THIS NOTE
AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY APPLICABLE STATE SECURITIES LAWS. THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT AND APPLICABLE LAWS OR SOME OTHER EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND APPLICABLE LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
INTEGRITY MUTUAL FUNDS, INC.
CONVERTIBLE PROMISSORY NOTE
No. 01
$950,000.00
Minot, North Dakota
October 11, 2006
For valued
received, Integrity Mutual Funds, Inc., a North Dakota corporation
(the "Company"), the principal office of which is located at 1 Main
Street North, Minot, North Dakota 58703, for value received hereby
promises to pay to PawnMart, Inc., a Nevada corporation (the
"Holder"), or its registered assigns, at 6400 Atlantic Boulevard,
Suite 190, Norcross, Georgia 30071, the sum of Nine Hundred Fifty
Thousand and No/100 Dollars ($950,000.00), or such other amount as
shall then equal the outstanding principal amount hereof and any
unpaid accrued interest hereon, as set forth below, which shall be
due and payable on the earlier to occur of
(i) October 15, 2016 or (ii) when declared due and
payable by the Holder upon the occurrence of an Event of Default
(as defined below). Payment for all amounts due hereunder
shall be made by mail to the registered address of the Holder.
The following
is a statement of the rights of the Holder of this Note and the
conditions to which this Note is subject, and to which the Holder
hereof, by the acceptance of this Note, agrees:
1. Definitions.
As used in this Note, the following terms, unless the context
otherwise requires, have the following meanings:
1.1. "Company" includes any corporation that, to
the extent permitted by this Note, shall succeed to or assume the
obligations of the Company under this Note.
1.2. "Holder" when the context refers to a holder
of this Note, shall mean any person who shall at the time be the
registered holder of this Note.
1.3. "Securities Act" means the Securities Act of
1933, as amended.
2. Payment. All
payments shall be made in lawful money of the United States of
America at the principal office of the Holder, or at such other
place as the holder hereof may from time to time designate in
writing to the Company. Payment shall be credited first to
accrued interest due and payable and the remainder applied to
principal.
3. Security. This
Note is a general unsecured obligation of the Company.
4. Interest.
Commencing on April 15, 2007, and on each April 15 and October 15
thereafter until all outstanding principal and interest on this
Note shall have been paid in full, the Company shall pay interest
at the lesser of (i) the rate of six and one-half percent
(6.5%) per annum or (ii) the highest rate permitted by law
(the "Initial Interest Rate") on the principal of this Note
outstanding during the period beginning on the date of issuance of
this Note and ending on the date that the principal amount of this
Note becomes due and payable. In the event that the principal
amount of this Note is not paid in full when such amount becomes
due and payable, interest at the same rate as the Initial Interest
Rate plus four percent (4%) shall continue to accrue on the balance
of any unpaid principal until such balance is paid.
5. Events of Default.
If any of the events specified in this Section 5
shall occur (herein individually referred to as an "Event of
Default"), the Holder of this Note may, so long as such condition
exists, declare the entire principal and unpaid accrued interest
hereon immediately due and payable, by notice in writing to the
Company:
5.1. Default in the payment of the principal and
unpaid accrued interest of this Note when due and payable if such
default is not cured by the Company within ten (10) days after the
Holder has given the Company written notice of such default; or
5.2. Any other material breach by the Company of
any representation, warranty, or covenant in this Note; provided,
that, in the event of any such breach, to the extent such breach is
susceptible to cure, such breach shall not have been cured by the
Company within thirty (30) days after the earlier to occur of
(a) written notice to the Company of such breach, and
(b) the Company's knowledge of such breach; or
5.3. The institution by the Company of
proceedings to be adjudicated as bankrupt or insolvent, or the
consent by it to institution of bankruptcy or insolvency
proceedings against it or the filing by it of a petition or answer
or consent seeking reorganization or release under the federal
Bankruptcy Act, or any other applicable federal or state law, or
the consent by it to the filing of any such petition or the
appointment of a receiver, liquidator, assignee, trustee or other
similar official of the Company, or of any substantial part of its
property, or the making by it of an assignment for the benefit of
creditors, or the taking of corporate action by the Company in
furtherance of any such action; or
5.4. If, within sixty (60) days after the
commencement of an action against the Company (and service of
process in connection therewith on the Company) seeking any
bankruptcy, insolvency, reorganization, liquidation,
dissolution or similar relief under any present or future
statute, law or regulation, such action shall not have been
resolved in favor of the Company or all orders or proceedings
thereunder affecting the operations or the business of the Company
stayed, or if the stay of any such order or proceeding shall
thereafter be set aside, or if, within sixty (60) days after the
appointment without the consent or acquiescence of the Company of
any trustee, receiver or liquidator of the Company or of all or any
substantial part of the properties of the Company, such appointment
shall not have been vacated.
6. Prepayment.
This Note may not be prepaid except with the express written
consent of the Holder.
7. Conversion.
7.1. Voluntary Conversion. The
Holder of this Note has the right, at the Holder's option, at any
time after October 15, 2009, to convert this Note in accordance
with the provisions of Section 7.3 hereof, in whole or in
part, into fully paid and nonassessable Common Shares, $0.0001 par
value, of the Company (the "Common Shares"). The number of
Common Shares into which this Note may be converted ("Conversion
Shares") shall be determined by dividing the aggregate principal
amount by the Conversion Price (as defined below) in effect at the
time of such conversion. The initial Conversion Price shall
be equal to $0.50 per share.
7.2. Automatic Conversion. The
entire principal amount of this Note shall be automatically
converted into Common Shares at the Conversion Price in effect
immediately prior to (i) any consolidation or merger of the
Company with or into any other corporation or other entity or
person, or any other corporate reorganization in which the Company
shall not be the continuing or surviving entity of such
consolidation, merger or reorganization or any transaction or
series of related transactions by the Company in which in excess of
fifty percent (50%) of the Company's voting power is transferred,
or a sale of all substantially all of the assets of the Company,
(ii) the closing of a firmly underwritten public offering
pursuant to a registration statement filed by the Company under the
Securities Act, with aggregate gross proceeds in excess of
$7,500,000 and at a price of not less than $10.00 per share of
Common Shares (as presently constituted, subject to proportionate
adjustment in the event of any Share split, Share dividend, reverse
Share split, combination, consolidation, reclassification or
similar event), or (iii) October 15, 2016.
7.3. Conversion Procedure.
7.3.1. Notice of Conversion Pursuant to Section 7.1.
Before the Holder shall be entitled to convert this Note into
Common Shares, it shall surrender this Note at the office of the
Company and shall give written notice by mail, postage prepaid, to
the Company at its principal corporate office, of the election to
convert the same pursuant to Section 7.1 , and shall state
therein the name or names in which the certificate or certificates
for Common Shares are to be issued. The Company shall, as
soon as practicable thereafter, issue and deliver at such office to
the Holder of this Note a certificate or certificates for the
number of Common Shares to which the Holder of this Note shall be
entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the
date of such surrender of this Note, and the person or persons
entitled to receive the Common Shares issuable upon such conversion
shall be treated for all purposes as the record holder or holders
of such C
