SECURITIESPURCHASEAGREEMENT
ThisSECURITIESPURCHASEAGREEMENT(the“Agreement”),datedasofAugust1,2014,byandbetweenMAXSOUNDCORPORATION,aDelawarecorporation,withheadquarterslocatedat2902AColoradoAvenue,SantaMonica,CA90404(the“Company”),andKBMWORLDWIDE,INC.,aNewYorkcorporation,withitsaddressat 80CuttermillRoad,Suite410,GreatNeck,NY11021(the “Buyer”).
WHEREAS:
A. TheCompanyandtheBuyerareexecutinganddeliveringthisAgreementinrelianceupontheexemptionfromsecuritiesregistrationaffordedbytherulesandregulationsaspromulgatedby theUnitedStatesSecuritiesandExchange Commission(the“SEC”)under the SecuritiesAct of1933,asamended(the “1933Act”);
B. BuyerdesirestopurchaseandtheCompanydesirestoissueandsell,uponthetermsandconditionssetforthinthisAgreementan8%convertiblenoteoftheCompany,intheformattachedheretoasExhibitA,intheaggregateprincipalamountof$253,500.00(togetherwith any note(s)issued inreplacementthereof oras adividendthereon orotherwisewithrespectthereto inaccordancewith the termsthereof,the“Note”),convertible intoshares ofcommonstock, $0.001parvaluepershare, ofthe Company(the “CommonStock”), upon the termsandsubject to the limitationsandconditionssetforth insuch Note.
C. TheBuyerwishestopurchase,uponthetermsandconditionsstatedinthisAgreement,suchprincipalamountofNoteasissetforthimmediatelybelowitsnameonthesignature pageshereto; and
NOWTHEREFORE,theCompanyandtheBuyerseverally(andnotjointly)herebyagreeasfollows:
1. Purchase and SaleofNote.
a. PurchaseofNote.OntheClosingDate(asdefinedbelow),theCompanyshallissueandsellto theBuyerandtheBuyeragreestopurchasefromtheCompanysuchprincipalamountofNoteasissetforthimmediatelybelowtheBuyer’snameon the signaturepageshereto.
b. FormofPayment.OntheClosingDate(asdefinedbelow),(i)theBuyershallpaythepurchasepricefortheNotetobeissuedandsoldtoitattheClosing(asdefinedbelow)(the“PurchasePrice”)bywiretransferofimmediatelyavailablefundstotheCompany, in accordancewith theCompany’swrittenwiringinstructions,against delivery of theNote in theprincipal amountequal to thePurchasePriceas issetforthimmediatelybelow theBuyer’s name on thesignature pageshereto,and(ii)the Companyshall deliversuch dulyexecuted Note onbehalf of theCompany, to theBuyer,againstdelivery of suchPurchase Price.
c. ClosingDate.Subjecttothesatisfaction(orwrittenwaiver)oftheconditionstheretosetforthinSection6andSection7below,thedateandtimeoftheissuanceandsaleoftheNotepursuant tothisAgreement(the“ClosingDate”)shall be12:00 noon,EasternStandard Time on oraboutAugust 5, 2014, orsuchothermutuallyagreed upontime.The closing of thetransactionscontemplatedbythisAgreement(the“Closing”)shalloccuron theClosing Date atsuchlocationasmay be agreed to by the parties.
2. Buyer’sRepresentationsandWarranties. TheBuyerrepresentsandwarrants to theCompanythat:
a. InvestmentPurpose.Asofthedatehereof,theBuyerispurchasingtheNoteandthesharesofCommonStockissuableuponconversionoforotherwisepursuanttotheNote(including,withoutlimitation,suchadditionalsharesofCommonStock,ifany,asareissuable(i)onaccountofinterestontheNote,(ii) asaresultoftheeventsdescribedinSections1.3and1.4(g)oftheNoteor(iii)inpayment oftheStandardLiquidatedDamages Amount(asdefined in Section2(f) below) pursuant to thisAgreement,suchsharesofCommonStockbeingcollectivelyreferredtohereinasthe“ConversionShares”and, collectivelywith theNote, the“Securities”) for itsown accountand notwith apresentviewtowards the public saleordistributionthereof,except pursuant tosalesregistered orexemptedfromregistrationunder the 1933Act;provided,however,that by making therepresentationsherein,theBuyerdoesnotagreetoholdanyoftheSecuritiesforany minimumorotherspecifictermandreservestherighttodisposeoftheSecuritiesat any time inaccordancewith or pursuant to aregistrationstatement oran exemptionunder the 1933Act.
b. AccreditedInvestorStatus.TheBuyerisan“accreditedinvestor” asthatterm isdefined in Rule501(a)ofRegulation D(an“AccreditedInvestor”).
c. RelianceonExemptions.TheBuyerunderstandsthattheSecuritiesarebeingofferedandsoldtoitinrelianceuponspecificexemptionsfromtheregistrationrequirementsofUnitedStatesfederalandstatesecuritieslawsandthattheCompanyisrelying uponthetruthandaccuracyof,andtheBuyer’scompliancewith,therepresentations,warranties,agreements, acknowledgmentsandunderstandings of theBuyer
setforthhereininordertodeterminetheavailabilityofsuchexemptionsandtheeligibilityofthe BuyertoacquiretheSecurities.
d. Information.TheBuyeranditsadvisors,ifany,havebeen,andforsolongastheNoteremainoutstandingwillcontinuetobe,furnishedwithallmaterialsrelatingtothebusiness,financesandoperationsoftheCompanyandmaterialsrelatingtotheofferandsaleoftheSecuritieswhichhave beenrequestedbytheBuyeroritsadvisors.TheBuyeranditsadvisors,ifany,havebeen,andforsolongastheNoteremainoutstandingwillcontinue tobe,afforded the opportunitytoaskquestions of theCompany.Notwithstanding theforegoing, the Company has not disclosed to theBuyeranymaterial nonpublicinformationandwillnotdisclosesuchinformationunlesssuchinformationisdisclosedtothe publicpriorto orpromptly following such disclosureto theBuyer.Neither suchinquiries nor anyother duediligenceinvestigation conducted byBuyerorany of itsadvisors orrepresentativesshallmodify,amend oraffectBuyer’sright to rely on theCompany’srepresentationsandwarrantiescontainedinSection3below. TheBuyerunderstandsthatitsinvestment in theSecuritiesinvolves asignificantdegreeofrisk. TheBuyer is notawareofanyfactsthatmay constitute abreachofanyoftheCompany'srepresentationsandwarrantiesmade herein.
e. GovernmentalReview.TheBuyerunderstandsthatnoUnitedStatesfederalorstateagencyoranyothergovernmentorgovernmentalagencyhaspassedupon or madeanyrecommendation orendorsement ofthe Securities.
f. TransferorRe-sale.TheBuyerunderstandsthat(i)thesaleorre-saleoftheSecuritieshasnotbeenandisnotbeingregisteredunderthe1933Actoranyapplicablestatesecuritieslaws,and theSecurities may not betransferredunless(a)theSecurities are soldpursuant toaneffectiveregistrationstatement underthe 1933Act,(b)theBuyershallhavedeliveredtotheCompany,atthecostoftheBuyer,an opinionofcounselthatshallbe inform,substanceandscopecustomaryfor opinionsofcounselincomparabletransactions to theeffectthat the Securities tobesold or transferredmaybesold or transferredpursuant toan exemptionfrom suchregistration,which opinion shallbeacceptedby theCompany,(c)theSecuritiesare sold ortransferred toan“affiliate”(as defined in Rule 144promulgated under the 1933Act(or a successor rule) (“Rule 144”)) of theBuyerwhoagrees tosellorotherwisetransfertheSecuritiesonly inaccordancewiththisSection2(f)andwhoisanAccreditedInvestor,(d)theSecuritiesare soldpursuanttoRule 144,or(e)theSecuritiesaresoldpursuanttoRegulationSunderthe1933Act(orasuccessorrule)(“RegulationS”),andtheBuyershallhavedeliveredtotheCompany,atthecostoftheBuyer,anopinionofcounselthatshall be inform,substance and scope customaryfor opinions ofcounsel incorporatetransactions,which opinionshall beacceptedbytheCompany; (ii) anysaleofsuchSecuritiesmade inreliance onRule 144maybemade onlyinaccordancewiththetermsofsaid Ruleandfurther,ifsaid Rule is notapplicable,anyre-saleof suchSecurities undercircumstances inwhich theseller(or thepersonthroughwhom thesale ismade) may bedeemed to beanunderwriter(asthatterm isdefined in the 1933Act) mayrequirecompliance
withsomeotherexemptionunderthe1933ActortherulesandregulationsoftheSECthereunder;and(iii)neithertheCompanynoranyotherpersonisunderanyobligationtoregistersuchSecuritiesunderthe1933Actoranystatesecuritieslawsortocomplywiththetermsandconditions ofany exemptionthereunder(ineachcase).Notwithstanding theforegoingor anythingelsecontainedhereintothecontrary,theSecurities maybepledgedascollateral inconnectionwith abona fidemarginaccount orotherlendingarrangement.
g. Legends.TheBuyerunderstandsthattheNoteand,untilsuchtimeastheConversionShareshavebeenregisteredunderthe1933ActmaybesoldpursuanttoRule144orRegulationSwithoutany restrictionastothenumberofsecuritiesasof aparticular date thatcanthen beimmediately sold, theConversion Sharesmay bear arestrictivelegendinsubstantially thefollowingform(andastop-transferordermaybeplacedagainsttransferofthecertificatesfor suchSecurities):
“NEITHERTHEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBYTHISCERTIFICATENORTHESECURITIESINTOWHICHTHESESECURITIESAREEXERCISABLEHAVEBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED,ORAPPLICABLESTATESECURITIESLAWS.THESECURITIESMAYNOT BEOFFERED FORSALE,SOLD,TRANSFERRED ORASSIGNED (I) INTHEABSENCE OF(A)ANEFFECTIVEREGISTRATIONSTATEMENT FOR THESECURITIESUNDER THESECURITIESACTOF1933,ASAMENDED, OR (B)ANOPINIONOFCOUNSEL(WHICHCOUNSELSHALLBESELECTEDBYTHEHOLDER),INAGENERALLYACCEPTABLEFORM,THATREGISTRATION ISNOTREQUIREDUNDERSAIDACTOR (II)UNLESSSOLDPURSUANTTORULE 144ORRULE 144AUNDERSAIDACT.NOTWITHSTANDING THEFOREGOING,THESECURITIESMAY BEPLEDGED INCONNECTIONWITH ABONAFIDEMARGINACCOUNT OROTHERLOAN ORFINANCINGARRANGEMENTSECUREDBYTHESECURITIES.”
ThelegendsetforthaboveshallberemovedandtheCompanyshallissueacertificatewithoutsuchlegend totheholderofanySecurityuponwhich it isstamped,if,unlessotherwiserequiredbyapplicablestatesecurities laws,(a)suchSecurity isregisteredforsaleunderaneffectiveregistrationstatementfiledunder the 1933Act orotherwisemay be soldpursuanttoRule144orRegulationSwithoutanyrestrictionasto thenumberofsecuritiesas ofaparticulardatethatcanthen beimmediatelysold, or(b)such holderprovides theCompanywithanopinion ofcounsel, inform, substanceandscopecustomaryfor opinions ofcounsel incomparabletransactions, to theeffect that a publicsaleortransfer ofsuchSecurity maybe madewithoutregistration under the 1933Act,which opinionshallbeacceptedbythe Company sothat the sale ortransfer iseffected.TheBuyeragrees tosellallSecurities,
includingthoserepresentedbyacertificate(s)fromwhichthelegendhasbeenremoved,incompliancewithapplicableprospectusdeliveryrequirements,ifany.Intheeventthatthe Companydoesnotacceptthe opinionof counselprovidedby theBuyerwithrespecttothetransfer ofSecurities pursuant toan exemptionfromregistration, suchas Rule 144 orRegulation S,at theDeadline, itwill beconsideredanEvent ofDefaultpursuant toSection
h. Authorization;Enforcement.ThisAgreementhasbeendulyandvalidlyauthorized.ThisAgreementhasbeendulyexecutedanddeliveredonbehalfoftheBuyer,andthisAgreementconstitutesavalidandbindingagreementof theBuyerenforceableinaccordance with itsterms.
i. Residency.TheBuyerisaresidentofthejurisdictionsetforthimmediatelybelowtheBuyer’snameon the signature pageshereto.
3. RepresentationsandWarrantiesoftheCompany.TheCompanyrepresentsandwarrantsto the Buyer that:
a. OrganizationandQualification.TheCompanyandeachofitsSubsidiaries(asdefinedbelow), ifany, isacorporation dulyorganized, validlyexistingandingoodstandingunderthelawsofthejurisdictioninwhichitisincorporated,withfullpowerand authority(corporateand other) to own,lease,useandoperate itspropertiesandtocarry on itsbusinessasandwherenowowned,leased, used,operatedand conducted.Schedule3(a)setsforth a list ofall of theSubsidiaries of the Companyand thejurisdiction inwhicheach isincorporated.The Companyandeach of itsSubsidiaries isdulyqualifiedas aforeigncorporationtodobusinessandisingoodstanding ineveryjurisdictioninwhichitsownership or use of property or thenatureof thebusinessconductedby itmakessuchqualification necessaryexceptwhere thefailure to be soqualified or ingood standingwould not have aMaterialAdverseEffect.“MaterialAdverseEffect”meansanymaterialadverseeffect onthebusiness,operations,assets,financialcondition orprospects of the Company or itsSubsidiaries,ifany,takenasawhole,oronthetransactionscontemplatedherebyorbytheagreements orinstruments to beentered into inconnectionherewith.“Subsidiaries”means anycorporationorotherorganization,whetherincorporatedorunincorporated,inwhichthe Companyowns, directlyor indirectly,anyequityor other ownershipinterest.
b. Authorization;Enforcement.(i)TheCompanyhasallrequisitecorporatepowerandauthoritytoenterintoandperformthisAgreement,theNoteandtoconsummatethetransactionscontemplatedherebyandtherebyandtoissuetheSecurities,inaccordancewith the termshereofand thereof,(ii) theexecution and deliveryof thisAgreement, theNote bythe Companyand theconsummation by it of thetransactionscontemplatedherebyand thereby(includingwithoutlimitation,theissuanceoftheNoteand theissuanceandreservationforissuanceoftheConversionSharesissuableuponconversion orexercisethereof)havebeendulyauthorizedbytheCompany’sBoardofDirectorsandnofurther consent or authorization of theCompany,itsBoard ofDirectors, oritsshareholders is
required,(iii)thisAgreementhasbeendulyexecutedanddeliveredbytheCompanybyitsauthorizedrepresentative,andsuchauthorizedrepresentativeisthetrueandofficialrepresentativewithauthoritytosignthisAgreementandtheother documentsexecutedinconnectionherewithand bind the Companyaccordingly,and (iv) thisAgreementconstitutes,and uponexecutionand deliveryby the Company of theNote,each of suchinstrumentswillconstitute, a legal,validand bindingobligation of the Companyenforceable against the Company inaccordancewithitsterms.
c. Capitalization. Asofthedatehereof,theauthorizedcapitalstockoftheCompanyconsistsof:(i)400,000,000authorizedsharesofCommonStock,
$0.001parvaluepershare,ofwhich326,391,750sharesareissuedandoutstanding;and(ii)10,000,000authorizedsharesofPreferredStock,$0.001parvaluepershare,ofwhichnosharesareissuedandoutstanding;nosharesarereservedforissuancepursuanttotheCompany’sstockoptionplans,nosharesarereservedfor issuance pursuanttosecurities(other than theNote and one (1) priornote(s)in favoroftheBuyer:
| (a) | priorconvertiblepromissorynoteinfavoroftheBuyerdatedApril17,2014intheamountof$78,500.00forwhich5,500,000sharesofCommonStockarepresentlyreserved;and |
exercisablefor,orconvertibleintoorexchangeableforsharesofCommonStockand5,000,000sharesarereservedforissuanceuponconversionoftheNote.Allofsuchoutstandingsharesofcapitalstockare,or uponissuancewillbe,dulyauthorized,validlyissued, fullypaidandnon-assessable.Nosharesofcapitalstock oftheCompany aresubject topreemptiverights or any othersimilarrights of theshareholders of the Company or anyliensorencumbrancesimposedthroughthe actionsorfailure toactof theCompany.Asof theeffectivedate of thisAgreement,(i)there are nooutstandingoptions,warrants,scrip,rights to subscribefor, puts,calls,rights offirstrefusal,agreements,understandings,claims orothercommitments orrights of anycharacterwhatsoeverrelating to, orsecurities orrightsconvertibleinto orexchangeableforanyshares ofcapitalstock oftheCompany orany ofitsSubsidiaries, orarrangements bywhich the Company orany of itsSubsidiaries is or maybecome bound to issueadditionalshares ofcapitalstock of theCompany or any of itsSubsidiaries,(ii) there arenoagreements orarrangementsunder which the Company or any of itsSubsidiaries isobligatedtoregisterthesaleof any ofits ortheirsecuritiesunderthe1933Actand(iii)thereare noanti-dilution orpriceadjustmentprovisionscontained in any securityissued by the Company (or in anyagreement providingrights to security holders)thatwill betriggered by theissuance oftheNoteortheConversionShares.TheCompanyhasfurnished to the Buyertrueandcorrectcopies of theCompany’sCertificate ofIncorporationas ineffect on the datehereof(“CertificateofIncorporation”), the Company’sBy-laws,as ineffect on thedatehereof(the“By-laws”),and theterms ofallsecuritiesconvertibleinto orexercisablefor CommonStock ofthe Companyand thematerialrights oftheholdersthereof inrespectthereto.The Companyshallprovide theBuyerwith awrittenupdate of thisrepresentationsigned by the Company’sChief Executiveon behalfoftheCompanyas oftheClosingDate.
d. IssuanceofShares.TheConversionSharesaredulyauthorizedandreservedforissuanceand,uponconversionoftheNoteinaccordancewithitsrespectiveterms,willbevalidlyissued,fullypaidandnon-assessable,andfreefromalltaxes,liens,claimsandencumbranceswithrespecttotheissuethereofandshallnotbesubjecttopreemptiverightsorothersimilarrightsofshareholdersof the Companyandwill not imposepersonal liability upon the holder thereof.
e. AcknowledgmentofDilution.TheCompanyunderstandsandacknowledgesthepotentiallydilutiveeffecttotheCommonStockupontheissuanceoftheConversionSharesuponconversionoftheNote.TheCompanyfurtheracknowledgesthatitsobligationtoissueConversionSharesuponconversionoftheNoteinaccordancewiththisAgreement,theNote isabsoluteandunconditionalregardlessof the dilutiveeffectthatsuchissuancemay haveon theownershipinterests ofother shareholders ofthe Company.
f. NoConflicts.Theexecution,deliveryandperformanceofthisAgreement,theNotebytheCompanyandtheconsummationbytheCompanyofthetransactionscontemplatedherebyandthereby(including,withoutlimitation,theissuanceandreservationforissuance of theConversionShares)will not(i)conflictwith orresult in aviolation of anyprovision of theCertificate ofIncorporation orBy-laws, or(ii)violateorconflictwith, orresult in abreachofany provisionof,orconstitute adefault(oran eventwhichwithnotice or lapse of timeor bothcouldbecome adefault) under, orgive to others anyrights oftermination,amendment,acceleration orcancellationof,anyagreement,indenture,patent,patentlicense orinstrument towhichthe Companyorany of itsSubsidiaries is aparty, or(iii)result in aviolation ofany law, rule,regulation, order,judgment ordecree(includingfederalandstatesecuritieslawsandregulationsandregulations ofanyself-regulatory organizations towhichthe Company or itssecuritiesaresubject)applicable tothe Companyoranyof itsSubsidiariesor bywhichanypropertyorassetof the Companyor anyof itsSubsidiaries is bound oraffected(exceptforsuchconflicts,defaults,terminations,amendments,accelerations,cancellationsandviolationsaswouldnot, individuallyorintheaggregate,have aMaterialAdverseEffect).Neitherthe Companynor any of itsSubsidiariesis inviolation of its Certificate ofIncorporation,By-lawsor otherorganizationaldocumentsandneither theCompany noranyof itsSubsidiaries is indefault(andnoevent hasoccurredwhichwithnoticeorlapse of time orbothcouldput the Company oranyofitsSubsidiaries indefault)under,andneitherthe CompanynoranyofitsSubsidiarieshastaken anyaction orfailed totake any actionthatwouldgive toothers anyrights oftermination,amendment,acceleration orcancellationof,anyagreement,indenture orinstrument towhich the Company orany of itsSubsidiaries is aparty or bywhichany propertyorassets oftheCompanyoranyofitsSubsidiaries is boundoraffected,exceptfor possibledefaultsas would not, individually or in theaggregate, have aMaterialAdverseEffect.Thebusinessesofthe CompanyanditsSubsidiaries,ifany,are notbeingconducted,andshall not beconducted so longastheBuyerownsany oftheSecurities, inviolation ofanylaw,ordinance orregulationofanygovernmentalentity.ExceptasspecificallycontemplatedbythisAgreementandasrequiredunder the 1933Actandanyapplicablestatesecurities
laws,theCompanyisnotrequiredtoobtainanyconsent,authorizationororderof,ormakeanyfilingorregistrationwith,anycourt,governmentalagency,regulatoryagency,selfregulatoryorganizationorstockmarketoranythirdparty inorderforittoexecute,deliverorperformanyof itsobligationsunder thisAgreement, theNote inaccordancewith thetermshereoforthereof ortoissueandselltheNoteinaccordancewiththetermshereofandtoissue theConversionShares uponconversion of theNote.Allconsents,authorizations,orders,filingsandregistrationswhich the Companyisrequired toobtainpursuant to theprecedingsentence havebeen obtained oreffected on orprior to thedatehereof.If the Company islistedontheOTCBB,the Company is not inviolationofthe listingrequirements oftheOver-the-CounterBulletinBoard(the“OTCBB”)anddoes not reasonablyanticipatethat theCommonStockwill be delistedbytheOTCBB intheforeseeablefuture.The Companyand itsSubsidiariesareunawareofanyfactsorcircumstanceswhichmightgiverisetoanyoftheforegoing.
g. SECDocuments;FinancialStatements.TheCompanyhastimelyfiledallreports,schedules,forms,statementsandotherdocumentsrequiredtobefiledbyitwiththeSECpursuanttothereportingrequirementsoftheSecuritiesExchangeActof 1934,asamended(the “1934Act”) (allof theforegoingfiledprior to thedate hereofandall exhibitsincludedthereinandfinancial statementsandschedulestheretoanddocuments(otherthan exhibits tosuch documents)incorporated byreferencetherein, beinghereinafterreferred tohereinas the“SECDocuments”).Uponwrittenrequest the Companywilldeliver to theBuyertrueand completecopies of theSECDocuments,exceptforsuchexhibitsandincorporated documents.As oftheirrespectivedates, theSECDocumentscomplied inallmaterialrespectswiththerequirements of the 1934Actand therulesandregulations of theSECpromulgatedthereunderapplicable totheSECDocuments,and none of theSECDocuments,at the time theywerefiledwith theSEC,containedanyuntruestatement of amaterialfact oromitted tostate amaterialfactrequired tobestatedtherein or necessaryinorder tomake thestatementstherein, inlight of thecircumstances underwhich theyweremade,notmisleading.Noneof thestatementsmadeinanysuchSECDocumentsis,orhasbeen,requiredtobeamendedorupdatedunderapplicablelaw(exceptforsuchstatementsashave beenamendedorupdated insubsequentfilingsprior thedatehereof).As of theirrespectivedates, thefinancialstatementsof the Company includedin theSECDocuments compliedas toformin allmaterial respectswithapplicableaccountingrequirementsandthepublishedrulesandregulations of theSECwithrespectthereto.Suchfinancialstatementshavebeenprepared inaccordancewithUnitedStates generallyacceptedaccountingprinciples,consistently applied,duringtheperiodsinvolvedandfairlypresentinallmaterialrespectstheconsolidatedfinancialpositionof the Companyand itsconsolidatedSubsidiariesas ofthe datesthereofand theconsolidated results oftheiroperationsandcashflowsfor theperiodsthen ended(subject, in the case of unauditedstatements, to normalyear-endauditadjustments).Exceptassetforth in thefinancialstatements of the Companyincluded in theSECDocuments,theCompanyhasnoliabilities,contingent orotherwise,otherthan(i)liabilitiesincurredintheordinary courseofbusinesssubsequenttoMarch31,2014,and(ii)obligationsunder contractsandcommitmentsincurredinthe ordinarycourse ofbusinessand
notrequiredundergenerallyacceptedaccountingprinciplestobereflectedinsuchfinancialstatements,which,individuallyorintheaggregate,arenotmaterialtothefinancialconditionoroperatingresultsoftheCompany.The Company issubjecttothereportingrequirementsof the1934Act.
h. AbsenceofCertainChanges.SinceMarch31,2014,therehasbeen nomaterialadversechangeand nomaterialadverse development in the assets,liabilities,business,properties,operations,financialcondition,resultsofoperations,prospectsor1934Actreportingstatus oftheCompanyoranyofitsSubsidiaries.
i. AbsenceofLitigation.Thereisnoaction,suit,claim,proceeding,inquiry orinvestigationbeforeorby any court,publicboard,governmentagency,self-regulatoryorganizationor bodypending or,totheknowledge of the Companyoranyof itsSubsidiaries,threatenedagainst oraffecting the Companyorany of itsSubsidiaries, ortheirofficersordirectorsintheir capacityassuch,thatcould have a MaterialAdverseEffect.Schedule3(i)contains acomplete listandsummarydescription ofanypendingor, to theknowledgeof theCompany, threatened proceedingagainst oraffecting the Companyorany of itsSubsidiaries,withoutregard towhether itwouldhave aMaterialAdverseEffect.The Companyand itsSubsidiaries areunaware of any facts orcircumstanceswhichmightgiverisetoany ofthe foregoing.
j. Patents,Copyrights,etc.TheCompanyandeachofitsSubsidiariesowns orpossesses therequisitelicensesorrights touseallpatents,patentapplications,patentrights,inventions,know-how,tradesecrets,trademarks,trademarkapplications,service marks,servicenames,trade namesandcopyrights(“IntellectualProperty”) necessary toenable it toconduct itsbusinessas now operated(and,as presentlycontemplated to be operated in thefuture);there is noclaim or actionbyanypersonpertaining to,or proceedingpending,or to theCompany’sknowledgethreatened,whichchallenges theright of the Companyor of a Subsidiarywithrespect to anyIntellectualPropertynecessarytoenable ittoconductitsbusinessasnowoperated(and,aspresentlycontemplated to beoperated in thefuture); tothebest of theCompany’sknowledge, theCompany’sor itsSubsidiaries’currentandintendedproducts,services andprocesses do notinfringe on anyIntellectualProperty orother rightsheldbyany person;and the Company isunaware of anyfacts orcircumstanceswhichmightgiverise toanyof theforegoing.The Companyandeach of itsSubsidiarieshavetakenreasonable security measures toprotect thesecrecy, confidentiality andvalueof theirIntellectualProperty.
k. NoMateriallyAdverseContracts,Etc.NeithertheCompanynoranyofitsSubsidiariesissubjecttoanycharter,corporateorotherlegalrestriction,oranyjudgment,decree,order,ruleorregulationwhichinthejudgment oftheCompany’sofficershas or isexpected in thefuture tohave aMaterialAdverseEffect.Neither the Companynor anyof itsSubsidiaries is a partyto anycontract oragreement which in thejudgment of theCompany’sofficershasor isexpected tohaveaMaterialAdverse Effect.
l. TaxStatus.TheCompanyandeachofitsSubsidiarieshasmadeorfiledallfederal,stateandforeignincomeandallothertaxreturns,reportsanddeclarationsrequiredbyanyjurisdictiontowhich itissubject(unlessand only to the extentthatthe Companyandeachof itsSubsidiarieshassetaside onitsbooksprovisionsreasonablyadequatefor the payment ofallunpaidand unreported taxes)andhas paidall taxesandothergovernmentalassessmentsandcharges that are material inamount,shown or determinedto be due onsuchreturns,reportsanddeclarations,exceptthosebeingcontestedingoodfaithandhassetaside on its booksprovisions reasonablyadequatefor the payment ofall taxesforperiodssubsequent totheperiods towhichsuchreturns,reports ordeclarationsapply.Thereare nounpaidtaxesinanymaterialamountclaimedtobe due by the taxingauthority ofanyjurisdiction,andtheofficers of the Company know of nobasisfor any suchclaim.The Companyhas notexecuted awaiverwithrespect to thestatute oflimitationsrelating to theassessment or collection ofanyforeign,federal, stateorlocal tax.Noneof the Company’s taxreturns is presently beingaudited by any taxingauthority.
m. CertainTransactions.Exceptforarm’slengthtransactionspursuanttowhichtheCompanyoranyofitsSubsidiariesmakespaymentsintheordinarycourseofbusinessupontermsnolessfavorablethantheCompanyorany ofitsSubsidiariescouldobtain fromthirdpartiesandotherthan thegrant ofstock options disclosed on Schedule3(c), noneof theofficers,directors, oremployeesof the Company is presently a party toanytransactionwiththeCompany orany of itsSubsidiaries(otherthanforservicesasemployees,officersanddirectors),includinganycontract,agreementorotherarrangementprovidingfor thefurnishing ofservices to orby, providingforrental ofreal orpersonal property toorfrom, orotherwiserequiringpaymentstoorfromanyofficer,director or suchemployeeor,totheknowledge of theCompany,anycorporation,partnership,trust orother entityinwhichanyofficer,director, oranysuchemployeehas asubstantialinterest or isan officer,director,trusteeor partner.
n. Disclosure.AllinformationrelatingtoorconcerningtheCompanyoranyofitsSubsidiariessetforthinthisAgreementandprovidedtotheBuyerpursuanttoSection2(d)hereofandotherwiseinconnectionwiththetransactionscontemplated hereby istrueandcorrect inallmaterialrespectsandtheCompanyhas notomitted tostate anymaterialfact necessary in order tomake the statementsmadehereinortherein, inlight of thecircumstancesunderwhich theywere made, notmisleading.Noevent orcircumstancehasoccurred or existswithrespect to theCompany orany of itsSubsidiaries or its ortheirbusiness,properties,prospects,operations orfinancialconditions,which,underapplicable law, rule orregulation,requirespublicdisclosureorannouncement by the Company butwhich has notbeen so publiclyannounced ordisclosed(assumingfor thispurposethat theCompany’sreportsfiled under the 1934Act are beingincorporated intoaneffective registrationstatementfiled by theCompany underthe1933Act).
o. AcknowledgmentRegardingBuyer’PurchaseofSecurities.TheCompanyacknowledgesandagreesthattheBuyerisactingsolelyinthecapacityofarm’slengthpurchaserswithrespecttothisAgreementandthetransactionscontemplatedhereby.The Companyfurtheracknowledgesthat theBuyer is notactingas afinancialadvisor or fiduciary of the Company(or in anysimilarcapacity)withrespect to thisAgreementand thetransactionscontemplated herebyand anystatement made by theBuyer or anyof itsrespective representativesoragentsinconnectionwiththisAgreementand thetransactionscontemplated hereby is notadvice or arecommendationand is merelyincidental to theBuyer’purchase of theSecurities.The Companyfurtherrepresents to theBuyerthat theCompany’s decision toenter into thisAgreementhas been based solelyon theindependentevaluation oftheCompanyand itsrepresentatives.
p. NoIntegratedOffering.NeithertheCompany,noranyofitsaffiliates,noranypersonactingonitsortheirbehalf,hasdirectlyorindirectlymadeanyoffersorsalesinany security orsolicitedanyofferstobuyany security undercircumstancesthatwouldrequireregistrationunderthe1933ActoftheissuanceoftheSecuritiestotheBuyer.The issuance of theSecurities totheBuyerwill not beintegratedwithanyotherissuance of theCompany’ssecurities(past,current orfuture)forpurposesof any shareholderapprovalprovisionsapplicableto theCompany oritssecurities.
q. NoBrokers.TheCompanyhastakennoactionwhichwouldgiverisetoanyclaimbyanypersonforbrokeragecommissions,transactionfeesorsimilarpaymentsrelatingto thisAgreementorthetransactionscontemplatedhereby.
r. Permits;Compliance.TheCompanyandeachofitsSubsidiariesisinpossessionofallfranchises,grants,authorizations,licenses,permits,easements,variances,exemptions,consents,certificates,approvalsandordersnecessarytoown,leaseandoperate itspropertiesand to carry on itsbusinessas it is now beingconducted(collectively, the “CompanyPermits”),and there is noaction pendingor, to the knowledgeof theCompany, threatenedregarding suspension orcancellation ofany of the CompanyPermits.Neither theCompany norany of itsSubsidiariesis inconflictwith, or indefault orviolationof, anyof the Company Permits,exceptforanysuchconflicts,defaults orviolationswhich, individually or in theaggregate,would not reasonably beexpected tohave aMaterialAdverseEffect.SinceMarch 31, 2014,neitherthe Company noranyofitsSubsidiarieshasreceivedanynotificationwithrespect to possibleconflicts,defaults orviolations ofapplicablelaws,exceptfornoticesrelatingtopossibleconflicts,defaultsorviolations,whichconflicts,defaults or violations would nothavea MaterialAdverseEffect.
(i) Thereare,totheCompany’sknowledge,withrespecttotheCompanyoranyofitsSubsidiariesoranypredecessoroftheCompany,nopastorpresentviolationsofEnvironmentalLaws(asdefinedbelow),releasesof anymaterialintothe
environment,actions,activities,circumstances,conditions,events,incidents,orcontractualobligationswhichmaygiverisetoanycommonlawenvironmentalliabilityoranyliabilityundertheComprehensiveEnvironmentalResponse,CompensationandLiabilityActof1980 orsimilarfederal, state,local orforeignlawsand neitherthe Company norany of itsSubsidiarieshasreceivedanynoticewithrespecttoanyoftheforegoing,norisanyactionpendingor, to theCompany’sknowledge,threatened inconnectionwithany of theforegoing.Theterm“Environmental Laws”meansallfederal,state,local orforeignlawsrelatingto pollution orprotection ofhuman health or theenvironment(including,withoutlimitation,ambientair,surface water,groundwater,landsurface or subsurfacestrata),including,withoutlimitation,lawsrelating toemissions,discharges,releases orthreatenedreleases ofchemicals,pollutantscontaminants,or toxic orhazardoussubstancesorwastes(collectively,“HazardousMaterials”) intotheenvironment,orotherwiserelating tothemanufacture,processing,distribution,use,treatment,storage,disposal,transport orhandling ofHazardousMaterials,aswellasallauthorizations,codes,decrees, demands ordemandletters, injunctions,judgments,licenses,notices or noticeletters,orders, permits,plans orregulationsissued,entered,promulgatedor approvedthereunder.
(ii) Otherthanthosethatareorwerestored,usedordisposedofincompliancewithapplicablelaw,noHazardousMaterialsarecontainedonoraboutanyrealpropertycurrentlyowned,leasedorused bytheCompanyoranyof itsSubsidiaries,and noHazardousMaterialswerereleased on orabout anyreal propertypreviously owned,leased orused by the Company orany of itsSubsidiariesduring the period the propertywasowned,leasedor used by the Company oranyof itsSubsidiaries,except in the normalcourseoftheCompany’s or any ofitsSubsidiaries’ business.
(iii) Therearenoundergroundstoragetanksonorunderanyrealpropertyowned,leasedorusedbytheCompanyor anyofitsSubsidiariesthatarenotincompliance withapplicable law.
t. TitletoProperty.TheCompanyanditsSubsidiarieshavegoodandmarketabletitleinfeesimpletoallrealpropertyandgoodandmarketabletitletoallpersonalpropertyownedbythemwhichismaterialtothebusinessof the CompanyanditsSubsidiaries,ineachcasefreeandclearofallliens,encumbrancesanddefectsexceptsuchasaredescribedinSchedule3(t)orsuchaswouldnothave aMaterialAdverseEffect. Anyreal propertyandfacilitiesheldunderleaseby theCompanyanditsSubsidiariesareheldbythemundervalid, subsistingandenforceableleaseswithsuchexceptionsaswould nothave aMaterialAdverse Effect.
u. Insurance.TheCompanyandeachofitsSubsidiariesareinsuredbyinsurersofrecognizedfinancialresponsibilityagainstsuchlossesandrisksandinsuchamountsasmanagementoftheCompanybelievestobeprudentandcustomary inthebusinesses inwhichtheCompanyanditsSubsidiariesareengaged.Neitherthe Company nor anysuch Subsidiaryhasanyreason tobelieve that itwill not beable torenewits existing
insurancecoverageasandwhensuchcoverageexpiresortoobtainsimilarcoveragefromsimilarinsurersasmaybenecessarytocontinueitsbusinessatacostthatwouldnothaveaMaterialAdverseEffect.UponwrittenrequesttheCompanywillprovidetotheBuyertrueandcorrectcopiesofallpoliciesrelatingtodirectors’andofficers’liabilitycoverage,errorsand omissionscoverage,andcommercialgeneral liabilitycoverage.
v. InternalAccountingControls.TheCompanyandeachofitsSubsidiariesmaintainasystemofinternalaccountingcontrolssufficient,inthejudgmentoftheCompany’sboardofdirectors,toprovidereasonableassurancethat(i)transactionsareexecuted inaccordancewithmanagement’sgeneral orspecificauthorizations,(ii)transactionsarerecordedas necessaryto permitpreparationoffinancialstatements inconformitywith generallyacceptedaccountingprinciplesandtomaintainassetaccountability,(iii) accesstoassets ispermitted onlyinaccordancewithmanagement’sgeneral orspecificauthorizationand(iv) therecordedaccountabilityfor assets iscomparedwith the existingassetsatreasonable intervalsandappropriateaction is takenwithrespect to anydifferences.
w. ForeignCorruptPractices.NeithertheCompany,noranyofitsSubsidiaries,noranydirector,officer,agent,employeeorotherpersonactingonbehalfoftheCompany orany Subsidiary has,inthecourseofhisactionsfor,oronbehalfof,theCompany,usedanycorporatefundsfor anyunlawfulcontribution,gift,entertainmentorotherunlawful expensesrelatingtopoliticalactivity;madeanydirect orindirectunlawfulpayment toanyforeignordomesticgovernmentofficialoremployeefromcorporatefunds;violatedor isinviolationofanyprovisionoftheU.S.ForeignCorruptPracticesActof1977,asamended, ormadeany bribe,rebate,payoff,influencepayment,kickback orotherunlawfulpayment toanyforeignor domestic governmentofficial or employee.
x. Solvency.TheCompany(aftergivingeffecttothetransactionscontemplatedbythisAgreement)issolvent(i.e.,itsassetshaveafairmarketvalueinexcessoftheamountrequiredtopay itsprobableliabilitiesonitsexisting debtsasthey becomeabsoluteandmatured) and currently the Company has noinformation thatwouldlead it to reasonably conclude thatthe Companywouldnot,aftergivingeffecttothetransactioncontemplatedbythisAgreement,have the ability to,nordoesitintendtotake anyactionthatwouldimpair itsability to, pay itsdebtsfrom time to timeincurred inconnectiontherewithassuchdebtsmature.The Companydidnot receive aqualifiedopinion fromitsauditorswithrespect to its mostrecentfiscal yearend and,aftergivingeffect to thetransactionscontemplated by thisAgreement,does notanticipate or know of any basis uponwhichitsauditorsmight issuea qualified opinion inrespectofitscurrentfiscal year.
y. NoInvestmentCompany.TheCompanyisnot,andupontheissuanceandsaleoftheSecuritiesascontemplatedbythisAgreementwillnotbean“investmentcompany”required toberegisteredunder theInvestment CompanyAct of 1940(an“InvestmentCompany”).TheCompany is notcontrolledbyanInvestmentCompany.
z. BreachofRepresentationsandWarrantiesbytheCompany.IftheCompanybreachesanyoftherepresentationsorwarrantiessetforthinthisSection3,andinadditiontoanyotherremediesavailabletotheBuyerpursuanttothisAgreement,itwill beconsideredanEvent of defaultunderSection 3.4 ofthe Note.
a. BestEfforts.Thepartiesshallusetheirbesteffortstosatisfytimelyeach oftheconditionsdescribed inSection6and 7 ofthisAgreement.
b. FormD;BlueSkyLaws.TheCompanyagreestofileaFormDwithrespecttotheSecuritiesasrequiredunderRegulationDandtoprovideacopythereoftotheBuyerpromptlyaftersuchfiling.TheCompanyshall,onorbeforetheClosingDate,takesuchactionastheCompanyshallreasonablydetermineisnecessarytoqualifytheSecuritiesforsale to theBuyerat theapplicableclosing pursuant to thisAgreementunderapplicablesecuritiesor“bluesky”lawsofthestatesoftheUnitedStates(ortoobtainanexemptionfromsuchqualification),andshallprovideevidenceof anysuchactionsotakentotheBuyeronorpriorto theClosingDate.
c. UseofProceeds.TheCompanyshallusetheproceedsforgeneral workingcapital purposes.
d. RightofFirstRefusal.UnlessitshallhavefirstdeliveredtotheBuyer,atleastseventy two(72)hourspriortotheclosingofsuchFutureOffering(asdefinedherein),writtennoticedescribingtheproposedFutureOffering(“ROFRNotice”),includingthetermsandconditionsthereof,identity oftheproposedpurchaserandproposeddefinitivedocumentationtobeenteredintoinconnectiontherewith,andprovidingtheBuyeranoptionduring the seventytwo(72) hourperiodfollowing delivery ofsuchnotice topurchase thesecurities beingoffered in theFutureOffering on thesametermsascontemplated by suchFutureOffering(thelimitationsreferred to inthissentenceand the precedingsentence arecollectivelyreferredtoasthe“RightofFirstRefusal”)(andsubject totheexceptionsdescribedbelow),the Companywillnotconductanyequity (ordebtwithanequitycomponent)financing inan amountlessthan $100,000(“FutureOffering(s)”) during theperiodbeginning onthe ClosingDateandendingsix(6) monthsfollowing the ClosingDate.Notwithstanding anythingcontainedhereintothecontrary,the Companyshall notconsummateanyFutureOfferingwithan investor, or anaffiliate ofsuch investor (collectively“ProspectiveInvestor”),identifiedonanROFRNoticewhereby theBuyerexerciseditsRight ofFirstRefusalforaperiodofforty(45)daysfollowingsuchexercise;andany subsequentofferby aProspectiveInvestor issubjecttothisSection4(d)andtheRightofFirstRefusal.In theeventthetermsandconditionsof aproposedFutureOfferingare amendedinanyrespectafterdeliveryofthe noticetotheBuyerconcerningtheproposedFutureOffering,the Company shalldelivera newnoticeto theBuyerdescribing theamendedtermsandconditions of the proposedFuture Offeringand theBuyerthereafter shallhavean option
duringtheseventytwo(72)hourperiodfollowingdeliveryofsuchnewnoticetopurchaseitsproratashareofthesecuritiesbeingofferedonthesametermsascontemplatedbysuchproposedFutureOffering,asamended.TheforegoingsentenceshallapplytosuccessiveamendmentstothetermsandconditionsofanyproposedFutureOffering.TheRightofFirstRefusalshall not apply toany transaction involving(i)issuances ofsecurities in a firmcommitmentunderwritten publicoffering(excluding acontinuousofferingpursuant to Rule
415underthe1933Act)or(ii)issuancesofsecuritiesasconsiderationforamerger,consolidationorpurchaseofassets,orinconnectionwithanystrategicpartnershiporjointventure(theprimary purposeofwhichisnottoraiseequitycapital),orinconnectionwiththe dispositionoracquisitionofabusiness,productorlicensebytheCompany.TheRightofFirstRefusalalsoshallnot apply to theissuance ofsecurities uponexerciseorconversion of theCompany’s options,warrants or otherconvertiblesecuritiesoutstandingas of the datehereoforto thegrant ofadditional options or warrants, orthe issuanceofadditionalsecurities,underanyCompany stock option orrestrictedstockplanapproved bytheshareholdersof theCompany.
e. Expenses.AttheClosing,theCompanyshallreimburseBuyerforexpensesincurredbytheminconnectionwiththenegotiation,preparation,execution,deliveryandperformance of thisAgreementandtheotheragreements tobeexecutedinconnectionherewith(“Documents”),including,withoutlimitation,reasonableattorneys’andconsultants’feesandexpenses,transferagentfees,feesforstockquotationservices,feesrelating toany amendmentsormodificationsoftheDocumentsorany consentsorwaiversofprovisions in theDocuments,feesfor thepreparation of opinions ofcounsel,escrowfees,andcosts ofrestructuring thetransactionscontemplatedby theDocuments. Whenpossible, the Companymustpaythesefeesdirectly,otherwise the CompanymustmakeimmediatepaymentforreimbursementtotheBuyerforallfeesandexpensesimmediatelyuponwrittennoticeby theBuyer or the submissionofaninvoiceby theBuyer.TheCompany’sobligationwithrespect to thistransaction is toreimburse Buyer’ expensesshallbe$3,500.
f. FinancialInformation.UponwrittenrequesttheCompanyagreestosendormakeavailablethefollowingreportstotheBuyeruntiltheBuyertransfers,assigns,orsellsalloftheSecurities:(i) withinten(10)daysafterthefilingwiththeSEC,acopyofitsAnnualReport onForm10-KitsQuarterlyReports onForm 10-QandanyCurrentReports onForm 8-K;(ii) within one(1)dayafterrelease,copies ofall pressreleasesissuedby theCompanyorany ofitsSubsidiaries;and(iii)contemporaneously with themakingavailable orgiving to theshareholders of theCompany, copies of anynoticesorotherinformation the Companymakesavailableorgives tosuchshareholders.
h. Listing.TheCompanyshallpromptlysecurethelistingoftheConversionSharesuponeachnationalsecuritiesexchangeorautomatedquotationsystem,ifany,uponwhichsharesofCommonStockarethenlisted(subjecttoofficialnoticeof
issuance)and,solongastheBuyerownsanyoftheSecurities,shallmaintain,solongasanyothersharesofCommonStockshallbesolisted,suchlistingofallConversionSharesfromtimetotimeissuableuponconversionoftheNote.TheCompanywillobtainand,solongas the Buyerownsany ofthe Securities, maintain thelistingandtrading of itsCommonStock on theOTCBB oranyequivalentreplacementexchange orelectronicquotationsystem(includingbut notlimited to the PinkSheetselectronicquotationsystem)andwill complyinallrespectswith theCompany’sreporting,filingandotherobligationsunder thebylaws orrules of theFinancialIndustry Regulatory Authority(“FINRA”)andsuchexchanges, asapplicable.The Company shall promptly provide to theBuyer copies ofanynotices itreceivesfromtheOTCBBandanyotherexchangesorelectronicquotationsystemsonwhich theCommonStockisthentradedregarding thecontinuedeligibility ofthe CommonStock for listing onsuchexchangesandquotationsystems.
i. CorporateExistence.SolongastheBuyerbeneficiallyownsanyNote,theCompanyshallmaintainitscorporateexistenceandshallnotsellallorsubstantiallyalloftheCompany’sassets,except intheeventof amerger orconsolidationorsaleofallorsubstantiallyalloftheCompany’s assets,wherethesurviving orsuccessorentity insuchtransaction (i)assumes theCompany’sobligations hereunderandunder theagreementsand instrumentsentered into inconnectionherewithand(ii) is a publiclytradedcorporationwhoseCommonStockislistedfortradingonthePinkSheets,OTCQX,OTCBB,Nasdaq,NasdaqSmallCap,NYSEor AMEX.
j. NoIntegration.TheCompanyshallnotmakeanyoffersorsalesof anysecurity(otherthan theSecurities)undercircumstances thatwouldrequireregistrationoftheSecuritiesbeingofferedorsoldhereunderunderthe1933Actorcausetheoffering oftheSecuritiestobeintegratedwithany otherofferingofsecuritiesby the Companyforthepurposeof any stockholderapprovalprovisionapplicableto theCompany or itssecurities.
k. BreachofCovenants.IftheCompanybreachesanyofthecovenantssetforthinthisSection4,andinadditiontoanyotherremediesavailabletotheBuyerpursuant to thisAgreement, itwill beconsideredanevent ofdefaultunderSection 3.4 ofthe Note.
l. FailuretoComplywiththe1934Act.SolongastheBuyerbeneficiallyownstheNote,theCompanyshallcomplywiththereportingrequirementsofthe1934Act;andtheCompanyshallcontinue tobesubjecttothereportingrequirementsofthe 1934Act.
m. TradingActivities.NeithertheBuyernoritsaffiliateshasanopenshortposition in thecommonstockoftheCompanyandtheBuyeragreethat itshall not,andthatitwillcauseitsaffiliatesnotto,engageinanyshortsalesoforhedgingtransactionswithrespect to thecommonstock ofthe Company.
5. TransferAgentInstructions.TheCompany shallissueirrevocableinstructionstoitstransferagenttoissuecertificates,registeredinthenameoftheBuyeroritsnominee,fortheConversionSharesinsuchamountsasspecifiedfromtimetotimebytheBuyertotheCompany uponconversionofthe Noteinaccordancewiththetermsthereof(the“IrrevocableTransferAgentInstructions”). IntheeventthattheBorrowerproposestoreplace itstransferagent, theBorrowershall provide,prior to theeffectivedate ofsuchreplacement, a fully executedIrrevocableTransferAgentInstructions in aformas initiallydelivered pursuant to thePurchaseAgreement (includingbut notlimitedto theprovision toirrevocablyreserve shares of CommonStock in theReserved Amount)signed by thesuccessortransferagent toBorrowerand theBorrower.Priortoregistration oftheConversionSharesunder the 1933 Act or thedate onwhich theConversionShares maybe soldpursuant to Rule 144withoutanyrestrictionas to thenumber ofSecuritiesas of aparticular datethatcanthenbeimmediately sold,allsuchcertificatesshallbeartherestrictivelegendspecifiedinSection2(g) of thisAgreement.The Companywarrantsthat:(i) noinstructionotherthantheIrrevocable TransferAgentInstructionsreferred to in thisSection 5,and stoptransferinstructions togiveeffect toSection2(f)hereof(in thecaseoftheConversionShares,priortoregistrationoftheConversionSharesunderthe1933ActorthedateonwhichtheConversionSharesmaybesoldpursuanttoRule144withoutanyrestrictionastothenumberofSecuritiesas of aparticulardatethatcanthen beimmediatelysold), will begivenby the CompanytoitstransferagentandthattheSecuritiesshallotherwisebe freelytransferableon thebooksandrecords oftheCompanyasand to theextentprovided in thisAgreementand theNote;(ii) itwill notdirect itstransfer agent not totransferordelay, impair,and/orhinder itstransferagentintransferring(orissuing)(electronicallyor incertificated form)anycertificateforConversionShares to beissued to theBuyer uponconversionof orotherwise pursuant to theNoteasandwhenrequiredby theNoteand thisAgreement;and(iii) itwillnotfailtoremove(ordirects itstransferagent not toremove orimpairs,delays,and/orhinders itstransferagentfromremoving)anyrestrictivelegend(or towithdrawanystoptransferinstructions inrespectthereof) on anycertificateforanyConversionSharesissued to theBuyeruponconversion oforotherwisepursuant to theNoteasandwhenrequiredby theNoteand thisAgreement. Nothing in thisSectionshallaffect inany way theBuyer’sobligationsandagreementsetforth inSection2(g)hereof to complywithallapplicableprospectus deliveryrequirements, ifany, uponre-saleoftheSecurities.IftheBuyerprovides theCompany,at thecost of theBuyer,with(i)an opinion ofcounsel in form,substanceandscopecustomary foropinionsincomparabletransactions,totheeffectthatapublicsaleortransferofsuch Securities maybemadewithoutregistrationunderthe1933Actand suchsale ortransfer iseffected or(ii) theBuyer providesreasonableassurances that theSecuritiescan be soldpursuant toRule 144,the Companyshallpermit thetransfer,and, inthecase of theConversionShares, promptlyinstruct its transferagent to issue one ormorecertificates,freefromrestrictive legend,insuchnameand insuchdenominationsasspecifiedby theBuyer.The Companyacknowledgesthat abreach by it of itsobligationshereunderwill causeirreparable harm to theBuyer, by vitiating theintentand purposeof thetransactionscontemplatedhereby.Accordingly, theCompanyacknowledgesthat the remedyatlawfor a
breachofitsobligationsunderthisSection5maybeinadequateandagrees,intheeventofabreachorthreatenedbreachbytheCompanyoftheprovisionsofthisSection,thattheBuyershallbeentitled,inadditiontoallotheravailableremedies,toaninjunctionrestraininganybreachandrequiringimmediatetransfer, withoutthenecessity ofshowingeconomiclossandwithout any bond orothersecurity beingrequired.
6. ConditionstotheCompany’sObligationtoSell.TheobligationoftheCompanyhereundertoissueandselltheNotetotheBuyerattheClosingissubjecttothesatisfaction,atorbeforetheClosingDateofeachofthefollowingconditionsthereto,providedthat these conditionsare for theCompany’s solebenefitand maybewaived bythe Companyat any timein its sole discretion:
a. TheBuyershallhaveexecutedthisAgreementanddeliveredthe sameto theCompany.
b. TheBuyershallhavedeliveredthePurchasePriceinaccordance withSection1(b) above.
c. TherepresentationsandwarrantiesoftheBuyershallbetrueandcorrectinallmaterialrespectsasofthedatewhenmadeandasoftheClosingDateasthoughmadeatthattime(exceptforrepresentationsandwarrantiesthatspeakas ofaspecificdate),and theBuyershallhaveperformed, satisfiedandcompliedinallmaterialrespectswith thecovenants,agreementsandconditionsrequired by thisAgreement to beperformed,satisfied or complied with by theBuyer at or prior to theClosingDate.
d. Nolitigation,statute,rule,regulation,executiveorder,decree,rulingorinjunctionshallhavebeenenacted,entered,promulgatedorendorsedbyorinanycourtorgovernmentalauthorityofcompetentjurisdictionor anyself-regulatoryorganizationhavingauthorityoverthematterscontemplatedherebywhichprohibits theconsummationof anyofthe transactionscontemplatedby thisAgreement.
7. ConditionstoTheBuyer’sObligationtoPurchase.TheobligationoftheBuyerhereundertopurchasetheNoteattheClosingissubjecttothesatisfaction,atorbeforetheClosingDateof each ofthefollowingconditions,providedthatthese conditionsareforthe Buyer’s sole benefitand maybe waivedbythe Buyer atanytimeinits sole discretion:
a. TheCompanyshallhaveexecutedthisAgreementanddelivered thesameto theBuyer.
b. TheCompanyshallhavedeliveredtotheBuyerthedulyexecutedNote(insuchdenominationsastheBuyershallrequest)inaccordancewithSection1(b) above.
c. TheIrrevocableTransferAgentInstructions,informandsubstancesatisfactorytoamajority-in-interestoftheBuyer,shallhavebeendeliveredtoandacknowledged inwritingbythe Company’s Transfer Agent.
d. The representationsandwarranties oftheCompanyshall betrueandcorrectinallmaterialrespectsasofthedatewhenmadeandasoftheClosingDateasthoughmadeatsuch time (exceptforrepresentationsandwarrantiesthat speakasofa specificdate)andtheCompanyshallhaveperformed,satisfiedandcompliedinallmaterialrespects withthecovenants,agreementsandconditionsrequiredbythisAgreement tobeperformed,satisfiedorcompliedwithby the Companyat orpriortothe ClosingDate.TheBuyershallhavereceived acertificate orcertificates, executedby thechief executiveofficerof theCompany,datedasoftheClosingDate,to theforegoingeffectandastosuchothermattersas may be reasonably requestedby theBuyerincluding, but notlimitedtocertificateswithrespect to theCompany’sCertificateofIncorporation,By-lawsandBoard ofDirectors’resolutionsrelating to thetransactionscontemplatedhereby.
e. Nolitigation,statute,rule,regulation,executiveorder,decree,rulingorinjunctionshallhavebeenenacted,entered,promulgatedorendorsedbyorinanycourtorgovernmentalauthorityofcompetentjurisdictionor anyself-regulatoryorganizationhavingauthorityoverthematterscontemplatedherebywhichprohibits theconsummationof anyofthe transactionscontemplatedby thisAgreement.
f. NoeventshallhaveoccurredwhichcouldreasonablybeexpectedtohaveaMaterialAdverseEffectontheCompanyincludingbutnotlimitedtoachangeinthe1934Actreportingstatusofthe Companyorthefailure oftheCompany tobe timely in its 1934Actreportingobligations.
g. TheConversionSharesshallhavebeenauthorizedforquotationon theOTCBBand tradingin theCommonStock on theOTCBBshall nothavebeensuspendedbythe SEC orthe OTCBB.
h. TheBuyershallhavereceivedanofficer’scertificatedescribedinSection3(c)above, datedas oftheClosingDate.
| 8. | GoverningLaw;Miscellaneous. |
a. GoverningLaw.ThisAgreementshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkwithoutregardtoprinciplesofconflictsoflaws.Anyactionbroughtby eitherpartyagainsttheotherconcerning thetransactionscontemplated by thisAgreement shall bebrought only in the statecourts ofNewYork or in thefederalcourtslocated in thestateand county ofNassau.Theparties tothisAgreement hereby irrevocablywaive any objection tojurisdictionandvenue of anyaction
institutedhereunderandshallnotassertanydefensebasedonlackofjurisdictionorvenueorbaseduponforumnonconveniens.TheCompanyandBuyerwaivetrialbyjury.Theprevailingpartyshallbeentitledtorecoverfromtheother partyitsreasonableattorney'sfeesandcosts.In theevent thatany provision ofthisAgreement orany otheragreementdelivered inconnectionherewithisinvalidorunenforceableunderanyapplicable statute orrule oflaw,thensuchprovisionshall bedeemedinoperative to theextentthat it mayconflicttherewithandshall bedeemedmodified toconformwithsuchstatute orrule oflaw. Anysuchprovisionwhich mayproveinvalid orunenforceable underanylaw shall notaffect the validityorenforceabilityofanyotherprovisionofanyagreement.Eachpartyherebyirrevocablywaives personalservice ofprocess andconsents toprocess beingserved inany suit,actionorproceedinginconnectionwiththisAgreementoranyotherTransactionDocumentbymailing a copythereof viaregistered orcertifiedmail orovernight delivery(withevidence ofdelivery) tosuchpartyat theaddress ineffectfornotices to itunder thisAgreementandagreesthatsuchservice shall constitutegoodandsufficientservice ofprocessandnoticethereof.Nothingcontainedhereinshall bedeemedtolimit inany wayanyright toserve process inany other manner permittedby law.
b. Counterparts.ThisAgreementmaybeexecutedinoneormorecounterparts,eachofwhichshallbedeemedanoriginalbutallofwhichshallconstituteoneandthesameagreementandshall becomeeffectivewhencounterparts have beensignedbyeachpartyanddeliveredto the other party.
c. Headings.TheheadingsofthisAgreementareforconvenienceof referenceonlyand shall notformpartof, or affect the interpretationof, thisAgreement.
d. Severability.IntheeventthatanyprovisionofthisAgreementisinvalidorunenforceableunderanyapplicablestatuteorruleoflaw,thensuchprovisionshallbedeemedinoperative tothe extentthat it mayconflicttherewithandshallbedeemedmodified toconform withsuchstatute orruleof law.Any provision hereofwhichmay proveinvalidorunenforceableunder anylawshallnotaffectthe validity or enforceability ofanyother provisionhereof.
e. EntireAgreement;Amendments.ThisAgreementandtheinstrumentsreferencedhereincontaintheentireunderstandingofthepartieswithrespecttothematterscoveredhereinandthereinand,exceptasspecificallysetforthhereinortherein,neithertheCompanynortheBuyermakesanyrepresentation,warranty,covenantorundertakingwithrespect tosuchmatters. Noprovisionof thisAgreement maybewaivedoramendedotherthanbyaninstrument inwritingsignedby the majority ininterest of theBuyer.
f. Notices.Allnotices,demands,requests,consents,approvals,andothercommunicationsrequiredorpermittedhereundershallbeinwritingand,unless
otherwisespecifiedherein,shallbe(i)personallyserved,(ii)depositedinthemail,registeredorcertified,returnreceiptrequested,postageprepaid,(iii)deliveredbyreputableaircourierservicewithchargesprepaid,or(iv)transmittedbyhanddelivery,telegram,orfacsimile,addressedasset forth below or tosuchotheraddressassuch partyshall havespecified most recentlybywrittennotice. Anynotice or othercommunicationrequired orpermitted to begiven hereundershall bedeemedeffective (a) uponhand deliveryor deliverybyfacsimile,withaccurateconfirmationgeneratedby thetransmittingfacsimilemachine,attheaddressornumberdesignatedbelow(ifdeliveredonabusinessdayduringnormalbusinesshourswheresuchnotice is tobereceived), orthefirstbusiness day followingsuch delivery(ifdeliveredotherthanonabusinessday during normalbusinesshourswheresuchnotice isto bereceived)or(b)onthe secondbusiness dayfollowing thedate ofmailingbyexpresscourierservice, fullyprepaid,addressed tosuchaddress, or uponactual receipt ofsuchmailing,whichevershallfirstoccur.The addresses forsuchcommunicationsshallbe:
Ifto the Company, to:
MAX SOUND CORPORATION
2902A ColoradoAvenueSanta Monica, CA90404
Attn:GREG HALPERN,Chief FinancialOfficerfacsimile:[enter faxnumber]
With acopybyfaxonlyto(which copyshall not constitute notice):[enter nameof lawfirm]
Attn: [attorneyname][enter address line1][enter city,state, zip]
facsimile:[enter faxnumber]
Ifto the Buyer:
KBMWORLDWIDE,INC.
80CuttermillRoad –Suite410GreatNeck, NY11021
Attn:SethKramer,Presidente-mail:info@kwbmlaw.com
With acopybyfaxonlyto(which copyshall not constitute notice):NaidichWurman Birnbaum &MadayLLP
Att:JudahA.Eisner, Esq.Attn:Bernard S.Feldman,Esq.facsimile:516-466-3555
e-mail:dyork@nwbmlaw.com
Each partyshallprovidenoticeto the otherpartyofanychangeinaddress.
g. SuccessorsandAssigns.ThisAgreementshallbebindinguponandinuretothebenefitofthepartiesandtheirsuccessorsandassigns.NeithertheCompanynortheBuyershallassignthisAgreement oranyrights orobligationshereunderwithout thepriorwrittenconsentoftheother.Notwithstandingtheforegoing,subjecttoSection2(f),theBuyermayassign itsrights hereunder toany personthat purchasesSecurities in a privatetransactionfromtheBuyeror toany of its“affiliates,”asthattermisdefinedunderthe 1934Act,without the consentofthe Company.
h. ThirdPartyBeneficiaries.ThisAgreementisintendedforthebenefitofthepartiesheretoandtheirrespectivepermittedsuccessorsandassigns,andisnotforthe benefitof, normayanyprovisionhereofbeenforcedby,anyotherperson.
i. Survival.TherepresentationsandwarrantiesoftheCompanyand theagreementsandcovenantssetforth in thisAgreementshallsurvivetheclosinghereundernotwithstandinganyduediligenceinvestigationconductedbyoronbehalfoftheBuyer. The Companyagrees to indemnifyand holdharmless theBuyer andalltheirofficers,directors,employeesandagents forloss ordamagearisingas aresult oforrelated toanybreach oralleged breachby theCompanyof any ofitsrepresentations,warrantiesandcovenantssetforth in thisAgreement oranyof itscovenantsandobligationsunder thisAgreement, includingadvancement ofexpenses as they are incurred.
j. Publicity.TheCompany,andtheBuyershallhavetherighttoreviewareasonableperiodoftimebeforeissuanceofanypressreleases,SEC,OTCBBorFINRAfilings,oranyotherpublicstatementswithrespecttothetransactionscontemplatedhereby;provided,however,that theCompany shall beentitled,without thepriorapprovalof theBuyer, tomakeanypressrelease orSEC,OTCBB(orotherapplicabletradingmarket) orFINRAfilingswithrespecttosuchtransactionsasisrequiredbyapplicablelawandregulations(although theBuyershall beconsultedby the Company inconnectionwithanysuchpressrelease prior to itsreleaseandshall beprovidedwith a copythereofand begivenan opportunity to commentthereon).
k. FurtherAssurances.Eachpartyshalldoandperform,orcausetobedoneandperformed,allsuchfurtheractsandthings,andshallexecuteanddeliverallsuchotheragreements,certificates,instrumentsanddocuments,astheotherpartymayreasonablyrequest inorder tocarry out the intentandaccomplish thepurposes ofthisAgreementand theconsummation ofthe transactionscontemplated hereby.
l. NoStrictConstruction.ThelanguageusedinthisAgreementwillbedeemedtobethelanguagechosenby thepartiestoexpresstheirmutualintent,andnorules of strictconstructionwill be appliedagainstanyparty.
m. Remedies.TheCompanyacknowledgesthatabreachbyitofitsobligationshereunderwillcauseirreparableharmtotheBuyerbyvitiatingtheintentandpurpose of the transactioncontemplatedhereby.Accordingly, the Companyacknowledgesthat theremedyatlaw for abreach of itsobligationsunder thisAgreementwill beinadequateandagrees, in theevent of a breach orthreatenedbreachby the Companyof theprovisions of thisAgreement,thattheBuyershallbeentitled,inadditiontoall otheravailableremediesatlaw or inequity,and inaddition to thepenaltiesassessableherein, toaninjunction orinjunctionsrestraining,preventing or curing anybreach of thisAgreementand toenforce specifically the termsandprovisionshereof,withoutthe necessity of showing economic lossandwithout any bond orothersecurity beingrequired.
INWITNESSWHEREOF,theundersignedBuyerandtheCompanyhavecausedthisAgreement to bedulyexecutedasofthe datefirstabove written.
MAX SOUND CORPORATION
Chief FinancialOfficer
KBM WORLDWIDE,INC.
By:Name:SethKramer
Title:President
80CuttermillRoad –Suite410GreatNeck, NY11021
AGGREGATE SUBSCRIPTION AMOUNT:
| Aggregate Principal Amount of Note: | $253,500.00 |
| Aggregate Purchase Price: | $253,500.00 |
Tranche #2 - K-1227 MAXD August 1, 2014 greg@maxsound.com paul@maxsound.com | |
