NEITHERTHEISSUANCENORSALEOFTHESECURITIESREPRESENTEDBYTHISCERTIFICATENORTHESECURITIESINTOWHICHTHESESECURITIESARECONVERTIBLEHAVEBEENREGISTEREDUNDER THESECURITIESACT OF 1933,ASAMENDED, ORAPPLICABLESTATESECURITIESLAWS.THESECURITIESMAYNOT BEOFFEREDFORSALE,SOLD,TRANSFERRED ORASSIGNED (I) INTHEABSENCE OF(A)ANEFFECTIVEREGISTRATIONSTATEMENTFORTHESECURITIESUNDER THESECURITIESACT OF 1933,ASAMENDED,OR (B)ANOPINIONOFCOUNSEL(WHICHCOUNSELSHALLBESELECTEDBYTHE HOLDER), IN AGENERALLYACCEPTABLEFORM,THATREGISTRATION ISNOTREQUIREDUNDERSAIDACTOR(II)UNLESSSOLDPURSUANT TORULE 144 ORRULE144AUNDERSAIDACT.NOTWITHSTANDING THEFOREGOING,THESECURITIESMAY BEPLEDGED INCONNECTIONWITH ABONAFIDEMARGINACCOUNT OROTHERLOANORFINANCINGARRANGEMENTSECUREDBY THESECURITIES.
PrincipalAmount:$50,000.00IssueDate:June29,2015PurchasePrice: $50,000.00
8%CONVERTIBLEPROMISSORYNOTE1
FORVALUERECEIVED,MAXSOUNDCORPORATIONaDelawarecorporation(hereinaftercalledthe“Borrower”),herebypromisestopaytotheorderofDARLINGCAPITAL, LLCaNewYorklimited liabilitycompany, orregisteredassigns(the“Holder”) the sum of FiftyThousand ($50,000.00)assetforthherein, onMarch 25, 2016(the“MaturityDate”),and to payinterest on theunpaidprincipalbalancehereofat therateofeightpercent(8%)(the“InterestRate”)perannumfrom June29,2015until theNoteplus anyandallaccruedinterest ispaid infull. TheHolderwillhavetheoptiontoextendtheMaturityDateanadditionalnine(9)months.TheHolder mustinform theBorrower,inwriting,within thirty (30)daysfromtheoriginalMaturity Date of itsintent toextend the MaturityDate.Interestshallcommenceaccruing on thedatethat theNote is fullypaidandshallbecomputed on thebasis ofa360-day yearand theactual numberofdayselapsed. Anyamount ofprincipal orinterest onthisNotewhich is notpaidwhendueshallbearinterestat therate oftwenty twopercent(22%)perannumfrom the duedatethereof untilthesame ispaid(“DefaultInterest”).Allpayments duehereunder(totheextentnotconverted intocommon stock,$0.001parvaluepershare(the“CommonStock”)inaccordancewith thetermshereof)shall be made inlawful money oftheUnitedStates ofAmerica.Allpaymentsshall bemadeatsuchaddressas theHoldershallhereaftergivetotheBorrowerbywrittennoticemadeinaccordancewiththeprovisions of thisNote.Whenever anyamountexpressed tobe dueby thetermsofthis Note isdue onanydaywhich is not abusinessday,the sameshallinstead be due onthe nextsucceedingdaywhich is a businessdayand, inthecase ofanyinterestpaymentdatewhich is not thedate onwhich thisNote ispaid infull, the extension of theduedatethereofshall not betakenintoaccount forpurposesofdetermining the amountofinterestdue onsuchdate.Asused in thisNote, theterm“businessday”shallmeananyday other thanaSaturday, Sunday or aday onwhichcommercialbanks in thecity of NewYork,NewYorkareauthorizedorrequired by laworexecutiveorder toremain closed.
ThisNoteisfreefromalltaxes,liens,claimsandencumbranceswithrespecttotheissuethereofandshallnotbesubjecttopreemptiverightsorothersimilarrightsofshareholdersoftheBorrowerandwill notimposepersonalliabilityupon the holderthereof.
The followingtermsshall applyto thisNote:
ARTICLEI.CONVERSIONRIGHTS
1.1. ConversionRight.TheHoldershallhavetherightatanytimetoconvertallorany partoftheoutstandingandunpaidprincipalamount of thisNote intofullypaidandnon-assessableshares ofCommonStock,assuchCommonStockexists ontheIssueDate, oranyshares ofcapitalstock orothersecurities of theBorrower intowhichsuchCommonStockshallhereafter bechanged orreclassifiedat theconversionprice(the“ConversionPrice”)determinedasprovidedherein(a“Conversion”);provided,however,thatin noeventshall theHolder beentitled toconvertanyportion of thisNote inexcessofthatportionof thisNoteuponconversionofwhich thesum of
(1)thenumberofsharesofCommonStock beneficiallyownedbytheHolderand itsaffiliates(otherthansharesofCommonStockwhichmaybedeemedbeneficially ownedthrough theownership of theunconverted portion oftheNotes or theunexercised orunconvertedportion of any other securityoftheBorrowersubject toalimitationonconversion orexerciseanalogous tothelimitationscontainedherein)and(2)thenumber ofshares of CommonStockissuable upontheconversionof theportion of thisNotewithrespecttowhich thedeterminationof thisproviso isbeingmade,wouldresultinbeneficialownershipby theHolderand itsaffiliates of morethan 9.99%of theoutstandingshares of CommonStock.Forpurposes of theproviso to theimmediately precedingsentence,beneficialownershipshallbedetermined inaccordancewithSection 13(d) oftheSecuritiesExchangeAct of 1934,asamended(the“ExchangeAct”),andRegulations13D-Gthereunder,exceptasotherwiseprovidedinclause(1)ofsuchproviso,provided,further,however,thatthelimitationsonconversionmaybewaivedbytheHolder upon,at theelectionof theHolder, notlessthan 61days’priornotice to theBorrower,and the provisions of theconversionlimitationshallcontinue to apply untilsuch 61stday (orsuchlaterdate,asdeterminedby theHolder,asmaybespecifiedinsuchnotice ofwaiver). Thenumber ofshares of CommonStock to beissued uponeachconversion ofthis Noteshallbedeterminedby dividing theConversionAmount(asdefinedbelow)by theapplicableConversionPricethen ineffect onthedatespecified in thenotice ofconversion, in theformattachedheretoasExhibitA(the“Notice ofConversion”),delivered to theBorrowerby theHolder inaccordancewithSection 1.4below;provided that theNotice ofConversion issubmittedbyfacsimile ore-mail (orbyothermeans resulting in,or reasonablyexpected toresult in,notice) to theBorrowerbefore 6:00 p.m.,NewYork, NewYork time onsuchconversiondate (the“ConversionDate”). Theterm“Conversion Amount”means,withrespect toanyconversion of thisNote, the sum of(1)theprincipalamount of thisNote to beconverted insuchconversionplus(2)at theHolder’soption,accruedandunpaidinterest,ifany,onsuchprincipalamountat theinterestratesprovided inthisNote to theConversionDate,plus(3)at theHolder’s option,DefaultInterest, ifany, ontheamountsreferred to in theimmediatelyprecedingclauses (1)and/or(2)plus(4)at theHolder’s option,anyamountsowed to theHolderpursuantto Sections 1.3and1.4(g)hereof.
a) CalculationofConversionPrice.Theconversionprice(the“ConversionPrice”)shallequaltheVariableConversionPrice(asdefinedherein)(subjecttoequitableadjustmentsforstocksplits,stockdividends orrightsofferingsby theBorrowerrelatingto theBorrower’ssecurities or thesecurities ofany subsidiary of theBorrower,combinations,recapitalization,reclassifications,extraordinarydistributionsandsimilarevents). The"VariableConversionPrice"shallmean the 60%multipliedby theMarketPrice(asdefinedherein)“MarketPrice”meansthelowestclosingVWAPPrice(asdefinedbelow) forthe CommonStockduring the Ten(10) Trading Dayperiod immediatelypreceding theConversionDate.“TradingPrice”means,forany securityas ofanydate, theclosingstockprice on theOver-the-CounterBulletinBoard, orapplicabletradingmarket(the“OTCQB”)asreported by areliablereportingservice(“ReportingService”)designatedby theHolder(i.e.Bloomberg);provided that if the Closing VWAPPrice for thecommon stockon theClearingdate(defined below)islowerthantheClosingVWAPPriceused tocalculatethepurchaseprice, thenthepurchasepriceshall beadjustedsuch that theDiscountshall betakenfrom theclosingVWAPpriceon theClearingDate,and thecompanyshall issueadditionalshares toPurchaser toreflectsuch adjustedPurchasePrice. For purposes of thisAgreement, theClearing Dateshall be thelatestdateonwhich(i) the conversion shares aretransferredto anddeposited into theBuyer'sbrokerageaccountby theCompany’srepresentatives ortransferagentand
(ii)Buyer'sbrokerhasconfirmedwithBuyerthattheBuyermayexecutetradesoftheconversionshares.Ifsucheventsoccurafter5:30PMEasternStandardTime,theeventsshallbedeemedtohaveoccurredonthenexttradingday.Upontheexerciseofanyconversion,theHoldershall duly notify theBorrowerwhetherprincipal orinterest isbeingconverted.If theBorrower’sCommonstockischilledfordepositatDTC,becomeschilledatany pointwhilethisAgreementremainsoutstanding ordepositotherwiseadditionalfees due toaYieldSign, StopSignorothertradingrestrictions,anadditional 10%discountwill beattributed totheConversionPricedefinedhereof.Forpurposes ofthisagreement,“TradingDay”shallmeananydayonwhich the CommonStock istradableforany period on theOTCQB, or on theprincipalsecuritiesexchange orothersecuritiesmarket onwhich theCommonStockisthenbeingtraded.The companyshall bearanyand allmiscellaneousexpensesthatmay ariseasaresult ofconversionof thereplacementnoteandthedelivery of shares ofcommonstockthereunderincludingbutnotlimitedtotransferagentfees,rule 144legalopinionfeesanddepositfees. Allaccrued conversionexpensespaidby the holder shall beadded to theamountbeingconvertedunder the note. Nofractionalshares orscriprepresentingfractions ofshares will beissuedonconversion,but thenumberofsharesissuableshallberoundedupordown,asthecasemaybe, to the nearest wholeshare.
b) TheBorroweracknowledgesthatitwilltakeallreasonablestepsnecessaryorappropriatetoissueanddeliverthecommonstockuponconversion,includingprovidingaboardofdirectorsresolutionauthorizingtheissuanceofcommonstock.Withoutinanyway limiting theHolder’s right to pursue otherremedies,includingactualdamagesand/orequitable relief, theparties agree that ifdelivery of the CommonStockissuable uponconversion of thisNote isnotdeliveredbytheDeadline(3 Tradingdays)theBorrower shallpayto theHolder $2,000.00perday incash, foreach daybeyond theDeadline thattheBorrower fails todeliversuch Common Stock.SuchcashamountshallbepaidtoHolderbythefifthdayof the monthfollowingthemonth inwhich ithas accrued or,at the option of theHolder(by writtennotice to the Borrowerbythefirst day of the monthfollowing the month inwhich it has accrued),shall beaddedto the principalamount of thisNote, inwhicheventinterestshallaccrue thereon inaccordancewith the terms ofthisNote andsuch additional principalamount shall beconvertible intoCommonStock inaccordance with theterms of thisNote.TheBorrower agreesthat theright toconvert is avaluableright to the Holder. Thedamagesresultingfrom a failure, attempt tofrustrate,interfere withsuchconversion right are
difficultifnotimpossibletoqualify.Accordinglythepartiesacknowledgethat theliquidateddamages provisioncontained inthisSectionarejustified.
c) ConversionPriceDuringMajorAnnouncements.NotwithstandinganythingcontainedinSection1.2(a)tothecontrary,intheeventtheBorrower(i)makes apublicannouncement that itintends toconsolidate or mergewithany othercorporation(otherthan amerger inwhich theBorroweris thesurviving orcontinuingcorporationanditscapitalstock isunchanged) orsell ortransferall orsubstantiallyall of the assets of theBorrower or(ii) anyperson,grouporentity(including theBorrower) publicly announces atenderoffer topurchase 50% or more of theBorrower’sCommon Stock (orany othertakeover scheme) (thedate of the announcementreferredto inclause(i)or(ii)ishereinafter referred toas the“AnnouncementDate”),then the ConversionPriceshall,effective upon theAnnouncementDateandcontinuingthrough theAdjustedConversionPriceTerminationDate(asdefinedbelow), beequal tothelower of(x) theConversionPricewhichwouldhavebeenapplicable for aConversionoccurring on theAnnouncementDateand(y) theConversionPricethatwouldotherwisebe ineffect.Fromandafter theAdjustedConversionPriceTerminationDate, theConversion Priceshall bedeterminedassetforth in thisSection1.2(a).Forpurposeshereof,“AdjustedConversionPriceTerminationDate”shallmean,withrespect to anyproposedtransaction ortenderoffer(ortakeoverscheme) forwhich apublicannouncementascontemplatedby thisSection1.2(b)hasbeenmade, thedate uponwhich theBorrower(in thecase ofclause (i)above) or theperson,group or entity (in the case ofclause(ii)above)consummates orpubliclyannounces thetermination orabandonmentoftheproposedtransactionortenderoffer(ortakeoverscheme)whichcausedthisSection1.2(b)tobecome operative.
1.3. AuthorizedShares.TheBorrowercovenantsthatduringtheperiodtheconversionrightexists,the BorrowerwillreservefromitsauthorizedandunissuedCommonStock asufficientnumberofshares,freefrompreemptiverights, to providefortheissuanceofCommonStock upon thefullconversion of this Noteissued.TheBorrower isrequiredatalltimes tohaveauthorizedandreserved oneand onehalftimesthe number ofsharesthatisactuallyissuable uponfullconversion of theNote(based on the ConversionPrice of theNotes ineffectfrom time totime)(the“ReservedAmount”).TheReservedAmountshall beincreasedfrom timeto time inaccordancewith theBorrower’sobligations.Initially, the CompanyshallreserveThreeMillion(3,000,000)shares ofcommonstock in thename of theHolder. TheBorrowerrepresentsthatuponissuance,suchshareswill be dulyand validly issued, fullypaidandnon-assessable.Inaddition, iftheBorrowershallissueanysecurities ormakeanychange to itscapitalstructurewhichwouldchange thenumberofshares ofCommonStockintowhich the Notesshallbe convertible atthe thencurrentConversionPrice,theBorrowershallat thesame timemakeproperprovision sothatthereafterthereshall be asufficient number ofshares of CommonStockauthorizedandreserved,freefrompreemptiverights,forconversion of theoutstandingNotes.TheBorrower(i)acknowledgesthat ithas irrevocablyinstructed itstransferagent toissuecertificates fortheCommonStockissuable uponconversion of thisNote,and(ii)agreesthatitsissuance ofthisNoteshall constitutefullauthority toitsofficersandagents whoarechargedwith the duty ofexecutingstock certificates toexecuteand issue the necessarycertificates forshares ofCommonStock inaccordancewiththetermsandconditions of thisNote.If,atany time theBorrowerdoes not maintain theReserved Amount it will beconsideredanEvent ofDefault underSection 3.2 oftheNote
Method ofConversion.
a) MechanicsofConversion.SubjecttoSection1.1,thisNotemaybe
convertedbytheHolderinwholeorinpartatanytimefromtimetotimeafter180daysfromIssueDate,by(A) submitting to the Borrower aNotice ofConversion (byfacsimile, e-mail orotherreasonablemeans ofcommunicationdispatched on theConversionDate prior to 6:00 p.m.,NewYork,NewYorktime)and(B)subjecttoSection1.4(b),surrenderingthisNote at the principaloffice of the Borrower.
b) SurrenderofNoteUponConversion.Notwithstandinganythingtothecontrarysetforthherein,uponconversionofthisNoteinaccordancewiththetermshereof,theHoldershallnot berequired tophysicallysurrender this Note to theBorrowerunless theentireunpaidprincipalamount of this Noteis soconverted. TheHolderand theBorrowershallmaintainrecordsshowing theprincipalamount soconvertedandthedates ofsuchconversions orshallusesuchothermethod, reasonably satisfactory to theHolderand theBorrower, soas not torequirephysicalsurrenderofthisNoteuponeachsuchconversion. In theevent of any dispute ordiscrepancy,suchrecordsoftheBorrowershall,primafacie,becontrollinganddeterminativeintheabsenceofmanifesterror.Notwithstandingtheforegoing, ifany portion of thisNote isconvertedasaforesaid, theHolder may nottransferthisNoteunless theHolderfirst physicallysurrendersthisNote to theBorrower,whereupon theBorrowerwillforthwith issueanddeliver upon the order ofthe Holderanew Note ofliketenor,registeredastheHolder(uponpayment by theHolder of anyapplicabletransfer taxes) mayrequest,representing intheaggregatetheremainingunpaidprincipalamountofthisNote.TheHolderandanyassignee, byacceptance ofthisNote,acknowledgeandagreethat, byreason of theprovisions of thisparagraph, followingconversion of aportion ofthisNote, theunpaidandunconvertedprincipalamount ofthisNoterepresentedby this Notemay be lessthan theamountstated on thefacehereof.
c) PaymentofTaxes.TheBorrowershallnotberequiredtopayanytaxwhichmaybepayableinrespectofanytransferinvolvedinthe issue anddelivery ofshares of CommonStock orothersecurities or property onconversionof thisNote in aname other thanthat of theHolder (or instreetname),and theBorrowershall not berequired toissue ordeliveranysuchshares orothersecurities orproperty unlessand until theperson orpersons(other than theHolderor thecustodian inwhose streetnamesuchsharesare to beheldfor theHolder’saccount)requesting theissuance thereofshallhave paidto the Borrower the amount ofanysuch tax or shallhaveestablished to thesatisfactionoftheBorrowerthatsuchtaxhasbeenpaid.
d) DeliveryofCommonStockUponConversion.UponreceiptbytheBorrowerfromtheHolderofafacsimiletransmissionore-mail(orotherreasonablemeansofcommunication) of a Notice ofConversionmeeting therequirementsforconversionasprovidedinthisSection 1.4, theBorrowershall issueanddeliver or cause to beissuedanddelivered to or upon theorder of theHoldercertificatesfor theCommonStockissuable uponsuchconversionwithinthree
(3) businessdaysaftersuchreceipt(the“Deadline”)(and,solelyinthecaseofconversionoftheentireunpaidprincipalamounthereof,surrenderofthisNote) inaccordancewiththetermshereof.
e) ObligationofBorrowertoDeliverCommonStock.UponreceiptbytheBorrowerofadulyandproperlyexecutedNoticeofConversion,theHoldershallbedeemedtobe the holderofrecordofthe CommonStockissuable uponsuchconversion,theoutstandingprincipalamountand theamount ofaccruedandunpaidinterest on thisNoteshall bereduced toreflectsuchconversion,and,unlesstheBorrowerdefaultsonitsobligationsunderthisArticle I,allrightswithrespect to theportion of thisNotebeingsoconvertedshallforthwithterminateexcept therighttoreceive the CommonStock orothersecurities,cash orotherassets,ashereinprovided, onsuch
conversion.IftheHoldershallhavegivenaNoticeof Conversionasprovidedherein, theBorrower’sobligationtoissueanddeliverthecertificatesforCommonStockshallbeabsoluteandunconditional,irrespectiveoftheabsenceofanyactionby theHoldertoenforcethesame, anywaiverorconsentwithrespecttoany provisionthereof, therecoveryofanyjudgmentagainst anyperson oranyaction toenforcethesame,anyfailure or delayintheenforcement ofany otherobligation oftheBorrower to theholder ofrecord, oranysetoff,counterclaim,recoupment,limitation ortermination, or anybreach orallegedbreachbytheHolder ofanyobligation to theBorrower,andirrespective ofanyothercircumstancewhichmightotherwise limitsuchobligation of theBorrower to theHolderinconnectionwithsuchconversion.TheConversionDatespecified intheNotice ofConversionshall be theConversionDateso longastheNoticeofConversion isreceived by theBorrowerbefore6:00 p.m.,NewYork, New Yorktime, onsuchdate.
f) DeliveryofCommonStockbyElectronicTransfer.Inlieuofdeliveringphysicalcertificatesrepresenting the CommonStockissuable uponconversion,providedtheBorrower isparticipating in theDepository Trust Company(“DTC”)FastAutomatedSecuritiesTransfer(“FAST”)program, uponrequest of theHolderand itscompliancewith theprovisionscontained inSection 1.1and in thisSection 1.4,theBorrowershall use itsbestefforts tocause itstransferagent toelectronicallytransmit theCommonStockissuable uponconversion to theHolderbycreditingtheaccount ofHolder’sPrimeBroker withDTC through itsDepositWithdrawalAgent Commission(“DWAC”)system.
| g) | FailuretoDeliverCommonStockPriortoDeadline.Withoutinany |
waylimitingtheHolder’srighttopursueotherremedies,includingactualdamagesand/orequitablerelief,thepartiesagreethatifdeliveryoftheCommonStockissuableuponconversionof thisNoteis notdeliveredby theDeadline(otherthan afailuredueto the circumstancesdescribed inSection
h) 1.3above,whichfailureshallbegovernedbysuchSection)theBorrower shallpayto the Holder
i) $2,000.00perdayincash,foreachdaybeyondtheDeadlinethattheBorrowerfails todeliversuch Common Stockthrough willfulactsdesignedtohinder thedeliveryofCommonStocktotheHolder.SuchcashamountshallbepaidtoHolderbythefifthdayofthemonthfollowing the month inwhich ithasaccrued or,at the option of theHolder(bywrittennotice to theBorrowerbythefirstdayof the month followingthe month inwhich ithasaccrued),shall be addedto theprincipalamount of thisNote, inwhich eventinterestshallaccruethereon in accordance withthetermsofthis Noteandsuchadditionalprincipalamountshallbeconvertibleinto CommonStockinaccordancewith the terms of thisNote. TheBorroweragrees that the right toconvert isa valuableright to the Holder.The damages resulting from afailure,attempt tofrustrate,interferencewith suchconversionrightare difficult ifnotimpossible toqualify.Accordingly thepartiesacknowledge thattheliquidateddamages provisioncontained in thisSection1.4(g)are justified.
1.4. ConcerningtheShares.ThesharesofCommonStockissuableuponconversionofthisNotemaynotbesoldortransferredunless(i)suchsharesaresoldpursuanttoaneffectiveregistrationstatementunder theAct or (ii) theBorrower or itstransferagentshallhavebeenfurnishedwithan opinion ofcounsel(which opinionshall be inform,substanceandscopecustomary for opinions ofcounsel incomparabletransactions) to theeffectthat thesharestobe sold ortransferred may besoldortransferredpursuanttoanexemptionfromsuchregistrationor(iii)suchsharesare sold ortransferredpursuant to Rule 144under the Act (or a successorrule)(“Rule144”) or(iv)such
sharesaretransferredtoan“affiliate”(asdefinedinRule144)oftheBorrowerwhoagreestosellorotherwisetransferthesharesonlyinaccordancewiththisSection1.5andwhoisanAccreditedInvestor.(andsubject to theremovalprovisionssetforthbelow),untilsuch timeas theshares of CommonStockissuable uponconversion of this Notehavebeenregisteredunder theAct orotherwisemay be soldpursuant toRule 144without anyrestriction as tothe numberofsecuritiesas ofaparticulardatethatcanthen be immediately sold,eachcertificateforsharesof CommonStockissuable uponconversionofthisNotethathas notbeen soincluded inaneffectiveregistrationstatement orthathas notbeen soldpursuant toaneffectiveregistrationstatement oranexemptionthatpermitsremoval of thelegend,shallbear alegendsubstantiallyin thefollowingform,asappropriate:
“NEITHERTHEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBYTHISCERTIFICATENORTHESECURITIESINTOWHICHTHESESECURITIESAREEXERCISABLEHAVEBEENREGISTEREDUNDERTHESECURITIESACTOF 1933,ASAMENDED, ORAPPLICABLESTATESECURITIESLAWS.THESECURITIESMAYNOTBEOFFEREDFORSALE,SOLD,TRANSFERRED ORASSIGNED
(I)INTHEABSENCEOF(A)ANEFFECTIVEREGISTRATIONSTATEMENTFORTHESECURITIESUNDERTHESECURITIESACT OF 1933,ASAMENDED, OR(B)ANOPINION OFCOUNSEL(WHICHCOUNSELSHALL BESELECTEDBY THEHOLDER), INAGENERALLYACCEPTABLEFORM,THATREGISTRATION ISNOTREQUIREDUNDERSAID ACT OR (II)UNLESSSOLDPURSUANT TORULE 144 ORRULE 144AUNDERSAIDACT.NOTWITHSTANDINGTHEFOREGOING, THESECURITIESMAY BEPLEDGED INCONNECTION WITH ABONAFIDEMARGINACCOUNTOROTHERLOAN ORFINANCINGARRANGEMENTSECURED BYTHESECURITIES.”
legendsetforthaboveshallberemovedandtheBorrowershallissuetotheHolderanewcertificatethereforefreeofanytransferlegend if(i)theBorrower or itstransferagentshallhavereceived anopinion ofcounselform,substanceandscopecustomaryfor opinions ofcounsel incomparabletransactions,totheeffectthata publicsaleortransferofsuchCommonStockmay bemadewithoutregistrationunder theAct,which opinionshall beacceptedbythe Company sothat thesale ortransferis or (ii) in thecase of the CommonStockissuableuponconversion of thisNote,suchsecurity isregisteredforsaleby the HolderunderaneffectiveregistrationstatementfiledundertheActorotherwisemay besoldpursuantto Rule144without anyrestrictionastothenumberofsecuritiesasofaparticulardatethatcanthenbeimmediately sold.In theeventthat theCompanydoes notaccept theopinion ofcounselprovidedby theBuyer withrespect tothetransfer ofSecuritiespursuanttoanexemptionfromregistration,suchasRule 144 orRegulation S,at theDeadline, itwill beconsideredanEvent ofDefaultpursuant toSection 3.2 of thisNote.
| 1.5. | Effect ofCertainEvents. |
a) EffectofMerger,Consolidation,Etc.AttheoptionoftheHolder,the
sale,conveyanceordispositionofallorsubstantiallyalloftheassetsoftheBorrower,theeffectuationbytheBorrowerofatransactionorseriesofrelatedtransactionsinwhichmorethan50%ofthevotingpoweroftheBorrowerisdisposedof, ortheconsolidation,mergerorotherbusinesscombination of theBorrowerwith orinto any otherPerson(asdefinedbelow)orPersonswhentheBorrower isnot thesurvivorshalleither: (i) bedeemed to beanEvent ofDefault(asdefined inArticle III)pursuant towhich theBorrowershall berequired to pay to theHolder upon the consummation ofandas acondition tosuchtransactionanamountequal totheDefaultAmount(asdefined inArticleIII) or (ii) betreated pursuant toSection1.6(b)hereof. “Person”shallmean anyindividual,corporation, limited liabilitycompany, partnership,association,trust orother entityor organization.
b) AdjustmentDuetoMerger,Consolidation,Etc.If,atanytimewhenthisNoteisissuedandoutstandingandpriortoconversionofalloftheNotes,thereshallbeanymerger,consolidation,exchange ofshares,recapitalization,reorganization, orothersimilarevent,as aresult ofwhichshares of CommonStock oftheBorrowershall bechanged into thesame or adifferent number ofshares ofanotherclass orclasses ofstock orsecuritiesof theBorroweroranotherentity,or in case of anysale orconveyance ofall or substantiallyallof theassetsof theBorrowerotherthan inconnectionwith aplan ofcompleteliquidation of theBorrower, then theHolder ofthis Noteshallthereafterhave theright toreceive uponconversion of thisNote, upon thebasisandupon thetermsandconditionsspecifiedhereinandinlieuof thesharesofCommonStockimmediatelytheretoforeissuable uponconversion,suchstock,securities orassetswhich theHolderwouldhavebeenentitled toreceiveinsuchtransactionhadthisNotebeenconvertedinfullimmediately prior tosuchtransaction(withoutregard to anylimitationsonconversionsetforthherein),andin any suchcaseappropriate provisionsshallbemade withrespectto the rightsandinterests oftheHolderofthis Note totheendthat theprovisionshereof(including,without limitation,provisions foradjustment of theConversionPriceand of thenumber ofsharesissuable uponconversion of theNote)shallthereafter beapplicable,as nearlyas may bepracticable inrelation to anysecurities orassetsthereafterdeliverable upon theconversionhereof. TheBorrowershall notaffectanytransactiondescribed in
thisSection1.6(b)unless(a)itfirstgives,totheextentpracticable,thirty(30)dayspriorwrittennotice(but inanyevent atleastfifteen (15)dayspriorwrittennotice)ofthe record date ofthespecialmeeting ofshareholders toapprove,or ifthere is nosuchrecorddate,theconsummationof,suchmerger,consolidation,exchange ofshares,recapitalization,reorganization or othersimilarevent orsale ofassets(duringwhich time theHoldershallbeentitled toconvert thisNote)and(b)theresultingsuccessor oracquiring entity (if not theBorrower)assumesbywritteninstrument theobligations of thisSection1.6(b).Theabove provisionsshallsimilarly apply tosuccessiveconsolidations,mergers,sales, transfers or share exchanges.
c) AdjustmentDuetoDistribution.IftheBorrowershalldeclareormakeanydistributionofitsassets(orrightstoacquireitsassets)to holdersofCommonStockasadividend,stock repurchase, by wayof return ofcapital orotherwise(includingany dividend or distribution to theBorrower’sshareholders incash orshares (orrights toacquireshares) ofcapital stock of a subsidiary(i.e., a spin-off))(a “Distribution”),then theHolder ofthisNote shall beentitled,upon anyconversionof thisNoteafter thedate of record fordetermining shareholders entitledto suchDistribution, toreceive the amountof suchassetswhich wouldhave beenpayableto theHolderwithrespect to theshares of CommonStockissuableuponsuch conversion hadsuchHolderbeen theholder ofsuchshares of CommonStock on therecorddate for thedetermination ofshareholdersentitled tosuchDistribution.
| d) | PurchaseRights.If,atany timewhenany Notesareissuedand |
outstanding,theBorrowerissuesanyconvertiblesecuritiesorrightstopurchasestock,warrants,securitiesorotherproperty(the“PurchaseRights”)proratatotherecordholdersofanyclassof CommonStock,then theHolder ofthisNotewill beentitled toacquire,upon thetermsapplicabletosuchPurchaseRights,theaggregatePurchaseRightswhichsuchHoldercouldhaveacquired ifsuchHolderhadheld thenumber ofshares of CommonStockacquirable uponcompleteconversionofthis Note(withoutregard toanylimitations onconversioncontainedherein)immediately before the date onwhich arecord is taken for thegrant,issuanceorsale ofsuchPurchaseRights or, if nosuchrecord istaken, thedate as ofwhich therecord holders of CommonStockare to bedetermined for thegrant, issueor saleofsuchPurchaseRights.
e) ProtectionPeriod.IntheeventthattheBorrowerissuesatanytimewhenthis Noteisissuedandoutstandingtoanyperson,grouporentity(duringtheperiodthatthereremainsanoutstandingbalanceonthenote),subsequentconvertiblesecuritiesbearingagreaterconversiondiscountand / orlongerlookbackperiodthan thatwhich isstatedinthisnote,then theconversiondiscountand / or thelookbackperiod fortheremainder of theoutstandingbalance ofthisnoteshall beadjusted toequaltheconversiondiscountand / orlookbackperiod ofthesubsequentconvertiblesecurities.
f) NoticeofAdjustments.UpontheoccurrenceofeachadjustmentorreadjustmentoftheConversionPriceasaresultoftheeventsdescribedinthisSection1.5,theBorrower,atitsexpense,shallpromptlycomputesuchadjustment orreadjustmentandprepare andfurnish to theHolder a certificatesettingforthsuchadjustment orreadjustmentand showing indetail thefacts uponwhichsuchadjustment orreadjustment isbased. TheBorrowershall, upon thewrittenrequestatany timeoftheHolder,furnishtosuchHolderalikecertificatesettingforth(i)suchadjustment orreadjustment,(ii) theConversionPriceat thetime ineffectand(iii) the number ofshares ofCommonStockand theamount, ifany, ofothersecurities orpropertywhichat the timewould be received uponconversion of the Note.
| 1.6. | Intentionallyleftblank. |
| 1.7. | StatusasShareholder.UponsubmissionofaNoticeofConversionbyaHolder, |
(i) thesharescoveredthereby(otherthantheshares,ifany,whichcannotbeissuedbecausetheirissuancewouldexceedsuchHolder’sallocatedportionoftheReservedAmountorMaximumShareAmount)shallbedeemedconvertedintosharesof CommonStockand(ii) theHolder’srightsasaHolder ofsuchconvertedportionof thisNoteshallceaseandterminate,exceptingonlytherightto
receivecertificatesforsuchsharesofCommonStockandtoanyremediesprovidedhereinorotherwiseavailableatlaworin equitytosuchHolderbecauseofafailurebytheBorrowertocomplywith theterms ofthisNote.Notwithstanding theforegoing, if aHolderhas notreceivedcertificates forallshares ofCommonStockprior to thetenth(10th)businessday after theexpiration of theDeadlinewithrespect to aconversion ofany portion of thisNote for anyreason,then(unless theHolderotherwiseelectstoretain itsstatusas aholder of CommonStockby sonotifyingtheBorrower) theHoldershallregaintherights of aHolder ofthisNotewithrespect tosuchunconverted portions of thisNoteandtheBorrowershall,assoonaspracticable,returnsuchunconvertedNotetotheHolder or,iftheNotehas notbeensurrendered,adjustitsrecordstoreflectthatsuchportionof thisNotehas notbeenconverted.In allcases, theHoldershallretainall of itsrightsandremedies(including,withoutlimitation,(i) therighttoreceive ConversionDefaultPaymentspursuanttoSection1.3totheextentrequiredthereby forsuchConversionDefaultand anysubsequentConversionDefaultand(ii) theright tohave theConversionPricewithrespect tosubsequentconversionsdeterminedin
accordancewithSection1.3)fortheBorrower’sfailureto convert thisNote.
1.8. Prepayment.NotwithstandinganythingtothecontrarycontainedinthisNote,atanytimeduringtheperiodbeginningontheIssueDatetheBorrowershallhavetheright,exercisableon notlessthanthree (3)TradingDayspriorwrittennoticetotheHolderof theNoteto prepaytheoutstanding Note(principalandaccruedinterest), infull, inaccordancewiththisSection
1.8.Anynoticeofprepaymenthereunder(an“OptionalPrepaymentNotice”)shallbedeliveredtotheHolderoftheNoteatitsregisteredaddressesandshallstate:(1)thattheBorrowerisexercisingitsright toprepay theNote,and(2) thedate ofprepaymentwhichshall be notmorethanthree(3)TradingDaysfrom thedateof theOptionalPrepaymentNotice.On thedatefixedforprepayment(the“OptionalPrepaymentDate”),theBorrowershall makepaymentoftheOptionalPrepaymentAmount(asdefinedbelow) to orupontheorder of theHolderasspecified by theHolder inwriting totheBorroweratleastone(1)business day prior totheOptionalPrepaymentDate.Iffrom thedate ofissuanceuntil90daysfromthedate ofissueacetheBorrowerexercisesitsrighttoprepay theNote, theBorrowershall makepaymentto theHolder ofanamount incash(the“OptionalPrepaymentAmount”) equalto140%,multiplied bythesumof: (w) the thenoutstandingprincipalamount of this Noteplus(x)accruedandunpaidintereston the unpaidprincipalamountofthisNote to theOptionalPrepaymentDateplus(y)DefaultInterest,ifany,ontheamountsreferredtoinclauses(w)and(x)plus(z)any amountsowedto theHolderpursuanttoSections1.3and1.4(g)hereof.Iffromthe91st dayfromthedateofissueace until the180daysfromthe dateofissuance,theBorrowerexercisesitsrighttoprepay theNote, theBorrowershallmakepayment to theHolder ofanamountincash(the“OptionalPrepaymentAmount”)equal to150%,multipliedby thesumof:(w) thethenoutstandingprincipalamountofthisNoteplus(x)accruedandunpaidintereston theunpaidprincipalamountof this Note totheOptionalPrepaymentDateplus(y)DefaultInterest, ifany,ontheamountsreferredto inclauses(w)and (x)plus(z) anyamountsowed to theHolderpursuanttoSections 1.3and1.4(g)hereof.If theBorrowerdeliversanOptionalPrepayment Noticeandfails to pay theOptionalPrepayment Amount due to theHolder of the Notewithintwo (2)businessdays following theOptionalPrepaymentDate,theBorrowershallforeverforfeititsrighttoprepay theNotepursuant to thisSection 1.8
Aftertheexpirationofonehundredeighty(180)followingthedateoftheNote,theBorrowershallhavenoright ofprepayment.
ARTICLEII.CERTAINCOVENANTS
2.1. DistributionsonCapitalStock.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnotwithouttheHolder’swrittenconsent(a)pay,declare orset apartforsuchpayment,any dividend or otherdistribution(whether incash,propertyorothersecurities)onsharesof capitalstockother thandividends onsharesof CommonStocksolely in theformofadditional shares of CommonStock or (b) directly or indirectly orthroughany subsidiary makeany otherpayment ordistributioninrespect of itscapital stockexcept fordistributions pursuant to anyshareholders’rightsplanwhich isapprovedby a majorityof theBorrower’sdisinteresteddirectors.
2.2. RestrictiononStockRepurchases.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnotwithouttheHolder’swrittenconsentredeem,repurchaseorotherwiseacquire(whetherforcash orinexchangeforproperty orothersecuritiesorotherwise) in any onetransaction orseries ofrelatedtransactions anyshares ofcapitalstock of theBorrower oranywarrants,rights or options topurchaseor acquire anysuchshares.
2.3. SaleofAssets.SolongastheBorrowershallhaveanyobligationunderthisNote, theBorrowershallnot,withouttheHolder’swrittenconsent,sell,leaseor otherwisedisposeofanysignificantportion of itsassetsoutside the ordinarycourse of business.Any consent to the disposition of anyassets may be conditioned on a specified useofthe proceeds ofdisposition.
2.4. AdvancesandLoans. So longasthe Borrower shallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder’swrittenconsent,lendmoney,givecreditormakeadvances to anyperson,firm, jointventure orcorporation,including,withoutlimitation,officers,directors,employees,subsidiariesandaffiliates of theBorrower,exceptloans,credits oradvances(a) inexistence orcommitted on thedatehereofandwhichtheBorrowerhasinformedHolder inwritingprior to thedate hereof, (b) made in the ordinarycourse ofbusinessor(c) notinexcess of $100,000.
2.5. TimelyreportingobligationSolongastheBorrowershallhaveanyobligationunderthisNotetheborrowershallremaincurrantinitsfillingswiththeSEC,asrequiredundertheExchangeact.
ARTICLEIII.EVENTSOFDEFAULT
If anyofthe followingevents ofdefault(each,an“Event of Default”)shall occur:
3.1. FailuretoPayPrincipalorInterest.TheBorrowerfailstopaytheprincipalhereoforinterestthereonwhen dueonthisNote,whetheratmaturity, uponaccelerationorotherwise.
3.2. ConversionandtheShares.TheBorrowerfailstoissuesharesofCommonStocktotheHolder(or announces orthreatens inwritingthatitwill nothonoritsobligationto doso)uponexerciseby theHolderoftheconversionrights oftheHolderinaccordancewith thetermsof thisNote,failstotransferorcauseitstransfer agenttotransfer(issue)(electronically or incertificated form) anycertificate forshares ofCommonStockissued to theHolder uponconversionof orotherwisepursuanttothisNoteasandwhenrequiredby thisNote,theBorrowerdirectsitstransferagent not totransfer ordelays,impairs,and/orhinders itstransferagentintransferring (orissuing)(electronicallyorincertificatedform)anycertificateforshares ofCommonStock to be issued to theHolder uponconversion of orotherwisepursuant to this Noteasandwhenrequiredby thisNote, orfails toremove (ordirects itstransferagent not toremove orimpairs,delays,and/orhinders itstransfer
agentfromremoving)anyrestrictivelegend(ortowithdrawanystoptransferinstructionsinrespectthereof)onanycertificateforanysharesofCommonStockissuedtotheHolderuponconversionof orotherwisepursuant to this Noteasandwhenrequiredby this Note (ormakesanywrittenannouncement,statement orthreatthatitdoes notintend to honor theobligationsdescribed in thisparagraph)and anysuchfailureshallcontinueuncured (oranywrittenannouncement,statementorthreatnot tohonoritsobligationsshallnot berescinded inwriting) forthree (3)businessdaysafter theHoldershallhavedeliveredaNotice ofConversion.It isanobligationoftheBorrowertoremaincurrent in itsobligationsto itstransferagent. It shall beanevent ofdefault of thisNote, if aconversion of thisNoteisdelayed,hindered orfrustrated dueto abalanceowedbytheBorrowertoitstransferagent.IfattheoptionoftheHolder,theHolderadvancesanyfundstotheBorrower’stransferagent inorder toprocess aconversion,suchadvancedfundsshall bepaidbytheBorrower to theHolderwithin fortyeight (48)hours ofa demand from the Holder.
| 3.3. | BreachofCovenants.TheBorrowerbreachesanymaterialcovenantorother |
materialtermorconditioncontainedinthisNoteandanycollateraldocumentsandsuchbreachcontinuesforaperiodoften(10)daysafterwrittennoticethereof to theBorrowerfrom theHolder.
3.4. BreachofRepresentationsandWarranties.AnyrepresentationorwarrantyoftheBorrowermadehereinorinanyagreement,statement orcertificategiveninwritingpursuantheretoor inconnectionherewith,shall befalse ormisleading inanymaterialrespectwhenmadeand thebreach ofwhichhas (orwith thepassageof time willhave) amaterialadverseeffecton therightsoftheHolderwithrespecttothisNote.
3.5. ReceiverorTrustee.TheBorroweroranysubsidiaryoftheBorrowershallmakeanassignmentforthebenefitofcreditors,orapplyfororconsenttotheappointmentofareceiver or trustee for it or for asubstantialpart ofits property orbusiness, orsuch areceiver or trusteeshall otherwise beappointed.
3.6. Judgments.Anymoneyjudgment,writorsimilarprocessshallbeenteredorfiledagainst theBorroweroranysubsidiaryoftheBorroweror anyofits property orotherassetsformorethan $30,000,andshallremainunvacated,unbonded orunstayed for aperiod of twenty (20)daysunlessotherwise consentedtobytheHolder, whichconsentwillnotbeunreasonablywithheld
3.7. Bankruptcy.Bankruptcy,insolvency,reorganizationorliquidationproceedingsorotherproceedings,voluntaryorinvoluntary,forreliefunderanybankruptcylaworanylaw for therelief ofdebtorsshall beinstituted byor againsttheBorrower orany subsidiaryof theBorrower.
3.8. Delisting ofCommonStock.TheBorrowershallfailtomaintainthelisting oftheCommonStockonatleastoneoftheOTCQBoranequivalentreplacement exchange,theNasdaqNationalMarket, theNasdaqSmallCapMarket, theNewYork StockExchange, or theAmericanStock Exchange.
3.9. FailuretoComplywiththeExchangeAct.TheBorrowershallfailtocomplyinanymaterialrespectwiththereportingrequirementsorobligationsof theExchangeAct;and/orfail totimelyfileitsfillingasrequiredunderreportingrequirements orobligations of theExchangeActand/or theBorrowershallcease to be subjectto thereportingrequirements orobligations oftheExchange Act.
3.10. Liquidation.Anydissolution,liquidation,orwindingupofBorroweroranysubstantialportion ofitsbusiness.
3.11. CessationofOperations.AnycessationofoperationsbyBorrowerorBorroweradmitsitisotherwisegenerallyunabletopayitsdebtsassuchdebtsbecomedue,provided,however,thatany disclosure of theBorrower’s abilitytocontinueas a“goingconcern”shall not beanadmission thattheBorrower cannot pay its debtsas they become due.
3.12. MaintenanceofAssets.ThefailurebyBorrowertomaintainanymaterialintellectualpropertyrights,personal,realpropertyorotherassetswhichare necessary toconductitsbusiness(whether noworin the future).
3.13. FinancialStatementRestatement.TherestatementofanyfinancialstatementsfiledbytheBorrowerwiththeSECforanydateorperiodfromtwoyearspriortotheIssueDate ofthisNoteanduntil thisNote is nolongeroutstanding, iftheresultofsuchrestatementwould,bycomparisontothe unrestatedfinancialstatement,have constitutedamaterialadverseeffectontherights ofthe Holderwithrespectto thisNote.
| 3.14. | ReverseSplits.TheBorrowereffectuatesareversesplitofitsCommonStock |
withouttwenty(20)dayspriorwrittennoticeto the Holder.
3.15. ReserveIncreaseandReplacementofTransferAgent.IntheeventthattheBorrowerproposestoreplaceitstransferagent,theBorrowerfails toprovide,prior to theeffectivedate ofsuchreplacement,afullyexecutedIrrevocableTransferAgentInstructionsinaformasinitiallydeliveredpursuant tosection 1.3 on the note(including but notlimited to theprovision to irrevocablyreserveshares of CommonStock in theReservedAmount)signed by thesuccessortransferagent toBorrowerandtheBorrower.Additionally, IntheeventthattheShareReservehasbeendepletedandBorrowerFailstocause theincreaseof thenumber ofshareswithin 3business days ofthereservebeingdepleted.
3.16. Cross-Default.NotwithstandinganythingtothecontrarycontainedinthisNoteortheotherrelatedor companiondocuments,abreachordefault bythe Borrowerofanycovenantorotherterm orconditioncontained inany of the OtherAgreements,afterthepassageofallapplicablenoticeandcureorgraceperiods,shall,at theoption oftheHolder,beconsidered adefaultunderthis NoteandtheOtherAgreements,inwhicheventtheHoldershallbeentitled(butin noeventrequired) toapplyallrightsandremedies ofthe Holder underthe termsofthisNote and the OtherAgreementsbyreason of adefaultundersaidOtherAgreement orhereunder.“OtherAgreements”means,collectively,allagreementsandinstrumentsbetween,amongorby: (1)theBorrower,and, or forthebenefitof, (2) the Holderandanyaffiliate of theHolder,including,withoutlimitation,promissorynotes;provided,however, theterm“OtherAgreements”shall notinclude therelated orcompanion documents to thisNote.Each of theloantransactionswill becross-defaultedwitheachotherloantransactionandwithallotherexistingandfuturedebt of Borrower to the Holder.
UpontheoccurrenceandduringthecontinuationofanyEventofDefaultspecifiedinSection3.1(solelywithrespect tofailuretopaythe principalhereofor interestthereonwhen dueatthe MaturityDate),theNoteshallbecomeimmediately dueandpayableand theBorrowershall payto theHolder, infullsatisfaction of itsobligationshereunder,anamountequal to theDefault Sum(asdefinedherein).UPONTHEOCCURRENCEANDDURINGTHECONTINUATIONOF ANYEVENTOFDEFAULTSPECIFIEDINSECTION3.2,THENOTESHALLBECOMEIMMEDIATELYDUEANDPAYABLEANDTHEBORROWERSHALL PAYTOTHEHOLDER,INFULLSATISFACTIONOFITSOBLIGATIONSHEREUNDER,ANAMOUNTEQUALTO:(Y)THEDEFAULT SUM(ASDEFINEDHEREIN);MULTIPLIEDBY (Z)TWO (2).Upon theoccurrence
andduringthecontinuationofanyEventofDefaultspecifiedinSections3.1(solely withrespecttofailuretopaytheprincipalhereoforinterestthereonwhendueonthisNoteuponaTradingMarketPrepaymentEventpursuanttoSection1.7 or uponacceleration),3.3, 3.4, 3.6,3.8,3.9, 3.11,3.12, 3.13, 3.14,and/or 3. 15exercisablethrough the deliveryofwrittennoticeto theBorrowerbysuch
Holders(the“DefaultNotice”),andupontheoccurrenceofanEventofDefaultspecifiedtheremainingsectionsofArticlesIII(otherthanfailuretopaytheprincipalhereoforinterestthereonat the MaturityDatespecified inSection 3,1hereof), the Noteshallbecomeimmediately due andpayableandtheBorrowershall pay totheHolder,infullsatisfactionofitsobligationshereunder,anamountequaltothegreater of(i)150%timesthesumof(w) thethenoutstandingprincipalamount ofthis Noteplus(x)accruedandunpaidinterest on theunpaidprincipalamount of this Note to thedate ofpayment(the “MandatoryPrepaymentDate”)plus(y)DefaultInterest,ifany, on theamountsreferredto inclauses(w)and/or (x)plus(z) any amountsowedto theHolderpursuanttoSections1.3and1.4(g)hereof(thethenoutstandingprincipalamount ofthisNoteto thedateofpaymentplustheamountsreferredtoinclauses (x),(y)and(z)shallcollectivelybe knownasthe“DefaultSum”)or
(ii) the“parityvalue”oftheDefaultSumtobeprepaid,whereparityvaluemeans(a)thehighestnumberofsharesofCommonStockissuableuponconversionof orotherwisepursuant tosuchDefault Sum inaccordancewithArticle I,treating theTradingDay immediately preceding the
MandatoryPrepaymentDateasthe“ConversionDate”forpurposesofdeterminingthelowestapplicableConversionPrice,unlesstheDefaultEventarisesasaresultofabreachinrespectofaspecificConversionDate inwhichcase suchConversionDateshall be the ConversionDate),multiplied by(b) thehighestClosingPrice for the CommonStockduring theperiodbeginningonthedate offirstoccurrence of theEvent ofDefaultandending one dayprior to theMandatoryPrepaymentDate(the“DefaultAmount”)andallother amounts payablehereundershallimmediatelybecome dueandpayable,allwithoutdemand,presentment ornotice,all ofwhichhereby are expresslywaived,togetherwithallcosts,including,withoutlimitation,legalfeesandexpenses, ofcollection,andtheHoldershallbe entitledtoexerciseall otherrightsandremediesavailableat lawor inequity.
IftheBorrowerfailstopaytheDefaultAmountwithinfive(5)businessdaysofwrittennoticethatsuchamountisdueandpayable,thenthedefaultamountshall beadded totheprincipalbalance ofthe noteand theHoldershallhave therightatanytime, so longas theBorrowerremains indefault(and so longand to the extentthattherearesufficientauthorizedshares),torequire theBorrower, uponwrittennotice,toimmediatelyissue, inlieuoftheDefaultAmount,thenumber ofshares ofCommonStock oftheBorrowerequal to theDefaultAmountdividedby theConversionPricethen ineffect.
ARTICLEIV.MISCELLANEOUS
4.1. Failureor IndulgenceNotWaiver.NofailureordelayonthepartoftheHolderintheexerciseofanypower,rightorprivilegehereundershalloperateasawaiverthereof,norshall anysingle orpartialexerciseof anysuchpower,rightorprivilegeprecludeotherorfurtherexercisethereof or ofany otherright,power orprivileges.Allrightsandremediesexistinghereunderarecumulativeto,andnotexclusiveof,anyrights or remediesotherwise available.
4.2. Notices.Allnotices,demands,requests,consents,approvals,andothercommunicationsrequiredorpermittedhereundershallbeinwritingand,unlessotherwisespecifiedherein,shallbe(i)personallyserved,(ii)depositedinthemail,registeredorcertified,returnreceiptrequested,postageprepaid,(iii)delivered byreputableaircourierservicewithchargesprepaid,or
(iv)transmittedbyhanddelivery,telegram,or facsimile,addressedassetforthbelowortosuchotheraddressassuchpartyshallhavespecifiedmostrecentlybywrittennotice.Anynoticeorothercommunicationrequired orpermitted to begivenhereundershall bedeemedeffective(a) uponhand delivery or delivery byfacsimile,withaccurateconfirmationgeneratedby thetransmittingfacsimilemachine,at theaddress or numberdesignatedbelow (ifdelivered on abusiness day duringnormalbusinesshourswhere suchnoticeis to bereceived), or thefirstbusinessday followingsuchdelivery (ifdeliveredother thanon abusinessday duringnormalbusinesshourswheresuchnotice is to bereceived) or (b) on thesecondbusiness dayfollowing thedate ofmailing byexpresscourierservice,fullyprepaid,addressedtosuchaddress, oruponactualreceiptofsuchmailing,whichevershallfirst occur.The addressesfor suchcommunicationsshallbe: If tothe Borrower,to: MaxSoundCorporation2902A Colorado AvenueSanta Monica,CA 90404. Email:john@maxsound.com&greg@maxsound.com : If to theHolder:Darling Capital, LLC, 767 3rd Avenue, Suite
25-1A,NewYork,NY10017.Email:Yehuda@darlingcapital.net
4.3. Amendments.ThisNoteandanyprovisionhereofmayonlybeamendedbyaninstrumentinwritingsignedby theBorrowerandtheHolder. Theterm“Note”andallreferencethereto,asusedthroughout thisinstrument,shallmeanthisinstrumentasoriginallyexecuted, or iflateramended orsupplemented, thenas soamended or supplemented.
4.4. Assignability.ThisNoteshallbebindingupontheBorroweranditssuccessorsandassigns,andshallinuretobethebenefitoftheHolderanditssuccessorsandassigns.Eachtransferee of this Notemust bean“accreditedinvestor”(asdefined inRule 501(a) of the 1933Act).Notwithstandinganything inthisNotetothecontrary,thisNotemay bepledgedascollateralinconnectionwith abona fidemarginaccount or otherlendingarrangement.
4.5. CostofCollection.IfdefaultismadeinthepaymentofthisNote,theBorrowershallpaytheHolderhereof costsofcollection, includingreasonableattorneys’ fees.
4.6. GoverningLaw.ThisNoteshallbegovernedbyandconstruedinaccordancewiththelawsoftheState ofNewYorkwithoutregardtoconflictsoflawsprinciplesthatwouldresult intheapplicationof thesubstantivelawsofanotherjurisdiction.Any actionbroughtbyeitherpartyagainsttheotherconcerningthetransactionscontemplatedbythisAgreementmust bebroughtonly inthecivilorstatecourtsofNewYorkorinthefederal courtslocatedintheStateandcounty ofNewYork.Bothpartiesandtheindividualsigning thisAgreementonbehalf of theBorroweragreeto submit to thejurisdiction ofsuchcourts.Theprevailing partyshall beentitled torecoverfrom theother party itsreasonableattorney’sfeesandcosts.In theeventthat anyprovision of thisNoteisinvalid orunenforceableunder anyapplicable statute or rule oflaw, thensuchprovisionshallbedeemedinoperative tothe extentthatitmayconflicttherewithandshall bedeemedmodifiedtoconformwithsuchstatute or rule oflaw.Anysuchprovisionwhich mayproveinvalid orunenforceableunder anylawshall notaffect thevalidityor unenforceability of anyotherprovision of thisNote. Nothingcontainedhereinshall bedeemed oroperate topreclude theHolder frombringing suit ortakingotherlegalactionagainsttheBorrowerinanyotherjurisdictiontocollecton theBorrower’sobligations toHolder, torealize on anycollateral or anyother security forsuchobligations, or toenforce ajudgment or other decision infavor of theHolder.ThisNoteshall bedeemed anunconditionalobligationofBorrowerforthepayment ofmoneyand,withoutlimitationto anyotherremediesofHolder,may beenforcedagainstBorrower bysummaryproceedingpursuanttoNewYorkCivilProcedure LawandRulesSection 3213or anysimilarrule orstatute inthejurisdictionwhereenforcement issought.Forpurposes ofsuchruleorstatute,any otherdocumentoragreementtowhichHolderandBorrowerareparties orwhichBorrowerdeliveredtoHolder,whichmay beconvenient ornecessarytodetermineHolder’srightshereunderorBorrower’sobligationstoHolderaredeemed apartofthisNote,whether or notsuchotherdocument oragreement wasdeliveredtogetherherewith or wasexecutedapartfromthisNote.
4.7. CertainAmounts.WheneverpursuanttothisNotetheBorrowerisrequiredtopayanamountinexcessoftheoutstandingprincipalamount(ortheportionthereofrequiredtobepaidatthattime)plus accrued andunpaidinterestplusDefaultInterestonsuchinterest,theBorrower
andtheHolderagreethattheactualdamagestotheHolderfromthereceiptofcashpaymentonthis
NotemaybedifficulttodetermineandtheamounttobesopaidbytheBorrowerrepresentsstipulateddamagesandnotapenaltyandisintendedtocompensatethe Holderinpartforlossoftheopportunity toconvert thisNoteand toearn areturnfromthesale ofshares ofCommonStockacquireduponconversion of thisNoteat aprice inexcess ofthepricepaid forsuchsharespursuant to thisNote. TheBorrowerand theHolderherebyagreethat suchamount ofstipulateddamages isnot plainlydisproportionate to thepossibleloss to theHolderfrom thereceipt of acashpaymentwithoutthe opportunitytoconvertthis Noteintoshares of CommonStock.
| 4.8. | Disclosure.UponreceiptordeliverybytheCompanyofanynoticein |
accordancewiththetermsofthisNote,unlesstheCompanyhasingoodfaithdeterminedthatthemattersrelatingtosuchnoticedonotconstitutematerial,non-publicinformationrelating tothe Company or any of its Subsidiaries, the Companyshallwithin one (1)Trading Dayafter anysuchreceipt ordelivery,publiclydisclosesuchmaterial,non-publicinformation onaCurrentReportonForm8-K orotherwise.In theeventthat theCompanybelievesthat anoticecontains material,non-publicinformationrelating to the Company or any of itsSubsidiaries, theCompany soshallindicate tosuchHoldercontemporaneously withdelivery ofsuchnotice,and intheabsence ofanysuchindication, theHoldershall beallowed topresume thatallmattersrelating tosuchnotice donotconstitutematerial,non-public informationrelating to theCompany oritsSubsidiaries.
4.9. NoticeofCorporateEvents.Exceptasotherwiseprovidedbelow,theHolderofthisNoteshallhavenorightsasaHolderofCommonStockunlessandonlytotheextentthatitconvertsthisNote intoCommonStock.TheBorrowershall provide theHolder withpriornotification of any meeting of theBorrower’sshareholders(andcopies of proxymaterialsandotherinformationsenttoshareholders). In theeventofanytakingbytheBorrowerofarecordofitsshareholdersfor thepurpose ofdeterminingshareholderswhoareentitled toreceivepayment of anydividend or otherdistribution,anyrighttosubscribefor,purchaseorotherwiseacquire(includingbywayofmerger,consolidation,reclassification orrecapitalization) anyshare of anyclass or anyothersecurities orproperty,or toreceiveany otherright,or for thepurpose ofdeterminingshareholderswhoareentitled to voteinconnectionwith anyproposed sale, leaseorconveyance ofall or substantiallyall of theassets oftheBorroweroranyproposedliquidation,dissolutionorwindingup oftheBorrower,theBorrowershallmaila noticeto the Holder,atleasttwenty (20) dayspriorto the record datespecifiedtherein (or thirty (30) daysprior to theconsummation of thetransaction orevent,whicheverisearlier), of thedateonwhich anysuchrecord is to betaken for thepurpose of suchdividend,distribution,right orotherevent,and abriefstatementregarding theamountandcharacter ofsuchdividend,distribution,right or otherevent to the extentknownatsuchtime.TheBorrowershall make apublicannouncementofanyeventrequiringnotificationtotheHolderhereundersubstantially simultaneously with the notification to theHolder inaccordancewith theterms of thisSection 4.9.
4.10. Remedies.TheBorroweracknowledgesthatabreachbyitofitsobligationshereunderwillcauseirreparableharmtotheHolder,by vitiating theintentandpurposeofthetransactioncontemplatedhereby.Accordingly, theBorroweracknowledgesthat theremedyat law for abreach of itsobligationsunderthisNotewill beinadequateandagrees, in theevent of abreach or threatenedbreachby the Borrower ofthe provisions ofthisNote,thatthe Holdershall beentitled,
inadditiontoallotheravailableremediesatlaworinequity,andinadditiontothepenaltiesassessableherein, toaninjunctionorinjunctions restraining,preventingorcuringanybreach ofthisNoteandtoenforcespecificallythetermsandprovisionsthereof,withoutthenecessityofshowingeconomiclossandwithout anybond orothersecuritybeingrequired.
Remainder ofpageintentionallyleftblank
INWITNESSWHEREOF,BorrowerhascausedthisNotetobesignedinitsnamebyitsdulyauthorizedofficerthisdayof June 29,2015 ..
MAXSOUND CORPORATION
By:
Title:Chairman &CFO
EXHIBIT A
NOTICEOFCONVERSION
TO:MAXSOUNDCORPORATION
VIAEMAIL Attn:CFOorPresident
Theundersignedherebyirrevocablyelectstoexercisetheright,representedbythePROMISSORYNOTEdatedasofJune 29,2015issuedbyMAXSOUND CORPORATION(the"Note")
toconvert$principalplusaccruedinterestequalto$into
shares("ConversionShares")oftheCommonStock,$0.01parvalue("CommonStock").
Dated:
Holder'sSignature:
By:YehudaMarrus,Director
Holder’sAddress:
DarlingCapital,LLC
7673rdAvenue,25thFloorNew York,NY10017
Pleasesendsharesto:
TBD
