UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
(Amendment No. 3)
(Mark One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Fiscal Year Ended November 30, 2014
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT
For the transition period from ________ to ________
FORCE MINERALS CORPORATION
(Exact name of registrant as specified in its charter)
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Nevada
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(State or other jurisdiction of Incorporation)
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| 6302 Mesedge Drive, Colorado Springs, CO 80919
(Address of principal executive offices)
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| (970) 660-8197
(Registrant’s Telephone Number)
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Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None
Not Applicable
Securities registered under Section 12(g) of the Exchange Act:
Title of class
Common Stock, Par Value $0.001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
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 Act.
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 was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
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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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
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.
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Large accelerated filer
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| Accelerated filer
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Non-accelerated filer
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| Smaller reporting company
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant as of November 30, 2014was $75,115 based upon the price ($0.0250) at which the common stock was last sold as of the last business day of the most recently completed second fiscal quarter, multiplied by the approximate number of shares of common stock held by persons other than executive officers, directors and five percent stockholders of the registrant without conceding that any such person is an “affiliate” of the registrant for purposes of the federal securities laws. Our common stock is traded in the over-the-counter market and quoted on the Over-The-Counter Bulletin Board.
As of January 5, 2015, there were 15,154,003 shares of the registrant’s $0.001 par value common stock issued and outstanding.
Documents incorporated by reference: None
Explanatory Note
The purpose of this Amendment No. 3 (this “Amendment”) to the Annual Report on Form 10-K of Force Minerals Corporation, formerly known as Force Energy Corp. (the “Company”), for the fiscal year ended November 30, 2014, and filed with the Securities and Exchange Commission (“SEC”) on March 2, 2015 (the “Original Filing”), as amended by that certain Annual Report on Form 10-K/A filed with the SEC on March 6, 2015 (Amendment No.1”), and as further amended by that certain Annual Report on Form 10-K/A filed with the SEC on March 9, 2015 (“Amendment No. 2”), is to (i) include as exhibits Exhibits 10.44 -10.49, inclusive; (ii) include a report of our auditor regarding the financial statements included in this Amendment; (iii) revise the executive compensation disclosure; (iv) revise the beneficial ownership disclosure; and (v) reconcile the signatures of the Company’s Principal Executive Officer and Principal Financial Officer to (a) the Exhibits 31 and 32 Certifications and (b) this Amendment. For convenience ofthe reader, this Amendment specifies the Original Filing in its entirety, as amended by Amendment No. 1 and Amendment No. 2, and as further amended by this Amendment. Except for those revisions specified by clauses (i) through (v), inclusive, of this Explanatory Note, this Amendment does not amend or otherwise update any other information in the Original Filing, as amended by Amendment No. 1 and Amendment No. 2. Accordingly, this Amendment should be read in conjunction with the Original Filing, Amendment No. 1 and Amendment No. 2. As required by the provisions of Rule 12b-15 promulgated pursuant to the Securities Exchange Act of 1934, new certifications by the Company’s Principal Executive Officer and Principal Financial Officer are filed as exhibits to this Amendment.
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Table of Contents
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| PART I
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Item 1
| Business
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Item 1A
| Risk Factors
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Item 1B
| Unresolved Staff Comments
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Item 2
| Properties
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Item 3
| Legal Proceedings
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Item 4
| Mine Safety Disclosures
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| PART II
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Item 5
| Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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Item 6
| Selected Financial Data
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Item 7
| Management's Discussion and Analysis of Financial Condition and Results of Operations
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Item 7A
| Quantitative and Qualitative Disclosures about Market Risk
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Item 8
| Financial Statements and Supplementary Data
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Item 9
| Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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Item 9A
| Controls and Procedures
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Item 9B
| Other Information
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| PART III
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Item 10
| Directors and Executive Officers and Corporate Governance
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Item 11
| Executive Compensation
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Item 12
| Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
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Item 13
| Certain Relationships and Related Transactions
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Item 14
| Principal Accountant Fees and Services
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| PART IV
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Item 15
| Exhibits
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. These risks and uncertainties include the following:
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The availability and adequacy of our cash flow to meet our requirements;
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Economic, competitive, demographic, business and other conditions in our local and regional markets;
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Changes or developments in laws, regulations or taxes in our industry;
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Actions taken or omitted to be taken by third parties including our suppliers and competitors, as well as legislative, regulatory, judicial and other governmental authorities;
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Competition in our industry;
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The loss of or failure to obtain any license or permit necessary or desirable in the operation of our business;
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Changes in our business strategy, capital improvements or development plans;
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The availability of additional capital to support capital improvements and development; and
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Other risks identified in this report and in our other filings with the Securities and Exchange Commission or the SEC.
This report should be read completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
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Use of Terms
Except as otherwise indicated by the context, references in this report to “Company”, “FORC”, “Force Energy Corp.,”“we”, “us” and “our” are references to Force Minerals Corp.All references to “USD” or United States Dollars refer to the legal currency of the United States of America.
PART I
ITEM 1. BUSINESS
Corporate History
We are currently engaged in the business of identifying, evaluating, and qualifying potential natural gas and oil wells; investing in interests in those wells with the goal of producing commercially marketable quantities of oil and natural gas. We have recently expanded our business model to include the exploration of mineral claims for rare earth minerals.
The Company was incorporated in the state of Nevada, United States of America on November 1, 2006. The Company was formed for the purpose of acquiring exploration and development stage natural resource properties.
Effective December 28, 2006, the Board of Directors authorized a 3 for 1 forward stock split of the common shares. The authorized number of common shares increased from 90,000,000 to 270,000,000 common shares with a par value of $0.001. All references in the accompanying financial statements to the number of common shares have been restated to reflect the forward stock split.
On February 12, 2008, the Company acquired 100% of the common shares of Force Energy Corp. an inactive company incorporated in Nevada on July 19, 2005, for $100, to effect a name change of the Company. On February 12, 2008, the Company and Force Energy Corp filed articles of merger with the Secretary of State of Nevada to effectuate a merger between the two companies. The surviving entity of the merger was the Company. Immediately thereafter the Company changed its name to Force Energy Corp.
Effective June 28, 2013, the Company with the approval from the Financial Industry Regulatory Authority (“FINRA”), the Company has among other things (i) changed its name from “Force Energy Corp.” to “Force Minerals Corporation”, and (ii) authorized and approved a reverse stock split of One for One Hundred (1:100) of our total issued and outstanding shares of common stock (the "Stock Split"). The Stock Split decreased our total issued and outstanding shares of common stock from 230,992,890 to 2,309,928 shares of common stock. The common stock will continue to be $0.001 par value. The shareholder record date was June 14, 2013. The Stock Split shares are payable upon surrender of certificates to the Company's transfer agent. Fractional shares will be rounded upward.
On October 28, 2013, the Board of Directors of the Company with the approval of a majority vote of its shareholders, designated four million (4,000,000) shares of the ten million (10,000,000) authorized preferred stock of our company as “Series A Preferred Stock” by filing a Certificate of Designation with the Secretary of State of the State of Nevada. The Series A Preferred Stock has 100 votes per share and is convertible into shares of our common stock. The Holders of the Series A Preferred Stock, may not convert and hold more than 9.9% of the common stock outstanding at any one time.
The Hayter Well
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We presently hold a 50% working interest of the County Line Energy Corp. interest in the Hayter Well located in Alberta, Canada.
County Line Energy Corp. is the operator of the Hayter well. The Hayter well has been cased and cemented in anticipation of the completion of the drill program. County Line plans to enter the Hayter well, perforate the potential pay zones and conduct regular production testing of the zones. Should the testing confirm adequate oil reserves and potential economic flow rates, County Line is expected to install adequate pumping equipment and other surface facilities in anticipation of the projected flow rates. Currently, there are no known oil reserves on the Hayter well.
We have not incurred any development costs on the Hayter Well for the year ended November 30, 2014.
La Predilecta Properties
On May 30, 2013, the Companyentered into a Mineral Property Acquisition Agreement (the "MPAA") with Highlander Overseas, Inc., a West Indies corporation (“Highlander”). Pursuant to the terms and conditions of the MPAA, Highlander shall grant the Company with the right to acquire one hundred percent (100%) of the mining interests in those certain four concessions known as La Predilecta, La Predilecta II, La Crus, and La Cascada (the “Property”) which is comprised of a total of approximately Three Thousand One Hundred Eighty One Hectares (3,181 ha) and is located in Miahuatlan District, in the Southern portion of Valles Centrales Region within Oaxaca State, Mexico. In exchange, the Company is required to: (i) pay two cash payments of Fifty Thousand dollars ($50,000) to Highlander for a total of One Hundred Thousand dollars ($100,000), the first payment of $50,000 is to be paid within 60 days after both parties have executed the MPAA, and the second payment is to be paid 90 days after both parties have executed the MPAA, and (ii) issue an aggregate of four million (4,000,000) restricted shares of the Company’s preferred common stock to Highlander, per the terms and conditions of the MPAA.
The Hayter Well
Purchase of Interest in the Hayter Well
On August 1, 2006, County Line Energy Corp. (“County Line”) signed a participation agreement with Black Creek Resources Ltd. (“BCR”) in which County Line acquired the right to become the operator and drill the Hayter well (10D Hayter 10-8-40-1 W4M) located in Alberta, Canada. In order to exercise that interest and acquire the rights to drill the Hayter well, County Line agreed to pay 100% of all costs associated with the seismic option agreement and pay 100% of the funds required to purchase rights to any existing seismic on the property which may be for sale and or shoot additional 2D and 3D on the property as required, pursuant to standard industry costs and practices.
Pursuant to a Participation Agreement dated December 21, 2006 between Black Creek Resources Ltd (“BCR”) and Nuance Exploration Ltd. (“NEL”), a wholly owned subsidiary of the Company, we acquired a 100% ownership in the interpretation of 3D seismic data covering four sections of certain land located in the province of Alberta, Canada by paying $82,650 for the purpose of acquiring and interpreting the seismic data. On October 15, 2007, prior to the evaluation of the 3D seismic data, County Line sold to BCR its 100% interest in the subject property and received as consideration a non-interest bearing promissory note for $111,144 (CDN$110,000) to be repaid by November 30, 2007.
On November 30, 2007, County Line did not repay the amounts owing pursuant to the promissory note and NEL and County Line entered into a Participation Agreement whereby NEL accepted a 20% interest of the Grantor’s working interest in the County Line 10D Hayter 10-8-40-1 W4M well as full and final settlement of the promissory note. Pursuant to the terms of the Participation agreement NEL agreed to assume 20% of all revenues, costs and expenses associated with the project.
During our first fiscal quarter of 2009 we advanced $23,938 (CDN$29,000) to County Line Energy Corp for costs and expenses associated with the Hayter Well as an unsecured loan. On October 16, 2009 we entered into an amendment to our participation agreement with County Line pursuant to which we acquired an additional 30% working interest in the Hayter Well in consideration of a release by Force from all amounts owed by County Line to Force. Following our entry
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into the amended participation agreement we now hold a 50% working interest in the County Line Energy Corp. interest in the Hayter Well.
We have not incurred any development costs on the Hayter Well for the year ended November 30, 2014.
Location of Hayter Well
Force Energy Corp. has a 50% working interest of the County Line Energy Corp. interest in the Hayter Well (10D Hayter 10-8-40-1 W4M) located in Alberta, Canada. The well was spudded in January 2007 and drilled to a total depth. The well logs revealed a gas zone of 4 to 5 meters of thickness in a shallow zone and a heavy oil pay zone of 2 meters of thickness in the target Dina Sand zone.
County Line completed a $650,000 3D seismic program covering nine sections of land in pursuit of a potential multi well heavy oil drilling opportunity. The geological model was based on interpretation from a previous well, which produced 16,000 barrels of heavy oil. The seismic program was designed to determine whether the structure found in this well existed to a larger extent on the subject property. The 3D seismic revealed an extremely large anomaly with similar characteristics. The nature of this large anomaly suggested that a multi well drilling opportunity might exist.
County Line Energy Corp. is the operator of the Hayter well. The Hayter well has been cased and cemented in anticipation of the completion of the drill program. County Line plans to enter the Hayter well, perforate the potential pay zone(s) and conduct regular production testing of the zone(s). Should the testing confirm adequate oil reserves and potential economic flow rates, County Line is expected to install adequate pumping equipment and other surface facilities in anticipation of the projected flow rates. Currently, there are no known oil reserves on the Hayter well.
Oil and Gas Properties and Wells
On March 9, 2009, Force received a report on reserves data for the Hayter Well prepared by its independent engineers, Chapman Petroleum Engineering Ltd.
The following table sets forth the number of wells in which the Company held a working interest as at November 30, 2009:
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The Company has not since the beginning of its most recently completed fiscal year, filed any annual estimates of proved oil and gas reserves with any federal agencies. As at November 30, 2013, the 50% working interest of the Hayter Well was recorded at $135,427.
Competition
The mineral exploration and oil and gas industries, in general, are intensely competitive and even if commercial quantities of reserves are discovered, a ready market may not exist for the sale of the reserves.
Most companies operating in this industry are more established and have greater resources to engage in the production of mineral or oil and gas claims (the “claims”). Our resources at the present time are limited. We may exhaust all of our resources and be unable to complete full exploration of our claims. There is also significant competition to retain qualified personnel to assist in conducting mineral exploration activities. If a commercially viable deposit is found to exist and we are unable to retain additional qualified personnel, we may be unable to enter into production and achieve profitable operations. These factors set forth above could inhibit our ability to compete with other companies in the industry and enter into production of the claims if a commercial viable deposit is found to exist.
Numerous factors beyond our control may affect the marketability of any substances discovered. These factors include market fluctuations, the proximity and capacity of natural resource markets and processing equipment, government regulations, including regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals and environmental protection. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in not receiving an adequate return on invested capital.
Compliance with Government Regulation
We are required to obtain licenses and permits from various governmental authorities. These permits or licenses may include water and surface use permits, occupation permits, fire permits, timber permits,drilling and abandonment bonds, reports concerning operations, the spacing of wells, and pooling of properties and taxation. Prior to being issued the various permits or licenses, the applicant must file a detailed work plan with the applicable government agency. Permits are issued on the basis of the work plan submitted and approved by the governing agency. Additional work on a given mineral property or a significant change in the nature of the work to be completed would require an amendment to the original permit or license.
As part of the permit or licensing requirements, the applicant may be required to post an environmental reclamation bond in respect to the work to be carried out on the mineral property. The amount of such bond is determined by the amount and nature of the work proposed by the applicant. The amount of a bond may also be increased with increased levels of development on the property.
We anticipate that we will be able to obtain all necessary licenses and permits to carry on the activities which we intend to conduct, and that we intend to comply in all material respects with the terms of such licenses and permits.As we have not proceeded to the development of our properties, we have not incurred any expenditures related to complying with such laws, or for remediation of existing environmental contamination. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations.
Subsidiaries
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We have two wholly owned subsidiaries, FRC Exploration Ltd. (a British Columbia Corporation) and Nuance Exploration Ltd. (a British Columbia Corporation).
Employees
Currently Tim DeHerrera is a Director for the Company. On October 1, 2014 Nathan Lewis was appointed as the Company’s President, Treasurer, Secretary and Director. We anticipate that we will be conducting most of our business through agreements with consultants and third parties.We plan to outsource independent consultant engineers and geologists on a part time basis to conduct specific corporate business and exploration programs on our properties in order to carry out our plan of operationsfor the foreseeable future. Consultants will be retained on the basis of ability and experience.
WHERE YOU CAN GET ADDITIONAL INFORMATION
We file annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy our reports or other filings made with the SEC at the SEC’s Public Reference Room, located at 100 F Street, N.E., Washington, DC 20549. You can obtain information on the operations of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also access these reports and other filings electronically on the SEC’s web site, www.sec.gov.
ITEM 1A. RISK FACTORS
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
An investment in the Company's common stock involves a high degree of risk. One should carefully consider the following risk factors in evaluating an investment in the Company's common stock. If any of the following risks actually occurs, the Company's business, financial condition, results of operations or cash flow could be materially and adversely affected. In such case, the trading price of the Company's common stock could decline, and one could lose all or part of one's investment. One should also refer to the other information set forth in this report, including the Company's consolidated financial statements and the related notes.
Our common stock is considered a "penny stock". The application of the "penny stock" rules to our common stock could limit the trading and liquidity of the Common stock, adversely affect the market price of our common stock and increase the transaction costs to sell those shares.
Our common stock is a "low-priced" security or "penny stock" under rules promulgated under the Securities Exchange Act of 1934, as amended. In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document, which describes the risks associated with such stocks, the broker-dealer's duties in selling the stock, the customer's rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer's financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions will likely decrease the willingness of broker-dealers to make a market in our common stock, will decrease liquidity of our common stock and will increase transaction costs for sales and purchases of our common stock as compared to other securities.
The company continues to use significant amounts of cash for its business operations, which could result in us having insufficient cash to fund the company's operations and expenses under our current business plan.
The Company's liquidity and capital resources remain limited. There can be no assurance that the Company's liquidity or capital resource position would allow us to continue to pursue our current business strategy. Any fluctuations or downturn in the securities market could adversely affect the value of our outstanding securities. As a result, without achieving growth in our business along the lines we have projected, we would have to alter our
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business plan or further augment our cash flow position through cost reduction measures, sales of assets, additional financings or a combination of these actions. One or more of these actions would likely substantially diminish the value of its common stock.
Because of the unique difficulties and uncertainties inherent in the mineral exploration business, we face a high risk of business failure.
Potential investors should be aware of the difficulties normally encountered by new mineral exploration companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the problems, expenses, difficulties, complications and delays encountered in connection with the exploration of mineral properties. These potential problems include, but are not limited to, unanticipated problems relating to exploration, and additional costs and expenses that may exceed current estimates. The search for valuable minerals also involves numerous hazards. As a result, we may become subject to liability for such hazards, including pollution, cave-ins and other hazards against which we cannot insure or against which we may elect not to insure. At the present time, we have no coverage to insure against these hazards. The payment of such liabilities may have a material adverse effect on our financial position. In addition, there is no assurance that the expenditures to be made by us in the exploration of the mineral claims will result in the discovery of mineral deposits. Problems such as unusual or unexpected formations and other conditions are involved in mineral exploration and often result in unsuccessful exploration efforts.
If we are unable to successfully compete within the mineral exploration business, we will not be able to achieve profitable operations.
The mineral exploration business is highly competitive. This industry has a multitude of competitors and no small number of competitors dominates this industry with respect to any of the large volume metallic minerals. Our exploration activities will be focused on attempting to located commercially viable mineral deposits on our claims. Many of our competitors have greater financial resources than us. As a result, we may experience difficulty competing with other businesses when conducting mineral exploration activities on our claims. If we are unable to retain qualified personnel to assist us in conducting mineral exploration activities on our claims; if a commercially viable deposit is found to exist, we may be unable to enter into production and achieve profitable operations.
There is substantial uncertainty about the ability of Force Minerals Corp. to continue its operations as a going concern.
In their audit report, our auditors have expressed an opinion that substantial doubt exists as to whether we can continue as an ongoing business. Because our officers may be unwilling or unable to loan or advance any additional capital to Force Minerals Corp., we believe that if we do not raise additional capital within 12 months, we may be required to suspend or cease the implementation of our business plans. As such we may have to cease operations and you could lose your entire investment.
Because the Company has been issued an opinion by its auditors that substantial doubt exists as to whether it can continue as a going concern it may be more difficult to attract investors.
Risks Related To Our Financial Condition
Because we anticipate our operating expenses will increase prior to our earning revenues, we may never achieve profitability.
Prior to completion of our exploration stage, we anticipate that we will incur increased operating expenses without realizing any revenues. We expect to incur continuing and significant losses into the foreseeable future. As a result of continuing losses, we may exhaust all of our resources and be unable to complete the exploration of our properties. Our accumulated deficit will continue to increase as we continue to incur losses. We may not be able to earn profits or continue operations if we are unable to generate significant revenues from the exploration of our mineral claims. There is no history upon which to base any assumption as to the likelihood that we will be successful, and we may not be able to generate any operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
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If we do not obtain adequate financing, our business will fail, resulting in the complete loss of your investment.
If we are not successful in earning revenues once we have started our planned sales activities, we may require additional financing to sustain business operations. Currently, we do not have any arrangements for financing and we may be unable to obtain financing when required. Obtaining additional financing would be subject to a number of factors, including the Company’s ability to attract customers. The Company may be unable to access to capital markets in the future or that financing, adequate to satisfy the cash requirements of implementing our business strategies, will be available on acceptable terms. The inability of the Company to gain access to capital markets or obtain acceptable financing could have a material adverse effect upon the results of its operations and upon its financial conditions.
The company’s management could issue additional shares, since the company has 750,000,000 authorized common shares, diluting the current shareholders’ equity.
The Company has 750,000,000 common shares, of which 15,154,003are currently issued and outstanding. The Company’s management could, without the consent of the existing shareholders, issue substantially more shares, causing a large dilution in the equity position of the Company’s current shareholders. Additionally, large share issuances would generally have a negative impact on the Company’s share price. It is possible that, due to additional share issuance, you could lose a substantial amount, or all, of your investment.
Our board of directors has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and may grant voting powers, rights and preference that differ from or may be superior to those of the registered shares.
Our articles of incorporation allow us to issue 10,000,000 shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. Our board of directors also has the authority to issue preferred stock without further stockholder approval, including large blocks of preferred stock. Furthermore, TimDeHerrera serves as our sole director and, therefore, has the ability to issue preferred stock without shareholder approval. As a result, our sole director could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
Future sales of our common stock could put downward selling pressure on our common stock, and adversely affect the per share price. There is a risk that this downward pressure may make it impossible for an investor to sell share of common stock at any reasonable price, if at all.
Future sales of substantial amounts of our common stock in the public market or the perception that such sales could occur, could put downward selling pressure on our common stock and adversely affect its market price.
We do not anticipate paying dividends in the foreseeable future.
We do not anticipate paying dividends on our common stock in the foreseeable future, but plan rather to retain earnings, if any, for the operation, growth and expansion of our business. Because the Company does not anticipate paying cash dividends in the foreseeable future which may lower expected returns for investors, and as such our stockholders will not be able to receive a return on their investment unless they sell their shares of common stock.
Because we expect to incur losses in the future, failure to generate revenues will cause us to go out of business and your entire investment could be lost.
Based upon current plans, we expect to incur operating losses in future periods because we will be incurring expenses and not generating revenues. We cannot guarantee that we will be successful in generating revenues in the future. Failure to generate revenues will cause us to go out of business.
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Our operating results may prove unpredictable, which could result in the complete loss of your investment.
Our operating results are likely to fluctuate significantly in the future due to a variety of factors, many of which we have no control. Factors that may cause our operating results to fluctuate significantly include: our ability to generate enough working capital from future equity sales; the level of commercial acceptance by the public of our services; fluctuations in the demand for secure online storage; the amount and timing of operating costs and capital expenditures relating to expansion of our business, operations, infrastructure and general economic conditions.
If realized, any of these factors could have a material adverse effect on our business, financial condition and operating results, which could result in the complete loss of your investment.
As the company’s officer and directors both have other outside business activities, he may not be in a position to devote a majority of his time to the company, which may result in periodic interruptions or business failure.
Both Mr. DeHerrera and Mr. Lewis our officer and directors, have other business interests and currently devote approximately 20 hours per week to our operations. If the demands of the Company’s business requires more business time of our officer and directors, theyare prepared to adjust timetables to devote more time to the Company’s business. Any such delays could have a significant negative effect on the success of the business.
Key management personnel may leave the company, which could adversely affect the ability of the company to continue operations.
The Company is entirely dependent on the efforts of its sole officer and director. The Company does have an employment agreement in place with its sole officer and directors. Their departure or the loss of any other key personnel in the future could have a material adverse effect on the business. The Company believes that all commercially reasonable efforts have been made to minimize the risks attendant with the departure by key personnel from service. However, there is no guarantee that replacement personnel, if any, will help the Company to operate profitably. The Company does not maintain key person life insurance on its sole officer and directors.
In the case if the company is dissolved, it is unlikely that there will be sufficient assets remaining to distribute to the shareholders.
In the event of the dissolution of the Company, the proceeds realized from the liquidation of its assets, if any, will be distributed to the shareholders only after the claims of the Company’s creditors are satisfied.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
A description of our oil and gas properties is set forth above in this Annual Report under the heading “Business.” As of the date of this filing, the Company has not sought to move our office. Additional space may be required as the Company expands its operations. Management does not foresee any significant difficulties in obtaining any required additional space. The Company currently does not own any real property.
ITEM 3. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against our company, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which our director, officer or any affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest.
ITEM 4. MINE SAFETY DISCLOSURE
None.
12
PART II
ITEM 5. MARKET FOR THE COMPANY’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Common Stock
Our common stock is currently quoted on the OTC Markets. Our common stock has been quoted on the OTC Markets since October 3, 2007 trading under the symbol “NUNC”. On February 25, 2008, our symbol was changed to “FORC” to reflect our Company’s name change Because we are quoted on the OTC Markets, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a national securities exchange.
The following table sets forth the high and low bid prices for our Common Stock per quarter as reported by the OTCQB for the period from December 1, 2013, through November 30, 2014,based on our fiscal year end November 30. These prices represent quotations between dealers without adjustment for retail mark-up, markdown or commission and may not represent actual transactions.
| | | | | | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| First Quarter
|
|
| Second Quarter
|
|
| Third Quarter
|
|
| Fourth Quarter
|
2014 – High
|
| 0.09
|
|
|
| 0.0288
|
|
|
| 0.015
|
|
| 0.0135
|
2014 – Low
|
| 0.024
|
|
|
| 0.0081
|
|
|
| 0.0036
|
|
| 0.003
|
2013 – High
|
| 0.015
|
|
|
| 1.60
|
|
|
| 0.35
|
|
| 0.12
|
2013 – Low
|
| 0.003
|
|
|
| 0.21
|
|
|
| 0.05
|
|
| 0.025
|
Record Holders
As of January 5, 2015, there were 15,154,003shares of the registrant’s $0.001 par value common stock issued and outstanding and were owned by approximately 91 holders of record, based on information provided by our transfer agent.
Penny Stock Regulation
Shares of our common stock will probably be subject to rules adopted the SEC that regulate broker-dealer practices in connection with transactions in “penny stocks”. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in those securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the SEC, which contains the following:
|
-
a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
|
-
a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities’ laws;
|
-
a brief, clear, narrative description of a dealer market, including "bid" and "ask” prices for penny stocks and the significance of the spread between the "bid" and "ask" price;
|
-
a toll-free telephone number for inquiries on disciplinary actions;
|
-
definitions of significant terms in the disclosure document or in the conduct of trading in penny stocks; and
|
-
such other information and is in such form (including language, type, size and format), as the SEC shall require by rule or regulation.
|
Prior to effecting any transaction in penny stock, the broker-dealer also must provide the customer the following:
|
-
the bid and offer quotations for the penny stock;
|
-
the compensation of the broker-dealer and its salesperson in the transaction;
|
-
the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
|
-
monthly account statements showing the market value of each penny stock held in the customer's account.
|
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. Holders of shares of our common stock may have difficulty selling those shares because our common stock will probably be subject to the penny stock rules.
Description of Registrant’s Securities
We have authorized capital stock consisting of 750,000,000 shares of common stock, $0.001 par value per share (“Common Stock”) and 10,000,000 shares of preferred stock, $0.001 par value per share (“Preferred Stock”).
Preferred Stock
On October 28, 2013, the Board of Directors of the Company with the approval of a majority vote of its shareholders, designated four million (4,000,000) shares of the ten million (10,000,000) authorized preferred stock of our company as “Series A Preferred Stock” by filing a Certificate of Designation with the Secretary of State of the State of Nevada. The Series A Preferred Stock has 100 votes per share and is convertible into shares of our common stock. The Holders of the Series A Preferred Stock, may not convert and hold more than 9.9% of the common stock outstanding at any one time.
Equity Compensation Plans
We do not have any equity compensation plans in place, whether approved by the shareholders or not.
Warrants, Options and Convertible Securities
We do not have any outstanding warrants, options or convertible securities.
Recent Sales of Unregistered Securities
Between December 12, 2012 and February 28, 2013, we issued an aggregate of 17,884,615 common shares with an aggregate fair value of $76,202, upon the conversion $38,000 of a convertible note which was due upon demand.
14
On January 12, 2013, we issued 5,000,000 common shares with an aggregate fair value of $24,200, upon the conversion $12,000 of a convertible note which falls due on March 14, 2013.
Between December 12, 2012 and May 31, 2013, we issued an aggregate of 245,868 common shares with an aggregate fair value of $100,200, upon the conversion of $50,000 of a convertible note, which was due upon demand.
Between January 12, 2013, and May 31, 2013, we issued 192,576 common shares with an aggregate fair value of $86,500, upon the conversion of accrued interest of $1,700 and $42,500 principal of a convertible note, which falls due on March 14, 2013.
Between May 2, 2013 and May 31, 2013, we issued 189,679 common shares with an aggregate fair value of $51,300, upon the conversion of $25,900 of a convertible note, which fell due on May 21, 2013.
We issued 500,000 shares to our officer and director, Tim DeHerrera, to settle amounts owing under a prior contract of $22,125 and 278,750 shares are to be earned over the period of his employment agreement.
On June 26, 2013, we issued 4,000,000 shares of preferred stock to Highlander Overseas, Inc. in connection with a Mineral Property Acquisition Agreement.
From August 31, 2013 until November 30, 2013, we issued 586,139 common shares upon the conversion of $10,900 of a convertible note, which fell due on June 14, 2013.
From December 1, 2013 until November 30, 2014, we issued 10,843,624 common shares upon the conversion of $51,350 of a convertible note, which fell due on June 14, 2013.
Subsequent Issuances
From December 1, 2014 to January 5, 2015, the holders of a convertible notes converted a total of $675 of principal into 1,305,769 shares of our common stock.
Other than as previously disclosed, none.
Re-Purchase of Equity Securities
None.
Dividends
We have not paid any cash dividends on our common stock since inception and presently anticipate that all earnings, if any, will be retained for development of our business and that no dividends on our common stock will be declared in the foreseeable future. Any future dividends will be subject to the discretion of our Board of Directors and will depend upon, among other things, future earnings, operating and financial condition, capital requirements, general business conditions and other pertinent facts. Therefore, there can be no assurance that any dividends on our common stock will be paid in the future.
Securities Authorized for Issuance Under Equity Compensation Plans
None.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This Annual Report on Form 10-K contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections. We may use words such as “anticipate,” “expect,” “intend,” “plan,” “believe,” “foresee,” “estimate” and variations of these words and similar expressions to identify forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted. You should read this report completely and with the understanding that actual future results may be materially different from what we expect. The forward-looking statements included in this report are made as of the date of this report and should be evaluated with consideration of any changes occurring after the date of this Report. We will not update forward-looking statements even though our situation may change in the future and we assume no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.
Working Capital
| | |
|
|
|
| November 30, 2014
$
| November 30, 2013
$
|
Current Assets
| -
| -
|
Current Liabilities
| 1,198.413
| 523,739
|
Working Capital (Deficit)
| (1,198,413)
| (523,739)
|
Cash Flows
| | |
|
|
|
| November 30, 2014
$
| For the Period from
November 1, 2006
(date of inception) to
November 30, 2014
$
|
Cash Flows used by Operating Activities
| (472,097)
| (2,350,512)
|
Cash Flows provided by Investing Activities
| -
| (1,662,267)
|
Cash Flows provided by Financing Activities
| 474,163
| 4,012,779
|
Net Increase (decrease) in Cash During Period
| 0
| (35,442)
|
Results for the Year Ended November 30, 2014Compared to the Year Ended November 30, 2013
Revenues:
The Company’s revenues were $0 for the year ended November 30, 2014compared to $0 in 2013.
Cost of Revenues:
The Company’s cost of revenue was $0 for the year ended November 30, 2014, compared to $0 in 2013.
General and Administrative Expenses:
General and administrative expenses for the year ended November 30, 2014, and November 30, 2013 were $575,371 and $485,741, respectively. General and administrative expenses consisted primarily of consulting fees, management fees, office expensesand preparing reports and SEC filings relating to being a public company. The increase was primarily attributable to an increase in management fees for normal operations.
16
Other Income (Expense):
Other income (expense) consisted of loss on derivative valuation and interest expense. The loss on derivative valuation is directly attributable to the change in fair value of the derivative liability from date of issuance during 2013 through November 30, 2014. Interest expense is primarily attributable to the initial interest expense associated with the valuation of derivative instruments at issuance and the accretion of the convertible debentures over their respective terms. Interest associated with the derivative instruments for the year ended November 30, 2014amounted to approximately $(451,040), compared to $(306,706) in 2013. The change in value on derivative valuation expense for the year ended November 30, 2014 was $(16,704), compared to $(107,920) in 2013.
Net Loss:
Net loss for the year ended November 30, 2014, was $(1,033,400) compared with a net loss of $(898,106) for the year ended November 30, 2013. The decreased net loss is due to a decrease in consulting fees, general and administrative expenses and convertible note expenses.
Results for the Period from November 1, 2006 (Inception of Exploration Stage) through November 30, 2014
Revenues:
The Company’s revenue was$0 for the period from November 1, 2006 (Inception of Exploration Stage) throughNovember 30, 2014.
Cost of Revenues
The Company’s cost of revenue was $0 for the period from November 1, 2006 (Inception of Exploration Stage) throughNovember 30, 2014.
General and Administrative Expenses:
General and administrative expenses for the period from November 1, 2006 (Inception of Exploration Stage) through November 30, 2014 was $4,536,121.
Other Income (Expense):
Other income (expense) for the period from November 1, 2006 (Inception of Exploration Stage) through November 30, 2014was$(1,307,123).
Net Loss:
Net loss for the period November 1, 2006 (Inception of Exploration Stage) through November 30, 2014,was $(5,843,244).
Impact of Inflation
We believe that the rate of inflation has had a negligible effect on our operations.
Liquidity and Capital Resources
The ability of the Company to continue as a going concern is dependent on the Company’s ability to raise additional capital and implement its business plan. Since its inception, the Company has been funded by related parties through capital investment and borrowing funds.
As of November 30, 2014, total current assets were $0, which consisted primarily of cash, inventory and deposits.
17
As of November 30, 2014, total current liabilities were $1,198,413, which consisted primarily of accounts payable and accrued expenses and convertible debentures. We had negative net working capital of $(1,198,413) as of November 30, 2014.
During the period from November 1, 2006 (Inception of Exploration Stage) through November 30, 2014, operating activities used cash of $(2,350,512). The cash used by operating activities related to general and administrative expenses, the purchase of inventory for resale and non-cash items related to derivative instruments. Except for cash in the amount of $nil from sales of our products, all of the cash during this period was provided by related party transactions, capital contributions and convertible debentures.
Intangible Assets
The Company’s intangible assets were $0 as of November 30, 2014.
Material Commitments
The Company’s material commitments were $0 as of November 30, 2014.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund planned acquisitions and exploration activities.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Critical Accounting Policies
Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
18
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Contractual Obligations
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|
FORCE MINERALS CORP.
(F/K/A Force Energy Corporation)
|
( AN EXPLORATION STAGE COMPANY )
|
|
Index to Consolidated Financial Statements
|
|
|
|
|
| | | |
Table of Contents
|
| Page
|
|
|
| |
Report of Independent Registered Public Accounting Firm
|
| F-3
| |
Consolidated Balance Sheets as of November 30, 2014and 2013
|
| F-4
| |
Consolidated Statements of Operations and Comprehensive Loss
for the Years Ended November 30, 2014and 2013
|
| F-5
| |
Consolidated Statement of Changes in Stockholders' Equity for the Years Ended
November 30, 2014and 2013
|
| F-7
| |
Consolidated Statements of Cash Flows for the Years Ended November 30, 2014and 2013
|
| F-8
| |
Notes to Consolidated Financial Statements
|
| F-10
| |
F - 1
To the Board of Directors and Stockholders
Force Energy Corp.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTANTS
We have audited the accompanying consolidated balance sheets of Force Energy Corp. (“the Company”) as of November 30, 2014 and 2013 and the related consolidated statements of operations and comprehensive loss, changes in stockholders’ deficit and cash flows for the year ended November 30, 2014 and from November 1, 2006 (date of inception) through November 30, 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audit 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 consolidated 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 audit 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 consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company, at November 30, 2014 and 2013, and the results of its operations and its cash flows for the years ended November 30, 2014 and 2013 and from inception (November 1, 2006) through to November 30, 2014, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As described in Note 1 to the consolidated financial statements, the Company has incurred net losses since inception and has an accumulated deficit at November 30, 2014. These and other factors discussed therein raise a substantial doubt about the ability of the Company to continue as a going concern. Management’s plans in regard to those matters are also described in Note 1. The Company’s ability to achieve its plans with regard to those matters, which may be necessary to permit the realization of assets and satisfaction of liabilities in the ordinary course of business, is uncertain. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Noblesville, IndianaMarch 2, 2015
F- 2
INDEPENDENT REGISTERED PUBLIC ACCOUNTANT CONSENT
We consent to the use of our report dated March 2, 2015 relating to the financial statements of Force Minerals Corporation that are included in the Company's annual report on Form 10-K for the fiscal year ended November 30, 2014.
Dated: April 10, 2015
________________________________
David Lee Hillary, Jr.
5797 East 169th Street, Suite 100
Noblesville, IN 46062
317-222-1416
5797 East 169th Street Noblesville, IN 46062 317-222-1416 www.HillaryCPAgroup.com
| | | |
FORCE MINERALS CORPORATION
|
(A DEVELOPMENT STAGE COMPANY)
|
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
|
(Audited)
|
|
|
| From Inception
|
|
|
| (November 1, 2006)
|
| For The Years Ended
| through
|
| November 30, 2014
| November 30, 2013
| November 30, 2014
|
Operating Expenses:
|
|
|
|
Accounting and audit fees
| $ 26,466
| $ 39,928
| $ 376,339
|
Accretion of ARO
| $ 2,728
| $ 2,529
| $ 12,414
|
Advertising and promotion
| $ 66,000
| $ 78,000
| $ 144,000
|
Bank charges
| $ 2
| $ 223
| $ 5,668
|
Consulting fees
| $ 94,000
| $ 19,900
| $ 735,839
|
Depreciation
| $ -
| $ -
| $ 4,651
|
Investor relations
| $ -
| $ -
| $ 61,443
|
Legal fees
| $ 230,101
| $ 13,288
| $ 464,708
|
Management fees
| $ 153,000
| $ 314,162
| $ 1,849,762
|
Mineral property exploration costs
| $ -
| $ 50,000
| $ 114,250
|
Office expenses
| $ -
| $ 247
| $ 44,441
|
Oil and gas exploration costs
| $ -
| $ -
| $ 15,000
|
Rent
| $ 1,194
| $ 2,116
| $ 50,124
|
Tax penalties and interest
| $ -
| $ (41,814)
| $ 1,096
|
Transfer and filing fees
| $ 1,880
| $ 7,162
| $ 90,444
|
Travel
| $ -
| $ -
| $ 12,476
|
Write-off of oil and gas costs
| $ -
| $ -
| $ 553,466
|
Total Operating Expenses
| $ 575,371
| $ 485,741
| $ 4,536,121
|
|
|
|
|
Operating Loss
| $ (575,371)
| $ (485,741)
| $ (4,536,121)
|
|
|
|
|
Other Income and Expense
|
|
|
|
Other income
| $ 9,715
| $ -
| $ 9,715
|
Interest income
| $ -
| $ 2,261
| $ 2,419
|
Interest expense
| $ (451,040)
| $ (306,706)
| $ (1,179,919)
|
Total Other Income and Expense
| $ (441,325)
| $ (304,445)
| $ (1,167,785)
|
|
|
|
|
Extraordinary Items
|
|
|
|
Debt forgiveness
| $ -
| $ -
| $ 15,286
|
Loss on settlement of advance payable
| $ -
| $ -
| $ (30,000)
|
Change in fair value of derivative liability
| $ (16,704)
| $ (107,920)
| $ (124,624)
|
Total Extraordinary Items
| $ (16,704)
| $ (107,920)
| $ (139,338)
|
|
|
|
|
Net Loss for the Period
| $ (1,033,400)
| $ (898,106)
| $ (5,843,244)
|
|
|
|
|
Foreign currency exchange gain/(loss)
| $ 2,066
| $ 513
| $ 8,606
|
|
|
|
|
Comprehensive Loss for the Period
| $ (1,031,334)
| $ (897,593)
| $ (5,834,638)
|
|
|
|
|
Net gain (loss) per share: Basic and diluted
| $ (0.1230)
| $ (0.3945)
|
|
|
|
|
|
Weighted average number of shares outstanding: Basic and diluted
| 8,386,002
| 2,275,120
|
|
|
|
|
|
NOTE: All common share amounts and per share amounts in these financial statements, reflect the one hundred-for-one
|
reverse stock split of the issued and outstanding shares of the common stock of the Company, effective June 14, 2013,
|
including retroactive adjustment of common share amounts. See Note 11.
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
|
| | | | | | | | | |
FORCE MINERALS CORPORATION
|
(formerly Force Energy Corp)
|
(A Exploration Stage Company)
|
Consolidated Statement of Stockholders' Equity
|
|
|
|
|
|
|
|
| Deficit
|
|
|
|
|
|
|
|
| Accumulated
| Accumulated
|
|
|
|
|
|
| Additional
| Deferred
| Other
| during the
| Total
|
| Common Stock
| Preferred Stock
| Paid-In
| Stock
| Comprehensive
| Development
| Shareholders'
|
| Shares
| Amount
| Shares
| Amount
| Capital
| Compensation
| Income
| Stage
| Deficit
|
Capital stock issued for cash at $.005
| 23,000,000
| $ 23,000
| -
| -
| $ 92,000
| $ -
| $ -
| $ -
| $ 115,000
|
Less: commissions
| -
| -
| -
| -
| (8,000)
| -
| -
| -
| (8,000)
|
Net (loss) for the year
| -
| -
| -
| -
| -
| -
| -
| (8,944)
| (8,944)
|
Balance November 30, 2006
| 23,000,000
| 23,000
| -
| -
| 84,000
| -
| -
| (8,944)
| 98,056
|
|
|
|
|
|
|
|
|
|
|
Pursuant to agreement of merger and
|
|
|
|
|
|
|
|
|
|
plan of reorganization
| 21,354,000
| 21,354
| -
| -
| (24,058)
| -
| -
| -
| (2,704)
|
Capital stock issued for cash at $0.25
| 240,000
| 240
| -
| -
| 59,760
| -
| -
| -
| 60,000
|
Capital stock issued for cash at $0.50
| 100,000
| 100
| -
| -
| 49,900
| -
| -
| -
| 50,000
|
Net (loss) for the year
| -
| -
| -
| -
| -
| -
| -
| (79,859)
| (79,859)
|
Balance November 30, 2007
| 44,694,000
| 44,694
| -
| -
| 169,602
| -
| -
| (88,803)
| 125,493
|
|
|
|
|
|
|
|
|
|
|
Capital stock issued for cash at $0.75
| 1,000,000
| 1,000
| -
| -
| 749,000
| -
| -
| -
| 750,000
|
Pursuant to consulting service
|
|
|
|
|
|
|
|
|
|
agreements at $1.35
| 300,000
| 300
| .
| -
| 404,700
| -
| -
| -
| 405,000
|
Net (loss) for the year
| -
| -
| -
| -
| -
| -
| -
| (786,407)
| (786,407)
|
Balance November 30, 2008
| 45,994,000
| 45,994
| -
| -
| 1,323,302
| -
| -
| (875,210)
| 494,086
|
|
|
|
|
|
|
|
|
|
|
Capital stock issued for cash at $0.28
| 900,000
| 900
| -
| -
| 251,100
| -
| -
| -
| 252,000
|
Capital stock issued for oil and gas
|
|
|
|
|
|
|
|
|
|
property
| 450,000
| 450
| .
| -
| 143,550
| -
| -
| -
| 144,000
|
Net (loss) for the year
| -
| -
| -
| -
| -
| -
| -
| (403,082)
| (403,082)
|
Balance November 30, 2009
| 47,344,000
| 47,344
| -
| -
| 1,717,952
| -
| -
| (1,278,292)
| 487,004
|
|
|
|
|
|
|
|
|
|
|
Capital stock issued for cash at $0.20
| 500,000
| 500
| -
| -
| 99,500
| -
| -
| -
| 100,000
|
Capital stock issued pursuant to
|
|
|
|
|
|
| -
|
|
|
management services agreement at $ 0.22
| 2,500,000
| 2,500
| -
| -
| 547,500
| (264,000)
| -
| -
| 286,000
|
Capital stock issued for debt settlement
|
|
|
|
|
|
|
|
|
|
at $0.25
| 643,267
| 643
| -
| -
| 160,174
| -
| -
| -
| 160,817
|
Capital stock issued for cash at $0.20
| 250,000
| 250
| -
| -
| 49,750
| -
| -
| -
| 50,000
|
Amortization of deferred compensation
| -
| -
| -
| -
| -
| 93,800
| -
| -
| 93,800
|
Net (loss) for the year
| -
| -
| -
| -
| -
| -
| -
| (1,051,852)
| (1,051,852)
|
Balance November 30, 2010
| 51,237,267
| 51,237
| -
| -
| 2,574,876
| (170,200)
| -
| (2,330,144)
| 125,769
|
|
|
|
|
|
|
|
|
|
|
Capital stock issued for cash at .25
| 200,000
| 200
| -
| -
| 49,800
| -
| -
| -
| 50,000
|
Capital stock issued pursuant to
|
|
|
|
|
|
|
|
| -
|
mineral property agreement at .08
| 1,000,000
| 1,000
| -
| -
| 79,000
| -
| -
| -
| 80,000
|
Capital stock issued pursuant to
|
|
|
|
|
|
|
|
| -
|
management services agreement at .05
| 2,500,000
| 2,500
| -
| -
| 122,500
| (125,000)
| -
| -
| -
|
Amortization of deferred compensation
| -
| -
| -
| -
| -
| 215,600
| -
| -
| 215,600
|
Net (loss) for the year
| -
| -
| -
| -
| -
| -
| -
| (501,939)
| (501,939)
|
Balance November 30, 2011
| 54,937,267
| 54,937
| -
| -
| 2,826,176
| (79,600)
| -
| (2,832,083)
| (30,570)
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of the beneficial conversion
|
|
|
|
|
|
|
|
|
|
feature of the convertible notes payable
| -
| -
| -
| -
| 97,000
| -
| -
|
| 97,000
|
Conversion of promissory notes to stock
| 2,486,549
| 2,487
| -
| -
| 62,813
| -
| -
| -
| 65,300
|
Conversion of promissory notes to stock
| 6,956,813
| 6,957
| -
| -
| 68,643
| -
| -
| -
| 75,600
|
Conversion of promissory notes to stock
| 14,344,432
| 14,344
| -
| -
| 246,056
| -
| -
| -
| 260,400
|
Capital stock issued upon conversion of
|
|
|
|
|
|
|
|
|
|
advance payable to common stock at $0.02
| 3,000,000
| 3,000
| -
| -
| 57,000
| -
| -
| -
| 60,000
|
Capital stock issued pursuant to consultancy
|
|
|
|
|
|
|
|
|
|
agreement at $0.02
| 2,691,926
| 2,692
| -
| -
| 51,146
| -
| -
| -
| 53,838
|
Capital stock issued pursuant to consultancy
|
|
|
|
|
|
|
|
|
|
agreement at $0.028
| 6,000,000
| 6,000
| -
| -
| 118,500
| -
| -
| -
| 124,500
|
Capital stock issued pursuant to management
|
|
|
|
|
|
|
|
|
|
services contract at $0.02
| 7,500,000
| 7,500
| -
| -
| 142,500
| (150,000)
| -
| -
| -
|
Capital stock issued for mineral property
|
|
|
|
|
|
|
|
|
|
option agreement at $0.02
| 7,500,000
| 7,500
| -
| -
| 142,500
| -
| -
| -
| 150,000
|
Amortization of deferred compensation
| -
| -
| -
| -
| -
| 134,200
| -
| -
| 134,200
|
Foreign currency translation
| -
| -
| -
| -
| -
| -
| 6,027
| -
| 6,027
|
Net (loss) for the year
| -
| -
| -
| -
| -
| -
| -
| (1,079,655)
| (1,079,655)
|
Balance November 30, 2012
| 105,416,987
| 105,417
| -
| -
| 3,812,334
| (95,400)
| 6,027
| (3,911,738)
| (83,360)
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of the beneficial conversion
|
|
|
|
|
|
|
|
|
|
feature of the convertible notes payable
| -
| -
| -
| -
| 248,000
| -
| -
| -
| 248,000
|
Conversion of promissory notes to stock
|
|
|
|
|
|
|
|
|
|
December 1, 2012 - February 28, 2013
| 22,884,615
| 22,885
| -
| -
| 27,115
| -
| -
| -
| 50,000
|
Conversion of promissory notes to stock
|
|
|
|
|
|
|
|
|
|
March 1, 2013 - May 31, 2013
| 39,927,652
| 39,927
| -
| -
| 30,172
| -
| -
| -
| 70,099
|
Conversion of promissory notes to stock
|
|
|
|
|
|
|
|
|
|
June 1, 2013 - August 31, 2013
| 23,610,236
| 23,610
| -
| -
| (6,110)
| -
| -
| -
| 17,500
|
Conversion of promissory notes to stock
|
|
|
|
|
|
|
|
|
|
September 1, 2013 - November 30, 2013
| 58,613,900
| 58,614
| -
| -
| (46,874)
| -
| -
| -
| 11,740
|
Elimination of derivative liabilities
| -
| -
| -
| -
| 234,823
| -
| -
| -
| 234,823
|
Stock for property option
| -
| -
| 4,000,000
| 4,000
| 1,156,000
| -
| -
| -
| 1,160,000
|
Stock for management fees
| 22,125,000
| 22,125
| -
| -
| 28,764
| -
| -
| -
| 50,889
|
Stock for deferred remuneration
| 27,875,000
| 27,875
| -
| -
| 36,237
| (64,112)
| -
| -
| -
|
Amortization of deferred compensation
| -
| -
| -
| -
| -
| 95,400
| -
| -
| 95,400
|
Rounding from partial to full shares
| 7,610
| 8
| -
| -
| (8)
| -
| -
| -
| (0)
|
Reverse stock split 100:1
| (297,456,390)
| -
| -
| -
| -
| -
| -
| -
| -
|
Foreign currency translation
| -
| -
| -
| -
| -
| -
| -
| -
| -
|
Net (loss) for the year
| -
| -
| -
| -
| -
| -
| 513
| (898,106)
| (897,593)
|
Balances for November 30, 2013
| 3,004,610
| 300,461
| 4,000,000
| 4,000
| 5,520,454
| (64,112)
| 6,540
| (4,809,844)
| 957,499
|
|
|
|
|
|
|
|
|
|
|
Intrinsic value of the beneficial conversion
|
|
|
|
|
|
|
|
|
|
feature of the convertible notes payable
| -
| -
| -
| -
| 219,000
| -
| -
| -
| 219,000
|
Conversion of promissory notes to stock
|
|
|
|
|
|
|
|
|
|
December 1, 2013 - February 28, 2014
| 1,388,584
| 138,858
| -
| -
| (117,835)
| -
| -
| -
| 21,023
|
Conversion of promissory notes to stock
|
|
|
|
|
|
|
|
|
|
March 1, 2014 - May 31, 2014
| 2,489,410
| 248,941
| -
| -
| (236,044)
| -
| -
| -
| 12,897
|
Conversion of promissory notes to stock
|
|
|
|
|
|
|
|
|
|
June 1, 2014 - August 31, 2014
| 2,451,940
| 245,194
| -
| -
| (236,654)
| -
| -
| -
| 8,540
|
Conversion of promissory notes to stock
|
|
|
|
|
|
|
|
|
|
September 1, 2014 - November 30, 2014
| 4,513,690
| 451,369
| -
| -
| (442,479)
| -
| -
| -
| 8,890
|
Elimination of derivative liabilities
| -
| -
| -
| -
| 91,498
| -
| -
| -
| 91,498
|
Foreign currency translation
| -
| -
| -
| -
| -
| -
| 2,066
| -
| 2,066
|
Net (loss) for the year
| -
| -
| -
| -
| -
| -
| -
| (1,033,340)
| (1,033,340)
|
Balances for November 30, 2014
| 13,848,234
| $ 1,384,823
| 4,000,000
| $ 4,000
| 4,797,940
| $ (64,112)
| $ 8,606
| $ (5,843,244)
| $ 288,013
|
See accompanying notes to the Condensed Consolidated Financial Statements
| | | |
FORCE MINERALS CORPORATION
|
(A DEVELOPMENT STAGE COMPANY)
|
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Audited)
|
| For The Year Ended November 30, 2014
| For The Year Ended November 30, 2013
| From Inception (November 1, 2006) through November 30, 2014
|
Operating activities:
|
|
|
|
Net loss for the period
| $ (1,031,334)
| $ (897,593)
| $ (5,834,638)
|
Adjustment to reconcile net loss to net cash
|
|
|
|
used by operations
|
|
|
|
Accrued interest
| $ 70,672
| $ 159,956
| $ 269,101
|
Interest expense
| $ 380,368
| $ 146,750
| $ 654,117
|
Accretion and elimination of discount on convertible notes
| $ -
| $ -
| $ 248,100
|
Revaluation of derivative liability to fair value
| $ 16,704
| $ 107,920
| $ 163,224
|
Consulting fees paid in stock
| $ -
| $ 50,889
| $ 634,227
|
Share based compensation
| $ -
| $ 95,400
| $ 825,000
|
Debt forgiveness
| $ -
| $ -
| $ (15,286)
|
Accretion of ARO
| $ 2,728
| $ 2,529
| $ 12,411
|
Depreciation
| $ -
| $ -
| $ 4,651
|
Write-off of oil and gas costs
| $ -
| $ -
| $ 553,466
|
Accounts receivable
| $ (5,850)
| $ -
| $ (5,850)
|
Advance payable
| $ -
| $ -
| $ 50,000
|
Accounts payable and accrued liabilities
| $ 94,616
| $ 54,229
| $ 168,516
|
Net cash used by operating activities
| $ (472,097)
| $ (279,920)
| $ (2,272,961)
|
|
|
|
|
Financing activities:
|
|
|
|
Bank Overdraft
| $ (23)
| $ 23
| $ -
|
Proceeds from issuance of common stock
| $ -
| $ -
| $ 1,419,000
|
Proceeds from issuance of preferred stock
| $ -
| $ 1,160,000
| $ 1,160,000
|
Convertible note payable
| $ 439,486
| $ 248,000
| $ 1,194,986
|
Settlement of Convertible note payable
| $ -
| $ -
| $ 165,442
|
Cash acquired on reverse acquisition
| $ -
| $ -
| $ 37,058
|
Due to related party
| $ 34,700
| $ (3,032)
| $ (25,987)
|
Net cash provided by financing activities
| $ 474,163
| $ 1,404,991
| $ 3,950,499
|
|
|
|
|
Investing activities:
|
|
|
|
Property and Equipment
| $ -
| $ -
| $ (4,651)
|
Mineral property option
| $ -
| $ (1,160,000)
| $ (1,270,099)
|
Development costs of oil and gas properties
| $ -
| $ -
| $ (387,517)
|
Net cash provided by investing activities
| $ -
| $ (1,160,000)
| $ (1,662,267)
|
|
|
|
|
Effect of foreign currency translation
| $ (2,066)
| $ (513)
| $ (15,271)
|
|
|
|
|
Net increase/(decrease) in cash
| $ (0)
| $ (35,442)
| $ 0
|
Cash, beginning of period
| $ -
| $ 35,442
| $ -
|
Cash, end of period
| $ (0)
| $ -
| $ 0
|
|
|
|
|
The accompanying notes are an integral part of these financial statements
|
F- 9
FORCE MINERALS CORPORATION
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Organization and Basis of Presentation
The Company was incorporated in the state of Nevada, United States of America on November 1, 2006. The Company was formed for the purpose of acquiring exploration and development stage natural resource properties.
Effective December 28, 2006, the Board of Directors authorized a 3 for 1 forward stock split of the common shares. The authorized number of common shares increased from 90,000,000 to 270,000,000 common shares with a par value of $0.001. All references in the accompanying financial statements to the number of common shares have been restated to reflect the forward stock split.
On February 12, 2008, the Company acquired 100% of the common shares of Force Energy Corp., an inactive company incorporated in Nevada on July 19, 2005, for $100, to effect a name change of the Company. On February 12, 2008, the Company and Force Energy Corp filed articles of merger with the Secretary of State of Nevada to effectuate a merger between the two companies. The surviving entity of the merger was the Company. Immediately thereafter the Company changed its name to Force Energy Corp.
On June 6, 2013, the Board of Directors changed the name of the Company to Force Minerals Corporation. Also on June 6, 2013, the Board of Directors authorized a 100:1 reverse stock split of the common shares. The name change and reverse stock split received regulatory approval on June 28, 2013. The record date for the reverse stock split was June 14, 2013. The authorized number of common shares remained unchanged. All references in the accompanying financial statements to the number of common shares have been restated to reflect the reverse stock split.
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next twelve months. Realization values may be substantially different from carrying values as shown and these consolidated financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern.
Note 2:Summary of Significant Accounting Policies
The financial statements of the Company are presented on the accrual basis. The significant accounting policies followed are described below to enhance the usefulness of the financial statements to the reader.
The preparation of financial statements is in conformity with accounting principles generally accepted in the United States of America. This requires management to make estimates and assumptions that affect the reported amounts and disclosures at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.
Development Stage Activities
The Company is a development stage exploration company. All losses accumulated since inception have been considered as part of the Company’s development stage activities.
The Company is subject to several categories of risk associated with its development stage activities. Mineral exploration and natural gas and oil exploration and production is a speculative business, and involves a high degree of risk. Many factors have a direct bearing on the Company’s prospects and there are inherent uncertainties in these activities. Mineral exploration is dependent upon finding an ore body that is economic to develop. Uncertainties that exist with natural gas exploration include estimating natural gas and oil reserves, future hydrocarbon production, and cash flows, particularly with respect to wells that have not been fully tested and with wells having limited production histories; access to additional capital; changes in the price of natural gas and oil; availability and cost of services and equipment; and the presence of competitors with greater financial resources and capacity.
F- 10
Principles of Consolidation
These consolidated financial statements include the accounts of Force Energy Corp and its wholly-owned subsidiaries, FRC Exploration Ltd. (a company incorporated in British Columbia, Canada,) (“FRC “) and Nuance Exploration Ltd. (a company incorporated in British Columbia, Canada) ( “NEL”). All significant inter-company balances and transactions have been eliminated.
Foreign Currency Translation
The reporting currency is the U.S. dollar. The functional currency of the Company is the local currency, the Canadian dollar. The financial statements of the Company are translated into United States dollars in accordance with ASC 830, Foreign Currency Matters, using year-end rates of exchange for assets and liabilities, and average rates of exchange for the period for revenues, costs, and expenses and historical rates for equity. Translation adjustments resulting from the process of translating the local currency financial statements into U.S. dollars are included in determining comprehensive income. At November 30, 2014 and 2013, the cumulative translation adjustment of $8,606 and $6,540, respectively, was classified as an item of other comprehensive income in the stockholders' equity (deficit) section of the consolidated balance sheets. For the years ended November 30, 2014 and 2013, the foreign currency translation adjustment to Accumulated Other Comprehensive income was $2,066 and $513 respectively.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash and highly liquid investments with original maturity dates of less than three months that may not be reported as investments. While the Company may maintain cash and cash equivalents in bank deposit accounts, which at times exceed Federal Deposit Insurance Corporation insured limits, they have not experienced any losses in such accounts.
Management believes it is not exposed to any significant credit risk on cash and cash equivalents.
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and gas operations whereby all costs of exploring for and developing oil and gas reserves are initially capitalized on a country-by-country (cost center) basis. Such costs include land acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties, costs of drilling and overhead charges directly related to acquisition and exploration activities.
Costs capitalized, together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated gross proven reserves. Petroleum products and reserves are converted to a common unit of measure, using 6 MCF of natural gas to one barrel of oil.
Costs of acquiring and evaluating unproven properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proven reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations.
If capitalized costs, less related accumulated amortization and deferred income taxes, exceed the “full cost ceiling”the excess is expensed in the period such excess occurs. The “full cost ceiling”is determined based on the present value of estimated future net revenues attributed to proven reserves, using current prices less estimated future expenditures plus the lower of cost and fair value of unproven properties within the cost center.
Proceeds from a sale of petroleum and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would alter the relationship between capitalized costs and proven reserves of oil and gas attributable to a cost center.
Impairment of Long-lived Assets
The carrying value of intangible assets and other long-lived assets are reviewed on a regular basis for the existence
F- 11
of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value. Impairment on the properties with unproven reserves is evaluated by considering criteria such as future drilling plans for the properties, the results of geographic and geologic data related to the unproven properties and the remaining term of the property leases.
Mineral Properties
Mineral property acquisition costs are capitalized in accordance with FASB ASC 930-805, “Extractive Activities-Mining,” when management has determined that probable future benefits consisting of a contribution to future cash inflows have been identified and adequate financial resources are available or are expected to be available as required to meet the terms of property acquisition and budgeted exploration and development expenditures. Mineral property acquisition costs are expensed as incurred if the criteria for capitalization are not met.
In the event that mineral property acquisition costs are paid with Company shares, those shares are recorded at the estimated fair value at the time the shares are due in accordance with the terms of the property agreements.
Mineral property exploration costs are expensed as incurred.
When it has been determined that a mineral property can be economically developed as a result of establishing proven and probable reserves and pre-feasibility, the costs incurred to develop such property are capitalized.
Estimated future removal and site restoration costs, when determinable are provided over the life of proven reserves on a units-of-production basis.
Costs, which include production equipment removal and environmental remediation, are estimated each period by management based on current regulations, actual expenses incurred, and technology and industry standards. Any charge is included in exploration expense or the provision for depletion and depreciation during the period and the actual restoration expenditures are charged to the accumulated provision amounts as incurred.
To date the Company has not established any proven or probable reserves on its mineral properties.
Asset Retirement Obligations
Asset Retirement Obligations (“ARO”) associated with the retirement of a tangible long-lived asset, including natural gas and oil properties, are recognized as liabilities in the period in which it is incurred and becomes determinable, with an offsetting increase in the carrying amount of the associated assets. The cost of tangible long-lived assets, including the initially recognized ARO, is depleted, such that the cost of the ARO is recognized over the useful life of the assets. The ARO is recorded at fair value, and accretion expense is recognized over time as the discounted fair value is accreted to the expected settlement value. The fair value of the ARO is measured using expected future cash flow, discounted at the Company’s credit-adjusted risk-free interest rate.
Derivative Liabilities and Classification
Free-standing financial instruments (or embedded derivatives) indexed to the Company’s common stock are evaluated to properly classify such instruments within equity or as liabilities in the financial statements. Accordingly, the classification of an instrument indexed to our stock, which is carried as a liability, must be reassessed at each balance sheet date. If the classification changes as a result of events during a reporting period, the instrument is reclassified as of the date of the event that caused the reclassification. There is no limit on the number of times a contract may be reclassified.
Income Taxes
The Company uses the asset and liability method of accounting for income taxes in accordance with ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current year and (ii) deferred tax consequences of temporary differences resulting from matters
F- 12
that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
ASC Topic 740.10.30 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC Topic 740.10.40 provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. There are no material uncertain tax positions for any of the reporting periods presented.
Basic Loss per Share
Net loss per share was computed by dividing the net loss by the weighted average number of common shares outstanding during the period. The weighted average number of shares was calculated by taking the number of shares outstanding and weighting them by the amount of time that they were outstanding. For the twelve months ended December 31, 2014 and 2013, the assumed exercise of share options are anti-dilutive due to the Company’s net loss and are excluded from the determination of net loss per share –basic and diluted. Accordingly, net loss per share basic and diluted are equal in all periods presented.
Comprehensive Income
Comprehensive income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, ASC 220, Comprehensive income (loss) requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For the years presented, the Company's comprehensive income (loss) includes net income (loss) and foreign currency translation adjustments and is presented in the consolidated statements of changes in operations.
Fair Value of Financial Instruments
Effective July 1, 2009, the Company adopted Accounting Standards Codification Topic 820, Fair Value Measurements (ASC 820). ASC 820 defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a fair market hierarchy, which requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels based on the reliability of the inputs to determine the fair value:
Level 1 –defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 –defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and
Level 3 –defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions.
The Company’s financial instruments consist of cash, accounts receivable, accounts payable and notes payable. The carrying amount of cash, accounts receivable and accounts payable approximates fair value because of the short-term nature of these items.
F- 13
Financial assets and liabilities measured at fair value on a recurring basis:
| | | | | | | | | |
| FAIR VALUE
|
| NOVEMBER 30, 2014
|
| NOVEMBER 30, 2013
|
| INPUT
|
| CARRYING ESTIMATED
|
| CARRYING ESTIMATED
|
|
|
|
|
|
|
|
|
|
|
| LEVEL
|
| AMOUNT
|
| FAIR VALUE
|
| AMOUNT
|
| FAIR VALUE
|
Derivative Liability
| 3
|
| 310,270
|
| 310,270
|
| 90,297
|
| 90,297
|
Total Financial Liabilities
|
|
| $ 310,270
|
| $ 310,270
|
| $ 90,297
|
| $ 90,297
|
In management’s opinion, the fair value of convertible notes payable and advances payable approximates the carrying value as the interest rates and other features of these instruments approximate those obtainable for similar instruments in the current market. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, exchange or credit risks arising from these financial instruments.
Note 3:Recent Accounting Pronouncements
In May 2011, the FASB issued ASU 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS) of Fair Value Measurement –Topic 820.”ASU 2011-04 is intended to provide a consistent definition of fair value and improve the comparability of fair value measurements presented and disclosed in financial statements prepared in accordance with U.S. GAAP and IFRS. The amendments include those that clarify the FASB’s intent about the application of existing fair value measurement and disclosure requirements, as well as those that change a particular principle or requirement for measuring fair value or for disclosing information about fair value measurements. This update is effective for annual and interim periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a material impact on the Company’s financial statements.
The FASB issued Accounting Standards Update (ASU) No. 2013-02 —Intangibles —Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment, on July 27, 2013, to simplify the testing for a drop in value of intangible assets such as trademarks, patents, and distribution rights. The amended standard reduces the cost of accounting for indefinite-lived intangible assets, especially in cases where the likelihood of impairment is low. The changes permit businesses and other organizations to first use subjective criteria to determine if an intangible asset has lost value. The amendments to U.S. GAAP will be effective for fiscal years starting after September 15, 2013. Early adoption is permitted. The adoption of this ASU did not have a material impact on the Company’s financial statements.
In December 2011, the FASB issued ASU 2011-11, Disclosures about Offsetting Assets and Liabilities, (“ASU 2011-11”). ASU 2011-11 requires an entity to disclose both gross information and net information about both instruments and transactions eligible for offset in the statement of financial position and instruments and transactions subject to an agreement similar to a master netting arrangement. ASU 2011-11 is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Retrospective disclosure is required for all comparative periods presented. The adoption of ASU 2011-11 did not have a material impact on the Company’s financial statements.
In October 2012, the FASB issued ASU No. 2013-04, Technical Corrections and Improvements, (“ASU 2013-04”). This update includes source literature amendments, guidance clarification, reference corrections and relocated guidance affecting a variety of topics in the Codification. The update also includes conforming amendments to the Codification to reflect ASC 820’s fair value measurement and disclosure requirements. The amendments in this update that will not have transition guidance are effective upon issuance. The amendments in this update that are subject to the transition guidance will be effective for fiscal periods beginning after December 15, 2013. The adoption of ASU 2013-04 did not have a material impact on the Company’s financial statements.
F- 14
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities (“ASU 2013-01”). This update clarifies that ordinary trade receivables and receivables are not in the scope of ASU No. 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities (“ASU 2011-11”). Specifically, ASU 2011-11 applies only to derivatives, repurchase agreements and reverse purchase agreements, and securities borrowing and securities lending transactions that are either offset in accordance with specific criteria contained in the FASB Accounting Standards Codification or subject to a master netting arrangement or similar agreement. The Company is required to apply the amendments in ASU 2013-01 beginning January 1, 2013. The adoption of ASU 2013-01 by the Company did not have a material impact on the consolidated financial statements.
In February 2013, the Financial Accounting Standards Board issued Accounting Standards Update, or ASU, 2013-02, Comprehensive Income (Topic 220), Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update requires companies to provide information regarding the amounts reclassified out of accumulated other comprehensive income by component. In addition, companies are required to present,
either on the face of the statement where net income is presented or in the accompanying notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income. ASU 2013-02 is effective for annual reporting periods beginning on or after December 15, 2013, and interim periods within those annual periods. ASU 2013-02 was adopted January 1, 2013 and did not have a significant impact on our financial statements.
In February 2013, the FASB issued ASU No. 2013-04, Liabilities (Topic 405): Obligations Resulting from Joint andSeveral Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. Theamendments in ASU 2013-04 provide guidance for the recognition, measurement, and disclosure of obligationsresulting from joint and several liability arrangements for which the total amount of the obligation within the scopeof this Update is fixed at the reporting date, except for obligations addressed within existing guidance in U.S.GAAP. The guidance requires an entity to measure those obligations as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in this Update also requires an entity to disclose the nature and amount of the obligation as well as other information about those obligations. The amendments in this standard is effective retrospectively for fiscal years, and interim periods within those years, beginning after December 15,2013. The Company is evaluating the effect, if any, adoption of ASU No. 2013-04 will have on their consolidated financial statements.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent ‘s Accounting for the Cumulative Translation Adjustment upon De-recognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. The amendments in ASU No. 2013-05 resolve the diversity in practice about whether Subtopic 810-10, Consolidation —Overall, or Subtopic 830-30, Foreign Currency Matters —Translation of Financial Statements, applies to the release of the cumulative translation adjustment into net income when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business (other than a sale of in substance real estate or conveyance of oil and gas mineral rights) within a foreign entity. In addition, the amendments in this Update resolve the diversity in practice for the treatment of business combinations achieved in stages (sometimes also referred to as step acquisitions) involving a foreign entity. The amendments in this standard is effective prospectively for fiscal years, and interim reporting periods within those years, beginning December 15, 2013. The Company is evaluating the effect, if any, adoption of ASU No. 2013-05 will have on their consolidated financial statements.
In July 2013, the FASB issued Accounting Standards Update No. 2013-11, Income Taxes (Topic 740) (“ASU 2013-11”), which requires the financial statement presentation of an unrecognized tax benefit in a particular jurisdiction, or a portion thereof, as a reduction to a deferred tax asset for a net operating loss (“NOL”) carry forward, a similar tax loss, or a tax credit carry forward, unless the uncertain tax position is not available to reduce, or would not be used to reduce, the NOL or carry forward under the tax law in the same jurisdiction; otherwise, the unrecognized tax benefit should be presented as a gross liability and should not be combined with a deferred tax asset. ASU 2013-11 is effective for interim and annual periods beginning after December 15, 2013. The Company is currently evaluating the impact of this guidance on their consolidated financial position, results of operations, and cash flows.
F- 15
Note 4: Oil and Gas Properties
| | | | |
|
|
|
|
|
| November 30, 2014
| November 30, 2013
|
| Canada
| Total
| Canada
| Total
|
Unproven Properties
|
|
|
|
|
Acquisition Costs
| $ -
| $ -
| $ 119,640
| $ 488,640
|
Development Costs
| $ -
| $ -
| $ 7,365
| $ 36,404
|
Asset Retirement Obligation
| $ -
| $ -
| $ 8,422
| $ 8,422
|
| $ -
| $ -
| $ 135,427
| $ 533,466
|
Written Off
| $ -
| $ -
| $(135,427)
| $(533,466)
|
| $ -
| $ -
| $ -
| $ -
|
Hayter Prospect, Alberta, Canada
By a participation agreement dated December 21, 2006, Nuance Exploration Ltd. (“NEL”), a wholly owned subsidiary of the Company acquired a 100% ownership in the interpretation of 3D seismic data covering four sections of certain land, known as the Hayter Prospect, located in the province of Alberta, Canada by paying $82,650 (CDN$95,000) in costs of acquiring and interpreting the seismic data.
On October 15, 2007, prior to the evaluation of the 3D seismic data, NEL sold to the original grantor (the Grantor) its 100% interest in the 3D seismic data and received as consideration a non-interest bearing promissory note for $111,144 (CDN$110,000) to be repaid by November 30, 2007.
On November 30, 2007, the Grantor did not pay the promissory note and NEL and the Grantor entered into a Participation Agreement whereby NEL accepted a 20% interest of the Grantor’s working interest in the County Line 10D Hayter 10-8-40-1 W4M well as full and final settlement of the promissory note totaling $95,702 after considering the effects of the foreign exchange on the note.
On October 16, 2009, the Company entered into an amendment to its Participation Agreement pursuant to which it acquired an additional 30% working interest in the Hayter Well in consideration of a release by Force from an amount of $23,938 owed by the Grantor to the Company. The Company holds a 50% working interest of the Grantor’s interest in the Hayter Well.
The addendum was subsequently amended by the parties on February 1, 2010 to replace the reference to the Company in the agreement with Nuance Exploration Ltd., the Company’s wholly owned subsidiary.
During the year ended November 30, 2012, due to financial restrictions in the current capital markets, management determined the focus of the Company in the future would predominantly be the exploration and development of the Zoro Mineral Property (See Note 5). Accordingly, as no current plans to further develop the Hayter property exist, the company recorded an impairment provision of $135,427.
At November 30, 2012, the 50% working interest of the Hayter Well was recorded at $0. The company also recorded $16,845 as an asset retirement obligation (See Note 10).
Note 5: Mineral Properties
On May 30, 2013, the Company entered into a Property Option Agreement to acquire an option to purchase a 100% interest in four mining concessions known as La Predilecta; La Predilecta II; La Crus and La Cascada comprising approximately 1,181 hectares in the Miahuatlan District, in the southern portion of Centrales Region within Oaxaca State Mexico. The Company will hold its interest via a wholly owned Mexican subsidiary, which is yet to be incorporated when the Optionor receives the $100,000 cash.
F- 16
In order to exercise the option, the Company must pay cash or issue stock to the Optionor by the following dates:
| | |
| i)
| $50,000 within 60 days of signing the agreement.
|
| | |
| ii)
| $50,000 within 90 days of signing the agreement.
|
| | |
| iii)
| Issue an aggregate of 4,000,000 shares of Preferred stock.
|
Each preferred share shall have an underlying voting right equivalent to 100 shares of Common stock and shall be convertible into 100 shares of Common stock.
As of this reporting period the initial $50,000 payment had been made and is being paid by an outside investor. The remaining $50,000 is past due as of August 31, 2013.
The Company is now waiting for the Seller to verify the current standing with all taxes on the property. As soon as this is confirmed the Company will authorize second payment. Once the tax verification comes from the country of Mexico the Mexican subsidiary will be established and ownership of property will be held within the Mexican subsidiary.
On July 6, 2010, the Company entered into a Property Option Agreement (amended May 11, 2011) to acquire an option to purchase a 100% interest in the property known as the Zoro 1 property, a mineral property comprising 52 hectares (approximately 128.50 acres) in the Snow Lake region of Manitoba Canada. In order to exercise the option, the Company must pay cash or issue stock to the option holder by the following dates:
1.$59,600 (CDN 62,000) on signing the agreement (paid)
2.$102,900 (CDN 100,000) or issue 1,000,000 shares of common stock on or before June, 15, 2011. (1,000,000 shares issued with a fair value of $80,000)
3.$50,500 cash (CDN 50,000) and issue 7,500,000 common stock on or before June, 15, 2013. ($50,500 paid (CDN 50,000) and 7,500,000 shares issued with a fair value of $150,000)
4.$403,560 (CDN 400,000) or issue a specified number of common shares still to be determined by the parties on or before June, 15, 2013.
During the year ended November 30 2013, the Company incurred $0 in exploration expenditures on the property.
Note 6: Advance Payable
On February 1, 2011, the Company received a cash advance of $30,000. The advance is unsecured, non-interest bearing and has no fixed repayment terms. On June 13, 2013, this advance was settled by the issuance of 3,000,000 shares of common stock with a fair value of $60,000. The excess of fair value over the face value of the note was recorded as an interest expense with a corresponding credit to additional paid in capital.
On March 21, 2011, the Company received a cash advance of $20,000. The advance is unsecured, non-interest bearing and has no fixed repayment terms.
Note 7: Related Party Transactions
Amounts due to related parties comprise:
| | | |
| November 30,
|
| November 30,
|
| 2014
|
| 2013
|
Tim DeHerrera
| $ 715
|
| $ 250
|
Direct Capital
| 35,578
|
| 1,343
|
| $ 36,293
|
| $ 1,593
|
All amounts due to related parties are unsecured, non-interest bearing and have no specific terms for repayment.
F- 17
On July 23, 2010, the Company entered into an employment contract with the Company President, which expires July 22, 2011. Pursuant to the contract, the President received 25,000 common shares having a fair value of $550,000. Should the contract be terminated prior to completion the President will return 1,000 shares to treasury for each unfulfilled month of the contract. The President will also receive $2,500 per month for months 1-3; $4,000 per month for months 4-6 and $5,000 per month for months 7-12 of the contract.
The fair value of 13,000 shares issued which were earned immediately and have been expensed as stock based compensation of $286,000. The fair value of the remaining 12,000 shares issued which are to be earned over the term of the contract will be charged to operations over the life of the employment contract. This portion of the stock award is accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders’ equity until earned.
Pursuant to this stock award during the year ended November 30, 2014, the Company recorded management fees of $0 (year ended November 30, 2013 $0).
On July 18, 2011, the Company entered into a new employment contract with the Company President, which expires July 18, 2013. Pursuant to the contract, the President received 25,000 common shares having a fair value of $125,000. The President will receive $7,500 per month for months 13-24 of the contract. Unless the contract is terminated by either party giving 45 days written notice the contract will automatically renew. Should the contract be renewed then the President will receive 25,000 shares of common stock and an annual increase of $2,500 per month upon each renewal. If the Company does not have sufficient cash resources to settle the cash element of the contract, then at the request of the President any accrued unpaid fees may be converted into common stock at $0.025 per share.
The fair value of the 25,000 shares issued which are to be earned over the term of the contract will be charged to operations over the life of the employment contract. This portion of the stock award is accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders’ equity until earned.
Pursuant to this stock award during the year ended November 30, 2014 the Company recorded management fees of $0 (year ended November 30, 2013 - $0).
On July 16, 2012, the Company entered into an addendum to the contract, which expires July 15, 2014. Pursuant to the contract, the President received 75,000 common shares on July 2013, and will continue to receive 75,000 common shares upon each anniversary date of the addendum. The fair value of the shares received was $150,000. The President will receive $10,000 per month for months 25-36 of the contract and an annual monthly increase of $2,500 per month thereafter. Unless the contract is terminated by either party giving 45 days written notice the contact will automatically renew. If the Company does not have sufficient cash resources to settle the cash element of the contract, then at the request of the President any accrued unpaid fees may be converted into common stock at $0.01 per share.
The fair value of the 75,000 shares issued which are to be earned over the term of the contract will be charged to operations over the life of the employment contract. This portion of the stock award is accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders’ equity until earned.
During the year ended November 30, 2014, the Company recorded management fees of $0 (year ended November 30, 2013 - $95,400) pursuant to this stock award.
On May 30, 2013, the Company entered into a second addendum to the contract, which expires May 30, 2015. Pursuant to the contract, the President received 500,000 common shares upon signing the agreement, 221,250 shares were issued to settle amounts owing under prior contract of $22,125 and 278,750 shares are to be earned over the period of the contract. As before the President will receive $10,000 per month for months 25-36 of the contract and an annual monthly increase of $2,500 per month thereafter. Unless the contract is terminated by either party giving 90 days written notice the contact will automatically renew. If the Company does not have sufficient cash resources to settle the cash element of the contract, then at the request of the President any accrued unpaid fees may be converted into common stock at $0.001 per share.
F- 18
The fair value of the shares issued in settlement of amounts owing of $22,125 was $50,889. The difference between the recorded amount payable and the fair value of stock issued being $28,762 was charged to operations as management fees upon issuance.
The fair value of the 278,750 shares issued with a fair value of $64,113, which are to be earned over the term of the contract, will be charged to operations over the life of the employment contract. This portion of the stock award is accounted for as deferred compensation whereby the fair value of the award is recorded as a component of stockholders’ equity until earned. During the year ended November 30, 2014, the Company recorded management fees of $0 (year ended November 30, 2013 - $120,000) pursuant to this stock award.
Note 8: Convertible Notes Payable
| | | |
|
| November 30,
| November 30,
|
|
| 2014
| 2013
|
Promissory Note #6
| 20,000
| 20,000
|
Promissory Note #7
| 20,000
| 20,000
|
Promissory Note #8
| 20,000
| 20,000
|
Promissory Note #10
| 30,000
| 30,000
|
Promissory Note #13
| 12,710
| 64,060
|
Promissory Note #15
| 88,000
| 88,000
|
Promissory Note #16
| 11,000
| 11,000
|
Promissory Note #17
| 11,000
| 11,000
|
Promissory Note #18
| 50,000
| 50,000
|
Promissory Note #19
| 11,000
| 11,000
|
Promissory Note #20
| 11,000
| 11,000
|
Promissory Note #21
| 16,000
| 16,000
|
Promissory Note #22
| 50,000
| 50,000
|
Promissory Note #23
| 16,000
| -
|
Promissory Note #24
| 16,000
| -
|
Promissory Note #25
| 16,000
| -
|
Promissory Note #26
| 16,000
| -
|
Promissory Note #27
| 16,000
| -
|
Promissory Note #28
| 16,000
| -
|
Promissory Note #29
| 48,000
| -
|
Promissory Note #30
| 75,000
| -
|
Promissory Note #31
| 220,486
| -
|
|
| $ 790,196
| $ 402,060
|
| Debt discount
| (234,649)
| (101,250)
|
| Accrued interest
| 83,746
| 13,074
|
|
| $ 639,293
| $ 313,884
|
As at November 30, 2014 and November 30, 2013, convertible notes payable are recorded net of unamortized debt discount of $(234,649) and $(101,250) respectively.
Promissory Note #6
On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand.
Promissory Note #7
On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand.
F- 19
Promissory Note #8
On February 15, 2012, the Company received $20,000 cash and the Company issued a convertible promissory note in the amount of $20,000. The promissory note is unsecured, interest free and repayable upon demand.
Promissory Note #10
Promissory Note #10
On March 20, 2012, the Company received $30,000 cash and the Company issued a convertible promissory note in the amount of $30,000. The promissory note is unsecured, interest free and repayable upon demand.
The note may be converted at the option of the holder into common stock of the Company. The fixed conversion price is $0.01 per share. Accordingly, the note may be converted into 3,000,000 common shares of the Company. The note also contains a provision whereby should the Company perform a stock split or reverse stock split, the conversion price of the note reverts to the lesser of 40% of market value at the time of conversion, or $0.01 per share. Accordingly, subsequent to the period end on June 14, 2013, this conversion provision was triggered.
The Company determined that Promissory notes # 6, 7, 8, and 10 should be accounted for in accordance with FASB ASC 470-20, which addresses “Accounting for Convertible Securities with Beneficial Conversion Features". The intrinsic value of the conversion feature is calculated as the difference between the conversion price $0.01 and the fair value of the common stock into which the debt is convertible at the commitment date (being $0.05 for notes # 6, 7 and 8 and $0.02 for note 10), multiplied by the number of shares into which the debt is convertible. The valuation of the beneficial conversion feature is calculated as pro rata portion of the proceeds from issuance of the convertible debt, being equal to proceeds received multiplied by intrinsic value divided by the total value received (i.e. the aggregate of proceeds and intrinsic value). This beneficial conversion feature is allocated to debt discount and additional paid in capital. Because the debt is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of convertible notes of $0 (year ended November 30, 2013 - $0) was recorded in the financial statements, with a corresponding increase to additional paid in capital.
Promissory Note #13
On September 12, 2012, the Company received $75,000 cash and the Company issued a convertible promissory note in the amount of $75,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 14, 2013. Any principal amount not paid by the maturity date bears interest at 22% per annum. During the year ended November 30, 2014, the Company accrued $7,393 (year ended November 30, 2013 - $5,882) in interest expense.
After 180 days the note may be converted at the option of the holder into Common stock of the Company. The conversion price is defined as “50% multiplied by market price where market price is determined as the average of the lowest three bid prices during the ten trading days prior to the date of conversion”. The Company determined that the embedded conversion feature would be a derivative liability based upon its variable conversion terms once the holder’s conversion rights were triggered.
In March 2013, upon the holders option to convert becoming active, the Company recorded debt discount of $75,000, charged $1,800 to interest expense and also recorded a derivative liability of $76,800 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term on the note or to the date of conversion. The derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.
During the year ended November 30, 2014, the Company recorded a loss of $21,772 (year ended November 30, 2013 – loss of $33,869) due to the change in value of the derivative liability during the period.
F- 20
During the year ended November 30, 2014, the Company issued 10,843,624 common shares upon the conversion of $51,350 of the principal balance into common stock, and $91,498 of the derivative liability was re-classified as additional paid in capital upon conversion.
As of November 30, 2014, principal balance of $12,710 (November 30, 2013 - $64,060), accrued interest of $14,574 (November 30, 2013 - $7,181) debt discount of $0 (November 30, 2013 - 0) and a derivative liability of $20,571 (November 30, 2013 - $90,297) was recorded.
Promissory Note #15
On June 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $88,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on December 1, 2013. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $19,360 (year ended November 30, 2013 - $3,510) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $0 (November 30, 2013 - $88,000) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $481 (year ended November 30, 2013 - $87,519) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $88,000 (November 30, 2013 - $88,000) and accrued interest of $22,870 (November 30, 2013 - $3,510) was recorded.
Promissory Note #16
On July 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on January 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $2,285 (year ended November 30, 2013 - $366) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $0 (November 30, 2013 - $11,000) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $1,913 (year ended November 30, 2013 - $9,087) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $11,000 (November 30, 2013 - $11,000) and accrued interest of $2,652 (November 30, 2013 - $366) was recorded.
Promissory Note #17
On August 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on February 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a
F- 21
private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $2,154 (year ended November 30, 2013 - $292) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $0 (November 30, 2013 - $11,000) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $3,766 (year ended November 30, 2013 - $7,234) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $11,000 (November 30, 2013 - $11,000) and accrued interest of $2,446 (November 30, 2013 - $292) was recorded.
Promissory Note #18
On August 7, 2013 the Company entered into a Convertible Promissory Note with Syndication Capital in the sum of $50,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on February 7, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $9,677 (year ended November 30, 2013 - $1,260) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $0 (November 30, 2013 - $50,000) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $18,750 (year ended November 30, 2013 - $31,250) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $50,000 (November 30, 2013 - $50,000) and accrued interest of $10,938 (November 30, 2013 - $1,260) was recorded.
Promissory Note #19
On September 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on March 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $2,033 (year ended November 30, 2013 - $217) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $0 (November 30, 2013 - $11,000) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $5,530 (year ended November 30, 2013 - $5,470) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $11,000 (November 30, 2013 - $11,000) and accrued interest of $2,250 (November 30, 2013 - $217) was recorded.
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Promissory Note #20
On October 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $11,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on April 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $1,905 (year ended November 30, 2013 - $145) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $0 (November 30, 2013 - $11,000) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $7,374 (year ended November 30, 2013 - $3,626) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $11,000 (November 30, 2013 - $11,000) and accrued interest of $2,050 (November 30, 2013 - $145) was recorded.
Promissory Note #21
On November 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $2,588 (year ended November 30, 2013 - $102) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $0 (November 30, 2013 - $16,000) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $13,436 (year ended November 30, 2013 - $2,564) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $16,000 (November 30, 2013 - $16,000) and accrued interest of $2,690 (November 30, 2013 - $102) was recorded.
Promissory Note #22
On November 30, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $50,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on May 30, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $7,528 (year ended November 30, 2013 - $0) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $0 (November 30, 2013 - $50,000) was recorded in the financial statements with a corresponding
F- 23
increase to additional paid in capital, and debt discount of $50,000 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $50,000 (November 30, 2013 - $50,000) and accrued interest of $7,528 (November 30, 2013 - $0) was recorded.
Promissory Note #23
On December 1, 2013 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on June 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $2,390 (year ended November 30, 2013 - $0) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (November 30, 2013 - $0) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $16,000 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $16,000 (November 30, 2013 - $0) and accrued interest of $2,390 (November 30, 2013 - $0) was recorded.
Promissory Note #24
On January 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $2,101 (year ended November 30, 2013 - $0) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (November 30, 2013 - $0) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $16,000 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $16,000 (November 30, 2013 - $0) and accrued interest of $2,101 (November 30, 2013 - $0) was recorded.
Promissory Note #25
On February 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on August 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $1,802 (year ended November 30, 2013 - $0) in interest expense.
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A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (November 30, 2013 - $0) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $16,000 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $16,000 (November 30, 2013 - $0), accrued interest of $1,802 (November 30, 2013 - $0) was recorded.
Promissory Note #26
On March 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on September 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $1,510 (year ended November 30, 2013 - $0) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (November 30, 2013 - $0) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $16,000 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $16,000 (November 30, 2013 - $0) and accrued interest of $1,510 (November 30, 2013 - $0) was recorded.
Promissory Note #27
On April 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on October 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $1.220 (year ended November 30, 2013 - $0) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (November 30, 2013 - $0) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $16,000 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $16,000 (November 30, 2013 - $0) and accrued interest of $1,220 (November 30, 2013 - $0) was recorded.
Promissory Note #28
F- 25
On May 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $16,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on November 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $925 (year ended November 30, 2013 - $0) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $16,000 (November 30, 2013 - $0) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $16,000 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $16,000 (November 30, 2013 - $0) and accrued interest of $925 (November 30, 2013 - $0) was recorded.
Promissory Note #29
On June 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $48,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on December 1, 2014. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $1,915 (year ended November 30, 2013 - $0) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $48,000 (November 30, 2013 - $0) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $47,868 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
As of November 30, 2014, principal amount of $48,000 (November 30, 2013 - $0), accrued interest of $1,915 (November 30, 2013 - $0) and debt discount of $132 (November 30, 2013 - $0) was recorded.
Promissory Note #30
On October 1, 2014 the Company entered into a Convertible Promissory Note with Direct Capital in the sum of $75,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on April 1, 2015. Any principal amount not paid by the maturity date bears interest at 22% per annum. The Conversion Price shall mean par .001 multiplied by the number of Common Stock converted at the time. The transaction was handled as a private sale exempt from registration under Section 4(2) of the Securities Act of 1933. During the year ended November 30, 2014, the Company accrued $986 (year ended November 30, 2013 - $0) in interest expense.
A portion of the proceeds from issuance of the convertible debt, equal to the intrinsic value, is allocated to additional paid-in capital. Because the debt is due on demand and is convertible at the date of issuance, the valuation of the beneficial conversion feature is charged to interest expense at the date of issuance.
During the year ended November 30, 2014 interest expense relating to the beneficial conversion feature of this convertible note of $75,000 (November 30, 2013 - $0) was recorded in the financial statements with a corresponding increase to additional paid in capital, and debt discount of $24,725 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
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As of November 30, 2014, principal amount of $75,000 (November 30, 2013 - $0), accrued interest of $986 (November 30, 2013 - $0) and debt discount of $50,275 (November 30, 2013 - $0) was recorded.
Promissory Note #31
On October 1, 2014, the Company entered into a Convertible Promissory note with New Venture Attorneys, PC in the sum of $220,486. The promissory note is unsecured, bears interest at 8% per annum, and matures on October 1, 2015. The note also contains customary events of default. During the year ended November 30, 2014, the Company accrued $2,900 (year ended November 30, 2013 - $0) in interest expense.
Upon the holder’s option to convert becoming active the Company recorded a debt discount and derivative liability of $294,767 being the fair value of the conversion feature which was determined using the Black-Scholes valuation model. The debt discount is accreted to the statement of operations using the effective interest rate method over the term of the note or to the date of conversion, and the derivative liability is revalued at each reporting date to fair value. Any change in fair value is credited or charged to the statement of operations in the period.
During the year ended November 30, 2014, the Company recorded a gain of $5,068 (year ended November 30, 2013 - $0) due to the change in value of the derivative liability during the period, and a debt discount of $36,244 (year ended November 30, 2013 - $0) was accreted to the statement of operations.
As of November 30, 2014, principal balance of $220,486 (November 30, 2013 - $0), accrued interest of $2,900 (November 30, 2013 - $0), debt discount of $184,242 (November 30, 2013 - $0) and a derivative liability of $289,699 (November 30, 2013 - $0) was recorded.
Note 9: Derivative Liabilities
The Company issued financial instruments in the form of convertible notes with embedded conversion features. Many of the convertible notes payable have conversion rates, which are indexed to the market value of the Company’s stock price.
During the year ended November 30, 2014, the Company recorded derivative liabilities for embedded conversion features related to convertible notes payable of face value $294,767 (year ended November 30, 2013 - $159,000). During the year ended November 30, 2014, $51,350 (year ended November 30, 2013, $149,340) of convertible notes payable and accrued interest was converted into common stock of the Company. For the year ended November 30, 2014, the Company performed a final mark-to-market adjustment for the derivative liability related to the convertible notes of and the carrying amount of the derivative liability related to the conversion feature of $91,498 (year ended November 30, 2013 - $234,823) was reclassed to additional paid in capital on the date of conversion in the statement of shareholders’ deficit. During the year ended November 30, 2014, the Company recognized a loss of $16,704 (year ended November 2013–loss of $107,920) based on the change in fair value (mark-to market adjustment) of the derivative liability associated with the embedded conversion features in the accompanying statement of operations.
These derivative liabilities have been measured in accordance with fair value measurements, as defined by GAAP ASC 815. The valuation assumptions are determined by Level 3 inputs. The following table represents the Company’s derivative liability activity for the embedded conversion features discussed above:
| | |
| November 30,
| November 30,
|
| 2014
| 2013
|
Balance, beginning of year
| $ 90,297
| $ 58,200
|
Initial recognition of derivative liability
| 294,767
| 159,000
|
Conversion of derivative instruments to Common Stock
| (91,498)
| (234,823)
|
Mark-to-Market adjustment to fair value
| 16,704
| 107,920
|
Balance, end of year
| $ 310,270
| $ 90,297
|
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Note 10: Asset Retirement Obligations
During the period November 2007 to October 2009, the Company acquired in tranches a 50% working interest in the Hayter 10-8-40-1 W4M oil and gas well in Alberta Canada, known as the “Hayter Prospect”. During the year ended November 30, 2013, due to financial restrictions in the current capital markets, management determined the focus of the Company in the future would predominantly be the exploration and development of the Zoro Mineral Property, and as the Company had no current plans to further develop the Hayter property, the Company recorded an impairment provision of $135,427 during the fiscal year ended November 30, 2013, resulting in the book value of the Hayter prospect being $nil at November 30, 2013. As of November 30, 2014 and November 30, 2013, the Company determined the asset retirement obligation to be $19,523 and $18,861, respectively.
Total future asset retirement obligations were estimated by management based on the Company’s net ownership interest, estimated costs to reclaim and abandon the wells and the estimated timing of the costs to be incurred in future periods. The Company has estimated the net present value of its total asset retirement obligations at February, 2013 to be $16,889 based on a total undiscounted liability of $17,057 (Cdn$17,500) in the Hayter Prospect, Alberta, Canada. These payments are expected to be made over the next seven years, with the majority of the cost incurred between 2016 and 2019.
The Company’s credit adjusted risk free rate of 15% and an inflation rate of 8% were used to calculate the present value of the asset retirement obligation.
| | |
| November 30,
| November 30,
|
| 2014
| 2013
|
Balance, beginning of year
| $ 18,861
| $ 16,845
|
Liabilities incurred
| -
| -
|
Accretion expense
| 2,728
| 2,529
|
Effect of foreign exchange
| (2,066)
| (513)
|
Balance, end of year
| $ 19,523
| $ 18,861
|
Note 11: Capital Stock
Authorized
10,000,000 Preferred shares, par value $0.001 – 4,000,000 issued
(November 30, 2013 – 4,000,000 shares issued)
750,000,000 Common shares par value $0.10 –13,848,234 issued
(November 30, 2013 – 3,004,610 shares issued)
On November 1, 2006 the Company authorized 900,000 shares of common stock with a par value of $0.001 per share and 100,000 shares of preferred stock with a par value of $0.001.
On September 26, 2012, The Company increased its authorized capital stock to 750,000,000 common shares from 270,000,000 common shares.
On June 6, 2013, the Board of Directors authorized a 100:1 reverse stock split of the common shares. The reverse stock split received regulatory approval on June 28, 2013. The record date for the reverse stock split was June 14, 2013. The authorized number of common shares remained unchanged. All references in the accompanying financial statements to the number of common shares have been restated to reflect the reverse stock split.
Issued
Preferred Stock
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On May 14, 2013, the Company issued 4,000,000 preferred shares pursuant to the Mexican mineral property option agreement. Each share has an underlying voting right equivalent to 100 common shares, and is convertible into 100 common shares of the Company.
Common Stock
During the period of November 1, 2006 (Inception) to November 30, 2006, the Company issued 23,000 common shares at $0.005 per share for total proceeds of $107,000 net of $8,000 in commissions pursuant to a private placement.
On December 29, 2006, the Company issued 213,540 common shares as a result of the reverse merger and recapitalization.
On April 5, 2007, the Company issued 24,000 common shares at $0.25 per share for total proceeds of $60,000 pursuant to a private placement.
On November 30, 2007, the Company issued 10,000 common shares at $0.50 per share for total proceeds of $50,000 pursuant to a private placement.
On April 16, 2008, the Company agreed to issue 30,000 common shares (issued May 2008) with a fair value of $1.35 per share totaling $405,000 pursuant to three consultancy contracts.
On April 17, 2008, the Company issued 100,000 common shares at $0.75 per share for total proceeds of $750,000 pursuant to a private placement.
On September 19, 2009, the Company issued 45,000 common shares pursuant to the Diamond Springs Prospect property agreement with a fair value of $144,000.
On October 30, 2009, the Company issued 90,000 common shares at $0.28 per share for total proceeds of $252,000 pursuant to a private placement.
On July 9, 2010, the Company issued 50,000 common shares at $0.20 per share for gross proceeds of $100,000.
On July 23, 2010, the Company issued 250,000 common shares pursuant to an employment contract with the Company President. The fair value of the shares issued was $550,000.
On August 4, 2010, the Company issued 6,432 common shares pursuant to a debt settlement agreement, in settlement of amounts owing to the Company’s former president in the amount of $160,817.
On December 1, 2010, the Company issued 200,000 common shares for aggregate proceeds of $50,000.
On June 3, 2011 the Company issued 100,000 shares of common stock pursuant to the Zoro 1 mineral property agreement, with a fair value of $80,000.
On June 7, 2011 and July 18, 2011, the Company issued 100,000 and 150,000 shares of common stock to the President pursuant to the new management contract (Note 7). The shares issued had a fair value of $125,000.
Between April 9, 2012 and April 23, 2012, the Company issued 24,865 common shares with an aggregate fair value of $65,300 pursuant to the conversion of a note payable falling due on July 3, 2013 to common stock.
On May 5, 2012, the Company issued 26,919 common shares with a fair value of $53,838 pursuant to a consultancy agreement with Primary Capital LLC. (Note 14)
On June 12, 2012, the Company issued 750,000 common shares with a fair value of $150,000 pursuant to the Zoro 1 mineral property option agreement.
F- 29
On June 13, 2012, the Company issued 300,000 common shares with a fair value of $60,000 in settlement of a $30,000 advance payable.
Between July 9, 2012 and August 14, 2012, the Company issued an aggregate of 69,568 common shares with an aggregate fair value of 75,600, upon the conversion of the convertible note payable falling due on October 6, 2013.
On July 17, 2012, the Company issued 750,000 common shares with a fair value of $150,000 pursuant to an employment agreement with the President of the Company.
On September 5, 2012, the Company issued 300,000 common shares with a fair value of $51,000 pursuant to a consultancy agreement.
Between September 20, 2012 and November 23, 2012 the Company issued an aggregate of 143,444 common shares with an aggregate fair value of $260,401 upon the conversion of the convertible note payable falling due on May 10, 2013.
On September 26, 2012, the Company issued 300,000 common shares with a fair value of $73,500 pursuant to a consultancy agreement.
Between December 12, 2012 and November 30, 2013, the Company issued an aggregate of 245,868 common shares with an aggregate fair value of $100,200, upon the conversion of $50,000 of a convertible note, which was due upon demand.
Between January 12, 2013, and August 31, 2013, the Company issued 192,576 common shares with an aggregate fair value of $86,500, upon the conversion of accrued interest of $1,700 and $42,500 principal of a convertible note.
Between May 2, 2013 and August 31, 2013, the Company issued 189,679 common shares with an aggregate fair value of $51,300, upon the conversion of $25,900 of a convertible note.
Between June 1, 2013, and August 31, 2013, the Company issued 236,102 common shares upon the conversion of accrued interest of $900 and $16,600 principal of a convertible note.
Between September 1, 2013, and November 30, 2013, the Company issued 558,167 common shares upon the conversion of principal of $10,940 of a convertible note.
Between December 1, 2013, and February 28, 2014, the Company issued 1,388,584 common shares upon the conversion of principal of $21,023 of a convertible note.
Between March 1, 2014, and May 31, 2014, the Company issued 2,489,410 common shares upon the conversion of principal of $12,897 of a convertible note.
Between June 1, 2014, and August 31, 2014, the Company issued 2,451,940 common shares upon the conversion of principal of $8,540 of a convertible note.
Between September 1, 2014, and November 30, 2014, the Company issued 4,513,690 common shares upon the conversion of principal of $8,890 of a convertible note.
On May 14, 2013, the Company issued 4,000,000 preferred shares pursuant to the Mexican mineral property option agreement. Each share has an underlying voting right equivalent to 100 common shares, and is convertible into 100 common shares of the Company.
Note 12: Income Taxes
Income taxes are summarized as follows for the year ended November 30, 2014.
| | | |
| November 30,
|
| 2014
|
| 2013
|
Operating loss for the year ended November 30
| $ (1,033,400)
|
| $ (898,106)
|
Average statutory tax rate
| 34%
|
| 34%
|
Expected income tax provisions
| $ (351,356)
|
| $ (305,356)
|
Unrecognized tax loses
| (351,356)
|
| (305,356)
|
Income tax expense
| $ -
|
| $ -
|
The Company has net operating losses carried forward of approximately $5,843,244 for tax purposes which will expire in 2026 if not utilized beforehand.
Note 13: Supplemental Disclosure with Respect to Cash Flows
During the year ended November 30, 2014, the following non-cash investing and financing activities occurred:
1.An aggregate of 10,843,624 common shares were issued with a fair value of $91,498 upon the conversion into stock of $51,350 of the principal of a convertible note payable.
Note 14: Commitment
| | |
|
| On May 5, 2012, the Company entered into a consultancy agreement with Primary Capital LLC. (“Primary”), whereby Primary would provide financial advisory and investment banking services to the Company for a period of two years commencing May 7, 2013. Pursuant to the agreement, the Company paid Primary a non-refundable signing fee of $10,000 and issued Primary common stock equivalent to 4.9% (the “Applicable Percentage”) of the common shares on a fully diluted basis after giving effect to the conversion of all outstanding derivative securities at the time of inception of the agreement.
|
| | |
|
| Accordingly, on May 5, 2012, 26,919 common shares were issued with a fair value of $53,838.
|
Pursuant to the agreement should the Company issue further potentially dilutive derivative instruments, or issue stock from treasury at any time, then within 5 days of the end of the fiscal quarter in which such instruments or stock was issued, the Company will issue to Primary additional common shares (the “Adjustment shares”) such that Primary continues to hold common stock equivalent to the Applicable Percentage.
Should the Board of Directors grant options, warrants or other securities pursuant to a restricted stock purchase plan or stock option plan approved by the stockholders and Board of Directors of the Company, to employees or Directors such grants shall be considered Excluded Securities for the purposes of determining the Applicable Percentage and the calculation of Adjustment shares in future periods.
Also if the Company completes any financing during the engagement period and also within 2 years of the termination of the agreement with any party introduced to the Company by Primary, Primary will be entitled to:
| | |
| i)
| a cash fee of 8% of the gross proceeds of the financing,
|
| | |
| ii)
| a 5 year warrant to purchase that number of shares equal to 8% of the number of shares issued in the financing on the same terms as the financing. Any such warrant issued will be in a form provided by Primary and may include terminology allowing for full ratchet anti-dilution provisions, standard and cashless exercise provisions and the same registration rights as received by the original investors.
|
The agreement can be terminated by either party by providing written notice at any time after the first anniversary of the agreement if either party is in breach of the agreement and fails to cure such breach within 15 days after it receives notice of such breach. During the quarter ended May 31, 2013, the Company terminated the contract.
On October 1, 2014, the Company entered into a consulting contract with Nathan Lewis. Mr. Lewis will act as the President, Treasurer, Secretary, and Director for the Company. The Company will distribute the equivalent in $2,000 restricted common stock for each month.
Note 15: Subsequent Events
F- 31
On January 1, 2015 the Company entered into a Promissory Note with Direct Capital Group in the sum of $300,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 1, 2015.
On January 1, 2015 the Company entered into a Promissory Note with Direct Capital Group in the sum of $360,000. The promissory note is unsecured, bears interest at 8% per annum, and matures on July 1, 2015.
On February 19, 2015 the Company acquired Digital Mining Corporation, a developing Crypto Currency and Alternative Currency Mining. The acquisition will bring the Company into mining, mining pools, trading, and arbitrage across all crypto currencies. The Company through Digital Mining Corporation will develop a platform allowing merchants accepting alternative currencies, through a subscription, the ability to confirm the authenticity of an alternative currency on a timely basis comparable to a credit card authorization.
Note 16: Legal Matters
The Company has no known legal issues pending.
Note 17: Going Concern
The accompanying financial statements and notes have been prepared assuming that the Company will continue as a going concern.
For the year ended November 30, 2014, the Company had a comprehensive loss of $1,031,334. In addition, the Company had a net loss of $897,593 for the year ended November 30, 2013. These circumstances result in substantial doubt as to the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon the Company’s ability to generate sufficient revenues to operate profitably or raise additional capital through debt financing and/or through sales of common stock.
The failure to achieve the necessary levels of profitability or obtain the additional funding would be detrimental to the Company. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
CHANGES IN REGISTRANT’S CERTIFYING ACCOUNTANT
None.
ITEM 9A. CONTROLS AND PROCEDURES.
Disclosure Controls and Procedures
The Company has adopted and maintains disclosure controls and procedures that are designed to provide reasonable assurance that information required to be disclosed in the reports filed under the Exchange Act, such as this annual report, is collected, recorded, processed, summarized and reported within the time periods specified in the rules of the SEC. The Company’s disclosure controls and procedures are also designed to ensure that such information is accumulated and communicated to management to allow timely decisions regarding required disclosure. As required under Exchange Act Rule 13a-15, the Company’s management, including the Chief Executive Officer who also serves as our Principal Financial Officer, has conducted an evaluation of the effectiveness of disclosure controls and procedures as of the end of the period covered by this report. Inasmuch as we only have one individual serving as our officer, director and employee we have determined that the Company has, per se, inadequate controls and procedures over financial reporting.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: domination of management by a single individual without adequate compensating controls, inadequate segregation of duties consistent with control objectives, and lack of an audit committee. These material weaknesses were identified by our Chief Executive who also serves as our Financial Officer in connection with the above annual evaluation.
Management believes that the material weaknesses did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and inadequate segregation of duties results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management recognizes that its controls and procedures would be substantially improved if we had an audit committee and two individuals serving as officers and as such is actively seeking to remediate this issue. Management believes that the material weakness in its controls and procedures referenced did not have an effect on our financial results. Based on that evaluation, the Chief Executive Office who also serves as our Principal Financial Officer concluded that the disclosure controls and procedures are ineffective.
Management’s Report on Internal Control over Financial Reporting
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is designed to provide reasonable assurance to the Company’s management and board of directors regarding the preparation and fair presentation of published financial statements. Management conducted an assessment of the Company’s internal control over financial reporting based on the framework and criteria established by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on the assessment, management concluded that, as of November 30, 2014, the Company’s internal control over financial reporting is ineffective based on those criteria.
The Company’s management, including its Chief Executive Officer, who also serves as our Principal Financial Officer, does not expect that the Company’s disclosure controls and procedures and its internal control processes will prevent all error and all fraud. A control system, no matter how well conceived and operated, can
provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that the breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal controls, we have initiated, or plan to initiate, the following series of measures:
We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function when funds are available to us. And, we plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management when funds are available to us.
Management believes that the appointment of one or more outside directors, who shall be appointed to a fully functioning audit committee, will remedy the lack of a functioning audit committee and a lack of a majority of outside directors on our Board.
We will work as quickly as possible to implement these initiatives; however, the lack of adequate working capital and positive cash flow from operations will likely slow this implementation.
Changes in Internal Control
There have been no changes in internal controls over the financial reporting that occurred during the period ending November 30, 2014, that have materially affected, or are reasonably likely to materially affect our internal controls over financial reporting.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
ITEM 9B. OTHER INFORMATION.
Name Change and Reverse Stock Split
Effective June 28, 2013, the Company with the approval from the Financial Industry Regulatory Authority (“FINRA”), the Company has among other things (i) changed its name from “Force Energy Corp.” to “Force Minerals Corporation”, and (ii) authorized and approved a reverse stock split of One for One Hundred (1:100) of our total issued and outstanding shares of common stock (the "Stock Split"). The Stock Split decreased our total issued and outstanding shares of common stock from 230,992,890 to 2,309,928 shares of common stock. The common
stock will continue to be $0.001 par value. The shareholder record date was June 14, 2013. The Stock Split shares are payable upon surrender of certificates to the Company's transfer agent. Fractional shares will be rounded upward.
Certificate of Designation
On October 28, 2013, the Board of Directors of the Company with the approval of a majority vote of its shareholders, designated four million (4,000,000) shares of the ten million (10,000,000) authorized preferred stock of our company as “Series A Preferred Stock” by filing a Certificate of Designation with the Secretary of State of the State of Nevada. The Series A Preferred Stock has 100 votes per share and is convertible into shares of our common stock. The Holders of the Series A Preferred Stock, may not convert and hold more than 9.9% of the common stock outstanding at any one time.
Convertible Promissory Notes:
On December 1, 2013, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with a June 1, 2014 maturity date.
On January 1, 2014, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with a July 1, 2014 maturity date.
On February 1, 2014, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with an August 1, 2014 maturity date.
On March 1, 2014, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with a September 1, 2014 maturity date.
On April 1, 2014, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with an October, 2014 maturity date.
On May 1, 2014, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $16,000 with a November 1, 2014 maturity date.
On June 1, 2014, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $48,000 with a December 1, 2014 maturity date.
On October 1, 2014, the Company entered into a Convertible Promissory Note with Direct Capital Group Inc. in the sum of $75,000 with an April 1, 2015 maturity date.
On October 1, 2014, the Company entered into a Convertible Promissory Note with New Venture Attorneys, PC in the sum of $220,486 with an October 1, 2015 maturity date.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS.
Identification of Directors and Executive Officers
The following table sets forth the names and ages of our current directors and executive officers:
| | | |
|
|
|
|
Name
| Age
| Position with the Company
| Position Held Since
|
| | | |
Tim DeHerrera
Nathan Lewis
| 56
41
| Director
President, Treasurer, Secretary, Director
| July 21, 2010
October 1, 2014
|
The Board of Directors has no nominating, audit or compensation committee at this time.
Term of Office
Each director is elected by the Board of Directors and serves until his or her successor is elected and qualified, unless he or she resigns or is removed earlier. Each of our officers is elected by the Board of Directors to a term of one (1) year and serves until his or her successor is duly elected and qualified, or until he or she is earlier removed from office or resigns.
Background and Business Experience
The business experience during the past five years of the person presently listed above as an Officer or Director of the Company is as follows:
Tim DeHerrera:Mr. DeHerrera currently serves as a director of the publicly held corporation Grid Petroleum Corp. He was President of Bonfire Productions Inc. from September 2009 until May 2010. During January 2008 until January 2010, he was also President and Chairman of the Intervision Network Corporation. Intervision Network, was a technology business in IPTV broadcasting and related live Internet-based multimedia transmission technologies including a global content delivery network. From May 2006 until December 2007 he was President of Atlantis Technology Group a technology based company. Lastly, during the past several years he has been a consultant to several other companies.
Nathan Lewis:Mr. Lewis has 16 years experience in management and sales. Mr. Lewis began his career in sales with Direct TV in 1998 where he advanced from an entry level position to managing the entire marketing department that consisted of over 30 employees in less than one year. In 2004 Nate relocated with his family to Bowling Green, KY. Nate worked as a surveyor for a company that specialized in oil and gas well siting. Soon afterwards, he focused on the financing and funding of oil and gas programs. Nate was employed as a broker and held FINRA Series 63 and 22 Licenses. He has successfully participated in the funding of over 100 wells from West Virginia to South West Texas.
Identification of Significant Employees
We have no significant employees, other than Tim DeHerrera, Director, Nathan Lewis our President, Treasurer, Secretary, Director and Chairman.
Family Relationship
We currently do not have any officers or directors of our Company who are related to each other.
Involvement in Certain Legal Proceedings
During the past ten years no director, executive officer, promoter or control person of the Company has been involved in the following:
(1)
A petition under the Federal bankruptcy laws or any state insolvency law which was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years
(2)
(3)
before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
(4)
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
(5)
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i.
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii.
Engaging in any type of business practice; or
iii.
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
(6)
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;
(7)
Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
(8)
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
(9)
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i.
Any Federal or State securities or commodities law or regulation; or
ii.
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
(10)
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the
(11)
(12)
Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
Audit Committee and Audit Committee Financial Expert
The Company does not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on its Board of Directors. All current members of the Board of Directors lack sufficient financial expertise for overseeing financial reporting responsibilities. The Company has not yet employed an audit committee financial expert on its Board due to the inability to attract such a person.
The Company intends to establish an audit committee of the Board of Directors, which will consist of independent directors. The audit committee’s duties will be to recommend to the Company’s Board of Directors the engagement of an independent registered public accounting firm to audit the Company’s financial statements and to review the Company’s accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in the opinion of the Company’s Board of Directors, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
Code of Ethics
We adopted a Code of Ethics applicable to all of our directors, officers, employees and consultants, which is a “code of ethics” as defined by applicable rules of the SEC. Our Code of Ethics was attached as an exhibit to our annual report filed on Form 10-K on March 15, 2009. If we make any amendments to our Code of Ethics other than technical, administrative, or other non-substantive amendments, or grant any waivers, including implicit waivers, from a provision of our Code of Ethics to our chief executive officer, chief financial officer, or certain other finance executives, we will disclose the nature of the amendment or waiver, its effective date and to whom it applies in a Current Report on Form 8-K filed with the SEC.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934 requires our directors and executive officers and persons who beneficially own more than ten percent of a registered class of our equity securities to file with the SEC initial reports of ownership and reports of change in ownership of common stock and other equity securities of the Company. Officers, directors and greater than ten percent stockholders are required by SEC regulations to furnish us with copies of all Section 16(a) forms they file. Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to us under Rule 16a-3(e) during the year ended November 30, 2014, Forms 5 and any amendments thereto furnished to us with respect to the year ended November 30, 2014, and the representations made by the reporting persons to us, we believe that during the year ended November 30, 2014, our executive officers and directors and all persons who own more than ten percent of a registered class of our equity securities complied with all Section 16(a) filing requirements.
ITEM 11. EXECUTIVE COMPENSATION
The table set forth below summarizes the annual and long-term compensation for services in all capacities to us payable to our officers and directors for the fiscal year ended November 30, 2014. Our Board of Directors may adopt an incentive stock option plan for our executive officers that would result in additional compensation.
Summary Compensation Table
| | | | | | | | | |
|
|
|
|
|
| Non-Equity
| Nonqualified
|
|
|
Name
| Fiscal
|
|
|
|
| Incentive Plan
| Deferred
|
|
|
and
| Year
|
|
| Stock
| Option
| Plan
| Compensation
| All Other
|
|
Principal
| Ended
| Salary
| Bonus
| Awards
| Awards
| Compensation
| Earnings
| Compensation
| Total
|
Position(s)
| November 30
| ($)
| ($)
| ($)
| ($)
| ($)
| ($)
| ($)
| ($)
|
Tim DeHerrera, Director
| 2014
| -
| -
| -
| -
| -
| 90,000 (1)
| -
| 90,000
|
Nathan Lewis, President, Treasurer, Secretary and Director
| 2014
| -
| -
| -
| -
| -
| 4,000 (2)
| -
| 4,000
|
|
|
|
|
|
|
|
|
|
|
Tim DeHerrera, Director
| 2013
| 120,000(3)
| 95,400
| -
| -
| -
|
| 90,000(3)
| 305,400
|
| |
(1) During that fiscal year ended November 30, 2014, Mr. DeHerrera earned $90,000 in compensation, which Mr. DeHerrera may convert to shares of the Company’s common stock at a per share price equal to the market price of the Company’s common stock on the date Mr. DeHerrera decides to receive those shares as such compensation.
(2) During the fiscal year ended November 30, 2014, Nathan Lewis earned $4,000 in compensation, which Mr. Lewis may convert to shares of the Company’s common stock at a per share price equal to the market price of the Company’s common stock on the date Mr. Lewis decides to receive those shares as such compensation.
(3) During that fiscal year ended November 30, 2013, Mr. DeHerrera earned total compensation of $305,400, $210,000 of which Mr. DeHerrera may convert to shares of the Company’s common stock at a per share price equal to the market price of the Company’s common stock on the date Mr. DeHerrera decides to receive those shares as such compensation.
| (1)
|
The Company’s officer and directors currently devote approximately 20 hours per week to manage the affairs of the Company, including, but not limited to, the upkeep of the Company, and the research and development associated with expanding the Company to new markets. Mr. DeHerrera is director and Mr. Lewis is the President, Treasurer, Secretary, and a director of the Company.
Narrative Disclosure to Summary Compensation Table
On August 10, 2010, we entered into a written Employment Agreement (the “Agreement”) with Tim DeHerrera (“DeHerrera”). Pursuant to the terms and conditions of the Agreement:
·
For a 12-month period commencing as of July 23, 2010, DeHerrera will serve as our President and Chief Executive Officer and as a member of the Board of Directors.
·
During his tenure with us, DeHerrera responsibilities will include the following:
o
Development of Management Strategy and Corporate Vision
o
Review and Development of Business Strategies
o
Organizational and Personnel Development
o
General Review and Development of Corporate Material
o
Corporate and Client Restructuring
o
Review and assisting in preparation of corporate filing
·
DeHerrera will earn an annual salary of $99,500 payable as follows:
o
$2,500 per month for the first three months of employment; $4,000 per month for months 4-6 of employment; and $5,000 per month for the final six months of the employment term. If we do not possess the capital to make cash payments to DeHerrera, then the monies owed him shall accrue as insider debt, which DeHerrera will have the option to convert into shares of our common stock at $.10 per share; and
o
o
2,500,000 shares of our stock which was payable upon execution of the Agreement. If the Agreement is terminated by either DeHerrera or us, then DeHerrera shall owe to us an amount of shares equal to 100,000 shares multiplied by the number of months he failed to work for us during that time period from July 23, 2010 to July 22, 2011.
·
The Agreement may be terminated with 30 days’ notice by either us or DeHerrera.
On July 18, 2011, we entered into a new employment contract with DeHerrera as President, which expires July 18, 2013. Pursuant to the contract, DeHerrera received 2,500,000 common shares having a fair value of $125,000. DeHerrera will receive $7,500 per month for months 13-24 of the contract. Unless the contract is terminated byeither party giving 45 days written notice the contact will automatically renew. Should the contract be renewed then DeHerrera will receive 2,500,000 shares of common stock and an annual increase of $2,500 per month upon each renewal. If the Company does not have sufficient cash resources to settle the cash element of the contract, then at the request of DeHerrera any accrued unpaid fees may be converted into common stock at $0.025 per share.
On July 16, 2013, we entered into an addendum to the contract, which expires on July 15, 2014. Pursuant to the contract DeHerrera received 7,500,000 common shares and will continue to receive 7,500,000 common shares upon the anniversary of the addendum. DeHerrera will receive $10,000 per month for months 25-36 of the contract and an annual monthly increase of $2,500 per month thereafter. Unless the contract is terminated by either party giving 45 days written notice the contact will automatically renew. If we do not have sufficient cash resources to settle the cash element of the contract, then at the request of DeHerrera any accrued unpaid fees may be converted into common stock at $0.01 per share.
On October 1, 2014, we entered into a consulting contract with Nathan Lewis. Mr. Lewis will act as the President, Treasurer, Secretary, and Director for the Company. The Company will distribute the equivalent in $2,000 restricted common stock for each month.
Outstanding Equity Awards at Fiscal Year-End
No executive officer received any equity awards, or holds exercisable or exercisable options, as of the year ended November 30, 2014.
| | | | | | | | | | | |
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
|
OPTION AWARDS
| STOCK AWARDS
| |
Name
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number
of
Shares
or Units
of
Stock That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That Have
Not
Vested
(#)
| EquityIncentivePlanAwards:Market orPayoutValue ofUnearnedShares,Units orOtherRightsThatHave Not Vested(#)
| | |
Tim DeHerrera
Nathan Lewis
| -
-
| -
-
| -
-
| -
-
| -
-
| -
-
| -
-
| -
-
| -
-
| | |
Long-Term Incentive Plans
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers.
Compensation Committee
We currently do not have a compensation committee of the Board of Directors. The Board of Directors as a whole determines executive compensation.
Compensation of Directors
Our directors receive no extra compensation for their service on our Board of Directors.
Indemnification
No director of the Company will have personal liability to the Company or any of its stockholders for monetary damages for breach of fiduciary duty as a director involving any act or omission of any such director since provisions have been made in the Articles of Incorporation limiting such liability. The foregoing provisions shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or, which involve intentional misconduct or a knowing violation of law, (iii) under applicable Sections of the Nevada Revised Statutes, (iv) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes or, (v) for any transaction from which the director derived an improper personal benefit.
The Bylaws provide for indemnification of the directors, officers, and employees of the Company in most cases for any liability suffered by them or arising out of their activities as directors, officers, and employees of the Company if they were not engaged in willful misfeasance or malfeasance in the performance of his or her duties; provided that in the event of a settlement the indemnification will apply only when the Board of Directors approves such settlement and reimbursement as being for the best interests of the Corporation. The Bylaws, therefore, limit the liability of directors to the maximum extent permitted by Nevada law (Section 78.751).
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership of Management
The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of January 5, 2015, by: (i) each of our directors; (ii) each of our named executive officers; and (iii) each person or group known by us to beneficially own more than 5% of our outstanding shares of common stock. Unless otherwise indicated, the shareholders listed below possess sole voting and investment power with respect to the shares they own.
| | | |
Name and Address of Beneficial Owners of Common Stock
| Title of Class
| Amount and Nature of Beneficial Ownership(1)
| Percentage of Common Stock(2)
|
Tim DeHerrera
6302 Mesedge Drive,
Colorado Springs, CO, 80919
Nathan Lewis
6302 Mesedge Drive, Colorado Springs, CO, 80919
| Common Stock
| 60,614,383(3)
800,000(4)
| 79%
.01%
|
DIRECTORS AND OFFICERS – TOTAL
|
| 61,414,383
| 79.01%
|
|
|
|
|
5% SHAREHOLDERS
|
|
|
|
None
|
|
|
|
| | |
| (1)
| The number and percentage of shares beneficially owned is determined under rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which the individual has sole or shared voting power or investment power and also any shares, which the individual has the right to acquire within 60 days through the exercise of any stock option or other right. The persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them, subject to community property laws where applicable and the information contained in the footnotes to this table.
|
| | |
| (2)
| The percentage shown is based on denominator of 15,154,003 shares of common stock issued and outstanding for the Companyas of January 5, 2015.
|
| (3)
| Mr. DeHerrera has the right to convert $300,000 owed to him as compensation from the Company into shares of the Company’s common stock at a per share price equal to the market price of the Company’s common stock on the date Mr. DeHerrera decides to convert that compensation to those shares. For purposes of this disclosure, the market price of $.005 (the market price on January 5, 2015) has been used.
|
| (4)
| Mr. Lewis has the right to convert $4,000.00 owed to him as compensation from the Company into shares of the Company’s common stock at a per share price equal to the market price of the Company’s common stock on the date Mr. Lewis decides to convert that compensation to those shares. For purposes of this disclosure, the market price of $.005 (the market price on January 5, 2015) has been used.
|
Changes in Control
There are no present arrangements or pledges of the Company’s securities, which may result in a change in control of the Company.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Related Party Transactions
None of the directors or executive officers of the Company, nor any person who owned of record or was known to own beneficially more than 5% of the Company’s outstanding shares of its Common Stock, nor any
associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction that has occurred during the past fiscal year, or in any proposed transaction, which has materially affected or will affect the Company.
With regard to any future related party transaction, we plan to fully disclose any and all related party transactions in the following manor:
·
Disclosing such transactions in reports where required;
·
Disclosing in any and all filings with the SEC, where required;
·
Obtaining disinterested directors consent; and
·
·
Obtaining shareholder consent where required.
Director Independence
For purposes of determining director independence, we have applied the definitions set out in NASDAQ Rule 5605(a)(2). The OTCBB on which shares of Common Stock are quoted does not have any director independence requirements. The NASDAQ definition of “Independent Officer” means a person other than an Executive Officer or employee of the Company or any other individual having a relationship, which, in the opinion of the Company's Board of Directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director.
According to the NASDAQ definition,Tim DeHerrera is not an independent director because he is also an executive officer of the Company.
Review, Approval or Ratification of Transactions with Related Persons
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES.
| | | | |
|
|
|
|
|
|
| Year Ended
November 30, 2014
|
| Year Ended
November 30, 2013
|
Audit fees
| $
| 26,466
| $
| 39,928
|
Audit-related fees
| $
| 0
| $
| 0
|
Tax fees
| $
| 0
| $
| 0
|
All other fees
| $
| 0
| $
| 0
|
Total
| $
| 26,466
| $
| 39,928
|
Audit Fees
During the fiscal year ended November 30, 2014, we incurred approximately $26,466 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal years ended November 30, 2014.
During the fiscal year ended November 30, 2013, we incurred approximately $39,928 in fees to our principal independent accountants for professional services rendered in connection with the audit and reviews of our financial statements for fiscal year ended November 30, 2013.
Audit-Related Fees
The aggregate fees billed during the fiscal years ended November 30, 2014and 2013 for assurance and related services by our principal independent accountants that are reasonably related to the performance of the audit or review of our financial statements (and are not reported under Item 9(e)(1) of Schedule 14A was $nil and $nil, respectively.
Tax Fees
The aggregate fees billed during the fiscal years ended November 30, 2014and 2013 for professional services rendered by our principal accountant tax compliance, tax advice and tax planning were $0 and $0, respectively.
All Other Fees
The aggregate fees billed during the fiscal years ended November 30, 2014and 2013 for products and services provided by our principal independent accountants (other than the services reported in Items 9(e)(1) through 9(e)(3) of Schedule 14A was $0 and $0, respectively.
PART IV
ITEM 15.EXHIBITS
(a)Exhibits
| | | |
Exhibit Number
| Description of Exhibit
|
| Filing
|
3.1
| Articles of Incorporation
|
| Filed with the SEC on June 5, 2006 as part of our Registration of Securities on Form SB-2.
|
3.1a
| Amended Articles of Incorporation
|
| Filed with the SEC on January 4, 2007, on our Current Report on Form 8-K.
|
3.1b
| Amended Articles of Incorporation
|
| Filed with the SEC on June 13, 2013, as part of our Current Report on Form 8-K.
|
3.2
| Bylaws
|
| Filed with the SEC on June 5, 2006 as part of our Registration of Securities on Form SB-2.
|
3.3
| Certificate of Designation
|
| Filed with the SEC on November 1, 2013 as part of our Current Report on Form 8-K.
|
10.1
| Property Option Agreement by and amongst FRC Exploration, Ltd., Ram Exploration Ltd., and Mr. Dorian Leslie, dated May 24, 2006.
|
| Filed with the SEC on June 5, 2006 as part of our Registration of Securities on Form SB-2.
|
10.2
| Participation Agreement by and between County Line Energy Corp., and the Company, dated December 21, 2006.
|
| Filed with the SEC on January 4, 2007, on our Current Report on Form 8-K.
|
10.3
| Dilution Agreement by and between the Company and County Line Energy Corp., dated December 22, 2006.
|
| Filed with the SEC on January 4, 2007, on our Current Report on Form 8-K.
|
| | | |
10.4
| Participation Option Agreement by and between County Line Energy Corp., and the Company, dated November 30, 2007.
|
| Filed with the SEC on December 19, 2007, on our Current Report on Form 8-K.
|
| | | |
10.5
| Letter Agreement by and between the Company and G2 Petroleum, LLC, dated March 11, 2008.
|
| Filed with the SEC on April 4, 2008 as part of our Current Report on Form 8-K.
|
| | | |
10.6
| Promissory Note by and between the Company and G2 Petroleum, LLC, dated March 14, 2008.
|
| Filed with the SEC on April 4, 2008 as part of our Current Report on Form 8-K.
|
10.7
| Letter of Intent to Farmout by and between the Company and Desert Mining, Inc., dated April 17, 2008.
|
| Filed with the SEC on April 4, 2008 as part of our Current Report on Form 8-K.
|
10.8
| Advisory and Business Consulting Services Agreement by and between the Company and Robert B. Perry, dated April 16, 2008.
|
| Filed with the SEC on May 1, 2008, as part of our Current Report on Form 8-K.
|
10.9
| Advisory and Business Consulting Services Agreement by and between the Company and Leon Hinton, dated April 16, 2008.
|
| Filed with the SEC on May 1, 2008 as part of our Current Report on Form 8-K.
|
10.10
| Advisory and Business Consulting Services Agreement by and between the Company and Bourgeois Energy, Inc., dated April 16, 2008.
|
| Filed with the SEC on May 1, 2008, as part of our Current Report on Form 8-K.
|
10.11
| Loan Agreement by and between the Company and G2 Petroleum, LLC, dated March 11, 2009.
|
| Filed with the SEC on March 17, 2009, as part of our Annual Report on Form 10-K.
|
10.12
| Lease Agreement by and between the Company and TEG, Inc., dated September 11, 2008.
|
| Filed with the SEC on March 17, 2009, as part of our Current Report on Form 8-K.
|
10.13
| Assignment Agreement by and between the Company and G2 Petroleum, LLC, dated June 20, 2009.
|
| Filed with the SEC on July 15, 2009 as part of our Quarterly Report on Form 10-Q.
|
10.14
| Assignment Agreement by and between the Company and G2 Petroleum, LLC, dated September 16, 2009.
|
| Filed with the SEC on September 24, 2009, as part of our Current Report on Form 8-K.
|
10.15
| Addendum to Participation Agreement by and between the Company and County Line Energy, Corp., dated October 16, 2009.
|
| Filed with the SEC on October 23, 2009, as part of our Quarterly Report on Form 10-Q.
|
| | | |
10.16
| Share Issuance Agreement by and between the Company and Villa Atmu S.A., dated November 16, 2009.
|
| Filed with the SEC on November 24, 2009, as part of our Current Report on Form 8-K.
|
| | | |
10.17
| Amendment Agreement by and between the Company and County Line Energy, Corp., dated February 1, 2010
|
| Filed with the SEC on March 15, 2010 as part of our Annual Report on Form 10-K.
|
| | | |
10.18
| Commodity-Industry Analyst Agreement by and between the Company and Michael Mathot, dated July 23, 2010.
|
| Filed with the SEC on July 28, 2010, as part of our Current Report on Form 8-K.
|
10.19
| Employment Agreement by and between the Company and Tim DeHerrera, dated August 10, 2010.
|
| Filed with the SEC on August 16, 2010 as part of our Current Report on Form 8-K.
|
10.20
| Mineral Property Option Agreement by and between the Company and Dalton Dupasquier, dated July 6, 2010.
|
| Filed with the SEC on August 31, 2010 as part of our Current Report on Form 8-K.
|
10.21
| Debt Settlement and Subscription Agreement by and between the Company and RCapital Management Ltd., dated August 3, 2010.
|
| Filed with the SEC on September 10, 2010, as part of our Current Report on Form 8-K.
|
10.22
| Separation Agreement by and between the Company and Michael Mathot, dated December 31, 2010.
|
| Filed with the SEC on January 3, 2011, as part of our Current Report on Form 8-K.
|
10.23
| Employment Agreement by and between the Company and Tim DeHerrera, dated July 18, 2011.
|
| Filed with the SEC on February 23, 2013 as part of our Annual Report on Form 10-K.
|
10.24
| Mineral Property Acquisition Agreement, by and between the Company, and Highlander Overseas, Inc. regarding the purchase of the La Predilecta Property, dated May 14, 2013
|
| Filed with the SEC on June 4, 2013 as part of our Current Report on Form 8-K.
|
10.25
| Second Addendum to Employment Agreement by and between the Company and Tim DeHerrera, dated May 30, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
10.26
| Promissory Note by and between the Company and Direct Capital Group, Inc., dated June 1, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
10.27
| Promissory Note by and between the Company and Direct Capital Group, Inc., dated July 1, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
| | | |
10.28
| Promissory Note by and between the Company and Direct Capital Group, Inc., dated August 1, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
| | | |
10.29
| Promissory Note by and between the Company and Syndication Capital, LLC. dated August 7, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
| | | |
10.30
| Promissory Note by and between the Company and Direct Capital Group, Inc., dated September 1, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
10.31
| Promissory Note by and between the Company and Direct Capital Group, Inc., dated October 1, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
10.32
| Assignment of a Convertible Redeemable Note in the Company, dated February 15, 2012, by and between Geotech International Ltd., and Direct Capital Group, Inc., dated October 11, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
10.33
| Assignment of a Convertible Redeemable Note in the Company, dated February 15, 2012, by and between Pea Soup, Inc., and Direct Capital Group, Inc., dated October 11, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
10.34
| Assignment of a Convertible Redeemable Note in the Company, dated February 15, 2012, by and between Watermark Holdings, Inc., and Direct Capital Group, Inc., dated October 15, 2013.
|
| Filed with the SEC on October 21, 2013 as part of our Quarterly Report on Form 10-Q.
|
|
|
|
|
|
|
|
|
10.35
| Promissory Note by and between the Company and Direct Capital Group Inc., dated November 1, 2013.
|
| Filed with the SEC on March 7, 2014 as part of our Annual Report on Form 10-K.
|
10.36
| Promissory Note by and between the Company and Direct Capital Group Inc., dated November 30, 2013.
|
| Filed with the SEC on March 7, 2014 as part of our Annual Report on Form 10-K.
|
10.37
| Promissory Note by and between the Company and Direct Capital Group Inc., dated December 1, 2013.
|
| Filed with the SEC on July 21, 2014 as part of our Quarterly Report on Form 10-Q.
|
10.38
| Promissory Note by and between the Company and Direct Capital Group Inc., dated January 1, 2014.
|
| Filed with the SEC on July 21, 2014 as part of our Quarterly Report on Form 10-Q.
|
10.39
| Promissory Note by and between the Company and Direct Capital Group Inc., dated February 1, 2014.
|
| Filed with the SEC on July 21, 2014 as part of our Quarterly Report on Form 10-Q.
|
| | | |
10.40
| Promissory Note by and between the Company and Direct Capital Group Inc., dated March 1, 2014.
|
| Filed with the SEC on July 21, 2014 as part of our Quarterly Report on Form 10-Q.
|
| | | |
10.41
| Promissory Note by and between the Company and Direct Capital Group Inc., dated April 1, 2014.
|
| Filed with the SEC on July 21, 2014 as part of our Quarterly Report on Form 10-Q.
|
| | | |
10.42
| Promissory Note by and between the Company and Direct Capital Group Inc., dated May 1, 2014.
|
| Filed with the SEC on July 21, 2014 as part of our Quarterly Report on Form 10-Q.
|
10.43
| Promissory Note by and between the Company and Direct Capital Group Inc., dated June 1, 2014.
|
| Filed with the SEC on October 20, 2014 as part of our Quarterly Report on Form 10-Q.
|
10.44
| Promissory Note by and between the Company and Asher Enterprises, Inc., dated September 12, 2012.
|
| Filed herewith.
|
10.45
| Promissory Note by and between the Company and Direct Capital Group Inc., dated October 1, 2014.
|
| Filed herewith.
|
10.46
| Promissory Note by and between the Company and New Venture Attorneys, PC, dated October 1, 2014.
|
| Filed herewith.
|
10.47
| Consulting Agreement by and between the Company and Nathan Lewis, dated October 1, 2014.
|
| Filed herewith.
|
10.48
| Promissory Note by and between the Company and Direct Capital Group Inc., dated January 1, 2015.
|
| Filed herewith.
|
10.49
| Promissory Note by and between the Company and Direct Capital Group Inc., dated January 1, 2015.
|
| Filed herewith.
|
16.01
| Letter from John Kinross-Kennedy CPA Accountants, dated January 2, 2013.
|
| Filed with the SEC on January 3, 2013 as part of Current Report on Form 8-K.
|
16.02
| Letter from Anton & Chia LLP., dated October 25, 2013.
|
| Filed with the SEC on October 25, 2013 as part of Current Report on Form 8-K.
|
21.1
| List of Subsidiaries
|
| Filed with the SEC on June 5, 2006 as part of our Registration of Securities on Form SB/2.
|
31.01
| Certification of Principal Executive Officer Pursuant to Rule 13a-14
|
| Filed herewith.
|
31.02
| Certification of Principal Financial Officer Pursuant to Rule 13a-14
|
| Filed herewith.
|
32.01
| Certification of CEO and CFO Pursuant to Section 906 of the Sarbanes-Oxley Act
|
| Filed herewith.
|
101.INS*
| XBRL Instance Document
|
| Furnished herewith.
|
101.SCH*
| XBRL Taxonomy Extension Schema Document
|
| Furnished herewith.
|
101.CAL*
| XBRL Taxonomy Extension Calculation Linkbase Document
|
| Furnished herewith.
|
| | | |
101.LAB*
| XBRL Taxonomy Extension Labels Linkbase Document
|
| Furnished herewith.
|
101.PRE*
| XBRL Taxonomy Extension Presentation Linkbase Document
|
| Furnished herewith.
|
101.DEF*
| XBRL Taxonomy Extension Definition Linkbase Document
|
| Furnished herewith.
|
*Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
FORCE MINERALS CORP.
Dated: May 4, 2015
/s/ Nathan Lewis
By: Nathan Lewis
Its: President, Principal Executive Officer & Principal Financial Officer (Principal Accounting Officer)
Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated:
Dated: May 4, 2015
/s/ Nathan Lewis
Nathan Lewis– Chairman and Director
34
draft 2
03/31/15
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: $75,000.00
Issue Date: September 12, 2012
Purchase Price: $75,000.00
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, FORCE ENERGY 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
$75,000.00 together with any interest as set forth herein, on June 14, 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, provided, further, however, that the limitations on
conversion may be waived by the Holder upon, at the election of the Holder, not less than 61
days prior notice to the Borrower, and the provisions of the conversion limitation shall continue
to apply until such 61st day (or such later date, as determined by the Holder, as may be specified
in such notice of waiver). 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
2
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 Holders 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 Holders option, Default Interest, if any, on the amounts referred to in the immediately
preceding clauses (1) and/or (2) plus (4) at the Holders option, any amounts owed to the Holder
pursuant to Sections 1.3 and 1.4(g) hereof.
1.2
Conversion Price.
(a) 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 Borrowers securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions and similar events).
The "Variable Conversion Price" shall mean 50% multiplied by the Market Price (as defined
herein) (representing a discount rate of 50%). 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.
(b) 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 Borrowers 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
3
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 five 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 Borrowers 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.
(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
4
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.
(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 Holders
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
Borrowers 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
5
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) 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 Holders Prime Broker with
DTC through its Deposit Withdrawal Agent Commission (DWAC) system.
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any
way limiting the Holders 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 $2,000 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
6
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.
(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.
7
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.
(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
dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or
distribution to the Borrowers 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
8
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
conversion or exchange is less than the Conversion Price then in effect, then the Conversion
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
9
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
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 Borrowers 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 Holders allocated portion of the Reserved Amount or
Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the
Holders 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
10
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 Borrowers 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
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 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 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 Optional Prepayment
Amount due to the Holder of the Note within two (2) 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 one hundred twenty-one (121) days 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 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 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
11
make payment to the Holder of an amount in cash (the Second 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 Second Optional
Prepayment Amount due to the Holder of the Note within two (2) 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 Holders 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 Borrowers 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 Holders 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 Holders 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 Holders 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.
12
2.5
Advances and Loans. So long as the Borrower shall have any obligation
under this Note, the Borrower shall not, without the Holders 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 Borrowers 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.
13
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 Borrowers 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).
14
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) TWO (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
15
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
16
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:
FORCE ENERGY CORP.
1400 16TH Street - Suite 400
Denver, CO 80202
Attn: TIM DEHERRERA, 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
Attn: Bernard S. Feldman, Esq.
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.
17
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.
18
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 Borrowers 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 12, 2012.
FORCE ENERGY CORP.
By: _______________________________
TIM DEHERRERA
Chief Executive Officer
19
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 FORCE ENERGY
CORP., a Nevada corporation (the Borrower) according to the conditions of the convertible
note of the Borrower dated as of September 12, 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 Holders 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
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: $48,000.00
Issue Date: October 1, 2014
Debt Settlement Price: $48,000.00
CONVERTIBLE PROMISSORY NOTE
Force Minerals Corporation, a Nevada corporation (hereinafter called the Borrower), hereby promises to pay to the order of Direct Capital Group Inc, a Nevada corporation, or registered assigns (the Holder) the sum of $48,000.00 together with any interest as set forth herein, on April 1, 2015 (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 free trading stock, $0.001par 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 Debt Settlement Agreement dated the date hereof, pursuant to which this Note was originally issued (the Debt Settlement Agreement).
1
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 dates listed for each invoice listed in Exhibit B. The Maturity Dates for invoice dated October 1, 2014 for $48,000.00 is April 1, 2015, (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, provided, further, however, that the limitations on
conversion may be waived by the Holder upon, at the election of the Holder, not less than 61
days prior notice to the Borrower, and the provisions of the conversion limitation shall continue
to apply until such 61st day (or such later date, as determined by the Holder, as may be specified
in such notice of waiver). 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., Las Vegas, Nevada time on
such conversion date (the Conversion Date).
2
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 Borrowers 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 Borrowers option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holders option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
1.2
Conversion Price.
(a)
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 Borrowers securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions and similar events).
The "Conversion Price" shall mean par .001 multiplied by the number of Common Stock converted at the time.
(b)
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 Borrowers 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 Debt Settlement Agreement.
The Borrower is required at all times to have authorized and reserved two 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).
3
The Reserved Amount shall be increased from time to time in accordance with the Borrowers obligations pursuant to Section 4(g) of the Debt Settlement 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.
(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
4
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.
(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 Holders
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 Debt Settlement 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 Borrowers 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., Las Vegas, Nevada
time, on such date.
(f)
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 Holders Prime Broker with DTC through its Deposit Withdrawal Agent Commission (DWAC) system.
5
(g)
Failure to Deliver Common Stock Prior to Deadline. Without in
any way limiting the Holders 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 $2,000 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 Debt Settlement Agreement). Except as otherwise provided in the Debt Settlement 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
6
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.
(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
7
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.
(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 dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrowers 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
8
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
conversion or exchange is less than the Conversion Price then in effect, then the Conversion
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)
Share Purchase Rights. If, at any time when any Notes are issued and
outstanding, the Borrower issues any convertible securities or rights to Common 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 Share Purchase Rights, the aggregate Share 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 Debt Settlement 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 Debt Settlement 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
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 Debt Settlement 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 Debt Settlement Agreement), subject to equitable adjustment from time to time
9
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 Borrowers 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 Holders allocated portion of the Reserved Amount or
Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the
Holders 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 Borrowers 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
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 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
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 Optional Prepayment
10
Amount due to the Holder of the Note within two (2) 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 of the invoices listed on Exhibit B, which is ninety-one (91) days following the issue date and ending on the date of the invoices listed on Exhibit B, which is one hundred fifty (150) 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 145%, 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 two (2) 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 of the invoices listed on Exhibit B, which is one hundred fifty-one (151) days following the issue date and ending on the date which is one hundred eighty (180) days following the issue date of the invoices listed on Exhibit B, 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 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 Third Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
11
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 Holders 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 Borrowers disinterested directors.
2.2
Restriction on Stock Repurchase. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the Holders 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 Holders 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 Holders 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 Holders 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 $500,000.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an Event of Default) shall occur:
12
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 Borrowers 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 Debt Settlement 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 Debt Settlement 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 Debt Settlement 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
13
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 Stock. The Borrower shall fail to maintain the
listing of the 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 Borrowers 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 Debt Settlement
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 Debt Settlement 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.
14
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) TWO (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,
15
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:
Force Minerals Corporation
1434 Spruce Street #100
Boulder, CO 80302
Attn: Tim DeHerrera, Chief Executive Officer
With a copy to (which copy shall not constitute notice):
Andrew Coldicutt, Esq.
Law Office of Andrew Coldicutt
1220 Rosecrans Street, PMB 258
San Diego, CA 92106
Email: andrew@coldicuttlaw.com
16
If to the Holder:
Direct Capital Group Inc
1155 Camino Del Mar Unit 176
Del Mar, CA 92014
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 Debt Settlement 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 Nevada 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 Nevada or in the federal
courts located in the state and county of Clark. 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
17
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
Debt Settlement Agreement. By its acceptance of this Note, each party agrees to
be bound by the applicable terms of the Debt Settlement 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 Borrowers 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 October 1, 2014
Force Minerals Corporation
By: _______Tim DeHerrera____________
Tim DeHerrera
18
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 Force Minerals Corporation, a Nevada corporation (the Borrower) according to the conditions of the convertible note of the Borrower dated as of October 1, 2014 (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 Holders calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an attachment
hereto:
Direct Capital Group Inc
1155 Camino Del Mar Unit 176
Del Mar, CA 92014
Attention: Certificate Delivery
Date of Conversion:
_____________
Applicable Conversion Price:
$.001
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:
______________
By:_____________________________
Title: President.
Date: ______________
19
THIS NOTE AND THECOMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT”)
US $220,486.00
FORCE MINERALS CORP
8% CONVERTIBLE REDEEMABLE NOTE
DUE OCTOBER 1, 2015
FOR VALUE RECEIVED, Force Minerals Corp(the “Company”) promises to pay to the order of New Venture Attorneys P.C. and its authorized successors and permitted assigns ("Holder"), the aggregate principal face amount of Two Hundred Twenty Thousand Four Hundred Eighty Six dollars exactly (U.S. $220,486.00) on October 1, 2015 ("Maturity Date") and to pay interest on the principal amount outstanding hereunder at the rate of 8% per annum commencing on October 1,2014.The interest will be paid to the Holder in whose name this Note is registered on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note are payable at101 Church Street Suite 22, Los Gatos, CA 95030, initially, and if changed, last appearing on the records of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein.
This Note is subject to the following additional provisions:
1.
This Note is exchangeable for an equal aggregate principal amount of
1
Notes of different authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith.
2.
The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.
3.
This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended ("Act") and applicable state securities laws. Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly registered on the Company's records as the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prospective transferee of this Note, also is required to give the Company written confirmation that this Note is being converted ("Notice of Conversion") in the form annexed hereto as Exhibit A. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date.
4.
(a)
The Holder of this Note is entitled, at its option, at any time to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company's common stock (the "Common Stock") without restrictive legend of any nature, at a price ("Conversion Price") for each share of Common Stock equal to 60% of the lowest closing bid priceof the Common Stock as reported on the National Quotations Bureau OTCQB exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future ("Exchange"), for thefifteenpriortrading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of Conversion is delivered by fax or other electronic method of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Such conversion shall be effectuated by the Company delivering the shares of Common Stock to the Holder within 3 business days of receipt by the Company of the Notice of Conversion. Once the Holder has received such shares of Common Stock, the Holder shall surrender this Note to the Company, executed by the Holder evidencing such Holder's intention to convert this Note or a specified portion hereof, and accompanied by proper assignment hereof in blank. Accrued, but unpaid interest shall be subject to conversion. No fractional shares or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to the nearest whole share.In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 55% instead of 60% while that “Chill” is in effect.In no event shall the Holder be allowed to effect a conversion if such conversion, along with all other shares of Company Common Stock beneficially owned by the Holder and its affiliates would exceed 9.9% of the outstanding shares of the Common Stock of the Company.
(b)
Interest on any unpaid principal balance of this Note shall be paid at the rate of 8% per annum. Interest shall be paid by the Company in cash only.
2
(c)
This Note may not be prepaid.
(d)
Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization or other change or exchange of outstanding shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"), then, in each case, the Company shall, upon request of the Holder, redeem this Note in cash for 120% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.
(e)
In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets)in connection with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.
5.
No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
6.
The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.
7.
The Company agrees to pay all costs and expenses, including reasonable attorneys' fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.
8.
If one or more of the following described "Events of Default" shall occur:
3
(a)
The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company; or
(b)
Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or
(c)
The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation of the Company under this Note or any other note issued to the Holder; or
(d)
The Company shall (1) become insolvent; (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or
(e)
A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment; or
(f)
Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of the Company; or
(g)
Except as disclosed in public filings made available by the Company, one or more money judgments, writs or warrants of attachment, or similar process, in excess of fifty thousand dollars ($50,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days.
(h)
The Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period; or
(i)
The Company shall have its Common Stock delisted from an exchange (including the OTCQB exchange) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 5 consecutive days or the Company shall cease to be current in its filing requirements;
(j)
If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the Board;
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(k)
The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within 3 business days of its receipt of a Notice of Conversion; or
(l)
The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder; or
(m)
The Company shall not be “current” in its filings with the Securities and Exchange Commission; or
(n)
The Company shall lose the “bid” price for its stock in a market (including the OTCPK marketplace or other exchange).
Then, or at any time thereafter, unless cured, and in each and every such case, unless such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option of the Holder and in the Holder's sole discretion, the Holder may consider this Note immediately due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder's rights and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10th day. The penalty for a breach of Section 8(n) shall be an increase of the outstanding principal amounts by 20%. In case of a breach of Section 8(i), the outstanding principal due under this Note shall increase by 50%. If this Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%.
If the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’ fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
9.
In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.
10.
Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the Company and the Holder.
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11.
The Company represents that it is not a “shell” issuer and has never been a “shell” issuer or that if it previously has been a “shell” issuer that at least 12 months have passed since the Company has reported form 10 type information indicating it is no longer a “shell issuer. Further, the Company will instruct its counsel to either (i) write a 144- 3(a(9) opinion to allow for salability of the conversion shares or (ii) accept such opinion from Holder’s counsel.
12.
The Company shall issue irrevocable transfer agent instructions reserving shares of its Common Stock for conversions under this Note(the “Share Reserve”). The reserve shall be replenished as needed to allow for conversions of this Note. Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. The Company shall pay all costs associated with issuing and delivering the shares. The company should at all times reserve a minimum of four times the amount of shares required if the note would be fully converted. The Holder may reasonably request increases from time to time to reserve such amounts.
13.
The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14.
This Note shall be governed by and construed in accordance with the laws of California applicable to contracts made and wholly to be performed within the State of California and shall be binding upon the successors and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State of California. This Agreement may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
Dated: October 1, 2014
FORCE MINERALS CORP
By: __________________________________
Title: President
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EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder in order to Convert the Note)
The undersigned hereby irrevocably elects to convert $___________ of the above Note into _________ Shares of Common Stock of Force Minerals Corp(“Shares”) according to the conditions set forth in such Note, as of the date written below.
If Shares are to be issued in the name of a person other than the undersigned, the undersigned will pay all transfer and other taxes and charges payable with respect thereto.
Date of Conversion:
Applicable Conversion Price:
Signature:
[Print Name of Holder and Title of Signer]
Address:
SSN or EIN:
Shares are to be registered in the following name:
Name:
Address:
Tel:
Fax:
SSN or EIN:
Shares are to be sent or delivered to the following account:
Account Name:
Address:
7
CONSULTING AGREEMENT
THIS AGREEMENT effective as of the 1st day of October 2014 (the Effective Date):
BETWEEN:
Force Minerals Corporation, a Nevada corporation with mailing address of 15707 Rockfield Blvd, Irvine California 92618 (the Company)
AND:
Nathan Lewis, an individual with mailing address of 11401 Dr. Martin Luther King Jr St N Saint Petersburg FL (the Consultant)
WHEREAS:
A. The Company is a public company called Force Minerals Corporation;
B. The Company is engaged in, among other the Internet incubator space in order to capitalize upon the technology opportunities available today and in the immediate future within the cloud computing market place for on-line advertising, marketing and web application firms. The Company has developed proprietary technologies that will enable the company to capitalize on the third party data management and utilization space through the implementation of a cost effective development and delivery system allowing for economies of scale to be applied to custom applications. Most recently the Company has expanded into Bitcoin Mining and has developed a mining pool, BTC Pool Party. The BTC Pool Party is a new standard for the Bitcoin mining industry providing transparency with openly disclosed rates and fees;
C. The Company owns and utilizes various trade secrets and proprietary information in connection with its business and is constantly developing and striving to develop new trade secrets and proprietary information to allow it to maintain and enhance its competitive position in its industry;
D. The Consultant has certain skills and expertise, as represented to the Company by the Consultant, which will benefit the Company. Consultant will create, develop, and implement a comprehensive strategy for the Companys Social Media campaigns, PR campaigns, new Web Site development, launches and integration campaigns, development of a new comprehensive Customer Relationship Management system including internal/external touch points, ongoing loyalty assessments, creation of actionable knowledge based on quantitative and qualitative metrics;
E. The Company wishes to obtain and the Consultant wishes to provide certain services to the Company on the terms and conditions contained in this Agreement;
F. The Consultant will be placed in a position of authority and trust and will come into contact with, or have access to certain trade secrets and/or confidential information of and relating to the Company. All information disclosed to the Consultant by the Company is done so in the context of a confidential relationship between the Consultant and the Company; and
G. The Consultant would not be retained by the Company or be given access to work, or contact with any such trade secrets and/or confidential information unless the Consultant maintains any and all such trade secrets and/or confidential information in the strictest of confidence.
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THEREFORE THIS AGREEMENT WITNESSES that the parties AGREE AS FOLLOWS:
1. SERVICES, TERM, ETC.
1.1 Services. The Consultant will perform those services customarily performed by the President, Treasurer, Secretary and Director of the Company and as directed by board of directors.
1.2 Equipment. The Consultant will provide its own equipment to perform the Services except as otherwise set out in this Agreement.
1.3 Facilities. The Consultant will be responsible for all necessary office premises and basic office equipment including space, desk, telephone, signs, and business cards.
1.4 Reporting. The Consultant will keep the Company informed of all matters concerning the Consultants Services at such time and in such manner as the board of directors of the Company may determine.
1.5 Term and Termination. This Agreement will commence on the Effective Date and will continue for a period of one year (the Term). Either party will have the right to terminate this Agreement before the end of the Term without cause. During the term of this agreement termination can be done by giving one months written notice of termination or at the discretion of the Company, payment in lieu of notice (based on the Contract Rate, as defined below, for one month), or some combination thereof.
1.6 No Employment, No Authority to Bind, Etc. The Consultant and the Company acknowledge and agree that nothing contained in this agreement will be interpreted to constitute the Consultant as an Consultant or agent of the Company. Neither the Consultant nor the Company have the authority, express or implied, to bind the other in any respect and will not represent themselves as having such authority, it being intended that the Consultant will be responsible for its own actions. The Consultant is retained only for the purposes and to the extent set out in this Agreement.
1.7 Devotion of Time. The Consultant need only devote such portion of the Consultants time as is necessary to complete the Services required. The Consultant is not precluded from acting in any other capacity for any other person, firm or Company provided that it does not conflict with the Consultants duties to the Company.
2. REMUNERATION
2.1 Compensation. The Company will pay to the Consultant $2,000 (U.S.) per month (the Consulting Rate), due and payable at the end of each month, payable in duly authorized, validly issued, fully paid and non assessable common shares of the company. The calculation of the number of shares issued will be based on a thirty-day average of the highs and lows of the stocks value on the exchange.
2.2 The Contract Rate is inclusive of any tax. To the extent that the Consultant is required to collect and remit any tax.
2.3 Bonuses. The Company in its sole discretion may choose to pay the Consultant bonuses or other discretionary payments.
2.4 Incentive Plans. The Company in its sole discretion may choose to provide the Consultant with short or long term incentive plans or other discretionary investment opportunities, such as
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stock options. Any such remuneration will be provided in accordance with the plan documents (i.e. share purchase agreement).
2.5 No Deductions. The Company will not make any statutory source deductions from the compensation payable to the Consultant under this Agreement, such as, but not limited to federal income tax, provincial income tax, Canada Pension Plan and Employment Insurance. The Consultant is solely responsible for withholding and remitting any local, provincial, or federal payroll-related taxes or assessments related to performance of the Services.
2.6 No Benefits. The Consultant is not entitled to any benefits or privileges that may be provided by the Company to its Consultants.
2.7 Expenses. The Company will pay the Consultant for all reasonable out of pocket expenses incurred by the Consultant in carrying out the Services provided they are pre-approved by the Company and individually listed as a separate line item on the Consultants invoice for Services.
3. GENERAL OBLIGATIONS
3.1 The Consultant is solely responsible for the Consultants registration and payment of assessments for coverage with the Workers Compensation Board. If requested by the Company, proof of coverage must be provided immediately.
3.2 Indemnity of the Company. The Consultant agrees to indemnify the Company from all losses, claims, actions, damages, charges, taxes, penalties, assessments or demands (including reasonable legal fees and expenses) which may be made by the Canada Revenue Agency, Employment Insurance Plan, the Canada Pension Plan, the Workers Compensation Plan, or related plans or organizations requiring the Company to pay an amount under the applicable statutes and regulations in relation to any Services provided to the Company pursuant to this Agreement.
3.3 Indemnity of the Consultant. The Company agrees to indemnify the Consultant from all losses, claims, actions, damages, assessments or demands (including reasonable legal fees and expenses) made against the Consultant which result from the Consultants actions, omission or negligence in the performance of the Services. The Company will not indemnify the Consultant where the Consultants actions or omissions are fraudulent.
3.4 Companys Policies. The Consultant is bound by the various policies of the Company and notwithstanding that those policies may be varied from time to time. If there is an express conflict between any such policies and this Agreement, then this Agreement governs.
3.5 Use of the Companys Property. The Consultant must not save, retain or store copies of any communications, documentation, records or files being the rightful property of the Company in any form outside the office or on any personal electronic device (i.e. ipod, PDA, cell phone, black berry, personal computer, mass storage device, cd, etc.) for any reason unless expressly permitted by the Company.
3.6 Return of Companys Property. Whenever requested by the Company and immediately upon termination of this Agreement for any reason, the Consultant will deliver to the Company all property belonging to the Company, including without limitation any keys, security cards, passwords, devices, documents, papers, plans, materials or other property, and any copies or reproductions thereof, which may have come into the Consultants possession during the course of the Consultants engagement by the Company. For greater certainty, any communications or documentation transmitted by, received from, or stored in the Companys computer, email or voicemail systems, regardless of any personal content, are the property of the Company.
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3.7 Non-Solicitation. During the Term of this Agreement, the Consultant will not:
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| (a)
| solicit or entice, or attempt to solicit or entice, either directly or indirectly, any supplier, Consultant, Consultant, customer or prospective customer of the Company as at the date of termination of this Agreement, to become a supplier, Consultant, Consultant, or customer of any business or enterprise that competes with the Company;
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| (b)
| Solicit or entice, or attempt to solicit or entice, either directly or indirectly, any Consultant or Consultant of the Company as at the date of termination of this Agreement, to become an Consultant or Consultant of any business or enterprise that competes with the Company.
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3.8 Not in Breach of Prior Agreements. The Consultant represents that his performance of all the terms of this Agreement do not and will not breach any fiduciary or other duty or any covenant, agreement or understanding (including any agreement relating to any proprietary information, knowledge or data acquired by the Consultant in confidence, trust or otherwise prior to the Effective Date) to which the Consultant is a party or by the terms of which the Consultant may be bound. The Consultant agrees that he will not disclose to the Company, or induce the Company to use any proprietary information, knowledge or data belonging to any previous Company or others. The Consultant further agrees not to enter into any agreement or understanding, either written or oral, in conflict with the provisions of this Agreement.
4. CONFIDENTIAL INFORMATION & INTELLECTUAL PROPERTY
4.1 Confidential Information. For purposes of this agreement, the term Confidential Information means all of the following materials and information (whether or not reduced to writing and whether or not patentable or protectible by copyright) which the Consultant receives, received access to, conceived or developed, in whole or part, directly or indirectly, in connection with its relationship with the Company or in the course of providing the Services to the Company (in any capacity, whether executive, managerial, planning, technical, sales, research, development, manufacturing, engineering or otherwise) or through the use of any of the Companys facilities or resources:
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| (a)
| business plans, strategies, tactics, policies, resolutions, patent applications, trademark applications, trade name applications and industrial design applications, intellectual property, software, hardware use;
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| (b)
| litigation, negotiations or contractual arrangements;
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| (c)
| financial information, including but not limited to, cost, pricing, performance data, debt arrangements, equity structure, interests and holdings;
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| (d)
| operational and scientific information, including but not limited to, marketing, research techniques, exploration techniques, trade secrets, product specifications, data, data base information, know-how, methodologies, formula, models, compositions, processes, improvements, devices, inventions, discoveries, concepts, ideas, designs, sketches, photographs, graphs, drawings, notes, samples, past, current and planned research and development, systems, structures and architectures and related processes (collectively, the Works);
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| (e)
| marketing information, including but not limited to, current and planned marketing activities, methods and processes, marketing strategies, advertising strategies, customer or client lists, current and anticipated customer or client requirements, price lists and methodologies, marketing research methodologies, market studies, sales and marketing plans and information concerning customers, clients or suppliers, and strategies for attracting and dealing with customers or clients, including information relevant to the design and implementation of marketing plans and advertising campaigns;
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| (f)
| personnel information, including but not limited to, the names and backgrounds of key personnel, personnel lists, résumés, personnel data, including information about compensation and benefits, organization structure, performance evaluations of personnel of the Company and personnel training techniques and materials;
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| (g)
| any and all information concerning the business and affairs of the Company which the Company treats as proprietary and confidential and which is not in the public domain;
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| (h)
| any other information, however documented, of the Company that is a trade secret under any applicable legislation or at common law; and
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| (i)
| all ideas, which are derived from or related to the Consultants access to or knowledge of any of the above, enumerated materials and information.
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4.2 Failure to mark any of the Confidential Information as confidential, proprietary or protected information does not affect its status as part of the Confidential Information under the terms of this Agreement.
4.3 For purposes of this Agreement, the information that would otherwise be Confidential Information, which is or becomes publicly available without breach of:
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| (a)
| this Agreement;
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| (b)
| any other agreement or instrument to which the Company is a party or a beneficiary; or
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| any duty owed to the Company by the Consultant or any third party;
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(Available Information)
is not Confidential Information, provided, however, that the Consultant acknowledges and agrees that if the Consultant seeks to disclose, divulge, reveal, report, publish, transfer or use, for any purpose, any Available Information, the Consultant bears the burden of proving that such information is Available Information.
4.4 Definition of Intellectual Property. For purposes of this Agreement, the term Intellectual Property means all Works, trademarks, trademark applications, patents, patent applications, copyright materials, trade names, trade name applications, industrial designs, and applications to register designs.
4.5 Treatment of Information. The Consultant acknowledges that as a result of his relationship with the Company, the Consultant may use, acquire or add to Confidential Information or Intellectual Property.
4.6 The Consultant will not at any time during or following the term of this Agreement, directly or indirectly, disclose, divulge, reveal, report, publish, transfer or use for any purpose any of the
5
Confidential Information, except with the prior written consent of the Company, or except if the Consultant is acting as a Consultant of the Company solely for the benefit of the Company in connection with the Companys business and in accordance with the Companys business practices and policies.
4.7 Disclosure of any Confidential Information is not prohibited if the disclosure is directly pursuant to a valid and existing order of a court or other governmental body or agency within Canada or the United States of America; provided, however, that:
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| (a)
| the Consultant will first have given prompt notice to the Company of any possible or prospective order (or proceeding pursuant to which any order may result); and
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| (b)
| the Company will have been afforded a reasonable opportunity to prevent or limit any disclosure.
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4.8 Ownership of Information and Intellectual Property. Subject to Section 4.11, the Consultant acknowledges and agrees that all rights, title and interest in any Confidential Information or Intellectual Property remains the exclusive property of the Company. Accordingly, the Consultant specifically agrees and acknowledges that it has no interest in the Confidential Information or Intellectual Property, notwithstanding the fact that the Consultant may have created or contributed to the creation of or its name or Consultants name is used in association with such Confidential Information or Intellectual Property.
4.9 Waiver of Moral Rights. The Consultant waives all moral rights to any such Intellectual Property, including, but not limited to, the right to the integrity of the Intellectual Property, the right to be associated with the Intellectual Property as its author by name or under a pseudonym and the right to remain anonymous.
4.10 Disclosure of Intellectual Property. The Consultant will immediately disclose to the Company all Intellectual Property developed in whole or in part by the Consultant during the term of this Agreement and to assign to the Company any right, title or interest the Consultant may have in the Intellectual Property. The Consultant will execute any instruments and to do all other things reasonably requested by the Company (both during and after termination of this Agreement) in order to vest more fully in the Company all ownership rights in those items transferred by it to the Company.
4.11 Sections 4.5 to 4.10 do not apply in respect of any invention, copyrighted material, trademarks, patents or other intellectual property, including applications therefore, where:
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| (a)
| no equipment, supplies, facility, Confidential Information or Intellectual Property of the Company was used, which was developed entirely on the Consultants own time, and which does not:
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| relate to the business of the Company;
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| relate to the Companys actual or demonstrably anticipated processes, research or development; or
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| result from any work performed by the Consultant for the Company; or
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| The Consultant owned or had an interest in, or were conceived of, created, or first reduced to practice, prior to his or her employment with the Company, provided they are listed by the Consultant and attached as a Schedule to this Agreement. The Company agrees to keep the Schedule in confidence.
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4.12 Use of Consultants Name, Image, etc. The Company may use the Consultants name, image, appearance, likeness and form, without limitation, in connection with the Company, including but not limited to the creation, development, production, manufacture, distribution, promotion and use of its products and services, during the term of this Agreement and for a period of one (1) years from the date of termination of this Agreement, regardless of whether the termination is voluntary or involuntary.
5. MISCELLANEOUS
5.1 Severability. If any provision of this Agreement is determined by a court or tribunal of competent jurisdiction to be invalid, illegal or otherwise void or unenforceable for any reason whatsoever, then such provision will be severed from this Agreement and will not affect the validity of the remainder of this Agreement and this Agreement will be construed as if such provision had never been contained in this Agreement. All other provisions of this Agreement will, nevertheless, remain in full force and effect and no provision will be deemed dependent upon any other provision unless so expressed in this Agreement.
5.2 Non-Waiver. The failure of either party to insist upon strict performance of any of the terms and conditions of this Agreement will not be deemed a waiver of any rights or remedies that either party has and will not be deemed a waiver of any subsequent default of the terms and conditions of this Agreement.
5.3 No Assignment by Consultant. The Consultant must not assign either this Agreement or any benefit or interest granted by it without the prior written consent of the Company.
5.4 No Subcontracting by Consultant. The Consultant will not subcontract all or any portion of the Services required to be performed under this Agreement without prior written consent of the Company.
5.5 Successors. This Agreement will operate to the benefit of and is binding upon the Company and the Consultant and their respective heirs, executors, administrators, successors and permitted assigns.
5.6 Notices. Any notice required or permitted to be given to either party must be delivered by hand or personally to the partys address last known to the other party and will be deemed to be received on the date of hand delivery or personal delivery to such address. Personal delivery will include delivery by a commercial courier.
5.7 Survival. The Consultants obligations contained in Sections 1.5, 1.6, 2.6, 3.3, 3.4, 3.6 to 3.9 and 4 will survive termination of this Agreement.
5.8 Governing Law. This Agreement will be governed by and interpreted in accordance with laws of The State of Nevada that may be applicable..
5.9 Independent Legal Advice. The Consultant acknowledges that it has read and understands this Agreement, and acknowledges that it has had the opportunity to obtain independent legal advice with respect to it.
5.10 Headings. The headings utilized in this Agreement have been inserted for convenience of reference only and in no way define, limit, or enlarge the scope or meaning of the provisions of this Agreement.
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5.11 Execution in Counterparts. This Agreement may be executed in several counterparts, each of which will be deemed to be an original and all of which will together constitute one and the same instrument.
5.12 Entire Agreement. This Agreement and any documents and instruments referred to in this Agreement contain the whole agreement between the Consultant and the Company with respect to the Consultants engagement by the Company and there are no representations, warranties, collateral terms or conditions, express or implied, other than as set forth in this Agreement. This Agreement supersedes any written or oral agreement or understanding between the Consultant and the Company.
5.13 Amendments. No amendment, change, modification or addition to this Agreement will be valid unless made in writing and executed by the Company and the Consultant.
IN WITNESS WHEREOF, the Company and the Consultant have executed this Agreement as of the 1st day of October, 2014.
____________________________
Nathan Lewis President Force Minerals Corporation
______________________________
Nate Lewis an Individual
8
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: $360,000.00
Issue Date: January 1, 2015
Debt Settlement Price: $360,000.00
CONVERTIBLE PROMISSORY NOTE
Force Minerals Corporation, a Nevada corporation (hereinafter called the Borrower), hereby promises to pay to the order of Direct Capital Group Inc, a Nevada corporation, or registered assigns (the Holder) the sum of $360,000.00 together with any interest as set forth herein, on July 1, 2015 (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 free trading stock, $0.00001par 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 Las Vegas, Nevada 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 Debt Settlement Agreement dated the date hereof, pursuant to which this Note was originally issued (the Debt Settlement Agreement).
1
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 dates listed for each invoice listed in Exhibit B. The Maturity Date for invoice in the amount of $360,000.00, July 1, 2015 (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, provided, further, however, that the limitations on
conversion may be waived by the Holder upon, at the election of the Holder, not less than 61
days prior notice to the Borrower, and the provisions of the conversion limitation shall continue
to apply until such 61st day (or such later date, as determined by the Holder, as may be specified
in such notice of waiver). 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., Las Vegas, Nevada time on
such conversion date (the Conversion Date).
2
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 Borrowers 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 Borrowers option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holders option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
1.2
Conversion Price.
(a)
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 Borrowers securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions and similar events).
The "Conversion Price" shall mean par .00001 multiplied by the number of Common Stock converted at the time.
(b)
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 Borrowers 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 Debt Settlement Agreement. The Borrower is required at all times to have authorized and reserved two 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).
3
The Reserved Amount shall be increased from time to time in accordance with the Borrowers obligations pursuant to Section 4(g) of the Debt Settlement 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., Las Vegas, Nevada 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
4
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.
(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 Holders
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 Debt Settlement 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 Borrowers 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., Las Vegas, Nevada
time, on such date.
(f)
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 Holders Prime Broker with DTC through its Deposit Withdrawal Agent Commission (DWAC) system.
5
(g)
Failure to Deliver Common Stock Prior to Deadline. Without in
any way limiting the Holders 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 $2,000 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 Debt Settlement Agreement).
Except as otherwise provided in the Debt Settlement 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
6
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.
(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
7
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.
(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 dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrowers 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
8
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
conversion or exchange is less than the Conversion Price then in effect, then the Conversion
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)
Share Purchase Rights. If, at any time when any Notes are issued and
outstanding, the Borrower issues any convertible securities or rights to Common 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 Share Purchase Rights, the aggregate Share 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 Debt Settlement 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 Debt Settlement 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
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 Debt Settlement 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 Debt Settlement Agreement), subject to equitable adjustment from time to time
9
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 Borrowers 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 Holders allocated portion of the Reserved Amount or
Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the
Holders 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 Borrowers 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
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 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
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 Optional Prepayment
10
Amount due to the Holder of the Note within two (2) 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 of the invoices listed on Exhibit B, which is ninety-one (91) days following the issue date and ending on the date of the invoices listed on Exhibit B, which is one hundred fifty (150) 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 145%, 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 two (2) 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 of the invoices listed on Exhibit B, which is one hundred fifty-one (151) days following the issue date and ending on the date which is one hundred eighty (180) days following the issue date of the invoices listed on Exhibit B, 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 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 Third Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
11
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 Holders 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 Borrowers disinterested directors.
2.2
Restriction on Stock Repurchase. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the Holders 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 Holders 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 Holders 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 Holders 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 $500,000.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an Event of Default) shall occur:
12
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 Borrowers 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 Debt Settlement 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 Debt Settlement 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 Debt Settlement 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
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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 Stock. The Borrower shall fail to maintain the
listing of the 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 Borrowers 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 Debt Settlement
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 Debt Settlement 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.
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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) TWO (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,
15
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:
Force Minerals Corporation
6302 Mesedge Drive
Colorado Springs, CO 80919
16
If to the Holder:
Direct Capital Group Inc
1401 Camino Del Mar #202
Del Mar, CA 92014
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 Debt Settlement 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 Nevada 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 Nevada or in the federal
courts located in the state and county of Clark. 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.
17
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
Debt Settlement Agreement. By its acceptance of this Note, each party agrees to
be bound by the applicable terms of the Debt Settlement 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 Borrowers 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.
18
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this January 1, 2015
Force Minerals Corporation
By: ___Nathan Lewis___________________
Nathan Lewis
19
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 Force Minerals Corporation, a Nevada corporation (the Borrower) according to the conditions of the convertible note of the Borrower dated as of January 1, 2015 (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 Holders calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an attachment
hereto:
Direct Capital Group Inc
1401 Camino Del Mar #202
Del Mar, CA 92014
Attention: Certificate Delivery
Date of Conversion:
_____________
Applicable Conversion Price:
$.00001
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:
______________
By:_____________________________
Title: President.
Date: ______________
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: $300,000.00
Issue Date: January 1, 2015
Debt Settlement Price: $300,000.00
CONVERTIBLE PROMISSORY NOTE
Force Minerals Corporation, a Nevada corporation (hereinafter called the Borrower), hereby promises to pay to the order of Direct Capital Group Inc, a Nevada corporation, or registered assigns (the Holder) the sum of $300,000.00 together with any interest as set forth herein, on July 1, 2015 (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 free trading stock, $0.00001par 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 Las Vegas, Nevada 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 Debt Settlement Agreement dated the date hereof, pursuant to which this Note was originally issued (the Debt Settlement Agreement).
1
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 dates listed for each invoice listed in Exhibit B. The Maturity Date for invoice in the amount of $300,000.00, July 1, 2015 (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, provided, further, however, that the limitations on
conversion may be waived by the Holder upon, at the election of the Holder, not less than 61
days prior notice to the Borrower, and the provisions of the conversion limitation shall continue
to apply until such 61st day (or such later date, as determined by the Holder, as may be specified
in such notice of waiver). 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., Las Vegas, Nevada time on
such conversion date (the Conversion Date).
2
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 Borrowers 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 Borrowers option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holders option, any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof.
1.2
Conversion Price.
(a)
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 Borrowers securities or the securities of any subsidiary of the Borrower,
combinations, recapitalization, reclassifications, extraordinary distributions and similar events).
The "Conversion Price" shall mean par .00001 multiplied by the number of Common Stock converted at the time.
(b)
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 Borrowers 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 Debt Settlement Agreement. The Borrower is required at all times to have authorized and reserved two 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).
3
The Reserved Amount shall be increased from time to time in accordance with the Borrowers obligations pursuant to Section 4(g) of the Debt Settlement 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., Las Vegas, Nevada 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
4
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.
(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 Holders
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 Debt Settlement 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 Borrowers 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., Las Vegas, Nevada
time, on such date.
(f)
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 Holders Prime Broker with DTC through its Deposit Withdrawal Agent Commission (DWAC) system.
5
(g)
Failure to Deliver Common Stock Prior to Deadline. Without in
any way limiting the Holders 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 $2,000 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 Debt Settlement Agreement).
Except as otherwise provided in the Debt Settlement 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
6
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.
(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
7
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.
(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 dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrowers 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
8
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
conversion or exchange is less than the Conversion Price then in effect, then the Conversion
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)
Share Purchase Rights. If, at any time when any Notes are issued and
outstanding, the Borrower issues any convertible securities or rights to Common 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 Share Purchase Rights, the aggregate Share 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 Debt Settlement 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 Debt Settlement 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
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 Debt Settlement 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 Debt Settlement Agreement), subject to equitable adjustment from time to time
9
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 Borrowers 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 Holders allocated portion of the Reserved Amount or
Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the
Holders 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 Borrowers 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
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 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
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 Optional Prepayment
10
Amount due to the Holder of the Note within two (2) 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 of the invoices listed on Exhibit B, which is ninety-one (91) days following the issue date and ending on the date of the invoices listed on Exhibit B, which is one hundred fifty (150) 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 145%, 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 two (2) 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 of the invoices listed on Exhibit B, which is one hundred fifty-one (151) days following the issue date and ending on the date which is one hundred eighty (180) days following the issue date of the invoices listed on Exhibit B, 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 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 Third Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
11
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 Holders 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 Borrowers disinterested directors.
2.2
Restriction on Stock Repurchase. So long as the Borrower shall have any
obligation under this Note, the Borrower shall not without the Holders 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 Holders 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 Holders 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 Holders 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 $500,000.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an Event of Default) shall occur:
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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 Borrowers 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 Debt Settlement 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 Debt Settlement 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 Debt Settlement 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
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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 Stock. The Borrower shall fail to maintain the
listing of the 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 Borrowers 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 Debt Settlement
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 Debt Settlement 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.
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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) TWO (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,
15
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:
Force Minerals Corporation
6302 Mesedge Drive
Colorado Springs, CO 80919
16
If to the Holder:
Direct Capital Group Inc
1401 Camino Del Mar #202
Del Mar, CA 92014
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 Debt Settlement 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 Nevada 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 Nevada or in the federal
courts located in the state and county of Clark. 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.
17
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
Debt Settlement Agreement. By its acceptance of this Note, each party agrees to
be bound by the applicable terms of the Debt Settlement 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 Borrowers 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.
18
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this January 1, 2015
Force Minerals Corporation
By: ______________________
Nathan Lewis
19
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 Force Minerals Corporation, a Nevada corporation (the Borrower) according to the conditions of the convertible note of the Borrower dated as of January 1, 2015 (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 Holders calculation attached hereto) in the name(s)
specified immediately below or, if additional space is necessary, on an attachment
hereto:
Direct Capital Group Inc
1401 Camino Del Mar #202
Del Mar, CA 92014
Attention: Certificate Delivery
Date of Conversion:
_____________
Applicable Conversion Price:
$.00001
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:
______________
By:_____________________________
Title: President.
Date: ______________
20
CERTIFICATION OF THE PRINCIPAL EXECUTIVE OFFICER PURSUANT TO RULE 13a-14
I, Nathan Lewis, certify that:
1. I have reviewed this Annual Report on Form 10-Kof Force Minerals 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 presented 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 my 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 principles;
(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 financial 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 involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2015
/s/ Nathan Lewis
By: Nathan Lewis
Its: Principal Executive Officer
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER PURSUANT TO RULE 13a-14
I, Nathan Lewis, certify that:
1. I have reviewed this Annual Report on Form 10-K of Force Minerals Corporation;
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 presented 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 my 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 principles;
(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 financial 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 involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: May 4, 2015
/s/ Nathan Lewis
By: Nathan Lewis
Its: President, Principal Financial Officer
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 of Force Minerals Corporation, (the “Company”) on Form 10-K for the year ending November 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Nathan Lewis, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(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 result of operations of the Company.
/s/ Nathan Lewis
By: Nathan Lewis
Principal Executive Officer and Principal Financial Officer
Dated: May 4, 2015
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement 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.