NEITHER THE ISSUANCEANDSALE OFTHE SECURITIES REPRESENTED BYTHIS CONVERTIBLE PROMISSORY NOTE NOR THE SECURITIES INTO WHICH THESE SECURITIESARECONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIESACT OF 1933,ASAMENDED, ORAPPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BEOFFERED FORSALE, SOLD, TRANSFERRED ORASSIGNED
(I) INTHEABSENCEOF (A) AN EFFECTIVE REGISTRATION STATEMENT FORTHE SECURITIESUNDER THESECURITIESACTOF 1933, ASAMENDED, OR(B) AN OPINION OFCOUNSEL(WHICHCOUNSEL SHALL BESELECTED BYTHEHOLDER), IN AGENERALLYACCEPTABLE FORM,THATREGISTRATION ISNOT REQUIREDUNDERSAIDACT OR(II) UNLESS SOLDPURSUANTTORULE 144 ORRULE 144AUNDERSAIDACT.
Original Principal Amount: $171,665.00 Issue Date:October 3,2016 Purchase Price: $150,000.00
CONVERTIBLE PROMISSORYNOTE
FOR VALUE RECEIVED, MAX SOUND CORPORATION, aDelaware corporation (the “Borrower”), herebypromises to payto theorder ofILIAD RESEARCH AND TRADING, L.P., aUtah limited partnership,orregistered assigns (the “Holder”), the sum of$171,665.00 (the “Original Principal Amount”) together with anyadditional charges provided forherein, on thedate that is 12months after theIssue Date (the “Maturity Date”), and topay interest on theOutstanding Balance(asdefined below) atthe rate ofeight percent (8%) perannum from the datehereof (the“Issue Date”) until thesame is paidin full;providedthat uponthe occurrence of anEvent ofDefault (asdefined below), interest shall thereafter accrue onthe Outstanding Balance both beforeand after judgment at therateoffourteen percent (14%) per annum (“DefaultInterest”). All interest calculations hereunder shall becomputed on thebasisof a360-day year comprisedof twelve(12) thirty (30) daymonths, shall compound daily andshall bepayable inaccordance with theterms of thisNote. The Borrower acknowledges that theOriginal Principal Amount exceeds the purchase priceofthisNote andthat such excess consists of theOID (asdefined inthe Purchase Agreement (defined below)) in theamountof
$16,665.00, the Carried Transaction Expense Amount (as defined in thePurchaseAgreement) inthe amount of$5,000.00 tocover theHolder’s legal andother expenses incurred in thepreparation of thisNote, the Purchase Agreement, theIrrevocable Transfer Agent Instructions, and all other certificates, documents, agreements, resolutions andinstruments delivered to anyparty underor inconnectionwiththis Note, as thesamemay beamended from time totime(collectively, the “TransactionDocuments”), which sumshall befully earned andcharged to theBorrower upon the execution ofthis Note andpaid to theHolder aspartofthe outstanding principal balance asset forth inthis Note. This Notemay not beprepaid inwhole orin part except asotherwise provided inSection 1.8. All payments duehereunder (to theextent notconverted intocommonstock, $0.00001 par value per share, of theBorrower (the“Common Stock”) inaccordance with thetermshereof) shallbemade inlawful money of theUnited States ofAmerica.Allpayments shall bemade atsuch address asthe Holder shall designate fromtime totime bywritten notice made inaccordance with the provisions ofthis Note. Each capitalized term usedherein, andnot otherwise defined, shall have themeaning ascribed thereto inthat certain Securities Purchase Agreement dated thedatehereof betweentheBorrower andthe Holder, pursuant to which this Notewas originallyissued (the “Purchase Agreement”). Forpurposes hereof, theterm “Outstanding Balance” means the Original Principal Amount, asreducedorincreased, asthe casemay be,pursuant to theterms hereoffor conversion, breach hereof or otherwise,plus anyaccrued butunpaidinterest(including with limitation Default Interest), collection andenforcements costs, andany other feesorcharges incurred under this Note or under the Purchase Agreement.
This Note isfree from alltaxes, liens, claims andencumbrances with respect to theissue thereof andshall not besubject topreemptive rightsorother similar rights ofstockholders of theBorrower and will notimpose personal liability upon theholder thereof.
Thefollowing additionalterms shallapply tothis Note:
| 1. | CONVERSION RIGHTS. |
Conversion Right. Subject toSection 1.7,during the period beginning onthe Issue Date andending when theOutstanding Balance ispaid orconverted infull, theHolder shall, atits option, have the right from time totime, toconvert all or anypartofthe OutstandingBalanceofthis Note intofully paid andnon-assessable shares ofCommonStock, assuchCommonStock existson theIssue Date, or anyshares ofcapital stock orother securities of theBorrower into which suchCommon Stockshall hereafterbechanged orreclassified at theConversion Price (as defined below) determined as provided herein (a“Conversion”). Thenumber ofsharesof Common Stock to beissued upon each conversionofthisNote(the “Conversion Shares”) shall bedetermined bydividing the Conversion Amount (asdefined below) by theapplicable Conversion Price then ineffect onthe date specified inthe noticeofconversion, in the formattached hereto asExhibit A(the “NoticeofConversion”), delivered to theBorrower by theHolder inaccordance with Section 1.4(a) below; provided that theNotice ofConversion is submittedbyfacsimile ore-mail (or byother means resulting in,orreasonably expected toresult in,notice) to theBorrower before 6:00 p.m., New York, New York time on suchconversion date (the“Conversion Date”). Theterm “Conversion Amount” means, with respect to anyconversion ofthis Note, the portionoftheOutstanding Balance tobeconverted.
Conversion Price.
(a) CalculationofConversion Price.The conversion price (as thesame may beadjusted fromtime totime pursuant totheterms hereof, the“Conversion Price”) shall mean 65%(the “Conversion Factor”) multiplied by theMarket Price (asdefined herein). “MarketPrice” means theaverage ofthe two (2)lowest Trading Prices (asdefined below) for theCommon Stockduring the ten
(10) TradingDay (asdefined below) period ending on thelatest complete TradingDay prior tothe Conversion Date.If an Event ofDefault (asdefined below) other than anEvent ofDefault pursuant to Section 3.1(i) occurs, then the Conversion Factor will bereduced to55%.If anEvent ofDefault pursuant toSection 3.1(i) occurs, then the Conversion Factor will bereduced to40%. “Trading Price” means, for theCommon Stock as ofany date,the closing bidprice on thePrincipal Market asreported by areliable reporting service designated by theHolder (e.g. Bloomberg) or, ifthe Principal Market isnot the principal trading market for suchsecurity, theclosing bidprice of suchsecurity on theprincipal securities exchangeor tradingmarket where suchsecurity is listed ortraded or, if noclosing bid priceofsuch security isavailable in any ofthe foregoing manners, the average of theclosing bidprices of anymarket makers for suchsecurity that are quoted in“OTCPink” by PinkOTC Markets Inc. (formerly PinkSheets LLC), or anysuccessor entity orother publisher thereof.If theTrading Price cannot becalculated for suchsecurity on suchdate in themanner provided above, theTrading Price shall bethe fair market value asmutually determined by theBorrower and theHolder. “TradingDay” shall mean any day onwhich theCommon Stock istradedortradable for anyperiod onthe Principal Market, or on theprincipal securities exchange orother securities market onwhich theCommon Stock isthen beingtraded.
(b) Conversion Price During Major Announcements. Notwithstanding anything contained inSection 1.2(a) to thecontrary, inthe event theBorrower (i)makes apublic announcement that itintends toconsolidate ormergewith any othercorporation (other than amerger inwhich the Borrower is thesurviving orcontinuing corporation and its capital stock isunchanged) orsell ortransfer all or substantially all of theassetsofthe Borroweror(ii) anyperson, group orentity
(including the Borrower) publicly announces atender offer topurchase 50% ormore of theBorrower’sCommon Stock (or anyother takeover scheme) (the dateofthe announcement referred toin clause (i)or
(ii) ishereinafter referred to as the“Announcement Date”), thenthe Conversion Priceshall, effective uponthe Announcement Date andcontinuing through theAdjusted Conversion Price Termination Date (asdefined below), beequal tothe lower of(1) the Conversion Price which would have beenapplicable for aConversion occurring on theAnnouncement Date, and(2) the Conversion Price that would otherwise be ineffect. From andafter the Adjusted Conversion Price Termination Date, theConversion Price shall bedetermined as set forth inthis Section 1.2(b). For purposes hereof, “Adjusted Conversion Price Termination Date” shall mean, with respect to anyproposed transaction ortender offer (or takeover scheme) forwhich apublic announcement ascontemplated bythis Section 1.2(b) has been made, thedate uponwhich theBorrower (inthe case ofclause (i) above) orthe person, group orentity (in thecase ofclause (ii) above) consummates orpublicly announcesthe termination orabandonment ofthe proposed transaction ortender offer (or takeover scheme) which caused this Section 1.2(b) tobecome operative.
Authorized Shares. TheBorrower covenants that during theperiod the conversion right exists,theBorrower will reserve from itsauthorized andunissuedCommon Stock asufficientnumber ofshares, free from preemptive rights, toprovide for the issuance ofCommon Stock upon thefull conversion ofthis Note. The Borrower isrequired atalltimes tohave authorized and reserved three times thenumber ofshares that isactually issuable uponfull conversionofthisNote(based on theConversion Price ineffect fromtime totime) (the“Reserved Amount”). TheReserved Amount shallbeincreased fromtime totime asrequired to insure compliancewiththis Section 1.3. TheBorrower represents that upon issuance, such shares will beduly andvalidly issued, fully paid and non-assessable.Inaddition, if theBorrower shall issue anysecurities ormake anychange to itscapital structure which would change thenumberofshares ofCommon Stock intowhich this Note shallbeconvertible at thethen current Conversion Price, the Borrower shall at thesametimemakeproper provision sothat thereafter there shall be asufficient number of sharesofCommonStockauthorized andreserved, free from preemptive rights, forconversion ofthis Note. The Borrower (i)acknowledges that it hasirrevocably instructed itstransfer agent toissue shares ofthe Common Stockissuable upon conversion ofthis Note, and (ii) agrees that itsissuance ofthis Note shall constitute full authority toits officers andagents whoarecharged with the duty ofissuing thenecessary shares ofCommon Stock inaccordance with the terms andconditions ofthisNote. If, at anytime theBorrower doesnot maintain the Reserved Amount it willbeconsidered an EventofDefault under Section 3.1(c).
MethodofConversion.
(a) MechanicsofConversion. Subject toSection 1.7 hereof, beginning on thedatespecified inSection 1.1,this Notemay beconverted bythe Holder inwholeor inpart at anytime fromtime totime after the Issue Date, bysubmitting to theBorrower aNotice ofConversion (byfacsimile, e-mail orother reasonable means ofcommunication dispatched on theConversion Date prior to 6:00p.m., New York, New York time), otherwise theConversion Datewill bethe next Trading Day.
(b) Surrender ofNoteUpon Conversion.Notwithstanding anything tothe contrary set forth herein, upon conversionofthisNote inaccordance with thetermshereof, theHolder shall notberequired to physically surrender this Note to theBorrower unless the entire Outstanding Balance ofthis Note is soconverted. TheHolder and theBorrower shall maintain records showing the amount ofthe Outstanding Balance soconverted and the datesofsuch conversions orshall use such other method, reasonably satisfactory totheHolder and theBorrower, so asnot torequire physical surrenderofthis Note upon eachsuch conversion.In theeventof anydispute ordiscrepancy, suchrecordsofthe Holder shall,prima facie, becontrolling anddeterminative inthe absence ofmanifest error. Notwithstanding theforegoing, if anyportionofthis Note is converted asaforesaid, theHoldermay not
transfer this Note unless the Holder first physically surrenders thisNote tothe Borrower, whereupon the Borrower will forthwith issue and deliver upon the order ofthe Holder anew Note oflike tenor, registered asthe Holder may request,representing in theaggregate theremaining Outstanding Balanceofthis Note. TheHolderand anyassignee, byacceptanceofthis Note, acknowledge andagree that, byreason ofthe provisionsofthis paragraph, following conversionof aportion ofthis Note, theunpaid and unconverted Outstanding Balanceofthis Note represented bythis Notemay beless than theamount stated on the face hereof.
(c) Payment of Taxes.Borroweris responsible forthe payment ofall charges, fees, and taxes required to deliver Conversion Shares toHolder;provider, however, that Borrower shall not berequired to pay any taxwhich may bepayable inrespect of anytransfer involved in theissue and deliveryofConversion Shares orother securitiesorpropertyon conversion ofthis Note in aname otherthan thatof theHolder (or in street name), andthe Borrower shall not berequired toissueordeliver any suchshares orother securities orproperty unlessand until the person orpersons (other than theHolder or thecustodian inwhose streetname suchshares are tobeheldforthe Holder’s account) requesting theissuance thereof shall have paid to theBorrower the amount ofany suchtaxorshall have established tothe satisfaction of theBorrower that such tax hasbeen paid.
(d) Delivery ofCommonStock Upon Conversion.Onorbefore theclose ofbusiness on thethird (3rd)Trading Day following thedateofreceipt of aNotice ofConversion from the Holder via facsimile transmission ore-mail (or other reasonable meansofcommunication) (the “Delivery Date”), the Borrower shall, provided that all DWAC Eligible Conditions (as defined below) are then satisfied, credit theaggregate number ofConversion Shares to which theHoldershall beentitled totheaccount specified onthe Conversion Notice via theDWAC (as definedbelow) system.If allDWACEligible Conditions are not then satisfied, theBorrowershall instead issue and deliverorcause tobeissued and delivered (via reputable overnight courier) to theaddress as specified in theNotice ofConversion, acertificate, registered inthe name of theHolder orits designee, for thenumber ofConversion Shares towhich theHolder shall beentitled;provided, however, that, inaddition to anyother rightsorremedies thattheHoldermayhave underthisNote, then theNon-DWAC EligibleAdjustmentAmount (as defined below) shall be added to theOutstanding BalanceofthisNote asset forth inSection1.6(f) below. For theavoidanceofdoubt, the Borrower has notmetitsobligation todeliver Conversion Shares by theDelivery Date unless theHolderorits broker, asapplicable, has actually received theshares electronically into theapplicable account,orif the DWAC Eligible Conditions arenot then satisfied, has actually received thecertificate representing theapplicable Conversion Sharesnolater than the closeofbusiness onthe relevant Delivery Date pursuant totheterms set forthabove. Forpurposes hereof, the term“DWAC Eligible Conditions” means that (i) theCommon Stock iseligible at DTC (as defined below) for full services pursuant toDTC’soperational arrangements, including without limitation transfer throughDTC’sDWAC system, (ii) theBorrower has beenapproved (without revocation) bytheDTC’sunderwriting department, (iii) the Borrower’s transfer agent isapproved as anagent in theDTC/FASTProgram (asdefined below),(iv) theConversion Shares are otherwise eligible for delivery via DWAC, and(v) theBorrower’s transfer agent does nothave apolicy prohibiting orlimiting delivery of theConversion Shares viaDWAC. Forpurposesofthis Note, theterm “DWAC”means Deposit Withdrawal atCustodian asdefined by theDTC;the term “DTC” means theDepository Trust Company; andthe term
“DTC/FAST Program” means theDTC’sFastAutomatedSecurities TransferProgram.
(e) Obligation ofBorrower toDeliverCommon Stock.If theHoldershall havegiven aNotice ofConversion asprovided herein, theBorrower’sobligation toissue anddeliver the shares ofCommon Stock shall beabsolute andunconditional, irrespective of theabsence of anyaction by theHolderto enforce thesame, anywaiver orconsent with respect to anyprovision thereof, therecovery of anyjudgment against any personor anyaction toenforce thesame, anyfailure ordelay inthe enforcementof anyother obligation ofthe Borrower to the holderofrecord, orany setoff, counterclaim,
recoupment, limitation ortermination, or anybreachoralleged breach by theHolder of anyobligation to theBorrower, and irrespective of anyother circumstance whichmightotherwiselimit suchobligationof theBorrower to theHolder inconnection with suchconversion. TheConversion Date specified in theNoticeofConversion shall bethe Conversion Date solongasthe Notice ofConversion is delivered tothe Borrower before 6:00 p.m., New York, New York time, on suchdate; otherwise, the ConversionDateshallbethe next Trading Day. Once theHoldermay freelytrade theCommon Stockissuable upon aconversion ofthisNotepursuant toand inaccordance with the terms hereof (and in thecase ofany certificates delivered toHolder because not allofthe DWAC EligibleConditionsare then satisfied, once suchcertificates have beendeposited into Holder’s brokerage account,alllegends have beenremoved therefrom, and theCommon Stockrepresented by suchcertificates is freely tradeable), all rights with respect tothe portion ofthe Outstanding Balance being soconverted shall forthwith terminate;provided, however, that theHolder shall bedeemed to be theholder ofrecordoftheCommon Stockissuable upon suchconversion as of thedate Borrower receives the corresponding NoticeofConversion.
(f) Delivery ofCommon Stockvia theDWAC System. Notwithstanding any otherprovision contained herein, failure to deliver via theDWAC system any Common Stock to bedelivered to the Holder under this Section 1.4 shall constitute abreachofthis Agreement and anEventofDefault under Section 3hereof, including without limitation under Sections 3.1(c) and3.1(p).
(g) Failure to DeliverCommon Stock Prior toDeliveryDate.Without in anyway limiting theHolder’s right topursue other remedies, including actual damages and/or equitable relief, theparties agree that if delivery oftheCommon Stockissuable uponconversion ofthis Note is not delivered asrequired bySection 1.4(d) by theDelivery Date (a “Conversion Default”), theBorrowershall pay in cash tothe Holder for each calendar daybeyond theDelivery Date that the Borrower fails todeliver suchCommon Stock anamount equal to$500 per day(the “Conversion Default Payment”). Such cashamount shall be paid tothe Holder by thefifth day of themonth following themonth inwhich it hasaccrued (the “Conversion Default Payment Due Date”).In theevent suchcash amount isnot received by theHolder by theConversion DefaultPaymentDue Date, atthe optionof theHolder (without notice to theBorrower),theConversion DefaultPaymentshallbeadded to theOutstanding Balance ofthis Note, inwhich event interest shall accrue thereon inaccordance with theterms of thisNote andsuch additional principal amount shall beconvertible intoCommon Stock inaccordance with theterms of thisNote. The Borrower agrees that theright toconvert is avaluable right tothe Holder. Thedamages resulting from afailure,attempt tofrustrate, orinterference with such conversionright aredifficult if notimpossible toquantify. Accordingly theparties acknowledge that the liquidated damages provisions contained inthis Section 1.4(g) arejustified.
Concerning the Shares.Transferof theshares ofCommon Stockissuable upon conversion ofthis Note isrestricted and certificates representing suchsharesmay bear a legend asset forth in Sections 4.14 ofthe Purchase Agreement.
EffectofCertain Events.
(a) Fundamental Transaction Consent Right. The Borrower shall not enter into or beparty to aFundamental Transaction (asdefined below), unless the Borrower obtains thepriorwritten consentofthe Holder to enter into such Fundamental Transaction. For purposesofthisNote,“Fundamental Transaction” means that (i) any“person”or“group” (asthese terms are used for purposes ofSections 13(d) and14(d) of the 1934Act andthe rules andregulations promulgated thereunder) is orshall become the“beneficial owner” (asdefined inRule 13d-3 underthe 1934Act), directly orindirectly, of 50% of theaggregate ordinary voting power represented byissued and outstanding voting stock of theBorrower,or(ii) (1)the Borrower or any ofits subsidiaries shall, directly orindirectly, in one ormore relatedtransactions, consolidate ormergewith or into(whether or notthe
Borrower orany ofits subsidiaries isthe surviving corporation) anyother individual, corporation, limited liability company, partnership, association, trust orother entity or organization(collectively, “Person”), or(2) the Borrowerorany ofits subsidiaries shall, directly orindirectly, in one ormore related transactions, sell, lease, license, assign, transfer, convey orotherwise dispose of all orsubstantially all of itsrespective properties orassets to anyother Person, or (3) theBorrowerorany ofits subsidiaries shall, directly orindirectly, inone ormore related transactions, allow anyother Person tomake apurchase, tender orexchange offer that isaccepted by the holders ofmore than50% ofthe outstanding sharesofvoting stock of theBorrower (not including any shares ofvoting stock of theBorrower held by thePerson orPersons making orparty to, orassociatedoraffiliated with the Persons making or party to,suchpurchase, tender orexchange offer), or (4) theBorroweror any ofits subsidiaries shall, directly orindirectly, in one ormore related transactions, consummate a stock orshare purchase agreementorother business combination (including, without limitation, areorganization, recapitalization, spin-off orscheme ofarrangement) with anyother Person whereby such other Person acquires more than50%of theoutstanding shares ofvoting stock of theBorrower (not including anyshares ofvoting stockofthe Borrower held by theother Person orother Persons makingor party to, orassociated oraffiliated with the other Persons making or party to, suchstock or sharepurchase agreement orother business combination), or(5) the Borrowerorany ofits subsidiaries shall, directly orindirectly, in one ormore related transactions, reorganize, recapitalize orreclassify theCommonStock, other than an increase inthe number ofauthorized shares of theBorrower’s Common Stock. Theprovisions of thisSection 1.6(a) shall applysimilarly andequally tosuccessive Fundamental Transactions andshall beapplied without regard to anylimitations onthe conversion ofthis Note. As acondition topre-approving anyFundamental Transaction inwriting, which approvalmay bewithheld in theHolder’s sole discretion, Holdermayrequire the resulting successor oracquiring entity (if not theBorrower) toassume bywritten instrument all ofthe obligationsof theBorrower under thisNote andall theother Transaction Documents with the same effect asif such successor oracquirer had beennamed as theBorrower hereto andthereto.
(b) Adjustment Due toFundamental Transactions.If, at anytime when this Note isissued andoutstanding andprior toconversion of allofthis Note, there shallbe anyFundamental Transaction that is pre-approved inwriting by theHolder pursuant toSection 1.6(a) above, as aresultofwhich sharesof Common Stock of theBorrower shall bechanged into thesame or adifferent numberofshares ofanother classorclasses ofstock orsecurities ofthe Borroweroranother entity,or incase ofany saleorconveyance ofall orsubstantially all ofthe assets ofthe Borrower other than inconnection with a planofcomplete liquidation ofthe Borrower, then the Holder ofthis Note shall thereafterhave theright toreceive uponconversion ofthis Note, upon thebasis and upontheterms andconditions specified herein and inlieu of theshares ofCommon Stockimmediately theretofore issuable uponconversion, such stock, securitiesorassets which the Holder wouldhave beenentitled to receive insuch transaction had this Note been converted in full immediately prior to suchtransaction (without regard toany limitations onconversion set forth herein), and in any suchcase appropriate provisions shall bemade with respect to therights and interestsofthe Holder ofthis Note tothe endthat theprovisions hereof (including, without limitation, provisions foradjustment ofthe Conversion Price and of thenumber ofshares issuable upon conversionofthis Note) shall thereafter beapplicable, asnearly asmay bepracticable inrelation to anysecuritiesorassets thereafter deliverable upon theconversion hereof. Theabove provisions shall similarly apply tosuccessive Fundamental Transactions.
(c) Adjustment Due toDistribution.Ifthe Borrower shall declare ormake anydistribution ofits assets (or rights toacquire its assets) toholdersofCommon Stock as adividend, stockrepurchase, byway ofreturn ofcapital orotherwise (including anydividend ordistribution tothe Borrower’s stockholders in cashor shares (or rights toacquire shares) ofcapital stockof asubsidiary (i.e., aspin-off)) (a“Distribution”), then the Holder ofthis Note shallbeentitled, upon any conversionofthis Note after thedate ofrecord for determining stockholders entitled to suchDistribution, toreceive the amount of suchassets which would have beenpayable tothe Holder with respect to thesharesof
Common Stock issuable upon suchconversion had suchHolder been the holder ofsuch shares ofCommon Stock on therecord date for thedetermination ofstockholders entitled to suchDistribution.
(d) Adjustment Due toDilutiveIssuance.If, at anytime when thisNote isissued andoutstanding, the Borrower issues orsells, or inaccordance with this Section 1.6(d) hereof isdeemed tohave issued orsold, any shares ofCommon Stockfor noconsideration orfor aconsideration pershare (before deduction ofreasonable expenses or commissionsunderwriting discounts orallowances inconnection therewith) less than theConversion Price ineffect on thedate ofsuch issuance (ordeemed issuance) of suchshares ofCommon Stock (a“Dilutive Issuance”), then immediately upontheDilutiveIssuance, theConversion Price will bereduced to theamount of theconsideration pershare received by theBorrower in suchDilutiveIssuance.
TheBorrower shall bedeemed tohave issued or soldsharesof Common Stock if theBorrower inany manner issues or grants anywarrants, rights or options (not including employee stockoption plans), whetherornot immediately exercisable, tosubscribe for or topurchaseCommon Stockorother securities convertible intoorexchangeable forCommon Stock (“ConvertibleSecurities”) (such warrants, rights andoptions topurchaseCommon Stock orConvertible Securities are hereinafter referred toas “Options”) and the price per share for whichCommon Stock isissuable upon the exercise ofsuch Options isless than theConversion Price then ineffect, then theConversion Price shall beequal tosuch price per share. For purposesofthe preceding sentence, the “price pershare for whichCommon Stock isissuable uponthe exercise of suchOptions” isdetermined bydividing (i)the total amount, if any, received orreceivable bythe Borrower asconsideration for theissuanceorgranting ofall such Options, plus theminimum aggregate amount ofadditional consideration, ifany,payable to theBorrower uponthe exercise ofall suchOptions, plus, inthe case ofConvertible Securities issuable upon theexercise ofsuch Options, the minimum aggregate amount ofadditional consideration payable uponthe conversionorexchange thereof at thetimesuch Convertible Securities first become convertible orexchangeable, by(ii) themaximum total number ofshares ofCommon Stockissuable uponthe exercise ofall suchOptions(assuming fullconversion ofConvertible Securities, if applicable). No further adjustment totheConversion Price willbemade upon theactual issuance ofsuchCommon Stockupon the exerciseof suchOptions orupon the conversion orexchange ofConvertible Securities issuable uponexercise ofsuch Options.
Additionally, theBorrower shall bedeemed tohave issued orsold shares ofCommon Stock if theBorrower in anymanner issues orsells anyConvertible Securities, whether or notimmediately convertible, and theprice per share for whichCommon Stock isissuable uponsuch conversion orexchange isless than the Conversion Price then ineffect, then theConversion Price shallbe equalto such price pershare. For thepurposesof thepreceding sentence, the “price pershare for whichCommon Stock isissuable uponsuch conversion orexchange” isdeterminedbydividing (1)the total amount, ifany, received orreceivable by theBorrower asconsideration forthe issuance or sale ofall suchConvertible Securities, plus theminimum aggregate amount ofadditional consideration, ifany, payable to theBorrower upon theconversionorexchange thereof at thetime suchConvertible Securitiesfirstbecome convertible orexchangeable, by (2)the maximum totalnumber ofsharesof Common Stockissuable upon theconversion orexchangeofall such Convertible Securities. No further adjustment to theConversion Price willbemade uponthe actual issuance of suchCommonStock uponconversionorexchange of such Convertible Securities.
(e) Purchase Rights.If, at anytime when thisNote isissued andoutstanding, theBorrower issues any convertible securities orrights to purchase stock, warrants, securitiesorother property (the“Purchase Rights”) pro rata tothe record holdersof any class ofCommonStock, then theHolderofthis Notewill beentitled toacquire, upon theterms applicable tosuch PurchaseRights, the aggregate Purchase Rights which suchHoldercouldhaveacquired if such Holder hadheld thenumberof
shares ofCommon Stockacquirable uponcomplete conversion ofthisNote(without regard to anylimitations onconversion contained herein) immediately before thedate onwhich arecord istaken forthe grant, issuanceorsaleofsuch Purchase Rights or, if no suchrecord istaken, the date asofwhichtherecord holders ofCommon Stock are tobedetermined for thegrant, issue orsale of such Purchase Rights.
(f) Adjustment Due toNon-DWAC Eligibility.If, at anytime when this Note isissued and outstanding, theHolder delivers aNoticeofConversion and at suchtime all DWAC Eligible Conditions are not thensatisfied, theBorrower shall deliver certificated Conversion Shares to theHolder pursuant toSection 1.4(d) and the Non-DWAC Eligible Adjustment Amount shall be added tothe Outstanding Balanceofthis Note, without limiting any otherrights oftheHolderunder this Note orthe other Transaction Documents. The“Non-DWAC Eligible Adjustment Amount” isthe amount equal to thenumber ofapplicable Conversion Shares multiplied by theexcess, if any, of(i) theTrading Priceof theCommon Stock on theConversion Date, over (ii) the Trading Priceof theCommon Stock on the date thecertificated Conversion Shares arefreely tradable, clearofany restrictive legend anddeposited inthe Holder’s brokerage account.In any suchcase,Holderwill usereasonable efforts totimely deposit such certificates inits brokerage account after it receives them and cause suchrestrictive legends to beremoved, and,without limiting any otherprovisionhereof, Borrower agrees tofully cooperate with Holderinaccomplishing the same.
(g) Adjustment Due toLate Clearing ofDWAC Eligible Shares.If, at anytime when this Note isissued andoutstanding, theHolder delivers aNotice ofConversion and at suchtime theCommon Stock isDWAC Eligible and theapplicable DWAC Eligible Conversion Shares are delivered toHolder orits broker, but ittakes longer thanfive (5)businessdaysafter such delivery for suchConversion Shares to beelectronically cleared for trading in Holder’s brokerageaccount, then the LateClearing Adjustment Amount (as defined below) shallbeadded tothe Outstanding Balanceofthis Note, without limitinganyother rights ofthe Holder under thisNote or theother Transaction Documents. The“Late Clearing Adjustment Amount” is theamount equal to thenumberofapplicable Conversion Shares multiplied bythe excess, if any, of(1) theTrading PriceoftheCommon Stock on theConversion Date, over (2) theTrading PriceoftheCommon Stock onthe date the certificatedDWAC Eligible Conversion Shares are electronically cleared for trading in theHolder’sbrokerage account.In any such case,and without limiting any otherprovision hereof, each ofHolder andthe Borrower agrees to take allaction reasonably necessary on itsparttohelp ensure that the applicable Conversion Shares are electronically cleared for trading inthe Holder’s brokerage accountwithin the five-day perioddescribed above.
(h) Notice ofAdjustments. Upon theoccurrence of eachadjustment orreadjustmentofthe Conversion Price orthe additionofthe Non-DWAC Eligible Adjustment Amountor LateClearing Adjustment Amount tothe Outstanding Balance as aresult of theevents described inthis Section 1.6,the Borrower, at itsexpense, shall promptly compute suchadjustment orreadjustment andprepare andfurnish to theHolder acertificate setting forth such adjustmentorreadjustment and showing indetail thefacts uponwhich such adjustment orreadjustment isbased. TheBorrower shall, upon thewritten request at anytime ofthe Holder, furnish to suchHolder alike certificate setting forth (i) such adjustmentorreadjustment, (ii) the Conversion Price at thetime ineffect and (iii) the numberofshares ofCommon Stock and theamount, ifany, ofother securitiesorproperty which at thetime wouldbereceived uponconversionofthis Note.
(i) Adjustments for Stock Split.Notwithstanding anything herein tothe contrary, anyreferences toshare numbers orshare prices shallbeappropriately adjusted for any stockdividend, stock split, stock combination orother similar transaction.
Ownership Limitation. Notwithstanding anything tothe contrary contained inthis Noteor theother Transaction Documents, if at anytime theHoldershallorwouldbeissued shares ofCommon Stock under any of theTransaction Documents, but suchissuance would cause theHolder(together with its Affiliates) tobeneficially own anumber of sharesexceeding 4.99% of thenumberofsharesof Common Stockoutstanding on suchdate (including forsuch purpose thesharesof Common Stockissuable uponsuch issuance) (the “Maximum Percentage”), then the Company must notissue to theHolder shares ofthe Common Stockwhich would exceed theMaximum Percentage. Forpurposes ofthis Section, beneficial ownership ofCommon Stockwill bedetermined under the 1934 Act. The shares ofCommon Stockissuable tothe Holder that would cause theMaximum Percentage to be exceededarereferred toherein as the"Ownership Limitation Shares". The Company will reserve theOwnershipLimitation Shares for the exclusive benefitofthe Holder. From time totime, theHoldermay notifythe Company inwriting ofthe number ofthe Ownership Limitation Shares thatmay beissued totheHolderwithout causing theHoldertoexceed the Maximum Percentage. Upon receipt of suchnotice, the Company shallbeunconditionally obligated toimmediately issue such designated shares tothe Holder, with acorresponding reduction in thenumber ofthe Ownership Limitation Shares. Notwithstanding theforgoing, theterm “4.99%” above shallbereplaced with “9.99%” at such time as theMarket Capitalizationof theCommon Stock isless than$5,000,000.00. Notwithstanding any otherprovision contained herein, if theterm “4.99%”is replacedwith“9.99%” pursuant to thepreceding sentence, such increase to“9.99%” shall remain at9.99% until increased, decreased orwaived by theHolder asset forth below.Forpurposesof thisNote, theterm “MarketCapitalizationof theCommon Stock”shall mean theproduct equal to(A) the average VWAPof theCommon Stock forthe immediately preceding fifteen
(15)Trading Days, multiplied by(B) theaggregate number of outstandingshares ofCommon Stock asreported on theCompany’s most recently filed Form 10-Q or Form 10-K. Bywritten notice tothe Company, theHoldermayincrease, decreaseorwaive theMaximum Percentage as toitself but any suchwaiver will not beeffective until the61st dayafter delivery thereof. Theforegoing 61-day noticerequirement is enforceable, unconditional andnon-waivable andshall apply to allAffiliates andassigns ofthe Holder.
Prepayment. Solong asthe Borrower has not received aNotice ofConversion from theHolder, thenat any time during the periodbeginning on theIssue Date andending on thedate which isone hundred eighty (180)calendar days following theIssue Date, theBorrower shall have theright, exercisable onnot less than thirty(30) TradingDayspriorwrittennotice tothe Holder toprepay the Outstanding Balanceofthis Note, in full, in accordance with this Section 1.8.Anynotice of prepayment hereunder (an“Optional Prepayment Notice”) shall bedelivered to theHolder at its registered addresses andshall state: (a) that the Borrower isexercising itsright toprepay thisNote, and(b) the date ofprepayment, which shall benot more thanthree (3) Trading Days fromthe date ofthe Optional Prepayment Notice. On the datefixed forprepayment (the“Optional Prepayment Date”), the Borrower shallmakepayment ofthe Optional Prepayment Amount (asdefined below) to orupon the orderof theHolder as specified by theHolder in writing tothe Borrower atleast one (1)Trading Day prior tothe Optional Prepayment Date.If theBorrower exercises its right toprepay this Note, theBorrower shallmakepayment to theHolder of anamountincash (the “Optional Prepayment Amount”) equal to120%, multiplied by thethen Outstanding Balance ofthis Note.If theBorrower delivers anOptional Prepayment Notice andfails topay theOptional Prepayment Amount due to theHolder withintwo (2)Trading Days following theOptional Prepayment Date, the Borrower shall forever forfeit its right toprepay thisNote pursuant tothis Section 1.8.
| 2. | CERTAINCOVENANTS. |
Distributions onCapital Stock. Solongas theBorrower shall have anyobligation underthis Note, theBorrowershall not without the Holder’s written consent(a)pay, declareorset apart for suchpayment, anydividend orother distribution (whether in cash, property orother securities)onshares ofcapital stock other thandividends onshares ofCommon Stock solely in the form ofadditional sharesof CommonStock, or (b)directlyorindirectly orthrough anysubsidiarymake anyother payment ordistribution in respectofits capital stock except for distributions pursuant to anystockholders’ rights planwhich isapproved by amajority ofthe Borrower’s disinterested directors.
Restriction on Stock Repurchases. Solong as theBorrower shall have anyobligation under thisNote,the Borrower shall not without the Holder’swrittenconsent redeem, repurchase orotherwise acquire (whether forcash or inexchange forproperty or othersecuritiesorotherwise) in any onetransactionorseries ofrelated transactions any shares ofcapital stock of theBorrower or anywarrants, rights oroptions topurchase oracquire any suchshares.
Borrowings. So long as theBorrower shall have anyobligation under this Note, theBorrower shall not,without theHolder’s prior written consent,create, incur, assume guarantee, endorse, contingently agree topurchase orotherwise become liable uponthe obligationof anyperson, firm, partnership, joint venture orcorporation, except by theendorsementofnegotiable instruments for depositorcollection,orsuffer toexist anyliability forborrowed money, except (a)borrowings in existenceorcommittedon thedate hereof and ofwhich theBorrower hasinformed theHolder inwriting prior to thedate hereof, (b)indebtedness totrade creditors orfinancial institutions incurred in theordinary courseofbusiness, (c) borrowings, theproceedsofwhich shallbeused torepay thisNote or(d) as permitted by thePurchase Agreement.
Sale ofAssets. So long as theBorrower shall have anyobligation underthis Note, theBorrower shall not, without the Holder’s prior written consent, sell, leaseorotherwise dispose of anysignificant portionof theBorrower’s assets outside the ordinary course ofbusiness. Any consent to thedisposition of anyassets may beconditioned on aspecified use of theproceeds ofdisposition.
Advances and Loans. Solong as theBorrower shall have anyobligation under this Note, theBorrower shall not, without theHolder’swritten consent, lend money,givecreditor makeadvances toany person,firm, joint venture orcorporation, including, without limitation, officers, directors, employees, subsidiaries andAffiliatesof theBorrower, except loans, credits oradvances (a) in existence orcommitted on thedate hereof andwhich theBorrower hasinformedHolder inwriting prior tothe date hereof, (b)made inthe ordinary courseofbusiness,or(c) not inexcess of$100,000.
| 3. | EVENTS OF DEFAULT. |
Events ofDefault. Theoccurrence of any of thefollowing events ofdefault (each, an“EventofDefault”) shallbe aneventofdefault hereunder:
(a) Failure to PayAmounts Due. TheBorrower fails to pay anyamount when dueonthis Note, whetheratmaturity, uponacceleration orotherwise.
(b) Conversion andthe Shares. The Borrower (i) fails toissue Conversion Shares to theHolder orthe Holder’s broker (as set forth inthe applicable Conversion Notice) bytheDelivery Date, (ii) fails totransferorcause its transfer agent totransfer (issue) anyshares ofCommon Stockissued to theHolder uponconversionof orotherwise pursuant tothisNote asand when requiredbythis Note orany of theother Transaction Documents, (iii) the Borrower directs itstransfer agent not to
transferordelays, impairs, and/or hinders its transfer agent in transferring (orissuing) anysharesof Common Stock to beissued tothe Holder uponconversion of orotherwise pursuant tothisNote asand when required by thisNote or any of theother Transaction Documents, or(iv) fails toremove (ordirects itstransfer agent not toremove orimpairs, delays, and/or hinders its transfer agent fromremoving) anyrestrictive legend (orto withdraw any stoptransfer instructions inrespect thereof) on any sharesof Common Stock issued tothe Holder uponconversion of orotherwise pursuant to thisNote as andwhen required bythis Note orany of theother Transaction Documents.
(c) Breach ofCovenants andObligations. TheBorrower breaches any covenantorobligationorother term orcondition contained inthisNote andany collateral documents including butnot limited to theother Transaction Documents.
(d) Breach ofRepresentations andWarranties. Any representationorwarranty of theBorrower made hereinor in anyagreement, statement orcertificategiven in writingpursuant hereto or inconnection herewith (including, without limitation, the Purchase Agreement and anyother Transaction Documents), shall befalseormisleading in anymaterial respect when made.
(e) ReceiverorTrustee. TheBorrower orany subsidiary of theBorrower shallmake anassignment forthe benefitofcreditors, or apply fororconsent to theappointment of areceiver ortrustee for it or for asubstantial partofits property orbusiness, orsuch areceiver ortrustee shall otherwise beappointed.
(f) Judgments. Any money judgment, writ orsimilarprocess shall beentered orfiled against the Borroweror anysubsidiary of theBorroweror any ofits property orother assets for more than$100,000, and shall remain unvacated, unbondedorunstayedfor aperiodoftwenty
(20)calendardaysunless otherwise consented to by theHolder, which consent will not beunreasonably withheld.
(g) Bankruptcy. Bankruptcy, insolvency, reorganization orliquidation proceedings orother proceedings, voluntaryorinvoluntary, for relief under anybankruptcy law or any law for thereliefofdebtors shall beinstituted by oragainst theBorroweror anysubsidiary ofthe Borrower.
(h) Delisting ofCommon Stock. TheBorrower shall fail to maintain the listing and/or quotation, asapplicable, of theCommon Stock onthe Principal Market.
(i) Failure toComply with the 1934 Act.The Borrower shall fail tocomply with thereporting requirements ofthe 1934Act;and/or theBorrower shall cease to besubject to thereporting requirements ofthe 1934Act.
(j) Liquidation. Any dissolution, liquidation, orwinding up ofBorroweror anysubstantial portionof itsbusiness.
(k) Cessation ofOperations.Anycessation ofoperations by theBorrower or theBorrower admits it isotherwise generally unable topay itsdebts assuch debts become due;provided, however, that anydisclosureof theBorrower’s ability tocontinue as a“going concern” shall notbean admission that the Borrower cannot pay itsdebts as they become due.
(l) MaintenanceofAssets. Thefailure by theBorrower tomaintain anymaterial intellectual property rights, personal, real propertyorother assets which are necessarytoconduct itsbusiness (whether nowor in thefuture).
(m) Financial Statement Restatement. Therestatement of anyfinancial statements filed by theBorrower with the SEC forany date orperiod from two years prior tothe Issue Dateofthis Note anduntil this Note is nolonger outstanding, if theresult ofsuch restatement would, bycomparison tothe unrestated financial statement, have constituted amaterial adverse effect ontherights ofthe Holder with respect to this Note or anyother Transaction Documents.
(n) Reverse Splits. TheBorrower effectuates areverse split ofitsCommon Stockwithout twenty (20)calendar days prior written notice tothe Holder.
(o) Replacement ofTransfer Agent.In theevent thatthe Borrower proposes toreplace its transfer agent, theBorrower fails toprovide, prior tothe effective date ofsuch replacement, afully executed Irrevocable Transfer Agent Instructions in aform asinitially delivered pursuant tothe Purchase Agreement (including butnot limited tothe provision to irrevocably reserve shares ofCommon Stock in theReserved Amount) signed bythe successor transfer agent to theHolderand the Borrower.
(p) DWAC Eligibility. Thefailure of any of theDWAC Eligible Conditions to besatisfied at anytime duringwhich the Borrower has obligations under this Note.
Default Effects; Automatic Acceleration. Upon theoccurrence of anyEvent ofDefault, (a) theOutstanding Balanceshall immediately increase to105% ofthe Outstanding Balance immediately prior tothe occurrenceof theEventofDefault (the “BalanceIncrease”), and (b)this Note shall thenaccrue interest at theDefault Interest rate (collectively, the “Default Effects”);provided, however, that (x) in noevent shall the Balance Increase beapplied more thanonce, and(y) notwithstanding anyprovision tothe contrary herein, in noevent shall theapplicable interest rate at anytime exceed themaximum interest rate allowed underapplicable law.The Default Effects shall automatically apply uponthe occurrenceof anEvent ofDefault without the need for anyparty togive anynotice ortake any otheraction. Further, uponthe occurrence andduring thecontinuation of anyEventofDefault, the Holdermay bywritten notice tothe Borrower declare the entire Outstanding Balance immediately dueand payable without presentment, demand, protest or anyother noticeof anykind, allofwhich are hereby expresslywaived, anything contained hereinorin the other Transaction Documents to thecontrary notwithstanding;provided,however,that upon theoccurrence orexistence of anyEvent ofDefault described inSections 3.1(e), 3.1(g), 3.1(j), or3.1(k), immediately andwithout notice, all outstanding obligations payable by theBorrower hereundershall automatically become immediately due andpayable, without presentment, demand, protest or anyother noticeofany kind, allofwhich are herebyexpressly waived, anything contained herein or in theTransaction Documents to thecontrary (“Automatic Acceleration”). Foravoidanceofdoubt, except inthe case ofAutomatic Acceleration resulting from anEvent ofDefault under Sections 3.1(e), 3.1(g), 3.1(j),or3.1(k), theHolder shall retain allrights under this Note and theTransaction Documents, including the ability toconvert thethen OutstandingBalance ofthis Note pursuant toSection 1hereof, atalltimesfollowingtheoccurrence ofan Automatic Acceleration until theentire Outstanding Balance at that time hasbeen paid infull.
| 4. | MISCELLANEOUS. |
FailureorIndulgence Not Waiver.No failureordelay on the part ofthe Holder in theexerciseof any power,right orprivilegehereunder shall operate as awaiverthereof, norshall anysingle orpartial exerciseof any suchpower, right orprivilege preclude otherorfurther exercise thereof or ofany other right, powerorprivileges.Allrights andremedies existing hereunder are cumulative to, and notexclusive of, anyrights orremedies otherwise available.
Notices. Whenever notice isrequired to begiven underthis Note, unless otherwise provided herein, suchnotice shall begiven inaccordance with thesubsection ofthe Purchase Agreement titled “Notices.”
Amendments. This Note and anyprovision hereofmay only beamended by aninstrument inwriting signed by theBorrower andthe Holder. The term“Note” and allreference thereto, as usedthroughout this instrument, shall mean thisinstrument (andthe otherNotesissued pursuant to thePurchase Agreement) as originally executed,or iflater amended orsupplemented, thenas soamendedorsupplemented.
Assignability. This Note shall bebinding uponthe Borrower and itssuccessors andassigns, andshall inure to bethe benefit ofthe Holder and its successors andassigns;provided, however, that this Note may not betransferred, assigned or conveyed by theBorrower without the prior written consent of theHolder. Each transferee ofthis Notemust be an“accredited investor” (as defined in Rule 501(a) of theSecurities Act of1933 (as amended, the “1933Act”)). Notwithstanding anything in this Note to thecontrary, this Note may bepledged as collateral inconnection with abonafide margin account orother lending arrangement.
CostofCollection;Attorneys’ Fees .Upon theoccurrence of anyEvent ofDefault, theBorrower shall pay to theHolder hereof all costs andreasonable attorneys’ fees incurred by theHolderin connection with suchEventofDefault.In theevent of anyaction atlaw or inequity to enforce orinterpret theterms ofthis Noteor any ofthe other Transaction Documents, theparties agree that the party who is awarded the most money shall bedeemed the prevailing partyfor all purposes and shall therefore beentitled to anadditional award of thefull amountofthe attorneys’ fees and expenses paid bysuch prevailing party in connectionwith thelitigation and/or dispute without reduction orapportionment based upon theindividualclaims ordefenses giving rise tothe fees andexpenses. Nothing hereinshall restrict orimpair acourt’s power toaward fees and expenses forfrivolous or badfaith pleading.
Governing Law. ThisNote shall begoverned byand construed inaccordance with the laws ofthe StateofUtah without regard to principles ofconflicts oflaws. Any action brought byeither party against the other concerning thetransactions contemplated by thisNoteshall bebrought only in thestate courts ofUtah or inthe federal courts located inSalt Lake County, Utah. Theparties tothisNote hereby irrevocably waive anyobjection to jurisdiction and venue of anyaction instituted hereunder andshall notassert anydefense based onlack ofjurisdiction orvenue or based uponforum nonconveniens.In theevent that anyprovisionofthis Note or any otheragreement delivered inconnection herewith isinvalid orunenforceable under anyapplicable statuteorruleoflaw, then suchprovision shall bedeemed inoperative to theextent that itmayconflict therewith and shallbedeemed modified toconform with suchstatute orrule of law.Any suchprovision whichmayprove invalidor unenforceable underanylawshall not affect thevalidityorenforceabilityof anyother provision of anyagreement. Each partyhereby irrevocably waives personal service ofprocess andconsents toprocess being served in anysuit, actionorproceeding in connectionwith this Agreement or any otherrelatedorcompanion documents bymailing acopythereof via registeredorcertified mailorovernight delivery (with evidence ofdelivery) tosuch party atthe address ineffect for notices toit under this Agreementandagrees that suchservice shall constitute good andsufficient service ofprocess and notice thereof. Nothing contained herein shall bedeemed tolimit in anyway anyright to serve process in anyother manner permitted by law.THE BORROWERHEREBYIRREVOCABLY WAIVESANY RIGHT IT MAYHAVE TO,AND AGREES NOT TOREQUEST, AJURYTRIALFOR THEADJUDICATIONOF ANY DISPUTEHEREUNDEROR IN CONNECTION WITH ORARISING OUTOF THIS NOTE ORANY TRANSACTIONCONTEMPLATEDHEREBY.
Fees andCharges. Theparties acknowledge and agree that uponthe Borrower’s failure tocomply with theprovisions ofthis Note, the Holder’s damages wouldbeuncertain and difficult (ifnot impossible) toaccurately estimate becauseofthe parties’ inability to predict future interest rates, theHolder’s increasedrisk, and theuncertainty ofthe availability of asuitable substitute investment opportunity forthe Holder, among otherreasons. Accordingly, any fees,charges, andinterest due under this Note areintended bythe parties tobe, and shall bedeemed, areasonable estimate oftheHolder’sactual loss ofits investment opportunity andnot apenalty, andshall not bedeemed in anyway tolimit any otherright orremedy Holdermayhave hereunder, at law or inequity.
Remedies. The Borrower acknowledges that abreach by it of itsobligations hereunder will cause irreparable harm to theHolder,byvitiating theintent andpurposeofthe transaction contemplated hereby. Accordingly, theBorrower acknowledges that the remedyat lawfor abreach ofitsobligations underthis Notewill beinadequate andagrees, inthe event of abreach orthreatened breach by theBorrowerof theprovisions ofthis Note, that the Holder shall beentitled, inaddition toall other available remedies at lawor inequity, and inaddition to thecharges assessable herein, to aninjunctionorinjunctions restraining, preventing orcuring any breach ofthis Note and toenforce specifically theterms andprovisions thereof, without the necessity ofshowing economic loss andwithout any bondorother security beingrequired.
Purchase Agreement. Byitsacceptanceofthis Note, eachparty agrees to be bound by theapplicableterms of thePurchase Agreement and the other Transaction Documents.
Notice ofCorporate Events. Except asotherwiseprovidedherein, the Holderofthis Note shallhave norights as aHolder ofCommon Stockunless and only to theextent that itconverts this Note intoCommonStock. The Borrower shall provide the Holder withpriornotification ofany meeting of theBorrower’s stockholders (and copies ofproxy materials and other information sent to stockholders).In theevent of anytaking by theBorrower of arecord of itsstockholders for the purposeofdetermining stockholders who areentitled toreceive payment of anydividend orother distribution, anyright tosubscribe for,purchase orotherwise acquire (including byway ofmerger, consolidation, reclassification orrecapitalization) anyshare of anyclassor anyother securities orproperty, or to receive any otherright, orfor the purpose ofdetermining stockholderswhoare entitled to vote inconnection with anyproposed sale, leaseorconveyance ofallorsubstantially allofthe assets ofthe Borroweror anyproposed liquidation, dissolutionorwinding up of theBorrower, the Borrower shall mail anotice totheHolder, atleast twenty (20) calendar dayspriorto the record date specified therein(orthirty(30)calendar days prior tothe consummationof thetransactionorevent, whichever is earlier),ofthe dateonwhich any suchrecord is tobetaken for the purpose ofsuch dividend, distribution, rightorother event, and abrief statement regarding theamount andcharacter ofsuch dividend, distribution, right orother event tothe extent known atsuch time. TheBorrower shallmake apublic announcement of anyevent requiring notification to theHolder hereunder substantially simultaneously with thenotification tothe Holder inaccordance with theterms ofthis Section 4.10.
Pronouns.Allpronouns andany variations thereof refer to themasculine, feminine or neuter, singular orplural, as the contextmaypermit orrequire.
Time of theEssence. Time isexpressly made of theessence ofeach andevery provision ofthis Note.
[Remainderofpage intentionally left blank; signature pagetofollow]
IN WITNESS WHEREOF, theBorrower has caused thisNote to besigned inits name by its dulyauthorized officer as of theIssue Dateset forth above.
MAXSOUNDCORPORATION
| By: | Greg Halpern,ChiefFinancialOfficer |
EXHIBIT A
ILIAD RESEARCH AND TRADING, L.P.
303EAST WACKER DRIVE, SUITE 1040
CHICAGO, ILLINOIS 60601
Date: MAXSOUNDCORPORATION
HazelhurstDrive#6572Houston, TX 77043
Attn: Greg Halpern,ChiefFinancial Officer
CONVERSION NOTICE
Theabove-captionedHolderhereby gives notice to MAXSOUND CORPORATION, aDelaware corporation (the “Company”), pursuant tothat certain Convertible Promissory Note made by theCompany infavor of theHolder onOctober 3, 2016 (the“Note”), that the Holder elects toconvert theportionofthe Outstanding Balanceofthe Note setforth below into fully paid andnon-assessable sharesofCommon Stock of theCompany as of thedate ofconversion specified below. Suchconversion shall bebased on theConversion Price set forth below.In theevent of aconflict between this Conversion Notice and the Note, the Note shall govern, or, inthe alternative, atthe electionof theHolder inits sole discretion, theHolder mayprovide a newform ofConversion Notice toconform tothe Note.
| A. | Date ofconversion: |
| B. | Conversion#: |
| C. | Conversion Amount: |
| D. | MarketPrice_(Averageof 2lowest Trade Prices oflast 10 Trading Days as per Exhibit A-1) |
| E. | ConversionFactor: 65% [as may adjusted upon certain Eventsof Default] |
| F. | ConversionPrice:(Dmultiplied by E) |
| G. | Conversion Shares:(Cdivided by F) |
| H. | Remaining Outstanding Balance of Note:* |
*Subjecttoadjustments for corrections, defaults,and otheradjustments permittedbythe Transaction Documents.
Please transfer theConversion Shares electronically (viaDWAC) tothe following account:
| Broker: | Address: | |
| DTC#: | ||
| Account#: | ||
| AccountName: |
To theextent theConversion Shares are not able tobedelivered tothe Holder electronically via the DWAC system, pleasedeliver acertificate representing allsuch shares to theHolder via reputable overnight courier after receiptofthis ConversionNotice (byfacsimile transmission orotherwise) to:
(SignaturePageFollows)
Sincerely,
ILIAD RESEARCH AND TRADING, L.P.
By:Iliad Management, LLC, itsGeneral PartnerBy: FifeTrading, Inc., itsManager
| By: | John M.Fife, President |
EXHIBIT A-1
CONVERSIONWORKSHEET
| Trading Day | Lowest Trade Price | Lowest3(Yesor No) |
| Average | ||