SECURITY PURCHASE AGREEMENT
THIS SECURITYPURCHASEAGREEMENT (the “Agreement”),datedasofAugust 21,2014,isenteredintobyandamongMax Sound Corporation,aDelawarecorporation(the“Company”),andJDFCapital,Inc.(the “Purchaser”). The Company and the Purchaser are sometimes referred to herein as a “party” and collectively as the “parties”.
W I T N E S S E T H:
WHEREAS,theCompanyandthePurchaserareexecutinganddeliveringthis Agreementinaccordancewithandinrelianceupontheexemptionfromsecuritiesregistration foroffersandsalestoaccreditedinvestorsafforded,interalia,by Rule506underRegulation D (“Regulation D”)aspromulgatedby theUnitedStatesSecuritiesandExchangeCommission(the“SEC”) under theSecurities Act of 1933,asamended (the“1933 Act”),and/orSection 4(a)(2) of the 1933Act;and
WHEREAS,the Purchaser wishestopurchasea8%OriginalIssueDiscount (“OID”)ConvertiblePromissory NoteoftheCompany (the“Note”),intheoriginalprincipalamountof $111,000, subjecttoand uponthetermsandconditionsofthisAgreementandacceptanceof thisAgreementbythe Company,on the termsandconditions referred to herein.
NOWTHEREFORE,inconsiderationof the premisesandthe mutualcovenantscontainedhereinandothergoodandvaluableconsideration,thereceiptandsufficiency ofwhichareherebyacknowledged, the partiesagreeas follows:
1. AGREEMENTTOPURCHASE;PURCHASEPRICE.
a.Purchase.
(i)Subjecttothe terms andconditionsof thisAgreement and the Note(collectively the “TransactionDocuments”),thePurchaser herebyagreestopurchaseaNoteintheaggregate principalamount of$111,000(the“PurchaseAmount”),whichNoteshallbefundedand issuable by August ___, 2014 or at such later date mutually agreed upon the by parties (the “Closing Date”).
(ii) TheNotereferredtohereinshallbeintheformofAnnexIto this Agreement.
(iii) The purchase of the Note bythePurchaserand theothertransactionscontemplatedherebyaresometimesreferred tohereinand in the otherTransactionDocumentsasthe purchaseandsaleof theSecurities(asdefinedbelow),andare referred to collectivelyas the“Transactions”.
(iv) ThePurchaser shall deliver thePurchase Amount tocounselfor the Purchaser,which Purchase Amountshallbe heldinescrowuntilauthorizedfor release tothe CompanybywritteninstructionofthePurchaser.ThePurchaseAmountshallbepromptly returned tothePurchaserif notauthorized for releasebythe PurchaserbytheClosingDate.
b. Certain Definitions.Asusedherein,eachofthefollowingtermshasthe meaningset forth below,unless thecontext otherwiserequires:
“Affiliate” means,withrespecttoa specificPerson referredtointherelevant provision,anotherPersonwhoorwhichcontrolsoriscontrolledby orisundercommoncontrol with such specifiedPerson.
“ClosingDate”means thedate oftheclosingofthe issuanceofNote.
“Common Stock” means the Company’s common stock, $0.0001 par value.
“CommonStockEquivalents”meansany securitiesoftheCompany ortheSubsidiarieswhichwouldentitletheholderthereoftoacquireatanytimeCommonStock, includingwithoutlimitation,anydebt,preferredstock,rights,options,warrantsorother instrumentthatisatanytimeconvertibleintoorexchangeablefor,orotherwiseentitlesthe holderthereof toreceive,CommonStock.
“CompanyControlPerson”meanseachdirector,executiveofficer,promoter,and suchotherPersonsasmaybedeemedincontroloftheCompanypursuanttoRule405underthe 1933 Act or Section 20of theExchange Act(as defined below).
“ExchangeAct”meanstheSecurities ExchangeAct of 1934,as amended.
“Holder”means thePerson holdingtherelevantSecuritiesattherelevanttime.
“Last AuditedDate”means December31, 2013.
“Market Value” meansthelowestdaily volume weighted average price (VWAP)oftheCommonStockforthe10trading daysimmediately prior tothe date of this Agreement; provided, however, that the Market Value of the Pledged Securities shall be reviewed every 90 days (each an “Adjustment Date”) by the Company and the Purchaser and an appropriate adjustment to the number of Pledged Securities shall be made based upon theMarket Value, which shall be computed as the VWAP of the Common Stock for the 10 trading days immediately prior to the Adjustment Date.
“MaterialAdverse Effect”meansaneventorcombinationofevents,which individuallyorintheaggregate,wouldreasonablybeexpectedto(w)adverselyaffectthe legality,validityorenforceabilityof theSecuritiesoranyof theTransactionDocuments,(x) have or resultina materialadverseeffectonthe resultsof operations,assets,prospects,orcondition (financialorotherwise) of theCompanyanditssubsidiaries, takenasa whole,(y)adversely impair theCompany’sability toperformfully on atimely basisits obligationsunderany oftheTransactionDocumentsortheTransactionscontemplatedthereby, or(z)materiallyandadverselyaffectthevalueof the rightsgranted tothePurchaser in theTransaction Documents.
“Person”meansanylivingpersonoranyentity,suchas,butnotnecessarily limited to, a corporation, partnership or trust.
“Pledged Shares” means shares of the Company’s Common Stock having a Market Value equal to 150% of the principal amount of the Note on the Closing Date and, as appropriate, each Adjustment Date.
“PrincipalTradingMarket”meanstheOvertheCounterBulletinBoard, the OTC Marketsorsuch othermarket on which the CommonStock is principallytradedattherelevanttime.
“Purchaser Control Person” meanseachdirector,executive officer, promoter,and suchotherPersonsasmaybedeemedincontrolofthePurchaserpursuanttoRule405underthe 1933 Act or Section 20of theExchange Act.
“Securities”meanstheNoteandany sharesofCommonStockoftheCompany thatmaybeissuedtothePurchaserinconnectionwith the conversion of the principal amount and interest accrued thereon andany otheragreements between theparties.
“Shares” means the sharesof Common Stockrepresentinganyorallof theCommon Stock underlyingtheNote.
“StateofIncorporation”means Delaware.
“Subsidiary”means anysubsidiaryof theCompany.
“Trading Day”meansany dayduring whichthePrincipalTrading Marketshallbe open forbusiness.
“TransferAgent” means,atany time, the transferagentfor the Company’s CommonStock.
“TransactionDocuments”meansthisPurchaseAgreement andtheNoteand includesallancillarydocumentsreferred toin thoseagreements, including the Transfer Agent Instruction.
c.FormofPayment;Delivery of Note.
(i) ThePurchasershallpaythePurchaseAmount bydeliveringimmediatelyavailablegoodfunds inUnited StatesDollars to the Companyon theapplicable ClosingDate.
(ii) OntheapplicableClosingDate,theCompanyshalldelivertheNote,dulyexecuted onbehalf ofthe Company,tothePurchaser.
(iii) On the applicable Closing Date, the Company shall deliver to the Transfer Agent an irrevocable instruction reserving the Pledged Securities (the “Transfer Agent Instruction”), in the form attached hereto asAnnex II, a copy of which will be provided to the Purchaser along with a confirmation from the Transfer Agent of its receipt of and compliance with the Transfer Agent Instruction.
(iv)Bysigning thisAgreement,eachofthePurchaserandtheCompanyagrees toallofthetermsandconditionsoftheTransactionDocuments,alloftheprovisionsofwhichareincorporatedherein bythis referenceas if setforthin full.
d.MethodofPayment.PaymentofthePurchaseAmountshallbemadeby wiretransfer offunds to:
Account Name: Max Sound Corporation
Account Address: 10685 B Hazelhurst Drive Houston, TX 77043
ABA Routing Number: 026009593
Account Number: 2351376568
Bank Name: Bank Of America Bank
Address: 3535 Del Mar Heights Road San Diego, CA 92130
Telephone: 858-794-3440
2.PURCHASERREPRESENTATIONS,WARRANTIES,ETC.;ACCESS TO
INFORMATION;INDEPENDENT INVESTIGATION.
ThePurchaserrepresentsandwarrantsto,andcovenantsandagreeswith,the Companyasfollows:
a.WithoutlimitingPurchaser’srighttoselltheSecuritiespursuanttoaneffectiveregistrationstatementorotherwiseincompliance withthe 1933Act,thePurchaseris purchasingtheSecuritiesforitsownaccountforinvestmentonlyand notwithaviewtowards thepublicsaleordistributionthereofandnotwithaviewto orforsaleinconnectionwithany distribution thereof.
b.ThePurchaseris(i)an“accreditedinvestor”asthattermisdefinedin Rule501oftheGeneralRulesandRegulationsunderthe1933ActbyreasonofRule501(a)(3), (ii)experiencedinmaking investmentsofthekinddescribedinthis Agreementandthe otherTransaction Documents,(iii)able, by reasonofthebusinessandfinancialexperienceofitsofficers(ifanentity)andprofessionaladvisors(whoarenotaffiliatedwithorcompensatedinany wayby the Company oranyofitsAffiliatesorsellingagents), toprotectitsowninterestsinconnectionwith the TransactionsdescribedinthisAgreement,andtherelateddocuments,andtoevaluate the meritsandrisksofaninvestmentinthe Securities,and(iv)abletoaffordtheentire loss ofits investmentin the Securities.
c. AllsubsequentoffersandsalesoftheSecuritiesby thePurchasershallbe made pursuanttoregistrationoftherelevantSecuritiesunderthe1933Actorpursuanttoanexemption from registration.
d.The PurchaserunderstandsthattheSecuritiesarebeing offeredandsoldto itinreliance onspecificexemptionsfromthe registrationrequirementsof the 1933Actandstate securitieslawsandthattheCompany isrelyinguponthetruthandaccuracyof,andthePurchaser’scompliance with,therepresentations,warranties, agreements,acknowledgmentsand understandingsofthePurchasersetforthherein inordertodeterminetheavailability ofsuchexemptions and the eligibility of thePurchaser toacquirethe Securities.
e.ThePurchaseranditsadvisors,ifany,havebeenfurnishedwithorhave beengivenaccesstoallmaterialsrelating to thebusiness,financesandoperationsofthe Companyandmaterialsrelatingtothe offerandsaleoftheSecuritieswhich havebeenrequestedbythePurchaser,includingthosesetforth onanyannexattachedhereto.ThePurchaseranditsadvisors,ifany,havebeenaffordedtheopportunitytoask questions oftheCompanyandits managementandhave receivedcompleteand satisfactoryanswerstoany suchinquiries.Withoutlimitingthegeneralityofthe foregoing, thePurchaserhasalsohadtheopportunity to obtainandto review theCompany’sfilingsonEDGAR (collectively,the“Company’sSEC Documents”).
f.ThePurchaserunderstandsthatitsinvestmentintheSecuritiesinvolvesa high degreeofrisk.
g.ThePurchaserherebyrepresentsthat,inconnectionwithitspurchaseof theSecurities,ithasnotreliedonanystatementorrepresentationbytheCompanyoranyofits officers, directorsandemployeesorany oftheir respectiveattorneys oragents,exceptas specifically setforth herein.
h.ThePurchaserunderstandsthatnoUnitedStatesfederalorstateagencyoranyothergovernmentorgovernmentalagencyhaspassedonormadeanyrecommendationorendorsement ofthe Securities.
i.This Agreementandthe other TransactionDocumentsto which thePurchaserisaparty,andtheTransactionscontemplatedthereby,havebeendulyandvalidlyauthorized,executedanddeliveredon behalfofthe Purchaserandare validandbindingagreements of thePurchaserenforceable in accordancewiththeirrespective terms,subjectastoenforceabilitytogeneralprinciplesofequityandtobankruptcy,insolvency,moratoriumand othersimilar lawsaffectingtheenforcement ofcreditors’ rightsgenerally.
3. COMPANYREPRESENTATIONS AND WARRANTIES.TheCompanyrepresentsand warrantsto the Purchaserasof thedatehereofandas of theClosing Date.
a. RightsofOthersAffectingtheTransactions.Therearenopreemptive rightsofanyshareholderoftheCompany,assuch,toacquiretheNote, orany sharesofthe Company’sCommonStockthatmaybeissuedto thePurchaser inconnectionwithany otheragreements between the parties, in theevent such sharesare issued.
b.Status. TheCompanyisacorporationdulyorganized,validlyexistingandingoodstanding underthelawsoftheStateofDelawareandhastherequisitecorporatepower toownitspropertiesandtocarry onitsbusinessasnowbeingconducted.TheCompany isduly qualifiedas a foreigncorporationtodo businessandisin goodstandingineachjurisdiction where thenature ofthebusinessconductedorpropertyownedby it makes suchqualification necessary,otherthanthose jurisdictionsinwhichthefailuretosoqualifywouldnothaveor resultinaMaterialAdverseEffect.TheCompanyhasregistereditsstockandisobligatedtofile reports pursuant toSection 12 orSection 15(d) of the Exchange Act,asamended.The CommonStock is, or immediately following the ClosingDate will be, quoted on thePrincipal Trading Market. The Company hasreceived no notice,either oralorwritten,with respecttothecontinuedeligibility oftheCommonStockforsuchquotation on thePrincipal Trading Market,and the Companyhas maintainedallrequirements on its part forthecontinuation ofsuch quotation.
c. Authorized Shares.
(i) Theauthorizedcapital stock oftheCompanyconsists of 400,000,000 shares of CommonStock, $0.0001 par value and 10,000,000 shares of preferred stock, $0.0001 par value.
(ii) TheCompanyhassufficientauthorizedandunissuedsharesofCommonStockas maybenecessaryfor the Purchaser to convert the principal amount of the Note and all interest accrued thereon and any other costs or fees that may be paid with the Company’s Common Stock pursuant to the terms of the Note.
d. Transaction Documents and Stock. ThisAgreementandeachofthe otherTransactionDocuments,andtheTransactionscontemplatedthereby,havebeendulyand validlyauthorizedby theCompany,thisAgreementhasbeendulyexecutedanddelivered by the CompanyandthisAgreement is,and theNoteandeach of the otherTransaction Documents, whenexecutedanddelivered by theCompany,willbe,validandbindingagreementsofthe Companyenforceableinaccordancewith theirrespectiveterms, subjectastoenforceability togeneral principles ofequityand to bankruptcy, insolvency, moratorium,and other similar lawsaffectingthe enforcement ofcreditors’rightsgenerally.
e. Non-contravention. TheexecutionanddeliveryofthisAgreementandeachoftheotherTransactionDocuments bytheCompany,theissuanceoftheSecurities,andtheconsummationbytheCompany ofthe otherTransactionscontemplated by this Agreement, theNote andtheotherTransactionDocuments donotandwillnotconflictwithor resultina breachby theCompanyofany oftheterms orprovisions of,orconstituteadefault under(i)thecertificateof incorporation orby-laws of theCompany,eachascurrently ineffect, (ii)any indenture,mortgage,deedoftrust,orothermaterial agreementorinstrumenttowhichthe Company isa partyorby whichitorany ofitspropertiesorassetsarebound,includingany listingagreementfortheCommonStockexceptashereinsetforth,or(iii) toitsknowledge,anyexistingapplicablelaw,rule,orregulationoranyapplicabledecree,judgment,ororderofanycourt, UnitedStates federal or state regulatory body,administrativeagency, or othergovernmental bodyhaving jurisdiction over the Company orany of its properties orassets,exceptsuchconflict, breachordefaultwhichwouldnothave orresultina MaterialAdverse Effect.
f. Approvals. Noauthorization,approvalorconsentofanycourt,governmentalbody,regulatoryagency, self-regulatoryorganization,orstockexchangeormarket ortheshareholdersoftheCompanyisrequiredtobeobtainedbytheCompany fortheissuanceand sale of theSecurities to thePurchaserascontemplatedby thisAgreement,except suchauthorizations,approvals andconsentsthat havebeen obtained.
g.Filings.NoneoftheCompany’sSECDocumentscontained,atthetime they werefiled,any untruestatementofamaterialfactoromittedtostateany materialfact required to be stated therein ornecessary tomake the statements made therein in light of thecircumstances underwhichtheyweremade, notmisleading.
h. AbsenceofCertainChanges.SincetheLastAuditedDate,therehas beennomaterialadversechangeandnoMaterialAdverseEffect,exceptasdisclosed inthe Company’sSECDocuments.Since theLastAudited Date,exceptasprovidedinthe Company’sSECDocuments,theCompanyhasnot(i)incurredorbecomesubjecttoanymaterialliabilities (absoluteorcontingent)exceptliabilitiesincurredintheordinarycourseofbusinessconsistent withpastpractices;(ii)dischargedorsatisfiedany material lienorencumbranceorpaidany material obligation or liability (absolute orcontingent), other thancurrent liabilitiespaid inthe ordinarycourseofbusinessconsistentwithpast practices; (iii)declaredormadeany paymentor distributionofcash or other property to shareholders withrespectto itscapital stock,or purchased or redeemed, ormadeanyagreements topurchaseor redeem,any sharesofitscapital stock;(iv)sold,assigned ortransferredany othertangibleassets,orcanceledany debtsowedto theCompanybyany thirdpartyorclaimsofthe Companyagainstany thirdparty,exceptinthe ordinarycourse of businessconsistent with past practices; (v) waivedanyrights of material value, whether or not in the ordinarycourse ofbusiness, or suffered theloss ofany materialamountofexistingbusiness;(vi)madeany increasesinemployeecompensation,exceptinthe ordinarycourseofbusinessconsistentwithpastpractices;or(vii)experiencedany material problemswithlabor or managementinconnectionwiththe termsandconditions of theiremployment.
i.FullDisclosure. TothebestoftheCompany’sknowledge,thereisno factknowntotheCompany (otherthangeneraleconomicconditionsknowntothepublicgenerallyorasdisclosedintheCompany’sSECDocuments)thathasnotbeen disclosedin writing to thePurchaser that would reasonably beexpected to have or result in a Material AdverseEffect.
j. AbsenceofLitigation. Thereisnoaction,suit,proceeding,inquiryor investigationbeforeorbyanycourt,publicboardorbodypending or,totheknowledgeofthe Company,threatenedagainstoraffectingtheCompany beforeorbyanygovernmentalauthority or nongovernmental department,commission, board, bureau,agencyorinstrumentality orany otherperson,whereinanunfavorabledecision,ruling orfinding wouldhaveaMaterialAdverse Effectorwhichwouldadverselyaffectthevalidity orenforceability of, ortheauthority orability oftheCompany toperformitsobligationsunder,any oftheTransactionDocuments. The Companyis notawareofanyvalid basis foranysuchclaim that (eitherindividuallyorin theaggregatewithallothersucheventsandcircumstances)couldreasonably beexpectedtohavea MaterialAdverseEffect.Therearenooutstanding orunsatisfiedjudgments,orders,decrees, writs,injunctionsorstipulationstowhichtheCompany isaparty orbywhichitorany ofits properties isbound,thatinvolve the transactioncontemplatedherein orthat,alone or intheaggregate,couldreasonablybeexpectto haveaMaterial AdverseEffect.
k. AbsenceofEventsofDefault. Exceptassetforthinthe Company’s SEC Documents,(i)neitherthe Companynoranyofitssubsidiaries isindefaultintheperformanceor observance ofanymaterial obligation,agreement,covenant orconditioncontained inany materialindenture, mortgage,deedoftrustorother materialagreementtowhichitis aparty orbywhichitspropertyisbound,and(ii)noEventofDefault(oritsequivalentterm),asdefinedin the respectiveagreementtowhich the Companyor its Subsidiary isaparty,and noevent which, with thegiving of notice or thepassage oftimeor both, wouldbecomeanEvent ofDefault (or itsequivalentterm) (assodefined insuchagreement), hasoccurredand iscontinuing, which would haveaMaterialAdverseEffect.
l. NoUndisclosedLiabilitiesorEvents.Tothe bestoftheCompany’s knowledge,theCompany hasnoliabilitiesor obligationsotherthanthosedisclosedinthe TransactionDocumentsor the Company’s SECDocumentsor thoseincurredinthe ordinarycourseoftheCompany’sbusinesssincetheLastAuditedDate,orwhichindividually orintheaggregate,donotorwouldnothaveaMaterialAdverseEffect.Noeventorcircumstanceshas occurredorexistswithrespecttotheCompanyoritsproperties,business,operations,condition (financialorotherwise),orresultsofoperations, which,underapplicablelaw,ruleorregulation, requirespublicdisclosureorannouncementpriortothedatehereofby theCompanybutwhich hasnotbeensopubliclyannouncedordisclosed. There arenoproposalscurrently underconsiderationorcurrentlyanticipatedto beunderconsiderationby theBoardofDirectorsortheexecutiveofficersoftheCompany whichproposalwould(x) changethearticlesorcertificateof incorporationorothercharterdocumentorby-lawsoftheCompany,eachascurrently ineffect, withorwithoutshareholderapproval,whichchangewouldreduceorotherwiseadverselyaffect therightsandpowersoftheshareholdersoftheCommonStockor(y)materially orsubstantiallychangethe business,assets orcapital of theCompany, includingits interests insubsidiaries.
m. NoIntegratedOffering.NeithertheCompanynoranyofitsAffiliates noranyPersonactingonits or their behalf has, directlyorindirectly,at anytime sinceDecember 31, 2013, madeanyofferor sales ofanysecurityorsolicitedanyoffers tobuyanysecurityundercircumstancesthatwouldeliminatetheavailability oftheexemptionfromregistrationunder Regulation D in connection withtheofferand saleof theSecuritiesascontemplated hereby.
n. Dilution.Any sharesoftheCompany’sCommonStockissuedtothePurchaserinconnectionwithanyagreementsbetweenthe partieshereto,intheeventsuchsharesareissuedmay haveadilutiveeffectontheownershipinterestsoftheother shareholders(andPersonshavingtherightto becomeshareholders)oftheCompany. The Company’sexecutive officersanddirectorshavestudiedandfullyunderstandthenatureoftheSecuritiesbeing sold herebyand recognizethattheyhavesuchapotential dilutiveeffect. Theboard ofdirectors ofthe Companyhasconcluded,initsgoodfaithbusinessjudgment,thatsuchissuanceisinthebest interestsofthe Company.
o. Confirmation. The Companyconfirms thatall statements of the CompanycontainedhereinshallsurviveacceptanceofthisAgreementbythePurchaser.The Companyagreesthat,ifanyeventsoccurorcircumstancesexistpriortotheClosingDateorthe releaseofthePurchaseAmounttotheCompanywhichwouldmakeany oftheCompany’s representations,warranties,agreementsorotherinformationsetforthhereinmaterially untrueor materially inaccurateas of such date, the Company shallimmediately notify thePurchaser (directly or through itscounsel, ifany) inwriting prior to such dateof such fact, specifying which representation, warranty orcovenantis affectedand thereasonstherefor.
p. Authorization;Enforcement.TheCompanyhastherequisitecorporate powerandauthoritytoenterintoandtoconsummatetheTransactionscontemplatedbyeachof theTransactionDocumentsandotherwisetocarry out its obligations thereunder. TheexecutionanddeliveryofeachoftheTransaction Documentsby theCompanyandtheconsummationby it of the Transactionscontemplated therebyhave been dulyauthorizedbyall necessaryaction on thepartoftheCompanyandno furtheractionisrequiredby the Company inconnection therewith. Each Transaction Document has been (or upon delivery will have been) dulyexecutedby theCompanyand,whendeliveredinaccordancewiththeterms hereof,willconstitute the validand bindingobligation of the Companyenforceableagainst the Company inaccordancewithitstermsexcept(i)aslimitedbyapplicablebankruptcy, insolvency, reorganization,moratoriumandother lawsofgeneralapplication affectingenforcementofcreditors’ rightsgenerallyand (ii)as limitedby laws relatingto theavailability of specific performance, injunctive relief orotherequitableremedies.
q.SECReports;FinancialStatements.TheCompany hasfiledallreportsrequiredtobefiledbyitundertheExchange Act,includingpursuanttoSection13(a) or 15(d) thereof, for the two years preceding the date hereof (orsuchshorterperiodastheCompanywasrequiredby lawto filesuchmaterial)(the foregoing materials, including theexhibits thereto, beingcollectively referred to hereinas the“SECReports”)onatimely basisorhasreceivedavalidextensionofsuchtimeoffilingandhas filedany suchSECReportspriortotheexpiration ofany suchextension. Asoftheirrespective dates,the SECReportscompliedinallmaterialrespectswiththerequirementsof theExchange Actandtherulesandregulationsof the Commissionpromulgatedthereunder,andnone oftheSECReports,whenfiled,containedany untrue statementof amaterialfactoromittedtostate a materialfactrequiredtobestatedthereinornecessaryinordertomakethestatementstherein,in light of thecircumstances under which they weremade, notmisleading. The financial statementsoftheCompanycomply inallmaterialrespectswithapplicableaccountingrequirementsandtherulesandregulationsof theCommissionwithrespecttheretoasineffectat the time of filing.Such financial statements have been prepared inaccordance with UnitedStatesgenerallyacceptedaccountingprinciplesappliedonaconsistentbasis duringthe periods involved (“GAAP”),exceptas may be otherwise specified in such financial statements or the notes thereto (exceptthatunauditedfinancial statements may notcontainall of thefootnotes requiredbyGAAP),and fairlypresentinall material respectsthe financialpositionofthe Companyanditsconsolidatedsubsidiariesasofandforthedatesthereofandtheresultsof operationsandcash flowsfor the periodsthenended,subject, inthecase of unaudited statements, to normal, immaterial,year-endaudit adjustments.
r.Sarbanes-Oxley;InternalAccountingControls.TheCompany isin materialcompliancewithallprovisionsoftheSarbanes-Oxley Act of2002whichareapplicable toitasoftheClosingDate.TheCompanyandtheSubsidiariesmaintainasystemofinternalaccountingcontrols sufficient to provide reasonableassurance that (i) transactionsareexecuted in accordancewithmanagement’sgeneral or specificauthorizations, (ii) transactionsare recordedasnecessary topermit preparationoffinancialstatementsinconformitywithGAAPand to maintainassetaccountability,(iii)access toassetsispermittedonly inaccordance with management’sgeneralorspecificauthorization,and(iv)therecordedaccountability forassets iscomparedwiththeexistingassetsatreasonableintervalsandappropriateactionistakenwith respect toany differences.TheCompanyhasestablisheddisclosurecontrolsandprocedures(as defined in Exchange Act Rules 13a-15(e)and15d-15(e)) for the Companyand designed such disclosurecontrolsandprocedurestoensurethatmaterialinformationrelating totheCompany, including itsSubsidiaries, is made known to thecertifying officersbyothers within thoseentities, particularly duringtheperiodin which theCompany’s mostrecentlyfiledperiodicreport under the ExchangeAct is being prepared. The Company’scertifying officershaveevaluatedtheeffectiveness of theCompany’scontrolsandproceduresasofthedate priortothefilingdate ofthemostrecently filedperiodicreportundertheExchangeAct(such date, the“EvaluationDate”). The Companypresented in its most recently filed periodic report undertheExchangeActtheconclusions ofthecertifying officersabouttheeffectivenessofthe disclosurecontrolsandprocedures based on theirevaluationsasof the Evaluation Date.Since theEvaluation Date,there have beennosignificantchanges in theCompany’s internalcontrols (assuch termisdefinedinItem307(b)of RegulationS-K under theExchangeAct)or,tothe Company’sknowledge,inotherfactorsthatcouldsignificantlyaffecttheCompany’sinternalcontrols.
s. TaxStatus.Exceptformattersthatwouldnot,individually orintheaggregate,haveorreasonably beexpectedtoresultinaMaterialAdverseEffect,theCompanyandeachSubsidiary hasfiledallnecessaryfederal,stateandforeignincomeandfranchisetax returnsand haspaid oraccruedalltaxesshownasduethereon,andtheCompany hasno knowledgeofataxdeficiencywhichhasbeenassertedorthreatenedagainsttheCompanyoranySubsidiary.
t. NoDisagreementswithAccountantsandLawyers. Thereare no disagreementsofany kindpresentlyexisting,orreasonablyanticipated bytheCompany to arise, betweentheaccountantsandlawyersformerlyorpresentlyemployedbytheCompanyand the Companyiscurrentwithrespecttoanyfeesowedtoitsaccountantsandlawyers.Bymaking thisrepresentationtheCompany doesnot,inanymanner,waivetheattorney/clientprivilegeor theconfidentialityof thecommunications betweenthe Companyand its lawyers.
u.No Disqualification Events. None of the Company, any of its predecessors, any affiliated issuer, any director, executive officer, other officer of the Company participating in the offering, any beneficial owner of 20% or more of the Company’s outstanding voting equity securities, calculated on the basis of voting power, nor any promoter (as that term is defined in Rule 405 under the Securities Act) connected with the Company in any capacity at the time of sale (each, an “Issuer Covered Person” and, together, “Issuer Covered Persons”) is subject to any of the “Bad Actor” disqualifications described in Rule 506(d) under the Securities Act (a “Disqualification Event”). The Company has exercised reasonable care to determine whether any Issuer Covered Person is subject to a Disqualification Event. The Issuer has complied, to the extent applicable, with its disclosure obligations under Rule 506(e).
v. Shell Company Status.The Company is not, and since March 31, 2009 has not, been an issuer identified in Rule 144(i)(1).
4. CERTAIN COVENANTSANDACKNOWLEDGMENTS.
a. Transfer Restrictions. ThePurchaseracknowledgesthat(1)theSecuritieshave not beenandarenot beingregisteredundertheprovisionsof the1933Actand, theShareshavenotbeenandarenotbeingregisteredunderthe1933Act,andmay notbe transferredunless(A) subsequentlyregistered thereunderor(B) thePurchaser shall have deliveredtotheCompanyanopinionofcounsel,reasonably satisfactory inform,scopeand substancetotheCompany, totheeffectthattheSecuritiestobesoldortransferred maybesold or transferred pursuant toanexemption from such registration; (2)any sale of theSecurities madein relianceon Rule 144 promulgated under the 1933 Act (“Rule 144”)may bemadeonly inaccordancewiththetermsofsaidRuleandfurther,if saidRuleisnotapplicable,any resale of suchSecuritiesundercircumstancesinwhichtheseller,or the Personthroughwhomthesaleis made,may bedeemedtobeanunderwriter,asthattermisusedinthe1933Act,mayrequirecompliancewithsomeotherexemptionunderthe1933Actortherulesandregulations oftheSEC thereunder;and (3) neitherthe Companynorany otherPerson is underany obligation to register theSecurities under the 1933 Act or tocomply withtheterms andconditions ofanyexemptionthereunder.
b. Restrictive Legend.ThePurchaseracknowledgesandagreesthatthecertificatesandotherinstrumentsrepresentingany oftheSecuritiesshallbeararestrictivelegend insubstantially thefollowingform(andastop-transferorder maybeplacedagainsttransferofanysuchSecurities):
“THESESECURITIESHAVE NOTBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED,ORTHESECURITIESLAWS OF ANYSTATE ANDMAYNOTBESOLDOROFFEREDFORSALEIN THEABSENCEOFANEFFECTIVEREGISTRATION STATEMENTFOR THE SECURITIESOR ANOPINIONOFCOUNSEL OROTHEREVIDENCE ACCEPTABLE TO THE COMPANY THATSUCH REGISTRATIONISNOT REQUIRED.”
c.Filings. The Company undertakesandagreesto makeall necessary filingsinconnectionwiththesaleoftheSecuritiestothePurchaserunderanyUnitedStateslawsandregulationsapplicabletotheCompany,orbyany domesticsecuritiesexchangeortrading market, and to provideacopythereof to thePurchaser promptlyafter suchfiling.
d. ReportingStatus.SolongasthePurchaserbeneficiallyownsanyoftheSecurities,theCompanyshallfileallreportsrequiredtobefiledwith theSECpursuanttoSection13or 15(d) of theExchangeAct, shalltakeallreasonableactionunderitscontroltoensure thatadequatecurrentpublic informationwithrespecttotheCompany,asrequiredinaccordance with Rule144(c)(2)ofthe1933 Act, is publiclyavailable,and shall not terminateits statusasan issuer required to filereportsunderthe Exchange Acteven if the Exchange Act or the rulesand regulations thereunderwould permit such termination.The Company will takeall reasonableaction under itscontrolto maintain thecontinued listingand quotationand trading of its CommonStockon thePrincipal Trading Market oralisting on theNASDAQ Capital Marketand,to theextentapplicabletoit,willcomply inall material respects with the Company’sreporting, filingandother obligationsundertheby-lawsorrulesofthePrincipal TradingMarketand/orthe Financial Industry Regulatory Authority,as thecasemaybe,applicable to itforso longas the Purchaser beneficially ownsany of theSecurities.
e. UseofProceeds.TheCompany willusetheproceedsreceivedhereunder (excludingamountspaidby theCompanyforlegalfeesinconnectionwiththesaleoftheSecurities and as the original issue discount) forworkingcapital.
f.Publicity,Filings,Releases,Etc.Eachofthepartiesagreesthatitwill notdisseminateany informationrelatingtotheTransactionDocumentsortheTransactionscontemplatedthereby,including issuinganypressreleases,holdingany pressconferencesor other forums, or filinganyreports (collectively,“Publicity”), without giving the other party reasonableadvance noticeandanopportunitytocommentonthecontentsthereof.Neither party will include inany suchPublicityany statement or statementsor other material to which the otherpartyreasonablyobjects,unlessinthe reasonable opinionofcounseltothe partyproposing such statement, such statement is legally required to be included. In furtheranceof theforegoing, the Companywill provideto thePurchaser drafts oftheapplicabletext ofthe first filingof a CurrentReportonForm8-K or a Quarterly or AnnualReportonForm10-Q or 10-K intendedtobemade withthe SECwhichreferstotheTransactionDocumentsortheTransactionscontemplatedtherebyassoonaspracticable(butatleast2TradingDaysbeforesuchfiling willbemade)willnotincludeinsuchfilingany statementorstatementsorothermaterialto whichthe otherpartyreasonably objects,unlessinthe reasonable opinionofcounseltothe party proposing such statement,suchstatementislegallyrequiredtobeincluded. Notwithstanding the foregoing,eachof thepartiesherebyconsentstotheinclusionof thetextof theTransaction Documentsinfilingsmade withtheSECaswellasany descriptive textaccompanyingor as a part of such filingwhichisaccurateandreasonablydeterminedby the Company’scounseltobelegally required.Notwithstanding, but subject to, theforegoing provisionsofthisSection 4(f), the Company will,after theClosingDate,promptlyfileaCurrentReportonForm8-K or, ifappropriate, a quarterly orannual report on theappropriate form, referring to the Transactionscontemplatedby theTransaction Documents.
g. Pledge of Shares; Adjustment of Pledged Shares. In order to secure repayment of the Note, the Company will reserve with the Transfer Agent, for the benefit of the Purchaser, the Pledged Shares. The Company agrees that, following the Closing Date, the Market Value of the Pledged Securities shall be reviewed every 90 days (each an “Adjustment Date”) by the Company and the Purchaser and an appropriate adjustment to the number of Pledged Securities shall be made based upon theMarket Value, which shall be computed as the VWAP of the Common Stock for the 10 trading days immediately prior to the Adjustment Date.
5. OTHER TRANSFERAGENTINSTRUCTIONS.
a. TheCompanywarrantsthat,withrespecttotheSecurities,otherthanthe stoptransferinstructionstogiveeffectto Section4(a)hereof,itwillgive itsTransferAgentno instructionsinconsistent withinstructionstoissueCommonStocktotheHolderascontemplated inthe Note. Nothing inthisSectionshallaffectinanywaythePurchaser’s obligationsandagreementtocomply withallapplicablesecuritieslawsuponresaleoftheSecurities.IfthePurchaser providestheCompany withanopinion ofcounselreasonably satisfactory to the Companythat registration of a resaleby thePurchaserofanyof theSecurities in accordancewith clause (1)(B)of Section 4(a)of this Agreement is notrequired under the1933 Act,theCompany shall(exceptasprovidedinclause(2)ofSection4(a)of thisAgreement) permitthetransferorreissueoftheSharesrepresentedby one ormorecertificatesforCommonStockwithoutlegend(orwhereapplicable,byelectronic registration)insuchnameandinsuch denominationsas specifiedby thePurchaser.
b.The Company willauthorize the TransferAgent togive information relatingtotheCompanydirectlytotheHolderortheHolder’srepresentativesupontherequest oftheHolderoranysuchrepresentative,totheextentsuchinformationrelatesto(i)thestatusof the sharesofCommonStockissued orclaimedto beissuedtotheHolder inconnectionwitha NoticeofConversion in accordance with the terms of the Note,or(ii)theaggregatenumber of outstanding shares of CommonStock ofall shareholders (as agroup,and not individually)as of acurrentor other specified date. At the request of the Holder, the Company will provide the Holderwith a copyof the authorization sogivento theTransferAgent.
6. CLOSINGDATE.
a.TheClosingDateshalloccurasindicatedinSection1(a)(i)aftereachoftheconditionscontemplatedbySections7and8hereofshallhaveeitherbeen satisfied orbeenwaived bythepartyin whosefavorsuch conditions run.
b.TheclosingoftheTransactionsshalloccurontherespectiveClosing DateattheofficesofthePurchaser or by electronic communicationsandshalltakeplacenolaterthan3:00 p.m. Eastern time,onsuchdayor suchothertimeas ismutuallyagreed uponbytheCompanyand the Purchaser.
7. CONDITIONSTOTHE COMPANY’SOBLIGATION TOSELL.
ThePurchaserunderstandsthattheCompany’sobligationtoselltheNotetothePurchaser pursuant to this Agreement ontheClosingDateis conditioned upon:
a.The executionand deliveryof this AgreementbythePurchaser;
b.DeliverybythePurchasertotheCompanyofgoodfundsaspaymentin full ofanamountequalto the PurchaseAmountinaccordancewiththis Agreement;
c.TheaccuracyonsuchClosingDateoftherepresentationsandwarranties ofthe PurchasercontainedinthisAgreement,eachasifmade onsuchdate,andtheperformancebythePurchaseronorbeforesuchdateofallcovenantsandagreements of thePurchaser required to beperformedon orbeforesuchdate;and
d.Thereshallnotbeineffectany law,ruleorregulationprohibitingor restrictingtheTransactionscontemplatedhereby,orrequiringanyconsentorapprovalwhich shall not havebeen obtained.
8. CONDITIONS TO THEPURCHASER’S OBLIGATIONTOPURCHASE.
TheCompany understandsthatthePurchaser’sobligationtopurchasetheNoteanditsacceptanceofanysharesoftheCompany’sCommonStockthatmaybeissuedinconnectionwith the Noteisconditioned upon:
a.TheexecutionanddeliveryofthisAgreement, the NoteandtheotherTransaction Documentsbythe Company, including the Transfer Agent Instruction;
b.Theaccuracy inallmaterialrespectsontheClosingDateofthe representationsandwarrantiesoftheCompanycontainedinthisAgreement,eachasifmadeon suchdate,andtheperformancebytheCompanyonorbeforesuchdateofallcovenantsandagreements of the Companyrequired to be performed on orbeforesuchdate;
c.TheCompanymustbe current withall requiredExchangeAct filings.
d.Thereshallnotbeineffectany law,ruleorregulationprohibitingor restrictingtheTransactionscontemplatedhereby,orrequiringanyconsentorapprovalwhich shall not havebeen obtained;
e.FromandafterthedatehereoftoandincludingtheClosingDate,eachof thefollowingconditionswillremainineffect:(i)thetradingoftheCommonStockshallnot havebeensuspendedby theSECoronthePrincipalTrading Market;(ii)trading insecuritiesgenerally onthePrincipalTradingMarketshall nothave beensuspendedor limited;(iii)no minimumpricesshall beenestablishedforsecuritiestradedonthePrincipalTradingMarket;and (iv)thereshallnot havebeenany Material AdverseEffectin regards to the Company; and
f. The Company’s agreement, which shall be evidenced by the Company’s signature on this Agreement, that the Purchaser shall have the right (but not the obligation), subject to the Company’s consent, to purchase up to one additional convertible promissory note on terms identical to the terms of the Note.
9. INTENTIONALLYOMITTED.
10. INDEMNIFICATIONANDREIMBURSEMENT.
a.(i) TheCompanyagreestoindemnifyandholdharmlessthePurchaserand itsofficers, directors,employees,andagents,andeachPurchaser Control Person fromandagainstany losses,claims,damages,liabilitiesorexpensesincurred(collectively,“Damages”), jointorseveral,andanyactioninrespectthereoftowhichthePurchaser,itspartners,Affiliates, officers,directors,employees,and dulyauthorizedagents,andany suchPurchaserControlPersonbecomes subjectto,resultingfrom,arisingoutoforrelatingtoany misrepresentation, breachofwarranty ornonfulfillmentoforfailuretoperformanycovenantoragreementonthe part of Companycontained in this Agreement,as such Damagesare incurred,except to theextentsuchDamagesresultprimarily fromPurchaser’sfailuretoperformanycovenantoragreementcontainedinthisAgreementor thePurchaser’sor itsofficer’s,director’s,employee’s,agent’sorPurchaserControlPerson’s negligence,recklessnessorbadfaithinperforming its obligations under thisAgreement.
(ii) TheCompanyherebyagreesthat,ifthePurchaser,otherthanby reasonofitsnegligence,illegalorwillfulmisconduct(ineachcase,as determinedby anon-appealable judgment to sucheffect), (x) becomes involved inanycapacity inanyaction, proceeding or investigation broughtbyanyshareholderof theCompany, inconnectionwith oras aresultoftheconsummationoftheTransactionscontemplatedbythisAgreementortheother Transaction Documents, orifthePurchaseris impleadedinany suchaction,proceedingor investigationbyanyPerson, or(y) becomes involved inanycapacity inanyaction, proceeding orinvestigationbroughtby theSEC,anyself-regulatory organizationorotherbody having jurisdiction,againstorinvolving theCompany orinconnectionwithorasaresultoftheconsummationoftheTransactionscontemplatedby thisAgreementor theotherTransaction Documents,or (z)isimpleadedinany suchaction,proceedingor investigationbyanyPerson, theninanysuchcase,theCompanyshallindemnify,defendandholdharmlessthePurchaser fromandagainstandin respectofalllosses,claims,liabilities,damagesorexpensesresulting from,imposeduponor incurred by thePurchaser,directly orindirectly,andreimbursesuchPurchaser foritsreasonablelegaland otherexpenses(includingthecostofany investigationand preparation) incurredinconnection therewith,as suchexpensesare incurred. The indemnificationandreimbursementobligationsof theCompany underthisparagraphshallbeinadditiontoanyliabilitywhich theCompanymayotherwisehave,shallextenduponthesame termsandconditionstoany AffiliatesofthePurchaserwhoareactually namedinsuchaction, proceedingor investigation,andpartners,directors, agents,employees and Purchaser ControlPersons(ifany),as thecasemaybe, of thePurchaserandany suchAffiliate,and shallbebinding uponandinuretothebenefitofany successors,assigns,heirsandpersonalrepresentativesofthe Company,thePurchaser,any suchAffiliateandany suchPerson. TheCompanyalsoagreesthat neitherthePurchasernorany such Affiliate,partner,director,agent,employeeorPurchaser ControlPersonshallhaveany liability tothe Company oranyPersonassertingclaimsonbehalf oforinrightofthe Company inconnectionwithorasa result oftheconsummationofthis Agreement or the other Transaction Documents,exceptas may beexpresslyand specifically provided in or contemplatedby thisAgreement.
b.Allclaimsfor indemnificationbyanyIndemnifiedParty(asdefined below)under thisSection shallbe assertedand resolvedas follows:
(i)IntheeventanyclaimordemandinrespectofwhichanyPersonclaimingindemnificationunderanyprovisionofthisSection (an“IndemnifiedParty”)might seekindemnity underparagraph(a)ofthisSectionisassertedagainst orsoughttobecollected from suchIndemnifiedPartyby aPersonother thanaparty hereto oranAffiliatethereof (a“ThirdParty Claim”),the IndemnifiedParty shalldeliverawrittennotification,enclosingacopy of allpapersserved,ifany,and specifying thenatureofandbasisfor suchThird Party Claim and for the IndemnifiedParty’sclaim for indemnification that is beingasserted underanyprovision ofthisSectionagainstanyPerson(the “IndemnifyingParty”),togetherwiththeamountor,ifnot thenreasonablyascertainable,theestimatedamount,determinedingoodfaith,ofsuchThirdParty Claim (a“Claim Notice”) with reasonable promptness to the IndemnifyingParty.If the IndemnifiedParty failstoprovidetheClaimNoticewithreasonablepromptnessafterthe IndemnifiedParty receivesnoticeofsuchThirdParty Claim,the IndemnifyingParty shallnotbe obligated to indemnifythe IndemnifiedPartywith respect to such ThirdParty Claim to theextentthattheIndemnifyingParty’sability todefend hasbeen prejudicedby suchfailureofthe IndemnifiedParty.TheIndemnifyingParty shall notify theIndemnifiedPartyassoonas practicablewithintheperiodending30calendardaysfollowingreceipt by the IndemnifyingPartyofeitheraClaim NoticeoranIndemnityNotice(asdefinedbelow)(the“DisputePeriod”)whethertheIndemnifyingParty disputesitsliabilityortheamountofits liability totheIndemnifiedParty under thisSectionandwhether theIndemnifyingPartydesires,at its solecostandexpense, to defend theIndemnifiedPartyagainst such ThirdParty Claim. The followingprovisionsshallalso apply.
(x)IftheIndemnifyingPartynotifiestheIndemnifiedPartywithintheDisputePeriodthattheIndemnifyingParty desirestodefendtheIndemnifiedPartywith respect to the ThirdPartyClaim pursuant to this paragraph (b) of thisSection, then theIndemnifyingParty shall have the right to defend, withcounsel reasonably satisfactoryto theIndemnifiedParty,at the solecostandexpense of theIndemnifyingParty, suchThirdParty Claimbyallappropriateproceedings, whichproceedingsshallbevigorouslyanddiligently prosecutedbytheIndemnifyingParty toa finalconclusionorwillbesettledatthediscretionoftheIndemnifyingParty (but only with theconsent of theIndemnifiedParty in thecaseofanysettlement thatprovidesforanyreliefotherthanthepayment of monetarydamages orthat providesfor thepayment ofmonetarydamagesas to which theIndemnifiedPartyshallnot be indemnified in full pursuantto paragraph (a) of thisSection).TheIndemnifyingPartyshall have fullcontrol ofsuch defenseandproceedings,includinganycompromiseorsettlement thereof; provided, however, thattheIndemnifiedPartymay,at the solecostandexpense of theIndemnifiedParty,atany time priortotheIndemnifyingParty’sdeliveryof the notice referred to in the first sentence ofthis subparagraph (x),fileany motion,answerorother pleadingsortakeanyotheractionthattheIndemnifiedPartyreasonablybelievestobenecessary orappropriateprotectitsinterests;and providedfurther,thatif requestedby theIndemnifyingParty,theIndemnifiedParty will,atthesolecostandexpenseoftheIndemnifyingParty,provide reasonablecooperation to theIndemnifyingParty incontestinganyThirdParty ClaimthattheIndemnifyingPartyelectstocontest.TheIndemnifiedParty may participate in,butnotcontrol,anydefenseor settlementofany ThirdParty Claimcontrolledby theIndemnifyingParty pursuantto this subparagraph (x),andexceptasprovidedinthe precedingsentence,theIndemnifiedParty shallbearits owncostsandexpenses with respect to such participation. Notwithstanding the foregoing,theIndemnifiedParty may takeoverthecontrol ofthedefenseor settlement ofaThirdPartyClaimatany timeifit irrevocablywaives its right to indemnity under paragraph (a) of thisSectionwith respect to such ThirdParty Claim.
(y)IftheIndemnifyingPartyfailstonotify theIndemnifiedParty withinthe DisputePeriodthattheIndemnifyingPartydesirestodefendtheThirdParty Claim pursuantto paragraph (b)ofthisSection,or iftheIndemnifyingParty gives such notice but fails to prosecute vigorouslyand diligently or settle the ThirdParty Claim, or ifthe IndemnifyingPartyfailsto giveany noticewhatsoever withintheDisputePeriod,thentheIndemnifiedParty shall havethe right to defend,at the solecostandexpense of theIndemnifyingParty, the ThirdParty Claimbyallappropriate proceedings, whichproceedingsshallbe prosecutedby theIndemnifiedParty in a reasonable mannerand in good faith or will be settledat thediscretion oftheIndemnifiedParty(with theconsent oftheIndemnifyingParty,whichconsent will not beunreasonably withheld).TheIndemnifiedParty will havefullcontrol ofsuch defenseand proceedings, includinganycompromise orsettlement thereof;provided,however,thatif requestedby theIndemnifiedParty,theIndemnifyingParty will,atthesolecostandexpenseoftheIndemnifyingParty,providereasonablecooperationtotheIndemnifiedPartyand itscounsel incontestingany ThirdParty Claim which theIndemnifiedParty iscontesting.Notwithstanding theforegoing provisionsofthissubparagraph (y),if theIndemnifyingPartyhas notified theIndemnifiedParty within theDisputePeriodthattheIndemnifyingParty disputesitsliability or theamountof its liabilityhereunder to theIndemnifiedPartywith respect to such ThirdParty Claimand if such dispute is resolved infavorof theIndemnifyingParty in the manner provided in subparagraph (z) below, theIndemnifyingParty will not be required to bear thecostsandexpenses of theIndemnified Party’s defense pursuanttothissubparagraph(y)oroftheIndemnifyingParty’sparticipation thereinattheIndemnifiedParty’s request,andtheIndemnifiedParty shall reimbursetheIndemnifyingParty infull forall reasonablecostsandexpenses incurred by theIndemnifyingParty inconnection with suchlitigation. TheIndemnifyingParty mayparticipate in, but notcontrol,any defenseorsettlementcontrolledby theIndemnifiedParty pursuant tothis subparagraph(y),and theIndemnifyingParty shall bearits owncostsandexpenses with respect to such participation.
(z)IftheIndemnifyingPartynotifiestheIndemnifiedPartythatitdoesnot dispute its liability ortheamount ofits liability to theIndemnifiedParty with respect to the ThirdParty Claim under paragraph (a) of thisSection or fails to notify theIndemnifiedPartywithin theDisputePeriod whethertheIndemnifyingPartydisputes its liability ortheamount ofits liability to theIndemnifiedParty with respect to suchThirdParty Claim, theamount ofDamages specifiedin the Claim Noticeshall beconclusivelydeemed aliability of theIndemnifyingParty underparagraph(a) of thisSectionand theIndemnifyingParty shall paytheamount of such Damagesto theIndemnifiedParty on demand.If theIndemnifyingParty hastimely disputedits liability ortheamount ofits liability with respectto suchclaim,theIndemnifying PartyandtheIndemnifiedParty shallproceedingoodfaithtonegotiatea resolutionof such dispute;provided, however,thatifthedisputeis not resolvedwithin 30daysaftertheClaim Notice, theIndemnifyingParty shall beentitled to institutesuchlegalactionas it deems appropriate.
(ii)IntheeventanyIndemnifiedParty shouldhaveaclaimunder paragraph(a)ofthisSectionagainsttheIndemnifyingParty thatdoesnotinvolveaThirdParty Claim,theIndemnifiedParty shalldeliverawrittennotification ofaclaimforindemnity under paragraph(a)ofthisSectionspecifying thenatureofand basisforsuchclaim,togetherwiththeamountor,ifnotthenreasonablyascertainable,theestimatedamount,determinedingoodfaith, ofsuchclaim(an“Indemnity Notice”)withreasonablepromptness to theIndemnifyingParty. ThefailurebyanyIndemnifiedParty togivetheIndemnity Noticeshallnotimpairsuchparty’s rightshereunderexcepttotheextentthattheIndemnifyingPartydemonstrates thatithasbeen irreparably prejudiced thereby.If theIndemnifyingParty notifies theIndemnifiedParty that it doesnotdisputetheclaimortheamountoftheclaimdescribedinsuchIndemnityNoticeorfails tonotify theIndemnifiedPartywithin theDisputePeriodwhethertheIndemnifyingParty disputestheclaimortheamountoftheclaimdescribedinsuchIndemnity Notice,theamountof DamagesspecifiedintheIndemnityNoticewillbeconclusively deemedaliability oftheIndemnifyingParty underparagraph(a)ofthisSectionandtheIndemnifyingParty shallpaytheamount of such Damages to the IndemnifiedParty on demand.If theIndemnifyingParty has timelydisputeditsliabilityortheamountofitsliability with respecttosuchclaim,theIndemnifyingPartyand the IndemnifiedParty shallproceed ingoodfaith tonegotiate a resolution of such dispute; provided, however,thatitthedispute is notresolvedwithin 30 daysaftertheClaimNotice,theIndemnifyingParty shall beentitledtoinstitutesuchlegalactionas itdeems appropriate.
c.Theindemnityagreementscontainedhereinshallbeinadditionto(i)anycauseofactionorsimilarrightsoftheIndemnifiedPartyagainsttheIndemnifyingPartyor others, and (ii)anyliabilities the IndemnifyingPartymaybesubjectto.
11. JURY TRIAL WAIVER. TheCompanyandthe Purchaserherebywaive atrialby jury inanyaction,proceedingorcounterclaimbrought byeitherofthepartiesheretoagainsttheotherinrespectofany matterarisingoutorinconnectionwiththeTransaction Documents.
12.GOVERNINGLAW:MISCELLANEOUS.
a.(i)ThisAgreementshallbegovernedbyandinterpretedinaccordance withthelawsoftheStateof Delawareforcontractstobewholly performedinsuch stateand withoutgivingeffecttotheprinciplesthereofregarding theconflictoflaws. Eachofthepartiesconsentstotheexclusivejurisdictionofthefederalcourts in New York County intheStateof New Yorkasinconnectionwithany disputearisingunderthis Agreement oranyof the other Transaction Documentsandhereby waives, to the maximumextentpermittedbylaw,anyobjection,includinganyobjectionbased onforumnonconveniens, to the bringing ofany such proceeding in such jurisdictions or toanyclaim that suchvenueof thesuit,actionorproceedingisimproper.Totheextentdetermined by suchcourt,theCompany shall reimburse thePurchaser forany reasonable legalfeesand disbursements incurredby thePurchaser inenforcementoforprotectionofany ofitsrightsunderany oftheTransaction Documents. Nothing inthisSectionshallaffectorlimitany righttoserveprocessinany other manner permittedby law.
(ii) TheCompanyandthe Purchaseracknowledgeandagreethat irreparabledamagewouldoccurintheeventthatany oftheprovisionsofthisAgreementorthe otherTransaction Documents werenotperformedin accordancewiththeirspecific terms orwere otherwisebreached.Itisaccordinglyagreedthatthepartiesshallbeentitledtoaninjunctionor injunctionstopreventorcurebreachesof theprovisionsof thisAgreementandtheother TransactionDocumentsandtoenforcespecifically thetermsandprovisionshereofandthereof, this beingin addition to anyotherremedyto whichanyof themmaybeentitledbylaworequity.
b.Failureofany partytoexerciseanyrightorremedyunderthisAgreement orotherwise,ordelayby aparty inexercising suchrightor remedy,shallnotoperateasawaiver thereof.
c.ThisAgreementshallinure tothebenefitofandbebinding uponthe successorsandassigns ofeach of thepartieshereto.
d.All pronounsandanyvariations thereofrefer to themasculine,feminine or neuter, singularor plural,asthecontextmayrequire.
e.Afacsimiletransmission ofthis signedAgreement shall belegaland bindingonallpartieshereto.
f.ThisAgreementmaybesignedinoneormorecounterparts,eachofwhich shall bedeemedan original.
g.TheheadingsofthisAgreementareforconvenienceofreferenceandshall not form part of, oraffectthe interpretation of, thisAgreement.
h.IfanyprovisionofthisAgreementshallbeinvalidorunenforceableinany jurisdiction,suchinvalidityorunenforceabilityshallnotaffectthevalidityorenforceabilityof theremainderofthisAgreementorthevalidityorenforceability ofthisAgreementinany other jurisdiction.
i.ThisAgreementmaybeamendedonly byaninstrumentinwritingsignedbythepartytobe charged with enforcement thereof.
j.This Agreement supersedesall prioragreementsand understandingsamongtheparties heretowith respectto the subjectmatter hereof.
13.NOTICES.Anynoticerequiredorpermittedhereundershallbegivenin writing(unlessotherwisespecifiedherein)andshallbedeemedeffectivelygivenontheearliest of
(a thedatedelivered,ifdelivered by personaldeliveryasagainstwrittenreceipt therefororbyconfirmedfacsimiletransmission,
(b)thefifthTradingDayafterdeposit,postageprepaid,intheUnitedStatesPostalServicebyregistered orcertified mail, or
(c)thethirdTradingDayaftermailingby domesticorinternationalexpresscourier,with deliverycosts andfees prepaid,
ineach case,addressedtoeachof theotherpartiesthereuntoentitledatthe followingaddresses (oratsuchotheraddressesassuchpartymaydesignateby 10days’advancewrittennotice similarlygiven toeach ofthe other partieshereto):
COMPANY:Max Sound Corporation
2902A Colorado Avenue
Santa Monica, CA 90404
Attn:Greg Halpern
Telephone No.: (310) 264-0230
FacsimileNo.: (858) 408-4364
PURCHASER: JDFCAPITAL INC.
74 West George Street
Freehold, NJ 07728
Attn:JohnFierro
TelephoneNo.: 718-290-4058
FacsimileNo.:800-319-6863
14.SURVIVALOF REPRESENTATIONSANDWARRANTIES.The Company’sandthePurchaser’s representations andwarrantieshereinshallsurvive theexecutionanddelivery ofthisAgreementandthe deliveryofthe NoteandthepaymentofthePurchaseAmount,and shallinuretothebenefitofthePurchaserandtheCompanyandtheir respectivesuccessorsandassigns.
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IN WITNESS WHEREOF,this Agreementhas been dulyexecutedby thePurchaserand the Companyas of thedate set firstabovewritten.
JDFCAPITAL INC.
By: Name:JohnFierro
Title:President
MAX SOUND CORPORATION
By:
Greg Halpern
Greg Halpern, Chief Financial Officer
Printed Nameand Title
ANNEXI
FORM OFNOTE
ANNEX2
TRANSFER AGENT INSTRUCTION
