NEITHERTHEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBYTHISCERTIFICATENORTHESECURITIESINTOWHICHTHESESECURITIESARECONVERTIBLEHAVEBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED,ORAPPLICABLESTATESECURITIESLAWS.THESECURITIESMAYNOTBEOFFEREDFORSALE,SOLD,TRANSFERRED ORASSIGNED(I)INTHEABSENCEOF(A)ANEFFECTIVEREGISTRATIONSTATEMENTFORTHESECURITIESUNDERTHESECURITIESACT OF1933,ASAMENDED,OR(B)ANOPINIONOFCOUNSEL(WHICHCOUNSELSHALLBESELECTEDBYTHE HOLDER), IN AGENERALLYACCEPTABLEFORM,THATREGISTRATIONIS NOTREQUIREDUNDERSAIDACTOR(II)UNLESSSOLDPURSUANTTORULE 144 ORRULE144AUNDERSAIDACT.NOTWITHSTANDINGTHEFOREGOING,THESECURITIESMAYBEPLEDGEDINCONNECTIONWITH ABONAFIDEMARGINACCOUNTOROTHERLOANORFINANCINGARRANGEMENTSECUREDBYTHESECURITIES.
PrincipalAmount: $105,500.00 Issue Date:December11th, 2014
8%CONVERTIBLENOTE
FORVALUERECEIVED,MAXSOUNDCORPORATION.,aDelawarecorporation(“Borrower”or“Company”),herebypromisestopaytotheorderofEMAFINANCIAL,LLC,aDelawarelimitedliabilitycompany,oritsregisteredassigns(the“Holder”),onDecember10th,2015(subjecttoextensionassetforthbelow,the“MaturityDate”),thesumof$105,500.00assetforthherein,andtopayinterestontheunpaidprincipalbalancehereofattherate ofeightpercent (8%)per annum (the“InterestRate”) from the date ofissuance hereof untilthisNote plus any andallaccruedinterestispaid infull.Interestshall becomputed on the basis of a 365-day year and the actualnumberofdayselapsed.AnyamountofprincipalorinterestonthisNotewhichisnotpaidwhendueshallbearinterestattherateoftwenty-four(24%)perannumfromtheduedatethereof untilthesame is paid(“DefaultInterest”).Allpayments due hereunder shall bemade in lawfulmoneyoftheUnitedStatesofAmerica.AllpaymentsshallbemadeatsuchaddressastheHolder shall hereafter give to the Borrower by written noticemade inaccordance withthe provisionsof this Note.Whenever anyamount expressed to be due by theterms ofthis Note is due on any day which is not abusiness day,thesame shall insteadbe due onthenextsucceeding day which is abusinessdayand,inthecaseofanyinterestpaymentdatewhichisnot the date on whichthisNote is paid infull,theextensionoftheduedatethereofshallnotbetakenintoaccountforpurposesofdetermining theamount of interestdue on such date.As used in this Note, the term “business day” shallmean any day other than aSaturday, Sunday or a day on which commercialbanks in the cityofNewYork,NewYorkareauthorizedorrequired bylaw orexecutive order toremain closed. Eachcapitalized term used herein, and nototherwisedefined,shallhave themeaningascribedthereto inthatcertainSecurities PurchaseAgreement enteredinto by and between theCompany and Holder dated on or about the date hereof, pursuant towhichthisNotewasoriginallyissued(the“PurchaseAgreement”).TheHoldermay,bywrittennoticetotheBorroweratleastfive(5)daysbefore the MaturityDate (asmay have been previouslyextended),extendthe MaturityDatetouptoone (1) year following the date ofthe original Maturity Date hereunder.
ThisNoteisfreefromalltaxes,liens,claimsandencumbranceswithrespecttotheissuethereofandshallnotbesubjecttopreemptiverightsorothersimilarrightsofshareholdersoftheBorrower and will not imposepersonal liability upon the holder thereof.
The followingterms shall apply to this Note:
ARTICLE I.CONVERSION RIGHTS
1.1. ConversionRight.TheHoldershallhavetheright,initssoleandabsolutediscretion,atanytimeandfromtimetotimetoconvertalloranypartoftheoutstandingamountdueunderthisNoteintofullypaidandnon-assessablesharesofCommonStock,assuchCommonStockexistsontheIssueDate,oranysharesofcapitalstockorother securitiesofthe BorrowerintowhichsuchCommonStockshallhereafterbechangedorreclassifiedattheconversionprice(the “Conversion Price”)determined as provided herein (a“Conversion”);provided,however, that in no eventshalltheHolderbeentitledtoconvertany portionofthisNoteinexcessofthatportionofthisNote upon conversion ofwhich thesum of (1) thenumber ofshares ofCommonStock beneficially owned by the Holder and itsaffiliates(otherthan shares ofCommon Stock whichmay bedeemedbeneficiallyownedthroughtheownershipoftheunconvertedportionoftheNotes orthe unexercised or unconverted portion of any other security of theBorrowersubjectto alimitation on conversion or exercise analogousto thelimitations containedherein) and (2) thenumber of shares of CommonStockissuable upon the conversion of the portion of this Note withrespect to which thedeterminationofthisprovisoisbeingmade,wouldresult in beneficialownership bythe Holderanditsaffiliatesofmorethan4.9%oftheoutstandingsharesofCommon Stock.Forpurposesofthe provisoto theimmediatelyprecedingsentence,beneficialownershipshallbedeterminedinaccordance withSection 13(d) of the Securities ExchangeAct of 1934, asamended (the “Exchange Act”), and Regulation 13D-Gthereunder, exceptasotherwiseprovidedinclause(1)ofsuchproviso,provided,further,however, that thelimitations onconversionmay be waived by the Holder upon, at the election of theHolder, not less than 61 days’prior notice to theBorrower, and theprovisionsoftheconversionlimitation shall continue to applyuntilsuch61stday(orsuchlater date, asdetermined by the Holder, asmay be specified insuch notice ofwaiver).Thenumber of shares ofCommonStock to be issued upon each conversion of this Note shall bedetermined by dividing the ConversionAmount (as definedbelow) by theapplicableConversionPricethen in effectonthedatespecifiedinthenoticeofconversion,inthe form attachedheretoasExhibitA(the“Notice ofConversion”),deliveredto the Borrower by theHolder inaccordancewithSection1.4 below;providedthattheNotice ofConversion issubmitted byfacsimileore-mail (or byothermeansresultingin,orreasonablyexpectedtoresultin,notice)totheBorrowerbefore11:59p.m.,NewYork,NewYorktimeonsuchconversiondate(the“ConversionDate”).Theterm“ConversionAmount”means,with respect to any conversion ofthisNote, the sum of (1) the principal amount of thisNote to be converted in suchconversion,plus(2)accruedandunpaidinterest, if any, on such principalamount being convertedatthe interest rates provided in thisNoteto theConversion Date,plus(3) at the Holder’s option, Default Interest, if any, on theamountsreferred tointheimmediatelyprecedingclauses(1)and/or(2)plus(4) at theHolder’soption,anyamounts owed to the Holderpursuant to Sections 1.3 and 1.4(g)hereof.
a) CalculationofConversionPrice. Theconversionpricehereunder(the“ConversionPrice”)shallequalthelowerofeither(i)theclosingsalepriceoftheCommonStock
onthePrincipalMarketontheTradingDayimmediatelyprecedingtheClosingDate,and(ii)65%ofthelowestdailyVWAPofCommonStockonthePrincipalMarketduringtheten(10)consecutiveTradingDaysimmediatelyprecedingtheConversionDate.However,ifCompany’ssharepriceatanytimelosesthebid(ex:0.0001ontheaskwithzeromarketmakersonthebidonlevel2),thentheConversionPricemay,intheHolder’ssoleandabsolutediscretion,bereducedtoafixedconversionpriceof0.00001(iflowerthantheconversionpriceotherwise).IfsuchCommonStock is not traded ontheOTCBB,OTCQB,Nasdaq orNYSE,thensuch sale price shall be the salepriceofsuchsecurityontheprincipalsecuritiesexchangeortradingmarketwheresuchsecurityis listed ortraded or, if no sale price of such security isavailable inanyoftheforegoingmanners,theaverageoftheclosingbidpricesofanymarketmakersforsuchsecuritythatarelistedinthe“pink sheets”by theNationalQuotation Bureau,Inc. Ifsuch salepricecannot be calculated forsuch securityon suchdate inthemannerprovidedabove,suchpriceshallbethefairmarketvalueas mutuallydeterminedbytheBorrowerand theHolder. IftheBorrower’sCommonstockischilledfordepositatDTC,becomeschilledatanypointwhilethisNote remainsoutstandingordepositor other additional fees are payabledue to a Yield Sign, StopSignorothertradingrestrictions,or ifthe closing sale price at anytime falls below 0.01, then such 65%figure specified inclause 1.2(a)(ii)aboveshallbereducedto50%.Additionally,theBorroweracknowledgesthatitwilltakeallreasonablestepsnecessaryorappropriate, includingprovidingaboardofdirectorsresolutionauthorizing theissuance of commonstockandanopinion ofcounselconfirming the rights ofHolder tosellsharesofCommonStock issuableorissued toHolderonconversionofthisNotepursuanttoRule144aspromulgatedbytheSEC(“Rule144"),as suchRulemaybe ineffect fromtime totime. If the Borrower does notpromptly provide a board ofdirectors’resolutionandan opinion fromCompany counsel, and so long as the requested salemay bemade pursuant toRule144, the Company agrees to accept an opinion of counsel to the Holder which opinion will be issued attheCompany’sexpenseandtheconversiondollaramountwill bereducedby$750.00tocover thecostofsuchlegalopinion. “TradingDay”shallmeananydayonwhichtheCommonStockis tradableforanyperiod ontheOTCQB,or on theprincipal securitiesexchangeorothersecuritiesmarket on which theCommonStockis thenbeing traded.Additionally, if theCompany ceases to be a reportingcompany pursuant to the 1934 Act or if the Notecannot beconvertedintofreetrading shares after 181 days from theissuancedate,anadditional15%discountwill beattributed to the Conversion Price.
b) WithoutinanywaylimitingtheHolder’srighttopursueotherremedies,includingactualdamagesand/orequitablerelief,thepartiesagreethatifdeliveryoftheCommonStockissuableuponconversionofthisNoteisnotdeliveredbytheDeadline(asdefinedbelow)theBorrowershallpaytotheHolder$1,000.00perdayincash,foreachdaybeyondtheDeadlinethattheBorrowerfailstodeliversuchCommonStock.Suchcashamountshallbepaidto Holder by the fifth day of themonth following themonth in which it has accrued or, at the option oftheHolder,shallbeaddedtotheprincipalamountofthisNote,inwhicheventinterestshallaccruethereon inaccordancewith theterms of thisNote andsuchadditionalprincipalamountshallbe convertible into Common Stock inaccordancewith theterms ofthis Note. The Borroweragrees that theright to convertthis Note isa valuableright to the Holder. Thedamages resulting fromafailure,attempttofrustrate,orinterferencewithsuchconversion right are difficult if notimpossibleto quantify. Accordingly the parties acknowledge that theliquidateddamages provision contained inthisSectionarejustified.
1.3. AuthorizedShares.TheBorrowercovenantsthattheBorrowerwillatalltimeswhilethisNoteisoutstandingreservefromitsauthorizedandunissuedCommonStocka
sufficientnumberofshares,freefrompreemptiverights,toprovidefortheissuanceofCommonStock upon the full conversion ofthis Note. The Borrower isrequired at alltimesto have authorizedand reserved two (2)times thenumber of shares that isactually issuable upon full conversion of thisNote(basedontheConversionPriceoftheNotesineffectfromtimetotime)(the“ReservedAmount”).Initially,theCompanywillinstructtheTransferAgenttoreservefivemillion(5,000,000) shares of common stockin thenameof the Holderfor issuance upon conversion hereof.The Borrower represents that upon issuance, such shareswill beduly andvalidlyissued,fullypaidandnon-assessable. In addition, iftheBorrower shallissue any securities ormake any change to its capitalstructurewhichwould change thenumber of shares ofCommon Stock intowhich this Note shall be convertibleat the then currentConversion Price, the Borrower shallat thesametimemakeproperprovisionsothatthereafterthereshallbeasufficientnumberofsharesofCommonStock authorized and reserved, free frompreemptive rights,forconversionofthisNote infull.The Borrower (i) acknowledges that ithasirrevocablyinstructedits transfer agent toissue certificatesfortheCommonStockissuableuponconversionofthisNote, and(ii)agrees thatitsissuanceofthisNote shallconstitutefullauthorityto itsofficers andagentswho are charged with the dutyofexecuting stock certificates toexecute and issue the necessarycertificatesforshares ofCommonStock in accordance with the terms and conditions of this Note.
If,atanytimetheBorrowerdoesnotmaintaintheReservedAmountitwillbe considered an Event of Default under Section 3.2 of theNote.
| 1.4. | Method of Conversion. |
a) MechanicsofConversion.SubjecttoSection1.1,thisNotemaybeconvertedbytheHolderinwholeorinpartatanytimeandfromtimetotimeaftertheIssueDate,bysubmittingtotheBorroweraNoticeofConversion(byfacsimile,e-mailorotherreasonablemeansofcommunicationdispatchedontheConversionDateprior to11:59p.m., NewYork, New Yorktime).
b) BookEntryuponConversion.Notwithstandinganythingtothecontrarysetforthherein,uponconversionofthisNoteinaccordancewiththetermshereof,theHoldershallnotberequiredtophysicallysurrenderthisNotetotheBorrowerunlesstheentireunpaidprincipalamountofthisNoteissoconverted.TheHolderandtheBorrowershallmaintainrecordsshowingtheprincipalamountsoconvertedandthedatesofsuchconversionsorshallusesuchothermethod,reasonablysatisfactorytotheHolderandtheBorrower,so asnot torequire physical surrender of this Note upon each such conversion. Inthe event of any dispute or discrepancy, such records of the Borrower shall,prima facie,be controlling anddeterminative in the absence ofmanifest error.Notwithstanding the foregoing, ifany portion of this Note is converted as aforesaid,the Holdermay nottransfer thisNoteunlesstheHolder first physicallysurrendersthis NotetotheBorrower,whereupontheBorrowerwillforthwithissueanddeliverupontheorderof theHolderanewNoteofliketenor,registeredastheHolder(uponpaymentbytheHolderofanyapplicable transfer taxes)may request, representing in theaggregate theremaining unpaid principalamountofthisNote.TheHolderandanyassignee,byacceptanceofthisNote,acknowledgeand agreethat,byreasonoftheprovisionsofthisparagraph,followingconversionofa portionofthis Note,theunpaidandunconvertedprincipal amountofthisNoterepresentedby thisNotemaybeless than theamount stated on the face hereof.
c) PaymentofTaxes.TheBorrowershallnotberequiredtopayanytaxwhichmaybepayableinrespectofanytransferinvolvedintheissueanddeliveryofsharesofCommonStockorothersecuritiesorpropertyonconversionofthisNoteinanameotherthanthatoftheHolder(orinstreetname),andtheBorrowershallnotberequiredtoissue ordeliverany suchsharesor othersecurities orproperty unless and until theperson or persons (other than the Holder orthecustodianinwhose streetname suchshares aretobeheldfortheHolder’saccount)requesting the issuance thereof shall have paid to theBorrower the amount of any such tax or shall have established to thesatisfaction of the Borrower that such taxhas been paid.
d) DeliveryofCommonStockuponConversion. UponreceiptbytheBorrowerfromtheHolderofafacsimiletransmissionore-mail(orotherreasonablemeansofcommunication)ofaNoticeofConversionmeetingtherequirementsforconversionasprovidedinthisSection1.4,theBorrowershallissueanddeliverorcausetobeissuedanddeliveredtoorupon theorderoftheHoldercertificatesfortheCommon Stockissuableuponsuchconversionwithinthree (3)business days after such receipt(the“Deadline”)(and,solelyinthecaseofconversionof the entire unpaid principalamount hereof, surrender of thisNote) inaccordance with the terms hereof and the PurchaseAgreement.
e) ObligationofBorrowertoDeliverCommonStock.UponreceiptbytheBorrowerofadulyandproperlyexecutedNoticeofConversion,theHoldershallbedeemedtobetheholderofrecordoftheCommonStockissuableuponsuchconversion,theoutstanding principalamountandtheamountofaccruedandunpaidinterestonthisNoteshallbereducedtoreflectsuchconversion,and,unlesstheBorrowerdefaultsonitsobligationsunderthisArticleI,allrightswithrespecttotheportionofthisNotebeingsoconvertedshallforthwithterminateexcept theright to receive the Common Stock or other securities,cash or other assets, asherein provided, on such conversion. IftheHolder shall have given aNotice of Conversion as provided herein, theBorrower’s obligation to issue and deliver thecertificatesforCommon Stock shall be absolute and unconditional,irrespectiveoftheabsenceofanyactionbytheHoldertoenforcethesame, anywaiverorconsentwithrespect toanyprovisionthereof,therecovery of anyjudgment against any person orany action to enforce thesame, any failureor delay in theenforcement of any otherobligation of theBorrower to the holder ofrecord, oranysetoff,counterclaim,recoupment,limitationortermination,oranybreachorallegedbreachbytheHolderofanyobligationtothe Borrower,and irrespective of any othercircumstance whichmight otherwiselimitsuchobligation of theBorrower to theHolder inconnection with suchconversion.TheConversionDatespecified intheNoticeofConversionshallbetheConversionDatesolongastheNoticeofConversionisreceived by the Borrower before 11:59p.m., NewYork, NewYorktime, on such date.
f) DeliveryofCommonStockbyElectronicTransfer.InlieuofdeliveringphysicalcertificatesrepresentingtheCommonStockissuableuponconversion,providedtheBorrowerisparticipatingintheDepositoryTrustCompany(“DTC”)FastAutomatedSecuritiesTransfer(“FAST”)program,uponrequestoftheHolderanditscompliancewiththeprovisionscontainedinSection1.1andinthisSection1.4,theBorrower shalluseitsbesteffortstocauseitstransfer agent toelectronicallytransmittheCommonStockissuable uponconversion to theHolder by crediting the account ofHolder’sPrimeBroker withDTCthrough its DepositWithdrawalAgentCommission(“DWAC”)system.
g) FailuretoDeliverCommonStockPriortoDeadline.WithoutinanywaylimitingtheHolder’srighttopursueotherremedies,includingactualdamagesand/orequitable
relief,thepartiesagreethatifdeliveryoftheCommonStockissuableuponconversionofthisNoteis notdelivered by theDeadline,the Borrower shall pay to theHolder $1,000.00 perday in cash, foreachdaybeyondtheDeadlinethattheBorrowerfailstodeliversuchCommonStocktotheHolder.SuchcashamountshallbepaidtoHolderbythefifthdayofthemonthfollowingthemonthinwhichithasaccruedor,attheoptionoftheHolder,shallbeaddedtotheprincipalamountofthisNote,inwhicheventinterestshall accrue thereoninaccordancewith thetermsofthisNoteand such additional principalamountshall beconvertibleintoCommon Stock inaccordance withthetermsofthisNote.TheBorroweragreesthattherighttoconvertisavaluablerighttotheHolder. Thedamagesresultingfromafailure,attempt tofrustrate, orinterference with suchconversionright aredifficult ifnotimpossible to qualify. Accordingly thepartiesacknowledgethattheliquidateddamages provision contained inthis Section 1.4(g) are justified.
h) TheBorroweracknowledgesthatitwilltakeallreasonablestepsnecessaryorappropriate,includingprovidinganopinionofcounselconfirmingtherightsofHoldertosellsharesofCommonStockissuedtoHolderonconversionoftheNotepursuanttoRule144aspromulgatedbytheSEC(“Rule144"),assuchRulemaybeineffectfromtimetotime.IftheBorrowerdoesnotpromptlyprovideanopinionfromBorrowercounsel,andsolongastherequestedsalemaybemadepursuanttoRule144,theBorroweragreestoacceptanopinionofcounseltothe Holder whichopinionwill beissued at the Borrower’s expense.
1.5. RestrictedSecurities.ThesharesofCommonStockissuableuponconversionofthisNotemaynotbesoldortransferredunless(i)suchsharesaresoldpursuanttoaneffectiveregistrationstatementundertheActor(ii)theBorroweroritstransferagentshallhavebeenfurnishedwithanopinionofcounsel(whichopinionshallbeinform,substanceand scopecustomary for opinions of counselincomparable transactions)to the effect thattheshares to besold or transferredmay be sold ortransferredpursuant to anexemption from such registration or(iii) such shares are sold or transferred pursuant to Rule 144 under theAct (or asuccessorrule) (“Rule 144”)or(iv)suchsharesaretransferredtoan“affiliate”(asdefinedinRule144)oftheBorrowerwhoagreestosellorotherwisetransferthesharesonlyinaccordancewiththisSection1.5andwho is an Accredited Investor (asdefined in thePurchaseAgreement).Any legend set forth on any stockcertificateevidencinganyConversionSharesshallberemovedandtheBorrowershallissue to theHolder a new certificate therefore free of any transfer legend if (i)theBorrower or itstransfer agent shall have received an opinion of counsel form,substance and scopecustomary for opinions of counsel incomparable transactions, to the effect that a public sale or transfer of such Common Stockmay bemade without registration undertheAct,whichopinion shall bereasonablyacceptabletotheCompany,or(ii)inthecaseoftheCommonStock issuedorissuableuponconversionof this Note, such securityis registeredforsaleby theHolder under an effective registrationstatement filedunder the Act orotherwisemay besoldpursuanttoRule144withoutanyrestrictionas tothenumber ofsecurities asof aparticular datethat canthen beimmediatelysold.
| 1.6. | Effect of Certain Events. |
a) EffectofMerger,Consolidation,Etc.AttheoptionoftheHolder,thesale,conveyanceordispositionofallorsubstantiallyalloftheassetsoftheBorrower,the effectuationbytheBorrowerofatransactionorseriesofrelatedtransactionsinwhichmorethan50%ofthevotingpoweroftheBorrowerisdisposedof,ortheconsolidation,mergerorotherbusinesscombinationoftheBorrowerwithorintoanyother Person(asdefinedbelow)orPersons
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whentheBorrowerisnotthesurvivorshalleither:(i)bedeemedtobeanEventofDefault(asdefinedinArticleIII)pursuanttowhichtheBorrowershallberequiredtopaytotheHolderupontheconsummationofandasaconditiontosuchtransactionanamountequaltotheDefaultAmount(asdefinedinArticleIII)or(ii)betreatedpursuanttoSection1.6(b)hereof.“Person”shallmeananyindividual,corporation,limited liability company,partnership, association, trust or other entity or organization.
b) AdjustmentDuetoMerger,Consolidation,Etc.If,atanytimewhenthisNoteisissuedandoutstandingandpriortoconversionofalloftheNotes,thereshallbeanymerger, consolidation, exchange ofshares, recapitalization,reorganization, or othersimilar event, asaresultofwhichsharesofCommonStockoftheBorrowershallbechangedintothesameoradifferentnumberofsharesofanotherclassorclassesofstockorsecuritiesoftheBorroweroranotherentity,orincaseofanysaleorconveyanceofallorsubstantiallyalloftheassetsoftheBorrowerotherthaninconnectionwithaplanofcompleteliquidationoftheBorrower,thenthe Holder ofthisNote shall thereafterhave theright toreceiveuponconversionofthisNote,uponthe basis and upon theterms and conditions specified herein and inlieu of the shares ofCommon Stockimmediately theretofore issuable upon conversion, such stock,securities orassetswhich theHolder would have been entitled to receive in suchtransaction hadthisNote beenconvertedinfullimmediatelypriortosuchtransaction(withoutregardtoanylimitationsonconversionsetforth herein),andinanysuchcaseappropriateprovisionsshallbemadewithrespecttotherightsandinterests of theHolder of this Note to the end that theprovisions hereof (including, withoutlimitation, provisions foradjustment of the Conversion Priceand of thenumber of shares issuable upon conversion of theNote) shall thereafter be applicable, as nearly asmay be practicable inrelation toany securities or assets thereafter deliverableupon the conversion hereof. The Borrowershall not affect any transaction described in this Section 1.6(b) unless (a) it first gives, to the extentpracticable,thirty(30)dayspriorwrittennotice(butinanyeventatleastfifteen(15)daysprior written notice) of the recorddateofthespecialmeetingof shareholdersto approve, or if there is nosuchrecorddate,theconsummationof,suchmerger,consolidation,exchange ofshares,recapitalization,reorganization orothersimilar event orsale of assets (duringwhichtime, for clarification, theHolder shallbe entitled to convert thisNote) and(b) the resultingsuccessororacquiringentityassumes by writteninstrumenttheobligations of this Section 1.6(b).The aboveprovisionsshallsimilarly apply tosuccessiveconsolidations,mergers, sales,transfers or share exchanges.
c) Adjustment Due to Distribution. If the Borrower shall declareormakeanydistributionofitsassets(orrightstoacquireitsassets)toholdersofCommonStockasadividend,stockrepurchase,bywayofreturnofcapitalorotherwise(includinganydividendor distributiontotheBorrower’sshareholdersincashorshares(orrightstoacquireshares)ofcapitalstockofasubsidiary(i.e.,aspin-off))(a“Distribution”),thentheHolderofthisNote shallbeentitled,uponanyconversionofthisNoteafterthedateofrecordfordeterminingshareholdersentitled to suchDistribution, toreceive theamount of suchassets which would have been payable to the Holderwithrespect to the shares of Common Stock issuableuponsuchconversionhadsuch Holder been the holder of such shares of Common Stock on therecorddatefor thedetermination ofshareholders entitled to suchDistribution.Suchassetsshall be held in escrow by theCompanypending any such conversion
d) PurchaseRights.If,atanytimewhenanyNotesareissuedandoutstanding,theBorrowerissuesanyconvertiblesecuritiesorrightstopurchasestock,warrants,
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securitiesorotherproperty(the“PurchaseRights”)proratatotherecordholdersofanyclassofCommonStock,thentheHolderofthisNotewillbeentitledtoacquire,uponthetermsapplicabletosuchPurchaseRights,theaggregatePurchaseRightswhichsuchHoldercouldhaveacquiredifsuchHolderhadheldthenumberofsharesofCommonStockacquirableuponcompleteconversionofthisNote(withoutregardtoanylimitationsonconversioncontainedherein)immediatelybeforethedateonwhicharecordistakenforthegrant,issuanceorsaleofsuchPurchaseRightsor,ifnosuch record istaken, the dateas ofwhich therecord holdersof Common Stock are to bedeterminedfor the grant, issue or sale of such Purchase Rights.
e) StockDividendsandStockSplits.IftheCompany,atanytimewhilethis Note is outstanding: (A)paysa stock dividend or otherwisemakes adistribution or distributionspayableinsharesofCommonStockonsharesofCommonStockoranysecuritiesconvertibleintoorexercisableforCommonStock;(B)subdividesoutstandingsharesofCommonStockintoalargernumber of shares; (C)combines (including by way of a reverse stock split) outstanding sharesof CommonStock into asmallernumber ofshares; or (D)issues, in the event of a reclassification ofshares of the CommonStock, any shares ofcapital stock of theCompany,then the Conversion Price(andeachsaleorbidpriceusedindeterminingtheConversionPrice)shallbe multipliedbyafraction, ofwhich thenumerator shall be thenumber of sharesofCommonStockoutstandingimmediately before such event and ofwhich thedenominator shall be thenumber of shares of Common Stock outstandingimmediately aftersuch event.Anyadjustment made pursuant tothis Section shallbecomeeffective immediatelyafter the recorddateforthedetermination ofstockholders entitled toreceive such dividend or distribution and shallbecomeeffectiveimmediately after the effectivedate in the case ofa subdivision,combination or re-classification.
f) NoticeofAdjustments.UpontheoccurrenceofeachadjustmentorreadjustmentoftheConversionPriceasaresultoftheeventsdescribedinthisSection1.6,theBorrower,atitsexpense,shallpromptlycomputesuchadjustmentorreadjustmentandprepareandfurnishtotheHolderacertificatesettingforthsuchadjustmentorreadjustmentandshowingindetailthefactsuponwhichsuchadjustmentorreadjustmentisbased.TheBorrowershall,uponthewrittenrequestatanytime ofthe Holder,furnish tosuchHolder alikecertificatesetting forth (i) suchadjustment orreadjustment, (ii) the Conversion Priceatthetime ineffect and(iii)the number of shares ofCommon Stock and theamount, if any, of othersecurities orpropertywhichatthetime would be received uponconversion of the Note.
1.7. Revocation.IfanyConversionSharesarenotreceivedbytheDeadline,theHoldermayrevoketheapplicableConversionpursuanttowhichsuchConversionShareswereissuable.ThisNoteshallremainconvertibleaftertheMaturityDatehereofuntilthisNoteisrepaidor converted in full.
1.8. Prepayment.NotwithstandinganythingtothecontrarycontainedinthisNote,subjecttothetermsofthisSection,atanytimeduringtheperiodbeginningontheIssueDateandendingonthedatewhichissix(6)monthsfollowingtheIssueDate(“PrepaymentTerminationDate”),Borrowershallhavetheright,exercisableonnotlessthanfive(5)TradingDayspriorwrittennoticetotheHolderofthis Note,toprepaytheoutstandingbalanceonthisNote(principaland accruedinterest), infull,inaccordancewith thisSection.Anynoticeofprepaymenthereunder (an“OptionalPrepaymentNotice”)shallbedeliveredtotheHolderoftheNoteatitsregistered addresses and shall state: (1) thattheBorrower isexercisingits right toprepay the Note, and(2) the date ofprepaymentwhich shall be notmore than ten (10)Trading Daysfrom the date of the
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OptionalPrepaymentNotice.Onthedatefixedforprepayment(the“OptionalPrepaymentDate”),theBorrowershallmakepaymentoftheOptionalPrepaymentAmount(asdefinedbelow)toorupontheorderoftheHolderasspecifiedbytheHolderinwritingtotheBorroweratleastone(1)businessdaypriortotheOptionalPrepaymentDate.IftheBorrowerexercisesitsrighttoprepaytheNote,theBorrowershallmakepaymenttotheHolder ofanamountincash(the“OptionalPrepaymentAmount”) equal to thePrepayment Factor (asdefinedbelow),multiplied by the sum of:
(w)thethenoutstandingprincipalamountofthisNoteplus(x)accruedandunpaidinterestontheunpaidprincipalamountofthisNotetotheOptionalPrepaymentDateplus(y)DefaultInterest,ifany,ontheamountsreferredtoinclauses(w)and(x)plus(z)anyamountsowedtotheHolderpursuant to Sections1.3and1.4(g) hereof.IftheBorrower deliversan OptionalPrepaymentNoticeandfailstopaytheOptionalPrepaymentAmountduetotheHolderoftheNotewithintwo(2)business days following the OptionalPrepayment Date, theBorrowershallforever forfeit itsright to prepay theNote pursuant to thisSection. After thePrepaymentTerminationDate, the Borrower shall haveno right to prepaythisNote.Forpurposeshereof, the“PrepaymentFactor” shallequal150%,providedthatsuchPrepaymentFactorshallequal125%iftheOptionalPrepaymentDate occurs on or before the datewhich is three (3)months following the Issue Datehereof.
ARTICLEII. CERTAIN COVENANTS
2.1. DistributionsonCapitalStock.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnotwithouttheHolder’swrittenconsent(a)pay,declareorsetapartforsuchpayment,anydividendorotherdistribution(whetherincash,propertyorothersecurities)onsharesofcapitalstockotherthandividendsonsharesofCommonStocksolelyintheformofadditionalsharesof CommonStockor(b)directly orindirectlyor through any subsidiarymakeanyotherpaymentordistributioninrespectofitscapitalstockexceptfordistributionspursuanttoanyshareholders’rightsplanwhich isapprovedby amajority ofthe Borrower’s disinterested directors.
2.2. RestrictiononStockRepurchases.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnotwithouttheHolder’swrittenconsentredeem,repurchaseorotherwiseacquire(whetherforcashorinexchangeforpropertyorothersecuritiesorotherwise)inanyonetransactionorseriesofrelatedtransactionsanysharesofcapitalstockoftheBorrower or any warrants, rights or options topurchase or acquire any such shares.
2.3. Borrowings;Liens. Notwithstandingsection4(m)ofthePurchaseAgreement,solongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot (i) create, incur,assumeguarantee, endorse, contingentlyagree to purchase or otherwise becomeliableupontheobligationofanyperson,firm,partnership,jointventureorcorporation,exceptbytheendorsementofnegotiableinstrumentsfordepositorcollection,orsuffertoexistanyliabilityforborrowedmoney,except(a)borrowingsin existenceorcommitted onthedate hereofandofwhich the Borrower hasinformedHolder inwriting prior to the date hereof, or (b) indebtedness to tradecreditors orfinancialinstitutionsincurred in theordinary course of business,or (ii) enter into, createor incur any liens,claims orencumbrances of any kind,onorwithrespect toanyofitspropertyorassetsnowowned orhereafteracquiredoranyinterest therein or anyincome or profitstherefrom, securing anyindebtedness occurringafter thedatehereof.
2.4. SaleofAssets.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder’swrittenconsent,sell,leaseorotherwisedispose
ofanysignificantportionofitsassetsoutsidetheordinarycourseofbusiness.Anyconsenttothedispositionof any assets may beconditioned ona specifieduseof theproceeds ofdisposition.
2.5. AdvancesandLoans.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder’swrittenconsent,lendmoney,givecreditormakeadvancestoanyperson,firm,jointventureorcorporation,including,withoutlimitation,officers,directors,employees,subsidiariesandaffiliatesoftheBorrower,exceptloans,creditsoradvances in existenceorcommittedonthedatehereofandwhichtheBorrowerhasinformed Holder in writing prior to the date hereof.
2.6. Charter.SolongastheBorrowershallhaveanyobligationsunderthisNote,theBorrowershallnotamenditscharterdocuments,includingwithoutlimitationitscertificateofincorporationandbylaws,inanymannerthatmateriallyandadverselyaffectsanyrightsoftheHolder.
ARTICLE III. EVENTSOF DEFAULT
Anyoneormoreofthefollowingeventswhichshalloccurand/orbecontinuingshallconstitute an event of default(each, an “Event of Default”):
3.1. FailuretoPayPrincipalorInterest. TheBorrowerfailstopaytheprincipalhereoforinterestthereonwhendueonthisNote,whetheratmaturity,uponaccelerationorotherwise.
3.2. ConversionandtheShares. TheBorrowerfailstoissuesharesofCommonStock to theHolder (or announces orthreatens inwritingthatit will not honor its obligation to do soatanytimefollowingtheexecutionhereofor)uponexercisebytheHolderoftheconversionrightsof the Holder inaccordance withtheterms of this Note, failstotransferorcauseitstransferagent totransfer(issue)(electronicallyorincertificatedform)anycertificateforsharesofCommonStock issued to the Holder upon conversion of or otherwise pursuant to thisNote as and when required by thisNote, theBorrower directs its transfer agent not totransfer ordelays,impairs, and/orhinders its transferagentintransferring(orissuing)(electronicallyorincertificatedform)anycertificatefor shares of Common Stock to beissued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by thisNote, or fails toremove (ordirects itstransfer agentnot toremoveorimpairs,delays,and/orhindersitstransferagentfromremoving)anyrestrictivelegend (ortowithdrawanystoptransferinstructionsinrespectthereof)onanycertificateforanyshares of Common Stock issuedto theHolderuponconversion oforotherwisepursuant tothis Note as andwhenrequired bythisNote(ormakesanywrittenannouncement,statement or threat that it does not intend to honor the obligationsdescribed in this paragraph)and anysuchfailureshallcontinueuncured (or any writtenannouncement,statement or threatnottohonoritsobligationsshallnotberescindedinwriting)forfive(5)businessdaysaftertheHoldershallhavedelivered aNoticeof Conversion. It is an obligation of theBorrower toremaincurrentin itsobligations to itstransfer agent. It shall bean event of default ofthis Note, if a conversion of this Noteis delayed, hindered orfrustrateddue to abalance owed by the Borrower to itstransferagent. IfattheoptionoftheHolder,the Holder advances anyfunds to the Borrower’s transfer agent in order to process a conversion, such advancedfundsshall bepaid by the Borrower to theHolderwithinforty eight (48) hours of ademand from the Holder.
3.3. BreachofCovenants.TheBorrowerbreachesanymaterialcovenantorothermaterialtermorconditioncontainedinthisNoteandanycollateraldocumentsincludingbutnotlimitedtothePurchaseAgreementandsuchbreachcontinuesforaperiodofseven(7)daysafterwritten notice thereof to theBorrower fromthe Holder.
3.4. BreachofRepresentationsandWarranties.AnyrepresentationorwarrantyoftheBorrowermadehereinorinanyagreement,statementorcertificategiveninwritingpursuantheretoorinconnectionherewith(including,withoutlimitation,thePurchaseAgreement),shallbefalseormisleadinginanymaterialrespectwhenmadeandthebreachofwhichhas(orwiththepassage oftimewillhave) amaterial adverseeffect ontherights of theHolder with respect to this Note or thePurchaseAgreement.
3.5. ReceiverorTrustee.TheBorroweroranysubsidiaryoftheBorrowershallmakeanassignmentforthebenefitofcreditors,orapplyfororconsenttotheappointmentofareceiverortrusteeforitorforasubstantialpartofitspropertyorbusiness,orsuchareceiverortrustee shall otherwise be appointed.
3.6. Judgments.Anymoneyjudgment,writorsimilarprocessshallbeenteredorfiledagainsttheBorroweroranysubsidiaryoftheBorroweroranyofitspropertyorotherassets formorethan$50,000.00,andshallremainunvacated,unbondedorunstayedforaperiodoftwenty
(20)daysunlessotherwiseconsentedtobytheHolder,whichconsentwillnotbeunreasonablywithheld.
3.7. Bankruptcy.Bankruptcy,insolvency,reorganizationorliquidationproceedingsorotherproceedings,voluntaryorinvoluntary,forreliefunderanybankruptcylaworanylawforthereliefofdebtorsshallbeinstitutedbyoragainsttheBorroweroranysubsidiaryoftheBorrower.
3.8. Delisting of Common Stock. TheBorrower shall fail tomaintainthelisting oftheCommonStockonatleastoneoftheOTCQBoranequivalentreplacementexchange,Nasdaq,the NYSEorAMEX.
3.9. FailuretoComplywiththeExchangeAct.TheBorrowershallfailtocomplyinanymaterialrespectwiththereportingrequirementsoftheExchangeAct;and/ortheBorrowershallceaseto be subjectto thereportingrequirements of theExchangeAct.
3.10. Liquidation.Anydissolution,liquidation,orwindingupofBorroweroranysubstantialportion of its business.
3.11. CessationofOperations. AnycessationofoperationsbyBorrowerorBorroweradmitsitisotherwisegenerallyunabletopayitsdebtsassuchdebtsbecomedue,provided,however,thatanydisclosureoftheBorrower’sabilitytocontinueasa“goingconcern”shall not be anadmission thatthe Borrower cannot pay its debts as theybecome due.
3.12. MaintenanceofAssets. ThefailurebyBorrower,duringthetermofthisNote,tomaintainanymaterialintellectualpropertyrights,personal,realpropertyorotherassetswhich are necessary to conduct its business (whether now or in thefuture).
3.13. FinancialStatementRestatement. TherestatementofanyfinancialstatementsfiledbytheBorrowerwiththeSECforanydateorperiodfromtwoyearspriortotheIssueDateofthisNoteanduntilthisNoteisnolongeroutstanding,iftheresultofsuchrestatementwould,bycomparisontotheunrestatedfinancialstatement,haveconstitutedamaterialadverseeffect on the rights of the Holder with respect to this Note or the PurchaseAgreement.
3.14. ReverseSplits.TheBorrowereffectuatesareversesplitofits CommonStockwithout twenty (20) days priorwritten notice to the Holder.
3.15. ReplacementofTransferAgent.IntheeventthattheBorrowerproposestoreplaceitstransferagent,theBorrowerfailstoprovide,priortotheeffectivedateofsuchreplacement,afullyexecutedIrrevocableTransferAgentInstructionsinaformasinitiallydeliveredpursuanttothePurchaseAgreement(includingbutnotlimitedtotheprovisiontoirrevocablyreserve shares ofCommonStockintheReservedAmount)signedbythesuccessor transfer agent toBorrower and the Borrower.
3.16. Cross-Default.NotwithstandinganythingtothecontrarycontainedinthisNoteortheotherrelatedorcompaniondocuments,abreachordefaultbytheBorrowerofanycovenantorothertermorconditioncontainedinanyoftheOtherAgreements,afterthepassageofallapplicablenoticeandcureorgraceperiods,shall,atthe optionoftheHolder,beconsidereda default under thisNote and the OtherAgreements, inwhichevent theHoldershallbe entitled(but in no event required) to apply all rights andremedies of theHolderunder theterms of this Noteand the OtherAgreements by reason of a default under saidOtherAgreement or hereunder. “OtherAgreements”means, collectively, allagreements andinstruments between,among or by: (1) the Borrower, and, orfor the benefit of, (2) the Holder and anyaffiliate of the Holder,including, withoutlimitation, promissorynotes; provided, however, theterm “OtherAgreements”shallnot include the related orcompaniondocuments to thisNote.Eachof the loantransactionswill be cross-defaultedwitheachotherloantransactionandwithallotherexistingandfuturedebtofBorrower to the Holder.
UpontheoccurrenceandduringthecontinuationofanyEventofDefaultspecifiedinSection3.1(solelywithrespecttofailuretopaytheprincipalhereoforinterestthereonwhendueattheMaturityDate),theNoteshallbecomeimmediatelydueandpayableandtheBorrowershallpaytotheHolder,infullsatisfactionofitsobligationshereunder,anamountequaltotheDefaultSum(asdefined herein).UPONTHEOCCURRENCEANDDURINGTHECONTINUATION OFANYEVENTOFDEFAULTSPECIFIED INSECTION3.2,THENOTESHALLBECOMEIMMEDIATELYDUEANDPAYABLEANDTHEBORROWERSHALLPAYTOTHEHOLDER, INFULLSATISFACTIONOFITSOBLIGATIONSHEREUNDER,AN AMOUNTEQUALTO:(Y)THEDEFAULTSUM(ASDEFINEDHEREIN);MULTIPLIEDBY(Z)TWO
(2).UpontheoccurrenceandduringthecontinuationofanyEventofDefaultspecifiedinSections
3.1(solelywithrespecttofailuretopaytheprincipalhereoforinterestthereonwhendueonthisNoteuponaTradingMarketPrepaymentEventpursuanttoSection1.7oruponacceleration),3.3,3.4,3.6,3.8,3.9,3.11,3.12,3.13,3.14,and/or3.15exercisablethroughthedeliveryofwrittennotice totheBorrowerby suchHolders(the“DefaultNotice”), and upon theoccurrence of an EventofDefaultspecifiedintheremainingsectionsofArticlesIII(otherthanfailuretopaytheprincipal hereof orinterestthereon at theMaturityDatespecified inSection 3,1 hereof),theNoteshallbecomeimmediatelydueandpayableandtheBorrowershallpaytotheHolder,infullsatisfaction ofitsobligationshereunder,anamountequaltothegreater of (i)150%timesthesumof(w)thethen outstanding principalamount ofthisNoteplus(x)accrued and unpaid intereston the unpaidprincipalamountofthisNotetothe dateofpayment(the“MandatoryPrepaymentDate”)plus(y)DefaultInterest,if any,on theamountsreferred toinclauses(w)and/or(x)plus(z)anyamountsowed totheHolderpursuanttoSections1.3and1.4(g)hereof (the then outstanding principalamount of thisNote tothe date ofpaymentplustheamountsreferredto inclauses (x),(y) and(z)shall collectively be known as the“Default Sum”) or(ii) the“parity value” of theDefault Sum to be prepaid,whereparity valuemeans(a) thehighestnumber of shares of CommonStock issuable upon
12
conversionoforotherwisepursuanttosuchDefaultSuminaccordancewithArticleI,treatingtheTradingDayimmediatelyprecedingtheMandatoryPrepaymentDateasthe“ConversionDate”forpurposes ofdetermining thelowest applicable Conversion Price,unless the Default Event arises as aresultofabreach inrespectofaspecificConversionDatein whichcasesuchConversionDateshallbetheConversionDate),multipliedby(b)thehighestClosingPricefortheCommonStockduringtheperiodbeginningonthedateoffirstoccurrenceoftheEventofDefaultand endingonedayprior to the MandatoryPrepayment Date (the “Default Amount”)and all otheramounts payable hereunder shallimmediately become due and payable,all withoutdemand,presentment or notice, all of which hereby are expressly waived,together with allcosts, including, withoutlimitation, legal fees and expenses, ofcollection, and the Holder shall beentitled toexercise all other rights andremedies available at law or in equity.
IftheBorrowerfailstopaytheDefaultAmountwithinfive(5)businessdaysofwrittennoticethatsuchamountisdueandpayable,thentheHoldershallhavetherightatanytime,solongastheBorrowerremainsindefault(andsolongandtotheextentthattherearesufficientauthorizedshares),torequiretheBorrower,uponwrittennotice,toimmediatelyissue,inlieuoftheDefaultAmount,thenumberofsharesofCommonStockoftheBorrowerequaltotheDefaultAmountdivided bytheConversion Price then in effect.TheHoldermay still convert anyamounts due hereunder,including withoutlimitation the DefaultSum, until suchtimeas thisNote has been repaid in full.
ARTICLEIV. MISCELLANEOUS
4.1. FailureorIndulgenceNotWaiver.NofailureordelayonthepartoftheHolderintheexerciseofanypower,rightorprivilegehereundershalloperateasawaiverthereof,nor shall any single or partialexercise of any such power, right or privilegeprecludeother orfurtherexercisethereoforofanyotherright,powerorprivileges.Allrightsandremediesexistinghereunder arecumulative to, and not exclusive of, any rightsorremedies otherwise available.
4.2. Notices.Allnotices,demands,requests,consents,approvals,andothercommunicationsrequiredorpermittedhereundershallbeinwritingand,unlessotherwisespecifiedherein,shallbe(i)personallyserved,(ii)depositedinthemail,registeredorcertified,returnreceiptrequested,postageprepaid,(iii)deliveredbyreputableaircourierservicewithchargesprepaid,or
(iv)transmittedbyhanddelivery,telegram,emailorfacsimile,addressedassetforthbelowortosuchotheraddressassuchpartyshallhavespecifiedmostrecentlybywrittennotice.Anynoticeorothercommunicationrequiredorpermittedtobegivenhereundershallbedeemedeffective(a)uponhanddeliveryordeliverybyfacsimileoremail,withaccurateconfirmationgeneratedbythetransmittingfacsimilemachine orcomputer,at theaddress,email ornumber designated in the PurchaseAgreement (if delivered on a business day duringnormal business hours where such notice is to bereceived), or thefirst business day following such delivery (if delivered other than on a businessday duringnormal business hourswhere such noticeis to be received) or (b) on the secondbusinessdayfollowingthedateofmailingbyexpresscourierservice,fullyprepaid,addressed to such address, or upon actual receipt of suchmailing, whichever shall first occur.
4.3. Amendments.ThisNoteandanyprovisionhereofmayonlybeamendedbyaninstrumentinwritingsignedbytheBorrowerandtheHolder.Theterm“Note”andallreferencethereto,asusedthroughoutthisinstrument,shallmeanthisinstrument(andtheotherNotesissuedpursuanttothePurchaseAgreement)asoriginallyexecuted,oriflateramendedorsupplemented,then as soamended orsupplemented.
4.4. Assignability.ThisNoteshallbebindingupontheBorroweranditssuccessors and assigns, and shallinure to be the benefit of the Holder and its successors and assigns.EachtransfereeofthisNotemustbean“accreditedinvestor”(asdefinedinRule501(a)ofthe1933Act).NotwithstandinganythinginthisNotetothecontrary,thisNotemaybepledgedascollateralinconnection with abona fidemargin accountor otherlendingarrangement.
4.5. CostofCollection.IfdefaultismadeinthepaymentofthisNote,theBorrower shall pay the Holderhereof costs of collection,including reasonable attorneys’ fees.
4.6. GoverningLaw.ThisNoteshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkwithoutregardtoconflictsoflawsprinciplesthatwouldresultintheapplicationofthesubstantivelawsofanotherjurisdiction. Anyactionbroughtbyeitherpartyagainsttheotherconcerningthe transactionscontemplatedbythisAgreementmustbebroughtonlyinthecivilorstatecourtsofNewYorkorinthefederalcourtslocatedintheStateand county ofNewYork. Bothparties and the individual signingthisAgreement on behalf of the Borroweragreetosubmittothejurisdictionofsuchcourts.Theprevailingpartyshallbeentitledto recoverfrom theotherpartyitsreasonableattorney’sfeesandcosts.Intheeventthatanyprovisionof this Note is invalidorunenforceable under any applicablestatuteor rule of law, thensuch provision shall bedeemed inoperative totheextentthat itmayconflicttherewithandshallbedeemedmodifiedtoconformwithsuchstatuteorruleoflaw.Anysuchprovisionwhichmayproveinvalid orunenforceable under any law shallnot affectthevalidityorunenforceability of anyother provision of this Note. Nothing contained herein shall bedeemed or operate to preclude theHolder from bringing suit ortaking other legal action against theBorrower in any otherjurisdiction tocollectontheBorrower’sobligationstoHolder,torealizeonanycollateraloranyothersecurityfor suchobligations,ortoenforceajudgmentorotherdecisioninfavoroftheHolder.ThisNoteshall bedeemed an unconditionalobligation ofBorrower for the payment of moneyand,withoutlimitation to any other remediesof Holder,may be enforcedagainstBorrower by summary proceeding pursuanttoNewYorkCivilProcedureLaw andRulesSection3213 oranysimilar ruleorstatuteinthejurisdictionwhereenforcementissought. Forpurposesofsuchruleor statute, anyother document or agreement to which Holder andBorrower are parties orwhichBorrower delivered to Holder,which may be convenient ornecessary todetermineHolder’s rightshereunderorBorrower’sobligationstoHolderaredeemedapart ofthis Note,whether ornot such other document oragreementwas delivered togetherherewith orwas executedapart from this Note.
4.7. Certain Amounts.Wheneverpursuant to this Note the Borrower isrequired topayanamountinexcessoftheoutstandingprincipalamount(ortheportionthereofrequiredtobepaidatthattime)plusaccruedandunpaidinterestplusDefaultInterestonsuchinterest,theBorrowerandtheHolderagreethattheactualdamagestotheHolderfromthereceiptofcashpaymentonthisNotemaybedifficulttodetermineandtheamounttobesopaidbytheBorrowerrepresentsstipulateddamagesand not a penalty and is intended tocompensatetheHolder inpartforlossoftheopportunitytoconvertthisNoteandtoearn areturnfrom the sale ofshares ofCommon Stock acquired upon conversion ofthis Note at a price inexcess of the pricepaidfor suchsharespursuant to this Note.The Borrower and the Holderhereby agree that suchamount of stipulateddamages is not plainly disproportionate to the possible loss to theHolder from thereceipt of a cashpayment without theopportunity to convert this Note intoshares of Common Stock.
4.8. Disclosure.UponreceiptordeliverybytheCompanyofanynoticeinaccordancewiththetermsofthisNote,unlesstheCompanyhasingoodfaithdeterminedthatthemattersrelatingtosuchnoticedonotconstitutematerial,non-publicinformationrelatingtotheCompanyoranyofitsSubsidiaries,theCompanyshallwithinone(1)TradingDayafteranysuchreceipt or delivery, publicly disclosesuchmaterial,non-publicinformation on a Current Reporton Form 8-K or otherwise.In the event that theCompany believesthat a notice containsmaterial, non- publicinformation relating to the Company orany of its Subsidiaries, the Company so shall indicateto such Holdercontemporaneouslywith delivery of such notice,andintheabsenceofanysuchindication,theHoldershallbeallowed topresume that allmattersrelatingtosuchnoticedonot constitutematerial, non-public information relating to the Company or its Subsidiaries.
4.9. NoticeofCorporateEvents.Exceptasotherwiseprovidedbelow,theHolderofthisNoteshallhavenorightsasaHolderofCommonStockunlessandonlytotheextentthatitconvertsthisNoteintoCommonStock.TheBorrowershallprovidetheHolderwithpriornotificationofanymeetingoftheBorrower’sshareholders(andcopiesof proxymaterialsandotherinformationsent to shareholders).In the event of any takingby the Borrower of a record of itsshareholders for thepurpose of determining shareholders who areentitled toreceivepayment of any dividendorotherdistribution,anyrighttosubscribefor,purchaseorotherwiseacquire(including bywayofmerger,consolidation,reclassificationorrecapitalization)anyshareof anyclassorany othersecuritiesorproperty,orto receiveanyother right,orforthepurposeofdeterminingshareholderswhoareentitledtovoteinconnectionwithany proposedsale,leaseor conveyanceofallorsubstantially all of theassets of the Borroweroranyproposed liquidation,dissolutionor windingupoftheBorrower,theBorrowershallmailanotice to theHolder,at leasttwenty(20) dayspriortotherecord datespecifiedtherein(orthirty(30)dayspriortotheconsummationofthe transactionorevent,whicheverisearlier),ofthedateonwhichanysuchrecordistobetakenfor the purpose of such dividend, distribution, right or otherevent, and a briefstatement regarding theamount andcharacter of suchdividend, distribution, rightorother event to the extent known at suchtime.TheBorrowershallmake a publicannouncementof anyevent requiring notification to the Holder hereunder substantiallysimultaneously with thenotificationtotheHolderinaccordance with theterms of this Section 4.9.
4.10. Remedies.TheBorroweracknowledgesthatabreachbyitofitsobligationshereunderwillcauseirreparableharmtotheHolder,byvitiatingtheintentandpurposeofthetransactioncontemplatedhereby.Accordingly,theBorroweracknowledgesthattheremedyatlawfor a breach of its obligationsunder this Note will beinadequate andagrees, in the event of a breachorthreatenedbreachbytheBorroweroftheprovisionsofthisNote,thattheHoldershallbeentitled, in additionto allotheravailableremediesatlawor inequity,and inadditiontothe penaltiesassessableherein,to aninjunctionorinjunctionsrestraining,preventingorcuringany breach of thisNoteand to enforce specifically theterms and provisionsthereof,withoutthe necessity of showingeconomic loss and without any bond orother security being required.
4.11. Usury.ThisNoteshallbesubjecttotheanti-usurylimitationscontainedinthePurchase Agreement.
(Remainder of Pageintentionally left blank)
INWITNESSWHEREOF,Borrowerhascausedthis Noteto besigned inits namebyitsdulyauthorizedofficeras of theIssue Datefirst set forthabove.
MAXSOUND CORPORATION.
By:
Name:Greg HalpernTitle:CFOand Chairman
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ConvertibleNote –MAXD,T1,2014-12-11
EXHIBIT ANOTICEOF CONVERSION
Theundersignedherebyelectstoconvertprincipalunderthe8%ConvertibleNoteofMAXSOUNDCORPORATION.,aDelawarecorporation(theCompany”),intosharesofcommonstock(the“CommonStock”),oftheCompanyaccordingtotheconditionshereof,asofthedatewrittenbelow.IfsharesofCommonStockaretobeissuedin thename ofa personotherthanthe undersigned, the undersigned will pay all transfer taxespayablewithrespect theretoandisdeliveringherewithsuchcertificatesandopinionsasreasonablyrequestedbytheCompanyinaccordance therewith.Nofeewillbecharged totheholderfor anyconversion,exceptforsuch transfer taxes, if any.
BythedeliveryofthisNoticeofConversiontheundersignedrepresentsandwarrantstotheCompanythatitsownershipoftheCommonStockdoesnotexceedtheamountsspecifiedunderSection 1.1of this Note,asdetermined inaccordance withSection 13(d) of the Exchange Act.
TheundersignedagreestocomplywiththeprospectusdeliveryrequirementsundertheapplicablesecuritieslawsinconnectionwithanytransferoftheaforesaidsharesofCommonStockpursuant to any prospectus.
Conversion calculations:
Date to Effect Conversion:
Conversion Price:
PrincipalAmount of Note to be Converted:
InterestAccrued on Account
of Conversion at Issue:
Number of shares of Common Stock to be issued:
Signature:
Name:
Address for Delivery ofCommon Stock Certificates:
Or
DWAC Instructions:
BrokerNo:AccountNo:
17
ConvertibleNote–MAXD,T1,2014-12-11
