NEITHERTHEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBYTHISCERTIFICATENORTHESECURITIESINTOWHICHTHESESECURITIESARECONVERTIBLEHAVEBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED, OR APPLICABLE STATESECURITIESLAWS.THESECURITIESMAY NOTBEOFFEREDFORSALE,SOLD,TRANSFERRED OR ASSIGNED(I) INTHEABSENCEOF(A) ANEFFECTIVEREGISTRATIONSTATEMENTFORTHESECURITIESUNDERTHESECURITIESACT OF 1933, ASAMENDED,OR(B) ANOPINIONOFCOUNSEL(WHICHCOUNSELSHALLBESELECTEDBYTHEHOLDER), IN AGENERALLY ACCEPTABLEFORM,THATREGISTRATION ISNOTREQUIRED UNDERSAIDACT OR (II)UNLESSSOLDPURSUANTTORULE 144 ORRULE 144A UNDERSAID ACT.NOTWITHSTANDINGTHEFOREGOING,THESECURITIESMAYBEPLEDGED INCONNECTION WITH A BONA FIDEMARGINACCOUNTOROTHERLOANORFINANCINGARRANGEMENTSECUREDBYTHESECURITIES.
PrincipalAmount:$103,000.00IssueDate:April24th,2015
8%CONVERTIBLENOTE
FORVALUERECEIVED,MAXSOUNDCORPORATION.,aDelawarecorporation(“Borrower”or“Company”),herebypromisestopayto theorderofEMAFINANCIAL,LLC,aDelawarelimitedliabilitycompany,oritsregisteredassigns (the“Holder”),onDecember 10th, 2016(subject toextensionassetforthbelow, the “Maturity Date”),the sumof $103,000.00asset forthherein,andtopayinterestontheunpaidprincipalbalancehereofat therateofeightpercent (8%)perannum (the“Interest Rate”)fromthedateofissuance hereof until thisNoteplusanyandallaccruedinterest ispaidinfull. Interestshall becomputedonthebasis ofa365-dayyearandthe actualnumberofdayselapsed. Anyamountof principalorinterestonthisNotewhich isnot paidwhendue shallbearinterestat therateoftwenty-four(24%)perannumfrom the duedate thereofuntilthesame ispaid(“Default Interest”).All payments duehereundershall bemade in lawfulmoneyof theUnited StatesofAmerica.All paymentsshall bemadeatsuchaddressastheHoldershallhereaftergivetotheBorrowerby writtennotice made inaccordancewith theprovisionsof this Note.Wheneveranyamountexpressedtobe due bythe termsofthisNote isdueonanydaywhich isnot abusinessday, thesame shallinsteadbedueonthenext succeedingday whichis abusinessdayand, inthecaseofanyinterestpaymentdatewhich isnotthedateonwhichthisNote ispaidinfull, theextensionof the duedate thereof shallnot be takenintoaccountfor purposesofdeterminingtheamountofinterest dueonsuchdate. Asused inthisNote, theterm“business day”shallmeananyday otherthanaSaturday, Sundayor aday onwhichcommercialbanksinthecityofNewYork,NewYork areauthorizedorrequired bylaworexecutive order toremainclosed.Eachcapitalizedterm usedherein,andnototherwisedefined, shallhave themeaningascribedthereto inthatcertainSecurities PurchaseAgreemententeredinto byandbetween theCompanyandHolder datedonorabout thedatehereof,pursuant towhichthisNotewasoriginallyissued (the“PurchaseAgreement”).TheHoldermay, bywrittennoticeto the Borroweratleast five (5)daysbeforetheMaturity Date(asmayhavebeen previously extended),extendtheMaturity Dateto up toone(1)yearfollowingthe dateof theoriginal Maturity Datehereunder.
ThisNoteisfreefromalltaxes,liens,claimsandencumbranceswithrespecttotheissuethereofandshallnotbesubjecttopreemptive rightsorothersimilarrights ofshareholders of the Borrowerandwillnotimposepersonalliabilityupon theholderthereof.
Thefollowingterms shallapplytothis Note:
ARTICLEI.CONVERSIONRIGHTS
1.1. ConversionRight.TheHoldershallhavetheright,initssoleandabsolutediscretion,atanytimeandfromtimetotimetoconvertall oranypart of theoutstandingamount dueunder this Noteintofullypaidandnon-assessableshares of Common Stock,as such Common Stockexists ontheIssue Date,oranyshares ofcapital stock or othersecurities of the Borrowerintowhich such Common Stockshallhereafterbechangedorreclassifiedattheconversion price(the“ConversionPrice”)determinedasprovidedherein (a“Conversion”);provided,however,thatinnoevent shalltheHolderbeentitled toconvertany portionof this Noteinexcess ofthatportionof this Noteuponconversion ofwhich the sum of(1) thenumber ofshares ofCommon Stockbeneficiallyowned by theHolderanditsaffiliates (other thanshares of CommonStockwhichmaybe deemedbeneficiallyownedthrough theownershipoftheunconvertedportion ofthe Notes ortheunexercisedorunconvertedportion of any other security of the Borrowersubjectto alimitation onconversionorexercise analogous to thelimitationscontainedherein)and(2) thenumber of shares ofCommonStockissuable upontheconversionoftheportionof this Notewithrespect towhichthedeterminationof thisprovisoisbeingmade, wouldresultinbeneficialownership bytheHolder anditsaffiliates ofmorethan4.9% of theoutstandingshares of Common Stock.Forpurposes of theproviso to theimmediatelyprecedingsentence,beneficial ownership shallbedetermined inaccordance with Section 13(d) oftheSecuritiesExchangeActof1934,asamended (the“ExchangeAct”),andRegulation 13D-G thereunder, exceptasotherwiseprovidedinclause (1) of suchproviso,provided,further,however,that thelimitations onconversionmaybewaived bytheHolderupon,attheelectionof theHolder,notlessthan61days’ priornoticeto theBorrower,andtheprovisionsof theconversionlimitationshallcontinuetoapplyuntilsuch61st day(orsuchlater date,asdeterminedby theHolder,asmaybespecifiedin suchnoticeofwaiver).Thenumber ofshares ofCommonStocktobeissueduponeachconversion of thisNoteshallbedetermined bydividing theConversionAmount (asdefinedbelow) bythe applicable ConversionPrice then ineffect onthe datespecifiedin thenotice of conversion,in the form attachedheretoasExhibitA (the“NoticeofConversion”),delivered to theBorrowerby theHolderinaccordancewith Section 1.4below;providedthat theNotice ofConversion issubmitted byfacsimile or e-mail(or byothermeansresultingin, orreasonablyexpected toresultin,notice) to the Borrowerbefore 11:59p.m.,New York,NewYorktime onsuchconversiondate(the“ConversionDate”).The term“ConversionAmount”means,withrespect toanyconversion of this Note, the sum of (1) theprincipalamount of this Note tobeconvertedin suchconversion,plus(2)accruedandunpaid interest,ifany, on suchprincipalamountbeingconvertedat theinterestratesprovidedin this Note to theConversionDate,plus(3)at theHolder’soption,Default Interest,ifany, onthe amountsreferred tointheimmediatelyprecedingclauses (1)and/or (2)plus(4)at theHolder’soption, anyamounts owedtotheHolderpursuant toSections 1.3and1.4(g)hereof.
a) CalculationofConversionPrice.Theconversionpricehereunder(the“ConversionPrice”)shallequalthelowerofeither(i)theclosingsale priceoftheCommonStock
onthePrincipalMarketontheTradingDayimmediatelyprecedingtheClosingDate,and(ii)65%ofthelowestaveragetradeprice of CommonStockon the PrincipalMarketduring theten (10)consecutiveTradingDaysimmediately preceding theConversion Date.However, if Company’ssharepriceatanytimeloses thebid(ex: 0.0001ontheaskwithzeromarketmakersonthebidonlevel2),thentheConversionPricemay, intheHolder’ssoleandabsolutediscretion,bereducedto afixedconversion priceof 0.00001(iflower thantheconversion priceotherwise).IfsuchCommon Stockisnottradedon theOTCBB,OTCQB,Nasdaq orNYSE,thensuchsalepriceshallbethesalepriceof suchsecurity ontheprincipalsecuritiesexchangeortradingmarketwheresuchsecurityislistedor tradedor, if nosalepriceofsuchsecurityisavailableinanyoftheforegoingmanners, theaverageof theclosingbidpricesofanymarketmakersforsuchsecuritythatarelistedinthe“pinksheets” by theNational QuotationBureau, Inc. If suchsale price cannot becalculatedforsuch securityon suchdate in themannerprovided above,suchprice shall be thefairmarket valueasmutuallydetermined bythe Borrowerand theHolder.IftheBorrower’sCommonstock ischilledfordepositatDTC,becomeschilledatanypointwhilethisNoteremainsoutstandingordepositorotheradditionalfees arepayable due to a YieldSign,StopSignorothertradingrestrictions,or if theclosing sale priceatanytimefallsbelow0.01,then such 65%figurespecified inclause1.2(a)(ii)aboveshallbereduced to 50%.Additionally,theBorroweracknowledgesthatitwilltakeallreasonablesteps necessaryorappropriate,includingproviding aboardofdirectorsresolutionauthorizing theissuanceofcommonstockandan opinion of counselconfirming the rightsofHoldertosellsharesofCommonStockissuableorissuedto Holderonconversion of thisNotepursuanttoRule144aspromulgatedbytheSEC(“Rule144"),as suchRulemaybeineffectfromtimetotime. IftheBorrowerdoesnotpromptlyprovideaboardofdirectors’resolutionandanopinion from Companycounsel,andso longasthe requestedsalemay bemade pursuant toRule144,theCompanyagreestoacceptanopinion of counseltotheHolderwhichopinionwill beissuedat theCompany’sexpenseand theconversiondollar amountwill bereduced by$750.00tocover thecostofsuchlegalopinion.“TradingDay”shallmeananydayonwhichtheCommonStockistradableforanyperiodontheOTCQB,orontheprincipalsecuritiesexchangeorothersecuritiesmarketonwhich theCommonStockis thenbeingtraded.Additionally, iftheCompanyceasestobe areporting companypursuant tothe1934Act oriftheNotecannot beconvertedintofreetradingsharesafter 181days from theissuance date,anadditional 15%discountwill beattributedto theConversionPrice.
b) WithoutinanywaylimitingtheHolder’srighttopursueotherremedies,includingactual damagesand/orequitablerelief,the partiesagreethatifdelivery oftheCommon Stockissuableuponconversionof thisNote isnotdeliveredby theDeadline (asdefinedbelow) the Borrowershallpayto theHolder$1,000.00perdayincash,for eachdaybeyond theDeadlinethat the Borrowerfailstodeliver such CommonStock.Suchcashamount shallbe paidtoHolder bythefifthdayof themonthfollowingthemonthinwhichithas accruedor, atthe optionof theHolder,shallbeaddedto the principalamountofthisNote,inwhicheventinterestshallaccrue thereoninaccordancewith theterms ofthisNoteand suchadditionalprincipalamountshall beconvertibleintoCommonStockinaccordance withtheterms ofthis Note.The Borroweragreesthattheright toconvertthisNote isavaluable right to theHolder.Thedamagesresulting from afailure,attempttofrustrate,orinterference withsuchconversionright aredifficultifnotimpossible toquantify.Accordinglythepartiesacknowledgethat theliquidateddamagesprovisioncontained inthis Sectionarejustified.
1.3. AuthorizedShares.TheBorrowercovenantsthattheBorrowerwillatalltimeswhilethisNoteisoutstandingreserve fromitsauthorizedandunissued Common Stock a
sufficientnumberofshares,freefrompreemptiverights,toprovidefortheissuanceofCommonStockuponthefullconversionof thisNote.TheBorrower isrequiredatall times tohaveauthorizedandreservedthree(3)times thenumberofsharesthat isactuallyissuableupon full conversionofthis Note(basedon theConversion Priceof the Notesineffectfromtime totime)(the“ReservedAmount”).However,ifCompany’sstockclosesbelowtwocents($0.02)forfive(5)consecutiveTradingDays while Note isoutstanding CompanyandTransferAgentwillatall timescause tobereservedten (10)timesthe thencurrentnumberofconversionshares.Initially,theCompany willinstruct theTransferAgent toreservefivemillion,ninehundredthousand (5,900,000)sharesofcommonstock in thename of theHolderforissuanceuponconversionhereof.TheBorrowerrepresentsthatuponissuance, suchshareswillbedulyandvalidlyissued,fullypaidandnon-assessable.Inaddition,if the Borrowershallissueanysecurities ormakeanychange toits capital structurewhichwould changethenumberofshares ofCommonStockintowhichthisNoteshall beconvertibleatthethencurrentConversionPrice,theBorrowershallatthesametimemake properprovisionsothatthereafter there shallbe asufficientnumber of sharesof CommonStockauthorizedandreserved,free frompreemptiverights,forconversion of this Noteinfull. The Borrower(i)acknowledges thatithasirrevocablyinstructeditstransferagent toissuecertificatesfor theCommonStockissuable uponconversionofthis Note,and(ii)agreesthatitsissuanceofthisNoteshall constitutefull authority toitsofficersandagentswho arecharged with thedutyofexecutingstockcertificatestoexecuteandissue thenecessarycertificatesforsharesofCommon Stock inaccordancewiththetermsandconditions ofthisNote.
If,atanytimetheBorrowerdoesnotmaintaintheReservedAmountitwillbeconsideredanEventofDefaultunderSection3.2of theNote.
a) MechanicsofConversion.SubjecttoSection1.1,thisNotemaybeconvertedbytheHolderinwholeorinpartatanytimeand fromtimetotimeafter theIssueDate, bysubmittingtothe Borrower aNotice ofConversion(byfacsimile,e-mailorotherreasonablemeansofcommunicationdispatchedontheConversionDate prior to 11:59p.m.,NewYork,NewYorktime).
b) BookEntryuponConversion.Notwithstandinganythingtothecontrarysetforthherein,uponconversionofthisNoteinaccordancewiththetermshereof,theHoldershallnotberequiredtophysicallysurrenderthisNoteto theBorrowerunless theentireunpaid principalamountof thisNote isso converted.The Holderand the Borrowershallmaintainrecordsshowing the principalamountsoconvertedand the datesof suchconversionsorshall use suchothermethod,reasonably satisfactoryto theHolderandtheBorrower,soasnot torequirephysicalsurrenderof this Noteuponeach suchconversion. In theeventofany dispute ordiscrepancy, such recordsof theBorrower shall,primafacie,becontrollinganddeterminative intheabsenceofmanifest error.Notwithstandingtheforegoing, ifanyportion of thisNoteisconvertedasaforesaid, theHolder maynottransferthisNoteunless theHolder firstphysicallysurrenders thisNote to theBorrower,whereupon theBorrowerwill forthwith issueanddeliverupon theorderoftheHolder anewNoteoflike tenor,registeredas theHolder(uponpayment by theHolder ofanyapplicabletransfertaxes)mayrequest,representing inthe aggregate theremainingunpaid principalamountofthis Note.TheHolderandanyassignee, byacceptanceof thisNote,acknowledgeandagree that, by reason of theprovisions of thisparagraph,followingconversion of a portion ofthis
Note,theunpaidandunconvertedprincipalamountofthisNoterepresentedbythisNotemaybeless thantheamountstatedonthefacehereof.
c) PaymentofTaxes.TheBorrowershallnotberequiredtopayanytaxwhichmaybepayableinrespectofanytransferinvolvedintheissueanddeliveryofshares ofCommonStockorothersecuritiesorproperty onconversionofthisNoteinanameotherthanthatof theHolder(orin streetname),andtheBorrowershallnotberequired toissueordeliveranysuchsharesor othersecuritiesorpropertyunlessanduntil thepersonorpersons (other thantheHolderor thecustodianinwhose streetname suchshares are tobeheldfortheHolder’s account)requesting theissuancethereof shallhavepaidto the Borrower theamountofany suchtaxorshallhaveestablished tothesatisfactionof theBorrower thatsuchtaxhasbeenpaid.
d) DeliveryofCommonStockuponConversion.UponreceiptbytheBorrowerfromtheHolderofafacsimiletransmissionore-mail(orotherreasonablemeansofcommunication)of aNoticeofConversionmeeting therequirementsforconversionasprovided inthisSection1.4, the Borrowershallissueanddeliveror cause to beissuedanddeliveredto orupon theorderof theHoldercertificatesfor theCommon Stockissuableuponsuchconversionwithin three (3)businessdaysaftersuch receipt(the“Deadline”)(and,solely in the caseofconversionof theentireunpaidprincipalamounthereof,surrenderof thisNote)inaccordancewith the terms hereofandthePurchaseAgreement.
e) ObligationofBorrowertoDeliverCommonStock.UponreceiptbytheBorrowerofadulyandproperlyexecutedNoticeofConversion, theHolder shall bedeemed to be theholderof recordof the Common Stockissuableupon suchconversion, theoutstandingprincipalamountandtheamountofaccruedandunpaidinterestonthisNoteshallbe reducedtoreflect suchconversion,and,unlessthe BorrowerdefaultsonitsobligationsunderthisArticle I,all rightswithrespecttotheportionofthisNote beingsoconvertedshallforthwith terminateexcept theright toreceive theCommonStockorothersecurities,cashorotherassets,ashereinprovided,on suchconversion.Ifthe Holdershallhave given aNoticeofConversionasprovidedherein,theBorrower’sobligationto issueanddeliver thecertificatesforCommonStockshall beabsoluteandunconditional,irrespectiveof theabsenceofanyaction by theHoldertoenforce thesame,anywaiverorconsentwithrespecttoanyprovision thereof,the recoveryofanyjudgmentagainstany personorany actiontoenforce thesame,anyfailureordelay intheenforcementofany otherobligationoftheBorrower totheholderofrecord,oranysetoff,counterclaim,recoupment,limitationortermination,oranybreachorallegedbreachbytheHolderofanyobligationtotheBorrower,andirrespectiveofany othercircumstance whichmightotherwise limitsuchobligationofthe Borrower to theHolderinconnection with suchconversion.TheConversionDatespecified intheNoticeofConversionshallbe theConversionDateso longas theNoticeofConversionisreceivedby theBorrowerbefore11:59 p.m.,New York,NewYorktime,onsuch date.
f) DeliveryofCommonStockbyElectronicTransfer.InlieuofdeliveringphysicalcertificatesrepresentingtheCommonStockissuableuponconversion,provided theBorrower isparticipatingintheDepositoryTrustCompany(“DTC”)FastAutomatedSecuritiesTransfer(“FAST”)program,uponrequestof theHolderanditscompliancewith the provisionscontained in Section1.1and inthis Section1.4,the Borrowershall useits best effortstocauseitstransfer agent toelectronicallytransmit the CommonStockissuableuponconversiontotheHolder bycreditingtheaccountofHolder’sPrime Brokerwith DTC throughitsDepositWithdrawalAgentCommission(“DWAC”)system.
g) FailuretoDeliverCommonStockPriortoDeadline.WithoutinanywaylimitingtheHolder’sright topursueotherremedies,includingactualdamagesand/orequitablerelief, thepartiesagreethatif delivery ofthe CommonStockissuableuponconversion ofthisNoteisnotdeliveredby theDeadline,theBorrowershallpaytotheHolder $1,000.00perday incash,for eachdaybeyondtheDeadlinethat theBorrowerfailstodeliversuchCommonStockto theHolder.SuchcashamountshallbepaidtoHolder bythefifthdayofthemonthfollowing themonth inwhich ithas accruedor,at theoptionof the Holder,shallbeaddedto theprincipalamountof this Note,inwhicheventinterestshallaccrue thereoninaccordance withthe termsof thisNoteand suchadditional principalamountshallbeconvertibleintoCommonStockinaccordancewiththetermsof thisNote.The Borroweragreesthat theright toconvertis avaluable right to theHolder.Thedamagesresultingfrom afailure,attempttofrustrate,orinterferencewithsuchconversionright aredifficultifnotimpossibletoqualify.Accordinglythepartiesacknowledgethattheliquidateddamagesprovisioncontainedinthis Section1.4(g)arejustified.
h) TheBorroweracknowledgesthatitwilltakeallreasonablestepsnecessaryorappropriate,includingprovidinganopinion ofcounselconfirmingtherightsofHoldertosellsharesof CommonStockissued toHolderonconversionof theNotepursuanttoRule 144aspromulgated by the SEC(“Rule 144"),as suchRulemaybeineffectfromtimetotime.IftheBorrowerdoesnotpromptlyprovidean opinionfrom Borrowercounsel,andsolongasthe requestedsalemaybemadepursuant toRule144, the Borroweragrees toacceptanopinionofcounseltotheHolderwhichopinionwillbeissuedattheBorrower’sexpense.
1.5. RestrictedSecurities.ThesharesofCommonStockissuableuponconversionofthisNotemaynotbesoldortransferredunless(i)suchshares aresoldpursuanttoaneffectiveregistrationstatementunder theAct or (ii) the Borroweroritstransferagentshallhave beenfurnishedwithanopinion ofcounsel (whichopinionshallbeinform,substanceand scope customaryforopinionsofcounselincomparabletransactions) totheeffectthatthesharestobesoldortransferredmaybesoldortransferred pursuant toanexemption fromsuchregistrationor(iii) suchshares aresoldortransferredpursuanttoRule144under theAct(or asuccessorrule) (“Rule144”)or(iv) suchshares aretransferredtoan“affiliate”(asdefinedinRule144)of theBorrowerwhoagreestosellorotherwisetransfer thesharesonlyinaccordance withthisSection1.5andwhoisanAccredited Investor (asdefinedin thePurchaseAgreement).Anylegend setforthonany stockcertificateevidencinganyConversionSharesshall beremovedandthe Borrowershallissue totheHolder anewcertificatethereforefreeofanytransferlegendif(i) theBorroweroritstransferagent shallhavereceivedanopinionofcounselform,substanceandscopecustomaryforopinionsofcounselincomparabletransactions,totheeffectthat apublicsaleortransferofsuchCommonStockmaybemadewithoutregistrationundertheAct,whichopinionshallbereasonablyacceptableto theCompany,or(ii)inthecaseof the CommonStockissuedorissuableuponconversionof thisNote,such securityis registeredforsale by theHolderunderaneffectiveregistrationstatementfiledunder theActorotherwisemaybesoldpursuant toRule 144withoutanyrestrictionasto thenumberofsecuritiesasofa particulardatethatcanthenbeimmediatelysold.
| 1.6. | EffectofCertainEvents. |
a) EffectofMerger,Consolidation,Etc.AttheoptionoftheHolder,thesale,conveyanceordispositionof allorsubstantiallyall oftheassetsoftheBorrower,theeffectuation by the Borrowerof atransactionorseriesof relatedtransactionsin whichmorethan
50%ofthevotingpoweroftheBorrowerisdisposedof,ortheconsolidation,mergerorotherbusinesscombinationoftheBorrowerwithor intoanyother Person(asdefined below)orPersonswhen the Borrowerisnot thesurvivorshall either: (i)bedeemedto beanEventofDefault(asdefined inArticle III)pursuant towhichthe Borrowershall berequiredtopayto theHolder upon theconsummation of and as acondition tosuchtransactionanamount equaltotheDefaultAmount (asdefined inArticle III) or (ii) be treatedpursuant toSection1.6(b)hereof.“Person” shall meananyindividual,corporation,limitedliabilitycompany,partnership,association,trustorother entityororganization.
b) AdjustmentDuetoMerger,Consolidation,Etc.If,atanytimewhenthisNoteisissuedandoutstandingandprior toconversion ofall of theNotes, thereshall beanymerger,consolidation,exchangeofshares,recapitalization, reorganization,orothersimilarevent,as aresultofwhichsharesofCommonStockofthe Borrowershallbechangedinto thesameor adifferentnumberofshares of anotherclassorclassesofstock orsecurities of the Borroweroranotherentity,orincaseofanysaleorconveyanceofallorsubstantiallyallof theassetsofthe Borrowerother thaninconnectionwitha planofcompleteliquidationoftheBorrower,thentheHolderofthisNoteshallthereafterhave theright toreceiveuponconversionofthisNote,uponthebasisanduponthetermsandconditionsspecifiedhereinandinlieu oftheshares of CommonStockimmediatelytheretoforeissuableuponconversion, suchstock,securitiesorassetswhichtheHolderwouldhavebeenentitledtoreceivein such transactionhad thisNotebeen convertedinfullimmediately prior tosuchtransaction(withoutregard toanylimitationsonconversionset forthherein),andinanysuchcaseappropriateprovisions shall bemadewithrespect totherightsandinterestsof theHolderof thisNote to theendthat theprovisionshereof(including,withoutlimitation,provisionsforadjustmentof theConversionPriceand of thenumberof sharesissuableuponconversionof the Note)shallthereafterbeapplicable,asnearlyasmay bepracticable inrelationtoanysecuritiesorassetsthereafterdeliverableupon the conversionhereof. The Borrowershallnotaffectanytransactiondescribedin this Section1.6(b) unless (a)itfirstgives,to theextentpracticable, thirty(30)days priorwrittennotice(butinanyeventatleastfifteen(15)dayspriorwrittennotice)ofthe recorddateofthespecialmeeting of shareholderstoapprove,orifthereisno such record date, theconsummationof, suchmerger,consolidation, exchange of shares,recapitalization, reorganizationorothersimilareventorsale ofassets(during whichtime,forclarification, theHolder shall beentitledtoconvertthis Note)and (b) theresultingsuccessororacquiring entityassumes by writteninstrumenttheobligations of thisSection1.6(b).The aboveprovisions shall similarly applytosuccessiveconsolidations,mergers,sales,transfersorshareexchanges.
c) AdjustmentDue toDistribution.IftheBorrower shalldeclareormakeanydistributionofitsassets(orrightstoacquireitsassets) toholdersof CommonStockasadividend,stockrepurchase,bywayofreturnof capitalorotherwise(includinganydividendordistributionto theBorrower’sshareholdersincashorshares(orrights toacquireshares) ofcapital stockof a subsidiary (i.e.,aspin-off))(a“Distribution”),thentheHolderof thisNoteshallbeentitled,uponanyconversionof thisNoteafterthedateofrecordfordeterminingshareholdersentitledtosuchDistribution,toreceivetheamountofsuchassetswhichwouldhavebeenpayableto theHolder withrespect to thesharesof CommonStockissuableupon suchconversionhad suchHolder beentheholderofsuchsharesofCommonStock ontherecorddateforthedeterminationofshareholdersentitled to suchDistribution. Such assets shall beheldin escrow bytheCompanypendinganysuchconversion
7
d) PurchaseRights.If,atanytimewhenanyNotesareissuedandoutstanding,theBorrowerissuesanyconvertiblesecuritiesorrightstopurchase stock,warrants,securitiesorother property (the“Purchase Rights”) pro rata to the recordholdersofanyclassofCommon Stock,then theHolderofthisNotewillbeentitledtoacquire,upon thetermsapplicable tosuch PurchaseRights, the aggregate PurchaseRights which such Holdercouldhaveacquiredif suchHolderhadheldthenumberof sharesofCommonStockacquirable uponcompleteconversionof thisNote(without regardtoanylimitationsonconversioncontainedherein)immediatelybefore thedateonwhich a recordistakenfor the grant,issuanceorsaleofsuchPurchase Rightsor,ifno suchrecordistaken,the dateasof whichtherecordholdersof CommonStockaretobedeterminedfor thegrant,issueor saleof suchPurchaseRights.
e) StockDividendsandStockSplits.IftheCompany,atanytimewhilethisNoteisoutstanding:(A)pays astockdividendor otherwisemakes adistributionordistributionspayablein sharesof CommonStockonsharesofCommonStockoranysecuritiesconvertibleintoorexercisablefor CommonStock;(B)subdividesoutstanding shares of CommonStockinto alargernumberofshares; (C)combines(includingbyway of areverse stocksplit)outstandingsharesofCommonStockinto asmallernumberofshares;or(D)issues,intheeventof areclassificationofsharesof theCommonStock, anysharesof capitalstockof theCompany,thentheConversionPrice(and eachsaleorbid price usedindetermining the ConversionPrice) shall bemultiplied by afraction, of which the numeratorshall be thenumber ofsharesof CommonStockoutstandingimmediatelybefore sucheventand of which the denominatorshallbe thenumberofsharesofCommonStockoutstandingimmediatelyafter such event. Anyadjustmentmadepursuant to thisSection shallbecomeeffectiveimmediatelyafter the recorddatefor thedetermination ofstockholdersentitledtoreceivesuch dividendordistributionand shallbecomeeffectiveimmediatelyaftertheeffective dateinthecaseof asubdivision,combinationor re-classification.
f) NoticeofAdjustments.UpontheoccurrenceofeachadjustmentorreadjustmentoftheConversionPriceasaresultoftheeventsdescribedin thisSection1.6,theBorrower, atitsexpense, shallpromptly compute suchadjustment orreadjustmentand prepareandfurnishto theHolderacertificatesettingforthsuchadjustmentorreadjustmentandshowingindetailthefactsuponwhich suchadjustmentorreadjustmentisbased.The Borrower shall,upon thewrittenrequestatanytimeof theHolder,furnish tosuchHolder alike certificatesetting forth (i) suchadjustmentorreadjustment, (ii) the ConversionPriceat thetime ineffectand(iii) thenumberof sharesof CommonStockandtheamount, ifany,of othersecuritiesor property whichat thetimewouldbereceiveduponconversionof theNote.
1.7. Revocation.IfanyConversionSharesarenotreceivedbytheDeadline,theHoldermay revoke theapplicableConversionpursuant towhich suchConversionShareswereissuable.This Noteshallremainconvertibleafterthe Maturity Date hereofuntil this Note isrepaid or converted in full.
1.8. Prepayment.Notwithstandinganything tothecontrarycontainedinthisNote,subjecttothetermsofthisSection,atanytimeduringtheperiodbeginningontheIssueDateand endingonthedatewhichissix (6)monthsfollowing the IssueDate (“PrepaymentTermination Date”),Borrowershall have the right, exercisableonnotless thanfive (5)TradingDays priorwrittennoticetotheHolderof thisNote, toprepaytheoutstandingbalanceonthisNote(principal andaccruedinterest),infull,inaccordance withthisSection. Anynoticeofprepaymenthereunder (an“OptionalPrepayment Notice”) shall bedeliveredto the Holderof theNoteat its registered
addressesandshallstate:(1) thattheBorrowerisexercisingitsrighttoprepaytheNote,and(2)thedateofprepaymentwhich shallbenotmorethanten (10)TradingDays from thedateoftheOptionalPrepaymentNotice.Onthedatefixedforprepayment (the“OptionalPrepaymentDate”), theBorrowershallmakepaymentof the OptionalPrepaymentAmount (asdefinedbelow) to oruponthe orderof theHolderasspecified bytheHolderinwritingtothe Borroweratleastone(1)businessday prior to the OptionalPrepaymentDate. If the Borrowerexercisesitsright to prepay theNote, the Borrowershallmakepayment totheHolderofanamountincash (the“OptionalPrepaymentAmount”)equaltothePrepaymentFactor(asdefinedbelow),multipliedbythesumof:
(w)thethenoutstandingprincipalamountofthisNoteplus(x)accruedandunpaidinterestontheunpaidprincipalamountofthisNote totheOptionalPrepaymentDateplus(y)DefaultInterest,ifany,on the amounts referredto inclauses (w)and (x)plus(z)any amounts owed to theHolderpursuant toSections 1.3and1.4(g)hereof.If the Borrowerdeliversan OptionalPrepaymentNoticeandfailstopaythe OptionalPrepaymentAmount dueto theHolderof theNotewithintwo (2)businessdaysfollowingtheOptionalPrepayment Date, theBorrower shallforever forfeititsrightto prepaytheNotepursuant to thisSection.AfterthePrepaymentTerminationDate, the Borrowershallhave noright toprepay thisNote. Forpurposeshereof,the“PrepaymentFactor”shallequal 150%,providedthat suchPrepayment Factorshall equal 125% if the OptionalPrepayment Date occursonorbeforethedatewhichis three(3)monthsfollowingtheIssueDatehereof.
ARTICLEII.CERTAINCOVENANTS
2.1. Distributions onCapitalStock.SolongastheBorrowershallhaveanyobligationunderthisNote, theBorrowershallnotwithouttheHolder’s writtenconsent (a)pay,declareorsetapartforsuchpayment,anydividendorotherdistribution(whetherincash, propertyorothersecurities)onsharesof capitalstockother thandividendson sharesof CommonStocksolelyinthe formof additionalsharesofCommon Stock or(b)directlyorindirectlyorthroughanysubsidiarymakeanyotherpaymentordistributioninrespectofitscapitalstockexceptfordistributionspursuanttoanyshareholders’ rightsplan whichisapproved by amajorityof theBorrower’sdisinteresteddirectors.
2.2. RestrictiononStockRepurchases.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnotwithouttheHolder’swrittenconsentredeem,repurchaseorotherwiseacquire(whetherfor cashor inexchangefor propertyorothersecuritiesorotherwise) inanyone transactionorseriesofrelatedtransactionsany shares of capitalstockofthe Borroweror any warrants,rightsor options topurchaseoracquireany suchshares.
2.3. Borrowings;Liens.Notwithstandingsection4(m)ofthePurchaseAgreement,solongastheBorrowershallhaveany obligationunderthisNote,theBorrowershallnot(i)create,incur,assumeguarantee,endorse,contingently agreetopurchaseor otherwisebecomeliableupontheobligationofany person,firm,partnership,jointventure orcorporation,exceptby theendorsementofnegotiableinstrumentsfordepositorcollection,orsuffer toexistanyliabilityforborrowedmoney,except (a)borrowingsinexistenceorcommittedonthedatehereofandofwhich the Borrowerhasinformed Holderinwriting priorto thedatehereof,or(b)indebtednesstotradecreditorsorfinancialinstitutionsincurredin theordinarycourseof business,or(ii) enterinto, createorincuranyliens,claimsorencumbrancesofanykind,onorwithrespect toanyofits property orassetsnow ownedorhereafteracquiredoranyinterestthereinoranyincomeorprofitstherefrom,securinganyindebtednessoccurringafterthe datehereof.
2.4. SaleofAssets.SolongastheBorrowershallhaveanyobligationunderthisNote,the Borrowershall not,without theHolder’swrittenconsent,sell,lease orotherwisedisposeofanysignificantportionofitsassetsoutside theordinarycourseofbusiness. Anyconsenttothedispositionofanyassetsmaybeconditioned onaspecifieduseof the proceedsofdisposition.
2.5. AdvancesandLoans.SolongastheBorrowershallhaveanyobligationunderthis Note, theBorrowershallnot,without theHolder’s writtenconsent,lendmoney,givecredit ormakeadvances toanyperson,firm,jointventure orcorporation,including,withoutlimitation,officers, directors,employees,subsidiariesandaffiliates of theBorrower,exceptloans,credits oradvancesinexistenceorcommittedon thedate hereofandwhichthe BorrowerhasinformedHolderinwritingpriortothe datehereof.
2.6. Charter.SolongastheBorrowershallhaveanyobligationsunderthisNote,theBorrowershallnotamendits charterdocuments,includingwithoutlimitationits certificateofincorporationandbylaws,inanymannerthatmateriallyandadverselyaffectsany rights of theHolder.
ARTICLEIII.EVENTSOFDEFAULT
Anyoneormoreofthefollowingeventswhichshalloccurand/orbecontinuingshallconstituteanevent ofdefault(each,an“Event ofDefault”):
3.1. FailuretoPayPrincipalorInterest.TheBorrowerfailstopaytheprincipalhereoforinterest thereon whendueon thisNote,whetheratmaturity,upon accelerationor otherwise.
3.2. ConversionandtheShares.TheBorrowerfailstoissuesharesofCommonStocktotheHolder (orannouncesorthreatensinwritingthat itwillnothonorits obligationtodo soatanytimefollowing theexecution hereofor)uponexercise bytheHolderoftheconversionrightsof theHolderinaccordance withthe termsof thisNote,failstotransferorcauseitstransferagent totransfer(issue)(electronicallyorincertificatedform)any certificateforsharesof Common Stockissued to theHolder uponconversion oforotherwisepursuant tothisNoteasandwhenrequiredbythisNote,the Borrowerdirectsits transferagent nottotransferordelays,impairs,and/or hindersitstransferagentintransferring (orissuing) (electronicallyorin certificatedform) any certificateforsharesof CommonStocktobeissuedtotheHolderuponconversionofor otherwisepursuanttothis Noteasandwhenrequired bythis Note, orfails toremove (ordirectsitstransfer agentnot toremoveorimpairs,delays,and/orhindersitstransferagentfromremoving) anyrestrictivelegend (or towithdraw any stoptransferinstructionsinrespectthereof)onanycertificateforanysharesofCommon Stockissuedto theHolder uponconversionoforotherwisepursuant tothisNoteasandwhenrequired bythisNote (ormakes anywrittenannouncement,statement or threatthatit doesnotintendtohonor theobligationsdescribedin this paragraph)and anysuchfailure shall continueuncured (orany writtenannouncement,statementorthreatnot tohonoritsobligations shallnotberescindedinwriting)forfive(5)businessdaysaftertheHoldershallhavedeliveredaNoticeofConversion.It is an obligationof theBorrower toremaincurrentinitsobligationstoitstransferagent.Itshallbe anevent ofdefaultof this Note,ifaconversionof thisNote isdelayed,hindered orfrustrateddue to abalance owed bythe Borrowertoitstransfer agent.Ifat theoptionof theHolder, theHolderadvances anyfunds totheBorrower’stransferagentin order toprocess aconversion,
suchadvancedfundsshallbepaidbytheBorrowertotheHolderwithinfortyeight(48)hoursofademandfromtheHolder.
3.3. BreachofCovenants.TheBorrowerbreachesanymaterialcovenantorothermaterialtermorconditioncontained in thisNoteandany collateraldocumentsincludingbutnotlimitedtothePurchaseAgreementand suchbreachcontinuesfor aperiodofseven(7)daysafterwrittennoticethereofto theBorrowerfrom theHolder.
3.4. Breach of RepresentationsandWarranties.Anyrepresentation orwarrantyoftheBorrowermadehereinorinany agreement,statementorcertificategiveninwritingpursuantheretoor inconnectionherewith(including,withoutlimitation,thePurchaseAgreement),shallbefalseormisleadinginanymaterialrespectwhenmadeandthebreachofwhichhas(orwiththepassageoftime willhave) amaterialadverseeffecton the rightsof theHolder withrespect to thisNote orthePurchaseAgreement.
3.5. ReceiverorTrustee.TheBorroweroranysubsidiaryoftheBorrowershallmakeanassignmentforthebenefitof creditors,orapplyfororconsentto theappointmentof areceiverortrusteefor itorforasubstantial partofits propertyorbusiness,orsuchareceiveror trusteeshallotherwise beappointed.
3.6. Judgments.Anymoneyjudgment,writorsimilarprocessshallbeenteredorfiledagainsttheBorroweroranysubsidiaryof theBorroweroranyofits propertyorotherassetsformore than$50,000.00,and shallremainunvacated,unbondedorunstayedfor aperiod oftwenty
(20)daysunlessotherwiseconsentedtobytheHolder,whichconsentwillnotbeunreasonablywithheld.
3.7. Bankruptcy.Bankruptcy,insolvency,reorganizationorliquidationproceedingsorotherproceedings,voluntaryorinvoluntary,forreliefunderanybankruptcy laworanylawforthe reliefofdebtorsshall beinstituted byoragainstthe BorroweroranysubsidiaryoftheBorrower.
3.8. Delisting ofCommonStock.TheBorrowershallfailtomaintainthelisting oftheCommonStockonatleastoneoftheOTCQBoranequivalentreplacementexchange,Nasdaq, theNYSE orAMEX.
3.9. FailuretoComplywiththeExchangeAct.TheBorrowershallfailtocomplyinanymaterialrespectwiththereportingrequirementsof theExchangeAct; and/or theBorrowershallceasetobesubjecttothereportingrequirementsof theExchangeAct.
3.10. Liquidation.Anydissolution,liquidation,orwindingupofBorroweroranysubstantialportionofitsbusiness.
3.11. CessationofOperations.AnycessationofoperationsbyBorrowerorBorroweradmitsitisotherwise generallyunable to payits debtsassuch debtsbecomedue,provided,however,thatanydisclosureof theBorrower’sabilitytocontinueas a“going concern”shallnotbeanadmissionthatthe Borrowercannotpayitsdebtsas theybecomedue.
3.12. MaintenanceofAssets.ThefailurebyBorrower,duringthetermofthisNote,tomaintainanymaterial intellectualpropertyrights,personal, realpropertyorotherassetswhich arenecessarytoconductitsbusiness (whethernoworin thefuture).
3.13. FinancialStatement Restatement.TherestatementofanyfinancialstatementsfiledbytheBorrowerwiththeSECforanydateorperiodfromtwoyears priorto the
IssueDateofthisNoteanduntilthisNoteisnolongeroutstanding,iftheresultofsuchrestatementwould,bycomparisonto the unrestatedfinancial statement,have constituted amaterial adverseeffect ontherightsof theHolderwithrespecttothisNote orthePurchaseAgreement.
3.14. ReverseSplits.TheBorrowereffectuates areversesplitof its CommonStockwithouttwenty(20)days priorwrittennoticetotheHolder.
3.15. ReplacementofTransferAgent.IntheeventthattheBorrowerproposestoreplaceitstransferagent,theBorrowerfailstoprovide, prior to theeffectivedateof suchreplacement,afully executedIrrevocableTransferAgentInstructionsina formasinitiallydeliveredpursuant to thePurchaseAgreement(includingbutnotlimited to theprovision toirrevocablyreserve sharesofCommon Stock in theReservedAmount)signed by thesuccessortransferagenttoBorrowerandtheBorrower.
3.16. Cross-Default.NotwithstandinganythingtothecontrarycontainedinthisNoteortheotherrelatedorcompaniondocuments,abreachordefaultby the Borrowerofanycovenantorotherterm or conditioncontainedinanyof theOtherAgreements,after the passage ofall applicable noticeand cureorgraceperiods,shall,at theoption of the Holder,beconsidered a defaultunder thisNote and theOtherAgreements,in whichevent theHolder shall beentitled (butinnoeventrequired) toapplyall rightsandremediesoftheHolderunder the terms of thisNoteand theOtherAgreements byreasonofa default under saidOther Agreementorhereunder. “OtherAgreements” means,collectively,all agreements andinstruments between,amongorby: (1)theBorrower, and,or for the benefitof, (2) theHolderandanyaffiliateoftheHolder,including,withoutlimitation,promissory notes;provided,however,theterm“OtherAgreements” shall notinclude the relatedor companiondocuments tothisNote.Eachoftheloantransactionswillbecross-defaultedwitheach other loan transaction andwithall other existingandfuturedebtof Borrower to theHolder.
UpontheoccurrenceandduringthecontinuationofanyEventofDefaultspecifiedinSection3.1(solelywithrespect tofailuretopaytheprincipalhereoforinterestthereonwhendueat the MaturityDate), theNoteshallbecomeimmediately dueandpayableandthe Borrowershallpayto theHolder,infull satisfactionofitsobligationshereunder,anamountequal to theDefaultSum(asdefinedherein). UPON THEOCCURRENCEANDDURING THECONTINUATIONOFANY EVENT OFDEFAULTSPECIFIED INSECTION 3.2,THENOTESHALLBECOMEIMMEDIATELYDUEANDPAYABLEAND THEBORROWER SHALLPAY TO THEHOLDER, INFULLSATISFACTION OF ITSOBLIGATIONSHEREUNDER,ANAMOUNTEQUAL TO:(Y) THEDEFAULT SUM(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. 15exercisable throughthe deliveryof writtennoticetotheBorrower by suchHolders (the“DefaultNotice”),andupon theoccurrenceofanEventofDefaultspecifiedintheremainingsections ofArticles III(otherthanfailure topaytheprincipalhereoforinterest thereonat the Maturity Datespecified in Section 3,1hereof), theNote shallbecomeimmediatelydueandpayableandthe BorrowershallpaytotheHolder, infullsatisfactionofits obligationshereunder,anamount equalto the greaterof (i)150%timesthesumof (w)thethenoutstandingprincipalamountofthisNoteplus(x)accruedandunpaidinterestontheunpaidprincipalamountofthisNotetothedateofpayment(the“MandatoryPrepaymentDate”)plus(y)DefaultInterest, ifany,onthe amountsreferredto inclauses(w) and/or(x)plus(z)anyamounts owed to theHolderpursuant toSections 1.3and 1.4(g)hereof (the thenoutstanding principal
12
amountofthisNotetothedateofpaymentplustheamountsreferredtoinclauses(x),(y)and(z)shallcollectivelybeknownas the“DefaultSum”)or(ii) the “parityvalue”of theDefaultSumtobeprepaid,whereparityvaluemeans (a)thehighestnumberof sharesof CommonStockissuable uponconversion oforotherwisepursuanttosuchDefaultSuminaccordancewithArticleI,treatingtheTradingDayimmediatelypreceding theMandatoryPrepaymentDateas the “ConversionDate”for purposesofdeterminingthelowestapplicableConversionPrice,unless theDefaultEventarisesas aresultof abreachinrespectof aspecificConversionDateinwhichcasesuchConversionDateshallbe theConversion Date),multipliedby(b) thehighestClosing Pricefor theCommonStockduring theperiodbeginningon thedateoffirstoccurrence of theEventofDefaultandendingoneday prior to the MandatoryPrepayment Date(the“DefaultAmount”)andall otheramountspayablehereunder shallimmediatelybecomedueandpayable,allwithoutdemand,presentmentornotice,allof whichherebyareexpresslywaived,togetherwithallcosts,including,withoutlimitation, legalfeesandexpenses,ofcollection,andtheHoldershall beentitledtoexerciseall other rightsandremediesavailableatlaworinequity.
IftheBorrowerfailstopaytheDefaultAmountwithinfive(5)businessdaysofwrittennoticethatsuchamount is dueandpayable, thentheHolder shallhave therightatanytime,so longasthe Borrowerremains indefault(andso longandto theextentthat therearesufficientauthorizedshares), torequire the Borrower,uponwrittennotice, toimmediatelyissue, in lieu of theDefaultAmount, thenumberofshares ofCommon Stockof theBorrowerequalto theDefaultAmountdivided by theConversion Price then ineffect.TheHoldermaystillconvertany amounts duehereunder,includingwithoutlimitation theDefault Sum,until suchtimeasthisNotehas beenrepaidinfull.
ARTICLEIV.MISCELLANEOUS
4.1. FailureorIndulgenceNotWaiver.NofailureordelayonthepartoftheHolderintheexercise ofany power,rightorprivilegehereunder shalloperateas awaiver thereof,norshallanysingleorpartialexerciseofanysuchpower,right or privilegeprecludeother orfurtherexercise thereoforof any otherright,powerorprivileges.All rightsandremediesexistinghereunder arecumulative to,andnotexclusiveof,anyrightsorremediesotherwiseavailable.
4.2. Notices.Allnotices,demands,requests,consents,approvals,andothercommunicationsrequiredorpermittedhereundershallbeinwritingand,unlessotherwisespecified herein, shallbe(i)personallyserved,(ii)depositedinthe mail,registeredorcertified,returnreceipt requested, postageprepaid,(iii)deliveredbyreputableaircourierservicewithchargesprepaid,or
(iv)transmittedbyhanddelivery,telegram,emailorfacsimile,addressedassetforthbelowortosuchotheraddressas suchparty shallhavespecified mostrecently bywrittennotice. Anynoticeorothercommunicationrequiredorpermitted to begivenhereunder shall be deemedeffective (a) uponhanddeliveryordeliverybyfacsimileoremail,withaccurateconfirmation generatedby thetransmittingfacsimilemachineorcomputer, atthe address,emailornumberdesignated in thePurchaseAgreement(ifdeliveredon abusinessdayduringnormalbusiness hourswhere suchnotice isto bereceived),orthe firstbusiness dayfollowingsuch delivery (ifdeliveredotherthanon abusiness dayduringnormalbusiness hourswhere suchnotice isto bereceived)or(b)on thesecondbusinessdayfollowing the dateofmailing byexpresscourierservice,fullyprepaid,addressedtosuchaddress,or upon actualreceiptofsuchmailing,whichevershall firstoccur.
4.3. Amendments.ThisNoteandanyprovisionhereofmayonlybeamendedbyaninstrumentinwritingsignedbytheBorrowerandtheHolder.Theterm“Note”andallreferencethereto,asusedthroughoutthis instrument,shallmeanthisinstrument(andtheotherNotesissued
pursuanttothePurchaseAgreement)asoriginallyexecuted,oriflateramendedorsupplemented,thenassoamended orsupplemented.
4.4. Assignability.ThisNoteshallbebindingupontheBorroweranditssuccessorsandassigns,andshallinuretobethebenefitoftheHolderandits successorsandassigns.EachtransfereeofthisNotemustbe an“accreditedinvestor”(asdefinedinRule501(a)ofthe1933Act).Notwithstandinganythingin thisNote tothecontrary,thisNotemaybe pledgedascollateralinconnectionwithabonafidemarginaccount orotherlendingarrangement.
4.5. CostofCollection.IfdefaultismadeinthepaymentofthisNote,theBorrowershallpaytheHolderhereofcostsofcollection,includingreasonableattorneys’fees.
4.6. GoverningLaw.ThisNoteshallbegovernedbyandconstruedinaccordancewiththelawsoftheStateofNewYorkwithout regardtoconflictsoflawsprinciplesthatwouldresultin the applicationof thesubstantivelawsof anotherjurisdiction.Any actionbroughtbyeitherpartyagainstthe otherconcerningthetransactionscontemplated bythisAgreementmustbebroughtonlyinthe civilor statecourtsofNew Yorkorinthefederalcourtslocatedinthe Stateand countyof New York.Bothpartiesand theindividualsigning thisAgreementonbehalfof the Borroweragree tosubmittothejurisdictionofsuchcourts.Theprevailingpartyshallbeentitled torecoverfrom the other partyitsreasonable attorney’sfeesandcosts. Intheeventthatanyprovisionof this Note isinvalidorunenforceableunder any applicable statute orruleoflaw, then suchprovision shall bedeemedinoperativeto theextentthat itmayconflicttherewithand shall bedeemedmodifiedtoconformwithsuchstatute orruleoflaw. Anysuchprovisionwhichmayproveinvalidorunenforceableunder anylawshallnotaffect thevalidity orunenforceabilityof anyotherprovisionof thisNote.Nothingcontainedhereinshallbedeemedor operatetopreclude theHolder frombringingsuitortaking otherlegalactionagainst theBorrower in anyotherjurisdiction tocollectonthe Borrower’sobligationstoHolder,torealizeonanycollateraloranyother securityfor suchobligations,or toenforce ajudgmentor otherdecisioninfavorof theHolder.This Noteshall bedeemed anunconditionalobligation ofBorrowerfor thepayment ofmoney and,withoutlimitation to anyotherremediesofHolder, may beenforcedagainstBorrower bysummaryproceedingpursuant toNew YorkCivilProcedureLaw andRulesSection 3213or anysimilarruleor statute in thejurisdictionwhereenforcementissought.Forpurposes ofsuchruleorstatute,anyotherdocument oragreement towhichHolder andBorrower arepartiesorwhichBorrowerdeliveredtoHolder,whichmaybe convenientornecessarytodetermineHolder’srightshereunder orBorrower’sobligationstoHolderaredeemedapart of thisNote,whether ornotsuch otherdocument oragreement wasdelivered togetherherewith orwasexecutedapartfromthisNote.
4.7. CertainAmounts.WheneverpursuanttothisNotetheBorrowerisrequiredtopayanamountinexcessoftheoutstanding principalamount(or theportionthereofrequiredtobepaidatthattime)plusaccruedandunpaidinterestplusDefault Intereston suchinterest, the Borrowerand theHolderagreethat the actualdamages to theHolder from thereceiptofcashpaymentonthisNotemaybedifficulttodetermineand theamount tobesopaidbythe Borrowerrepresentsstipulateddamagesandnot apenaltyandisintended tocompensatetheHolderinpartforlossoftheopportunitytoconvert thisNoteandtoearnareturnfromthesaleofshares ofCommon Stockacquireduponconversionof thisNoteat apricein excessof thepricepaidforsuch sharespursuant tothisNote.TheBorrowerand theHolderherebyagreethatsuch amountofstipulated
damagesisnotplainlydisproportionatetothepossiblelosstotheHolderfromthereceiptofacashpaymentwithoutthe opportunity toconvertthisNoteintosharesof CommonStock.
4.8. Disclosure.UponreceiptordeliverybytheCompany ofanynoticeinaccordancewiththe termsofthisNote,unlesstheCompanyhasingoodfaithdeterminedthat the mattersrelatingtosuchnotice donot constitutematerial, non-publicinformationrelating to theCompanyoranyofitsSubsidiaries, theCompanyshallwithinone(1)TradingDayafteranysuchreceiptordelivery,publiclydisclosesuchmaterial,non-publicinformationonaCurrentReporton Form8-Kor otherwise.Intheeventthat theCompanybelievesthat anoticecontainsmaterial,non-publicinformationrelatingtotheCompanyoranyofitsSubsidiaries,theCompanysoshallindicate tosuchHoldercontemporaneously with deliveryof suchnotice,andin theabsenceofany suchindication, theHolder shallbeallowedtopresumethatall mattersrelatingtosuchnotice donot constitutematerial,non-publicinformationrelatingtotheCompanyoritsSubsidiaries.
4.9. NoticeofCorporateEvents.Exceptasotherwiseprovidedbelow,theHolderofthisNoteshallhavenorightsasaHolderofCommonStockunlessand only to theextentthatitconvertsthisNoteintoCommon Stock.The Borrowershall provide theHolderwith priornotificationof anymeetingof theBorrower’sshareholders(andcopiesof proxymaterialsandotherinformation sent toshareholders). In theevent of anytaking by the Borrowerof a recordofitsshareholdersforthe purposeofdeterminingshareholderswhoareentitled toreceivepaymentofanydividendorotherdistribution,anyright tosubscribefor,purchaseor otherwiseacquire(including bywayofmerger,consolidation,reclassificationorrecapitalization) anyshareof anyclassor anyothersecurities orproperty,or toreceiveanyotherright,orfor thepurposeofdeterminingshareholderswhoareentitledto voteinconnectionwithanyproposedsale,leaseorconveyanceofallorsubstantially allof the assetsof the Borrowerorany proposedliquidation,dissolutionorwinding upof the Borrower, the Borrowershallmail anoticeto theHolder,atleasttwenty (20)dayspriortotherecord datespecifiedtherein (or thirty(30)dayspriortotheconsummationofthetransactionorevent,whicheveris earlier),of thedateonwhichany such record is tobetakenfor thepurposeofsuchdividend,distribution,right orotherevent,andabriefstatementregardingtheamountandcharacterof suchdividend,distribution,rightor othereventtotheextentknownat suchtime.The Borrowershallmake a publicannouncementofanyeventrequiringnotification to theHolderhereundersubstantially simultaneously with thenotificationto theHolderinaccordancewiththetermsof thisSection4.9.
4.10. Remedies.TheBorroweracknowledgesthatabreachbyitofitsobligationshereunderwillcauseirreparableharmtotheHolder, byvitiatingtheintentandpurposeof thetransactioncontemplatedhereby.Accordingly,theBorroweracknowledgesthattheremedyatlawfor abreach ofitsobligationsunderthisNotewillbeinadequateandagrees, in theeventof a breachorthreatened breach bythe Borrowerof theprovisions of this Note,that theHolder shall beentitled, inadditiontoallotheravailableremediesat lawor inequity,and in additiontothepenaltiesassessableherein,toaninjunctionorinjunctionsrestraining, preventingorcuring anybreach of this Noteandtoenforcespecifically the termsand provisionsthereof, without thenecessityofshowingeconomic lossandwithoutanybond or other securitybeingrequired.
4.11. Usury.ThisNoteshallbesubjecttotheanti-usurylimitationscontainedinthePurchaseAgreement.
(RemainderofPageintentionally leftblank)
INWITNESSWHEREOF,BorrowerhascausedthisNotetobesignedinitsnamebyitsdulyauthorizedofficerasoftheIssueDatefirstsetforthabove.
MAXSOUNDCORPORATION.
By:
EXHIBITANOTICE OFCONVERSION
Theundersignedherebyelectstoconvertprincipalunderthe8%ConvertibleNoteofMAXSOUNDCORPORATION.,aDelawarecorporation(theCompany”),intosharesofcommonstock (the“Common Stock”),of the Companyaccording to theconditionshereof,asofthe date writtenbelow. If sharesof Common Stockare to beissuedin thenameof a personotherthan theundersigned, theundersignedwillpayalltransfertaxespayablewithrespecttheretoand isdeliveringherewith such certificatesandopinions asreasonablyrequested by the Company inaccordancetherewith. No feewill bechargedto theholderforanyconversion, exceptfor suchtransfertaxes,ifany.
BythedeliveryofthisNoticeofConversiontheundersignedrepresentsandwarrantstotheCompanythatitsownershipof theCommonStockdoesnotexceedtheamountsspecifiedunderSection1.1of this Note, asdeterminedinaccordancewithSection 13(d)of theExchangeAct.
Theundersignedagreestocomplywiththeprospectusdeliveryrequirementsundertheapplicablesecuritieslawsinconnectionwithanytransfer oftheaforesaid sharesof CommonStockpursuant toany prospectus.
Conversioncalculations:
DatetoEffectConversion:
ConversionPrice:
PrincipalAmount ofNotetobeConverted:
InterestAccrued onAccount
ofConversionatIssue:
NumberofsharesofCommonStocktobeissued:
Signature:
Name:
AddressforDeliveryofCommonStockCertificates:
Or
DWACInstructions:
BrokerNo:AccountNo:
