 

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(f) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder’s right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $1,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, or other interference with such conversion right are difficult if not impossible to qualify. Accordingly, the parties acknowledge that the liquidated damages provision contained in this Section 1.4(g) are justified.

 

1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) (“Rule 144”) or (iv) such shares are transferred to an “affiliate” (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:

 

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

 

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

  

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1.6 Effect of Certain Events.

 

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

 

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

 

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(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a distribution to the Borrower’s shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a “Distribution”), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.

 

(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes 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 for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than 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 Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.

 

The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock (“Convertible Securities”) (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as “Options”) and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon the exercise of such Options” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable). No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

 

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Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such Price shall be equal to such price per share. For the purposes of the preceding sentence, the “price per share for which Common Stock is issuable upon such conversion or exchange” is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities. No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

 

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

 

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

 

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

 

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1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is thirty (30) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an “Optional Prepayment Notice”) shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the “Optional Prepayment Date”), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Optional Prepayment Amount”) equal to 125%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

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Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is thirty-one (31) days following the issue date and ending on the date which is sixty (60) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Second Optional Prepayment Amount”) equal to 130%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

  

Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is sixty-one (61) days following the issue date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Third Optional Prepayment Amount”) equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

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Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is ninety-one (91) day from the issue date and ending one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fourth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fourth Optional Prepayment Amount”) equal to 140%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fourth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

Notwithstanding any to the contrary stated elsewhere herein, at any time during the period beginning on the date that is one hundred twenty-one (121) day from the issue date and ending one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Fifth Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the “Fifth Optional Prepayment Amount”) equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Fifth Optional Prepayment Amount due to the Holder of the Note within three (3) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

 

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ARTICLE II. CERTAIN COVENANTS

 

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

 

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

 

2.3 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder’s written consent, lend money, give credit or make advances to any person, firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.

 

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ARTICLE III. EVENTS OF DEFAULT

 

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

 

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

 

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

 

3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (10) days after written notice thereof to the Borrower from the Holder.

  

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

 

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

 

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

 

3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.

 

3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the NasdaqSmallCap Market, the New York Stock Exchange, or the American Stock Exchange.

 

3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirements of the Exchange Act.

 

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

 

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

 

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

  

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

 

3.14 Reverse Splits.     The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.

 

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

 

3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents, a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreements, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. “Other Agreements” means, collectively, all agreements and instruments between, among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation, promissory notes; provided, however, the term “Other Agreements” shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.

 

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Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) 175% (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the “Default Notice”), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the “Default Sum”) or (ii) the “parity value” of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.

 

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

 

ARTICLE IV. MISCELLANEOUS

 

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

  

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

 

If to the Borrower, to:

 BLUE SPHERE CORP.

35 Asuta Street

Even Yehuda, Israel 40500

Attn: SHLOMO PALAS, Chief Executive Officer

email: shlomi@bluespherecorporate.com

 

If to the Holder:

Jelton Finance Corp.

Withfield Tower

3rd Floor

4792 Coney Drive, PO Box 1777

Belize City

Belize

IBC 43707

Email:malika@netvision.net.il

 

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

 

4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an “accredited investor” (as defined in Rule 501(a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bonafide margin account or other lending arrangement.

 

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

 

4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of Israel without regard to principles of conflicts of laws.

 

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

 

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

 

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

 

4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled, in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.

 

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this October 14, 2012.

 

  BLUE SPHERE CORP.
   
  By:

 

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EXHIBIT A NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $                                principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note (“Common Stock”) as set forth below, of BLUE SPHERE CORP., a Nevada corporation (the “Borrower”) according to the conditions of the convertible note of the Borrower dated as of October 14, 2012 (the “Note”), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

 

£The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder’s calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:

 

Jelton Finance Corp.

Withfield Tower

3rd Floor

4792 Coney Drive, PO Box 1777

Belize City

Belize

IBC 43707

Email:malika@netvision.net.il

  

Date of Conversion:   
Applicable Conversion Price:  $  
Number of Shares of Common Stock to be Issued Pursuant to Conversion of the Notes:    
Amount of Principal Balance Due remaining Under the Note after this conversion:     

 

JELTON FINANCE CORP.

 

By:    
Name:    
Title:    
Date:    

 

 

 

EX-10.24 27 v330956_ex10-24.htm EXHIBIT 10.24

 

BinoSphere Project Financing

 

SUMMARY OF BINDING TERMS

 

December 27, 2012

 

This Summary of Terms (“Term Sheet”) summarizes the principal terms and conditions subject to which Financer (“Financer”) is offering BinoSphere (“BinoSphere” or the “Developer”) a financing facility (the “Facility”) for the purpose of funding the development, installation, operation and maintenance of waste to energy projects to be developed by BinoSphere (the “BinoSphere Project”) in conjunction with certain third party providers. The Facility will be made directly by the Financer and/or through certain entity or entities introduced by the Financer (each the Financer and any such entity will be regarded as a Financer for the purposes herein) to a special purpose vehicle to be set up by BinoSphere (the “SPV”). The SPV will be the focal point for contracts and payments between the entities.

 

The actual Facility formation structure will be determined subject to tax and legal considerations and shall be set out in a definitive agreement and ancillary documents (together, the “Definitive Agreement”) to be entered into between the parties.

 

Subject to the terms and conditions herein and to the following sentence, this Term Sheet is binding. However, if there is a material change in the commercial terms of either project, or if a Satisfactory Level (defined below) is not achieved, either party may, at any time prior to execution of the Definitive Agreement, propose different terms from those summarized herein or unilaterally terminate all negotiations pursuant to this Term Sheet without any liability whatsoever to the other party.

 

Satisfactory Level shall be defined as achieving agreements with satisfactory terms and conditions, per each project, with respect to:

 

·Feedstock Supply agreements or letters of intent

 

·ITC purchase or partnership agreement or term sheet

 

·Power Purchase Agreements

 

·Debt financing agreements

 

·EPC agreements

 

·Site control

 

Notwithstanding anything to the contrary herein, the parties agree that the provisions set forth in Section III “Confidentiality”, “Publicity”, “Exclusivity”, “Termination Fee” paragraphs shall be binding upon the parties hereto as from the date of this Term Sheet, and shall survive this agreement.

 

Section I: The project

 

Purpose

Funding two waste to energy projects to be developed, installed, operated and maintained by BinoSphere and certain third party providers under agreement with BinoSphere.

 

The current Projects being contemplated are waste to energy plants to be developed at the Johnston, RI and Concord, NC sites. 

   
Draw Down and Acceptance

Draw Down will be agreed on in advance based on a detailed project plan to be presented by the Developer, which will, for the avoidance of doubt, require that funds from the Financier be used before any funds from the debt provider or investment tax credit purchaser/partner become available. 

 

 
 

 

  Acceptance criteria required for the funding will include executed feedstock supply agreements/LOIs, debt financing agreement, EPC construction agreement with minimal performance insurance, power purchase agreement and ITC tax equity buyer or partner, and any other key criteria which may be identified during the course of diligence as having material impact on the project performance or economics.
   
Project Structure

The SPV will be a co-owner of dedicated LLCs set up per project that, in turn, will own 100% of the project rights and agreements in respect of each site (actual structure will be determined and mutually agreed upon to optimize tax and legal aspects for the parties). The Developer will manage and administer the affairs of the SPV.

 

·      The SPV will pay the development and installation costs based on the approved budget in accordance with the Draw Down schedule.

 

·      Developer and Financer will have the right to request a budget adjustment starting in year four, should there be a material and valid differences between the current projections and the actual expenses.

 

·      In case the Developer Cash Distributions (as defined below) fall below $300K in a given year starting from the third year, the Budget shall increase from $225k in the given year, by the amount of shortfall below $300K, and up to a maximum $525k total budget. For example, if the Developer Cash Distributions in year 3 are $100k, the budget for that year shall increase by $200k ($300k-$100k). Any increase shall accrue and be paid back into the SPV from future cash distributions made to the Developer at nominal interest rate (e.g. LIBOR).

 

·      The Developer will manage the SPV agreement for third party services at a predetermined cost

 

Project Agreements

 

Each LLC to be owned by the SPV will enter, amongst others, into the following contracts:

 

·      15 year PPA from the local utility to buy all the generated power.

·     Debt financing agreement for a minimum of 70% financing.

·      Tax credit purchase/partnership agreement.

·      Feedstock agreement/LOI

·      EPC contractor agreement with construction and performance guarantees backed by insurer policy. 

   
Net Cash Distributions

The net cash remaining in the LLC (after LLC expenses and servicing of debt and allocation for tax payment) will be distributed to the SPV and then to FINANCER and Binosphere as follows:

 

·      Until such time that Financer receives its Minimal Return: 90% to Financer and 10% to the Developer. 

 

·      Once Financer receives its Minimal Return the revenue split will adjust to:

 

o      50% to BinoSphere and 50% to FINANCER.

 

o       FINANCER will have a preference on the first 50k of monthly distribution (i.e. $600k of the annual distributions from each project).

 

·      FINANCER’s Minimal Return shall be defined as a 20% IRR, after US tax considerations.  

 

·      The ITC cash, if available, will be allocated 100% up to the amount invested by FINANCER in each project site to FINANCER and accounted for in the minimal return calculation.  

 

 
 

 

Cash Distributions Adjustments

Certain adjustments shall be applied to the Net Cash Distributions in the following cases:

 

·      If the total cost of the project decreases versus the approved budget, BinoSphere will receive 50% of the total reduction in equity investment required, with pay-out being made to BinoSphere out of the project cash distributions, commencing from the time at which FINANCER receives its Minimal Return.

 

·      If the interest rate of the debt is reduced below the currently agreed 6.6%, BinoSphere will receive 50% of the net cash increase generated from the reduction, with pay-out to BinoSphere being made annually based on the cash increase generated in the given pay-out year, and commencing from the time at which FINANCER receives its Minimal Return. 

 

Section II: Future Projects

Funding Facility Up to 10 million USD in aggregate (the “Facility Amount”). For avoidance of doubt, this $10m facility is allocated for future projects beyond the Johnston, RI and Concord, NC sites.
   
Future  PPA Projects

The Financer shall have the right to fund the first USD 10 million in all PPA Projects of the Developer under the terms of this Term Sheet with adjustments as detailed below (Net Cash Distributions for Future Projects).

 

Following full draw-down of the entire Funding Facility, the Financer shall have a right of first refusal for the funding of any future PPA Projects entered into by BinoSphere up to an additional 5 million USD. 

   
Net Cash Distributions for Future Projects

The Net Cash Distributions for the Future Projects will alter such that:

 

·      Once FINANCER receives its Minimal Return the revenue split flips to 70% to BinoSphere and 30% to FINANCER.

 

Other considerations will remain the same as defined in the Net Cash Distributions. 

   
Future Funding process

Each Project will require pre-approval by the Financer.

 

BinoSphere will identify specific sites that may be applicable for a waste to energy project. BinoSphere will then submit a request for financing with regards to the Project to be undertaken in such location.

 

The Financer will review the proposed Project and the request for funding, and within 21 days provide a response as to its interest to finance the proposed project. 

 

Section III: General Conditions

Conditions to Close

The completion of the transaction contemplated by this Term Sheet and the provision of the facility, will be subject to, among other things, satisfactory completion of financial, technology, tax and legal due diligence, review of commercial agreements and the signature of the Definitive Agreement in a form acceptable to each of BinoSphere and the Financer. 

 

 
 

 

  The Definitive Agreement will include customary project finance provisions, including, among other things, a customary project-finance security package over the SPV’s shares, right and assets, which will be subject to any security or other rights of the party providing the debt finance; step-in rights; cooperation rights; information rights; events of default and cross-default; etc.
   
Confidentiality The terms contained herein and any information exchanged between the parties in connection with this Term Sheet shall be considered confidential information. The parties shall not use or disclose such information for any other purpose other than in furtherance of the evaluation outlined in this Term Sheet. FINANCER reserves the right to share the information with its investors or prospective investors in the Projects.
   
Publicity Except as required by law, no party shall discuss the terms of this Term Sheet with any person other than its key officers, directors, accountants or solicitors without the written consent of the other party.  In addition, neither party shall use the other party’s name (or that of any affiliate or related-party of such party) in any manner, context or format (including reference on or links to websites, press releases, etc.) without the prior approval of the other party.
   
Exclusivity

For a period of six (6) weeks following the signing of this Term Sheet, BinoSphere shall not enter into or take any part in any conversations or negotiations with any third party with regard to the provision of project financing for the Project without the prior approval of FINANCER (unless FINANCER has first informed it in writing of the termination of negotiations pursuant to this Term Sheet, otherwise than due to any breach of the terms herein by BinoSphere). (“Preliminary Exclusivity Period”)

 

Following the Preliminary Exclusivity Period, the parties will mutually agree on an extension to the exclusivity period during which time the parties will cooperate to reach full completion of the investment. (“Completion Exclusivity Period”) 

   
Termination Fee If BinoSphere decides not to proceed with the Funding (unless the terms offered to Binosphere in the definitive agreement by FINANCER are materially worse than those contained in this Term Sheet), or if material misrepresentations are discovered regarding the information provided to Lender, then BinoSphere shall pay Lender a $10,000 termination fee.
   
Expiration If not accepted by BinoSphere, the offer contained in this Summary of Terms will expire on Friday December 21 at 5pm PST.

 

 

BinoSphere   FINANCER
         
By:     By:  
         
Name:     Name:  
         
Date:     Date:  

 

 

 

EX-10.25 28 v330956_ex10-25.htm EXHIBIT 10.25

 

BLUESPHERE SHARE SUBSCRIPTION AGREEMENT

 

THIS SUBSCRIPTION AGREEMENT (this “Agreement”) is made as of November 5, 2012 by and among Bluesphere Corporation, a company organized and existing under the laws of the State of Nevada (“BSC”), and Purchaser (the “Purchaser”).

 

Whereas, BSC has agreed to sell and the Purchaser has agreed to purchase shares of common stock of BSC (the “Shares”) subject to the terms and on the conditions set forth below.

 

Now, therefore, in consideration of the mutual premises and covenants contained herein, and intending to be legally bound, the parties hereto agree as follows:

 

1.Sale and Purchase of Shares.

 

1.1          Sale of Shares.  (a) Subject to the terms and conditions hereof, BSC hereby agrees to issue and sell to the Purchaser, and the Purchaser hereby agrees to purchase from BSC, on December 25, 2012 (or the first business day thereafter on which banks are open for business in the United States), 30,000,000 Shares.

 

(b)           BSC will issue and deliver to the Purchaser the 30,000,000 Shares referred to in Section 1.1(a) above against receipt in its bank account of the Purchase Price in cash.

 

1.2          Purchase Price. The aggregate purchase price for the Shares is U.S. $70,000 (the “Purchase Price”), which shall be delivered in immediately available funds in accordance with Section 1.1(b) to BSC in accordance with instructions to be provided separately.

 

1.3          Securities Laws. The Purchasers acknowledge and understand that the offer and sale of the Shares were done in reliance on one or more exemption from registration under the Securities Exchange Act of 1933, as amended (the “Act”) and, as such, the Shares are, until registered, subject to restrictions on resale. The Purchasers agree to acquaint themselves with such restrictions and abide by them and any other applicable law or regulation. The Purchasers further agree and acknowledge that, until registration, the certificates representing the Securities shall contain a legend that states the restrictions applicable to resale of such shares.

 

2.Acknowledgements and Agreements of the Purchasers.

 

Each Purchaser acknowledges and agrees that:

 

(a)none of the Securities have been registered under the Act, or under any state securities or “blue sky” laws of any state of the United States, and, unless so registered, may not be offered or sold in the United States or, directly or indirectly, to U.S. Persons, as that term is defined in Regulation S under the 1933 Act (“Regulation S”), except in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the Act, or pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the 1933 Act and in each case only in accordance with applicable state and provincial securities laws;

 

- 1 -
 

 

(b)the decision to execute this Subscription Agreement and acquire the Shares agreed to be purchased hereunder has not been based upon any oral or written representation as to fact or otherwise made by or on behalf of BSC and such decision is based entirely upon a review of any public information which has been filed by BSC with the Securities and Exchange Commission (the “SEC”) in compliance, or intended compliance, with applicable securities legislation;

 

(c)the Purchaser and the Purchaser’s advisor(s) have had a reasonable opportunity to ask questions of and receive answers from BSC in connection with the distribution of the Securities hereunder, and to obtain additional information, to the extent possessed or obtainable without unreasonable effort or expense, necessary to verify the accuracy of the information about BSC;

 

(d)the books and records of BSC were available upon reasonable notice for inspection, subject to certain confidentiality restrictions, by the Purchaser during reasonable business hours at its principal place of business, and all documents, records and books in connection with the distribution of the Securities hereunder have been made available for inspection by the Purchaser, the Purchaser’s lawyer and/or advisor(s);

 

(e)BSC is entitled to rely on the representations and warranties of the Purchaser contained in this Subscription Agreement and the Purchaser will hold harmless BSC from any loss or damage it or they may suffer as a result of any inaccuracy therein;

 

(f)the Purchaser will indemnify and hold harmless BSC and, where applicable, its directors, officers, employees, agents, advisors and shareholders, from and against any and all loss, liability, claim, damage and expense whatsoever (including, but not limited to, any and all fees, costs and expenses whatsoever reasonably incurred in investigating, preparing or defending against any claim, lawsuit, administrative proceeding or investigation whether commenced or threatened) arising out of or based upon any representation or warranty of the Purchaser contained in this Subscription Agreement or in any document furnished by the Purchaser to BSC in connection herewith being untrue in any material respect or any breach or failure by the Purchaser to comply with any covenant or agreement made by the Purchasers to BSC in connection therewith;

 

(g)although the Securities are listed on the OTC BB, no representation has been made to the Purchaser that any of the Securities will become listed on any other stock exchange or automated dealer quotation system;

 

(h)BSC will refuse to register any transfer of the Securities not made in accordance with the provisions of Regulation S, pursuant to an effective registration statement under the 1933 Act or pursuant to an available exemption from the registration requirements of the 1933 Act and in accordance with any other applicable securities laws, in each case, to be accompanied by an opinion of counsel acceptable to BSC;

 

(i)the Purchaser has been advised to consult its own legal, tax and other advisors with respect to the merits and risks of an investment in the Securities and with respect to applicable resale restrictions, and it is solely responsible (and BSC is not in any way responsible) for compliance with:

 

- 2 -
 

 

(i)any applicable laws of the jurisdiction in which the Purchaser is resident in connection with the distribution of the Securities hereunder, and

 

(ii)applicable resale restrictions;

 

(j)neither the SEC nor any other securities commission or similar regulatory authority has reviewed or passed on the merits of the Securities;

 

(k)no documents in connection with the sale of the Securities hereunder have been reviewed by the SEC or any state securities administrators; and

 

(l)there is no government or other insurance covering any of the Securities.

 

3.Representations, Warranties and Covenants of the Purchasers.

 

3.1          Each Purchaser hereby represents and warrants to and covenants with BSC (which representations, warranties and covenants shall survive the Closing) that:

 

(a)the Purchaser has received and carefully read this Subscription Agreement;

 

(b)the Purchaser is purchasing the Securities as principal for investment only and not with a view to, or for, resale, distribution or fractionalization thereof, in whole or in part, and, in particular, it has no intention to distribute either directly or indirectly any of the Securities in the United States or to U.S. Persons;

 

(c)the Purchaser is aware that an investment in BSC is speculative and involves certain risks, including the possible loss of the entire investment;

 

(d)the Purchaser has made an independent examination and investigation of an investment in the Securities and BSC and has depended on the advice of its legal and financial advisors and agrees that BSC will not be responsible in any way whatsoever for the Purchaser’s decision to invest in the Securities and BSC; and

 

(e)no person has made to the Purchaser any written or oral representations:

 

(i)that any person will resell or repurchase any of the Securities;

 

(ii)that any person will refund the purchase price of any of the Securities;

 

(iii)as to the future price or value of any of the Securities; or

 

(iv)that any of the Securities will be listed and posted for trading on any stock exchange or automated dealer quotation system or that application has been made to list and post any of the Securities of BSC on any stock exchange or automated dealer quotation system.

 

- 3 -
 

 

3.2          Representations and Warranties will be Relied Upon by BSC. The Purchasers acknowledge that the representations and warranties contained herein, if applicable, are made by them with the intention that such representations and warranties may be relied upon by BSC and its legal counsel in determining the Purchasers’ eligibility to purchase the Securities under applicable securities legislation, or (if applicable) the eligibility of others on whose behalf it is contracting hereunder to purchase the Securities under applicable securities legislation. The Purchasers further agree that by accepting delivery of the certificates representing the Securities on the closing date, it will be representing and warranting that the representations and warranties contained herein, if applicable, are true and correct as at the closing date with the same force and effect as if they had been made by the Purchasers on the closing date and that they will survive the purchase by the Purchasers of the Securities and will continue in full force and effect notwithstanding any subsequent disposition by the Purchasers of such Securities.

 

4.          Further Assurances. Each party hereto agrees to execute, on request, all other documents and instruments as the other party shall reasonably request, and to take any actions, which are reasonably required or desirable to carry out obligations imposed under, and affect the purposes of, this Agreement.

 

5          Governing Law and Jurisdiction. This Agreement shall be governed by the substantive law of Israel, without application of any conflict of laws principle that would require the application of the law of any other jurisdiction.

 

- 4 -
 

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the day and year first above written.

 

Blue Sphere Corporation
 
   
By:  Shlomi Palas
Title:  CEO
 
   
By:  Purchaser

 

- 5 -

 

EX-31.1 29 v330956_ex31-1.htm EXHIBIT 31.1

 

Exhibit 31.1.

 

CERTIFICATION OF

CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Shlomi Palas, certify that:

 

1.I have reviewed this Form 10-K of Blue Sphere Corp.;

 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;

 

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

 

c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b)Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: January 7, 2013  
   
/s/ Shlomi Palas  

Shlomi Palas

Chief Executive Officer

 

 

 

 

EX-31.2 30 v330956_ex31-2.htm EXHIBIT 31.2

 

Exhibit 31.2

 

CERTIFICATION OF

CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO SECTION 302 OF

THE SARBANES-OXLEY ACT OF 2002

 

I, Shlomo Zakai, certify that:

 

1. I have reviewed this Form 10-K of Blue Sphere Corp.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods present in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principals;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financing reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registratnt’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involved management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: January 7, 2013  
   
/s/ Shlomo Zakai  

Shlomo Zakai

Chief Financial Officer

 

 

 

EX-32.1 31 v330956_ex32-1.htm EXHIBIT 32.1

 

Exhibit 32.1

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report on Form 10-K of Blue Sphere Corp. (the “Company”) for the year ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Shlomi Palas, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Dated: January 7, 2013 By: /s/ Shlomi Palas  
    Shlomi Palas  
    Chief Executive Officer  

 

This certification accompanies each Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

EX-32.2 32 v330956_ex32-2.htm EXHIBIT 32.2

 

Exhibit 32.2

 

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

 

In connection with the Annual Report on Form 10-K of Blue Sphere Corp. (the “Company”) for the year ended September 30, 2012, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Shlomo Zakai, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:

 

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 Dated: January 7, 2013 By: /s/ Shlomo Zakai  
    Shlomo Zakai  
    Chief Financial Officer  
       

 

This certification accompanies each Report pursuant to § 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of §18 of the Securities Exchange Act of 1934, as amended.

 

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

 

 

 

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OTHER LOSS (Details Textual) (CTG [Member], USD $)
In Thousands, unless otherwise specified
1 Months Ended 12 Months Ended
Jan. 31, 2012
Sep. 30, 2012
CTG [Member]
   
Loan Amount $ 30  
Annual Effective Interest Rate 8.00%  
Loan Written Off   $ 10
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COMMON SHARES (Details Textual) (USD $)
1 Months Ended 3 Months Ended 12 Months Ended 1 Months Ended
Apr. 30, 2012
Feb. 29, 2012
Jan. 31, 2012
Nov. 30, 2011
Oct. 31, 2011
May 31, 2011
Dec. 31, 2011
Sep. 30, 2012
Sep. 30, 2011
Feb. 21, 2012
Jul. 31, 2012
Private Placement [Member]
Aug. 31, 2012
Security Purchase Agreement [Member]
Feb. 29, 2012
Consultant [Member]
Jun. 30, 2012
Consultant One [Member]
Feb. 29, 2012
Chief Executive Officer [Member]
Jul. 31, 2011
Chief Executive Officer [Member]
Feb. 29, 2012
Chief Carbon Officer General Counsel [Member]
Feb. 29, 2012
Board Of Directors Chairman [Member]
Jul. 31, 2011
Board Of Directors Chairman [Member]
Feb. 29, 2012
Issue One [Member]
Feb. 29, 2012
Issue Two [Member]
Stock Issued During Period Shares Services Rendered       3,000,000                       4,200,000     4,200,000    
Restricted Shares Held In Escrow, Duration       36 months                                  
Shares To Be Returned Monthly Upon Earlier Termination Of Agreement       83,333                                  
Stock Issued During Period, Shares, New Issues     35,000   525,000                                
Stock Issued During Period, Value, New Issues     $ 1,250,000   $ 20,000                                
Common Stock To Be Issued Monthly For Financing Consulting Agreement Retainer Fee, Number           15,000                              
Percentage Of Success Fee To Be Paid On Completion Of Each Financing Round           2.00%                              
Written Notice To Be Issued In Advance To Cancel Financing Consulting Agreement, Number Of Days           60 Days                              
Validity Term Of Financing Consulting Agreement           24 months                              
Success Fee To Be Paid On Completion Of Each Financing Round, Minimum Amount (in dollars)           50,000                              
Stock Issued During Period Shares Financing Consulting Agreement Services             75,000                            
Additional Number Of Common Stock To Be Issued Upon Agreement Amendment, Criteria One         500,000                                
Additional Number Of Common Stock To Be Issued Upon Agreement Amendment Criteria Two         500,000                                
Additional Number Of Common Stock To Be Issued, Upon Agreement Amendment Criteria Three         500,000                                
Minimum Requirement On Receipt Of Additional Investment Or Debt In Criteria Two (in dollars)         5,000                                
Additional Requirement On Receipt Of Additional Investment Or Debt In Criteria Three (in dollars)         5,000                                
Total Requirement On Receipt Of Additional Investment Or Debt In Criteria Three (in dollars)         10,000                                
Effective Tenure Of Agreement Amendment Terms         12 months                                
Stock Issued During Period, Shares, Share-based Compensation, Gross                           1,000,000 1,600,000   500,000 1,600,000   2,000,000 2,000,000
Exercise of Options (in shares)               16,643,834 8,321,917                        
Share-based Goods and Nonemployee Services Transaction, Shares Approved for Issuance                         4,000,000                
Shares Issued Under Clawback Provision                         2,000,000                
Common Stock Issued Issuance Terms                         in the event that the Company has not closed 6 additional deals within 18 months from the effective date as detailed in the consulting agreement, such shares would be returned to the Company. The shares under such agreement have not yet been issued as of the date of the approval of the financial statements.                
Convertible Notes Payable               1,000,000,000   30,000                      
Stock Issued During Period, Shares, Issued for Noncash Consideration   2,800,000                                      
Debt Instrument, Maturity Date   Nov. 20, 2012                                      
Debt Instrument, Interest Rate Terms   Under the terms of the Promissory Note, interest accrues on the basis of a 270-day year at a rate of 18% per annum or at a higher rate of 24% per annum if such higher rate is permissible under Nevada law.                                      
Debt Instrument, Interest Rate, Stated Percentage   35.00%                                      
Debt Instrument Monthly Interest Expense   600                                      
Debt Instrument Conversion Percentage   150.00%                                      
Share Based Goods and Nonemployee Services Transaction Restricted Transfer Period                           12 months              
Debt Conversion, Converted Instrument, Amount $ 110,000                                        
Debt Conversion, Converted Instrument, Shares Issued 28,893,043                                        
Debt Conversion Price $ 0.0039802                                        
Stock Issued During Period, Shares, Conversion of Convertible Securities                     2,333,333 2,500,000                  
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SIGNIFICANT ACCOUNTING POLICIES
12 Months Ended
Sep. 30, 2012
Accounting Policies [Abstract]  
Significant Accounting Policies [Text Block]

NOTE 1 – SIGNIFICANT ACCOUNTING POLICIES:

 

a.Going concern consideration:

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2012, the Company had approximately $22 thousand in cash, a negative working capital of approximately $674 thousand in working capital, a negative stockholders’ equity of approximately $668 thousand and an accumulated deficit of approximately $26,596 thousand. Management anticipates that their business will require substantial additional investments that have not yet been secured. The Company anticipates that the existing cash will not be sufficient to continue its operations through the next 12 months. Management is continuing in the process of fund raising in the private equity markets as the Company will need to finance future activities and general and administrative expenses. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability

 

b.General:

 

The Company was incorporated in the state of Nevada on July 17, 2007 and was in the business of developing and promoting automotive internet sites. During the second quarter of 2010 the management of the Company decided to change its business focus to that of Greenhouse Gas (GHG) emission reduction as well as a project integrator in the clean energy production and waste to energy markets. The Company seeks to generate revenue through sales of carbon credits, energy generation, project development and sale of byproducts.

 

The Company offers potential partners (owners of: landfills, coal mines, fertilizer factories, etc) a kind of turnkey operation in dealing with the emission reduction. The Company service consists of: executing the process needed in order to make the project eligible for carbon credits, choosing the most suitable technology to be applied, arranging for the financing, constructing and managing the project for its life. We operate primarily in countries from the former Soviet Union, China and the USA.

 

During the second quarter of 2012, the Company's 50%-owned subsidiary, Puresphere Ltd, commenced its operations. The results of its operations and balance sheet as of September 30, 2012 have not been material.

 

On September 13, 2012, the Company, together with Biogas Nord AG, a German public company listed on the Frankfurt Stock Exchange, established Bino Sphere LLC. The Company holds 75% of the rights of Bino Sphere. On October 19, 2012, Bino Sphere signed two definitive project agreements to acquire 100% of Orbit Energy Inc.’s right, title and interest in, to and under two waste to energy projects in the United States. Based on the signed agreement the Company would pay Orbit Energy Inc Development fee in the amount $900 thousand to the acquired North Carolina agreement and $600 thousands for the acquired Road Island agreement, in the event that the Company would succeed with financial closing in each of such projects. The results of Bino Sphere's operations and balance sheet as of September 30, 2012 have not been material.

 

c.Functional currency:

 

The currency of the primary economic environment in which the operations of the Company are conducted is the U.S dollar (“$” or “dollar").

 

Most of the Company’s expenses are incurred in dollars. Most of the Company’s external financing is in dollars. The Company holds most of its cash and cash equivalents in dollars. Thus, the functional currency of the Company is the dollar.

Since the dollar is the primary currency in the economic environment in which the Company operates, monetary accounts maintained in currencies other than the dollar are re-measured using the representative foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the rate in effect at the date of transaction. The effects of foreign currency re-measurement are reported in current operations (as “financial expenses - net) and have not been material to date.

 

d.Principles of consolidation:

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries..

Inter-company balances and transactions have been eliminated upon consolidation.

 

e.Cash equivalents:

 

Cash equivalents are short-term highly liquid investments which include short term bank deposit (up to three months from date of deposit), that are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired.

 

f.Property, plant and equipment:

 

Property, plant and equipment are stated at cost, less accumulated depreciation. Assets are depreciated using the straight-line method over their estimated useful lives.

Computers, software and electronic equipment are depreciated over three years. Tools and equipment are depreciated over five years. Furniture is depreciated over fourteen years.

 

g.Use of estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates

 

h.Share-base payments:

 

The Company accounts for awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as expense over the requisite service period, net of estimated forfeitures.

 

i.Loss per share:

 

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common shares and of common shares equivalents outstanding when dilutive. Common shares equivalents include: (i) outstanding stock options under the Company’s Long-Term Incentive Plan and warrants which are included under the treasury share method when dilutive, and (ii) Common shares to be issued under the assumed conversion of the Company’s outstanding convertible notes, which are included under the if-converted method when dilutive. The computation of diluted net loss per share for the years ended September 30, 2012, and 2011, does not include common share equivalents, since such inclusion would be anti-dilutive.

 

j.Deferred income taxes:

 

Deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect when those differences reverse. A valuation allowance in respect of deferred tax assets is provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has provided a full valuation allowance with respect to its deferred tax assets.

 

k.Comprehensive loss:

 

The Company has no component of comprehensive income loss other than net loss.

  

l.Newly issued accounting pronouncements:

 

None

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INCOME TAXES (Details) (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2010
Deferred tax assets:      
Net operating loss carry-forward $ 1,357 $ 386 $ 225
Valuation allowance (1,357) (386) (225)
Deferred Tax Assets, Net of Valuation Allowance $ 0 $ 0 $ 0
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STOCK OPTIONS (Details Textual) (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Weighted Average Grant Date Fair Value $ 0.75  
Share-based compensation $ 2,956 $ 16,058
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INCOME TAXES (Details 1) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Sep. 30, 2012
Sep. 30, 2010
Valuation allowance, September 30, 2011 $ 386 $ 225
Increase 971  
Valuation allowance, September 30, 2012 $ 1,357 $ 225
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INCOME TAXES (Details Textual) (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2010
Sep. 30, 2009
Effective Income Tax Rate Reconciliation, at Federal Statutory Income Tax Rate 35.00%      
Israeli Subsidiaries [Member]
       
Effective Corporate Tax Rate 25.00% 24.00% 25.00% 26.00%
Carry Forward Losses $ 971      
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CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Thousands, unless otherwise specified
12 Months Ended 62 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES:      
Profit (Net loss) for the period $ 3,668 $ 16,676 $ 26,596
Adjustments required to reconcile net loss to net cash used in operating activities:      
Share based compensation expenses 2,609 10,665 18,730
Depreciation 2 0 2
Expenses in respect of Convertible notes 19 0 19
Issuance of shares for services 347 5,394 5,741
Issuance of shares in respect of issuance of Convertible notes 52 0 52
Receivables on account of shares 0 0 0
Increase (decrease) in other current assets (6) 7 (23)
Increase (decrease) in accounts payables 2 (106) 10
Increase in other account payables 319 160 483
Net cash used in operating activities (324) (556) (1,582)
CASH FLOWS FROM INVESTING ACTIVITIES:      
Payment for purchasing of fixed assets 0 (1) (9)
Net cash used in investing activities 0 (1) (9)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from options exercise 0 8 8
Loan granted (30) 0 (30)
Loan received 30 0 30
Proceeds from issuance of convertible notes 276 45 321
Proceeds from stock issued for cash 20 199 1,284
Net cash provided by financing activities 296 252 1,613
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (28) (305) 22
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 50 355 0
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 22 $ 50 $ 22
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NET LOSS PER SHARE DATA (Details)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Options:    
Weighted average number, in thousands 0 16,644
Weighted average exercise price 0 0.001
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CONSOLIDATED BALANCE SHEETS (USD $)
In Thousands, unless otherwise specified
Sep. 30, 2012
Sep. 30, 2011
Assets    
Cash and cash equivalents $ 22 $ 50
Other current assets 43 17
Total current assets 65 67
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation 6 9
Total assets 71 76
Liabilities and Stockholders' Equity (Deficit)    
Accounts payables 11 9
Other accounts payable 482 163
Debentures and notes 246 45
Total current liabilities 739 217
STOCKHOLDERS' DEFICIT:    
Common shares of $0.001 par value each: Authorized: 1,750,000,000 shares at September 30, 2012 and September 30, 2011, Issued and outstanding: 184,695,507 shares and 116,725,297 shares at September 30, 2012 and September 30, 2011, respectively 184 117
Additional paid-in capital 25,744 22,670
Accumulated deficit during the development stage (26,596) (22,928)
Total Stockholders' Equity (Deficit) (668) (141)
Total liabilities and Stockholders' Equity (Deficit) $ 71 $ 76
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STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) (USD $)
In Thousands, except Share data, unless otherwise specified
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Total
Balance at Aug. 31, 2011        
COMMON STOCK ISSUED, JULY 17, 2007 (DATE OF INCEPTION) $ 2 $ 67 $ 0 $ 69
COMMON STOCK ISSUED, JULY 17, 2007 (DATE OF INCEPTION) (in shares) 1,900,000      
CHANGES DURING THE PERIOD        
Issuance of common stock 0 198 0 198
Issuance of common stock (in shares) 471,948      
Share split of 35:1 65 (65) 0 0
Share split of 35:1 (in shares) 64,600,000      
Common stock issued as direct offering costs 2 995 0 997
Common stock issued as direct offering costs (in shares) 2,000,000      
Share based compensation 16 16,105 0 16,121
Share based compensation (in shares) 16,025,609      
Exercise of Options 8 0 0 8
Exercise of Options (in shares) 8,321,917      
Share based compensation for services 24 5,370 0 5,394
Share based compensation for services (in shares) 23,405,823      
Net loss for the period 0 0 (22,928) (22,928)
Balance at Sep. 30, 2011 117 22,670 (22,928) (141)
Balance (in shares) at Sep. 30, 2011 116,725,297      
CHANGES DURING THE PERIOD        
Issuance of common stock 1 19 0 20
Issuance of common stock (in shares) 525,000      
Share based compensation 0 2,609 0 2,609
Issuance of common stock in respect of issuance of convertible notes 37 129 0 166
Issuance of common stock in respect of issuance of convertible notes (in shares) 36,526,376      
Exercise of Options 16 (16) 0 0
Exercise of Options (in shares) 16,643,834     16,643,834
Share based compensation for services 13 333 0 346
Share based compensation for services (in shares) 14,275,000      
Net loss for the period 0 0 (3,668) (3,668)
Balance at Sep. 30, 2012 $ 184 $ 25,744 $ (26,596) $ (668)
Balance (in shares) at Sep. 30, 2012 184,695,507      
XML 71 R22.htm IDEA: XBRL DOCUMENT v2.4.0.6
SIGNIFICANT ACCOUNTING POLICIES (Details Textual) (USD $)
In Thousands, unless otherwise specified
62 Months Ended
Sep. 30, 2012
Jun. 30, 2012
Sep. 30, 2011
Aug. 31, 2011
Sep. 30, 2010
Jul. 16, 2007
Sep. 13, 2012
Bino Sphere [Member]
Oct. 19, 2012
Orbit Energy [Member]
Sep. 30, 2012
Orbit Energy [Member]
North Carolina Agreement [Member]
Sep. 30, 2012
Orbit Energy [Member]
Road Island Agreement [Member]
Cash and Cash Equivalents, at Carrying Value $ 22   $ 50 $ 0 $ 355 $ 0        
Working Capital Deficit 674                  
Stockholders' Equity (668)   (141)     0        
Accumulated deficit during the development stage 26,596   22,928              
Business Acquisition, Percentage of Voting Interests Acquired   50.00%                
Noncontrolling Interest, Ownership Percentage by Parent             75.00% 100.00%    
Development Fee Paid                 $ 900 $ 600
XML 72 R24.htm IDEA: XBRL DOCUMENT v2.4.0.6
RELATED PARTY TRANSACTIONS (Details Textual) (USD $)
In Thousands, except Share data, unless otherwise specified
1 Months Ended
Jan. 31, 2012
Nov. 30, 2011
Oct. 31, 2011
Mar. 31, 2010
Officer [Member]
Jul. 31, 2011
Board Of Directors Chairman [Member]
Jul. 31, 2011
Chief Executive Officer [Member]
Aug. 31, 2011
Executive Vice President [Member]
Jul. 31, 2011
Executive Vice President [Member]
Aug. 31, 2011
Former Chief Operating Officer [Member]
Feb. 29, 2012
Non Executive Director and Chairman [Member]
Remuneration       $ 10       $ 10   $ 10
Conditional Increase In Remuneration       15       15    
Stock Issued During Period Shares Upon Exercise Of Options       8,321,917            
Percentage Of Stock Issued During Period Upon Exercise Of Options       9.00%            
Issuance of shares for services (in shares)   3,000,000     4,200,000 4,200,000 1,075,000   1,308,325 4,000,000
Minimum Investment Required               450    
Minimum Investment Required For Increase In Remuneration               $ 2,000    
Stock Issued During Period, Shares, New Issues 35,000   525,000         12,500,000    
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XML 74 R7.htm IDEA: XBRL DOCUMENT v2.4.0.6
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT) [Parenthetical] (USD $)
12 Months Ended
Sep. 30, 2011
Stockholders' Equity Note, Stock Split 35:1
Common shares, par value (in dollars per share) $ 0.001
XML 75 R3.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $)
Sep. 30, 2012
Sep. 30, 2011
Common shares, par value (in dollars per share) $ 0.001 $ 0.001
Common shares, shares authorized 1,750,000,000 1,750,000,000
Common shares, shares issued 184,695,507 116,725,297
Common shares, shares outstanding 184,695,507 116,725,297
XML 76 R17.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUBSEQUENT EVENTS
12 Months Ended
Sep. 30, 2012
Subsequent Events [Abstract]  
Subsequent Events [Text Block]

NOTE 8 – SUBSEQUENT EVENTS:

 

In November 5, 2012 the Company entered into an agreement with a non-US investor to sell 30,000,000 shares of common stock at December 25, 2012 for an aggregated amount of $70,000.

 

On December 20 2012, the Company entered into an agreement with a non-US investor to sell 35,000,000 shares of common stock at a price of $0.00286 per share for $100,000 and to purchase another 17,500,000 shares of common stock for $50,000 in January 2013 and another 17,500,000 shares of common stock for $50,000 in February 2013. Additionally, the Company (i) obligated to issue such investor 10,000,000 shares of common stock in February 2013 at no additional cost and (ii) issue to such investor an option to purchase 7,500,000 shares of common stock for one year for 0.02 per share and to purchase 7,500,000 shares of common stock for two years at a price per share of $0.04

 

On November 5, the Board of Directors of the Company approved the issuance of 6,000,000 shares of the Company to its Chief Executive officer, 5,000,000 shares to the Chairman of the Board, 5,000,000 shares to the Executive Vice-President and 4,000,000 shares to the Chief Carbon Officer and general counsel of the Company.

 

During October and November 2012, holders of $85.5 thousands of principal amount of Asher convertible notes converted their notes into 67,379,296 shares of the Company's common stock. The share issued to such holders does not represent 100% of the principal amount of such shares.

 

On November 6, 2012 Asher purchased an additional U.S. $32,500 of our 8% convertible notes.

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DOCUMENT AND ENTITY INFORMATION (USD $)
12 Months Ended
Sep. 30, 2012
Dec. 26, 2012
Entity Registrant Name BLUE SPHERE CORP.  
Entity Central Index Key 0001419582  
Current Fiscal Year End Date --09-30  
Entity Filer Category Smaller Reporting Company  
Trading Symbol blsp  
Entity Common Stock, Shares Outstanding   281,324,803
Document Type 10-K  
Amendment Flag false  
Document Period End Date Sep. 30, 2012  
Document Fiscal Period Focus FY  
Document Fiscal Year Focus 2012  
Entity Well-Known Seasoned Issuer No  
Entity Voluntary Filers No  
Entity Current Reporting Status Yes  
Entity Public Float $ 1,334,455  
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SIGNIFICANT ACCOUNTING POLICIES (Policies)
12 Months Ended
Sep. 30, 2012
Accounting Policies [Abstract]  
Liquidity Disclosure [Policy Text Block]
Going concern consideration:

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As of September 30, 2012, the Company had approximately $22 thousand in cash, a negative working capital of approximately $674 thousand in working capital, a negative stockholders’ equity of approximately $668 thousand and an accumulated deficit of approximately $26,596 thousand. Management anticipates that their business will require substantial additional investments that have not yet been secured. The Company anticipates that the existing cash will not be sufficient to continue its operations through the next 12 months. Management is continuing in the process of fund raising in the private equity markets as the Company will need to finance future activities and general and administrative expenses. These conditions raise substantial doubt about the Company's ability to continue as a going concern.

 

These financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability

Basis of Accounting, Policy [Policy Text Block]
General:

 

The Company was incorporated in the state of Nevada on July 17, 2007 and was in the business of developing and promoting automotive internet sites. During the second quarter of 2010 the management of the Company decided to change its business focus to that of Greenhouse Gas (GHG) emission reduction as well as a project integrator in the clean energy production and waste to energy markets. The Company seeks to generate revenue through sales of carbon credits, energy generation, project development and sale of byproducts.

 

The Company offers potential partners (owners of: landfills, coal mines, fertilizer factories, etc) a kind of turnkey operation in dealing with the emission reduction. The Company service consists of: executing the process needed in order to make the project eligible for carbon credits, choosing the most suitable technology to be applied, arranging for the financing, constructing and managing the project for its life. We operate primarily in countries from the former Soviet Union, China and the USA.

 

During the second quarter of 2012, the Company's 50%-owned subsidiary, Puresphere Ltd, commenced its operations. The results of its operations and balance sheet as of September 30, 2012 have not been material.

 

On September 13, 2012, the Company, together with Biogas Nord AG, a German public company listed on the Frankfurt Stock Exchange, established Bino Sphere LLC. The Company holds 75% of the rights of Bino Sphere. On October 19, 2012, Bino Sphere signed two definitive project agreements to acquire 100% of Orbit Energy Inc.’s right, title and interest in, to and under two waste to energy projects in the United States. Based on the signed agreement the Company would pay Orbit Energy Inc Development fee in the amount $900 thousand to the acquired North Carolina agreement and $600 thousands for the acquired Road Island agreement, in the event that the Company would succeed with financial closing in each of such projects. The results of Bino Sphere's operations and balance sheet as of September 30, 2012 have not been material.

Foreign Currency Transactions and Translations Policy [Policy Text Block]
Functional currency:

 

The currency of the primary economic environment in which the operations of the Company are conducted is the U.S dollar (“$” or “dollar").

 

Most of the Company’s expenses are incurred in dollars. Most of the Company’s external financing is in dollars. The Company holds most of its cash and cash equivalents in dollars. Thus, the functional currency of the Company is the dollar.

Since the dollar is the primary currency in the economic environment in which the Company operates, monetary accounts maintained in currencies other than the dollar are re-measured using the representative foreign exchange rate at the balance sheet date. Operational accounts and non-monetary balance sheet accounts are measured and recorded at the rate in effect at the date of transaction. The effects of foreign currency re-measurement are reported in current operations (as “financial expenses - net) and have not been material to date.

Consolidation, Policy [Policy Text Block]
Principles of consolidation:

 

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries..

Inter-company balances and transactions have been eliminated upon consolidation.

Cash and Cash Equivalents, Policy [Policy Text Block]
Cash equivalents:

 

Cash equivalents are short-term highly liquid investments which include short term bank deposit (up to three months from date of deposit), that are not restricted as to withdrawals or use that are readily convertible to cash with maturities of three months or less as of the date acquired.

Property, Plant and Equipment, Policy [Policy Text Block]
Property, plant and equipment:

 

Property, plant and equipment are stated at cost, less accumulated depreciation. Assets are depreciated using the straight-line method over their estimated useful lives.

Computers, software and electronic equipment are depreciated over three years. Tools and equipment are depreciated over five years. Furniture is depreciated over fourteen years.

Use of Estimates, Policy [Policy Text Block]
Use of estimates:

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of expenses during the reporting period. Actual results may differ from those estimates

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]
Share-base payments:

 

The Company accounts for awards classified as equity awards using the grant-date fair value method. The fair value of share-based payment transactions is recognized as expense over the requisite service period, net of estimated forfeitures.

Earnings Per Share, Policy [Policy Text Block]
Loss per share:

 

Net loss per share, basic and diluted, is computed on the basis of the net loss for the period divided by the weighted average number of common shares outstanding during the period. Diluted net loss per share is based upon the weighted average number of common shares and of common shares equivalents outstanding when dilutive. Common shares equivalents include: (i) outstanding stock options under the Company’s Long-Term Incentive Plan and warrants which are included under the treasury share method when dilutive, and (ii) Common shares to be issued under the assumed conversion of the Company’s outstanding convertible notes, which are included under the if-converted method when dilutive. The computation of diluted net loss per share for the years ended September 30, 2012, and 2011, does not include common share equivalents, since such inclusion would be anti-dilutive.

Income Tax, Policy [Policy Text Block]
Deferred income taxes:

 

Deferred taxes are determined utilizing the asset and liability method based on the estimated future tax effects of differences between the financial accounting and tax bases of assets and liabilities under the applicable tax laws. Deferred tax balances are computed using the tax rates expected to be in effect when those differences reverse. A valuation allowance in respect of deferred tax assets is provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company has provided a full valuation allowance with respect to its deferred tax assets.

Comprehensive Income Loss Policy [Policy Text Block]
Comprehensive loss:

 

The Company has no component of comprehensive income loss other than net loss.

New Accounting Pronouncements, Policy [Policy Text Block]
Newly issued accounting pronouncements:

 

None

XML 79 R4.htm IDEA: XBRL DOCUMENT v2.4.0.6
CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Share data, unless otherwise specified
12 Months Ended 62 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
OPERATING EXPENSES -      
General and administrative expenses * $ 3,604 [1] $ 16,671 [1] $ 26,531 [1]
FINANCIAL EXPENSES (INCOME), net 54 5 55
Costs and Expenses 3,658 16,676 26,586
Other losses 10 0 10
NET LOSS FOR THE PERIOD $ (3,668) $ (16,676) $ (26,596)
Net loss per common share - basic and diluted (in dollars per share) $ (0.02) $ (0.21)  
Weighted average number of common shares outstanding during the period - basic and diluted (in shares) 153,662,115 78,311,612  
[1] In the years ended September 30, 2012 and 2011 - includes $2,956 thousands and $16,058 thousands, respectively of share-based compensation.
XML 80 R12.htm IDEA: XBRL DOCUMENT v2.4.0.6
COMMON SHARES
12 Months Ended
Sep. 30, 2012
Stockholders Equity Note [Abstract]  
Stockholders' Equity Note Disclosure [Text Block]

NOTE 3 – COMMON SHARES:

 

On November 3, 2011, the Company entered into a consulting agreement with He Mu for business development and project management in China in exchange for 3,000,000 shares of common stock (the "Shares").  The Shares are restricted for thirty-six (36) months following their issuance and are being held in Escrow for the entire thirty-six (36) month restricted period. The escrowed shares are subject to a claw-back provision so that if the agreement is terminated for any reason prior to the completion of 36 months, the amount of 83,333 shares will be returned to the Company for each month of such early termination.

 

During October 2011, the Company issued 525,000 common shares of the Company to an investor for total consideration of $20 Thousand.

 

On May 22, 2011, the Company and Bluebird Finance & Projects Ltd ("Bluebird") entered into a financing consulting services agreement according to which Bluebird will assist the Company with evaluating potential projects, review agreements, search for potential financing parties, accompany the Company in financing activities, etc. The agreement shall be valid for a period of 24 months and can be terminated by either party subject to a written notice of 60 days in advance. In consideration for Bluebird services, the Company will pay a monthly retainer fee of 15,000 common shares of the Company. In addition, the Company shall pay Bluebird a success fee of 2% for each executed financing round with a minimum of $50 thousand. During the quarter ended December 31, 2011 the Company issued 75,000 common shares in respect of the above agreement.

 

On October 11, 2011, the Company and Bluebird signed an amendment for the May 22, 2011 agreement according to it, in order to incentivize Bluebird to expand and enhance its efforts on behalf of the Blue Sphere, the Company shall issue the Bluebird (1) additional 500,000 common shares of the company upon signing of the amendment to the agreement (2) additional 500,000 common shares upon receipt of an investment or debt of at least $5,000 thousands and (3) additional 500,000 common shares upon receipt of an additional investment or debt of at least $5,000 thousands (total amount received of $10,000 thousand). On November 28, 2011 the Company issued to Bluebird 500,000 common shares under the above amendment to the agreement. The shares to be issued under the above amendment would be restricted for a period of 12 months from the date of issuance.

 

On January 5, 2012, the Company approved the issuance of 1,250,000 common shares of the Company to an investor for total consideration of $35 Thousand. The consideration for the shares has not yet been received to the date of the approval of the financial statements.

 

On February 1, 2012 the Company approved and granted 1,600,000 common shares of the Company for each of its Chief Executive Officer and the Chairman of the Board. In addition, the Company approved and granted 500,000 common shares of the Company for its Chief Carbon Officer and general counsel.

 

On February 6, 2012 the Company appointed Mr. Joshua Shoham as a director and issued him 2,000,000 common shares of the Company. The shares are subject to pro-rata forfeiture in the event that Mr. Shoham does not serve his full term of two years as director. In addition, on February 29, 2012 the Company appointed Mr. Shoham as the chairman of the board for a period of two years and granted him with additional 2,000,000 shares.

 

On February 20, 2012 Chief Executive Officer and the former Chairman of the Board exercised 16,643,834 options granted to them on May 13, 2010 into Company shares. The options exercise price was deducted from Company's debt to Chief Executive Officer and the former Chairman of the Board.

  

On February 20, 2012 the Company approved the grant of 4,000,000 common shares to a consultant of which 2,000,000 shares are subject claw-back provision, according to which in the event that the Company has not closed 6 additional deals within 18 months from the effective date as detailed in the consulting agreement, such shares would be returned to the Company. The shares under such agreement have not yet been issued as of the date of the approval of the financial statements.

 

On February 21, 2012, the Company executed a promissory note (the “Promissory Note”) pursuant to which it borrowed $30,000 from Jean-Marc Karouby, M.D., an individual residing in France (the “French Lender”). Part of the consideration for the Promissory Note was the issuance of 2,800,000 shares of common stock of the Company. In connection with such issuance of shares, the Company also granted to the French Lender piggy-back registration rights. As a result, such shares may be registered under the S-1.

 

The maturity date of the Promissory Note is November 20, 2012. Under the terms of the Promissory Note, interest accrues on the basis of a 270-day year at a rate of 18% per annum or at a higher rate of 24% per annum if such higher rate is permissible under Nevada law. The Promissory Note is governed under the laws of Nevada. The default rate of interest under the Promissory Note is 35% per annum, and a default shall be declared upon a declaration by the Company of bankruptcy under Chapter 7 or Chapter 11 under the applicable federal United States bankruptcy laws or upon the failure to make payments when due on or before 10 days after an applicable due date. Monthly interest payments of $600 are due on or before the 20th of each month while the Promissory Note remains outstanding. In addition to payment of the default interest rate and principal, upon a default the Company shall also issue to the French Lender additional shares of its common stock equal to 150% of the value of the principal and interest due converted at the applicable trading price for the Company’s shares at the time of default. Cash payments due under the Promissory Note have been personally guaranteed by Shlomo Palas, the Company’s Chief Executive Officer.

 

On June 1, 2012 the Company issued to a consultant 1,000,000 shares. Such shares are restricted from transfer for a period of 12 months from the dates of its issuance.

 

During April 2012, third parties converted $110 thousand of the Principal amount of the Asher Notes into 28,893,043 shares of the Company (a conversion price of $0.0039802 per share) (see further information above).

 

On July 17, 2012 the Company issued to Fidelity 2,333,333 shares of the Company on account of the placement agreement with Fidelity.

 

On August 30, 2012 the Company issued to Jelton 2,500,000 shares of the Company on account of the security purchase agreement with Jelton.

XML 81 R11.htm IDEA: XBRL DOCUMENT v2.4.0.6
RELATED PARTY TRANSACTIONS
12 Months Ended
Sep. 30, 2012
Related Party Transactions [Abstract]  
Related Party Transactions Disclosure [Text Block]

NOTE 2 – RELATED PARTY TRANSACTIONS:

 

On March 3, 2010, the Company entered into employment agreements with Eliezer Weinberg the Company Chairman of the Board, Shlomo Palas the Company’s CEO and Shmuel Keshet the Company’s COO for a term of two years. The officers receive monthly remuneration at a gross rate of USD$10,000. The remuneration will increase to a gross monthly rate of USD$15,000 upon the completion of outsourced technical project reports (“PDDs”) for two projects. Each officer was granted stock options to acquire 8,321,917 or nine percent (9%) of common stock in the capital of the Company, exercisable at a par value (see note 7).

 

On July 28, 2011 the Board granted to Mr. Eliezer Weinberg and to Mr. Shlomo Palas 4,200,000 common shares each for their contributions to the Company.

 

On July 28, 2011 the company appointed Mr. Roy Amitzur as Executive Vice-President. Mr. Amizur is entitled to receive U.S. $10,000 plus VAT per month after he arranges an investment of no less than $450,000 in the Company and U.S. $15,000 plus VAT per month after he arranges an equity investment in the Company of no less than U.S. $2,000,000. He also received 12,500,000 common shares of the Company. If Mr. Amizur resigns from the Company prior to July 25, 2013, he will forfeit a pro rata portion of his shares back to the Company (the amount subject to forfeiture being equal to the number of days, which Mr. Amizur did not serve as Executive Vice-President out of the two year term of his management services agreement. As of July 2012, we agreed to start paying Mr. Amizur a monthly salary of U.S. $10,000.

 

Mr. Amizur also received 1,075,000 shares of common stock on August 23, 2011 for his extraordinary contributions to the Company.

 

The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities that become available.

 

On August 31, 2011, the Company issued 1,308,325 common shares to Mr. Keshet, the Company's former chief operating officer who resigned from the Company, as compensation for his unpaid salaries. In addition the company agreed to accelerate the vesting of the remaining of his stock options amounted to 8,321,917 common shares.

 

In February 2012, Company's chairman, Eliezer Weinberg, resigned from the board of directors. In his place, the Board of Directors of the Company appointed Joshua Shoham non-executive director and chairman of the board. Mr. Shoham received 4,000,000 shares of stock, which are subject to pro-rata forfeiture in the event that Mr. Shoham does not serve his full term of two years as director. As of July 2012, the Company agreed to pay Mr. Shoham $10,000 per month plus VAT.

XML 82 R23.htm IDEA: XBRL DOCUMENT v2.4.0.6
DEBENTURES AND NOTES (Details Textual) (USD $)
1 Months Ended 12 Months Ended 62 Months Ended 1 Months Ended 12 Months Ended 62 Months Ended
Jul. 31, 2012
Apr. 30, 2012
Sep. 30, 2012
Sep. 30, 2011
Sep. 30, 2012
Feb. 29, 2012
Feb. 21, 2012
Sep. 30, 2012
Minimum [Member]
Sep. 30, 2012
Maximum [Member]
Apr. 30, 2012
Convertible Notes Payable [Member]
Mar. 31, 2012
Convertible Notes Payable [Member]
Jan. 31, 2012
Convertible Notes Payable [Member]
Nov. 30, 2011
Convertible Notes Payable [Member]
Sep. 30, 2011
Convertible Notes Payable [Member]
Sep. 30, 2012
Convertible Notes Payable [Member]
Sep. 13, 2012
Convertible Notes Payable [Member]
May 07, 2012
Convertible Notes Payable [Member]
Mar. 26, 2012
Convertible Notes Payable [Member]
Jan. 26, 2012
Convertible Notes Payable [Member]
Nov. 11, 2011
Convertible Notes Payable [Member]
Sep. 16, 2011
Convertible Notes Payable [Member]
Sep. 30, 2012
Convertible Notes Payable [Member]
Jelton [Member]
Oct. 14, 2012
Convertible Notes Payable [Member]
Jelton [Member]
Sep. 25, 2012
Convertible Notes Payable [Member]
Jelton [Member]
Sep. 04, 2012
Convertible Notes Payable [Member]
Jelton [Member]
Proceeds from issuance of convertible notes     $ 276,000 $ 45,000 $ 321,000             $ 32,500 $ 32,500 $ 45,000                      
Debt Instrument, Interest Rate, Stated Percentage           35.00%                   8.00% 8.00% 8.00% 8.00% 8.00% 8.00%     7.00% 7.00%
Short-term Debt, Maximum Amount Outstanding During Period                             65,000                    
Debt Conversion, Converted Instrument, Rate                     100.00%                            
Debt Conversion, Converted Instrument, Amount   110,000               110,000                              
Debt Conversion, Converted Instrument, Shares Issued   28,893,043               28,893,043                              
Debt Conversion Price   $ 0.0039802               $ 0.0039802                              
Debt Instrument, Face Amount                               32,500 32,500 53,000         25,000 45,000 45,000
Proceeds from Sale of Notes Receivable 50,000                                                
Debt Instrument, Description                                           The Company has the right to prepay the Jelton Notes under certain conditions for 90 days following their issue date.      
Convertible Notes Payable     $ 1,000,000,000   $ 1,000,000,000   $ 30,000                                    
Convertible Notes Payable Period     3 years 6 months                                            
Debt Instrument, Convertible, Conversion Price               $ 0.02 $ 0.10                                
Debt Instrument Convertible Conversion Discount Percentage     6.50%   6.50%                                        
Repayment Of Convertible Notes Payable Percentage     7.00%                                            
Common Stock Invested In Notes Payable     $ 0.70                                            
Ownership Stake In Registrant Percentage     20.00%                                            
XML 83 R19.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCK OPTIONS (Tables)
12 Months Ended
Sep. 30, 2012
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]  
Disclosure Of Share Based Compensation Arrangements By Share Based Payment Award Fair Value Assumptions [Table Text Block]

The fair value of the stock options grants was estimated using the Black-Schooled option valuation model that used the following assumptions:

 

  % 
Dividend yield  0 
Risk-free interest rate  3.75%
Expected term (years)  2 
Volatility  177%
Disclosure of Share-based Compensation Arrangements by Share-based Payment Award [Table Text Block]

The following table presents the Company’s stock option activity for employees and directors of the Company for the years ended September 30, 2010 through 2012:

 

  Number of
Options 
and options
  Weighted
Average
Exercise
Price
 
Outstanding at September 30, 2010  24,965,751   0.001 
Granted  -   - 
Exercised  8,321,917   0.001 
Forfeited or expired  -   - 
Outstanding at September 30,2011  16,643,834   0.001 
Granted  -   - 
Exercised  16,643,834   0.001 
Forfeited or expired  -   - 
Outstanding at September 30,2012  -   - 
Number of options exercisable at September 30, 2012  -     
Number of options exercisable at  September 30, 2011  13,176,369
XML 84 R15.htm IDEA: XBRL DOCUMENT v2.4.0.6
NET LOSS PER SHARE DATA
12 Months Ended
Sep. 30, 2012
Earnings Per Share [Abstract]  
Earnings Per Share [Text Block]

NOTE 6 – NET LOSS PER SHARE DATA:

 

The shares issuable upon the exercise of options, and conversion of convertible notes and warrants, which have been excluded from the diluted per share amounts because their effect would have been anti-dilutive, include the following:

 

  September
30, 2012
  September
30, 2011
 
Options:        
Weighted average number, in thousands  -   16,644 
Weighted average exercise price $-  $0.001
XML 85 R13.htm IDEA: XBRL DOCUMENT v2.4.0.6
STOCK OPTIONS
12 Months Ended
Sep. 30, 2012
Disclosure Of Compensation Related Costs, Share-Based Payments [Abstract]  
Disclosure of Compensation Related Costs, Share-based Payments [Text Block]

NOTE 4 – STOCK OPTIONS:

 

The 2010 share option plan was established On March 3, 2010.

 

Options to Directors and Employees:

 

On March 3, 2010, the Board of Directors of the Company granted of 24,965,751 options to three officers of the Company, exercisable for two years at exercise prices of $0.001 per share, to be vested by the end of each three month from the date of employment agreement signed on May 14, 2010.

 

The fair value of the stock options grants was estimated using the Black-Schooled option valuation model that used the following assumptions:

 

  % 
Dividend yield  0 
Risk-free interest rate  3.75%
Expected term (years)  2 
Volatility  177%

 

The fair value of the options granted above using the Black-Scholes model is $0.75 per option.

 

The following table presents the Company’s stock option activity for employees and directors of the Company for the years ended September 30, 2010 through 2012:

 

  Number of
Options 
and options
  Weighted
Average
Exercise
Price
 
Outstanding at September 30, 2010  24,965,751   0.001 
Granted  -   - 
Exercised  8,321,917   0.001 
Forfeited or expired  -   - 
Outstanding at September 30,2011  16,643,834   0.001 
Granted  -   - 
Exercised  16,643,834   0.001 
Forfeited or expired  -   - 
Outstanding at September 30,2012  -   - 
Number of options exercisable at September 30, 2012  -     
Number of options exercisable at  September 30, 2011  13,176,369     

 

Costs incurred in respect of stock based compensation for employees and directors, for the year ended September 30, 2012 and September 30, 2011 were $ 2,956 and $16,058thousand respectively.

 

As of September 30, 2012 there were no outstanding option and warrants.

XML 86 R14.htm IDEA: XBRL DOCUMENT v2.4.0.6
INCOME TAXES
12 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Abstract]  
Income Tax Disclosure [Text Block]

NOTE 5 – INCOME TAXES:

 

US resident companies are taxed on their worldwide income for corporate income tax purposes at a statutory rate of 35%. No further taxes are payable on this profit unless that profit is distributed. If certain conditions are met, income derived from foreign subsidiaries is tax exempt in the US under applicable tax treaties to avoid double taxation.

 

The income of the company's Israeli subsidiaries is taxed through 2009 at the rate of 26%. The corporate tax rates for 2010 and thereafter are as follows: 2010 - 25%, in the 2011 tax year – 24% and in the 2012 tax year and thereafter the applicable Companies Tax rate will be 25%.

 

The Company accounts for income taxes using the liability method, which requires the determination of deferred tax assets and liabilities based on the differences between the financial and tax bases of assets and liabilities using enacted tax rates in effect for the year in which differences are expected to reverse. Deferred tax assets are adjusted by a valuation allowance, if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized.

 

Deferred income taxes reflect the net effects of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The breakdown of the deferred tax asset as of September 30 2012, 2011 and 2010 is as follows:

 

  2012  2011  2010 
  U.S dollars in thousands 
Deferred tax assets:            
Net operating loss carry-forward $1,357  $386  $225 
Valuation allowance  (1,357)  (386)  (225)
  $0  $0  $0 

 

A valuation allowance is provided when it is more likely than not that some portion of the deferred tax asset will not be realized. Management has determined, based on its recurring net losses, lack of a commercially viable product and limitations under current tax rules, that a full valuation allowance is appropriate.

 

  U.S dollars
in thousands
 
Valuation allowance, September 30, 2011 $386 
Increase  971 
Valuation allowance, September 30, 2012 $1,357 

 

Carry forward losses of the Israeli subsidiary are approximately $971 thousand at September 30, 2012.

XML 87 R16.htm IDEA: XBRL DOCUMENT v2.4.0.6
OTHER LOSS
12 Months Ended
Sep. 30, 2012
Other Loss [Abstract]  
Other Loss [Text Block]

NOTE 7 – OTHER LOSS:

 

On January 31, 2012, the Comapny lent an Israeli company, CTG Clean Technology Group Limited (the “Borrower”), U.S. $30,000 at an annual rate of interest of eight percent (8%). The purpose of this loan was to provide the borrower capital to continue its operations while the Company considered acquiring such company. On February 8, 2012, the Company received the cash to make such loan to the Borrower from a Cyprus company (JLS Investment Holding). The Borrower pledged the revenues from its Angolan waste-water project toward the repayment of the principal and interest of this loan. Management are in negotiations with CTG with respect to repayment of such loan together with accrued and unpaid interest, however, to-date, we have not received any payment whatsoever from the borrower. During the year ended September 30, 2012 the Company wrote-off $10,000 of such loan.

XML 88 R34.htm IDEA: XBRL DOCUMENT v2.4.0.6
SUBSEQUENT EVENTS (Details Textual) (USD $)
12 Months Ended 12 Months Ended 12 Months Ended 12 Months Ended
Feb. 29, 2012
Sep. 13, 2012
Convertible Notes Payable [Member]
May 07, 2012
Convertible Notes Payable [Member]
Mar. 26, 2012
Convertible Notes Payable [Member]
Jan. 26, 2012
Convertible Notes Payable [Member]
Nov. 11, 2011
Convertible Notes Payable [Member]
Sep. 16, 2011
Convertible Notes Payable [Member]
Sep. 30, 2012
Subsequent Event [Member]
Asher Enterprises Inc [Member]
Sep. 30, 2012
Subsequent Event [Member]
Convertible Notes Payable [Member]
Asher Enterprises Inc [Member]
Sep. 30, 2012
Subsequent Event [Member]
Issue One [Member]
Sep. 30, 2012
Subsequent Event [Member]
Issue One [Member]
Convertible Notes Payable [Member]
Asher Enterprises Inc [Member]
Sep. 30, 2012
Subsequent Event [Member]
Issue Two [Member]
Sep. 30, 2012
Subsequent Event [Member]
Issue Three [Member]
Sep. 30, 2012
Subsequent Event [Member]
Issue Four [Member]
Sep. 30, 2012
Subsequent Event [Member]
Issue Five [Member]
Sep. 30, 2012
Subsequent Event [Member]
Chief Executive Officer [Member]
Sep. 30, 2012
Subsequent Event [Member]
Board Of Directors Chairman [Member]
Sep. 30, 2012
Subsequent Event [Member]
Executive Vice President [Member]
Sep. 30, 2012
Subsequent Event [Member]
Chief Carbon Officer and General Counsel [Member]
Common Stock, Capital Shares Reserved for Future Issuance                   30,000,000   35,000,000 17,500,000 17,500,000 10,000,000        
Common Stock Value Reserved For Future Issuance                   $ 70,000   $ 100,000 $ 50,000 $ 50,000          
Subsequent Event, Date                   Dec. 25, 2012     Jan. 31, 2013   Feb. 28, 2013        
Share Price                       $ 0.00286              
Stock Issued During Period Shares Upon Exercise Of Options                   7,500,000   7,500,000              
Stock Issued During Period Shares Upon Exercise Of Options Price Per Share                   $ 0.02   $ 0.04              
Share-based Goods and Nonemployee Services Transaction, Shares Approved for Issuance                               6,000,000 5,000,000 5,000,000 4,000,000
Debt Instrument, Face Amount   $ 32,500 $ 32,500 $ 53,000         $ 85.5   $ 32,500                
Stock Issued During Period, Shares, Conversion of Convertible Securities               67,379,296                      
Percentage Of Principal Amount Of Debt               100.00%                      
Debt Instrument, Interest Rate, Stated Percentage 35.00% 8.00% 8.00% 8.00% 8.00% 8.00% 8.00%       8.00%                
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NET LOSS PER SHARE DATA (Tables)
12 Months Ended
Sep. 30, 2012
Earnings Per Share [Abstract]  
Anti Dilutive Securities Excluded From Computation Of Earnings Per Share Amount [Table Text Block]

The shares issuable upon the exercise of options, and conversion of convertible notes and warrants, which have been excluded from the diluted per share amounts because their effect would have been anti-dilutive, include the following:

 

  September
30, 2012
  September
30, 2011
 
Options:        
Weighted average number, in thousands  -   16,644 
Weighted average exercise price $-  $0.001
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STOCK OPTIONS (Details)
12 Months Ended
Sep. 30, 2012
Dividend yield 0.00%
Risk-free interest rate 3.75%
Expected term (years) 2 years
Volatility 177.00%
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CONSOLIDATED STATEMENTS OF OPERATIONS [Parenthetical] (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Share-based compensation $ 2,956 $ 16,058
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DEBENTURES AND NOTES
12 Months Ended
Sep. 30, 2012
Debt Disclosure [Abstract]  
Debt Disclosure [Text Block]

NOTE 2 – DEBENTURES AND NOTES:

 

On September 16, 2011, the Company signed a securities purchase agreement with Asher Enterprises Inc., a Delaware corporation with a head office in New York (“Asher”), pursuant to which Asher purchased an aggregate amount of U.S. $45,000 of our 8% convertible notes (the “Notes”). The Notes are convertible into shares of common stock of the Company from time to time, and at any time, beginning March 14, 2012 and ending, absent any condition of default, on June 14, 2012, subject to the limitations and conditions set forth in the Notes. The Company has the right to prepay the Notes under the certain conditions for 180 days following the issue date. On each of November 11, 2011 and January 26, 2012, Asher purchased an additional U.S. $32,500 of our 8% convertible notes (for an aggregate total of U.S. $65,000). Such additionally-purchased notes, together with the Notes, are referred to as the “Asher Notes”.

 

On March 19, 2012 Asher transferred 100% of the Asher Notes to third parties. During April 2012, such third parties converted $110 thousand (i.e., 100% of the principal amount) of the Principal amount of the Asher Notes into 28,893,043 shares of the Company (a conversion price of $0.0039802 per share).

 

On March 26, 2012, and May 7, 2012 Asher purchased an additional U.S. $53,000 and $32,500, respectively of our 8% convertible notes.

 

On September 13, 2012 the Company signed on an additional U.S. $32,500, 8% convertible note with Asher. The funds for such note were not received as of the balance sheet date.

 

On July 1, 2012, the Company signed a placement agreement with Fidelity Venture Capital Limited (“Fidelity”) pursuant to which Fidelity undertook to raise U.S. $1,000,000 in notes convertible into shares of common stock or more senior equity securities of the Company (if any) for a period of three and one half years at prices ranging from USD 0.02 cents to USD 0.10 cents per share or a discount of 20% of the then market price of the Company’s shares depending on when any such conversion is consummated (the “Fidelity Notes”). The Fidelity Notes will bear annual interest of 6.5% to be paid semi-annually in arrears. The Company has committed to pay off the outstanding principal of the Fidelity Notes by paying to the holders of such Fidelity Notes 7% of gross income and making certain pre-payments of the principal during the term of the notes. Each holder of Fidelity Notes are to receive shares of common stock of the Company worth USD 0.70 cents for each dollar it invested in the Fidelity Notes (the “Incentive Shares”). The Company has pledged the income from its projects to such holders as security to pay the Fidelity Notes in full. Fidelity will receive nine percent of the gross proceeds it raises for the Company. To-date, the Company has received an aggregate amount of U.S. $50,000 (less commissions) from sales of Fidelity Notes.

 

On September 4, 2012 and September 25, 2012, we signed securities purchase agreements with Jelton Finance Corp., a Belize corporation, with offices in Lichtenstein (“Jelton”), pursuant to which Jelton agreed to purchase an aggregate of $45,000 of our 7% convertible notes due in each case three months after their respective issue dates (the “Jelton Notes”). The Jelton Notes are convertible into shares of the Company at a discount to the applicable market price on the date of conversion. The Company has the right to prepay the Jelton Notes under certain conditions for 90 days following their issue date. On October 14, 2012, after the balance sheet date, the Company has signed additional securities purchase agreements with Jelton in the amount of $25,000.

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STOCK OPTIONS (Details 1) (USD $)
12 Months Ended
Sep. 30, 2012
Sep. 30, 2011
Outstanding - Number Of Options 16,643,834 24,965,751
Granted - Number Of Options 0 0
Exercised - Number Of Options 16,643,834 8,321,917
Forfeited or expired - Number Of Options 0 0
Outstanding - Number Of Options 0 16,643,834
Number of options exercisable 0 13,176,369
Outstanding - Weighted Average Exercise Price $ 0.001 $ 0.001
Granted - Weighted Average Exercise Price $ 0 $ 0
Exercised - Weighted Average Exercise Price $ 0.001 $ 0.001
Forfeited or expired - Weighted Average Exercise Price $ 0 $ 0
Outstanding - Weighted Average Exercise Price $ 0 $ 0.001
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INCOME TAXES (Tables)
12 Months Ended
Sep. 30, 2012
Income Tax Disclosure [Abstract]  
Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

The breakdown of the deferred tax asset as of September 30 2012, 2011 and 2010 is as follows:

 

  2012  2011  2010 
  U.S dollars in thousands 
Deferred tax assets:            
Net operating loss carry-forward $1,357  $386  $225 
Valuation allowance  (1,357)  (386)  (225)
  $0  $0  $0
Summary of Valuation Allowance [Table Text Block]
  U.S dollars
in thousands
 
Valuation allowance, September 30, 2011 $386 
Increase  971 
Valuation allowance, September 30, 2012 $1,357

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