THISNOTEHASNOTBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED(THE“ACT”),ORAPPLICABLESTATESECURITIESLAWS,ANDMAYNOTBESOLD,TRANSFERRED,OROTHERWISEDISPOSEDOFINTHEABSENCEOFSUCHREGISTRATIONORRECEIPTBYTHECOMPANYOFANOPINIONOFCOUNSELINTHE FORM,SUBSTANCEAND SCOPEREASONABLYSATISFACTORYTOTHECOMPANYTHATTHISNOTEMAYBESOLD,TRANSFERRED,OROTHERWISEDISPOSEDOF,UNDERANEXEMPTIONFROMREGISTRATIONUNDERTHEACTANDSUCHSTATE SECURITIESLAWS.
MAX SOUND CORPORATION
8%OIDConvertiblePromissoryNote dueFebruary 21, 2016 (the “Note”)
(Secured)
OriginalIssueDate:August 21, 2014 Principal Amount:USD$111,000
Purchase Price: USD$100,000
Forvaluereceived,Max Sound Corporation,aDelawarecorporation(the“Company”), herebypromisestopaytotheorderofJDFCapitalInc.(togetherwithitssuccessors,representatives, andpermitted assigns,the “Holder”),inaccordancewiththetermshereinafterprovided, uptoan aggregateof$111,000(OneHundred andElevenThousandDollars)(the “PrincipalAmount”).The PrincipalAmountoutstandingshallbe dueand payableon February 21, 2016(the“MaturityDate”).This Note is secured with shares of the Company’s Common Stock.
Allpaymentsunderorpursuant tothisNoterefertoandshallbemadeinUnitedStatesDollarsinimmediatelyavailablefundstotheHolderattheaddressoftheHoldersetforthin the Purchase Agreementoratsuch otherplaceastheHoldermaydesignatefromtimetotimeinwritingtotheCompany orbywiretransfer of fundstothe Holder’saccount,instructionsforwhichareattached heretoasExhibitA.
ARTICLEI
Section 1.1PurchaseAgreement. ThisNote has been executedand delivered pursuant tothat certainSecurityPurchaseAgreementdatedasofAugust 21, 2014(the“PurchaseAgreement”)by andamongtheCompanyandtheHolder.Capitalizedtermsusedandnototherwise definedhereinshallhavethemeaningssetforthforsuchtermsinthePurchase Agreement.
Section 1.2Interest.Beginning ontheissue date ofthisNote(the“IssuanceDate”),the outstandingprincipalbalanceofthisNoteshallbearinterest,inarrears,atarateperannum equalto8%. Interest shall be paid on the Maturity Datein cashorrestrictedsharesof theCompany’scommonstock,parvalue$0.0001pershare(the“CommonStock”)attheoptionoftheHolder.
Section1.3PaymentonNon-BusinessDays. Wheneveranypaymenttobemade shallbedueonaSaturday,Sunday orapublicholiday underthelawsofthe StateofNew York, such paymentmaybedueonthenextsucceeding businessdayandsuch nextsucceeding dayshallbe includedinthe calculation ofthe amountofaccruedinterestpayableon such date.
Section 1.4Transfer.ThisNotemaybetransferredorsold,subjecttotheprovisions ofSection 4.8ofthis Note,orpledged, hypothecatedorotherwisegrantedassecuritybythe Holder.
Section 1.5Replacement.Uponreceiptofadulyexecuted,notarizedandunsecuredwrittenstatementfromtheHolderwith respecttotheloss, theftordestructionof thisNote (oranyreplacementhereof),andwithoutrequiring anindemnity bondorothersecurity,or,inthecaseofamutilationofthisNote,uponsurrenderandcancellationof suchNote,theCompany shallissuea newNote,ofliketenorand amount,inlieuofsuchlost,stolen, destroyed ormutilatedNote.
ARTICLEII
EVENTSOFDEFAULT;REMEDIES
Section 2.1Events ofDefault.Theoccurrenceofanyofthefollowingeventsshall be an “EventofDefault”underthis Note:
(a)theCompanyshallfailtomakethepaymentofanyamountofprincipaloutstandingonthedatesuchpayment is due hereunder;
(b)theCompanyshallfailtomakeanypaymentofinterest on the date such payment is due hereunder, provided, however, that if the payment of interest is made in shares of the Company’s Common Stock, it shall be an Event of Default if the Common Stock is not delivered to the Holder with3daysafter the datesuchinterestisdue;
(c)the Company’s Common Stock is suspended from listing or fails to be quotedorlistedonatleastoneoftheOTC Markets,OTCBulletinBoard,Nasdaq CapitalMarket,NYSE MKTorTheNewYork Stock Exchange,Inc.foraperiodof5consecutiveTradingDays;
(d)theCompany’snoticetotheHolder,including byway ofpublicannouncement,atanytime,ofitsinabilitytocomply,oritsintentionnot to comply,withproperrequests from the HolderforconversionofthisNoteinto sharesofCommon Stock;
(e)theCompanyshall fail to(i)timely deliverthesharesofCommonStock uponconversion oftheNote orany accruedandunpaidinterest,or(ii)makethepaymentofanyfeesand/orliquidated damagesunderthisNoteor thePurchaseAgreement,whichfailureinthecaseof items(i)and(ii)ofthis Section 2.1(e)is notremedied within3businessdaysaftertheincurrencethereof;
(f) defaultshallbemadeintheperformanceorobservanceof(i)anymaterialcovenant, conditionoragreementcontainedinthisNote(otherthanassetforthinclause(e)ofthisSection 2.1)and suchdefaultisnotfullycuredwithin5businessdaysaftertheoccurrencethereofor(ii)anymaterialcovenant, conditionor agreementcontainedinthe PurchaseAgreement oranyotherTransactionDocumentswhichisnotcoveredby any otherprovisionsofthisSection2.1and suchdefaultisnotfully curedwithin 5businessdaysaftertheoccurrencethereof;
(g) anymaterialrepresentation orwarrantymadebytheCompanyhereinorinthePurchaseAgreementoranyotherTransactionDocumentsshallprovetohavebeenfalseorincorrectorbreachedin amaterialrespectonthedateas ofwhichmade;
(h)theCompanyshall(A)defaultinanypaymentofanyamountoramountsofprincipal orinterestonany indebtedness(otherthanthe indebtednesshereunder)theaggregateprincipalamountofwhichIndebtednessisinexcessof$50,000or(B)defaultintheobservanceorperformanceofanyother agreementorconditionrelatingto any indebtednessorcontained in anyinstrumentoragreement evidencing, securing orrelatingthereto, orany other event shall occuror condition exist,theeffectofwhichdefaultorothereventorconditionisto cause, ortopermittheholderorholdersorbeneficiaryor beneficiariesof suchIndebtednessto cause,withthegiving of noticeifrequired, suchIndebtednessto become dueprior toitsstatedmaturity;
(i)theCompanyshall(i)applyfororconsenttotheappointmentof,orthetakingof possessionby,areceiver, custodian,trusteeor liquidatorof itselforofallorasubstantialpart of its property orassets, (ii)makeageneralassignmentforthebenefitofitscreditors,(iii)commenceavoluntarycaseundertheUnitedStatesBankruptcyCode(asnoworhereafterineffect)orunderthe comparablelawsofanyjurisdiction(foreignordomestic),(iv)fileapetitionseekingtotakeadvantageof anybankruptcy,insolvency,moratorium,reorganization orothersimilarlawaffectingtheenforcementof creditors’rightsgenerally,(v)acquiesceinwritingto anypetitionfiledagainstitinaninvoluntarycase underUnitedStatesBankruptcyCode(asnoworhereafterineffect)orunderthecomparable laws ofanyjurisdiction(foreignordomestic),(vi)issueanoticeofbankruptcy orwindingdownofitsoperationsorissueapressreleaseregarding same,or (vii)takeanyactionunderthelawsofanyjurisdiction(foreignor domestic)analogousto anyof theforegoing;
(j) a proceeding or case shallbe commencedinrespectoftheCompany,withoutits applicationorconsent,inany courtofcompetent jurisdiction, seeking(i) theliquidation,reorganization,moratorium, dissolution,windingup, orcomposition orreadjustmentofitsdebts,(ii) theappointmentofatrustee,receiver,custodian,liquidatororthelikeofitorofalloranysubstantialpartofitsassetsin connectionwiththe liquidation ordissolutionoftheCompanyor(iii)similarreliefinrespectof itunder any lawprovidingfor thereliefofdebtors,andsuchproceedingorcasedescribed in clause(i),(ii) or(iii) shallcontinue undismissed,orunstayed andineffect, fora period of60days oranyorderforrelief shallbeenteredinaninvoluntarycaseunderUnitedStatesBankruptcyCode(asnoworhereafterin effect)orunderthe comparablelaws of anyjurisdiction(foreign or domestic)againsttheCompany or actionunderthelawsofanyjurisdiction(foreignordomestic)analogoustoanyoftheforegoing shallbetakenwithrespecttotheCompanyand shallcontinueundismissed, orunstayedandin effectfora period of60days;or
(k)thefailureoftheCompanytoinstructitstransferagenttoremoveanylegendsfrom shares ofCommonStock eligibletobesold underRule 144 oftheSecuritiesActandissue such unlegended certificatestotheHolderwithin5businessdaysof theHolder’srequestso long astheHolderhasprovidedreasonableassurancesand opinionsofcounseltotheCompanythatsuch sharesofCommon Stockcan beresold pursuanttoRule 144;or
(l)thefailureoftheCompanytopayanyamountsduetotheHolderhereinwithin3 businessdays ofreceiptofnoticetotheCompany.
Section 2.2RemediesUponAnEventofDefault.IfanEventofDefaultshallhave occurredandshallbecontinuing,theHolderofthisNotemay atanytimeatitsoption,(a)declarethe entireunpaidprincipal balanceofthisNote,togetherwithallinterest accruedhereon,dueandpayable in cash, andthereupon,thesameshallbe acceleratedand so dueandpayable,withoutpresentment,demand, protest,ornotice, allofwhich are hereby expressly unconditionally andirrevocablywaivedbytheCompany,(b)subject to Section 3.4 hereof,demand that the PrincipalAmountof thisNotethen outstandingshall be convertedinto sharesofCommon Stockat aConversion Price(as definedin Section 3.2 below) per share calculated pursuantto Section 3.1(b) below,assumingthatthe datethatthe Event ofDefaultoccurs is theConversionDateanddemandthatallaccruedandunpaidinterestunder thisNote shallbeconvertedintosharesofCommonStockinaccordancewithSection1.2 hereof,or(c)exerciseor otherwise enforce anyone ormore of the Holder’srights, powers, privileges,remediesandinterests underthisNote,the PurchaseAgreement, otherTransactionDocuments or applicablelaw.No course of delay on thepartoftheHoldershalloperateasawaiverthereoforotherwiseprejudicetherightoftheHolder.Noremedy conferredhereby shallbe exclusiveofany otherremedyreferredto herein ornoworhereafter availableatlaw,in equity,bystatuteorotherwise.
Section 2.3Default Interest. Furthermore,upontheoccurrence of anEventofDefault,thentothe extentpermittedbylaw,theCompanywillpayinteresttotheHolder,payableondemand,onthe outstandingprincipalbalanceoftheNotefromthedateoftheEventofDefaultuntilsuchEventofDefaultiscured,attherateofthelesserof15%andthemaximum applicablelegalrate perannum.
ARTICLEIII
CONVERSION;ANTIDILUTION;PREPAYMENT
Section 3.1ConversionOption.
(a)Manner of Conversion.AtanytimeonoraftertheIssuanceDate,thisNoteshallbeconvertible(inwholeorin part),attheoptionoftheHolder(the“ConversionOption”),intofullypaidandnon-assessable shares of the Company’sCommon Stock onthedateonwhichtheHolderfaxes a notice of conversion(the “ConversionNotice”), duly executed,totheCompany(the “VoluntaryConversionDate”), provided, however,that theConversion Price shall besubject to adjustmentas describedin Section 3.5 below. TheHoldershalldeliverthisNotetotheCompanyatthe address designatedinthe PurchaseAgreement atsuchtimethatthisNoteisfullyconverted. Withrespectto partial conversionsofthisNote,theCompanyshallkeepwrittenrecords ofthe amount of thisNote converted asofeachConversionDate.
(b)Calculation of Number of Shares to be Issued.OnanyVoluntaryConversionDate, theHoldermaycauseanyoutstandingPrincipalAmountofthisNoteplus allaccruedand unpaidinterest to convert intoa numberoffully paidand nonassessablesharesofCommonStockequaltothequotientoftheelectedoutstandingPrincipalAmount ofthisNoteplusallinterest accrued thereon as oftheVoluntaryConversionDatedivided bythe ConversionPriceas computed in accordance withSection 3.2below.
(c)ConversionLimitations;Holder’sRestrictiononConversion.TheCompanyshallnot effectanyconversion of thisNote,andtheHoldershallnothavetherighttoconvertany portionofthisNote, totheextent thataftergiving effect to suchconversion,theHolder (togetherwiththeHolder’s affiliates),asset forth ontheapplicableConversionNotice,wouldbeneficially owninexcessof4.99%ofthenumberof shares ofthe Company’sCommon Stock outstandingimmediately aftergiving effect to such conversion.Forpurposes oftheforegoingsentence,the numberofsharesofCommon Stockbeneficially ownedbytheHolderanditsaffiliatesshallincludethe number ofsharesofCommonStockissuableupon conversionofthisNotewithrespect towhichthedeterminationisbeingmade,butshall excludethe number of shares ofCommon Stockwhichwould beissuable upon(A) conversion oftheremaining,non-convertedportion of thisNotebeneficially ownedbytheHolderoranyofitsaffiliatesand(B)exerciseorconversion oftheunexercisedornon-convertedportionofanyothersecuritiesoftheCompany(including,withoutlimitation, any otherNotesortheWarrants)subjectto alimitationon conversion or exercise analogoustothelimitation contained herein beneficially owned bytheHolder or any ofits affiliates. Exceptassetforthinthepreceding sentence,forpurposesof thisSection, beneficial ownership shall be calculatedinaccordancewithSection13(d)oftheExchangeAct. Tothe extentthatthelimitation contained inthisSectionapplies,thedeterminationofwhether thisNoteisconvertible(inrelationtoother securities owned bytheHolder) and ofwhich a portionofthisNoteisconvertible shall beinthesolediscretionofsuchHolder.Toensurecompliancewiththisrestriction,theHolderwill be deemedtorepresenttotheCompany eachtimeitdeliversaConversionNoticethatsuchConversionNoticehasnotviolatedtherestrictionssetforthinthis Section andtheCompany shallhave no obligation toverify or confirmthe accuracyof suchdetermination. For purposesofthis Section, in determiningthenumber of outstanding shares ofCommonStock,theHoldermay rely onthenumber of outstanding shares ofCommon Stock asreflectedin(x)theCompany’smostrecentForm10-Q or Form 10-K(orsuchrelatedform),asthecasemay be,(y)amorerecent publicannouncement bytheCompany or(z) any other notice bytheCompany ortheCompany’s TransferAgent settingforththe number of sharesofCommonStockoutstanding.Uponthewrittenororalrequest of theHolder,theCompanyshallwithintwoTradingDaysconfirm orally andinwritingtotheHolderthe number of shares ofCommon Stockthen outstanding.Inany case,the numberofoutstanding sharesofCommonStock shallbe determinedaftergiving effecttothe conversion or exercise of securities oftheCompany,includingthisNote,bytheHolder or itsaffiliatessincethedateasofwhichsuchnumberof outstanding sharesofCommonStockwasreported.The provisions of this Sectionmay bewaivedbytheHolderupon, at the electionoftheHolder, notlessthan 61 days’priornoticetotheCompany, andthe provisionsofthis Section shall continuetoapply until such 61stday(or suchlater date,as determined bytheHolder,asmaybespecifiedin such notice ofwaiver).
Section 3.2ConversionPrice.Theterm“ConversionPrice”shallmean a35%discounttothelowestdaily volume weighted average price (VWAP)oftheCommonStockfor (i)the10trading daysimmediately prior tothe Original Issue Dateor (ii) the 10 trading days prior to theVoluntary ConversionDate, which method of calculation shall be chosen in the sole discretion of the Holder.
Section3.3MechanicsofConversion.
(a)Delivery of Common Stock.Notlater than 3TradingDaysafteranyConversionDate,theCompanyoritsdesignated transferagent,asapplicable,shallissueanddelivertotheDepository TrustCompany(“DTC”)accountontheHolder’sbehalfviatheDepositWithdrawalAgentCommissionSystem(“DWAC”)asspecifiedinthe ConversionNotice,registeredinthe name of the Holderorits designee,forthenumberofsharesofCommonStocktowhichtheHoldershallbeentitled.Inthealternative,notlaterthan3TradingDaysafteranyConversionDate,theCompanyshalldelivertotheapplicableHolderby expresscourieracertificate orcertificateswhichshallbefreeofrestrictivelegendsandtradingrestrictions(other thanthoserequiredby Section4 of thePurchaseAgreement)representingthenumber ofshares ofCommonStock being acquiredupontheconversionof thisNote (the“DeliveryDate”).Notwithstandingtheforegoingtothe contrary,theCompany oritstransfer agent shall only be obligatedtoissueanddeliverthe sharestoDTContheHolder’s behalfviaDWAC(or certificatesfreeofrestrictivelegends)ifsuch conversionis inconnectionwithasaleandtheHolderhascompliedwiththe applicablerequirements of federal and state securities laws.Ifinthe case of anyConversionNotice suchcertificate or certificatesare notdeliveredto orasdirected bytheapplicableHolderbytheDeliveryDate,theHolder shallbe entitled bywrittennoticetotheCompanyatanytime on orbeforeitsreceiptofsuch certificateor certificatesthereafter,torescindsuchconversion,inwhicheventtheCompany shallimmediatelyreturnthisNoteiftenderedforconversion,whereupontheCompany andtheHoldershall each berestoredtotheir respective positionsimmediately prior tothedelivery ofsuch noticeofrevocation, exceptthatany amounts describedin Sections 3.3(b) and(c) shall be payablethroughthe date notice ofrescissionisgiventotheCompany.
(b)Penalty for Failure to Deliver Common Stock.TheCompanyunderstands thatadelayinthedelivery ofthesharesofCommon Stock upon conversionofthisNotebeyondtheDeliveryDatecouldresult ineconomicloss totheHolder.IftheCompanyfailstodelivertotheHoldersuchsharesviaDWACoracertificateorcertificates pursuanttoSection 3.3(a)abovebytheDeliveryDate,theCompany shallpayto theHolder,incash, anamountperTradingDayfor each TradingDay until such sharesaredeliveredviaDWAC or certificatesare delivered,togetherwithinterestonsuchamountatarateof10%perannum, accruinguntil such amount and any accruedinterestthereonis paidinfull, equalto(i)1% ofthe aggregateprincipalamountoftheNote requestedtobeconvertedforthefirst5 TradingDaysaftertheDeliveryDateand(ii)2%oftheaggregateprincipalamountoftheNoterequestedtobeconvertedfor eachTradingDay thereafter.Nothing hereinshalllimitaHolder’srighttopursueactualdamagesfortheCompany’sfailuretodelivercertificatesrepresenting sharesofCommon Stock upon conversionwithinthe period specifiedherein and theHolder shall havetherightto pursue allremedies availabletoitatlawor inequity(including,withoutlimitation,adecreeofspecificperformanceand/or injunctiverelief).Notwithstandinganythingtothecontrarycontained herein,theHoldershallbe entitledtowithdrawaConversionNotice, and uponsuchwithdrawaltheCompanyshall only beobligatedto paytheliquidated damagesaccrued inaccordancewiththis Section3.3(b) throughthedatetheConversionNotice iswithdrawn.
(c)Penalty in the Event of a Buy-In.InadditiontoanyotherrightsavailabletotheHolder,iftheCompanyfailsto causeitstransferagenttotransmittotheHolderacertificateorcertificatesrepresentingthesharesofCommonStockissuableuponconversionofthisNote onorbeforetheDeliveryDate, andifafter such datetheHolderisrequired byits brokertopurchase(inanopenmarkettransactionor otherwise) shares ofCommon Stocktodeliverinsatisfactionof a sale bytheHolderofthe shares ofCommon Stockissuable upon full or partial conversionof this Note (a“Buy-In”),thentheCompany shall(1) payin cashtotheHolderthe amount bywhich(x)theHolder’stotal purchase price(includingbrokerage commissions,ifany)for the sharesofCommon Stock so purchased exceeds(y)theamountobtainedbymultiplying(A)thenumberofsharesofCommon Stockissuable upon conversion of thisNote thattheCompanywasrequired todelivertotheHolderin connectionwiththe conversionatissuetimes(B)the price atwhichthe sell ordergivingriseto such purchase obligationwas executed, and(2)at the option oftheHolder,either reinstatethe portionoftheNoteandequivalent number of shares ofCommon Stockforwhich such conversionwas not honored or deliver totheHolderthe number ofsharesofCommon Stockthatwouldhave beenissued hadtheCompany timely compliedwithitsconversionanddelivery obligationshereunder. Forexample,iftheHolder purchases 20,000 shares ofCommon Stock having atotalpurchasepriceof $11,000 (or $0.55 per share)to cover aBuy-Inwithrespect toan attempted conversion of shares ofCommon Stockwith an aggregate sale pricegivingriseto such purchase obligationof $10,000 (or $0.50 per share),under clause(1) oftheimmediatelyprecedingsentence,theCompany shallberequiredtopaytheHolder $1,000. TheHolder shall provide written notice totheCompanyindicatingthe amounts payabletotheHolderinrespect oftheBuy-In,togetherwith applicable confirmations and other evidencereasonablyrequested bytheCompany.Nothing in this Noteshalllimit aHolder’srighttopursue any otherremedies available toit hereunder, at law or in equityincluding,without limitation, a decreeof specific performanceand/orinjunctivereliefwithrespecttotheCompany’sfailure totimely deliver certificatesrepresenting sharesofCommon Stock upon conversionofthisNote asrequired pursuant totheterms hereof.
Section 3.4OwnershipCapand CertainConversionRestrictions.Notwithstandinganythingtothecontrary setforthin Section3 of thisNote,atnotimemaytheHolderconvertalloraportionofthisNoteifthenumberofsharesofCommonStocktobeissuedpursuanttosuchconversionwould exceed,whenaggregatedwithallothersharesofCommon Stock owned bytheHolderat suchtime,the number of sharesofCommon StockwhichwouldresultintheHolder beneficiallyowning(asdeterminedinaccordancewith Section13(d)ofthe ExchangeActandtherulesthereunder)morethan9.9%ofalloftheCommon Stock outstanding atsuchtime;provided, however,that upontheHolderprovidingtheCompanywith sixty-one(61)days notice(pursuantto Section 4.1 hereof)(the“WaiverNotice”) that the HolderwouldliketowaivethisSection 3.4withregardto anyorallshares ofCommon Stockissuable uponconversionof this Note,thisSection 3.4willbe ofnoforceoreffectwithregardto alloraportionoftheNotereferencedintheWaiverNotice; provided,further,thatthisprovisionshallbeofnofurtherforceoreffectduringthesixty-one(61)daysimmediately precedingtheMaturityDate.
Section 3.5AdjustmentofConversionPrice.
(a)TheConversion Priceshallbesubjectto adjustment fromtimetotime asfollows:
(i)AdjustmentsforStock SplitsandCombinations.IftheCompany shallat anytimeorfrom timetotimeaftertheIssuanceDate,effectastock splitoftheoutstandingCommon Stock,theapplicableConversionPriceineffectimmediatelypriortothestocksplitshallbe proportionatelydecreased.IftheCompanyshallatanytimeorfromtimetotimeaftertheIssuanceDate,combine theoutstanding sharesofCommonStock,theapplicableConversion Price ineffectimmediatelypriortothecombinationshallbeproportionatelyincreased.Anyadjustmentsunderthis Section3.5(a)(i)shallbeeffectiveatthecloseofbusinessonthedatethestocksplitorcombination occurs.
(ii)AdjustmentsforCertainDividendsandDistributions.IftheCompanyshallatany timeorfromtimetotimeaftertheIssuanceDate,makeorissueorsetarecorddateforthe determination ofholdersofCommonStock entitledtoreceiveadividendorotherdistributionpayablein sharesofCommonStock,then,andineachevent,the applicableConversionPriceineffectimmediately priortosucheventshallbedecreasedasofthetime ofsuchissuanceor,intheeventsuchrecorddate shallhavebeenfixed, as ofthecloseofbusinessonsuchrecord date,bymultiplying,theapplicableConversionPricethenineffectbyafraction:
(1)thenumeratorofwhichshallbethetotalnumberof shares ofCommonStockissuedand outstandingimmediately priortothetimeofsuchissuanceorthecloseof businesson suchrecord date;and
(2)thedenominatorofwhichshallbethetotalnumberofsharesofCommonStockissuedand outstandingimmediately priortothetimeofsuchissuanceorthecloseof businesson suchrecorddateplusthenumberofsharesofCommonStockissuable in paymentofsuch dividendordistribution.
(iii)AdjustmentforOtherDividendsandDistributions.IftheCompany shall atanytimeorfromtimetotimeaftertheIssuanceDate,makeorissueorsetarecorddateforthe determinationofholdersofCommonStockentitledtoreceiveadividendorotherdistributionpayablein other thansharesofCommonStock,then,andineachevent, anappropriaterevisiontotheapplicableConversionPriceshallbemadeandprovisionshallbemade(by adjustmentsoftheConversionPriceor otherwise)sothat theHolderof thisNoteshall receiveuponconversionsthereof,in additiontothe numberofsharesofCommonStockreceivablethereon,thenumberofsecurities oftheCompanywhichthe HolderwouldhavereceivedhadthisNotebeenconvertedintoCommonStockonthedateofsuchevent andhadthereafter,duringtheperiodfromthedateofsucheventtoandincluding theConversionDate,retainedsuchsecurities(togetherwith anydistributions payablethereonduring suchperiod),giving applicationtoalladjustmentscalledforduring such periodunderthisSection3.5(a)(iii)withrespecttotherightsoftheHolderofthisNote;provided,however,thatifsuchrecord dateshallhavebeenfixed andsuchdividendisnotfully paid orifsuchdistributionisnotfullymadeonthedatefixedtherefor,theConversion Priceshallbe adjusted pursuanttothis paragraphas ofthetime of actualpaymentof such dividends ordistributions.
(iv)AdjustmentsforReclassification,Exchangeor Substitution.IftheCommonStockissuableuponconversionof thisNote atanytimeorfromtimetotimeaftertheIssuanceDate shall bechangedtothesameor differentnumberof shares of any classor classesofstock,whether byreclassification, exchange,substitutionorotherwise(otherthanbywayofastocksplitor combinationofsharesorstock dividendsprovidedfor inSections3.5(a)(i),(ii)and(iii),orareorganization,merger,consolidation,or saleof assetsprovidedforinSection 3.5(a)(v)),then,andin eachevent,anappropriaterevisiontotheConversion Priceshallbemadeandprovisionsshallbemade(by adjustments of theConversion Priceorotherwise)sothattheHoldershallhavetheright thereafter to convert thisNoteintothekindand amountofsharesofstock andothersecuritiesreceivableupon suchreclassification, exchange,substitution orotherchange, allsubjecttofurtheradjustmentasprovided herein.
(v)AdjustmentsforReorganization,Merger,Consolidation or SalesofAssets.IfatanytimeorfromtimetotimeaftertheIssuanceDatethereshallbeacapitalreorganization oftheCompany(otherthanbyway ofastock splitorcombinationof shares orstock dividendsor distributionsprovidedforinSection3.5(a)(i),(ii)and (iii),orareclassification,exchange orsubstitution ofshares providedfor inSection 3.5(a)(iv)), oramergerorconsolidationof theCompanywithor into anothercorporationwheretheholdersofoutstandingvoting securitiespriortosuchmergeror consolidationdo notownover50%oftheoutstandingvoting securitiesof themergedor consolidatedentity,immediately aftersuchmergeror consolidation,orthesaleofallor substantiallyall oftheCompany’spropertiesorassetstoany otherperson(an“OrganicChange”),thenasapartofsuchOrganicChangeanappropriaterevisiontotheConversionPriceshallbemadeandprovisionshallbemade(by adjustmentsoftheConversionPriceorotherwise)sothat theHoldershallhavetherightthereaftertoconvertsuchNoteintothekindandamountofsharesofstock andothersecuritiesor propertyof theCompanyoranysuccessorcorporationresultingfrom suchOrganic Change.In anysuch case, appropriateadjustment shallbemadeintheapplicationoftheprovisionsofthis Section3.5(a)(v)withrespecttotherightsoftheHolderaftertheOrganicChangetotheendthattheprovisionsofthisSection 3.5(a)(v)(including anyadjustmentintheapplicableConversionPrice then ineffectand thenumberof sharesofstockorothersecuritiesdeliverableuponconversion of thisNote) shallbeappliedafter that event inasnearlyan equivalentmannerasmaybe practicable.
(vi)Issuanceof Common Stock andCommonStockEquivalents.If the Company at any time while this Note is outstanding, shall issue shares of Common Stock or Common Stock Equivalents (as defined in the Purchase Agreement) entitling any person to acquire shares of Common Stock at a price per share less than the applicable Conversion Price (if the holder of the Common Stock or Common Stock Equivalent so issued shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices or otherwise, or due to warrants, options or rights per share which are issued in connection with such issuance, be entitled to receive shares of Common Stock at a price per share which is less than the applicable Conversion Price, such issuance shall be deemed to have occurred for less than the applicable Conversion Price), then, at the sole option of the Holder, the Conversion Price shall be adjusted to mirror the conversion, exchange or purchase price for such Common Stock or Common Stock Equivalents (including any reset provisions thereof) at issue. Such adjustment shall be made whenever such Common Stock or Common Stock Equivalents are issued. The Company shall notify the Holder in writing, no later than 1 business day following the issuance of any Common Stock or Common Stock Equivalent subject to this Section, indicating therein the applicable issuance price, or of applicable reset price, exchange price, conversion price and other pricing terms.
(vii)ConsiderationforStock.IncaseanysharesofCommonStockoranyCommon StockEquivalentsshallbeissued orsold:
(1)inconnectionwithanymergerorconsolidationinwhichtheCompanyisthesurvivingcorporation(otherthananyconsolidationormergerinwhichthepreviously outstanding sharesofCommon Stock oftheCompanyshallbechangedtoorexchangedforthestockor othersecuritiesofanothercorporation),theamount ofconsiderationthereforshallbedeemedtobethefairvalue,asdeterminedreasonably andingoodfaith bytheBoardofDirectorsoftheCompany,ofsuch portionoftheassetsandbusinessofthenon-surviving corporation assuchBoardmay determinetobe attributableto such shares ofCommonStock,ConvertibleSecurities,rights orwarrantsoroptions,asthe casemaybe;or
(2)intheeventofanyconsolidationormergeroftheCompanyinwhichtheCompanyisnotthesurviving corporation orinwhichthepreviously outstanding sharesofCommonStock oftheCompany shallbechangedinto orexchangedforthestock orothersecuritiesof anothercorporation,orintheeventofany sale of allorsubstantially alloftheassetsoftheCompany for stockorothersecuritiesofanycorporation,theCompanyshallbedeemedtohaveissuedanumberof sharesofitsCommonStockforstock orsecuritiesorotherproperty oftheothercorporation computedonthebasisoftheactualexchangeratio onwhichthetransactionwaspredicated, andforaconsideration equal tothefairmarketvalue onthedateof suchtransaction of allsuchstock orsecuritiesorother property oftheothercorporation.
Ifany suchcalculationresultsinadjustmentof (i)theapplicableConversionPriceor (ii) thenumberofsharesofCommonStockissuableuponconversionoftheNote,the determinationoftheapplicableConversion PriceorthenumberofsharesofCommonStockissuable uponconversionoftheNoteimmediately prior to suchmerger,consolidationorsale, shallbemadeaftergivingeffectto suchadjustment ofthe number of shares ofCommon StockissuableuponconversionoftheNote.IntheeventCommon Stockis issuedwith othersharesorsecurities and/orotherassetsof theCompanyfor consideration,theconsideration computed as providedinthis Section 3.5(vii) shall be allocatedamongsuchsecurities andassetsas determinedingoodfaith bytheBoardofDirectorsof theCompany.
(b)RecordDate.In casetheCompany shalltakerecordofthe holdersofitsCommonStock forthepurposeofentitling themtosubscribe fororpurchaseCommonStockorConvertibleSecurities,thenthedateoftheissueorsaleofthesharesofCommonStockshallbedeemedto besuchrecorddate.
(c)CertainIssuesExcepted.Anythinghereintothecontrarynotwithstanding,theCompany shallnotberequiredtomakeany adjustment totheConversionPricein connectionwith(i) securitiesissued(otherthanforcash) in connectionwith amerger,acquisition,orconsolidation,(ii) securitiesissuedpursuanttoabonafidefirmunderwrittenpublicofferingoftheCompany’ssecurities,(iii) securitiesissuedpursuanttothe conversion or exercise of convertibleor exercisable securitiesissuedoroutstanding onorpriortothedatehereof orissuedpursuanttothePurchaseAgreement,(iv)the sharesofCommonStockissuableuponthe exerciseofWarrants,(v)securities issuedinconnectionwith strategiclicenseagreementsorotherpartnering arrangementssolong assuchissuancesarenotforthe purposeofraising capital,(vi)CommonStockissued oroptionsto purchaseCommonStockgrantedorissuedpursuanttotheCompany’sstockoptionplans andemployeestockpurchaseplansasthey now existand(vii)the paymentofanyaccruedinterestinshares ofCommon Stockpursuanttothis Note.
(d)NoImpairment.TheCompanyshallnot,by amendmentofitsCertificateofIncorporationor through anyreorganization,transferofassets, consolidation,merger, dissolution,issueor saleofsecuritiesoranyothervoluntary action,avoid orseek toavoidtheobservanceorperformanceof anyofthetermstobeobservedorperformedhereunderbytheCompany,butwillatalltimesingoodfaith,assistinthecarryingoutofalltheprovisionsofthis Section 3.5 andinthetakingof all suchaction asmay benecessary orappropriateinordertoprotecttheConversionRights oftheHolderagainstimpairment.Inthe event theHolder shall electto convert theNoteas provided herein,theCompany cannotrefuse conversionbased on any claimthat theHolder or any oneassociated or affiliatedwith theHolder hasbeenengagedin anyviolation oflaw,violationofan agreementtowhich theHolderis a party orfor anyreasonwhatsoever, unless aninjunctionfrom a court,ornotice,restraining andor adjoining conversionofallorofpart of theNoteshallhaveissuedand theCompanypostsasurety bondforthe benefitofthe Holderinan amountequal to 130% of theamountoftheNotetheHolderhaselectedtoconvert,whichbond shallremainin effectuntilthecompletionof arbitration/litigationofthe disputeandtheproceedsofwhichshallbepayabletosuchHolderintheeventitobtainsjudgment.
(e)CertificatesastoAdjustments.Upon occurrence ofeach adjustment orreadjustmentoftheConversionPriceornumberofsharesofCommonStockissuableuponconversionofthisNote pursuanttothis Section3.5,theCompany atitsexpenseshallpromptly computesuch adjustmentorreadjustmentinaccordancewiththetermshereofandfurnishtotheHolderacertificate settingforthsuch adjustmentandreadjustment,showingin detail thefacts upon which such adjustmentorreadjustmentisbased. TheCompany shall, uponwrittenrequestoftheHolder, at anytime,furnishor cause tobefurnishedtotheHolderalikecertificate settingforthsuchadjustmentsandreadjustments,the applicableConversion Pricein effectatthetime, andthe numberofsharesofCommonStock andthe amount,ifany, ofothersecuritiesorpropertywhichatthetimewould bereceived uponthe conversionofthisNote.Notwithstandingtheforegoing,theCompany shall not be obligatedto deliver a certificate unlesssuchcertificatewouldreflectanincrease ordecreaseofat least1%ofsuch adjusted amount.
(f)IssueTaxes.TheCompany shallpay any and allissueand other taxes, excludingfederal,stateor localincometaxes,thatmaybepayable inrespectofany issueordelivery ofsharesofCommonStock onconversionof thisNotepursuantthereto;provided,however,that theCompanyshall notbe obligatedtopayany transfertaxesresultingfromanytransferrequested bytheHolderin connectionwith anysuchconversion.
(g)FractionalShares.NofractionalsharesofCommonStockshallbeissuedupon conversionofthisNote.InlieuofanyfractionalsharestowhichtheHolderwouldotherwisebeentitled,theCompany shallpay cashequaltotheproductofsuchfractionmultiplied bytheaverageoftheclosingbidpricesoftheCommonStockforthe5 consecutiveTradingDaysimmediately precedingtheConversionDate.
(h)ReservationofCommonStock.TheCompanyshallatalltimeswhenthisNote shallbeoutstanding,reserveandkeepavailableoutofitsauthorizedbutunissuedCommonStock,such numberofsharesofCommonStockasshallfromtimetotimebesufficienttoeffecttheconversionofthisNoteandallinterestaccruedthereon;provided thatthenumber ofsharesofCommon Stock soreservedshall at notimebelessthan150%ofthenumber ofsharesofCommon StockforwhichthisNoteandallinterestaccruedthereonareat anytime convertible (the “Reserved Amount”).TheCompanyshall,fromtimetotimeinaccordance withDelaware corporatelaw,increasethe authorized number ofsharesofCommonStockifatanytimethe unissuednumber ofauthorizedsharesshallnotbe sufficientto satisfytheCompany’s obligations underthis Section 3.5(h).The Company acknowledges that (i) 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 Company does not maintain the Reserved Amount it will be considered an Event of Default under Section 2.1 of this Note.
(i)RegulatoryCompliance.IfanysharesofCommonStocktobereservedforthe purposeofconversionofthisNoteorany interestaccrued thereon require registrationorlistingwithor approvalofanygovernmentalauthority,stockexchangeorotherregulatorybodyunderanyfederalor statelaworregulationorotherwisebeforesuch sharesmay bevalidlyissuedordeliveredupon conversion,theCompany shall, atits sole cost and expense,ingoodfaith and as expeditiously as possible, endeavorto securesuchregistration,listingorapproval,asthe casemay be.
Section 3.6Prepayment.
(a) Prepayment by the Company. Notwithstanding anythingtothe contrary containedherein, during the 180 days following the issuance of this Note (the “Prepayment Period”) the Companyshallhavetheright,atthe Company’soption,toprepayin cashalloraportionofthisNote as follows: (i) during the first 60 days of the Prepayment Period, the amount to prepay the Note shall equal 130%oftheaggregate principalamountoftheNoteplusallaccruedandunpaidinterestapplicableatthetimeofsuchrequest; (ii) during the next 30 days of the Prepayment Period, the amount to prepay the Note shall equal 135%oftheaggregate principalamountoftheNoteplusallaccruedand unpaidinterestapplicableatthetimeofsuchrequest; (iii) during the next 30 days of the Prepayment Period, the amount to prepay the Note shall equal 140%oftheaggregate principalamountoftheNoteplusallaccruedandunpaidinterestapplicableatthetimeofsuchrequest; (iv) during the next 30 days of the Prepayment Period, the amount to prepay the Note shall equal 145%oftheaggregate principalamountoftheNoteplusallaccruedandunpaidinterestapplicableatthetimeofsuchrequest; and (v) during the final 30 days of the Prepayment Period, the amount to prepay the Note shall equal 150%oftheaggregate principal amountoftheNoteplusallaccruedandunpaidinterestapplicableatthetimeofsuchrequest.
(b) PrepaymentUponanEventofDefault.Notwithstanding anythingtothe contrary containedherein,uponthe occurrenceofanEventofDefaultdescribedinSections2.1(a)-(j)hereof,theHolder shallhavetheright,atsuchHolder’soption,torequiretheCompany toprepayin cashalloraportionofthisNoteatapriceequaltoonehundredtwenty percent(120%)oftheaggregate principalamountofthisNoteplusallaccruedandunpaidinterestapplicableatthetimeofsuchrequest(the“EventofDefaultPrepaymentPrice”).NothinginthisSection3.6(b) shall limittheHolder’srights underSection2.2 hereof.
(c) PrepaymentOptionUponMajorTransaction.In additiontoallotherrightsoftheHoldercontainedherein,simultaneouswiththeoccurrenceofaMajorTransaction(asdefinedinSection 3.6(e)hereof),theHoldershallhavetheright,attheHolder’soption,torequiretheCompanytoprepay alloraportionoftheHolder’sNoteatapriceequaltoonehundredtenpercent(110%)oftheaggregate principal amount ofthis Note plus all accrued and unpaidinterest(the“MajorTransaction Prepayment Price”).
(d) PrepaymentOptionUpon TriggeringEvent.InadditiontoallotherrightsoftheHoldercontainedherein,afteraTriggeringEvent(asdefinedbelow),theHoldershallhavetheright,attheHolder’soption,torequiretheCompanytoprepay alloraportionofthisNoteincashatapriceequaltothesumof(i)thegreaterof(A)onehundredtwenty percent(120%)ofthe aggregateprincipalamount ofthisNoteplusallaccruedandunpaidinterestand(B)intheeventatsuchtimetheHolderisunableto obtainthebenefitofitsconversionrights throughtheconversionof thisNoteandresaleof thesharesofCommonStockissuableuponconversionhereofinaccordancewiththetermsofthisNoteandtheotherTransactionDocuments,theaggregate principal amountofthisNoteplusallaccruedbutunpaid interest hereon,dividedbytheConversionPriceon(x) thedate thePrepaymentPrice (asdefined below)is demandedorotherwisedueor (y)thedate thePrepaymentPrice ispaidinfull,whicheveris less,multipliedbytheVWAPon(x)thedatethePrepaymentPriceisdemandedorotherwisedue, and(y)the datethePrepaymentPriceispaidinfull,whicheverisgreater,and(ii)allotheramounts,costs, expenses andliquidateddamagesdueinrespectofthisNoteandtheotherTransactionDocuments(the“Triggering EventPrepayment Price,”and,collectivelywiththe“MajorTransactionPrepaymentPrice,”the “PrepaymentPrice”).
(e) MajorTransaction.A“MajorTransaction”shallbe deemedtohaveoccurredat suchtime asanyofthefollowingevents:
(i)theconsolidation,mergerorotherbusinesscombinationoftheCompanywith or into anotherPerson (otherthan (A)pursuant to amigratorymergereffectedsolelyfor thepurpose ofchangingthejurisdiction ofincorporation oftheCompany or(B) aconsolidation,mergeror other businesscombinationinwhichholdersoftheCompany’svotingpowerimmediatelypriortothetransactioncontinue afterthetransactionto hold,directly or indirectly,thevoting powerof the surviving entity orentitiesnecessarytoelectamajority of themembersofthe boardofdirectors(ortheirequivalentifother than acorporation)ofsuch entityorentities);or
(ii)thesaleortransferofmorethanfiftypercent(50%)oftheCompany’s assets (based onthefairmarketvalueasdeterminedingoodfaith bytheCompany’sBoard ofDirectors) other thaninventoryintheordinarycourseofbusinessin oneorarelatedseries oftransactions;or
(iii) closingofapurchase,tenderorexchangeoffermadetotheholdersofmorethanfiftypercent(50%)oftheoutstandingsharesofCommonStockinwhichmorethanfifty percent(50%)ofthe outstandingsharesofCommon Stockweretendered andaccepted.
(f) TriggeringEvent. A“TriggeringEvent”shallbedeemedtohaveoccurredat suchtime asanyofthefollowingevents:
(i)thesuspensionfromlisting,withoutsubsequentlistingonanyoneof,orthefailureof the CommonStockto belisted onat leastone of theOTC Markets,OTCBulletinBoard,Nasdaq CapitalMarket,NYSE MKTorTheNewYork Stock Exchange,Inc.for a periodoffive(5)consecutiveTradingDays;
(ii)theCompany’snoticetoanyholderoftheNote,includingbywayof publicannouncement,atanytime,ofitsinabilitytocomply(includingforany ofthereasonsdescribedin Section3.8)or its intention not to complywithproper requests forconversion ofanyNote into sharesofCommon Stock;or
(iii)theCompany’sfailuretocomplywithaConversionNoticetenderedin accordancewiththeprovisionsofthisNotewithinten(10)businessdaysafterthereceiptbytheCompanyof the ConversionNotice;or
(iv)theCompanyderegistersitssharesofCommonStockandasaresult suchsharesofCommon Stockare nolongerpubliclytraded;or
(v)theCompanyconsummatesa“going private” transactionandasaresultthe Common Stockis nolonger registeredunderSections 12(b)or12(g)oftheExchange Act.
(g) MechanicsofPrepaymentatOptionofHolderUponMajorTransaction.No soonerthanfifteen(15) daysnorlater thanten(10)dayspriortotheconsummationofaMajorTransaction,but notpriortothepublic announcementofsuchMajorTransaction,theCompany shall deliverwrittennoticethereofviafacsimile andovernightcourier(“NoticeofMajorTransaction”)totheHolderofthisNote.AtanytimeafterreceiptofaNoticeofMajor Transaction(or,inthe eventaNotice of Major Transactionisnot delivered atleastten(10) days priorto aMajorTransaction, at anytimewithinten(10)dayspriortoaMajorTransaction),any holderof theNotes then outstandingmayrequiretheCompanyto prepay, effectiveimmediately priortotheconsummation of such Major Transaction, all oftheholder’sNotesthen outstanding by deliveringwritten noticethereofviafacsimile andovernight courier(“NoticeofPrepaymentatOptionofHolderUponMajorTransaction”)totheCompany,whichNoticeofPrepaymentatOptionofHolderUpon MajorTransactionshall indicate (i)thenumberofNotesthat such holderis electingto prepay and(ii)theapplicableMajorTransaction Prepayment Price, as calculatedpursuantto Section3.6(c)above.
(h) MechanicsofPrepaymentatOptionofHolderUponTriggeringEvent.Within one(1)businessdayaftertheoccurrenceofaTriggeringEvent,theCompanyshalldeliverwrittennoticethereofviafacsimile and overnightcourier (“NoticeofTriggeringEvent”)to eachholderofthe Notes. At anytimeafter theearlierofaholder’s receiptofaNoticeofTriggering Eventandsuchholderbecoming awareofaTriggering Event,anyholderofthisNotemayrequiretheCompanytoprepay alloftheNotes onaproratabasisby deliveringwrittennoticethereofviafacsimileandovernight courier(“NoticeofPrepayment atOptionofHolderUponTriggeringEvent”)totheCompany,whichNoticeof Prepayment atOption ofHolderUponTriggering Eventshallindicate(i) theamountof theNote thatsuchholderis electingtohaveprepaidand(ii)theapplicableTriggering EventPrepaymentPrice,ascalculatedpursuantto Section 3.6(d) above. A holder shall only bepermittedtorequiretheCompanyto prepaythe Note pursuanttoSection3.6hereofforthegreaterofaperiodoften(10)daysafterreceiptby suchholderofaNotice ofTriggeringEventor forsolongassuchTriggeringEventiscontinuing.
(i)PaymentofPrepaymentPrice.UpontheCompany’sreceiptofaNotice(s)of PrepaymentatOption ofHolderUponTriggering EventoraNotice(s)ofPrepaymentatOptionofHolderUpon MajorTransactionfromanyholderofthe Notes,theCompanyshall immediatelynotifyeach holder oftheNotesbyfacsimileoftheCompany’sreceiptofsuchNotice(s)ofPrepaymentatOptionofHolderUpon TriggeringEventorNotice(s)ofPrepaymentat OptionofHolderUponMajorTransactionand each holderwhichhassentsuchanotice shallpromptly submittotheCompanysuchholder’scertificatesrepresentingtheNoteswhichsuchholder haselectedtohaveprepaid. TheCompanyshall deliverthe applicableTriggering EventPrepaymentPrice,inthecaseofaprepaymentpursuanttoSection3.6(d),to such holderwithinfive(5) businessdays aftertheCompany’sreceipt of aNotice ofPrepaymentatOptionofHolderUponTriggeringEventand,inthecaseofaprepayment pursuanttoSection 3.(e),theCompany shalldeliver theapplicable MajorTransactionPrepaymentPriceimmediately prior tothe consummation of theMajorTransaction;providedthataholder’soriginalNoteshallhavebeen so deliveredtotheCompany;providedfurtherthatiftheCompanyisunabletoprepayalloftheNotestobe prepaid,theCompanyshallprepay an amountfromeachholderof theNotesbeing prepaid equal to such holder’spro-rataamount(based onthe numberofNotesheldby suchholderrelativetothe numberofNotesoutstanding)ofallNotesbeing prepaid.IftheCompanyshallfailtoprepay allof theNotes submitted forprepayment(otherthanpursuantto adisputeastothearithmetic calculationof the PrepaymentPrice),inadditionto anyremedy suchholderoftheNotesmay have under thisNoteandthe PurchaseAgreement,theapplicablePrepaymentPricepayableinrespectofsuchNotesnotprepaid shall bearinterest attherateoftwopercent(2%)permonth(proratedforpartialmonths)untilpaidinfull.UntiltheCompany payssuch unpaid applicablePrepayment Priceinfullto a holder oftheNotes submittedforprepayment,suchholdershallhavethe option(the“VoidOptionalPrepaymentOption”) to,inlieuofprepayment,requiretheCompanytopromptlyreturntosuch holder(s)alloftheNotes thatwere submitted forprepaymentby such holder(s)underthisSection3.6and forwhich theapplicable PrepaymentPricehasnotbeenpaid,by sendingwrittennotice thereoftotheCompanyviafacsimile(the “VoidOptional PrepaymentNotice”).UpontheCompany’sreceiptof suchVoidOptionalPrepaymentNotice(s)andpriortopaymentofthefullapplicable PrepaymentPricetosuchholder,(i)theNotice(s)of PrepaymentatOptionofHolderUponTriggering EventortheNotice(s)ofPrepaymentatOptionofHolderUpon MajorTransaction, asthe casemay be, shallbenullandvoidwithrespecttothoseNotes submittedforprepaymentandforwhichtheapplicablePrepaymentPricehas notbeenpaid,(ii)theCompanyshallimmediatelyreturnanyNotessubmittedtotheCompanyby eachholder for prepayment underthisSection 3.6(i)andforwhich theapplicablePrepaymentPricehasnotbeen paid and(iii) theConversionPriceofsuchreturnedNotesshallbeadjustedtothelesserof(A) theConversionPriceasin effectonthedateonwhichtheVoidOptionalPrepaymentNotice(s) isdeliveredtotheCompany and(B)thelowestClosingBidPriceduringtheperiodbeginning onthedateonwhichtheNotice(s)of Prepayment ofOption ofHolderUponMajorTransactionortheNotice(s) ofPrepayment atOptionofHolderUponTriggering Event, asthe casemay be,is deliveredtotheCompany and ending onthedate onwhichtheVoidOptionalPrepaymentNotice(s)is deliveredtotheCompany;providedthatno adjustmentshallbemadeifsuch adjustmentwouldresultinanincreaseoftheConversionPricethenin effect. A holder’sdeliveryofaVoidOptional PrepaymentNotice andexerciseofitsrightsfollowing suchnoticeshallnoteffect theCompany’sobligationstomakeany paymentswhichhaveaccruedpriortothedateofsuchnotice. Payments providedfor inthis Section3.6 shallhaveprioritytopaymentstoother stockholdersinconnectionwith aMajorTransaction.
(j)Company PrepaymentOptionupon Major Transaction.Upontheconsummation ofaMajorTransaction,theCompanymay prepayincashallorany portion of theoutstanding principal amountofthisNotetogetherwithall accruedandunpaidinterestthereonuponatleastthirty(30)days priorwrittennoticetotheHolder(the“Company’ sPrepaymentNotice”)atapriceequaltoonehundredtwentypercent(120%)ofthe aggregate principalamountof this Noteplusanyaccruedbutunpaidinterest(the“Company’sPrepaymentPrice”);provided,however,thatif a holderhas delivered aConversionNoticetotheCompanyor delivers aConversionNoticewithinsuchthirty(30)day periodfollowing delivery oftheCompany’sPrepaymentNotice,theprincipalamountoftheNotesplusanyaccruedbut unpaidinterest designatedtobeconvertedmay notbe prepaidbytheCompanyandshallbeconvertedin accordancewith Section3.3 hereof;providedfurtherthatif duringthe period between delivery oftheCompany’sPrepaymentNoticeand theCompany’sPrepaymentDate(asdefinedbelow), aholdershall becomeentitledandelectstodeliveraNoticeof PrepaymentatOptionofHolderUpon MajorTransaction orNoticeofPrepaymentatOptionofHolder uponTriggering Event,thensuchrightsofthe holdersshalltakeprecedenceoverthepreviously deliveredCompanyPrepaymentNoticeiftheholderso elects.TheCompany’sPrepaymentNoticeshall statethedateofprepaymentwhichdateshallbethe date oftheconsummationoftheMajorTransaction(the “Company’sPrepaymentDate”),theCompany’s PrepaymentPriceandtheprincipalamountofNotesplusany accruedbutunpaidinterestto beprepaidbytheCompany.TheCompany shalldelivertheCompany’sPrepaymentPriceontheCompany’s PrepaymentDate,provided,thatif theholder(s)delivers aConversionNoticebefore theCompany’s PrepaymentDate,thenthe portion oftheCompany’s Prepayment Pricewhichwouldbe paidtoprepaytheNotescoveredby suchConversionNoticeshallbereturnedtotheCompanyupondelivery oftheCommonStockissuablein connectionwithsuchConversionNoticetotheholder(s).OntheCompany’s PrepaymentDate,theCompany shallpaytheCompany’s Prepayment Price, subjectto any adjustment pursuanttotheimmediately preceding sentence,totheholder(s)on aproratabasis.IftheCompany failstopaytheCompany’sPrepaymentPricebythethird(3rd)businessday aftertheCompany’sPrepaymentDate,the prepaymentwillbedeclarednullandvoidandtheCompanyshall loseitsright to serveaCompany’sPrepaymentNoticepursuanttothisSection3.6(j)inthe future.Notwithstandingtheforegoingtothecontrary,theCompanymay effectaprepaymentpursuanttothisSection3.6(j)onlyiftradingintheCommonStock shallnothavebeensuspendedbytheSecuritiesand ExchangeCommission or any other exchange ormarket onwhichtheCommon Stockistrading, andtheCompanyis inmaterialcompliancewiththetermsandconditionsof thisNoteandtheotherTransactionDocuments.
Section 3.7Inabilityto FullyConvert.
(a)Holder’sOptionifCompanyCannotFullyConvert.If,upontheCompany’sreceiptofaConversionNotice,theCompanycannotissuesharesofCommonStockforanyreason,including,withoutlimitation, becausetheCompany(w)doesnothavea sufficientnumberofsharesofCommonStockauthorized andavailable, or(x)is otherwiseprohibited byapplicablelawor bytherules orregulations of anystockexchange,interdealer quotation system or otherself-regulatoryorganizationwithjurisdiction overtheCompanyoranyof itssecuritiesfromissuingalloftheCommon StockwhichistobeissuedtotheHolderpursuant to aConversion Notice,thentheCompanyshall issue asmany shares ofCommon Stock asitis abletoissueinaccordancewiththeHolder’sConversionNotice and,withrespecttotheunconverted portionofthis Note,the Holder, solely atHolder’s option, canelectto:
(i)requiretheCompanytoprepaythatportionofthisNoteforwhichtheCompanyisunabletoissueCommonStockinaccordancewiththeHolder’sConversionNotice(the “MandatoryPrepayment”) atapricepershareequaltothe Conversion PriceasofsuchConversionDate(the“MandatoryPrepaymentPrice”); or
(ii)voiditsConversionNoticeandretainorhavereturned,asthecasemay be,thisNote (providedthat theHolder’svoidingitsConversionNoticeshallnoteffect theCompany’s obligationstomakeanypaymentswhich have accruedpriortothe dateofsuch notice).
IntheeventtheHoldershallelecttoconvertanyportionoftheNoteasprovidedherein,theCompany cannotrefuseconversionbasedonanyclaimthattheHolderoranyoneassociatedor affiliatedwith theHolder hasbeenengagedin anyviolationoflaw,violationofan agreementtowhich theHolderis apartyorforanyreasonwhatsoever,unless,aninjunctionfromacourt,onnotice,restraining andor adjoining conversion ofallorpart of theNoteshallhave beenissuedandtheCompanypostsa surety bondforthe benefit oftheHolderin an amount equalto 130% oftheprincipalamount oftheNote,which bondshall remainineffect untilthecompletion of arbitration/litigationofthe dispute andtheproceeds ofwhich shallbepayabletosuchHolderinthe eventitobtainsjudgment.
(b)MechanicsofFulfillingHolder’sElection.TheCompanyshall immediatelysendviafacsimiletotheHolder,uponreceiptofafacsimilecopyofaConversionNoticefromtheHolderwhichcannotbefullysatisfiedasdescribedinSection3.7(a)above,anoticeoftheCompany’sinabilitytofully satisfytheConversionNotice(the ��Inabilityto FullyConvertNotice”). SuchInabilityto FullyConvertNotice shall indicate(i)thereasonwhytheCompanyis unabletofully satisfy such holder’sConversionNotice,(ii)theamount ofthisNotewhichcannot beconverted and(iii)theapplicable Mandatory Prepayment Price.TheHolder shall notifytheCompany ofitselection pursuantto Section 3.7(a)aboveby deliveringwrittennoticeviafacsimiletotheCompany(“NoticeinResponsetoInabilitytoConvert”).
(c)PaymentofPrepaymentPrice.IftheHoldershallelectto havetheNoteprepaid pursuanttoSection3.7(a)(i)above,theCompanyshallpaytheMandatoryPrepaymentPricetotheHolderwithin 30daysoftheCompany’sreceiptoftheHolder’sNotice inResponsetoInabilitytoConvert,providedthatpriortotheCompany’sreceiptoftheHolder’sNoticeinResponsetoInabilitytoConverttheCompany has notdelivered a noticetotheHolder stating,tothe satisfaction oftheHolder,thattheeventorconditionresultingintheMandatory PrepaymenthasbeencuredandallConversion SharesissuabletotheHoldercan andwillbe deliveredtotheHolderin accordancewiththeterms ofthisNote.IftheCompany shallfailto paythe applicable Mandatory Prepayment PricetotheHolder on atimely basisasdescribedinthisSection3.7(c) (otherthanpursuant to adisputeastothedeterminationofthearithmeticcalculationofthePrepayment Price),in additiontoanyremedytheHoldermay haveunderthisNote andthePurchaseAgreement,suchunpaidamountshallbear interestat therateof2% permonth(proratedforpartialmonths) untilpaidinfull.Untilthefull Mandatory Prepayment PriceispaidinfulltotheHolder,theHoldermay (i)voidtheMandatory Prepaymentwithrespecttothat portionoftheNoteforwhichthefullMandatory PrepaymentPricehasnotbeenpaid,(ii)receiveback suchNote, and(iii)require thattheConversion Price of suchreturnedNotebeadjustedtothelesserof(A)theConversionPriceasineffectonthedate onwhichtheHoldervoidedthe MandatoryPrepayment and(B)thelowestclosingbidpriceduringtheperiodbeginning ontheConversionDateandending onthedatetheHoldervoidedtheMandatoryPrepayment.
Section 3.8NoRights as Shareholder.NothingcontainedinthisNote shallbe construedasconferringupontheHolder,priortotheconversionofthisNote,therighttovoteortoreceive dividendsor toconsentortoreceivenoticeasashareholder inrespectofanymeetingof shareholdersfortheelectionofdirectorsoftheCompanyorofanyothermatter, oranyotherrightsasa shareholderoftheCompany.
ARTICLEIV
MISCELLANEOUS
Section 4.1Notices.Anynotice,demand,request,waiverorothercommunicationrequiredorpermittedtobegivenhereundershallbeinwriting andshallbe effective(a)uponhand delivery bytelex (with correctanswerbackreceived),telecopyorfacsimileat theaddressornumber designatedinthePurchaseAgreement (ifdelivered ona business dayduringnormalbusinesshours where suchnoticeistobereceived), orthefirst businessdayfollowingsuchdelivery(ifdeliveredotherthanon abusinessday during normalbusiness hourswhere such noticeisto bereceived)or(b)onthe second businessdayfollowingthe dateofmailing by expresscourierservice,fully prepaid,addressedtosuch address, or upon actualreceipt of suchmailing,whichever shallfirst occur.TheCompanywillgivewritten noticetotheHolderatleast 10 days priortothe date onwhichtheCompanytakes arecord(x)with respectto any dividendordistributionupontheCommonStock,(y)withrespectto any prorata subscriptionoffer toholdersofCommonStock or(z)fordeterminingrightstovotewithrespecttoanyOrganicChange,dissolution,liquidationorwinding-upandinnoeventshallsuchnoticebeprovidedto the Holder priorto suchinformationbeingmade knowntothe public. TheCompanywillalsogivewrittennoticetotheHolderat least10 daysprior tothedateonwhichanyOrganicChange, dissolution,liquidationorwinding-upwill takeplace andinno eventshallsuch notice beprovidedtotheHolderpriortosuchinformation beingmadeknowntothe public.
Section 4.2Governing Law.ThisNote shallbegovernedby and construedin accordancewiththe internallawsoftheStateofDelaware,withoutgiving effecttoanyoftheconflictsoflawprincipleswhichwouldresultintheapplicationofthesubstantivelawofanotherjurisdiction.ThisNoteshallnotbeinterpretedorconstruedwith any presumption against the party causingthisNotetobe drafted.
Section 4.3Headings.ArticleandsectionheadingsinthisNoteareincludedhereinforpurposesofconvenienceofreferenceonly andshallnotconstituteapartof thisNote foranyother purpose.
Section 4.4Remedies,Characterizations,OtherObligations,BreachesandInjunctiveRelief.The remediesprovided inthisNoteshallbecumulativeand in additionto allother remedies availableunderthisNote,atlaworin equity(including,withoutlimitation, adecreeofspecific performanceand/orother injunctiverelief),noremedy containedhereinshall bedeemedawaiverof compliancewiththeprovisionsgivingrisetosuchremedyandnothinghereinshalllimitthe Holder’srightto pursue actual damagesfor anyfailure bytheCompanyto complywiththeterms ofthisNote.Amountsset forth orprovidedforhereinwithrespect topayments,conversionandthelike(andthe computationthereof)shallbetheamountstobereceivedby theHolder andshallnot,exceptas expressly provided herein, besubjectto any other obligation oftheCompany(ortheperformancethereof).TheCompanyacknowledgesthata breach byit ofits obligations hereunderwillcauseirreparableandmaterialharmto theHolderand thatthe remedyatlawforanysuchbreachmaybeinadequate.ThereforetheCompanyagreesthat,intheeventof any suchbreach orthreatenedbreach,theHoldershallbe entitled,in additiontoallotheravailablerights andremedies,atlaworin equity,to seek andobtainsuchequitablerelief,including butnotlimitedto aninjunctionrestraining any suchbreachorthreatened breach,without the necessity ofshowing economiclossandwithoutany bondorothersecurity beingrequired.
Section 4.5EnforcementExpenses.TheCompany agreesto pay all costs and expensesofenforcementof thisNote, including,without limitation,reasonableattorneys’feesand expenses.
Section 4.6BindingEffect.TheobligationsoftheCompanyandtheHoldersetforthhereinshallbebindinguponthesuccessorsandassignsofeachsuchparty,whetherornotsuch successorsorassignsarepermitted bytheterms hereof.
Section 4.7Amendments.ThisNotemay notbemodified or amendedinanymannerexceptinwritingexecuted bythe Companyandthe Holder.
Section 4.8CompliancewithSecurities Laws.TheHolderofthisNote acknowledgesthatthisNoteisbeingacquiredsolelyfortheHolder’sownaccountandnotasanomineeforanyotherparty,andforinvestment,andthattheHoldershallnotoffer,sellorotherwisedisposeofthisNote.ThisNote and anyNoteissuedinsubstitution orreplacementtherefor shall bestamped orimprintedwith alegendinsubstantiallythefollowingform:
“THISNOTEHASNOTBEENREGISTEREDUNDERTHE SECURITIESACT OF1933,ASAMENDED (THE“ACT”),ORAPPLICABLESTATESECURITIESLAWS,ANDMAYNOTBE SOLDORTRANSFERREDINTHEABSENCEOFSUCHREGISTRATIONORRECEIPT BYTHECOMPANYOFANOPINIONOFCOUNSELINTHEFORM,SUBSTANCEAND SCOPEREASONABLYSATISFACTORYTOTHECOMPANYTHATTHISNOTE MAY BESOLD,TRANSFERRED,HYPOTHECATEDOROTHERWISEDISPOSEDOF,UNDERANEXEMPTIONFROMREGISTRATIONUNDERTHEACTAND SUCHSTATESECURITIESLAWS.”
Section 4.9ConsenttoJurisdiction.EachoftheCompanyandtheHolder(i)herebyirrevocablysubmitstothe exclusivejurisdictionof theState ofNew York forthe purposesofanysuit,action orproceeding arising outofor relatingtothisNoteand(ii)herebywaives,andagreesnotto assert inanysuchsuit,actionorproceeding,anyclaimthatitisnotpersonallysubjecttothejurisdictionofsuchcourt,thatthesuit,actionorproceedingisbroughtinaninconvenientforum orthatthevenueofthesuit,action orproceedingisimproper.Each oftheCompanyandtheHolder consentstoprocess being servedin any suchsuit,actionorproceedingbymailingacopythereoftosuchpartyattheaddressineffectfornoticestoitunderthePurchaseAgreement andagreesthat suchservice shall constitutegoodand sufficient serviceofprocessandnoticethereof.Nothinginthis Section 4.9 shallaffectorlimitanyrighttoserve processin anyothermannerpermitted bylaw.Eachof theCompanyandthe Holderherebyagreethatthe prevailingpartyinanysuit,actionorproceedingarisingoutoforrelatingtothisNoteshallbeentitledtoreimbursementforreasonablelegalfeesfromthe non-prevailingparty.
Section 4.10PartiesinInterest.ThisNoteshallbebindingupon,inuretothebenefit ofandbe enforceable bytheCompany,the Holderandtheirrespectivesuccessorsand permittedassigns.
Section 4.11FailureorIndulgenceNotWaiver.NofailureordelayonthepartoftheHolderintheexerciseofanypower,rightorprivilegehereundershalloperateasawaiverthereof, nor shallanysingleorpartialexerciseofanysuchpower,rightorprivilegeprecludeotherorfurtherexercisethereoforofanyotherright, powerorprivilege.
Section 4.12Company Waivers.Exceptasotherwisespecifically providedherein,theCompanyandallothers thatmaybecomeliable foralloranypartoftheobligationsevidenced bythisNote,herebywaive presentment,demand,notice of nonpayment,protest and all otherdemands’and noticesin connectionwiththedelivery,acceptance, performance and enforcementofthisNote, anddo herebyconsent to anynumberof renewalsofextensionsofthe timeorpaymenthereofandagree thatany suchrenewalsorextensionsmay bemadewithoutnoticetoany suchpersonsandwithoutaffectingtheirliabilityhereinanddofurtherconsenttothereleaseofanypersonliablehereon, allwithoutaffectingtheliability oftheotherpersons,firmsorCompany liableforthepaymentofthisNote,ANDDOHEREBY WAIVETRIALBYJURY.
(a)NodelayoromissiononthepartoftheHolderinexercisingitsrightsunderthisNote, orcourseofconductrelatinghereto, shalloperate as awaiverofsuchrightsoranyother rightof theHolder,norshallanywaiverbytheHolderofanysuchrightorrightsonanyoneoccasionbedeemedawaiverofthesamerightorrightson anyfuture occasion.
(b)THECOMPANYACKNOWLEDGESTHAT THETRANSACTIONOF WHICH THISNOTEISAPARTISACOMMERCIALTRANSACTION,AND TOTHEEXTENTALLOWEDBYAPPLICABLE LAW,HEREBYWAIVESITS RIGHTTONOTICEANDHEARING WITHRESPECTTOANY PREJUDGMENTREMEDY WHICHTHEHOLDERORITS SUCCESSORSOR ASSIGNS MAY DESIRETO USE.
MAX SOUND CORPORATION
By:
Greg Halpern, Chief Financial Officer
EXHIBIT A
WIREINSTRUCTIONS
FORMOF
NOTICE OFCONVERSION
(To be Executed bythe Registered HolderinordertoConvert the Note)
Theundersigned herbyirrevocably electstoconvert$
of theprincipalamountof the
aboveNoteintosharesofCommonStockofMax Sound Corporationaccordingtothe conditionshereof,asof thedatewritten below.
DateofConversion:
Applicable ConversionPrice:
NumberofsharesofCommonStockbeneficiallyownedordeemedbeneficiallyownedbytheHolderonthe DateofConversion:
