NEITHERTHISSECURITYNORTHESECURITIESINTOWHICHTHISSECURITYISCONVERTIBLEHAVEBEENREGISTEREDWITHTHESECURITIESANDEXCHANGECOMMISSIONORTHESECURITIESCOMMISSIONOFANYSTATEINRELIANCEUPONANEXEMPTIONFROMREGISTRATIONUNDERTHESECURITIESACTOF1933,ASAMENDED(THE“SECURITIESACT”),AND,ACCORDINGLY,MAYNOTBEOFFEREDORSOLDEXCEPTPURSUANTTOANEFFECTIVEREGISTRATIONSTATEMENTUNDERTHESECURITIESACTORPURSUANTTOANAVAILABLEEXEMPTIONFROM,ORINATRANSACTIONNOTSUBJECTTO, THEREGISTRATION REQUIREMENTS OFTHE SECURITIESACTAND INACCORDANCEWITHAPPLICABLESTATESECURITIESLAWSASEVIDENCEDBYALEGALOPINIONOFCOUNSELTOTHETRANSFERORTOSUCHEFFECT,THESUBSTANCEOFWHICHSHALLBEREASONABLYACCEPTABLETOTHECOMPANY.THISSECURITYANDTHESECURITIESISSUABLEUPONCONVERSIONOF THISSECURITYMAYBEPLEDGEDINCONNECTIONWITHABONAFIDEMARGINACCOUNTOROTHERLOANSECUREDBYSUCHSECURITIES.
OriginalIssueDate:June30,2017
$147,000
8%CONVERTIBLENOTE
THIS8%CONVERTIBLENOTEisoneofaseriesofdulyauthorizedandvalidlyissued8%ConvertibleNotesissuedata8%originalissuediscountbyMaxSoundCorporation.,aDelawarecorporation(the“Company”)(thisnote,the“Note”and,collectivelywiththeothernotesofsuchseries,the“Notes”).ThisNotereplacesthe“BackEnd”NoteissuedonJanuary7,2017,dueJanuary15,2018,assignedfromEagleEquities,LLC,whichnotewasissuedinexchangeforthecollateralizedsecondpromissorynoteofJanuary5,2017ofEagleEquitiesinfavoroftheCompanywhichtheHolderhaspaidoffinfull.
FORVALUERECEIVED,theCompanypromisestopaytoBellridgeCapital,LPitsregisteredassigns(the“Holder”),orshall havepaid pursuanttotheterms hereunder,theprincipalsumof$147,000(“OriginalPrincipalAmount”) onJanuary5,2018(the “MaturityDate”)or suchearlier dateasthis Noteisrequiredorpermittedtoberepaidasprovidedhereunder,andtopayinteresttotheHolderontheaggregateunconvertedandthenoutstandingprincipalamountofthisNoteinaccordancewiththeprovisionshereof.ThisNoteissubjecttothefollowingadditionalprovisions:
Section1.Definitions.Forthepurposeshereof,(a)capitalizedtermsnototherwisedefinedhereinshallhavethemeaningssetforthinthePurchaseAgreementand(b)thefollowingtermsshallhavethefollowingmeanings:
“AlternateConsideration”shallhavethemeaningsetforthinSection5(e).
“BankruptcyEvent”meansanyofthefollowingevents:(a)theCompanyoranySignificantSubsidiary(assuchtermisdefinedinRule1-02(w)ofRegulationS-X)thereofcommencesacaseorother proceeding under any bankruptcy,reorganization,arrangement,adjustment of debt, relief ofdebtors,dissolution,insolvencyorliquidationorsimilarlawofanyjurisdictionrelatingtotheCompanyoranySignificantSubsidiarythereof,(b)thereiscommencedagainsttheCompanyoranySignificantSubsidiarythereofanysuchcaseorproceedingthatisnotdismissedwithin60daysaftercommencement,
(c)theCompanyoranySignificantSubsidiarythereofisadjudicatedinsolventorbankruptoranyorderofrelieforotherorderapprovinganysuchcaseorproceedingisentered,(d)theCompanyoranySignificant Subsidiarythereofsuffersanyappointmentofanycustodianorthelike foritoranysubstantialpartofitspropertythatisnotdischargedorstayedwithin60calendardaysaftersuchappointment,(e)theCompanyoranySignificantSubsidiarythereofmakesageneralassignmentforthebenefitofcreditors,or(f)theCompanyoranySignificantSubsidiarythereof,byanyactorfailuretoact,expresslyindicatesitsconsentto,
.
“BaseConversionPrice”shallhavethemeaningsetforthinSection5(b).“BeneficialOwnershipLimitation”shallhavethemeaningsetforthinSection4(d).
“BusinessDay”meansanydayexceptanySaturday,anySunday,anydaywhichisafederallegalholidayintheUnitedStatesoranydayonwhichbankinginstitutionsintheStateofNewYorkareauthorizedorrequiredbylaworothergovernmentalactiontoclose.
“Buy-In”shallhavethemeaningsetforthinSection4(c)(v).
“ChangeofControlTransaction”meanstheoccurrenceafterthedatehereofofanyof(a)anacquisitionafterthedatehereofbyanindividualorlegalentityor“group”(asdescribedinRule13d-5(b)(1)promulgatedundertheExchangeAct)ofeffectivecontrol(whetherthroughlegalorbeneficialownershipofcapitalstockoftheCompany,bycontractorotherwise)ofinexcessof50%ofthevotingsecuritiesoftheCompany(otherthanbymeansofconversion,exerciseorexchangeoftheNotesortheSecuritiesissuedtogetherwiththeNotes),(b)theCompanymergesintoorconsolidateswithanyotherPerson,oranyPersonmergesintoorconsolidateswiththeCompanyand,aftergivingeffecttosuchtransaction,theshareholdersoftheCompanyimmediatelypriortosuchtransactionownlessthan50%oftheaggregatevotingpowerofthe Companyorthesuccessor entityofsuchtransaction,(c) theCompanysellsortransfersallorsubstantiallyallofitsassetstoanotherPersonandtheshareholdersoftheCompanyimmediatelypriortosuchtransactionownlessthan50%oftheaggregatevotingpoweroftheacquiringentityimmediatelyafterthetransaction,(d)areplacementatonetimeorwithinathreeyearperiodofmorethanone-halfofthemembersoftheBoardofDirectorsoftheCompany(the“BoardofDirectors”)whichisnotapprovedbyamajorityofthoseindividualswhoaremembersoftheBoardofDirectorsontheOriginalIssueDate(orbythoseindividualswhoareservingasmembersoftheBoardofDirectorsonanydatewhosenominationtotheBoardofDirectorswasapprovedbyamajorityofthemembersoftheBoardofDirectorswhoaremembersonthedatehereof),or(e)theexecutionbytheCompanyof anagreementtowhichtheCompanyisapartyorbywhichitis bound,providingfor anyoftheeventssetforthinclauses(a)through(d)above.
“Conversion”shallhavethemeaningascribedtosuchterminSection4.“ConversionDate”shallhavethemeaningsetforthinSection4(a).“ConversionPrice”shallhavethemeaningsetforthinSection4(b).
hereto.
“ConversionSchedule”meanstheConversionScheduleintheformofSchedule1attached
“ConversionShares”means,collectively,thesharesofCommonStockissuableuponconversionofthisNoteinaccordancewiththetermshereof.
“DefaultInterestRate”shallhavethemeaningsetforthinSection2(a).“DilutiveIssuance”shallhavethemeaningsetforthinSection5(b).“DilutiveIssuanceNotice”shallhavethemeaningsetforthinSection5(b).
“DWAC”meanstheDepositorWithdrawalatCustodiansystematTheDepositoryTrustCompany.
“EventofDefault”shallhavethemeaningsetforthinSection7(a).“FundamentalTransaction”shallhavethemeaningsetforthinSection5(e).
“MandatoryDefaultAmount”meansthesumof(a)150%oftheoutstandingprincipalamountofthisNote,plus150%ofaccruedandunpaidinteresthereon,and(b)allotheramounts,costs,expensesandliquidateddamagesdueinrespectofthisNote.
“NewYorkCourts”shallhavethemeaningsetforthinSection8(e).“NoteRegister”shallmeanthenoteregistermaintainedbytheCompany.“NoticeofConversion”shallhavethemeaningsetforthinSection4(a).
“OptionValue”meansthevalueofaCommonStockEquivalentbasedontheBlackScholesOptionPricingmodelobtainedfromthe"OV"functiononBloombergdeterminedasof(A)theTradingDaypriortothe publicannouncementoftheissuanceoftheapplicable CommonStock Equivalent,if theissuanceofsuchCommonStockEquivalentispubliclyannouncedor(B)theTradingDayimmediatelyfollowingtheissuanceoftheapplicableCommonStockEquivalentiftheissuanceofsuchCommonStockEquivalentisnotpubliclyannounced,forpricingpurposesandreflecting(i)arisk-freeinterestratecorrespondingtotheU.S.TreasuryrateforaperiodequaltotheremainingtermoftheapplicableCommonStockEquivalentasoftheapplicabledateofdetermination, (ii)anexpectedvolatilityequaltothegreaterof100%andthe100dayvolatilityobtainedfromtheHVTfunctiononBloombergasof(A)theTradingDayimmediatelyfollowingthepublicannouncementoftheapplicableCommonStockEquivalentiftheissuanceofsuchCommonStockEquivalentispubliclyannouncedor(B)theTradingDayimmediatelyfollowingtheissuanceoftheapplicableCommonStockEquivalentiftheissuanceofsuchCommonStockEquivalentisnotpubliclyannounced,(iii)theunderlyingpricepershareusedinsuchcalculationshallbethehighestVWAPoftheCommonStockduringtheperiodbeginningontheTradingDaypriortotheexecutionofdefinitivedocumentationrelatingtotheissuanceoftheapplicableCommonStockEquivalentandendingon(A)theTradingDayimmediatelyfollowingthepublicannouncementofsuchissuance,iftheissuanceofsuchCommonStockEquivalentispubliclyannouncedor (B)theTradingDayimmediatelyfollowingtheissuanceoftheapplicableCommonStockEquivalentiftheissuanceofsuchCommonStockEquivalentisnotpubliclyannounced,(iv)azerocostofborrowand(v)a360dayannualizationfactor.
“OriginalIssueDate”meansthedateofthefirstissuanceoftheNotes,regardlessofanytransfersofanyNoteandregardlessofthenumberofinstrumentswhichmaybeissuedtoevidencesuchNotes.
“PaymentDate”shallhavethemeaningsetforthinSection2(b).
“PermittedIndebtedness”means(a)IndebtednessoutstandingasoftheOriginalIssueDate,
(b) theindebtednessevidencedbytheNotes,and(c)capitalleaseobligationsandpurchasemoneyindebtednessincurredinconnectionwiththeacquisitionofmachineryandequipment.
“PurchaseAgreement”meanstheSecuritiesPurchaseAgreement,datedasofJune27,2017amongtheCompanyandtheoriginalHolders, asamended, modifiedorsupplementedfromtimetotimeinaccordancewithitsterms.
“SecuritiesAct”meanstheSecuritiesActof1933,asamended,andtherulesandregulationspromulgated thereunder.
“ShareDeliveryDate”shallhavethemeaningsetforthinSection4(c)(ii).“SuccessorEntity”shallhavethemeaningsetforthinSection5(e).
“TradingDay”meansadayonwhichtheprincipalTradingMarketisopenfortrading.
“TradingMarket”meansanyofthefollowingmarketsorexchangesonwhichtheCommonStockislistedorquotedfortradingonthedateinquestion:theNYSEMKT,theNasdaqCapitalMarket,theNasdaqGlobalMarket,theNasdaqGlobalSelectMarket, theNewYorkStockExchange, oranymarketoftheOTCMarkets,Inc.(oranysuccessorstoanyoftheforegoing).
“VWAP”means,foranydate,thepricedeterminedbythefirstofthefollowingclausesthatapplies:(a)iftheCommonStockisthenlistedorquotedonaTradingMarket,thedailyvolumeweightedaveragepriceoftheCommonStockforsuchdate(orthenearestprecedingdate)ontheTradingMarketon whichtheCommon Stockisthenlistedorquotedasreported byBloomberg L.P. (basedon aTradingDayfrom9:30a.m.(NewYorkCitytime)to4:02p.m.(New YorkCitytime)), (b)iftheCommonStockisnotthenlistedorquotedfortradingontheOTCQBorOTCQXandifpricesfortheCommonStockarethenreportedbytheOTCPinkmarketplacepublishedbyOTCMarkets,Inc.(orasimilarorganizationoragencysucceedingtoitsfunctionsofreportingprices),themostrecentbidpricepershareoftheCommonStocksoreported,or(c)inallothercases,thefairmarketvalueofashareofCommonStockasdeterminedbyanindependentappraiserselectedingoodfaithbytheHoldersofamajorityininterestoftheNotesthenoutstandingandreasonablyacceptabletotheCompany,thefeesandexpensesofwhichshallbepaidbytheCompany.
Section2.Interest;Payments.
(a) Interest.InterestshallaccruetotheHolderontheaggregateunconvertedandthenoutstandingprincipalamountofthisNoteattherateofeightpercent(8%)perannum,calculatedonthebasisofa365-dayyearandshallaccruedailycommencingontheOriginalIssueDateuntilpaymentinfulloftheoutstandingprincipal(orconversiontotheextentapplicable),togetherwithallaccruedandunpaidinterest,liquidateddamagesandotheramountswhichmaybecomeduehereunder,hasbeenmade.FollowinganEventofDefault,untilsuchEventofDefaulthasbeencured,interestshallaccrueatthelesserof(i)therateof24%perannum,or(ii)themaximumamountpermittedbylaw(thelesserofclause
(i)or(ii),the“DefaultInterestRate”).IntheeventthatsuchEventofDefaultissubsequentlycured,theadjustmentreferredtointheprecedingsentenceshallceasetobeeffectiveasofthecalendardayimmediatelyfollowingthedateofsuchcure;providedthattheinterestascalculatedandunpaidattheDefaultInterestRateduringthecontinuanceofsuchEventofDefaultshallcontinuetoapplytotheextentrelatingtothedaysaftertheoccurrenceofsuchEventofDefaultthroughandincludingthedateofsuchcureofsuchEventofDefault.
(b) Payments.Interestpaymentsare dueandpayableonthe MaturityDate,exceptasotherwiseset forthin thisNote. IfanyPaymentDate isnotaBusinessDay,then theapplicablepaymentshallbedueonthenextsucceedingBusinessDay.EachMonthlyPaymentshallbeequaltoallaccruedbutunpaidinterest.TheCompanyshallpayinteresttotheHolderontheaggregateunconvertedandthenoutstandingprincipalamountofthisNoteontheMaturityDate(the“PaymentDate”)exceptasotherwiseset forthin thisNote. IfanyPaymentDate isnotaBusinessDay,then theapplicablepaymentshallbedueonthenextsucceedingBusinessDay.EachMonthlyPaymentshallbeequaltoallaccruedbutunpaidinterest.
| (c) | PaymentinCash.AllpaymentsshallbemadeincashonanyPaymentDate. |
(d) PrepaymentandRedemption.DuringthefirstsixmonthsthisNoteisineffect,theCompanymayredeemthisNotebypayingtotheHolderanamountasfollows:(i)iftheredemptionispriortothe30thdaythisNoteisineffect(includingthe30thday),thenforanamountequalto110%oftheunpaidprincipalamountofthisNotealongwithanyinterestthathasaccruedduringthatperiod;(ii)iftheredemptionisonthe31stdaythisNoteisineffect,uptoandincludingthe60thdaythisNoteisineffect,thenforanamountequalto115%oftheunpaidprincipalamountofthisNotealongwithanyaccruedinterest;(iii)iftheredemptionisonthe61stdaythisNoteisineffect,uptoandincludingthe
120thdaythisNoteisin effect,thenforanamountequal to135%oftheunpaidprincipalamountofthisNotealongwithanyaccruedinterest;(iv)iftheredemptionisonthe121stdaythisNoteisineffect,uptoandincludingthe180thdaythisNoteisineffect,thenforanamountequalto150%oftheunpaidprincipalamountofthisNotealongwithanyaccruedinterest.ThisNotemaynotberedeemedafterthe180thdaythisNoteisineffect.Theredemptionmustbeclosedandpaidforwithin3businessdaysoftheCompanysendingtheredemptiondemandortheredemptionwillbeinvalidandtheCompanymaynotredeemthisNote.IntheeventtheHolderhasdeliveredaNoticeofConversiontotheCompanypriortothereceiptofaredemptionnoticefromtheCompany,theNoticeofConversionshallprevail.
Section3.RegistrationofTransfersandExchanges.
(a) DifferentDenominations.ThisNoteisexchangeableforanequalaggregateprincipalamountofNotesofdifferentauthorizeddenominations(ofnolessthan$1,000inprincipalamount),asrequestedbytheHoldersurrenderingthesame.Noservicechargewillbepayableforsuchregistrationoftransferorexchange.
(b) InvestorRepresentations.ThisNotehasbeenissuedsubjecttocertaininvestmentrepresentationsoftheoriginalHoldersetforthinthePurchaseAgreementandmaybetransferredorexchangedonlyincompliancewiththePurchaseAgreementandapplicablefederalandstatesecuritieslawsandregulations.
(c) RelianceonNoteRegister.PriortoduepresentmentfortransfertotheCompanyofthisNote,theCompanyandanyagentoftheCompanymaytreatthe Person inwhosenamethisNote isdulyregisteredontheNoteRegisterastheownerhereofforthepurposeofreceivingpaymentashereinprovidedandforallotherpurposes,whetherornotthisNoteisoverdue,andneithertheCompanynoranysuchagentshallbeaffectedbynoticetothecontrary.
Section4.Conversion.
(a)VoluntaryConversion.AftertheOriginalIssueDateuntilthisNoteis no longeroutstanding,andprovidedthatthattheprovisionsofRule144undertheSecuritiesActsopermit,thisNoteshallbeconvertible,inwholeorinpart,atanytime,andfromtimetotime, intosharesofCommonStockattheoptionoftheHolder.TheCompanyacknowledgesthatthedateofthisNotefortrackingpurposesisJanuary7,2017andtheCompanywillnottakeanypositiontothecontrary.TheHoldershalleffectconversionsbydeliveringtotheCompanyaNoticeofConversion,theformofwhichisattachedheretoasAnnexA(each,a“NoticeofConversion”),specifyingthereintheprincipalamountofthisNotetobeconvertedandthedateonwhichsuchconversionshallbeeffected(suchdate,the“ConversionDate”).IfnoConversionDateisspecifiedinaNoticeofConversion,theConversionDateshallbethedatethatsuchNoticeofConversionisdeemeddeliveredhereunder.Noink-originalNoticeofConversionshallberequired,norshallanymedallionguarantee(orothertypeofguaranteeornotarization)ofanyNoticeofConversionformberequired.Toeffectconversionshereunder,theHoldershallnotberequiredtophysicallysurrenderthisNotetotheCompanyunlesstheentireprincipalamountofthisNote,plusallaccruedandunpaidinterestthereon,hasbeensoconverted.ConversionshereundershallhavetheeffectofloweringtheoutstandingprincipalamountofthisNoteinanamountequaltotheapplicableconversion.TheHolderandtheCompanyshallmaintainrecordsshowingtheprincipalamount(s)convertedin eachconversion, thedateof eachconversion,and theConversionPrice ineffectatthe timeofeachconversion.TheCompanymaydeliveranobjectiontoanyNoticeofConversionwithinoneBusinessDayofdeliveryofsuchNoticeofConversion.Intheeventofanydisputeordiscrepancy,therecordsoftheHoldershallbecontrollinganddeterminativeintheabsenceofmanifesterror.TheHolder, andanyassignee byacceptance of thisNote,acknowledgeandagree that, byreasonoftheprovisionsofthisparagraph,followingconversionofaportionofthisNote,theunpaidandunconvertedprincipalamountofthisNotemaybelessthantheamountstatedonthefacehereof.
(b) ConversionPrice.The“ConversionPrice”ineffectonanyConversionDatemeans,asofanyConversionDateorotherdateofdetermination,shallbe65%ofthelowesttradingpricefortheCompany’sCommonStockduringthetenTradingDaysimmediatelyprecedingthedeliverybytheHolderofaNoticeofConversion,providedhoweverandnotwithstandinganythingtothecontraryherein,duringanEventofDefaulttheConversionPriceinineffectonanyConversionDatemeans,asofanyConversionDateorotherdateofdetermination,shallbe55%ofthelowesttradingpricefortheCompany’sCommonStockduringthetenTradingDaysimmediatelyprecedingthedeliverybytheHolderofaNoticeofConversion.TheapplicablepricesshallbeasreportedbyBloombergL.P.Notwithstandingtheforegoing,innoeventshalltheConversionPricebelessthentheparvalueoftheCommonStock.
| (c) | MechanicsofConversionorPrepayment. |
(i) ConversionSharesIssuableUponConversionofPrincipalAmount.ThenumberofConversionSharesissuableuponaconversionhereundershallbe determined bythequotientobtainedbydividing(x)theoutstandingprincipalamountofthisNotetobeconvertedby(y)theConversionPriceineffectatthetimeofsuchconversion.
(ii) DeliveryofCertificateUponConversion.Notlaterthanthree(3)TradingDaysaftereachConversionDate(the“ShareDeliveryDate”),theCompanyshalldeliver,orcausetobedelivered,totheHolderanycertificateorcertificatesrequiredtobedeliveredbytheCompany underthisSection4(c).
(iii) FailuretoDeliverCertificates.If,inthecaseofanyNoticeofConversion,suchcertificateorcertificatesarenotdeliveredtoorasdirectedbytheapplicableHolderbytheShareDeliveryDate,theHoldershallbeentitledtoelectbywrittennoticetotheCompanyatanytimeonorbeforeitsreceiptofsuchcertificateorcertificates,torescindsuchConversion,inwhicheventtheCompanyshallpromptlyreturn tothe Holderany originalNotedelivered totheCompany andtheHolder shallpromptlyreturntotheCompanytheCommonStockcertificatesissuedtosuchHolderpursuanttotherescindedConversionNotice.
(iv) PartialLiquidatedDamages.IftheCompanyfailsforanyreasontodelivertotheHoldersuchcertificateorcertificatespursuanttoSection4(c)(ii)bytheShareDeliveryDate,theCompany shall paytotheHolder,incash, asliquidateddamagesandnot asapenalty,foreach$1,000 ofprincipalamountbeingconverted,$10perTradingDay(increasingto$20perTradingDayonthetenthTradingDayaftersuchConversionDate)foreachTradingDayaftersuchShareDeliveryDateuntilsuchcertificatesaredeliveredorHolderrescindssuchconversion.NothinghereinshalllimitaHolder’srighttopursueactualdamagesordeclareanEventofDefaultpursuant toSection7hereoffortheCompany’sfailuretodeliverConversionSharesor,ifapplicable,cash,withintheperiodspecifiedhereinandtheHoldershallhavetherighttopursueallremediesavailabletoithereunder,atLaworinequityincluding,withoutlimitation,adecreeofspecificperformanceand/orinjunctiverelief.TheexerciseofanysuchrightsshallnotprohibittheHolderfromseekingtoenforcedamagespursuanttoanyotherSectionhereoforunderapplicableLaw.
(v) CompensationforBuy-InonFailuretoTimelyDeliverCertificatesUponConversion.InadditiontoanyotherrightsavailabletotheHolder,iftheCompanyfailsforanyreasontodelivertotheHoldersuchcertificateorcertificatesbytheShareDeliveryDatepursuanttoSection4(c)(ii),andifaftersuchShareDeliveryDatetheHolderisrequiredbyitsbrokeragefirmtopurchase(inanopenmarkettransactionorotherwise),ortheHolder’sbrokeragefirmotherwisepurchases,sharesofCommonStocktodeliverinsatisfactionofasalebytheHolderoftheConversionShareswhichtheHolderwasentitledtoreceiveupontheconversionrelatingtosuchShareDeliveryDate(a“Buy-In”),thentheCompanyshall(A)payincashtotheHolder(inadditiontoanyotherremediesavailabletoor
electedbytheHolder)theamount,ifany,bywhich(x)theHolder’stotalpurchaseprice(includinganybrokeragecommissions)fortheCommonStocksopurchasedexceeds(y)theproductof(1)theaggregatenumberofsharesofCommonStockthattheHolderwasentitledtoreceivefromtheconversionatissuemultipliedby(2)theactualsalepriceatwhichthesellordergivingrisetosuchpurchaseobligationwasexecuted(includinganybrokeragecommissions)and(B)attheoptionoftheHolder,eitherreissue(ifsurrendered)thisNoteinaprincipalamountequaltotheprincipalamountoftheattemptedconversion(inwhichcasesuchconversionshallbedeemedrescinded)ordelivertotheHolderthenumberofsharesofCommonStockthatwouldhavebeenissuediftheCompanyhadtimelycompliedwithitsdeliveryrequirementsunderSection4(c)(ii).Forexample,iftheHolderpurchasesCommonStockhavingatotalpurchasepriceof$11,000tocoveraBuy-InwithrespecttoanattemptedconversionofthisNotewithrespecttowhichtheactualsalepriceoftheConversionShares(includinganybrokeragecommissions)givingrisetosuchpurchaseobligationwasatotalof$10,000underclause(A)oftheimmediatelyprecedingsentence,theCompanyshallberequiredtopaytheHolder$1,000.TheHoldershallprovidetheCompanywrittennoticeindicatingtheamountspayabletotheHolderinrespectoftheBuy-Inandevidenceoftheamountofsuchloss.NothinghereinshalllimitaHolder’srighttopursueanyotherremediesavailabletoithereunder,atLaworinequityincluding,withoutlimitation,adecreeofspecificperformanceand/orinjunctivereliefwithrespecttotheCompany’sfailuretotimelydelivercertificatesrepresentingsharesofCommonStockuponconversionofthisNoteasrequiredpursuanttothetermshereof.
(vi) ReservationofSharesIssuableUponConversion.TheCompanycovenantsthatitwillreserveandkeepavailableoutofitsauthorizedandunissuedsharesofCommonStockforthepurposeofissuancesuponconversionofthisNoteandtheissuedwiththisNote,freefrompreemptiverightsoranyotheractualcontingentpurchaserightsofPersonsotherthantheHolder(andtheotherholdersoftheNotes),notlessthan300%oftheRequiredMinimum;andifatanytimethenumberofauthorizedbutunissuedsharesofCommonStockshallbeinsufficienttoeffecttheconversionofthisnoteorshallbelessthantheRequiredMinimum,theCompanyshalltakesuchcorporateactionasmay,intheopinionofitscounsel,benecessarytoincreaseitsauthorizedbutunissuedsharesofCommonStocktosuchnumberofsharesasshallbesufficientforsuchpurpose.TheCompanycovenantsthatallsharesofCommonStockthatshallbe issuableuponconversionof thisNoteshall,uponissue, bedulyauthorized,validlyissued,fullypaidandnonassessable.
(vii) FractionalShares.NofractionalsharesorscriprepresentingfractionalsharesshallbeissuedupontheconversionofthisNote.AstoanyfractionofasharewhichtheHolderwouldotherwisebeentitledtopurchaseuponsuchconversion,theCompanyshallatitselection,eitherpayacashadjustmentinrespectofsuchfinalfractioninanamountequaltosuchfractionmultipliedbytheConversionPriceorrounduptothenextwholeshare.
(viii) TransferTaxesandExpenses.TheissuanceofcertificatesforsharesoftheCommonStockonconversionofthisNoteshallbemadewithoutchargetotheHolderhereofforanydocumentarystamporsimilartaxesthatmaybepayableinrespectoftheissueordeliveryofsuchcertificates,providedthat,theCompanyshallnotberequiredtopayanytaxthatmaybepayableinrespectof anytransferinvolvedin theissuanceand deliveryofanysuchcertificateuponconversioninanameotherthanthatoftheHolderofthisNotesoconvertedandtheCompanyshallnotberequiredtoissueordeliversuchcertificatesunlessoruntilthePersonorPersonsrequestingtheissuancethereofshallhavepaidtotheCompanytheamountofsuchtaxorshallhaveestablishedtothesatisfactionoftheCompanythatsuchtax hasbeen paid.The CompanyshallpayallTransfer Agentfeesrequiredforsame-dayprocessingofanyNoticeofConversionandallfeestotheDepositoryTrustCompany(oranotherestablishedclearingcorporationperformingsimilarfunctions)requiredforsame-dayelectronicdeliveryoftheConversionShares.
(d) Holder’sConversionLimitations.TheCompanyshallnoteffectanyconversionofthisNote,andaHoldershallnothavetherighttoconvertanyportionofthisNote,totheextentthataftergivingeffecttotheconversionsetforthontheapplicableNoticeofConversion,theHolder(togetherwiththeHolder’sAffiliates,andanyPersonsactingasagrouptogetherwiththeHolderoranyoftheHolder’sAffiliates)wouldbeneficiallyowninexcessoftheBeneficialOwnershipLimitation(asdefinedbelow).Forpurposesoftheforegoingsentence,thenumberofsharesofCommonStockbeneficiallyownedbytheHolderanditsAffiliatesshallincludethenumberofsharesofCommonStockissuableuponconversionofthisNotewithrespecttowhichsuchdeterminationisbeingmade,butshallexcludethenumberofsharesofCommonStockwhichareissuableupon(i)conversionoftheremaining,unconvertedprincipalamountofthisNotebeneficiallyownedbytheHolderoranyofitsAffiliatesand(ii)exerciseorconversionoftheunexercisedorunconverted portionofanyothersecuritiesoftheCompanysubjecttoalimitationonconversionorexerciseanalogoustothelimitationcontainedherein(including,withoutlimitation,anyotherNotesortheWarrants)beneficiallyownedbytheHolderoranyofitsAffiliates.Exceptassetforthintheprecedingsentence,forpurposesofthisSection4(d),beneficialownershipshallbecalculatedinaccordancewithSection13(d)oftheExchangeActandtherulesandregulationspromulgatedthereunder.TotheextentthatthelimitationcontainedinthisSection4(d)applies,thedeterminationofwhetherthisNoteisconvertible(inrelationtoothersecuritiesownedbytheHoldertogetherwithanyAffiliates)andofwhichprincipalamountofthisNoteisconvertibleshallbeinthesolediscretionoftheHolder,andthesubmissionofaNoticeofConversionshallbedeemedtobetheHolder’sdeterminationofwhetherthis Notemaybeconverted(inrelationtoothersecuritiesownedbytheHoldertogetherwith anyAffiliates)and whichprincipalamountof thisNote is convertible,ineachcasesubjecttotheBeneficialOwnershipLimitation.Toensurecompliancewiththisrestriction,theHolderwillbedeemedtorepresenttotheCompanyeachtimeitdeliversaNoticeofConversionthatsuchNoticeofConversionhasnotviolatedtherestrictionssetforthinthisparagraphandtheCompanyshallhavenoobligationto verify or confirmtheaccuracy of such determination.In addition,a determination asto anygroupstatusascontemplatedaboveshallbedeterminedinaccordancewithSection13(d)oftheExchangeActandtherulesandregulationspromulgatedthereunder.ForpurposesofthisSection4(d),indeterminingthenumberofoutstandingsharesofCommonStock,theHoldermayrelyonthenumberofoutstandingsharesofCommonStockasstatedinthemostrecentofthefollowing:(i)theCompany’smostrecentperiodicorannualreportfiledwiththeSEC,asthecasemaybe,(ii)amorerecentpublicannouncementbytheCompany,or(iii)amorerecentwrittennoticebytheCompanyortheCompany’stransferagentsetting forth thenumberofshares ofCommonStock outstanding.Upon thewritten or oralrequestofaHolder,theCompanyshallwithintwoTradingDaysconfirmorallyandinwritingtotheHolderthenumberof shares ofCommonStock thenoutstanding.In anycase,the number ofoutstandingsharesofCommonStockshallbedeterminedaftergivingeffecttotheconversionorexerciseofsecuritiesoftheCompany,includingthisNote,bytheHolderoritsAffiliatessincethedateasofwhichsuchnumberofoutstandingsharesofCommonStockwasreported.The“BeneficialOwnershipLimitation”shallbe4.99%ofthenumberofsharesoftheCommonStockoutstandingimmediatelyaftergivingeffecttotheissuanceofsharesofCommonStockissuableuponconversionofthisNoteheldbytheHolder.TheHolder,upon notlessthan61 days’ priornotice tothe Company,may increasethe BeneficialOwnershipLimitationprovisionsofthisSection4(d)solelywithrespecttotheHolder’sNote,providedthattheBeneficialOwnershipLimitationinnoeventexceeds9.99%ofthenumberofsharesofCommonStockoutstanding immediatelyafter givingeffect totheissuanceofsharesofCommonStockuponconversionofthisNoteheldbytheHolderandtheprovisionsofthisSection4(d)shallcontinuetoapply.Anysuchincreaseordecreasewillnotbeeffectiveuntilthe61stdayaftersuchnoticeisdeliveredtotheCompany.TheHoldermayalsodecreasetheBeneficialOwnershipLimitationprovisionsofthisSection4(d)solelywithrespecttotheHolder’sNoteatanytime,whichdecreaseshallbeeffectivelyimmediatelyupondeliveryofnoticetotheCompany.TheBeneficialOwnershipLimitationprovisionsofthisparagraphshallbeconstruedandimplementedinamannerotherwisethaninstrictconformitywiththetermsofthisSection4(d)tocorrectthisparagraph(oranyportionhereof)whichmaybedefectiveorinconsistentwiththeintendedBeneficialOwnershipLimitationcontainedhereinortomakechangesorsupplements
necessaryordesirabletoproperlygiveeffecttosuchlimitation.ThelimitationscontainedinthisparagraphshallapplytoasuccessorholderofthisNote.
Section5.Certain Adjustments.
(a) StockDividendsandStockSplits.IftheCompany,atanytimewhilethisNoteisoutstanding:(i)paysastockdividendorotherwisemakesadistributionordistributionspayableinsharesofCommonStockonsharesofCommonStockoranyCommonStockEquivalents(which,foravoidanceofdoubt,shallnotincludeanysharesofCommonStockissuedbytheCompanyuponconversionof,orpaymentofintereston,theNotesorpursuanttoanyoftheotherTransaction Documents),(ii)subdividesoutstanding shares ofCommonStock intoalargernumberofshares, (iii) combines (includingby wayofareversestocksplit) outstanding sharesofCommonStockintoasmaller number ofsharesor(iv)issues,intheeventofareclassificationofsharesoftheCommonStock,anysharesofcapitalstockoftheCompany,thentheConversionPriceshallbemultipliedbyafractionofwhichthenumeratorshallbethenumberofsharesofCommonStock(excludinganytreasurysharesoftheCompany)outstandingimmediatelybefore suchevent,andofwhich the denominator shallbe thenumberof sharesofCommonStockoutstandingimmediatelyaftersuchevent.AnyadjustmentmadepursuanttothisSectionshallbecomeeffectiveimmediatelyaftertherecorddateforthedeterminationofshareholdersentitledtoreceivesuchdividendordistributionandshallbecomeeffectiveimmediatelyaftertheeffectivedateinthecaseofasubdivision,combinationorre-classification.
(b) Subsequent EquitySales. If, at anytime, for solongasthe Noteoranyamountsaccruedandpayablethereunderremainoutstanding,theCompanyoranySubsidiary,asapplicable,sellsorgrantsanyoptiontopurchaseorsellsorgrantsanyrighttoreprice,orotherwisedisposesoforissues,anyCommonStockorCommonStockEquivalentsentitlinganyPersontoacquiresharesofCommonStockataneffectivepricepersharethatislowerthantheConversionPricethenineffect(suchlowerprice,the“BaseConversionPrice”andeachsuchissuancea“DilutiveIssuance”),thentheConversionPriceshallbeimmediatelyreducedtoequaltheBaseConversionPrice.
IftheholderofCommon StockorCommonStockEquivalentsoutstandingontheOriginalIssueDateorissuedthereaftershallatanytime,whetherbyoperationofpurchasepriceadjustments,resetprovisions,floatingconversion,exerciseorexchangepricesorotherwise,orduetowarrants,optionsorrightspersharewhichareissuedinconnectionwithsuchissuance,receiveorbeentitledtoreceivesharesofCommonStockataneffectivepricepersharethatislowerthantheConversionPricethenineffect,such issuanceshall be deemedto haveoccurred forless than the ConversionPriceonsuchdate andsuchissuanceshallbedeemedtobeaDilutiveIssuance.
IfafteranyDilutiveIssuanceofCommonStockEquivalents,thepricepershareforwhichsharesofCommon Stock maybe issuablethereafterisamendedoradjusted,andsuchpriceassoamendedshallbelessthantheConversionPriceineffectatthetimeofsuchamendmentoradjustment,thentheConversionPriceshallbeadjusteduponeachsuchissuanceoramendmentasprovidedinthisSection5(b).
IncaseanyCommonStockEquivalentisissuedinconnectionwiththeissueorsaleofothersecuritiesoftheCompany,togethercomprisingoneintegratedtransaction,(x)theCommonStockEquivalentswillbedeemedtohavebeenissuedfortheOptionValueofsuchCommonStockEquivalentsand(y)theothersecuritiesissuedorsoldinsuchintegratedtransactionshallbedeemedtohavebeenissuedorsoldforthedifferenceof(I)theaggregateconsiderationreceivedbytheCompanylessanyconsiderationpaidorpayablebytheCompanypursuanttothetermsofsuchothersecuritiesoftheCompany,less (II) theOption Value.Ifany sharesofCommonStock orCommonStock Equivalents areissued or sold or deemedtohavebeenissued or soldforcash,theamount of suchconsideration receivedbytheCompanywillbedeemedtobethenetamountreceivedbytheCompanytherefor.Ifanysharesof
CommonStockorCommonStockEquivalentsare issued orsold fora considerationother thancash,theamountofsuchconsiderationreceivedbytheCompanywillbethefairvalueofsuchconsideration,exceptwheresuchconsiderationconsistsofpubliclytradedsecurities,inwhichcasetheamountofconsiderationreceivedby theCompany willbethe VWAPof suchpublictraded securitieson the date ofreceipt.IfanysharesofCommonStockorCommonStockEquivalentsareissuedtotheownersofthenon-survivingentityinconnectionwithanymergerinwhichtheCompanyisthesurvivingentity,theamount ofconsiderationtherefor will bedeemedtobethefairvalueof suchportionof thenetassetsandbusinessofthenon-survivingentityasisattributabletosuchsharesofCommonStockorCommonStockEquivalents,asthecasemaybe.
IftheCompanyentersintoaVariableRateTransactiondespitetheprohibitionsetforthinthePurchaseAgreement,theCompanyshallbedeemedtohaveissuedCommonStockorCommonStockEquivalentsatthelowestpossibleconversionpriceatwhichsuchsecuritiesmaybeconvertedorexercisedunderthetermsofsuchVariableRateTransaction.
TheCompanyshallnotifytheHolderinwriting,nolaterthantheTradingDayfollowingtheissuanceofanyCommonStockorCommonStockEquivalentssubjecttothisSection5(b),indicatingthereintheapplicableissuanceprice,orapplicableresetprice,exchangeprice,conversionpriceandotherpricingterms(suchnotice,the“DilutiveIssuanceNotice”).Forpurposesofclarification,whetherornottheCompanyprovidesaDilutiveIssuanceNoticepursuanttothisSection5(b),upontheoccurrenceofanyDilutiveIssuance,theHolderisentitledtoreceiveanumberofConversionSharesbasedupontheBaseConversionPriceonorafterthedateofsuchDilutiveIssuance,regardlessofwhethertheHolderaccuratelyreferstotheBaseConversionPriceintheNoticeofConversion.
TheprovisionsofthisSection5(b)shallapplyeachtimeaDilutiveIssuanceoccursaftertheOriginalIssueDateforsolongastheNoteoranyamountsaccruedandpayablethereunderremainoutstanding,butanyadjustmentoftheConversionPricepursuanttothisSection5(b)shallbedownwardonly.
NotwithstandinganythinginthisSection5(b),noadjustmentwillbemadeunderthisSection5(b)inrespectofanExemptIssuance.
(c) SubsequentRightsOfferings.InadditiontoanyadjustmentspursuanttoSection5(a)above,ifatanytimetheCompanygrants,issuesorsellsanyCommonStock,CommonStockEquivalentsorrightstopurchasestock,warrants,securitiesorotherpropertyproratatotherecordholdersofanyclassofsharesofCommonStock(the“PurchaseRights”),thentheHolderwillbeentitledtoacquire,uponthetermsapplicabletosuchPurchaseRights,theaggregatePurchaseRightswhichtheHoldercouldhaveacquirediftheHolderhadheldthenumberofsharesofCommonStockacquirableuponcompleteconversionofthisNote(withoutregardtoanylimitationsonconversionhereof,includingwithoutlimitation,theBeneficialOwnershipLimitation)immediatelybeforethedateonwhicharecordistakenforthegrant,issuanceorsaleofsuchPurchaseRights,or,ifnosuchrecordistaken,thedateasofwhichtherecordholdersofsharesofCommonStockaretobedeterminedforthegrant,issueorsaleofsuchPurchaseRights(provided,however,totheextentthattheHolder’srighttoparticipateinanysuchPurchaseRightwouldresultintheHolderexceedingtheBeneficialOwnershipLimitation,thentheHoldershallnotbeentitledtoparticipateinsuchPurchaseRighttosuchextent(orinthebeneficialownershipofanysharesofCommonStockasaresultofsuchDistributiontosuchextent)).
(d) ProRataDistributions.DuringsuchtimeasthisNoteisoutstanding,iftheCompanyshalldeclareormakeanydividendorotherdistributionofitsassetsorrightsorwarrantstoacquireitsassets,orsubscribefororpurchaseanysecurityotherthanCommonStock,toholdersofsharesofCommonStock,bywayofreturnofcapitalorotherwise(including,withoutlimitation,anydistributionofcash,stockorothersecurities,propertyoroptionsbywayofadividend,spinoff,reclassification,
corporaterearrangement,schemeofarrangementorothersimilartransaction)(a“Distribution”),atanytimeaftertheissuanceofthisNote,then,ineachsuchcase,theHoldershallbeentitledtoparticipateinsuchDistributiontothesameextentthattheHolderwouldhaveparticipatedthereiniftheHolderhadheldthenumberofsharesofCommonStockacquirableuponcompleteconversionofthisNote(withoutregardtoanylimitationsonexercisehereof,includingwithoutlimitation,theBeneficialOwnershipLimitation)immediatelybeforethedateofwhicharecordistakenforsuchDistribution,or,ifnosuchrecordistaken, thedateasofwhichtherecordholdersofsharesofCommonStockaretobedeterminedfortheparticipationinsuchDistribution(provided,however,totheextentthattheHolder'srighttoparticipateinanysuchDistributionwouldresultintheHolderexceedingtheBeneficialOwnershipLimitationwithrespecttotheCompanyoranyotherpublicly-tradedcorporationsubjecttoSection13(d)oftheExchangeAct,thentheHoldershallnotbeentitledtoparticipateinsuchDistributiontosuchextent(orinthebeneficialownershipofanysharesofCommonStockasaresultofsuchDistributiontosuchextent)).)andtheportionofsuchDistributionshallbeheldinabeyanceforthebenefitoftheHolderuntilsuchtime,ifever,as itsrighttheretowouldnotresultintheHolderexceedingtheBeneficialOwnershipLimitationwithrespecttotheCompanyoranyotherpublicly-tradedcorporationsubjecttoSection13(d)oftheExchangeAct).).
(e) FundamentalTransaction.If,atanytimewhilethisNoteisoutstanding,(i)theCompany,directlyorindirectly,inoneormorerelatedtransactionseffectsanymergerorconsolidationoftheCompanywithorintoanotherPerson,(ii)theCompany,directlyorindirectly,effectsanysale,lease,license,assignment,transfer,conveyanceorotherdispositionofallorsubstantiallyallofitsassetsinoneoraseriesofrelatedtransactions,(iii)any,directorindirect,purchaseoffer,tenderofferorexchangeoffer(whetherbytheCompanyoranotherPerson)iscompletedpursuanttowhichholdersofCommonStockarepermittedtosell,tenderorexchangetheirsharesforothersecurities,cashorpropertyandhasbeenacceptedbytheholdersof50%ormoreoftheoutstandingCommonStock,(iv)theCompany,directlyorindirectly,inoneormorerelatedtransactionseffectsanyreclassification,reorganizationorrecapitalizationoftheCommonStockoranycompulsoryshareexchangepursuanttowhichtheCommonStockiseffectivelyconvertedintoorexchangedforothersecurities,cashorproperty,(v)theCompany,directlyorindirectly,inoneormorerelatedtransactionsconsummatesastockorsharepurchaseagreementorotherbusinesscombination(including,withoutlimitation,areorganization,recapitalization,spin-offorschemeofarrangement)withanotherPersonwherebysuchotherPersonacquiresmorethan50%oftheoutstandingsharesofCommonStock(notincludinganysharesofCommonStockheldbytheotherPersonorotherPersonsmakingorpartyto,orassociatedoraffiliatedwiththeotherPersonsmakingorpartyto,suchstockorsharepurchaseagreementorotherbusinesscombination)(eacha“FundamentalTransaction”),then,uponanysubsequentconversionofthisNote,theHoldershallhavetherighttoreceive,foreachConversionSharethatwouldhavebeenissuableuponsuchconversionimmediatelypriortotheoccurrenceofsuchFundamentalTransaction(withoutregardtoanylimitationontheconversionofthisNote),thenumberofsharesofCommonStockofthesuccessororacquiringcorporationoroftheCompany,ifitisthesurvivingcorporation,andanyadditionalconsideration(the“AlternateConsideration”)receivableasaresultofsuchFundamentalTransactionbyaholderofthenumberofsharesofCommonStockforwhichthisNoteisconvertibleimmediatelypriortosuchFundamental Transaction(withoutregardto anylimitationonthe conversionof thisNote).Forpurposesofanysuchconversion,thedeterminationoftheConversionPriceshallbeappropriatelyadjustedtoapplytosuchAlternateConsiderationbasedontheamountofAlternateConsiderationissuableinrespectofone
(1)shareofCommonStockinsuchFundamentalTransaction,andtheCompanyshallapportiontheConversionPrice among theAlternate Considerationin areasonablemanner reflecting therelativevalueofanydifferentcomponentsoftheAlternateConsideration.IfholdersofCommonStockaregivenanychoiceastothesecurities, cash orpropertytobe receivedina Fundamental Transaction,thenthe HoldershallbegiventhesamechoiceastotheAlternateConsiderationitreceivesuponanyconversionofthisNotefollowingsuchFundamentalTransaction. Notwithstandinganythingtothecontrary, intheeventofaFundamentalTransactionthatis(1)anallcashtransaction,(2)a“Rule13e-3transaction”asdefinedin
Rule13e-3undertheExchangeAct,or(3)aFundamentalTransactioninvolvingapersonorentitynottradedonaTradingMarket,theCompanyoranySuccessorEntity(asdefinedbelow)shall,attheHolder’soption,exercisableconcurrentlywiththeconsummationoftheFundamentalTransaction,purchasethis Notefrom the Holder bypaying to theHolder theproductof (a) thenumberof ConversionSharesissuableuponfullconversionofthisNote(withoutregardtoanylimitationonconversionofthisNote)and(b)thepositivedifferencebetweenthecashpersharepaidinsuchFundamentalTransactionminusthethenineffectConversionPrice.TheCompanyshallcauseanysuccessorentityinaFundamentalTransactioninwhichtheCompanyisnotthesurvivor(the“SuccessorEntity”)toassumeinwritingalloftheobligationsoftheCompanyunderthisNoteandtheotherTransactionDocumentsinaccordancewiththeprovisionsofthisSection 5(e)pursuanttowrittenagreementsinformandsubstancereasonablysatisfactorytotheHolderandapprovedbytheHolder(withoutunreasonabledelay)priortosuchFundamentalTransactionandshall, attheoptionoftheholderofthisNote,deliver totheHolder inexchangeforthisNoteasecurityoftheSuccessorEntityevidencedby a writteninstrumentsubstantiallysimilarinformandsubstancetothisNotewhichisconvertibleforacorrespondingnumberofsharesofcapitalstockofsuchSuccessorEntity(oritsparententity)equivalenttothesharesofCommonStockacquirableandreceivableuponconversionofthisNote(withoutregardtoanylimitationsontheconversionofthisNote)priortosuchFundamentalTransaction,andwithaconversionpricewhichappliestheConversionPricehereundertosuchsharesofcapitalstock(buttakingintoaccounttherelativevalueofthesharesofCommonStockpursuanttosuchFundamentalTransactionandthevalueofsuchsharesofcapitalstock,suchnumberofsharesofcapitalstockandsuchconversionpricebeingforthepurposeofprotectingtheeconomicvalueofthisNoteimmediatelypriortotheconsummationofsuchFundamentalTransaction),andwhichisreasonablysatisfactoryinformandsubstancetotheHolder.UpontheoccurrenceofanysuchFundamentalTransaction,theSuccessorEntityshallsucceedto,andbesubstitutedfor(sothatfromandafterthedateofsuchFundamentalTransaction,theprovisionsofthisNoteand theotherTransactionDocumentsreferringtothe“Company”shallreferinsteadtotheSuccessorEntity),andmayexerciseeveryrightandpoweroftheCompanyandshallassumealloftheobligationsoftheCompanyunderthisNoteandtheotherTransactionDocumentswiththesameeffectasifsuchSuccessorEntityhadbeennamedastheCompanyherein.NotwithstandinganythinginthisSection5(e),anExemptIssuanceshallnotbedeemedaFundamentalTransaction.
(f) Calculations.AllcalculationsunderthisSection5shallbemadetothenearestcentorthenearest1/100thofashare,asthecasemaybe.ForpurposesofthisSection5,thenumberofsharesofCommonStockdeemedtobeissuedandoutstandingasofagivendateshallbethesumofthenumberofsharesofCommonStock(excludinganytreasurysharesoftheCompany)issuedandoutstanding.
(i) AdjustmenttoConversionPrice.WhenevertheConversionPriceisadjustedpursuanttoanyprovisionofthisSection5,theCompanyshallpromptlydelivertoeachHolderanoticesettingforththeConversionPriceaftersuchadjustmentandsettingforthabriefstatementofthefactsrequiringsuchadjustment.
(ii) NoticetoAllowConversionbyHolder.If(A)theCompanyshalldeclareadividend(oranyotherdistributioninwhateverform)ontheCommonStock,(B)theCompanyshalldeclareaspecialnonrecurringcashdividendonoraredemptionoftheCommonStock,(C)theCompanyshallauthorizethegrantingtoallholdersoftheCommonStockofrightsorwarrantstosubscribefororpurchaseanysharesofcapitalstockofanyclassorof anyrights,(D)theapprovalofanyshareholdersoftheCompanyshallberequiredinconnectionwithanyreclassificationoftheCommonStock,anyconsolidationormergertowhichtheCompanyisaparty,anysaleortransferofallorsubstantiallyalloftheassetsoftheCompany,oranycompulsoryshareexchangewherebytheCommonStockisconvertedintoothersecurities,cashorpropertyor(E)theCompanyshallauthorizethevoluntaryorinvoluntarydissolution,liquidationorwindingupoftheaffairsoftheCompany,then,ineachcase,theCompany
shallcausetobefiledateachofficeoragencymaintainedforthepurposeofconversionofthisNote,andshallcausetobedeliveredtotheHolderatitslastaddressasitshallappearupontheNoteRegister,atleasttencalendardayspriortotheapplicablerecordoreffectivedatehereinafterspecified,anoticestating(x)thedateonwhicharecordistobetakenforthepurposeofsuchdividend,distribution,redemption,rightsorwarrants,orifarecordisnottobetaken,thedateasofwhichtheholdersoftheCommonStockofrecordtobeentitledtosuchdividend,distributions,redemption,rightsorwarrantsaretobedeterminedor(y)thedateonwhichsuchreclassification,consolidation,merger,sale,transferorshareexchangeisexpectedtobecomeeffectiveorclose,andthedateasofwhichitisexpectedthatholdersoftheCommonStockofrecordshallbeentitledtoexchangetheirsharesoftheCommonStockforsecurities,cashorotherpropertydeliverableuponsuchreclassification,consolidation,merger,sale,transferorshareexchange,providedthatthefailuretodeliversuchnoticeoranydefectthereinorinthedeliverythereofshallnotaffectthevalidityofthecorporateactionrequiredtobespecifiedinsuchnotice.Totheextentthatanynoticeprovidedhereunderconstitutes,orcontains,material,non-publicinformationregardingtheCompanyoranyoftheSubsidiaries(asdeterminedingoodfaithbytheCompany),theCompanyoritssuccessorshallsimultaneouslyfilesuchnoticewiththeSECpursuanttoaCurrentReportonForm8-K.TheHoldershallremainentitledtoconvertthisNoteduringthe20-dayperiodcommencingonthedateofsuchnoticethroughtheeffectivedateoftheeventtriggeringsuchnoticeexceptasmayotherwisebeexpresslysetforthherein.
Section6.NegativeCovenants.Aslong asany portionof thisNoteremainsoutstanding,unless theholdersofamajorityinprincipalamountofthethenoutstandingNotesshallhaveotherwisegivenpriorwrittenconsent,theCompanyshallnot,andshallnotpermitanyoftheSubsidiariesto,directlyorindirectly:
(a) otherthanPermittedIndebtedness,enterinto,create,incur,assume,guaranteeorsuffertoexistanyIndebtednessforborrowedmoneyofanykind,including,butnotlimitedto,aguarantee,onorwithrespecttoanyofitspropertyorassetsnowownedorhereafteracquiredoranyinterestthereinoranyincomeorprofitstherefrom;
(b) amenditscharterdocuments,including,withoutlimitation,itscertificateofincorporationandbylaws,inanymannerthatmateriallyandadverselyaffectsanyrightsoftheHolder;
(C) enterintoanytransactionwithanyAffiliateoftheCompanywhichwouldberequiredtobedisclosedinanypublicfilingwiththeSECassumingthattheCompanyissubjecttotheSecuritiesActortheExchangeAct,unlesssuchtransactionismadeonanarm’s-lengthbasisandexpresslyapprovedbyamajorityofthedisinteresteddirectorsoftheCompany(eveniflessthanaquorumotherwiserequiredforboardapproval);or
(d) enterintoanyagreementwithrespecttoanyoftheforegoing.Section7.EventsofDefault.
(a) “Event ofDefault” means, whereverused herein, anyofthefollowingevents (whateverthereasonforsucheventandwhethersucheventshallbevoluntaryorinvoluntaryoreffectedbyoperationofLaworpursuanttoanyjudgment,decreeororderofanycourt,oranyorder,ruleorregulationofanyadministrativeorgovernmentalbody):
(i) any default in the payment of (A) the principal amount ofany Noteor
(B)interest,latefees,liquidateddamagesandotheramountsowingtoaHolderonanyNote,asandwhenthesameshallbecomedueandpayable(whetheronaConversionDateortheMaturityDateorbyaccelerationorotherwise)whichdefault,solelyinthecaseofaninterestpaymentorotherdefaultunderclause(B)above,isnotcuredwithinthreeTradingDays;
(ii) theCompanyshallfailtoobserveorperformanyothercovenantoragreementcontainedintheNotes(otherthanabreachbytheCompanyofitsobligationstodeliversharesofCommonStocktotheHolderuponconversion,whichbreachisaddressedinclause(x)below)oranyTransactionDocumentwhichfailureisnotcured,ifpossibletocure,withintheearliertooccurof(A)3TradingDays afternoticeofsuchfailuresent bytheHolderorby any otherHoldertotheCompanyand
(B)5TradingDaysaftertheCompanyhasbecomeawareofsuchfailure;
(iii) Ifafterforth-five(45)daysfromthedatehereofwhiletheHolderownsanyRegistrableSecurities,theRegistrationStatementisnoteffectiveundertheSecuritieActregisteringtheRegistrableSecurities;
(iv) ifninety(90)days fromthedatehereof,whiletheHolderownsanyRegistrableSecurities,the RegistrationStatementis noteffective undertheSecurities Actregisteringthe RegistrableSecurities;
(v) anyrepresentationorwarrantymadeinthisNote,anyotherTransactionDocument,anywrittenstatementpursuantheretoortheretooranyotherreport,financialstatementorcertificatemadeordeliveredto theHolder oranyother Holderpursuanthereto orthereto shallbeuntrueorincorrectinanymaterialrespectasofthedatewhenmadeordeemedmade;
(vi) theCompanyoranySignificantSubsidiary(assuchtermisdefinedinRule1-02(w)ofRegulationS-X)shallbesubjecttoaBankruptcyEvent;
(vii) the Companyorany Subsidiary shalldefault on anyofits obligations under any,mortgage,creditagreementorotherfacility,indentureagreement,factoringagreementorotherinstrumentunderwhichtheremaybeissued,orbywhichtheremaybesecuredorevidenced,anyindebtednessforborrowedmoney,includingdebenturesorpromissorynotesormoneydueunderanylongtermleasingorfactoringarrangementthat(a)involvesanobligationgreaterthan$5,000,whethersuchindebtednessnowexistsorshallhereafterbecreated,and(b)resultsinsuchindebtednessbecomingorbeingdeclareddueandpayablepriortothedateon whichitwouldotherwisebecomedueandpayableandsuchdefaultisnotcuredwithinthreeTradingDays;
(viii) theCommonStockshallnotbeeligiblefor listingorquotationfortradingonitsTradingMarketforaperiodlongerthan10TradingDays;
(ixi)theCompanyshallhaveconsummatedaChangeofControlTransactionor/Fundamental TransactionwithouttheLead Investorsconsentwithoutpaying infullall amountsowedundertheNoteatorpriortosuchconsummation;
(x) afinaljudgmentforthepaymentofmoneyaggregatinginexcessof$50,000isrenderedagainsttheCompanyand/oranyofitsSubsidiariesandwhichjudgmentisnot,within45daysaftertheentrythereof,bonded, dischargedorstayedpendingappeal,orisnotdischargedwithin60daysaftertheexpirationofsuchstay;provided,however,anyjudgmentthatiscoveredbyinsuranceoranindemnityfromacredit-worthypartywillnotbeincludedincalculatingtheamountofthejudgmentsolongastheCompanyprovidestheHolderawrittenstatementfromsuchinsurerorindemnityprovider(whichwrittenstatementshallbereasonablysatisfactorytotheHolder)totheeffectthatsuchjudgmentiscoveredbyinsuranceoranindemnityandtheCompanyorsuchSubsidiary(asthecasemaybe)willreceivetheproceedsofsuchinsuranceorindemnitywithin30daysoftheissuanceofsuchjudgment.
(xi) the Companyshallprovide at anytimenoticetotheHolder,includingbywayofpublicannouncement,oftheCompany’sintentiontonothonorrequestsforconversionsofanyNotesinaccordancewiththetermshereofortheCompanydoesnothonorarequestforconversionofanyNotesasrequiredbytheNotes
| (xii) | theCompanyshallbeinbreachofanymaterialcontractoragreement. |
(b) RemediesUponEventofDefault.IfanyEventofDefaultoccurs,theoutstandingprincipalamountofthisNote,plusaccruedbutunpaidinterest,liquidateddamagesandotheramountsowinginrespectthereofthroughthedateofacceleration,shallbecome,at theHolder’selection,immediatelydue andpayableincash at theMandatoryDefaultAmount.Uponthepaymentinfull oftheMandatoryDefaultAmount,theHoldershallpromptlysurrenderthisNotetoorasdirectedbytheCompany.Inconnectionwithsuchaccelerationdescribedherein,theHolderneednotprovide,andtheCompanyherebywaives,anypresentment,demand,protestorothernoticeofanykind,andtheHoldermayimmediatelyandwithoutexpirationofanygraceperiodenforceanyandallofitsrightsandremedieshereunderandallotherremediesavailabletoitunderapplicableLaw.SuchaccelerationmayberescindedandannulledbyHolderatanytimepriortopaymenthereunderandtheHoldershallhaveallrightsasaholderoftheNoteuntilsuchtime,ifany,astheHolderreceivesfullpaymentpursuanttothisSection7(b).NosuchrescissionorannulmentshallaffectanysubsequentEventofDefaultorimpairanyrightconsequentthereon.
(c) InterestRateUponEventofDefault.CommencingontheoccurrenceofanyEventofDefaultanduntilsuchEventofDefaultiscured,thisNoteshallaccrueinterestataninterestrateequaltotheDefaultInterestRate.
Section8.Miscellaneous.
(a) NoRightsas StockholderUntilConversion.This Note doesnotentitlethe Holderto anyvotingrights,dividendsorotherrightsasastockholderoftheCompanypriortotheconversionhereofotherthanasexplicitlysetforthinSection4.
(b) Notices.Allnotices,offers,acceptanceandanyotheractsunderthisAgreement(exceptpayment)shallbeinwriting,andshallbesufficientlygivenifdeliveredtotheaddresseesinperson,byFederalExpressorsimilarreceiptednextbusinessdaydelivery,asfollows:
IftotheCompany: MaxSoundCorporation.
2902AColoradoAvenue,SantaMonica, CA 90904
IftoHolder:
BellridgeCapitalLP.
515 E.LasOlasBoulevard, Suite 120AFortLauderdale,Florida33301,
ortosuchotheraddressasanyofthem,bynoticetotheothermaydesignatefromtimetotime.
Timeshallbecountedto,orfrom,asthecasemaybe,thedateofdelivery.
(c) AbsoluteObligation.Exceptasexpresslyprovidedherein,noprovisionofthisNoteshallalterorimpairtheobligationoftheCompany,whichisabsoluteandunconditional,topaytheprincipalof,liquidateddamagesandaccruedinterestandlatefees,asapplicable,onthisNoteatthetime,place,andrate,andinthecoinorcurrency,hereinprescribed.ThisNoteisadirectdebtobligationoftheCompany.ThisNoteranksparipassuwithallotherNotesnoworhereafterissuedunderthePurchaseAgreement.
(d) LostorMutilatedNote.IfthisNoteshallbemutilated,lost,stolenordestroyed,theCompanyshallexecuteanddeliver,inexchangeandsubstitutionforanduponcancellationofamutilatedNote,orinlieuoforinsubstitutionforalost,stolenordestroyedNote,anewNotefortheprincipalamountofthisNotesomutilated,lost,stolenordestroyed,butonlyuponreceiptofevidenceofsuchloss,theftordestructionofsuchNote,andoftheownershiphereof,reasonablysatisfactorytotheCompany.TheapplicantforanewNoteundersuchcircumstancesshallalsopayanyreasonablethird-partycosts(includingcustomaryindemnity)associatedwiththeissuanceofthenewNote.
(e) ExclusiveJurisdiction;GoverningLaw.Allquestionsconcerningtheconstruction,validity, enforcementandinterpretationofthisNoteshallbegovernedbyandconstruedandenforcedinaccordancewiththeinternallawsoftheStateofNewYork,withoutregardtotheprinciplesofconflictoflawsthereof.Eachparty agrees thatalllegalproceedings concerning the interpretation,enforcementanddefenseofthetransactionscontemplatedbyanyoftheTransactionDocuments(whetherbroughtagainstapartyheretooritsrespectiveAffiliates,directors,officers,shareholders,employeesoragents)shallonlybecommencedinthestateandfederalcourtssittinginNewYork,NewYork(the“NewYorkCourts”).EachpartyheretoherebyirrevocablysubmitstotheexclusivejurisdictionoftheNewYorkCourtsfortheadjudicationofanydisputehereunderorinconnectionherewithorwithanytransactioncontemplatedherebyordiscussedherein(includingwithrespecttotheenforcementofanyoftheTransactionDocuments),andherebyirrevocablywaives,andagreesnottoassertinanysuit,actionorproceeding,anyclaimthatitisnotpersonallysubjecttothejurisdictionofsuchNewYorkCourts,orsuchNewYorkCourtsareimproperorinconvenientvenueforsuchproceeding.Eachpartyherebyirrevocablywaivespersonalserviceofprocessandconsentstoprocessbeingservedinanysuchsuit,actionorproceedingbymailingacopythereofviaregisteredorcertifiedmailorovernightdelivery(withevidenceofdelivery)tosuchpartyattheaddressineffectfornoticestoitunderthisNoteandagreesthatsuchserviceshallconstitutegoodandsufficientserviceofprocessandnoticethereof.NothingcontainedhereinshallbedeemedtolimitinanywayanyrighttoserveprocessinanyothermannerpermittedbyapplicableLaw.Eachpartyheretoherebyirrevocablywaives,tothefullestextentpermittedbyapplicableLaw,anyandallrighttotrialbyjuryinanylegalproceedingarisingoutoforrelatingtothisNoteorthetransactionscontemplatedhereby.
(f) Waiver.AnywaiverbytheCompanyortheHolderofabreachofanyprovisionofthisNoteshallnotoperateasorbeconstruedtobeawaiverofanyotherbreachofsuchprovisionorofanybreach of anyotherprovisionofthis Note. ThefailureoftheCompanyortheHoldertoinsistuponstrictadherencetoanytermofthisNoteononeormoreoccasionsshallnotbeconsideredawaiverordeprivethatpartyoftherightthereaftertoinsist uponstrict adherencetothat termoranyotherterm ofthis Noteonanyotheroccasion.AnywaiverbytheCompanyortheHoldermustbeinwriting.
(g) Severability.IfanyprovisionofthisNoteisinvalid,illegalorunenforceable,thebalanceofthisNoteshallremainineffect,aslongastheessentialtermsandconditionsofthisNoteforeachpartyremainvalid,binding,andenforceable.IfitshallbefoundthatanyinterestorotheramountdeemedinterestduehereunderviolatestheapplicableLawgoverningusury,theapplicablerateofinterestduehereundershallautomaticallybeloweredtoequalthemaximumrateofinterestpermittedunderapplicableLaw.
(h) Remedies,Characterizations,OtherObligations,BreachesandInjunctiveRelief.TheremediesprovidedinthisNoteshallbecumulativeandinadditiontoallotherremediesavailableunderthis Note and anyof the other TransactionDocumentsat Law or inequity(including adecree of specificperformanceand/orotherinjunctiverelief),andnothinghereinshalllimittheHolder’srighttopursueactualand consequentialdamages for any failure bythe Company to comply withtheterms ofthisNote.Amountssetforthorprovidedforhereinwithrespecttopayments,conversionandthelike(andthecomputationthereof)shallbetheamountstobereceivedbytheHolderandshallnot,exceptasexpresslyprovidedherein,besubjecttoanyotherobligationoftheCompany(ortheperformancethereof).The
CompanyacknowledgesthatabreachbyitofitsobligationshereunderwillcauseirreparableharmtotheHolderandthattheremedyatLawforanysuchbreachwouldbeinadequate.TheCompanythereforeagrees that, intheeventofany suchbreachorthreatened breach, theHolder shall beentitled, inadditiontoallotheravailableremedies,toaninjunctionrestraininganysuchbreachoranysuchthreatenedbreach,withoutthenecessityofshowingeconomiclossandwithoutanybondorothersecuritybeingrequired.TheCompanyshallprovideallinformationanddocumentationtotheHolderthatisreasonablyrequestedbytheHoldertoenabletheHoldertoconfirmtheCompany’scompliancewiththetermsandconditionsofthisNote.
(i) NextBusinessDay.WheneveranypaymentorotherobligationhereundershallbedueonadayotherthanaBusinessDay,suchpaymentshallbemadeonthenextsucceedingBusinessDay.
(SignaturePagesFollow)
INWITNESSWHEREOF,theCompanyhascausedthisNotetobedulyexecutedbyadulyauthorizedofficerasofthedatefirstaboveindicated.
MAXSOUNDCORPORATION.
|  By:Name: | JohnBlaisure |
Title:CEO
ANNEXANOTICEOFCONVERSION
Theundersignedherebyelectstoconvertprincipalunderthe8%ConvertibleNotedueJanuary5,2018issuedbyMaxSoundCorporation,aDelawarecorporation(the“Company”),intosharesofcommonstock(the“CommonStock”),oftheCompanyaccordingtotheconditionshereof,asofthedatewrittenbelow.IfsharesofCommonStockaretobeissuedinthenameofapersonotherthantheundersigned,theundersignedwillpayalltransfertaxespayablewithrespecttheretoandisdeliveringherewithsuchcertificatesandopinionsasreasonablyrequestedbytheCompanyinaccordancetherewith.Nofeewillbechargedtotheholderforanyconversion,exceptforsuchtransfertaxes,ifany.
BythedeliveryofthisNoticeofConversiontheundersignedrepresentsandwarrantstotheCompanythatitsownershipoftheCommonStockdoesnotexceedtheamountsspecifiedunderSection4ofthisNote,asdeterminedinaccordancewithSection13(d)oftheExchangeAct.
TheundersignedagreestocomplywiththeprospectusdeliveryrequirementsundertheapplicablesecuritieslawsinconnectionwithanytransferoftheaforesaidsharesofCommonStock.
Conversioncalculations:
DatetoEffectConversion:
PrincipalAmountofNotetobeConverted:PaymentofInterestinCommonStockyesno
If yes,$of Interest Accrued on AccountofConversionatIssue.
NumberofsharesofCommonStocktobeissued:
Signature:Name:
DWACInstructions:
BrokerNo:
AccountNo:
Schedule1CONVERSION SCHEDULE
The8%Convertible Note dueonJanuary5,2018in the originalprincipalamountof$147,000areissuedbyMaxSoundCorporation.,aDelawarecorporation.ThisConversionSchedulereflectsconversionsmadeunderSection4oftheabovereferencedNote
Dated:
DateofConversion(orforfirstentry,OriginalIssueDate) | AmountofConvertedPrincipal | AggregatePrincipalAmountRemainingSubsequenttoConversion (ororiginalPrincipalAmount) | ApplicableConversionPrice | CompanyAttest |
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