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
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Minot, North Dakota
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October 11, 2006
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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:
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a.
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“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.
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b.
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“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.
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c.
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“Securities Act” means
the Securities Act of 1933, as amended.
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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:
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a.
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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
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b.
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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
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c.
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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
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d.
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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.
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6.
Prepayment. This Note may not be prepaid except with the
express written consent of the Holder.
(a)
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.
(b)
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.
(c)
Conversion Procedure.
(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
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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
a
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