NEITHERTHEISSUANCEANDSALEOFTHESECURITIESREPRESENTEDBYTHISCONVERTIBLEPROMISSORYNOTENORTHESECURITIESINTOWHICHTHESESECURITIESARECONVERTIBLEHAVEBEENREGISTEREDUNDERTHESECURITIESACTOF1933,ASAMENDED, ORAPPLICABLESTATESECURITIESLAWS.THESECURITIESMAYNOTBEOFFEREDFORSALE,SOLD,TRANSFERREDORASSIGNED
(I) INTHEABSENCEOF(A)ANEFFECTIVEREGISTRATIONSTATEMENTFORTHESECURITIESUNDERTHESECURITIESACTOF1933,ASAMENDED,OR(B)ANOPINIONOFCOUNSEL(WHICHCOUNSELSHALLBESELECTEDBYTHEHOLDER),INAGENERALLYACCEPTABLEFORM,THATREGISTRATIONISNOTREQUIREDUNDERSAIDACTOR(II)UNLESSSOLDPURSUANTTORULE144ORRULE144AUNDERSAIDACT.
Original PrincipalAmount:$143,888.89 Issue Date:August7, 2015PurchasePrice:$125,000.00
CONVERTIBLEPROMISSORYNOTE
FORVALUERECEIVED,MAXSOUNDCORPORATION,aDelawarecorporation(the“Borrower”),herebypromisestopaytotheorderofILIADRESEARCHANDTRADING,L.P.,aUtahlimitedpartnership,orregisteredassigns(the“Holder”),thesumof$143,888.89(the“OriginalPrincipalAmount”)togetherwithanyadditionalchargesprovidedforherein,onthedatethatis12monthsaftertheIssueDate(the“MaturityDate”),andtopayinterestontheOutstandingBalance(asdefinedbelow)attherateofeightpercent(8%)perannumfromthedatehereof(the“IssueDate”)untilthesameispaidinfull;providedthatupontheoccurrenceofanEventofDefault(asdefinedbelow),interestshallthereafteraccrueontheOutstandingBalancebothbeforeandafterjudgmentattherateoffourteenpercent(14%)perannum(“DefaultInterest”).Allinterestcalculationshereundershallbecomputedonthebasisofa360-dayyearcomprisedoftwelve(12)thirty(30)daymonths,shallcompounddailyandshallbepayableinaccordancewiththetermsofthisNote.TheBorroweracknowledgesthattheOriginalPrincipalAmountexceedsthepurchasepriceofthisNoteandthatsuchexcessconsistsoftheOID(asdefinedinthePurchaseAgreement(definedbelow))intheamountof
$13,888.89,theCarriedTransactionExpenseAmount(asdefinedinthePurchaseAgreement)intheamountof$5,000.00tocovertheHolder’slegalandotherexpensesincurredinthepreparationofthisNote,thePurchaseAgreement,theIrrevocableTransferAgentInstructions,andallothercertificates,documents,agreements,resolutionsandinstrumentsdeliveredtoanypartyunderorinconnectionwiththisNote,asthesamemaybeamendedfromtimetotime(collectively,the“TransactionDocuments”),whichsumshallbefullyearnedandchargedtotheBorrowerupontheexecutionofthisNoteandpaidtotheHolderaspartoftheoutstandingprincipalbalanceassetforthinthisNote.ThisNotemaynotbeprepaidinwholeorinpartexceptasotherwiseprovidedinSection1.8.Allpaymentsduehereunder(totheextentnotconvertedintocommonstock,$0.00001parvaluepershare,oftheBorrower(the“CommonStock”)inaccordancewiththetermshereof)shallbemadeinlawfulmoneyoftheUnitedStatesofAmerica.AllpaymentsshallbemadeatsuchaddressastheHoldershalldesignatefromtimetotimebywrittennoticemadein accordancewiththeprovisionsofthisNote.Eachcapitalizedtermusedherein,andnototherwisedefined,shallhavethemeaningascribedtheretointhatcertainSecuritiesPurchaseAgreementdatedthedatehereofbetweentheBorrowerandtheHolder,pursuanttowhichthisNotewasoriginallyissued(the“PurchaseAgreement”).Forpurposeshereof,theterm“OutstandingBalance”meanstheOriginalPrincipalAmount,asreducedorincreased,asthecasemaybe,pursuanttothetermshereofforconversion,breachhereoforotherwise,plusanyaccruedbutunpaidinterest(includingwithlimitationDefaultInterest),collectionandenforcementscosts,andanyotherfeesorchargesincurredunderthisNoteorunderthePurchaseAgreement.
ThisNoteisfreefromalltaxes,liens,claimsandencumbranceswithrespecttotheissuethereofandshallnotbesubjecttopreemptiverightsorothersimilarrightsofstockholdersoftheBorrowerandwillnotimposepersonalliabilityupontheholderthereof.
Thefollowingadditionalterms shallapplytothisNote:
| 1. | CONVERSION RIGHTS. |
ConversionRight.SubjecttoSection1.7,duringtheperiodbeginningontheIssueDateandendingwhentheOutstandingBalanceispaidorconvertedinfull,theHoldershall,atitsoption,havetherightfromtimetotime,toconvertalloranypartoftheOutstandingBalanceofthisNoteintofullypaidandnon-assessablesharesofCommonStock,assuchCommonStockexistsontheIssueDate,oranysharesofcapitalstockorothersecuritiesoftheBorrowerintowhichsuchCommonStockshallhereafterbechangedorreclassifiedattheConversionPrice(asdefinedbelow)determinedasprovidedherein(a“Conversion”).ThenumberofsharesofCommonStocktobeissueduponeachconversionofthisNote(the“ConversionShares”)shallbedeterminedbydividingtheConversionAmount(asdefinedbelow)bytheapplicableConversionPricethenineffectonthedatespecifiedinthenoticeofconversion,inthe formattachedheretoasExhibitA(the“NoticeofConversion”),deliveredtotheBorrowerbytheHolderinaccordancewithSection1.4(a)below;providedthattheNoticeofConversionissubmittedbyfacsimileore-mail(orbyothermeansresultingin,orreasonablyexpectedtoresultin,notice)totheBorrowerbefore6:00p.m.,NewYork,NewYorktimeonsuchconversiondate(the“ConversionDate”). Theterm“ConversionAmount”means,withrespecttoanyconversionofthisNote,theportionoftheOutstandingBalancetobeconverted.
ConversionPrice.
(a) CalculationofConversionPrice.Theconversionprice(asthesamemaybeadjustedfromtimetotimepursuanttothetermshereof, the“ConversionPrice”)shallmean65%(the“ConversionFactor”)multipliedbytheMarketPrice(asdefinedherein).“MarketPrice”meanstheaverageofthetwo(2)lowestTradingPrices(asdefinedbelow)fortheCommonStockduringtheten
(10)TradingDay(asdefinedbelow)periodendingonthelatestcompleteTradingDaypriortotheConversionDate.IfanEventofDefault(asdefinedbelow)otherthananEventofDefaultpursuanttoSection3.1(i)occurs,thentheConversionFactorwillbereducedto55%.IfanEventofDefaultpursuanttoSection3.1(i)occurs,thentheConversionFactorwillbereducedto40%.“TradingPrice”means,fortheCommonStockasofanydate,theclosingbidpriceonthePrincipalMarketasreportedbyareliablereportingservicedesignated bytheHolder(e.g.Bloomberg) or, ifthePrincipalMarketisnottheprincipaltradingmarketforsuchsecurity,theclosing bidpriceofsuchsecurity ontheprincipalsecuritiesexchangeortradingmarketwheresuchsecurityislistedortradedor,ifnoclosingbidpriceofsuchsecurityisavailableinanyoftheforegoingmanners,theaverageoftheclosingbidpricesofanymarketmakersforsuchsecuritythatarequotedin“OTCPink”byPinkOTCMarketsInc.(formerlyPinkSheetsLLC),oranysuccessorentityorotherpublisherthereof.IftheTradingPricecannotbecalculatedforsuchsecurityonsuchdateinthemannerprovidedabove,theTradingPriceshallbethefairmarketvalueasmutuallydeterminedbytheBorrowerandtheHolder.“TradingDay”shallmeananydayonwhichtheCommonStockistradedortradableforanyperiodonthePrincipalMarket,orontheprincipalsecuritiesexchangeor othersecuritiesmarketonwhich theCommon Stockisthen beingtraded.
(b) ConversionPriceDuringMajorAnnouncements.NotwithstandinganythingcontainedinSection1.2(a)tothecontrary,intheeventtheBorrower(i)makesapublicannouncementthatitintendstoconsolidateormergewithanyothercorporation(otherthanamergerinwhichtheBorroweristhesurvivingorcontinuingcorporationanditscapitalstockisunchanged)orsellortransferallorsubstantiallyalloftheassetsoftheBorroweror(ii)anyperson,grouporentity
(includingtheBorrower)publiclyannouncesatenderoffertopurchase50%ormoreoftheBorrower’sCommonStock(oranyothertakeoverscheme)(thedateoftheannouncementreferredtoinclause(i)or
(ii)ishereinafterreferredtoasthe“AnnouncementDate”),thentheConversionPriceshall,effectiveupontheAnnouncementDateandcontinuingthroughtheAdjustedConversionPriceTerminationDate(asdefinedbelow),beequaltothelowerof(1)theConversionPricewhichwouldhavebeenapplicableforaConversionoccurringontheAnnouncementDate,and(2)theConversionPricethatwouldotherwisebeineffect.FromandaftertheAdjustedConversionPriceTerminationDate,theConversionPriceshallbedeterminedassetforthinthisSection1.2(b).Forpurposeshereof,“AdjustedConversionPriceTerminationDate”shallmean,withrespecttoanyproposedtransactionortenderoffer(ortakeoverscheme)forwhichapublicannouncementascontemplatedbythisSection1.2(b)hasbeenmade,thedate upon which theBorrower(in thecaseofclause(i)above)ortheperson,grouporentity (inthecaseofclause(ii)above)consummatesorpubliclyannouncestheterminationorabandonmentoftheproposedtransactionortenderoffer(ortakeoverscheme)whichcausedthisSection1.2(b)tobecomeoperative.
AuthorizedShares. TheBorrowercovenantsthatduringtheperiodtheconversionrightexists,theBorrowerwillreservefromitsauthorizedandunissuedCommonStockasufficientnumberofshares,freefrompreemptiverights,toprovidefortheissuanceofCommonStockuponthefullconversionofthisNote.TheBorrowerisrequiredatalltimestohaveauthorizedandreservedthreetimesthenumberofsharesthatisactuallyissuableuponfullconversionofthisNote(basedontheConversionPriceineffectfromtimetotime)(the“ReservedAmount”).TheReservedAmountshallbeincreasedfromtimetotimeasrequiredtoinsurecompliancewiththisSection1.3.TheBorrowerrepresentsthatuponissuance,suchshareswillbedulyandvalidlyissued,fullypaidandnon-assessable.Inaddition,iftheBorrowershallissueanysecuritiesormakeanychangetoitscapitalstructurewhichwouldchangethenumberofsharesofCommonStockintowhichthisNoteshallbeconvertibleatthethencurrentConversionPrice,theBorrowershallatthesametimemakeproperprovisionsothatthereafterthereshallbeasufficientnumberofsharesofCommonStockauthorizedandreserved,freefrompreemptiverights,forconversionofthisNote.TheBorrower(i)acknowledgesthatithasirrevocablyinstructeditstransferagenttoissuesharesoftheCommonStockissuableuponconversionofthisNote,and(ii)agreesthatitsissuanceofthisNoteshallconstitutefullauthoritytoitsofficersandagentswhoarechargedwiththedutyofissuingthenecessarysharesofCommonStockinaccordancewiththetermsandconditionsofthisNote.If,atanytimetheBorrowerdoesnotmaintaintheReservedAmountitwillbeconsideredanEventofDefaultunderSection3.1(c).
MethodofConversion.
(a) MechanicsofConversion.SubjecttoSection1.7hereof,beginningonthedatespecified inSection1.1,thisNotemay beconvertedby theHolderin wholeor inpartatanytimefromtimetotimeaftertheIssueDate,bysubmittingtotheBorroweraNoticeofConversion(byfacsimile,e-mailorotherreasonablemeans ofcommunicationdispatched on theConversionDatepriorto6:00p.m.,NewYork,NewYorktime),otherwisetheConversionDatewillbethenextTradingDay.
(b) SurrenderofNoteUponConversion.Notwithstandinganythingtothecontrarysetforthherein,uponconversionofthisNoteinaccordancewiththetermshereof,theHoldershallnotberequiredtophysicallysurrenderthisNotetotheBorrowerunlesstheentireOutstandingBalanceofthisNoteissoconverted.TheHolderandtheBorrowershallmaintainrecordsshowingtheamountoftheOutstandingBalancesoconvertedandthedatesofsuchconversionsorshallusesuchothermethod,reasonablysatisfactorytotheHolderandtheBorrower,soasnottorequirephysicalsurrenderofthisNoteuponeachsuchconversion.Intheeventofanydisputeordiscrepancy,suchrecordsoftheHoldershall,primafacie,becontrollinganddeterminativeintheabsenceofmanifesterror.Notwithstandingtheforegoing,ifanyportionofthisNoteisconvertedasaforesaid,theHoldermaynot
transferthisNoteunlesstheHolderfirstphysicallysurrendersthisNotetotheBorrower,whereupontheBorrowerwillforthwithissueanddeliverupontheorderoftheHolderanewNoteofliketenor,registeredastheHoldermayrequest,representingintheaggregatetheremaining OutstandingBalanceofthisNote.TheHolderandanyassignee,byacceptanceofthisNote,acknowledgeandagreethat,byreasonoftheprovisionsofthisparagraph,followingconversionofaportionofthisNote,theunpaidandunconvertedOutstandingBalanceofthisNoterepresentedbythisNotemaybelessthantheamountstatedonthefacehereof.
(c) PaymentofTaxes.Borrowerisresponsibleforthepaymentofallcharges,fees,andtaxesrequiredtodeliverConversionSharestoHolder;provider,however,thatBorrowershallnotberequired topay any taxwhichmay bepayable inrespectof anytransferinvolvedintheissueanddeliveryofConversionSharesorothersecuritiesorpropertyonconversionofthisNotein anameotherthanthatoftheHolder(orinstreetname),andtheBorrowershallnotberequiredtoissueordeliveranysuchsharesorothersecuritiesorpropertyunlessanduntilthepersonorpersons(otherthantheHolderorthecustodianinwhosestreetnamesuchsharesaretobeheldfortheHolder’saccount)requestingtheissuancethereofshallhavepaidtotheBorrowertheamountofanysuchtaxorshallhaveestablished tothesatisfaction oftheBorrowerthatsuch tax hasbeenpaid.
(d) DeliveryofCommonStockUponConversion.Onorbeforethecloseofbusinessonthethird(3rd)TradingDayfollowingthedateofreceiptofaNoticeofConversionfromtheHolderviafacsimiletransmissionore-mail(orotherreasonablemeansofcommunication)(the“DeliveryDate”),theBorrowershall,providedthatallDWACEligibleConditions(asdefinedbelow)arethensatisfied,credittheaggregatenumberofConversionSharestowhichtheHoldershallbeentitledtotheaccountspecifiedontheConversionNoticeviatheDWAC(asdefinedbelow)system.IfallDWACEligibleConditionsarenotthensatisfied,theBorrowershallinsteadissueanddeliverorcausetobeissuedanddelivered(viareputableovernightcourier) to theaddress as specified in theNoticeofConversion,acertificate,registeredinthenameoftheHolderoritsdesignee,forthenumberofConversionSharestowhichtheHoldershallbeentitled;provided,however,that,inadditiontoanyotherrightsorremediesthattheHoldermayhaveunderthisNote,thentheNon-DWACEligibleAdjustmentAmount(asdefinedbelow)shallbeaddedtotheOutstandingBalanceofthisNoteassetforthinSection1.6(f)below.Fortheavoidanceofdoubt,theBorrowerhasnotmetitsobligationtodeliverConversionSharesbytheDeliveryDateunless theHolderoritsbroker, asapplicable,hasactuallyreceived theshareselectronicallyintotheapplicableaccount,oriftheDWACEligibleConditionsarenotthensatisfied,hasactuallyreceivedthecertificaterepresentingtheapplicableConversionSharesnolaterthanthecloseofbusinessontherelevantDeliveryDatepursuanttothetermssetforthabove.Forpurposeshereof,theterm“DWACEligibleConditions”meansthat(i)theCommonStockiseligibleatDTC(asdefinedbelow)forfullservicespursuanttoDTC’soperationalarrangements,including withoutlimitationtransferthroughDTC’sDWACsystem,(ii)theBorrowerhasbeenapproved(withoutrevocation)bytheDTC’sunderwritingdepartment,(iii)theBorrower’stransferagentisapprovedasanagentintheDTC/FASTProgram(asdefinedbelow),(iv)theConversionSharesareotherwiseeligiblefordeliveryviaDWAC,and(v)theBorrower’stransferagentdoesnothaveapolicyprohibitingorlimitingdeliveryoftheConversionSharesviaDWAC.ForpurposesofthisNote,theterm“DWAC”meansDepositWithdrawalatCustodian asdefinedbytheDTC;theterm“DTC”meanstheDepository TrustCompany;andthe term
“DTC/FASTProgram”meanstheDTC’sFastAutomatedSecuritiesTransferProgram.
(e) ObligationofBorrowertoDeliverCommonStock.IftheHoldershallhavegivenaNoticeofConversionasprovidedherein,theBorrower’sobligationtoissueanddeliverthesharesofCommonStockshallbeabsoluteandunconditional,irrespectiveoftheabsenceofanyactionbytheHoldertoenforcethesame,anywaiverorconsentwithrespecttoanyprovisionthereof,therecoveryofanyjudgmentagainstanypersonoranyactiontoenforcethesame,anyfailureordelayintheenforcementofanyotherobligationoftheBorrowertotheholderofrecord,oranysetoff,counterclaim,
recoupment,limitationortermination,oranybreachorallegedbreachbytheHolderofanyobligationtotheBorrower,andirrespectiveofanyothercircumstancewhichmightotherwiselimitsuchobligationoftheBorrowertotheHolderinconnectionwithsuchconversion.TheConversionDatespecifiedintheNoticeofConversionshallbetheConversionDate solongastheNotice ofConversionisdelivered totheBorrowerbefore6:00p.m.,NewYork,NewYorktime,onsuchdate;otherwise,theConversionDateshallbethenextTradingDay.OncetheHoldermayfreelytradetheCommonStockissuableuponaconversionofthisNotepursuanttoandinaccordancewiththetermshereof(andinthecaseofanycertificatesdeliveredtoHolderbecausenotalloftheDWACEligibleConditionsarethensatisfied,oncesuchcertificateshavebeendepositedintoHolder’sbrokerageaccount,alllegendshavebeenremovedtherefrom,andtheCommonStockrepresentedbysuchcertificatesisfreelytradeable),allrightswithrespecttotheportionoftheOutstandingBalancebeingsoconvertedshallforthwithterminate;provided,however,thattheHoldershallbedeemedtobetheholderofrecordoftheCommonStockissuableuponsuchconversionas ofthedateBorrowerreceivesthecorrespondingNoticeofConversion.
(f) DeliveryofCommonStockviatheDWACSystem.Notwithstandinganyotherprovisioncontainedherein,failuretodeliverviatheDWACsystemanyCommonStocktobedeliveredtotheHolderunderthisSection1.4shallconstituteabreachofthisAgreementandanEventofDefaultunder Section3hereof,includingwithoutlimitationunderSections3.1(c)and3.1(p).
(g) FailuretoDeliverCommonStockPriortoDeliveryDate.WithoutinanywaylimitingtheHolder’srighttopursueother remedies,includingactualdamagesand/orequitablerelief,thepartiesagreethatifdeliveryoftheCommonStockissuableuponconversionofthisNoteisnotdeliveredasrequiredbySection1.4(d)bytheDeliveryDate(a“ConversionDefault”),theBorrowershallpayincashtotheHolderforeachcalendardaybeyondtheDeliveryDatethattheBorrowerfailstodeliversuchCommonStockanamountequalto$500perday(the“ConversionDefaultPayment”).SuchcashamountshallbepaidtotheHolderbythefifthdayofthemonthfollowingthemonthinwhichithasaccrued(the“ConversionDefaultPaymentDueDate”).Intheeventsuchcashamountisnotreceived bytheHolder bytheConversionDefaultPaymentDue Date, attheoptionof theHolder(withoutnoticetotheBorrower),theConversionDefaultPaymentshallbeaddedtotheOutstandingBalanceofthisNote,inwhicheventinterestshallaccruethereoninaccordancewiththetermsofthisNoteandsuchadditionalprincipalamountshallbeconvertibleintoCommonStockinaccordancewiththetermsofthisNote.TheBorroweragreesthattherighttoconvertisavaluablerighttotheHolder.Thedamagesresultingfromafailure,attempttofrustrate,orinterferencewithsuchconversionrightaredifficultifnotimpossibletoquantify.AccordinglythepartiesacknowledgethattheliquidateddamagesprovisionscontainedinthisSection1.4(g)arejustified.
ConcerningtheShares.TransferofthesharesofCommonStockissuableuponconversionofthisNoteisrestrictedandcertificatesrepresentingsuchsharesmaybearalegendassetforthinSections4.14 ofthePurchaseAgreement.
EffectofCertainEvents.
(a) FundamentalTransactionConsentRight.TheBorrowershallnotenterintoorbepartytoaFundamentalTransaction(asdefinedbelow),unlesstheBorrowerobtainsthepriorwrittenconsentoftheHoldertoenterintosuchFundamentalTransaction.ForpurposesofthisNote,“FundamentalTransaction”meansthat(i) any“person”or“group”(asthesetermsareusedforpurposesofSections13(d)and14(d)ofthe1934Actandtherulesandregulationspromulgatedthereunder)isorshallbecomethe“beneficialowner”(asdefinedinRule13d-3underthe1934Act),directlyorindirectly,of50%oftheaggregateordinaryvotingpowerrepresentedbyissuedandoutstandingvotingstockoftheBorrower,or(ii)(1)theBorroweroranyofitssubsidiariesshall,directlyorindirectly,inoneormorerelatedtransactions,consolidateormergewithorinto(whetherornotthe
Borroweroranyofitssubsidiariesisthesurvivingcorporation)anyotherindividual,corporation,limitedliabilitycompany,partnership,association,trustorotherentityororganization(collectively,“Person”),or(2)theBorroweroranyofitssubsidiariesshall,directlyorindirectly,inoneormorerelatedtransactions,sell,lease,license,assign,transfer,conveyorotherwisedisposeofallorsubstantiallyallofitsrespectivepropertiesorassetstoanyotherPerson,or(3)theBorroweroranyofitssubsidiariesshall,directlyorindirectly,inoneormorerelatedtransactions,allowanyotherPersontomakeapurchase,tenderorexchangeofferthatisacceptedbytheholdersofmorethan50%oftheoutstandingsharesofvotingstockof theBorrower(notincludinganyshares ofvotingstockof theBorrowerheld bythePersonorPersonsmakingorpartyto,orassociatedoraffiliatedwiththePersonsmakingorpartyto,suchpurchase,tenderorexchangeoffer),or(4)theBorroweroranyofitssubsidiariesshall,directlyorindirectly,inoneormorerelatedtransactions,consummateastockorsharepurchaseagreementorotherbusinesscombination(including,withoutlimitation,areorganization,recapitalization,spin-offorschemeofarrangement)withanyotherPersonwherebysuchotherPersonacquiresmorethan50%oftheoutstandingsharesofvotingstockoftheBorrower(notincludinganysharesofvotingstockoftheBorrowerheldbytheotherPerson orotherPersonsmakingorpartyto, orassociatedoraffiliatedwiththeotherPersonsmakingorpartyto,suchstock orsharepurchaseagreementorotherbusinesscombination),or(5)theBorroweroranyofitssubsidiariesshall,directlyorindirectly,inoneormorerelatedtransactions,reorganize,recapitalizeorreclassifytheCommonStock,otherthananincreaseinthenumberofauthorizedshares oftheBorrower’sCommonStock. Theprovisions ofthisSection1.6(a)shallapplysimilarlyandequallytosuccessiveFundamentalTransactionsandshallbeappliedwithoutregardtoanylimitationsontheconversionofthisNote.Asaconditiontopre-approvinganyFundamentalTransactioninwriting,whichapprovalmaybewithheldintheHolder’ssolediscretion,Holdermayrequiretheresultingsuccessororacquiringentity(ifnottheBorrower)toassumebywritteninstrumentalloftheobligationsoftheBorrowerunderthisNoteandalltheotherTransactionDocumentswiththesameeffectasifsuchsuccessororacquirerhadbeennamed as theBorrowerhereto andthereto.
(b) AdjustmentDuetoFundamentalTransactions.If,atanytimewhenthisNoteisissuedandoutstandingandpriortoconversionofallofthisNote,thereshallbeanyFundamentalTransactionthatispre-approvedinwritingbytheHolderpursuanttoSection1.6(a)above,asaresultofwhichsharesofCommonStockoftheBorrowershallbechangedintothesameoradifferentnumberofsharesofanotherclassorclassesofstock orsecurities oftheBorroweroranotherentity,orincaseofanysaleorconveyanceofallorsubstantiallyalloftheassetsoftheBorrowerotherthaninconnectionwithaplanofcompleteliquidationoftheBorrower,thentheHolderofthisNoteshallthereafterhavetherighttoreceiveuponconversionofthisNote,uponthebasisanduponthetermsandconditionsspecifiedherein and inlieu oftheshares ofCommonStock immediately theretoforeissuableupon conversion,suchstock,securitiesorassetswhichtheHolderwouldhavebeenentitledtoreceiveinsuchtransactionhadthisNotebeenconvertedinfullimmediatelypriortosuchtransaction(withoutregardtoanylimitationsonconversionsetforthherein),andinanysuchcaseappropriateprovisionsshallbemadewithrespecttotherightsandinterestsoftheHolderofthisNotetotheendthattheprovisionshereof(including,withoutlimitation,provisionsforadjustmentoftheConversionPriceandofthenumberofsharesissuableuponconversionofthisNote)shallthereafterbeapplicable,asnearlyasmaybepracticableinrelationtoanysecuritiesorassetsthereafterdeliverableupontheconversionhereof.TheaboveprovisionsshallsimilarlyapplytosuccessiveFundamentalTransactions.
(c) AdjustmentDuetoDistribution.IftheBorrowershalldeclareormakeanydistributionofitsassets(orrightstoacquireitsassets)toholdersofCommonStockasadividend,stockrepurchase,bywayofreturnofcapitalorotherwise(includinganydividendordistributiontotheBorrower’sstockholdersincashorshares(orrightstoacquireshares)ofcapitalstockof asubsidiary(i.e.,aspin-off))(a“Distribution”),thentheHolderofthisNoteshallbeentitled,uponanyconversionofthisNoteafterthedateofrecordfordeterminingstockholdersentitledtosuchDistribution,toreceivetheamountofsuchassetswhichwouldhavebeenpayabletotheHolderwithrespecttothesharesof
CommonStockissuableuponsuchconversionhadsuchHolderbeentheholderofsuchsharesofCommon Stockon therecorddateforthedetermination ofstockholdersentitledtosuchDistribution.
(d) AdjustmentDuetoDilutiveIssuance.If,atanytimewhenthisNoteisissuedandoutstanding,theBorrowerissuesorsells,orinaccordancewiththisSection1.6(d)hereofisdeemedtohaveissuedorsold,anysharesofCommonStockfornoconsiderationorforaconsiderationpershare(beforedeductionofreasonableexpensesorcommissionsunderwritingdiscountsorallowancesinconnectiontherewith)lessthantheConversionPriceineffectonthedateofsuchissuance(ordeemedissuance)ofsuchsharesofCommonStock(a“DilutiveIssuance”),thenimmediatelyupontheDilutiveIssuance,theConversionPricewillbereducedtotheamountoftheconsiderationpersharereceivedbytheBorrowerinsuchDilutiveIssuance.
TheBorrowershallbedeemedtohaveissuedorsold sharesofCommonStockiftheBorrower inany mannerissuesorgrants anywarrants,rightsoroptions(notincludingemployee stockoptionplans),whetherornotimmediatelyexercisable,tosubscribeforortopurchaseCommonStockorothersecuritiesconvertibleintoorexchangeableforCommonStock(“ConvertibleSecurities”)(suchwarrants,rightsandoptionstopurchaseCommonStockorConvertibleSecuritiesarehereinafterreferredtoas“Options”)andthepricepershareforwhichCommonStockisissuableupontheexerciseofsuchOptionsislessthantheConversionPricethenineffect,thentheConversionPriceshallbeequaltosuchpricepershare.Forpurposesoftheprecedingsentence,the“pricepershareforwhichCommonStockisissuableupontheexerciseofsuchOptions”isdeterminedbydividing(i)thetotalamount,ifany,receivedorreceivablebytheBorrowerasconsiderationfortheissuanceorgrantingofallsuchOptions,plus theminimumaggregateamountofadditionalconsideration, ifany,payabletotheBorrowerupontheexerciseofallsuchOptions,plus,inthecaseofConvertibleSecuritiesissuableupontheexerciseofsuchOptions,theminimumaggregateamountofadditionalconsiderationpayableupontheconversionorexchangethereofatthetimesuchConvertibleSecuritiesfirstbecomeconvertibleorexchangeable,by(ii)themaximumtotalnumberofsharesofCommonStockissuableupontheexerciseofallsuchOptions(assumingfullconversionofConvertibleSecurities,ifapplicable).NofurtheradjustmenttotheConversion Pricewillbemadeupon theactualissuanceofsuchCommonStock upontheexerciseof suchOptionsorupontheconversionorexchangeofConvertibleSecuritiesissuableuponexerciseofsuchOptions.
Additionally,theBorrowershallbedeemedtohaveissuedorsoldsharesofCommonStockiftheBorrowerinanymannerissuesorsellsanyConvertibleSecurities,whetherornotimmediatelyconvertible,andthepricepershareforwhichCommonStockisissuableuponsuchconversion orexchange islessthantheConversionPricethen ineffect,thentheConversionPriceshallbeequaltosuchpricepershare.Forthepurposesoftheprecedingsentence,the“pricepershareforwhichCommonStockisissuableuponsuchconversionorexchange”isdeterminedbydividing(1)thetotalamount, ifany,received orreceivable bytheBorrowerasconsiderationfortheissuanceorsale ofallsuchConvertibleSecurities,plustheminimumaggregateamountofadditionalconsideration, ifany,payabletotheBorrowerupontheconversionorexchangethereofatthetimesuchConvertibleSecuritiesfirstbecomeconvertibleorexchangeable,by(2)themaximumtotalnumberofsharesofCommonStockissuableupontheconversionorexchangeofallsuchConvertibleSecurities.NofurtheradjustmenttotheConversionPricewillbemadeupontheactualissuanceofsuchCommonStockuponconversionorexchangeofsuchConvertibleSecurities.
(e) PurchaseRights.If, atany time when thisNote isissued andoutstanding,theBorrowerissuesanyconvertiblesecuritiesorrightstopurchasestock,warrants,securitiesorotherproperty(the“PurchaseRights”)proratatotherecordholdersofanyclassofCommonStock,thentheHolderofthisNotewillbeentitledtoacquire,uponthetermsapplicabletosuchPurchaseRights,theaggregatePurchaseRightswhichsuchHoldercouldhaveacquiredifsuchHolderhadheldthenumberof
sharesofCommonStockacquirableuponcompleteconversionofthisNote(withoutregardtoanylimitations onconversioncontainedherein)immediatelybeforethedate onwhicharecord istaken forthegrant,issuanceorsaleofsuchPurchaseRightsor,ifnosuchrecordistaken,thedateasofwhichtherecordholdersofCommon Stockaretobedetermined forthegrant,issue or saleofsuchPurchaseRights.
(f) AdjustmentDuetoNon-DWACEligibility.If,atanytimewhenthisNoteisissuedandoutstanding,theHolderdeliversaNoticeofConversionandatsuchtimeallDWACEligibleConditionsarenotthensatisfied,theBorrowershalldelivercertificatedConversionSharesto theHolderpursuanttoSection1.4(d)andtheNon-DWACEligibleAdjustmentAmountshallbeaddedtotheOutstandingBalanceofthisNote,withoutlimitinganyotherrightsoftheHolderunderthisNoteortheotherTransactionDocuments.The“Non-DWACEligibleAdjustmentAmount”istheamountequaltothenumberofapplicableConversionSharesmultipliedbytheexcess,ifany,of(i)theTradingPriceoftheCommonStockontheConversionDate,over(ii)theTradingPriceoftheCommonStockonthedatethecertificatedConversionSharesarefreelytradable,clearofanyrestrictivelegendanddepositedintheHolder’sbrokerageaccount.Inanysuchcase,Holderwillusereasonableeffortstotimelydepositsuchcertificatesinitsbrokerageaccountafteritreceivesthemandcausesuchrestrictivelegendstoberemoved,and,withoutlimitinganyotherprovisionhereof,BorroweragreestofullycooperatewithHolderinaccomplishingthesame.
(g) AdjustmentDuetoLateClearingofDWACEligibleShares.If,atanytimewhenthisNoteisissuedandoutstanding,theHolderdeliversaNoticeofConversionandatsuchtimetheCommonStockisDWACEligibleandtheapplicableDWACEligibleConversionSharesaredeliveredtoHolderoritsbroker,butittakeslongerthanfive(5)businessdaysaftersuchdeliveryforsuchConversionSharestobeelectronicallyclearedfortradinginHolder’sbrokerageaccount,thentheLateClearingAdjustmentAmount(asdefinedbelow)shallbeaddedtotheOutstandingBalanceofthisNote,withoutlimitinganyotherrightsoftheHolderunderthisNoteortheotherTransactionDocuments.The“LateClearingAdjustmentAmount”istheamountequaltothenumberofapplicableConversionSharesmultipliedbytheexcess,ifany,of(1)theTradingPriceoftheCommonStockontheConversionDate,over(2)theTradingPriceoftheCommonStockonthedatethecertificatedDWACEligibleConversionSharesareelectronicallyclearedfortradingintheHolder’sbrokerageaccount.Inanysuchcase,andwithoutlimitinganyotherprovisionhereof,eachofHolderandtheBorroweragreestotakeallactionreasonablynecessaryonitsparttohelpensurethattheapplicableConversionSharesareelectronicallyclearedfortradingintheHolder’sbrokerageaccountwithinthefive-dayperioddescribedabove.
(h) NoticeofAdjustments.UpontheoccurrenceofeachadjustmentorreadjustmentoftheConversionPriceortheadditionoftheNon-DWACEligibleAdjustmentAmountorLateClearingAdjustmentAmounttotheOutstandingBalanceasaresultoftheeventsdescribedinthisSection1.6,theBorrower,atitsexpense,shallpromptlycomputesuchadjustmentorreadjustmentandprepareandfurnishtotheHolderacertificatesettingforthsuchadjustmentorreadjustmentandshowingindetailthefactsuponwhichsuchadjustmentorreadjustmentisbased.TheBorrowershall,uponthewrittenrequestatanytimeoftheHolder,furnishtosuchHolderalikecertificatesettingforth(i)suchadjustmentorreadjustment, (ii)theConversion Priceatthetimeineffectand(iii)thenumberofshares ofCommonStockandtheamount,ifany,ofothersecuritiesorpropertywhichatthetimewouldbereceived uponconversionofthisNote.
(i) AdjustmentsforStockSplit.Notwithstandinganythinghereintothecontrary,anyreferencestosharenumbersorsharepricesshallbeappropriatelyadjustedforanystockdividend,stocksplit,stockcombination orothersimilartransaction.
OwnershipLimitation.NotwithstandinganythingtothecontrarycontainedinthisNoteortheotherTransactionDocuments,ifatanytimetheHoldershallorwouldbeissuedsharesofCommonStockunderanyoftheTransactionDocuments,butsuchissuancewouldcausetheHolder(togetherwithitsAffiliates)tobeneficiallyownanumberofsharesexceeding4.99%ofthenumberofsharesofCommonStockoutstandingonsuchdate(includingforsuchpurposethesharesofCommonStockissuableuponsuchissuance)(the“MaximumPercentage”),thentheCompanymustnotissuetotheHoldersharesoftheCommonStockwhichwouldexceedtheMaximumPercentage.ForpurposesofthisSection,beneficialownershipofCommonStockwillbedeterminedunderthe1934Act.ThesharesofCommonStockissuabletotheHolderthatwouldcausetheMaximumPercentagetobeexceededarereferredtohereinasthe"OwnershipLimitationShares".TheCompanywillreservetheOwnershipLimitationSharesfortheexclusivebenefitoftheHolder.Fromtimetotime,theHoldermaynotifytheCompanyinwritingofthenumberoftheOwnershipLimitationSharesthatmaybeissuedtotheHolderwithoutcausingtheHoldertoexceedtheMaximumPercentage.Uponreceiptofsuchnotice,theCompanyshallbeunconditionallyobligatedtoimmediatelyissuesuchdesignatedsharestotheHolder,withacorrespondingreductioninthenumberoftheOwnershipLimitationShares.Notwithstandingtheforgoing,theterm“4.99%”aboveshallbereplacedwith“9.99%”atsuchtimeastheMarketCapitalizationoftheCommonStockislessthan$5,000,000.00.Notwithstandinganyotherprovisioncontainedherein,iftheterm“4.99%”isreplacedwith“9.99%”pursuanttotheprecedingsentence,suchincreaseto“9.99%”shallremainat9.99%untilincreased,decreasedorwaivedbytheHolderassetforthbelow.ForpurposesofthisNote,theterm“MarketCapitalizationoftheCommonStock”shallmeantheproductequalto(A)theaverageVWAPoftheCommonStockfortheimmediatelyprecedingfifteen
(15)TradingDays,multipliedby(B)theaggregatenumberofoutstandingsharesofCommonStockasreportedontheCompany’smostrecentlyfiledForm10-QorForm10-K.BywrittennoticetotheCompany,theHoldermayincrease,decreaseorwaivetheMaximumPercentageastoitselfbutanysuchwaiverwillnotbeeffectiveuntilthe61stdayafterdeliverythereof.Theforegoing61-daynoticerequirementisenforceable,unconditionalandnon-waivableandshallapplytoallAffiliatesandassignsoftheHolder.
Prepayment.SolongastheBorrowerhasnotreceivedaNoticeofConversionfromtheHolder,thenatanytimeduringtheperiodbeginningontheIssueDateandendingonthedatewhichisonehundredeighty(180)calendardaysfollowingtheIssueDate,theBorrowershallhavetheright,exercisable onnotlessthan thirty(30)TradingDayspriorwrittennotice totheHolderto prepay theOutstandingBalanceofthisNote,infull,inaccordancewiththisSection1.8.Anynoticeofprepaymenthereunder (an“OptionalPrepaymentNotice”)shallbedelivered totheHolderatitsregisteredaddressesandshallstate:(a)thattheBorrowerisexercisingitsrighttoprepaythisNote,and(b)thedateofprepayment,whichshallbenotmorethanthree(3)TradingDaysfromthedateoftheOptionalPrepaymentNotice.Onthedatefixedforprepayment(the“OptionalPrepaymentDate”),theBorrowershallmakepaymentoftheOptionalPrepaymentAmount(asdefinedbelow)toorupontheorderoftheHolderasspecifiedbytheHolderinwritingtotheBorroweratleastone(1)TradingDaypriortotheOptionalPrepaymentDate.IftheBorrowerexercisesitsrighttoprepaythisNote,theBorrowershallmakepaymentto theHolder of anamountincash(the“OptionalPrepaymentAmount”)equalto115%,multiplied bythethenOutstandingBalance ofthisNote.If theBorrowerdeliversanOptionalPrepaymentNoticeandfailstopaytheOptionalPrepaymentAmountduetotheHolderwithintwo(2)TradingDaysfollowingtheOptionalPrepaymentDate,theBorrowershallforeverforfeititsrighttoprepaythisNotepursuanttothisSection1.8.
| 2. | CERTAINCOVENANTS. |
Distributions onCapitalStock.Solongas theBorrowershallhaveanyobligationunderthisNote,theBorrowershallnotwithouttheHolder’swrittenconsent(a)pay,declareorsetapartforsuchpayment,anydividendorotherdistribution(whetherincash,propertyorothersecurities)onsharesofcapitalstockotherthandividendsonsharesofCommonStocksolelyintheformofadditionalsharesofCommonStock,or(b)directlyorindirectlyorthroughanysubsidiarymakeanyotherpaymentordistributioninrespectofitscapitalstockexceptfordistributionspursuanttoanystockholders’rightsplanwhichisapproved byamajorityoftheBorrower’sdisinteresteddirectors.
RestrictiononStockRepurchases.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnotwithouttheHolder’swrittenconsentredeem,repurchaseorotherwiseacquire(whetherforcashorinexchangeforpropertyorothersecuritiesorotherwise)inanyonetransactionorseriesofrelatedtransactionsanysharesofcapitalstockoftheBorrower oranywarrants,rights or options topurchaseoracquireanysuchshares.
Borrowings.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder’spriorwrittenconsent,create,incur,assumeguarantee,endorse,contingentlyagreetopurchaseorotherwisebecomeliableupontheobligationofanyperson,firm,partnership,jointventureorcorporation,exceptbytheendorsementofnegotiableinstrumentsfordepositorcollection,orsuffertoexistanyliabilityforborrowedmoney,except(a)borrowingsinexistenceorcommittedonthedatehereofandofwhichtheBorrowerhasinformedtheHolderinwritingprior tothedatehereof,(b)indebtednesstotradecreditorsorfinancialinstitutionsincurred intheordinarycourseofbusiness,(c)borrowings,theproceedsofwhichshallbeusedtorepaythisNoteor(d)aspermitted bythePurchaseAgreement.
SaleofAssets.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder’spriorwrittenconsent,sell,leaseorotherwisedisposeof anysignificantportionof theBorrower’sassetsoutsidetheordinarycourse ofbusiness.Anyconsenttothedisposition ofanyassetsmaybeconditionedon aspecifieduse oftheproceedsofdisposition.
AdvancesandLoans.SolongastheBorrowershallhaveanyobligationunderthisNote,theBorrowershallnot,withouttheHolder’swrittenconsent,lendmoney,givecreditormakeadvancestoanyperson,firm,jointventureorcorporation,including,withoutlimitation,officers,directors,employees,subsidiariesandAffiliatesoftheBorrower,exceptloans,creditsoradvances(a)inexistenceorcommittedonthedatehereofandwhichtheBorrowerhasinformedHolderinwritingpriortothedatehereof,(b)madeintheordinarycourseofbusiness,or(c)notinexcessof$100,000.
| 3. | EVENTSOFDEFAULT. |
EventsofDefault.Theoccurrenceofanyofthefollowingeventsofdefault(each, an“Event ofDefault”)shallbe aneventofdefaulthereunder:
(a) FailuretoPayAmountsDue.TheBorrowerfailstopayanyamountwhen dueonthisNote,whetheratmaturity, uponaccelerationorotherwise.
(b) ConversionandtheShares.TheBorrower(i)failstoissueConversionSharestotheHolderortheHolder’sbroker(assetforthintheapplicableConversionNotice)bytheDeliveryDate,(ii)failstotransferorcauseitstransferagenttotransfer(issue)anysharesofCommonStock issued to theHolderuponconversionoforotherwisepursuantto thisNote asandwhenrequiredbythisNoteoranyoftheotherTransactionDocuments,(iii)theBorrowerdirectsitstransferagentnotto
transferordelays,impairs,and/orhindersitstransferagentintransferring(orissuing)anysharesofCommonStocktobeissuedtotheHolderuponconversionoforotherwisepursuanttothisNoteasandwhenrequiredbythisNoteoranyoftheotherTransactionDocuments,or(iv)failstoremove(ordirectsitstransferagentnottoremoveorimpairs,delays,and/orhindersitstransferagentfromremoving)anyrestrictivelegend(ortowithdrawanystoptransferinstructionsinrespectthereof)onanysharesofCommonStockissuedtotheHolderuponconversionoforotherwisepursuanttothisNoteasandwhenrequired bythisNote oranyof theotherTransactionDocuments.
(c) BreachofCovenantsandObligations.TheBorrowerbreachesanycovenantorobligationorothertermorconditioncontainedinthisNoteandanycollateraldocumentsincludingbutnotlimitedtotheotherTransactionDocuments.
(d) BreachofRepresentationsandWarranties.AnyrepresentationorwarrantyoftheBorrowermadehereinorinanyagreement,statementorcertificategiveninwritingpursuanthereto or inconnectionherewith(including,withoutlimitation,thePurchaseAgreementandanyotherTransactionDocuments),shallbefalseormisleadingin anymaterialrespectwhenmade.
(e) ReceiverorTrustee.TheBorroweroranysubsidiaryoftheBorrowershallmakeanassignmentforthebenefitofcreditors,orapplyfororconsenttotheappointmentofareceiverortrusteeforitorforasubstantialpartofitspropertyorbusiness,orsuchareceiverortrusteeshallotherwise beappointed.
(f) Judgments.Anymoneyjudgment,writorsimilarprocessshallbeenteredorfiledagainsttheBorroweroranysubsidiaryoftheBorroweroranyofitspropertyorotherassetsformorethan$100,000,andshallremainunvacated,unbondedorunstayedforaperiodoftwenty
(20)calendardaysunlessotherwiseconsentedtobytheHolder,whichconsentwillnotbeunreasonablywithheld.
(g) Bankruptcy.Bankruptcy,insolvency,reorganizationorliquidationproceedingsorotherproceedings,voluntaryorinvoluntary,forreliefunderanybankruptcylaworanylawforthereliefofdebtorsshallbeinstitutedbyoragainsttheBorroweroranysubsidiaryoftheBorrower.
(h) DelistingofCommonStock.TheBorrowershallfailtomaintainthelistingand/orquotation, asapplicable,oftheCommonStockonthePrincipalMarket.
(i) FailuretoComplywiththe1934Act.TheBorrowershallfailtocomplywiththereportingrequirementsofthe1934Act;and/ortheBorrowershallceasetobesubjecttothereportingrequirementsofthe 1934Act.
(j) Liquidation.Anydissolution,liquidation,orwindingupofBorroweroranysubstantialportionofitsbusiness.
(k) CessationofOperations.AnycessationofoperationsbytheBorrowerortheBorroweradmitsitisotherwisegenerallyunabletopayitsdebtsassuchdebtsbecomedue;provided,however,thatanydisclosureoftheBorrower’sabilitytocontinueasa“goingconcern”shallnotbeanadmissionthattheBorrowercannotpayitsdebtsastheybecome due.
(l) MaintenanceofAssets.ThefailurebytheBorrowertomaintainanymaterialintellectualproperty rights,personal,realpropertyorotherassetswhicharenecessarytoconductitsbusiness(whethernowor inthefuture).
(m) FinancialStatementRestatement.TherestatementofanyfinancialstatementsfiledbytheBorrowerwiththeSECforanydateorperiodfromtwoyearspriortotheIssueDateofthisNoteanduntilthisNoteisnolongeroutstanding,iftheresultofsuchrestatementwould,bycomparisontotheunrestatedfinancialstatement,haveconstitutedamaterialadverseeffectontherightsoftheHolderwithrespecttothisNote oranyotherTransactionDocuments.
(n) ReverseSplits.TheBorrowereffectuatesareversesplitofitsCommonStockwithouttwenty(20)calendardayspriorwrittennoticeto theHolder.
(o) ReplacementofTransferAgent.IntheeventthattheBorrowerproposestoreplaceitstransferagent,theBorrowerfailstoprovide,priortotheeffectivedateofsuchreplacement,afullyexecutedIrrevocableTransferAgentInstructionsinaformasinitiallydeliveredpursuanttothePurchaseAgreement(includingbutnotlimitedtotheprovisiontoirrevocablyreservesharesofCommonStockintheReservedAmount)signed bythesuccessortransferagenttotheHolderandtheBorrower.
(p) DWACEligibility.ThefailureofanyoftheDWACEligibleConditionsto besatisfiedatany time duringwhichtheBorrowerhasobligationsunderthisNote.
DefaultEffects;AutomaticAcceleration.UpontheoccurrenceofanyEventofDefault,(a)theOutstandingBalanceshallimmediatelyincreaseto105%oftheOutstandingBalanceimmediatelypriortotheoccurrenceoftheEventofDefault(the“BalanceIncrease”),and(b)thisNoteshallthenaccrueinterestattheDefaultInterestrate(collectively,the“DefaultEffects”);provided,however,that(x)innoeventshalltheBalanceIncreasebeappliedmorethanonce,and(y)notwithstandinganyprovisiontothecontraryherein,innoeventshalltheapplicableinterestrateatanytimeexceedthemaximuminterestrateallowedunderapplicablelaw.TheDefaultEffectsshallautomaticallyapplyupontheoccurrenceof anEventofDefaultwithouttheneedfor anypartytogive anynoticeortakeanyotheraction.Further,upontheoccurrenceandduringthecontinuationofanyEventofDefault,theHoldermay bywrittennoticetotheBorrowerdeclaretheentireOutstandingBalanceimmediatelydueandpayablewithoutpresentment,demand,protestoranyothernoticeofanykind,allofwhichareherebyexpresslywaived,anythingcontainedhereinorintheotherTransactionDocumentstothecontrarynotwithstanding;provided,however,thatupontheoccurrenceorexistenceofanyEventofDefaultdescribedinSections3.1(e),3.1(g),3.1(j),or3.1(k),immediatelyandwithoutnotice,alloutstandingobligationspayablebytheBorrowerhereundershallautomaticallybecomeimmediatelydueandpayable,withoutpresentment,demand,protestoranyothernoticeofanykind,allofwhichareherebyexpresslywaived,anythingcontainedhereinorintheTransactionDocumentstothecontrary(“AutomaticAcceleration”).Foravoidanceofdoubt,exceptinthecaseofAutomaticAccelerationresultingfromanEventofDefaultunderSections3.1(e),3.1(g),3.1(j),or3.1(k),theHoldershallretainallrightsunderthisNoteandtheTransactionDocuments,includingtheabilitytoconvertthethenOutstandingBalanceofthisNotepursuanttoSection1hereof,atalltimesfollowingtheoccurrenceofanAutomaticAccelerationuntiltheentireOutstandingBalanceatthattime hasbeenpaidinfull.
| 4. | MISCELLANEOUS. |
FailureorIndulgenceNotWaiver.NofailureordelayonthepartoftheHolderintheexerciseofanypower,rightorprivilegehereundershalloperateasawaiverthereof,norshallanysingle orpartialexerciseof any such power,rightorprivilegeprecludeotherorfurtherexercisethereof orofanyotherright,powerorprivileges.Allrightsandremediesexistinghereunderarecumulativeto,andnotexclusiveof, anyrightsorremediesotherwiseavailable.
Notices.WhenevernoticeisrequiredtobegivenunderthisNote,unlessotherwiseprovidedherein,suchnoticeshallbegiveninaccordancewiththesubsectionofthePurchaseAgreementtitled“Notices.”
Amendments.ThisNoteandanyprovisionhereofmayonlybeamendedbyaninstrumentinwritingsignedbytheBorrowerandtheHolder.Theterm“Note”andallreferencethereto,asusedthroughoutthisinstrument,shallmeanthisinstrument(andtheotherNotesissuedpursuanttothePurchaseAgreement)asoriginallyexecuted,oriflateramendedorsupplemented,thenassoamendedorsupplemented.
Assignability.ThisNoteshallbebindingupontheBorroweranditssuccessorsandassigns,andshallinuretobethebenefitoftheHolderanditssuccessorsandassigns;provided,however,thatthisNotemaynotbetransferred,assignedorconveyedbytheBorrowerwithoutthepriorwrittenconsentof theHolder.Eachtransfereeofthis Notemustbe an“accreditedinvestor”(asdefinedinRule501(a)oftheSecuritiesActof1933(asamended,the“1933Act”)).NotwithstandinganythinginthisNotetothecontrary,thisNotemaybepledgedascollateralinconnectionwithabonafidemarginaccountorotherlendingarrangement.
CostofCollection;Attorneys’Fees.UpontheoccurrenceofanyEventofDefault,theBorrowershallpaytotheHolderhereofallcostsandreasonableattorneys’feesincurredbytheHolderinconnectionwithsuchEventofDefault.IntheeventofanyactionatlaworinequitytoenforceorinterpretthetermsofthisNoteoranyoftheotherTransactionDocuments,thepartiesagreethatthepartywhoisawardedthemostmoneyshallbedeemedtheprevailingpartyforallpurposesandshallthereforebeentitledtoanadditionalawardofthefullamountoftheattorneys’feesandexpensespaidbysuchprevailingpartyinconnectionwiththelitigationand/ordisputewithoutreductionorapportionmentbased upon theindividualclaimsordefensesgivingrise tothefeesandexpenses.Nothinghereinshallrestrictorimpairacourt’spowertoawardfeesandexpensesforfrivolousorbadfaithpleading.
GoverningLaw.ThisNoteshallbegovernedbyandconstruedinaccordancewiththe lawsoftheStateofUtahwithoutregardtoprinciplesofconflictsoflaws.AnyactionbroughtbyeitherpartyagainsttheotherconcerningthetransactionscontemplatedbythisNoteshallbebroughtonlyinthestatecourtsofUtahorinthefederalcourtslocatedinSaltLakeCounty,Utah.ThepartiestothisNoteherebyirrevocablywaiveanyobjectiontojurisdictionandvenueofanyactioninstitutedhereunderandshallnotassertanydefensebased onlackofjurisdiction orvenue orbased uponforumnonconveniens.IntheeventthatanyprovisionofthisNoteoranyotheragreementdeliveredinconnectionherewithisinvalidorunenforceableunderanyapplicablestatuteorruleoflaw,thensuchprovisionshallbedeemedinoperativetotheextentthatitmayconflicttherewithandshallbedeemedmodifiedtoconformwithsuchstatuteorruleoflaw.Anysuchprovisionwhichmayproveinvalidorunenforceableunderanylawshallnotaffectthevalidityorenforceabilityofanyotherprovisionofanyagreement.Eachpartyherebyirrevocablywaivespersonalserviceofprocessandconsentstoprocessbeingservedinanysuit,actionorproceedinginconnectionwiththisAgreementoranyotherrelatedorcompaniondocumentsbymailingacopythereofviaregisteredorcertifiedmailorovernightdelivery(withevidenceofdelivery)tosuchpartyattheaddressineffectfornoticestoitunderthisAgreementandagreesthatsuchserviceshallconstitutegoodandsufficientserviceofprocessandnoticethereof.Nothingcontainedhereinshallbedeemedtolimitinanywayanyrighttoserveprocessinanyothermannerpermittedbylaw.THEBORROWERHEREBYIRREVOCABLYWAIVESANYRIGHTITMAYHAVETO,ANDAGREESNOTTOREQUEST,AJURYTRIALFORTHEADJUDICATIONOFANYDISPUTEHEREUNDERORINCONNECTIONWITHORARISINGOUTOFTHISNOTEORANYTRANSACTION CONTEMPLATED HEREBY.
FeesandCharges.ThepartiesacknowledgeandagreethatupontheBorrower’sfailuretocomplywiththeprovisionsofthisNote,theHolder’sdamageswouldbeuncertainanddifficult(ifnotimpossible)toaccuratelyestimatebecauseoftheparties’inabilitytopredictfutureinterestrates,theHolder’sincreasedrisk,andtheuncertaintyoftheavailabilityofasuitablesubstituteinvestmentopportunityfortheHolder,amongotherreasons.Accordingly,anyfees,charges,andinterestdueunderthisNoteareintendedbythepartiestobe,andshallbedeemed,areasonableestimateoftheHolder’sactuallossofitsinvestmentopportunityandnotapenalty,andshallnotbedeemedinanywaytolimitanyotherrightorremedyHoldermayhavehereunder, atlaw orinequity.
Remedies.TheBorroweracknowledgesthatabreachbyitofitsobligationshereunderwillcauseirreparableharmtotheHolder,byvitiatingtheintentandpurposeofthetransactioncontemplatedhereby.Accordingly,theBorroweracknowledgesthattheremedyatlawforabreachofitsobligations underthis Notewillbeinadequate andagrees, intheeventof abreachorthreatenedbreach bytheBorroweroftheprovisionsofthisNote,thattheHoldershallbeentitled,inadditiontoallotheravailableremediesatlaworinequity,andinaddition tothechargesassessableherein,toaninjunctionorinjunctionsrestraining,preventingorcuringanybreachofthisNoteandtoenforcespecificallythetermsandprovisionsthereof,withoutthenecessityofshowingeconomiclossandwithoutanybondorothersecuritybeingrequired.
PurchaseAgreement.ByitsacceptanceofthisNote,eachpartyagreestobebound bytheapplicableterms ofthePurchaseAgreementandtheotherTransactionDocuments.
NoticeofCorporateEvents.Exceptasotherwiseprovidedherein,theHolderofthisNoteshallhavenorightsasaHolderofCommonStockunlessandonlytotheextentthatitconvertsthisNoteintoCommonStock.TheBorrowershallprovidetheHolderwithpriornotificationofanymeetingoftheBorrower’sstockholders(andcopiesofproxymaterialsandotherinformationsenttostockholders).In theeventof anytakingbytheBorrowerof arecord ofitsstockholdersforthepurposeofdeterminingstockholderswhoareentitledtoreceivepaymentofanydividendorotherdistribution,anyrighttosubscribefor,purchaseorotherwiseacquire(includingbywayofmerger,consolidation,reclassificationorrecapitalization)anyshareofanyclassoranyothersecuritiesorproperty,ortoreceiveany otherright,orforthepurposeofdetermining stockholderswhoareentitledtovotein connection withanyproposedsale,leaseorconveyanceofallorsubstantiallyalloftheassetsoftheBorroweroranyproposedliquidation,dissolutionorwindingupoftheBorrower,theBorrowershallmailanoticetotheHolder,atleasttwenty (20)calendardayspriortotherecord datespecifiedtherein(orthirty(30)calendardaysprior to theconsummationof thetransactionorevent, whicheveris earlier),ofthedateonwhich anysuchrecordistobetakenforthepurposeofsuchdividend,distribution,rightorotherevent,andabriefstatementregardingtheamountandcharacterofsuchdividend,distribution,rightorothereventtotheextentknownatsuchtime.TheBorrowershallmakeapublicannouncementofanyeventrequiringnotificationtotheHolderhereundersubstantiallysimultaneouslywiththenotificationtotheHolderinaccordancewiththetermsofthisSection 4.10.
Pronouns.Allpronounsandanyvariationsthereofrefertothemasculine,feminineorneuter,singularorplural,asthecontextmaypermitorrequire.
TimeoftheEssence.Timeisexpresslymadeoftheessenceofeachandeveryprovision ofthisNote.
[Remainderofpageintentionallyleftblank;signaturepagetofollow]
INWITNESSWHEREOF,theBorrowerhascausedthisNote tobesigned initsnamebyits dulyauthorizedofficeras oftheIssue Datesetforthabove.
MAXSOUND CORPORATION
| By: | GregHalpern,ChiefFinancialOfficer |
EXHIBIT A
ILIADRESEARCHANDTRADING,L.P.
303EASTWACKERDRIVE,SUITE1040
CHICAGO,ILLINOIS60601
Date:MAXSOUND CORPORATION
HazelhurstDrive#6572Houston,TX77043
Attn:GregHalpern,ChiefFinancialOfficer
CONVERSION NOTICE
Theabove-captionedHolderherebygivesnoticetoMAXSOUNDCORPORATION,aDelawarecorporation(the“Company”),pursuanttothatcertainConvertiblePromissory NotemadebytheCompanyinfavoroftheHolderonAugust7,2015(the“Note”),thattheHolderelectstoconverttheportionoftheOutstandingBalanceoftheNotesetforthbelowintofullypaidandnon-assessablesharesofCommonStockoftheCompanyasofthedateofconversionspecifiedbelow.SuchconversionshallbebasedontheConversionPricesetforthbelow.IntheeventofaconflictbetweenthisConversionNoticeandtheNote,theNoteshallgovern,or,inthealternative,attheelectionoftheHolderinitssolediscretion,theHoldermayprovideanewformofConversionNotice toconformtotheNote.
| A. Dateofconversion: |
| B. Conversion#: |
| C. ConversionAmount: |
| D. MarketPrice_ | (Averageof2lowest TradePrices oflast10 Trading Days asper ExhibitA-1) |
| E. | ConversionFactor:65%[asmayadjusteduponcertainEventsofDefault] |
| F. ConversionPrice: | (DmultipliedbyE) |
| G. ConversionShares: | (CdividedbyF) |
| H. RemainingOutstandingBalanceofNote: | * |
* Subjectto adjustmentsfor corrections,defaults,andother adjustmentspermittedbytheTransactionDocuments.
PleasetransfertheConversionShareselectronically(viaDWAC)tothefollowing account:
| Broker: | Address: | |
| DTC#: | ||
| Account#: | ||
| Account Name: |
TotheextenttheConversionSharesarenotabletobedeliveredtotheHolderelectronicallyviatheDWACsystem,pleasedeliveracertificaterepresentingallsuchsharestotheHolderviareputableovernightcourierafterreceiptofthisConversionNotice (byfacsimiletransmission orotherwise)to:
(SignaturePageFollows)
Sincerely,
ILIADRESEARCHANDTRADING,L.P.
By:IliadManagement,LLC, itsGeneralPartnerBy:FifeTrading,Inc., itsManager
| By: | JohnM.Fife,President |
EXHIBITA-1
CONVERSIONWORKSHEET
| TradingDay | LowestTradePrice | Lowest3(Yesor No) |
| Average | ||
