The Convertible Notes matures on April 29, 2015 and accrue interest at an annual rate of 8.0%. Under terms of the private placement, after six months from the Convertible Notes’ issuance, or October 29, 2014, (the “Holding Period”), the Convertible Notes may be converted, in whole or in part, at Hanover’s option, at a fixed conversion price of $0.15 per share of the Company’s common stock (“Common Stock”), and subject to certain limitations and exceptions stated within each of the Convertible Notes. After the Holding Period, Hanover will be entitled to convert any portion of the Convertible Notes to the extent that after such conversion, Hanover (together with its affiliates) would beneficially own no more than 4.99% of the outstanding shares of the Common Stock as of such date. After any conversion, Hanover may not sell more than 20% of the trading volume of the Common Stock during any single trading day.
The Convertible Notes include customary event of default provisions. At the option of the Hanover, i) the Convertible Notes shall become immediately due and payable and the Borrower shall pay to Hanover, in full satisfaction of its obligations hereunder, an amount equal to 150% times the sum of (w) the then outstanding principal amount of each Convertible Note, plus (x) accrued and unpaid interest on the unpaid principal amount of each Convertible Note to the date of its payment, plus (y) Default interest, if any, on the amounts referred to as (w) and (x), plus (z) any amount owed to Hanover under the terms and conditions of the Convertible Notes (that is, the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z), collectively, the “Default Sum”), or ii) may convert each Convertible Note into Common Stock at a conversion price equal to a 30% discount from the lowest trading price in the five (5) trading days prior to said conversion. Notwithstanding the foregoing, upon the occurrence and during the continuation of any event of default, i) the Convertible Notes shall become immediately due and payable and the Company shall pay to Hanover, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum multiplied by two (2); and ii) all amounts payable under the Convertible Notes shall immediately become due and payable without demand, presentment or notice, which are expressly waived, together with all costs, including without limitation, legal fees and expenses, of collection, by the Company; and iii) Hanover shall be entitled to all other rights and remedies available at law or in equity
