Convertible Notes
Convertible Notes Series A:
Series A notes (i) have a conversion rate of a 45% discount to the daily VWAP (volume – weighted average price, which is a measure of the average price the stock has traded over the trading horizon) price of the common stock based on a five day period prior to the date of conversion, the rate is subject to certain adjustments, (ii) have an annual interest rate of 12%, due at maturity, (iii) have a new maturity date of 1 year from issuance date, (iv) prepayment is permitted only with a premium of 50% of the amount being repaid, (v) have a ratchet protection of the conversion anti-dilution provisions for all future issuances or potential issuances of securities by the company at less than the then conversion rate, and (vi) have additional default provisions, including additional events of default and an default interest rate of 24.99%. The company has also agreed that the assigned debt will not be subordinate to new debt, other than purchase money and similar debt, which may have the effect of limiting the company’s access to additional debt capital while the notes are outstanding. Based on the above and without taking into account the conversion of any of the interest to be earned or converted, the principal if fully converted represents the potential issuance of 50,000,000 shares, limited to a maximum conversion right at any one time to 4.99% of the then outstanding shares of common stock of the company.
During the year ended December 31, 2013, the company agreed to the assignment of an additional $175,000 in principal of outstanding promissory note to a third party under the same terms as discussed above.
During the nine months ended September 30, 2014, the company agreed to the assignment of an additional $100,000 in principal of outstanding promissory note to a third party under the same terms as discussed above.
