NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS NOTE AND THE
COMMON SHARES ISSUABLE UPON CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED
SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO DALRADA FINANCIAL CORP. THAT SUCH REGISTRATION IS NOT
Date: February 13, 2006
RECEIVED, DALRADA FINANCIAL CORP., a Delaware corporation (hereinafter called
"Borrower"), hereby promises to pay to LONGVIEW FUND, LP, 600 Montgomery Street,
44th Floor, San Francisco, CA 94111, Fax: (415) 981-5301 (the "Holder") or
order, without demand, the sum of Three Million Five Hundred Thousand Dollars
($3,500,000), with unpaid accrued interest, on February 13, 2008 (the "Maturity
Date"), or sooner as described herein.
has been entered into pursuant to the terms of a subscription agreement between
the Borrower and the Holder, dated of even date herewith (the “Subscription
Agreement”), and shall be governed by the terms of such Subscription Agreement.
Unless otherwise separately defined herein, all capitalized terms used in this
Note shall have the same meaning as is set forth in the Subscription Agreement.
The following terms shall apply to this Note:
to Section 5.6 hereof, interest payable on this Note shall accrue from the
Date at a rate per annum (the "Interest Rate") equal to fifteen percent (15%)
per year on the outstanding principal balance, compounded annually. Interest
the Principal Amount shall first be payable on April 1, 2006 and on the first
day of each month thereafter and on the same day of the month each three months
thereafter and on the Maturity Date, whether by acceleration or
Conversion Privileges set forth in Article II shall remain in full force and
effect immediately from and after the occurrence of an Event of Default as
described in Article III and the Subscription Agreement and until the Note
paid in full. The Note and any outstanding sums due in connection herewith
be payable in full on the Maturity Date, unless previously converted into Common
Stock in accordance with Article II hereof, provided, that if an Event of
Default has occurred, the Holder may extend the Maturity Date for up to a time
period equal to the duration of the Event of Default.
default interest rate of eighteen percent (18%) per annum shall apply to amounts
owed hereunder which are not paid on their respective due
Holder shall have the right to convert the outstanding principal and interest
due under this Note into Shares of the Borrower's Common Stock, no par value
share (“Common Stock”) as set forth below.
into the Borrower's Common Stock.
to the terms of this Note, the Holder shall have the right from and after the
occurrence of an Event of Default, whether or not such Event of Default is
cured, and then at any time until this Note is fully paid, to convert any
outstanding and unpaid principal portion of this Note, and accrued interest,
the election of the Holder (the date of giving of such notice of conversion
being a "Conversion Date") into fully paid and nonassessable shares of Common
Stock as such stock exists on the date of issuance of this Note, or any shares
of capital stock of Borrower into which such Common Stock shall hereafter be
changed or reclassified, at the conversion price as defined in Section 2.1(b)
hereof (the "Conversion Price"), determined as provided herein. Upon delivery
the Borrower of a completed Notice of Conversion, a form of which is annexed
hereto, Borrower shall issue and deliver to the Holder within three (3) business
days from the Conversion Date (such third day being the “Delivery Date”) that
number of shares of Common Stock for the portion of the Note converted in
accordance with the foregoing. At the election of the Holder, the Borrower
deliver accrued but unpaid interest on the Note through the Conversion Date
directly to the Holder on or before the Delivery Date. The number of shares
Common Stock to be issued upon each conversion of this Note shall be determined
by dividing that portion of the principal of the Note and interest to be
converted, by the Conversion Price.
to adjustment as provided in Section 2.1(c) hereof and the Subscription
Agreement, the Conversion Price per share shall be seventy-five percent (75%)
the average of the five lowest volume weighted average prices of the Common
Stock as reported by Bloomberg L.P. for the Principal Market for the twenty
trading days preceding a Conversion Date.
Conversion Price and number and kind of shares or other securities to be issued
upon conversion determined pursuant to Section 2.1(a), shall be subject to
adjustment from time to time upon the happening of certain events while this
conversion right remains outstanding, as follows:
Sale of Assets, etc. If the Borrower at any time shall consolidate with or
into or sell or convey all or substantially all its assets to any other
corporation, this Note, as to the unpaid principal portion thereof and accrued
interest thereon, shall thereafter be deemed to evidence the right to purchase
such number and kind of shares or other securities and property as would have
been issuable or distributable on account of such consolidation, merger, sale
conveyance, upon or with respect to the securities subject to the conversion
purchase right immediately prior to such consolidation, merger, sale or
conveyance as if the Holder had converted this Note immediately prior to such
event. The foregoing provision shall similarly apply to successive transactions
of a similar nature by any such successor or purchaser. Without limiting the
generality of the foregoing, the anti-dilution provisions of this Section shall
apply to such securities of such successor or purchaser after any such
consolidation, merger, sale or conveyance.
etc. If the Borrower at any time shall, by reclassification or otherwise, change
the Common Stock into the same or a different number of securities of any class
or classes that may be issued or outstanding, this Note, as to the unpaid
principal portion thereof and accrued interest thereon, shall thereafter be
deemed to evidence the right to purchase an adjusted number of such securities
and kind of securities as would have been issuable as the result of such change
with respect to the Common Stock immediately prior to such reclassification
other change as if the Holder had converted this Note immediately prior to
Splits, Combinations and Dividends. If the shares of Common Stock are subdivided
or combined into a greater or smaller number of shares of Common Stock, or
dividend is paid on the Common Stock in shares of Common Stock, the Conversion
Price shall be proportionately reduced in case of subdivision of shares or
dividend or proportionately increased in the case of combination of shares,
each such case by the ratio which the total number of shares of Common Stock
outstanding immediately before such event bears to the total number of shares
Common Stock outstanding immediately after to such event..
Issuance. So long as this Note is outstanding, if the Borrower shall issue
agree to issue any shares of Common Stock except for the Excepted Issuances
a consideration less than the Conversion Price in effect at the time of such
issue, then, and thereafter successively upon each such issue, the Conversion
Price shall be reduced to such other lower issue price. For purposes of this
adjustment, the issuance of any security carrying the right to convert such
security into shares of Common Stock or of any warrant, right or option to
purchase Common Stock shall result in an adjustment to the Conversion Price
the issuance of the above-described security and again upon the issuance of
shares of Common Stock upon exercise of such conversion or purchase rights
such issuance is at a price lower than the then applicable Conversion Price.
reduction of the Conversion Price described in this paragraph is in addition
other rights of the Holder described in this Note and the Subscription
the Conversion Price is adjusted pursuant to Section 2.1(c) above, the Borrower
shall promptly mail to the Holder a notice setting forth the Conversion Price
after such adjustment and setting forth a statement of the facts requiring
the period the conversion right exists, Borrower will reserve from its
authorized and unissued Common Stock required to be reserved as set forth in
Subscription Agreement. Borrower represents that upon issuance, such shares
be duly and validly issued, fully paid and non-assessable. Borrower agrees
its issuance of this Note shall constitute full authority to its officers,
agents, and transfer agents who are charged with the duty of executing and
issuing stock certificates to execute and issue the necessary certificates
shares of Common Stock upon the conversion of this Note.
Note may be converted by the Holder in whole or in part as described in Section
2.1(a) hereof and the Subscription Agreement. Upon partial conversion of this
Note, a new Note containing the same date and provisions of this Note shall,
the request of the Holder, be issued by the Borrower to the Holder for the
principal balance of this Note and interest which shall not have been converted
Holder shall not be entitled to convert on a Conversion Date that amount of
Note in connection with that number of shares of Common Stock which would be
excess of the sum of (i) the number of shares of Common Stock beneficially
by the Holder and its affiliates on a Conversion Date, (ii) any Common Stock
issuable in connection with the unconverted portion of the Note, and (iii)
number of shares of Common Stock issuable upon the conversion of the Note with
respect to which the determination of this provision is being made on a
Conversion Date, which would result in beneficial ownership by the Holder and
its affiliates of more than 9.99% of the outstanding shares of Common Stock
the Borrower on such Conversion Date. For the purposes of this Section 2.3,
beneficial ownership shall be determined in accordance with Section 13(d) of
Securities Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder.
Subject to the foregoing, the Holder shall not be limited to aggregate
conversions of only 9.99% and aggregate conversion by the Holder may exceed
9.99%. The Holder shall have the authority and obligation to determine whether
the restriction contained in this Section 2.3 will limit any conversion
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of the
Notes are convertible shall be the responsibility and obligation of the Holder.
The Holder may waive the conversion limitation described in this Section 2.3,
whole or in part, upon and effective after 61 days prior written notice to
Borrower. The Holder may decide whether to convert a Note or exercise this
Warrant to achieve an actual 9.99% ownership position.
occurrence of any of the following events of default ("Event of Default") shall,
at the option of the Holder hereof, make all sums of principal and interest
the extent accrued) then remaining unpaid hereon and all other amounts payable
hereunder immediately due and payable, upon demand, without presentment, or
grace period, all of which hereby are expressly waived, except as set forth
to Pay Principal or Interest.
Borrower fails to pay any installment of principal, interest or other sum due
under this Note when due and such failure continues for a period of ten (10)
business days after the due date.
Borrower breaches any material covenant or other term or condition of the
Subscription Agreement or this Note in any material respect and such breach,
subject to cure, continues for a period of ten (10) business days after written
notice to the Borrower from the Holder.
of Representations and Warranties.
material representation or warranty of the Borrower made herein, in the
Subscription Agreement, or in any agreement, statement or certificate given
writing pursuant hereto or in connection therewith shall be false or misleading
in any material respect as of the date made and the Closing Date.
Borrower shall make an assignment for the benefit of creditors, or apply for
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 without the consent of the Borrower and is not dismissed within
forty-five (45) days of appointment.
money judgment, writ or similar final process shall be entered or filed against
Borrower or any of its property or other assets for more than $50,000, and
remain unvacated, unbonded or unstayed for a period of forty-five (45)
Bankruptcy, insolvency, reorganization or liquidation proceedings or other
proceedings or relief under any bankruptcy law or any law, or the issuance
any notice in relation to such event, for the relief of debtors shall be
instituted by or against the Borrower and if instituted against Borrower are
dismissed within forty-five (45) days of initiation.
Delisting of the Common Stock from any Principal Market without relisting on
another Principal Market within five days of such delisting; failure to comply
with the requirements for continued listing on any Principal Market for a period
of fifteen consecutive trading days; or notification from any Principal Market
that the Borrower is not in compliance with the conditions for such continued
listing on such Principal Market and Borrower’s failure to be in compliance
within five days of such notice.
payment default by the Borrower under any one or more obligations in an
aggregate monetary amount in excess of $50,000 for more than twenty days after
the due date, unless the Borrower is contesting the validity of such obligation
in good faith.
or judicial stop trade order or Principal Market trading suspension that lasts
for five or more consecutive trading days.
to Deliver Common Stock or Replacement Note.
Borrower's failure to timely deliver Common Stock to the Holder pursuant to
in the form required by this Note and Sections 7 and 11 of the Subscription
Agreement, or, if required, a replacement Note.
occurrence of a Non-Registration Event as described in Section 11.4 of the
by the Borrower to have reserved for issuance upon conversion of the Note the
amount of Common stock as set forth in this Note and the Subscription
occurrence of an Approval Default as described in Section 9(s) of the
default by the Borrower of a material term, covenant, warranty or undertaking
any other agreement to which the Borrower and Holder are parties, or the
occurrence of a material event of default under any such other agreement which
is not cured after any required notice and/or cure period.
Interest/Waiver of Automatic Stay.
Note is secured by a security interest granted to the Collateral Agent for
benefit of the Holder pursuant to a Security Agreement, as delivered by Borrower
to Holder. The Borrower acknowledges and agrees that should a proceeding under
any bankruptcy or insolvency law be commenced by or against the Borrower, or
any of the Collateral (as defined in the Security Agreement) should become
subject of any bankruptcy or insolvency proceeding, then the Holder should
entitled to, among other relief to which the Holder may be entitled under the
Transaction Documents and any other agreement to which the Borrower and Holder
are parties (collectively, "Loan Documents") and/or applicable law, an order
from the court granting immediate relief from the automatic stay pursuant to
U.S.C. Section 362 to permit the Holder to exercise all of its rights and
remedies pursuant to the Loan Documents and/or applicable law. THE BORROWER
EXPRESSLY WAIVES THE BENEFIT OF THE AUTOMATIC STAY IMPOSED BY 11 U.S.C. SECTION
362. FURTHERMORE, THE BORROWER EXPRESSLY ACKNOWLEDGES AND AGREES THAT NEITHER
U.S.C. SECTION 362 NOR ANY OTHER SECTION OF THE BANKRUPTCY CODE OR OTHER STATUTE
OR RULE (INCLUDING, WITHOUT LIMITATION, 11 U.S.C. SECTION 105) SHALL STAY,
INTERDICT, CONDITION, REDUCE OR INHIBIT IN ANY WAY THE ABILITY OF THE HOLDER
ENFORCE ANY OF ITS RIGHTS AND REMEDIES UNDER THE LOAN DOCUMENTS AND/OR
APPLICABLE LAW. The Borrower hereby consents to any motion for relief from
that may be filed by the Holder in any bankruptcy or insolvency proceeding
initiated by or against the Borrower and, further, agrees not to file any
opposition to any motion for relief from stay filed by the Holder. The Borrower
represents, acknowledges and agrees that this provision is a specific and
material aspect of the Loan Documents, and that the Holder would not agree
the terms of the Loan Documents if this waiver were not a part of this Note.
Borrower further represents, acknowledges and agrees that this waiver is
knowingly, intelligently and voluntarily made, that neither the Holder nor
person acting on behalf of the Holder has made any representations to induce
this waiver, that the Borrower has been represented (or has had the opportunity
to he represented) in the signing of this Note and the Loan Documents and in
making of this waiver by independent legal counsel selected by the Borrower
that the Borrower has discussed this waiver with counsel.
or Indulgence Not Waiver.
failure or delay on the part of Holder hereof 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 privilege. All
rights and remedies existing hereunder are cumulative to, and not exclusive
any rights or remedies otherwise available.
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
given hereunder shall be deemed effective (a) upon hand delivery or delivery
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: (i) if to the Borrower to: Dalrada
Financial Corp., 9449 Balboa Avenue, Suite 211, San Diego, CA 92123, Attn:
telecopier: (858) 613-1311, with a copy by telecopier only to: Owen M.
Naccarato, Esq., Naccarato & Associates, 18301 Von Karman Avenue, Suite 430,
Irvine, CA 92612, telecopier: (949) 851-9262, and (ii) if to the Holder, to
name, address and telecopy number set forth on the front page of this Note,
a copy by telecopier only to Grushko & Mittman, P.C., 551 Fifth Avenue,
Suite 1601, New York, New York 10176, telecopier number: (212)
term "Note" and all reference thereto, as used throughout this instrument,
mean this instrument as originally executed, or if later amended or
supplemented, then as so amended or supplemented.
obligations of Borrower under this Note are not assignable without the consent
of the Holder. This Note shall be binding upon the Borrower and its successors
and assigns, and shall inure to the benefit of the Holder and the permitted
assigns of the Note.
Note shall be governed by and construed in accordance with the laws of the
of New York. Any action brought by either party against the other concerning
transactions contemplated by this Agreement shall be brought only in the civil
or state courts of New York or in the federal courts located in the State and
county of New York. Each
the Borrower, Holder and any signator hereto in his personal capacity hereby
waives, and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction in New York of
court, that the suit, action or proceeding is brought in an inconvenient forum
or that the venue of the suit, action or proceeding is improper.
prevailing party shall be entitled to recover from the other party its
reasonable attorney's fees and costs.
contained herein shall be deemed to establish or require the payment of a rate
of interest or other charges in excess of the maximum permitted by applicable
law. In the event that the rate of interest required to be paid or other charges
hereunder exceed the maximum permitted by such law, any payments in excess
such maximum shall be credited against amounts owed by the Borrower to the
Holder and thus refunded to the Borrower.
Holder shall not have rights as a shareholder of the Borrower with respect
unconverted portions of this Note. However, the Holder will have all the rights
of a shareholder of the Borrower with respect to the shares of Common Stock
be received by Holder after delivery by the Holder of a Conversion Notice to
SPACE INTENTIONALLY LEFT BLANK]
Borrower has caused this Note to be signed in its name by an authorized officer
as of the 13th day of February, 2006.
executed by the Registered Holder in order to convert the Note)
undersigned hereby elects to convert $_________ of the principal and $_________
of the interest due on the Note issued by Dalrada Financial Corp. on February
13, 2006 into Shares of Common Stock of Dalrada Financial Corp. (the "Borrower")
according to the conditions set forth in such Note, as of the date written