NEITHER THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY ISCONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE INRELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,ASAMENDED(THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN ATRANSACTIONNOTSUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND INACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY ALEGALOPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THIS SECURITY AND THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGEDINCONNECTION WITH ABONA FIDE MARGIN ACCOUNT OR OTHER LOAN SECUREDBYSUCH SECURITIES.
Original IssueDate: June 27, 2017
$268,000
8%CONVERTIBLE NOTE
THIS 8%CONVERTIBLE NOTE is one of a series of duly authorized and validly issued 8%Convertible Notes issued at a 8% original issue discount byMax Sound Corporation., aDelaware corporation (the“Company”) (this note, the“Note” and, collectivelywith the other notes of such series, the“Notes”).
FOR VALUE RECEIVED, theCompany promises to pay toBellridge Capital, LP its registered assigns (the“Holder”), or shall have paid pursuant to thetermshereunder, the principal sum of $268,000(“Original Principal Amount”) on June 27, 2018 (the“Maturity Date”) or such earlier date as thisNote is required orpermitted to be repaid as provided hereunder, and to pay interest to theHolder on the aggregate unconverted and then outstanding principalamount of thisNote in accordancewith the provisions hereof.This Note is subject to thefollowing additional provisions:
Section 1.Definitions.For the purposes hereof, (a) capitalizedterms nototherwise defined herein shall have themeanings set forth in thePurchase Agreement and (b) thefollowing terms shallhave thefollowing meanings:
“Alternate Consideration” shall have themeaning set forth in Section 5(e).
“Bankruptcy Event” means any of thefollowing events: (a) theCompany or anySignificant Subsidiary (as such term is defined inRule 1-02(w) ofRegulation S-X) thereofcommences a case or other proceeding under any bankruptcy, reorganization,arrangement, adjustmentof debt, reliefof debtors, dissolution, insolvency or liquidation orsimilar law of any jurisdiction relating to theCompany or anySignificant Subsidiary thereof, (b) there iscommenced against theCompany or anySignificant Subsidiary thereof any such case or proceeding that is notdismissed within 60 days aftercommencement,
(c) theCompany or anySignificant Subsidiary thereof is adjudicated insolvent or bankrupt or any order of relief or other order approving any such case or proceeding is entered, (d) theCompany orany Significant Subsidiary thereof suffers anyappointment of any custodian or the like for it or any substantial part of its property that is not discharged or stayedwithin 60 calendar days after suchappointment, (e) theCompany or anySignificant Subsidiary thereof makes a generalassignment forthe benefit of creditors, or (f) theCompany or anySignificant Subsidiary thereof, by any act or failure to act, expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action for the purpose of effecting any oftheforegoing.
“Base Conversion Price” shall have themeaning set forth in Section 5(b).“Beneficial Ownership Limitation” shall have themeaning set forth in Section 4(d).
“Business Day” means any day except anySaturday, anySunday, any day which is a federal legal holiday in theUnited States or any day onwhich banking institutions in theState ofNew York are authorized or required by law or othergovernmental action toclose.
“Buy-In” shall have themeaning set forth inSection 4(c)(v).
“Change ofControl Transaction” means the occurrence after the date hereof of any of (a) an acquisition after the date hereof by an individual or legal entity or “group” (as described inRule 13d- 5(b)(1) promulgated under theExchange Act) of effective control(whether through legal or beneficialownership of capital stock of theCompany, by contract orotherwise) of in excess of 50% of thevoting securities of theCompany (other than bymeans of conversion, exercise or exchange of theNotes or theSecurities issued togetherwith theNotes), (b) theCompany merges into or consolidateswith any otherPerson, or anyPerson merges into or consolidateswith theCompany and, after giving effect to such transaction, the shareholders of theCompany immediately prior to such transactionown less than 50% of the aggregate votingpower of theCompany or the successor entity of such transaction, (c) theCompany sells or transfers all or substantially all of its assets to anotherPerson and the shareholders of theCompany immediately prior to such transactionown less than 50% of the aggregate votingpower of the acquiring entityimmediately after the transaction, (d) areplacement at onetime orwithin a threeyear period ofmore than one-half of themembers of theBoard ofDirectors of theCompany (the“Board of Directors”) which is not approved by a majority of those individualswho aremembers of theBoard of Directors on the Original Issue Date (or by those individualswho are serving asmembers of theBoard of Directors on any datewhose nomination to theBoard of Directorswas approved by a majority of themembers of theBoard of Directorswho aremembers on the date hereof), or (e) the execution by theCompanyof anagreement towhichtheCompanyis a party or bywhichit is bound, providing for any of the events set forth in clauses (a) through (d)above.
“Conversion” shall have themeaning ascribed to such term in Section 4.“Conversion Date” shall have themeaning set forth inSection 4(a).“Conversion Price” shall have themeaning set forth in Section 4(b).
hereto.
“Conversion Schedule”means theConversion Schedule in the form ofSchedule 1attached
“Conversion Shares”means, collectively, the shares ofCommon Stock issuable upon conversion of thisNote in accordancewith theterms hereof.
“Default InterestRate” shall have themeaning set forth in Section 2(a).“Dilutive Issuance” shall have themeaning set forth in Section 5(b).“Dilutive IssuanceNotice” shall have themeaning set forth inSection 5(b).
“DWAC” means theDeposit orWithdrawal atCustodian system atThe Depository Trust Company.
“Event ofDefault” shall have themeaning set forth in Section 7(a).
“Mandatory Default Amount” means the sum of (a) 150% of the outstanding principalamount of this Note, plus 150% of accrued and unpaid interest hereon, and (b) all otheramounts, costs, expenses and liquidateddamages due in respect of this Note.
“New York Courts” shall have themeaning set forth in Section 8(e).“Note Register” shallmean the note registermaintained by theCompany. “Notice ofConversion” shall have themeaning set forth in Section4(a).
“Option Value” means the value of aCommon StockEquivalent based on theBlack Scholes Option Pricingmodel obtained from the"OV" function onBloomberg determined as of(A) the TradingDay prior to the publicannouncement of the issuance of the applicableCommon Stock Equivalent, if the issuance of suchCommon Stock Equivalent is publicly announced or(B) theTrading Day immediately following the issuance of the applicableCommon Stock Equivalent if the issuance of suchCommon Stock Equivalent is not publicly announced, for pricing purposes and reflecting (i) a risk-free interest rate corresponding to theU.S. Treasury rate for a period equal to theremaining term of the applicableCommon Stock Equivalent as of the applicable date ofdetermination, (ii) an expected volatility equal to the greater of 100% and the 100 day volatility obtained from theHVT function onBloomberg as of(A) theTrading Day immediately following the publicannouncement of the applicableCommon Stock Equivalent if the issuanceof suchCommon Stock Equivalent is publicly announced or(B) the TradingDay immediately following the issuance of the applicableCommon Stock Equivalent if the issuance of suchCommon Stock Equivalent is not publicly announced, (iii) the underlying price per share used in such calculation shall be the highestVWAP of theCommon Stock during the period beginning on the TradingDay prior to the execution of definitive documentation relating to the issuance of the applicableCommon Stock Equivalent and ending on(A) theTrading Day immediately following the publicannouncement of such issuance, if the issuance of suchCommon Stock Equivalent is publiclyannounced or(B) theTrading Day immediately following the issuance of the applicableCommon Stock Equivalent if the issuance of suchCommon Stock Equivalent is not publicly announced, (iv) a zero cost of borrow and (v) a 360 day annualization factor.
“Original IssueDate” means the date of the first issuance of theNotes, regardless of any transfers of anyNote and regardless of thenumber ofinstruments which may be issued to evidence suchNotes.
“Payment Date” shall have themeaning set forth in Section 2(b).
“Permitted Indebtedness”means (a) Indebtedness outstanding as of theOriginal IssueDate,
(b) the indebtedness evidenced by theNotes, and (c) capital lease obligations and purchasemoney indebtedness incurred in connection with the acquisition of machinery andequipment.
“PurchaseAgreement” means theSecurities Purchase Agreement, dated as of June 27, 2017among theCompany and the originalHolders, asamended, modified orsupplemented fromtime totime in accordancewith itsterms.
“Securities Act”means the SecuritiesAct of 1933, asamended, and the rules and regulations promulgated thereunder.
“ShareDelivery Date” shall have themeaning set forth in Section 4(c)(ii). “SuccessorEntity” shall have themeaning set forth in Section 5(e).
“Trading Market” means any of thefollowing markets or exchanges onwhich theCommon Stock is listed or quoted for trading on the date in question: theNYSE MKT, theNasdaq Capital Market, the NasdaqGlobalMarket,theNasdaq Global SelectMarket,theNew York StockExchange,or anymarket of theOTC Markets, Inc. (or any successors to any of the foregoing).
“VWAP” means, for any date, theprice determined by the first of thefollowing clauses that applies: (a) if theCommon Stock is then listed or quoted on aTrading Market, the dailyvolume weighted average price of theCommon Stock for such date (or the nearest preceding date) on theTrading Market onwhich theCommon Stock is then listed or quoted as reported byBloomberg L.P.(based on aTrading Day from 9:30 a.m.(New York City time) to 4:02 p.m.(New York City time)), (b) if theCommon Stock is not then listed or quoted for trading on theOTCQB orOTCQX and if prices for theCommon Stock are then reported by theOTC Pink marketplace published byOTC Markets, Inc. (or asimilar organization or agency succeeding to its functions of reporting prices), themost recent bid price per share of theCommon Stock so reported, or (c) in all other cases, the fairmarket value of a share ofCommon Stock asdetermined by an independent appraiser selected in good faith by theHolders of amajority in interestof theNotes then outstanding and reasonably acceptable to theCompany, the fees and expenses ofwhich shall be paid by theCompany.
Section 2.Interest; Payments.
(a) Interest. Interest shall accrue to the Holder on the aggregate unconverted and then outstanding principalamount of thisNote at the rate of eight percent(8%) perannum, calculated on the basis of a 365-day year and shall accrue dailycommencing on theOriginal IssueDate untilpayment in full of the outstanding principal (or conversion to the extent applicable), together with allaccrued and unpaid interest, liquidateddamages and otheramounts which may become due hereunder, has beenmade. Following anEvent ofDefault, until suchEvent ofDefault has been cured, interest shall accrue at the lesser of (i) the rate of 24% perannum, or (ii) themaximum amount permitted by law (the lesser ofclause
(i) or (ii), the“Default InterestRate”). In the event that suchEvent ofDefault is subsequently cured, theadjustment referred to in the preceding sentence shall cease to be effective as of the calendar dayimmediately following the date of such cure; provided that the interest as calculated and unpaid at the Default Interest Rate during the continuance of suchEvent of Default shall continue to apply to the extent relating to the days after the occurrence of suchEvent ofDefault through and including the date of such cure of suchEvent ofDefault.
(b) Payments. Interest payments are due and payable on the Maturity Date, except asotherwise set forth in thisNote. If anyPayment Date is not aBusiness Day, then the applicablepayment shall be due on the next succeedingBusiness Day. Each Monthly Payment shall be equal to all accrued but unpaid interest.The Company shall pay interest to theHolder o n the aggregate unconvertedand then outstanding principalamount of thisNote on theMaturity Date (the“Payment Date”) except asotherwise set forth in thisNote. If anyPayment Date is not aBusiness Day, then the applicablepayment shall be due on the next succeedingBusiness Day. Each Monthly Payment shall be equal to all accrued but unpaidinterest.
| (c) | Payment in Cash. Allpayments shall bemade in cash on anyPayment Date. |
(d) Prepayment andRedemption. During the first six months this Note is in effect, theCompany may redeem thisNote by paying to theHolder anamount asfollows: (i) if theredemption is prior to the 30th day thisNote is in effect (including the 30th day), then for anamount equal to 110%of the unpaid principalamount of thisNote alongwith any interest that has accrued during that period; (ii) if theredemption is on the 31st day thisNote is in effect, up to and including the 60th day thisNote isin effect, then for anamount equal to 115% of the unpaid principalamount of thisNote alongwith any accrued interest; (iii) if theredemption is on the 61st day this Note is in effect, up to and including the
120th day thisNote is in effect, then for anamountequal to 135% of the unpaid principalamountof this Note along with any accrued interest; (iv) if theredemption is on the 121st day thisNote is in effect, up to and including the 180th day thisNote is in effect, then for anamount equal to 150% of the unpaid principalamount of thisNote alongwith any accrued interest.This Note may not beredeemed after the 180th day thisNote is in effect.The redemption must be closed and paid forwithin 3 business days ofthe Company sending theredemption demand or theredemption will be invalid and theCompany may not redeem thisNote. In the event theHolder has delivered aNotice ofConversion to theCompany prior to the receipt of aredemption notice from theCompany, theNotice ofConversion shallprevail.
Section 3.Registration ofTransfers andExchanges.
(a) Different Denominations. This Note is exchangeable for an equal aggregateprincipal amount ofNotes of different authorizeddenominations (of no less than $1,000 in principalamount), as requested by theHolder surrendering thesame. No service chargewill be payable for such registration of transfer or exchange.
(b) Investor Representations. This Note has been issued subject to certain investment representations of the originalHolder set forth in thePurchase Agreement andmay be transferred or exchanged only incompliance with thePurchase Agreement andapplicable federal and state securitieslaws and regulations.
(c) Reliance onNote Register. Prior to due presentment for transfer to theCompany of this Note, theCompany and any agent of theCompany may treat thePerson inwhose name this Note is duly registered on theNote Register as theowner hereof for the purpose of receivingpayment asherein provided and for all other purposes,whether or not thisNote is overdue, and neither theCompany nor any such agent shall be affected by notice to the contrary.
Section 4.Conversion.
(a)VoluntaryConversion. After the Original Issue Date until this Note is no longer outstanding, and provided that that the provisions ofRule 144 under theSecurities Act sopermit, this Note shall be convertible, in whole or in part, at anytime, and fromtimetotime, into shares ofCommon Stock at the option of theHolder. The Holder shall effect conversions by delivering to theCompany a Notice of Conversion, the form of which is attached hereto asAnnex A (each, a“Notice ofConversion”), specifying therein the principalamount of thisNote to be converted and the date onwhich such conversion shall be effected (such date, the“Conversion Date”). If noConversion Date is specified in a Notice of Conversion, the Conversion Date shall be the date that suchNotice ofConversion isdeemed delivered hereunder.No ink-originalNotice ofConversion shall be required, nor shall anymedallion guarantee (or other type of guarantee or notarization) of anyNotice ofConversion form be required.To effect conversions hereunder, theHolder shall not be required to physically surrender thisNote to theCompany unless the entire principalamount of thisNote, plus all accrued and unpaid interest thereon, has been so converted.Conversions hereunder shall have the effect oflowering the outstandingprincipal amount of thisNotein anamount equal to the applicable conversion.The Holderand theCompanyshall maintain records showing the principal amount(s) converted in each conversion, the date of each conversion, and theConversion Price in effect at thetime of each conversion.The Company may deliver an objection to anyNotice ofConversion within oneBusiness Day of delivery of suchNotice of Conversion. In the event of any dispute or discrepancy, the records of theHolder shall be controllingand determinative in the absence ofmanifesterror.The Holder, and any assignee by acceptance ofthis Note, acknowledge and agreethat, by reason ofthe provisions of thisparagraph, followingconversion of aportion ofthis Note, the unpaid and unconverted principal amount ofthis Note may be lessthan the amount stated onthe facehereof.
(b) Conversion Price. The “Conversion Price” in effect on any Conversion Datemeans, as of anyConversion Date or other date ofdetermination, shall be 65% of thelowest trading price forthe Company’s Common Stock during the tenTrading Days immediately preceding the delivery by the Holder of a Notice of Conversion, providedhowever and notwithstanding anything to thecontrary herein, during anEvent ofDefault theConversion Price in in effect on anyConversion Date means, as ofany Conversion Date or other date ofdetermination, shall be 55% of thelowest trading price for theCompany’s Common Stock during the tenTrading Days immediately preceding the delivery by the Holder of a Notice of Conversion.The applicable prices shall be as reported byBloomberg L.P. Notwithstanding the foregoing, in no event shall the Conversion Price be less then the par value of theCommon Stock.
| (c) | Mechanics ofConversion orPrepayment. |
(i) Conversion SharesIssuableUpon Conversion ofPrincipal Amount. The number ofConversion Sharesissuable upon a conversion hereunder shall bedeterminedby the quotient obtained by dividing (x) the outstanding principalamount of thisNote to be converted by (y) theConversion Price in effect at thetime of such conversion.
(ii) Delivery of CertificateUpon Conversion. Not later than three (3) TradingDays after eachConversion Date (the“Share Delivery Date”), theCompany shall deliver, or cause tobe delivered, to theHolder any certificate or certificates required to be delivered by theCompany under thisSection 4(c).
(iii) Failure toDeliver Certificates. If, in the case of any Notice of Conversion, such certificateor certificates are not delivered to or as directed by the applicableHolder by theShare Delivery Date, the Holder shall be entitled to elect by written notice to theCompany at any time on or before its receipt of such certificate or certificates, to rescind suchConversion, inwhich event theCompany shall promptly return to theHolder any originalNote delivered to theCompany and theHolder shallpromptly return to theCompany theCommon Stock certificates issued to suchHolder pursuant to the rescindedConversion Notice.
(iv) Partial Liquidated Damages. If theCompany fails for any reason to deliver to the Holder such certificate or certificates pursuant to Section 4(c)(ii) by theShare Delivery Date, theCompany shall pay to theHolder, in cash, as liquidateddamagesand not as a penalty, for each $1,000 of principalamount being converted, $10 perTrading Day (increasing to $20 perTrading Day on the tenth TradingDay after such Conversion Date) for each TradingDay after such Share Delivery Date until such certificates are delivered orHolder rescinds such conversion.Nothing herein shalllimit aHolder’s right to pursue actualdamages or declare anEvent ofDefault pursuant toSection 7 hereof for theCompany’s failure to deliver Conversion Shares or, ifapplicable, cash,within the period specified herein andthe Holder shall have the right to pursue all remedies available to it hereunder, atLaw or in equity including, without limitation, a decree of specificperformance and/or injunctive relief.The exercise of anysuch rights shall not prohibit theHolder from seeking to enforcedamages pursuant to any otherSection hereof or under applicableLaw.
(v) Compensation forBuy-In onFailure toTimely Deliver Certificates Upon Conversion. In addition to any other rights available to theHolder, if theCompany fails for any reason to deliver to theHolder such certificate or certificates by theShare Delivery Date pursuant toSection 4(c)(ii), and if after suchShare Delivery Date theHolder is required by its brokerage firm to purchase (in an openmarket transaction orotherwise), or theHolder’s brokerage firmotherwise purchases, shares ofCommon Stock to deliver in satisfaction of a sale by theHolder of theConversion Shares which the Holderwas entitled toreceive upon the conversion relating to suchShare Delivery Date (a“Buy-In”), then theCompany shall(A) pay in cash to the Holder (in addition to any otherremedies available toor
elected by theHolder) theamount, if any, bywhich (x) theHolder’s total purchase price (includingany brokeragecommissions) for theCommon Stock so purchased exceeds (y) the product of (1) the aggregatenumber of shares ofCommon Stock that theHolder was entitled to receive from the conversion atissue multiplied by (2) the actual sale price atwhich the sell order giving rise to such purchase obligationwas executed (including any brokeragecommissions) and(B) at the option of theHolder, either reissue (if surrendered) thisNote in a principalamount equal to the principalamount of theattempted conversion (in which case such conversion shall bedeemed rescinded) or deliver to the Holder thenumber of shares ofCommon Stock thatwould have been issued if theCompany hadtimely complied with its delivery requirements under Section 4(c)(ii). For example, if the Holder purchasesCommon Stock having a total purchase price of $11,000 to cover aBuy-In with respect to anattempted conversion of thisNote with respect towhich the actual sale price of theConversion Shares (including any brokeragecommissions) giving rise to such purchase obligationwas a total of $10,000 under clause(A) of theimmediately preceding sentence, theCompany shall be required to pay theHolder $1,000.The Holder shallprovide theCompany written notice indicating theamounts payable to theHolder in respect of the Buy-In and evidence of theamount of such loss.Nothing herein shalllimit aHolder’s right to pursue anyother remedies available to it hereunder, atLaw or in equity including, without limitation, a decree of specificperformance and/or injunctive reliefwith respect to theCompany’s failure totimely deliver certificates representing shares ofCommon Stock upon conversion of thisNote as required pursuant to theterms hereof.
(vi) Reservation ofShares IssuableUpon Conversion. The Company covenants that it will reserve and keep available out of its authorized and unissued shares ofCommon Stock for the purpose of issuances upon conversion of thisNote and the issuedwith thisNote, free from preemptive rights or any other actual contingent purchase rights ofPersons other than theHolder (and the other holders of theNotes), not less than 300% of theRequired Minimum; and if at anytime thenumber of authorized but unissued sharesof Common Stock shall be insufficient to effect the conversion of this note or shall be less than theRequired Minimum, theCompany shall take such corporate action asmay, inthe opinion of its counsel, be necessary to increase its authorized but unissued shares ofCommon Stock to suchnumber of shares as shall be sufficient for such purpose.The Company covenants that all shares ofCommon Stock that shall be issuable upon conversion of thisNote shall, upon issue, be duly authorized, validly issued, fully paid and nonassessable.
(vii) Fractional Shares. No fractional shares or scrip representing fractional shares shall be issued upon the conversion of thisNote. As to any fraction of a sharewhich theHolder would otherwise be entitled to purchase upon such conversion, theCompany shall at its election, either pay a cashadjustment in respect of such final fraction in anamount equal to such fractionmultiplied by theConversion Price or round up to the nextwhole share.
(viii) Transfer Taxes andExpenses. The issuance of certificates for shares of theCommon Stock on conversion of thisNote shall bemade without charge to theHolder hereof for anydocumentary stamp orsimilar taxes thatmay be payable in respect of the issue or delivery of such certificates, providedthat, theCompany shall not be required to pay any tax thatmay be payablein respect of any transfer involved in the issuance and delivery of any such certificate upon conversion in aname other than that of theHolder of thisNote so converted and theCompany shall not be required to issue or deliver such certificates unless or until thePerson orPersons requesting the issuance thereofshall have paid to theCompany theamount of such tax or shall have established to the satisfaction ofthe Company that such tax has been paid.The Company shall pay allTransfer Agent fees required forsame- day processing of anyNotice ofConversion and all fees to theDepository Trust Company (or another established clearing corporationperforming similar functions)required forsame-day electronic delivery of theConversion Shares.
(d) Holder’s Conversion Limitations.The Company shall not effect any conversion of this Note, and a Holder shall not have the right to convert any portion of this Note, to the extentthat after giving effect to the conversion set forth on the applicableNotice ofConversion, theHolder (togetherwith theHolder’s Affiliates, and anyPersons acting as a group togetherwith theHolder or any of theHolder’s Affiliates) would beneficiallyown in excess of theBeneficial Ownership Limitation (as definedbelow). For purposes of the foregoing sentence, thenumber of shares ofCommon Stock beneficiallyowned by theHolder and itsAffiliates shall include thenumber of shares ofCommon Stock issuableupon conversion of thisNote with respect towhich suchdetermination is beingmade, but shall exclude thenumber of shares ofCommon Stock which are issuable upon (i) conversion of theremaining, unconverted principalamount of thisNote beneficiallyowned by theHolder or any of itsAffiliates and (ii) exerciseor conversion of the unexercised or unconverted portion of any other securities of theCompany subject to alimitation on conversion or exercise analogous to thelimitation contained herein (including,without limitation, any otherNotes or theWarrants) beneficiallyowned by theHolder or any of itsAffiliates. Except as set forth in the preceding sentence, for purposes of this Section 4(d), beneficial ownership shall be calculated in accordancewith Section 13(d) of theExchange Act and the rules andregulations promulgated thereunder.To the extent that thelimitation contained in thisSection 4(d) applies,the determination ofwhetherthisNote is convertible (in relation to other securitiesowned by theHolder togetherwith anyAffiliates) and ofwhich principalamount of thisNote is convertible shall be in thesole discretion of theHolder, and thesubmission of aNotice ofConversion shall bedeemed to be theHolder’s determination ofwhether thisNote may be converted (in relation to other securitiesowned by theHolder togetherwith anyAffiliates) andwhich principalamount of thisNote is convertible, in each case subject to theBeneficial Ownership Limitation. To ensurecompliance with this restriction, theHolder will bedeemed to represent to theCompany eachtime it delivers aNotice ofConversion that suchNotice of Conversion has not violated the restrictions set forth in this paragraph and theCompany shall have no obligation to verify or confirm the accuracy of suchdetermination.In addition, adetermination as toany group status ascontemplated above shall bedetermined in accordance withSection 13(d) of theExchange Act and the rules and regulations promulgated thereunder.For purposes of thisSection 4(d), indetermining thenumber of outstanding shares ofCommon Stock, theHolder may rely on thenumber of outstanding shares ofCommon Stock as stated in themost recent of thefollowing: (i) theCompany’s most recent periodic or annual report filedwith theSEC, as the casemay be, (ii) amore recent publicannouncement by theCompany, or (iii) amore recentwritten notice by theCompanyor theCompany’s transfer agent setting forth thenumberof shares ofCommon Stock outstanding. Upon thewritten or oral request of aHolder, theCompany shallwithin two Trading Days confirm orally and inwriting to the Holder thenumberof shares ofCommonStock then outstanding. In any case, thenumber of outstanding shares ofCommon Stock shall bedetermined after giving effect to the conversion or exercise of securities of theCompany, including thisNote, by theHolder or itsAffiliates since the date as ofwhich suchnumber of outstanding shares ofCommon Stock was reported.The “Beneficial Ownership Limitation” shall be 4.99% of thenumber of shares of theCommon Stock outstandingimmediately after giving effect to the issuance of shares ofCommon Stock issuable upon conversion of thisNote held by theHolder. The Holder, upon not less than 61 days’ prior notice to theCompany, may increase theBeneficial Ownership Limitation provisions of this Section 4(d) solely with respect to the Holder’s Note, provided that theBeneficial Ownership Limitation in no event exceeds 9.99% of thenumber of shares ofCommon Stock outstandingimmediately after giving effect to the issuance of shares ofCommon Stock uponconversion of thisNote held by theHolder and the provisions of thisSection 4(d) shall continue to apply.Any such increase or decrease will not be effective until the 61st day after such notice is delivered to theCompany. The Holdermay also decrease the BeneficialOwnership Limitation provisions of this Section 4(d) solely with respect to the Holder’s Note at any time, which decreaseshall be effectivelyimmediately upon delivery of notice to theCompany. The Beneficial Ownership Limitation provisions of thisparagraph shall be construed andimplemented in amanner otherwise than in strictconformity with theterms of thisSection4(d) to correct this paragraph (or any portion hereof)which may be defective or inconsistentwith the intendedBeneficial Ownership Limitation contained herein or tomake changes orsupplements
necessary or desirable to properly give effect to suchlimitation. The limitations contained inthis paragraph shall apply to a successor holder of thisNote.
Section 5.Certain Adjustments.
(a) Stock Dividends andStock Splits. If theCompany, at any time while this Note is outstanding: (i) pays a stock dividend orotherwise makes a distribution or distributions payable in shares ofCommon Stock on shares ofCommon Stock or anyCommon Stock Equivalents (which, for avoidance of doubt, shall not include any shares ofCommon Stock issued by theCompany upon conversion of, orpayment of interest on, theNotes or pursuant to any of the otherTransaction Documents), (ii) subdivides outstanding shares ofCommon Stock into a largernumber of shares, (iii)combines (including byway of a reverse stock split) outstanding shares ofCommon Stock into asmaller number of shares or (iv) issues, in the event of a reclassification of shares of theCommon Stock, any shares of capital stock of theCompany, then theConversion Price shall bemultiplied by a fraction ofwhich thenumerator shall be thenumber of shares ofCommon Stock (excluding any treasury shares of theCompany) outstanding immediately before such event, and ofwhich thedenominator shall be thenumber of shares ofCommon Stock outstandingimmediately after such event.Any adjustment made pursuant to thisSection shallbecome effectiveimmediately after the record date for thedetermination of shareholders entitled to receive such dividend or distribution and shallbecome effectiveimmediately after the effective date in the case of a subdivision,combination or re-classification.
(b) Subsequent Equity Sales. If, at any time, for so long as the Note or any amounts accrued and payable thereunderremain outstanding, theCompany or anySubsidiary, as applicable, sells or grants any option to purchase or sells or grants any right to reprice, orotherwise disposes of or issues, anyCommon Stock orCommon Stock Equivalents entitling anyPerson to acquire shares ofCommon Stock at an effective price per share that islower than theConversion Price then in effect (suchlower price, the“Base Conversion Price” and each such issuance a“Dilutive Issuance”), then theConversion Price shall beimmediately reduced to equal theBase Conversion Price.
If the holder ofCommon Stock orCommon Stock Equivalents outstanding on theOriginalIssue Date or issued thereafter shall at any time, whether by operation of purchase price adjustments, reset provisions, floating conversion, exercise or exchange prices orotherwise, or due to warrants, options or rights per sharewhich are issued in connectionwith such issuance, receive or be entitled to receive shares ofCommon Stock at an effective price per share that islower than theConversion Price then in effect, such issuance shall bedeemedto have occurred for less than theConversion Price on such date and such issuance shall bedeemed to be aDilutive Issuance.
If after anyDilutive Issuance ofCommon Stock Equivalents, the price per share forwhich shares ofCommon Stock may be issuable thereafter isamended or adjusted, and such price as soamended shall be less than theConversion Price in effect at thetime of suchamendment oradjustment, thenthe Conversion Price shall be adjusted upon each such issuance oramendment as provided in thisSection 5(b).
In case anyCommon Stock Equivalent is issued in connectionwith the issue or sale of other securities of theCompany, togethercomprising one integrated transaction, (x) theCommon Stock Equivalents will bedeemed to have been issued for theOption Value of suchCommon Stock Equivalents and (y) the other securities issued or sold in such integrated transaction shall bedeemed to havebeen issued or sold for the difference of (I) the aggregate consideration received by theCompany less any consideration paid or payable by theCompany pursuant to theterms of such other securities of theCompany,less (II) theOption Value. If any shares ofCommon StockorCommon Stock Equivalents are issued or sold ordeemed to have been issued or sold for cash, theamountof such consideration received by theCompany will bedeemed to be the netamount received by theCompany therefor. If any sharesof
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Common Stock orCommon Stock Equivalents are issued or sold for a consideration other than cash, theamount of such consideration received by theCompany will be the fair value of such consideration, exceptwhere such consideration consists of publicly traded securities, inwhich case theamount of consideration received by theCompany will be theVWAP of such public traded securities on the dateof receipt. If any shares ofCommon Stock orCommon Stock Equivalents are issued to theowners of the non-surviving entity in connectionwith anymerger inwhich theCompany is the surviving entity,the amountof consideration thereforwillbedeemed to be the fair value of such portion of the net assets and business of the non-surviving entity as is attributable to such shares ofCommon Stock orCommon Stock Equivalents, as thecase may be.
If theCompany enters into aVariable Rate Transaction despite the prohibition set forth in thePurchase Agreement, theCompany shall bedeemed to have issuedCommon Stock orCommon Stock Equivalents at the lowest possible conversion price atwhich such securitiesmay be convertedor exercised under theterms of suchVariable Rate Transaction.
The Company shall notify the Holder in writing, no later than the TradingDay following the issuance of anyCommon Stock orCommon Stock Equivalents subject to thisSection 5(b), indicating therein the applicable issuance price, or applicable reset price, exchange price, conversion price and other pricingterms (such notice, the“Dilutive IssuanceNotice”). For purposes of clarification,whether ornot theCompany provides aDilutive IssuanceNotice pursuant to thisSection 5(b), upon the occurrence of anyDilutive Issuance, theHolder is entitled to receive anumber ofConversion Shares based upon theBase Conversion Price on or after the date of such Dilutive Issuance, regardless of whether the Holder accurately refers to theBase Conversion Price in theNotice ofConversion.
The provisions of this Section 5(b) shall apply each time a Dilutive Issuance occurs after the Original Issue Date for so longas theNote or anyamounts accrued and payable thereunderremain outstanding, but anyadjustment of theConversion Pricepursuant to thisSection5(b) shall bedownward only.
Notwithstanding anything in thisSection 5(b), noadjustment will bemade under thisSection 5(b) in respect of anExempt Issuance.
(c) Subsequent Rights Offerings. In addition to any adjustments pursuant to Section 5(a) above, if at anytime theCompany grants, issues or sells anyCommon Stock, Common Stock Equivalents or rights to purchase stock,warrants, securities or other property pro rata to the record holders of any class of shares ofCommon Stock (the“Purchase Rights”), then theHolder will be entitled toacquire, upon theterms applicable to suchPurchase Rights, the aggregatePurchase Rights which theHolder could have acquired if theHolder had held thenumber of shares ofCommon Stock acquirable uponcomplete conversion of thisNote (without regard to anylimitations on conversion hereof, includingwithout limitation, theBeneficial Ownership Limitation) immediately before the date onwhich a record istaken for the grant, issuance or sale of such Purchase Rights, or, if no such record is taken, the date as of which the record holders of shares ofCommon Stock are to bedetermined for the grant, issue or sale of suchPurchase Rights (provided,however, to the extent that the Holder’s right to participate in any suchPurchase Right would result in theHolder exceeding theBeneficial Ownership Limitation, then the Holder shallnot be entitled to participate in suchPurchase Right to such extent (or in the beneficialownership of any shares ofCommon Stock as a result of such Distribution to such extent)).
(d) Pro Rata Distributions. During such time as this Note is outstanding, if theCompany shall declare ormake any dividend or other distribution of its assets or rights orwarrants to acquire its assets, or subscribe for or purchase any security other thanCommon Stock, to holders of shares ofCommon Stock, byway of return of capital orotherwise (including,without limitation, any distribution of cash, stock or other securities, property or options byway of a dividend, spin off, reclassification,
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corporaterearrangement, scheme ofarrangement or othersimilar transaction) (a“Distribution”), at anytime after the issuance of thisNote, then, in each such case, theHolder shall be entitled to participatein suchDistribution to thesame extent that the Holderwould have participated therein if theHolder had held thenumber of shares ofCommon Stock acquirable uponcomplete conversion of thisNote (without regard to anylimitations on exercise hereof, includingwithout limitation, theBeneficial Ownership Limitation) immediately before the date ofwhich a record is taken for suchDistribution, or, if no such record is taken, the date as ofwhich the record holders of shares ofCommon Stock are to bedetermined for the participation in such Distribution(provided,however, to the extent that the Holder's right to participate in any suchDistribution would result in theHolder exceeding theBeneficial Ownership Limitation with respect to theCompany or any other publicly-traded corporation subject toSection 13(d) of theExchange Act, then the Holder shall not be entitled to participate in such Distribution to such extent (or in the beneficialownership of any shares ofCommon Stock as a result of suchDistribution to such extent)).) and the portion of suchDistribution shall be held in abeyance for the benefit of theHolder until suchtime, if ever, as its right theretowould not result in theHolder exceeding theBeneficial Ownership Limitation with respect to theCompany or any otherpublicly-traded corporation subject toSection 13(d) of theExchange Act).).
(e) Fundamental Transaction. If, at any time while this Note is outstanding, (i) theCompany, directly or indirectly, in one ormore related transactions effects anymerger or consolidation of theCompany with or into anotherPerson, (ii) theCompany, directly or indirectly, effects any sale, lease, license,assignment, transfer, conveyance or other disposition of all or substantially all of its assets in one or a series of related transactions, (iii) any, direct or indirect, purchase offer, tender offer or exchange offer(whether by theCompany or anotherPerson) iscompleted pursuant towhich holders ofCommon Stock arepermitted to sell, tender or exchange their shares for othersecurities, cash or property and has been accepted by the holders of 50% ormore of the outstandingCommon Stock, (iv) theCompany, directly or indirectly, in one ormore related transactions effects any reclassification, reorganizationor recapitalization of theCommon Stock or anycompulsory share exchange pursuant towhich theCommon Stock is effectively converted into or exchanged for other securities, cash or property, (v) theCompany, directly or indirectly, in one ormore related transactionsconsummates a stock or share purchaseagreement or other businesscombination (including,without limitation, a reorganization, recapitalization, spin-off orscheme ofarrangement) with anotherPerson whereby such otherPerson acquiresmore than 50% of the outstanding shares ofCommon Stock (not including any shares ofCommon Stock held bythe otherPerson or otherPersons making or party to, or associated or affiliatedwith the otherPersons making or party to, such stock or share purchaseagreement or other businesscombination) (each a“Fundamental Transaction”), then, upon any subsequent conversion of this Note, the Holder shall have the right to receive, for eachConversion Share thatwould have been issuable upon such conversionimmediately prior to the occurrence of suchFundamental Transaction (without regard to anylimitation on the conversion of thisNote), thenumber of shares ofCommon Stock of the successor or acquiring corporation or of theCompany, if it is the surviving corporation, and any additionalconsideration (the “Alternate Consideration”) receivable as a result of suchFundamental Transaction by a holder of thenumber of shares ofCommon Stock forwhich thisNote is convertibleimmediately prior to suchFundamental Transaction (withoutregard toany limitation on the conversion of thisNote). Forpurposes of any such conversion, thedetermination of theConversion Price shall be appropriately adjusted to apply to such AlternateConsideration based on theamount of AlternateConsideration issuable in respect ofone
(1) share ofCommon Stock in suchFundamental Transaction, and theCompany shall apportion theConversion Price amongtheAlternate Consideration in a reasonablemanner reflecting the relative value of any differentcomponents of the AlternateConsideration. If holders ofCommon Stock are given any choice as to the securities, cash or property to be received in aFundamental Transaction, then theHolder shall be given thesame choice as to theAlternate Consideration it receives upon any conversion of this Note following suchFundamental Transaction. Notwithstanding anything to the contrary, in the event of aFundamental Transaction that is (1) an all cash transaction, (2) a“Rule 13e-3 transaction” as definedin
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Rule 13e-3 under theExchange Act, or (3) aFundamental Transaction involving a person or entitynot traded on aTrading Market, theCompany or anySuccessor Entity (as definedbelow) shall, at the Holder’s option, exercisable concurrently with the consummation of theFundamental Transaction, purchase thisNotefrom theHolderby paying to theHolderthe product of (a) thenumberofConversion Shares issuable upon full conversion of thisNote (without regard to anylimitation on conversion of this Note) and (b) the positive differencebetween the cash per share paid in suchFundamental Transaction minus the then in effect Conversion Price.The Company shall cause any successor entity in aFundamental Transaction inwhich theCompany is not the survivor (the“Successor Entity”) toassume in writing all of the obligations of theCompany under this Note and the other TransactionDocuments in accordancewith the provisions of thisSection 5(e) pursuant towritten agreements in form andsubstance reasonably satisfactory to theHolder and approved by theHolder (without unreasonable delay) prior to suchFundamental Transaction and shall, at the option of the holder of thisNote,deliver to theHolder in exchange for thisNote a security of theSuccessor Entity evidenced by awritten instrumentsubstantiallysimilar in form and substance to thisNote which is convertible for a correspondingnumber of shares of capital stock of suchSuccessor Entity (or its parent entity) equivalent to the shares ofCommon Stock acquirable and receivable upon conversion of thisNote (without regard to anylimitations on the conversion of thisNote) prior to suchFundamental Transaction, andwith a conversion pricewhich applies theConversion Price hereunder to such shares of capital stock (but taking into account the relative value of the shares ofCommon Stock pursuant to suchFundamental Transaction and the value of such shares of capital stock, suchnumber of shares of capital stock and such conversion price being for the purpose of protecting theeconomic value of thisNote immediately prior to theconsummation of suchFundamental Transaction), andwhich is reasonably satisfactory in form and substance to theHolder. Upon the occurrence of any suchFundamental Transaction, theSuccessor Entity shall succeed to, and be substituted for (so that from and after the date of suchFundamental Transaction, the provisions of this Note and the other TransactionDocuments referring to the“Company” shall refer instead to theSuccessor Entity), andmay exercise every right andpower of theCompany and shallassume all of the obligations of theCompany under thisNote and the otherTransaction Documents with thesame effect as if suchSuccessor Entity had beennamed as theCompany herein.Notwithstanding anything in thisSection 5(e), anExempt Issuance shall not bedeemed aFundamental Transaction.
(f) Calculations. All calculations under this Section 5 shall bemade to the nearest cent or the nearest 1/100th of a share, as the casemay be.For purposes of thisSection 5, thenumber of shares ofCommon Stock deemed to be issued and outstanding as of a given date shall be the sum of thenumber of shares ofCommon Stock (excluding any treasury shares of theCompany) issued andoutstanding.
(i) Adjustment to ConversionPrice. Whenever the Conversion Price is adjusted pursuant to any provision of thisSection 5, theCompany shallpromptly deliver to eachHolder a notice setting forth theConversion Price after suchadjustment and setting forth a briefstatement of the facts requiring suchadjustment.
(ii) Notice to Allow Conversion byHolder. If(A) theCompany shall declare a dividend (or any other distribution inwhatever form) on theCommon Stock, (B) theCompany shall declare a special nonrecurring cash dividend on or aredemption of theCommon Stock, (C) theCompany shall authorize the granting to all holders of theCommon Stock of rights orwarrants to subscribe for or purchase any shares of capital stock of any class or of any rights,(D) the approval of any shareholdersof theCompany shall be required in connectionwith any reclassification of theCommon Stock, any consolidation ormerger towhich theCompany is a party, any sale or transfer of all or substantially all of the assets of theCompany, or anycompulsory share exchangewhereby theCommon Stock isconverted into other securities, cash or property or(E) theCompany shall authorize the voluntary or involuntary dissolution, liquidation orwinding up of the affairs of theCompany, then, in each case, theCompany
shall cause to be filed at each office or agencymaintained for the purpose of conversion of thisNote, and shall cause to be delivered to theHolder at its last address as it shall appear upon theNote Register, at least ten calendar days prior to theapplicable record or effective date hereinafter specified, a notice stating (x) the date onwhich a record is to be taken for the purpose of such dividend, distribution,redemption, rights orwarrants, or if a record is not to be taken, the date as ofwhich the holders of theCommon Stock of record to be entitled to such dividend, distributions,redemption, rights orwarrants are to bedetermined or (y) the date onwhich such reclassification, consolidation,merger, sale, transfer or share exchange is expected to become effective or close, and the date as ofwhich it is expectedthat holders of theCommon Stock of record shall be entitled to exchange their shares of theCommon Stock for securities, cash or other property deliverable upon such reclassification,consolidation, merger, sale, transfer or share exchange, provided that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the corporate action required to be specified in such notice.To the extent that any notice provided hereunder constitutes, or contains, material, non-publicinformation regarding theCompany or any of theSubsidiaries (asdetermined in good faith by theCompany), theCompany or its successor shallsimultaneously file such noticewith theSEC pursuant to aCurrent Report onForm 8-K. The Holder shall remain entitled to convert this Note during the20-day periodcommencing on the date of such notice through the effective date of the event triggering such notice except asmay otherwise be expressly set forthherein.
Section 6.NegativeCovenants. As long as any portion of this Noteremains outstanding, unless the holders of amajority in principalamount of the then outstandingNotes shall haveotherwise givenprior written consent, theCompany shall not, and shall notpermit any of theSubsidiaries to, directly or indirectly:
(a) other thanPermitted Indebtedness, enter into, create, incur,assume, guarantee or suffer to exist any Indebtedness forborrowed money of any kind,including, but notlimited to, a guarantee, on or with respect to any of its property or assets nowowned or hereafter acquired or any interest therein or anyincome or profitstherefrom;
(b) amend its charterdocuments, including,without limitation, its certificate of incorporation andbylaws, in anymanner that materially and adversely affects any rights of the Holder;
(C) enter into any transaction with any Affiliate of theCompany which would be required to be disclosed in any public filingwith theSEC assuming that theCompany is subject to theSecurities Act or theExchange Act, unless such transaction ismade on anarm’s-length basis and expressly approved by amajority of the disinterested directors of theCompany (even if less than a quorumotherwise required for board approval);or
(d) enter into anyagreement with respect to anyofthe foregoing.Section 7.Events of Default.
(a) “Eventof Default”means, wherever used herein, any of thefollowing events(whatever the reason for such event andwhether such event shall be voluntary or involuntary or effected by operation ofLaw or pursuant to anyjudgment, decree or orderof any court, or any order, rule or regulation of anyadministrative orgovernmental body):
(i) any default in thepayment of(A) the principalamount of any Noteor
(B) interest, late fees, liquidateddamages and otheramounts owing to aHolder on anyNote, as andwhen thesame shallbecome due and payable(whether on aConversion Date or theMaturity Date or by acceleration orotherwise) which default, solely in the case of an interestpayment or other defaultunder clause(B) above, is not cured within three TradingDays;
(ii) theCompany shall fail to observe or perform any other covenant oragreement contained in theNotes (other than a breach by theCompany of its obligations to deliver shares ofCommon Stock to theHolder uponconversion, which breach is addressed in clause (x)below) or any TransactionDocument which failure is not cured, if possible to cure, within the earlier to occur of(A) 3 TradingDays after notice of such failure sent by the Holder or by any other Holder to theCompany and
(B) 5Trading Days after theCompany hasbecome aware of such failure;
(iii) If after forth-five (45) days from the date hereof while the Holderowns anyRegistrable Securities, theRegistration Statement is not effective under theSecuritie Act registering theRegistrableSecurities;
(iv) if ninety (90) days from the date hereof,while theHolder owns anyRegistrable Securities, theRegistration Statement is not effective under theSecurities Act registering theRegistrableSecurities;
(v) any representation orwarranty made in thisNote, any otherTransaction Document, any written statement pursuant hereto or thereto or any other report, financial statement or certificatemade or delivered to theHolder or any otherHolder pursuant hereto or thereto shall beuntrue or incorrect in any material respect as of the datewhen made ordeemed made;
(vi) theCompany or anySignificant Subsidiary (as such term is defined inRule 1-02(w) ofRegulation S-X) shall be subject to a Bankruptcy Event;
(vii) theCompanyor anySubsidiaryshall default on any of its obligations underany, mortgage, creditagreement or other facility, indenture agreement, factoringagreement or otherinstrument underwhich theremay be issued, or bywhich theremay be secured or evidenced, any indebtedness forborrowed money, including debentures orpromissory notes ormoney due under any long term leasing or factoringarrangement that (a) involves an obligation greater than $5,000,whether such indebtedness now exists or shall hereafter be created, and (b) results in such indebtednessbecoming or being declared due and payable prior to the date onwhich itwould otherwise become due and payable and such default is not curedwithin threeTrading Days;
(viii) theCommon Stock shall not be eligible for listing or quotation for trading on its TradingMarket for a period longer than 10 TradingDays;
(ixi) theCompany shall haveconsummated aChange ofControl Transaction or/Fundamental Transaction without theLead Investors consentwithout paying in full allamounts owed under theNote at or prior to suchconsummation;
(x) a finaljudgment for thepayment ofmoney aggregating in excess of $50,000 is rendered against theCompany and/or any of itsSubsidiaries andwhich judgment is not,within 45 days after the entry thereof, bonded, discharged or stayed pending appeal, or is not dischargedwithin 60 days after the expiration of such stay; provided,however, anyjudgment that is covered by insurance or anindemnity from a credit-worthy party will not be included in calculating theamount of thejudgment so long as theCompany provides theHolder awritten statement from such insurer orindemnity provider(which written statement shall be reasonably satisfactory to theHolder) to the effect that suchjudgment is covered by insurance or anindemnity and theCompany or suchSubsidiary (as the casemay be)will receive the proceeds of such insurance orindemnity within 30 days of the issuance of suchjudgment.
(xi) theCompanyshall provide at anytimenotice to theHolder, including bywayof publicannouncement, of theCompany’s intention to not honor requests for conversions of anyNotes in accordancewith theterms hereof or theCompany does not honor a request for conversion of anyNotes as required by the Notes
| (xii) | theCompany shall be in breach of any material contract oragreement. |
(b) Remedies Upon Event of Default. If anyEvent of Default occurs, the outstanding principalamount of thisNote, plus accrued but unpaid interest, liquidateddamages and otheramounts owing in respect thereof through the date of acceleration, shallbecome, at theHolder’s election, immediately due and payable in cash at theMandatory Default Amount. Upon thepayment in full ofthe Mandatory Default Amount, theHolder shallpromptly surrender thisNote to or as directed by theCompany. In connectionwith such acceleration described herein, theHolder need not provide, and theCompany herebywaives, anypresentment, demand, protest or other notice of any kind, and theHolder may immediately and without expiration of any grace period enforce any and all of its rights andremedies hereunder and all otherremedies available to it under applicableLaw. Such accelerationmay be rescinded and annulled byHolder at anytime prior topayment hereunder and theHolder shall have all rights as a holder of theNote until suchtime, if any, as theHolder receives fullpayment pursuant to thisSection 7(b).No such rescission orannulment shall affect any subsequentEvent of Default or impair any right consequent thereon.
(c) InterestRate Upon Event of Default.Commencing on the occurrence of anyEvent of Default and until suchEvent of Default is cured, this Note shall accrue interest at an interest rate equal to theDefault InterestRate.
Section 8.Miscellaneous.
(a) No Rights as Stockholder UntilConversion. This Note does not entitle the Holder to any voting rights, dividends or other rights as a stockholder of theCompany prior to the conversionhereof other than as explicitly set forth inSection 4.
(b) Notices. All notices, offers, acceptance and any other acts under thisAgreement (exceptpayment) shall be inwriting, and shall be sufficiently given if delivered to the addressees in person,by Federal Express orsimilar receipted next business day delivery, as follows:
If to theCompany: Max Sound Corporation.
8837Villa La JollaDrive, Unit 12109, La Jolla, California 92039
If to Holder:
Bellridge Capital LP.
515E. Las Olas Boulevard, Suite 120A Fort Lauderdale, Florida 33301,
or to such other address as any ofthem, by notice to the othermay designate fromtime totime.
Time shall be counted to, orfrom, as the casemay be, the date of delivery.
(c) Absolute Obligation. Except as expressly provided herein, no provision of this Note shall alter orimpair the obligation of theCompany, which is absolute and unconditional, to pay theprincipal of, liquidateddamages and accrued interest and late fees, as applicable, on thisNote at thetime, place, and rate, and in the coin or currency, herein prescribed.This Note is a direct debt obligation of theCompany. This Note rankspari passu with all other Notes now or hereafter issued under thePurchase Agreement.
(d) Lost or MutilatedNote. If this Note shall be mutilated, lost, stolen or destroyed, theCompany shall execute and deliver, in exchange and substitution for and upon cancellation of amutilated Note, or in lieu of or in substitution for a lost, stolen or destroyedNote, a newNote for the principalamount of thisNote somutilated, lost, stolen or destroyed, but only upon receipt of evidence of such loss, theft or destruction of suchNote, and of theownership hereof, reasonably satisfactory to theCompany. The applicant for a new Note under such circumstances shall also pay any reasonablethird-party costs (includingcustomary indemnity) associated with the issuance of the new Note.
(e) Exclusive Jurisdiction; GoverningLaw. All questions concerning the construction, validity,enforcement and interpretation of thisNote shall be governed by and construed and enforced in accordancewith the internallaws of theState ofNew York, without regard to the principles of conflict oflaws thereof.Each party agrees that all legal proceedings concerning the interpretation,enforcement and defense of the transactionscontemplated by any of theTransaction Documents (whether brought against a party hereto or its respectiveAffiliates, directors, officers, shareholders,employees or agents) shall only becommenced in the state and federal courts sitting inNew York, New York (the“New York Courts”). Each party hereto hereby irrevocably submits to the exclusive jurisdiction of theNew York Courts for the adjudication of any dispute hereunder or in connectionherewith orwith any transactioncontemplated hereby or discussed herein (includingwith respect to theenforcement of any of theTransaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of suchNew York Courts, or suchNew York Courts areimproper or inconvenient venue for such proceeding.Each party hereby irrevocablywaives personal service of process and consents to process being served in any such suit, action or proceedingby mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under thisNote and agrees that such service shall constitute good and sufficient service of process and notice thereof.Nothing contained herein shall bedeemed tolimit in anyway any right to serve process in any othermanner permitted by applicableLaw. Each party hereto hereby irrevocably waives, to the fullest extent permitted by applicableLaw, any and all right to trial by jury in any legal proceeding arising out of or relating to thisNote or the transactions contemplated hereby.
(f) Waiver. Any waiver by theCompany or the Holder of a breach of any provision of this Note shall not operate as or be construed to be a waiver of any other breach of such provision or of any breach of any other provision of thisNote. The failure of theCompanyor theHolderto insist upon strict adherence to any term of thisNote on one ormore occasions shall not be considered awaiver or deprive that party of the right thereafter to insist upon strict adherence to that term or any other term of thisNote on any other occasion.Any waiver by theCompany or theHolder must beinwriting.
(g) Severability. If any provision of this Note is invalid, illegal or unenforceable, the balance of thisNote shallremain in effect, as long as the essentialterms and conditions of thisNote for each partyremain valid, binding, and enforceable. If it shall be found that any interest or otheramount deemed interest due hereunder violates the applicableLaw governing usury, the applicable rate of interest due hereunder shallautomatically belowered to equal themaximum rate of interestpermitted under applicableLaw.
(h) Remedies, Characterizations, Other Obligations, Breaches and InjunctiveRelief. The remedies provided in thisNote shall becumulative and in addition to all other remedies availableunder thisNoteand any of the otherTransaction DocumentsatLaw or in equity (including a decree ofspecific performance and/or other injunctive relief), and nothing herein shalllimit theHolder’s right topursue actual and consequentialdamagesfor any failure by theCompanytocomply withthetermsof this Note.Amounts set forth or provided for herein with respect to payments, conversion and the like (and thecomputation thereof) shall be theamounts to be received by theHolder andshall not, except as expressly provided herein, be subject to any other obligation of theCompany (or theperformance thereof).The
Company acknowledges that a breach by it of its obligations hereunderwill cause irreparable harm to the Holder and that theremedy atLaw for any such breachwould be inadequate.The Company therefore agrees that, in the event of any such breach or threatened breach, theHoldershall be entitled, in addition to all other availableremedies, to an injunction restraining any such breach or any such threatenedbreach, without the necessity of showing economic loss and without any bond or other security being required.The Company shall provide all information and documentation to the Holder that is reasonably requested by theHolder to enable theHolder to confirm theCompany’s compliance with theterms andconditions of this Note.
(i) Next BusinessDay. Whenever anypayment or other obligation hereunder shall be due on a day other than aBusiness Day, suchpayment shall bemade on the next succeedingBusiness Day.
(SignaturePages Follow)
INWITNESS WHEREOF, theCompany has caused thisNote to be duly executed by a duly authorized officer as of the date first above indicated.
MAX SOUND CORPORATION.
|  By: | Name: JohnBlaisure |
Title:CEO
ANNEX ANOTICE OF CONVERSION
The undersigned hereby elects to convert principal under the 8% Convertible Note due June 27, 2017 issued byMax Sound Corporation, aDelaware corporation (the“Company”), into shares ofcommon stock (the“Common Stock”), of theCompany according to the conditions hereof, as of the datewritten below. If shares ofCommon Stock are to be issued in thename of a person other than the undersigned, the undersignedwill pay all transfer taxes payablewith respect thereto and is deliveringherewith such certificates and opinions as reasonably requested by theCompany in accordancetherewith. No feewill be charged to the holder for any conversion, except for such transfer taxes, if any.
By the delivery of thisNotice ofConversion the undersigned represents andwarrants to theCompany that itsownership of theCommon Stock does not exceed theamounts specified underSection 4 of thisNote, asdetermined in accordancewith Section 13(d) of theExchange Act.
The undersigned agrees to comply with the prospectus delivery requirements under the applicable securitieslaws in connectionwith any transfer of the aforesaid shares ofCommon Stock.
Conversion calculations:
Date toEffect Conversion:
Principal Amount ofNote to beConverted: Payment of Interest inCommon Stock yes no
If yes,$of InterestAccrued onAccount of Conversion at Issue.
Number of shares ofCommon Stock to be issued:
Signature: Name:
DWAC Instructions:
Broker No:
Account No:
Schedule 1 CONVERSION SCHEDULE
The 8% Convertible Note due on June 27,2018 in the original principalamount of$ are issued byMax Sound Corporation., aDelaware corporation.This Conversion Schedule reflects conversionsmade under Section 4 of the above referencedNote
Dated:
Date ofConversion (or for first entry, Original Issue Date) | Amount ofConvertedPrincipal | Aggregate PrincipalAmount RemainingSubsequent toConversion (or originalPrincipalAmount) | ApplicableConversionPrice | Company Attest |
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