NEITHER THIS SECURITYNORTHE SECURITIES INTOWHICHTHIS SECURITY ISCONVERTIBLEHAVEBEEN REGISTEREDWITHTHE SECURITIESAND EXCHANGECOMMISSION OR THE SECURITIES COMMISSION OFANYSTATE INRELIANCEUPON ANEXEMPTIONFROMREGISTRATIONUNDERTHE SECURITIESACTOF 1933, ASAMENDED(THE “SECURITIESACT”), AND, ACCORDINGLY, MAY NOTBE OFFERED OR SOLD EXCEPT PURSUANT TOAN EFFECTIVE REGISTRATION STATEMENTUNDERTHE SECURITIES ACT OR PURSUANT TOAN AVAILABLE EXEMPTIONFROM,OR IN ATRANSACTION NOTSUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIESACT AND INACCORDANCE WITHAPPLICABLE STATE SECURITIESLAWSAS EVIDENCED BY ALEGALOPINION OF COUNSEL TOTHE TRANSFEROR TOSUCHEFFECT, THE SUBSTANCE OFWHICH SHALLBE REASONABLY ACCEPTABLE TOTHECOMPANY.THIS SECURITY AND THE SECURITIES ISSUABLEUPONCONVERSION OF THIS SECURITYMAYBE PLEDGED INCONNECTIONWITH ABONAFIDE MARGINACCOUNTOROTHER LOANSECUREDBY SUCHSECURITIES.
OriginalIssueDate:April18,2018
$135,000
8%CONVERTIBLENOTE
THIS8%CONVERTIBLENOTE isoneof aseries of duly authorizedandvalidly issued 8%ConvertibleNotesissued at a8%originalissuediscountbyMax SoundCorporation., aDelaware corporation (the“Company”)(thisnote,the“Note” and, collectivelywith theother notesofsuch series,the “Notes”).
FORVALUERECEIVED,theCompany promises topay toBellridge Capital,LPitsregisteredassigns(the “Holder”), or shallhavepaidpursuant tothetermshereunder, theprincipalsum of $135,000 (“OriginalPrincipalAmount”) on April18, 2019(the “MaturityDate”)orsuchearlier date as thisNote isrequiredor permitted toberepaidasprovidedhereunder,and topayinterest totheHolderon theaggregate unconvertedandthen outstandingprincipal amountof thisNote inaccordance with the provisionshereof.ThisNote issubject tothe following additional provisions:
Section1.Definitions.Forthepurposes hereof,(a) capitalizedterms nototherwise definedhereinshallhavethe meanings set forth inthePurchase Agreement and(b) the followingtermsshallhavethe following meanings:
“Alternate Consideration” shallhavethemeaningset forth inSection5(e).
“BankruptcyEvent” means anyof the followingevents:(a) theCompanyoranySignificant Subsidiary (assuchterm isdefined inRule 1-02(w)of RegulationS-X) thereof commences acase orotherproceedingunder anybankruptcy, reorganization, arrangement, adjustment ofdebt,reliefof debtors, dissolution,insolvency or liquidationor similar law ofany jurisdictionrelating totheCompanyoranySignificant Subsidiarythereof,(b) there iscommenced againsttheCompanyoranySignificant Subsidiarythereof any such caseor proceeding that isnotdismissed within 60daysaftercommencement,
(c) theCompanyoranySignificant Subsidiarythereof isadjudicatedinsolventorbankruptoranyorder of relief orother orderapprovingany such caseor proceeding isentered,(d) theCompanyor any Significant Subsidiarythereof suffers anyappointment ofanycustodian or the like for itor any substantialpartof itspropertythat isnotdischarged orstayedwithin 60calendar daysafter such appointment, (e) theCompanyoranySignificant Subsidiarythereof makes ageneralassignment for thebenefitofcreditors,or (f) theCompanyoranySignificant Subsidiarythereof,byany actor failure to act,expresslyindicates itsconsentto,approvalof or acquiescence inanyof the foregoing ortakesany corporate orotheraction for thepurposeofeffecting anyof the foregoing.
“BaseConversionPrice”shallhavethemeaningset forth inSection5(b). “Beneficial Ownership Limitation” shallhavethemeaningset forth inSection4(d).
“BusinessDay” means any day except anySaturday,any Sunday, any day which is afederallegalholiday intheUnitedStates orany dayonwhich banking institutions inthe State ofNew York areauthorized orrequiredby law orothergovernmental action toclose.
“Buy-In”shallhavethemeaningset forth inSection4(c)(v).
“ChangeofControlTransaction”meansthe occurrence after the datehereofofanyof (a) an acquisitionafter the datehereofby an individual orlegalentity or“group”(as described inRule13d-5(b)(1)promulgatedunderthe ExchangeAct)ofeffective control (whether through legalor beneficial ownership ofcapitalstock of theCompany,bycontractor otherwise) of inexcessof50%of the voting securitiesof theCompany (otherthan bymeansof conversion,exerciseor exchange of theNotesor theSecurities issuedtogetherwith theNotes),(b) theCompany mergesinto or consolidates withanyotherPerson,orany Person mergesinto or consolidates with theCompany and,after givingeffect tosuch transaction, the shareholders of theCompanyimmediately prior tosuchtransactionownless than50% ofthe aggregate votingpowerof theCompanyor the successor entity ofsuchtransaction, (c) theCompanysells ortransfersall or substantiallyall of itsassets toanother Person andthe shareholders of theCompanyimmediately prior tosuchtransactionownless than50%of the aggregate votingpowerof theacquiring entity immediately after the transaction, (d) areplacement atonetime or within athree yearperiodofmorethanone-halfof the membersof theBoardofDirectorsof theCompany(the“Board ofDirectors”)which isnot approvedby amajorityof those individualswhoare membersof theBoard ofDirectorson theOriginalIssueDate(or by those individualswhoareservingas membersof theBoard of Directorsonanydatewhosenomination totheBoardofDirectors was approvedby amajorityof the membersof theBoardofDirectors whoarememberson the datehereof),or (e) the execution by theCompanyof an agreement towhichtheCompany is aparty or bywhich it isbound,providing forany oftheeventsset forth inclauses(a)through(d)above.
“Conversion” shallhavethemeaning ascribed tosuchterm inSection 4.“ConversionDate”shallhavethemeaningset forth inSection4(a). “ConversionPrice”shallhavethemeaningset forth inSection4(b).
hereto.
“Conversion Schedule”meansthe ConversionSchedule inthe form ofSchedule 1attached
“ConversionShares” means,collectively, thesharesofCommonStockissuableuponconversion of thisNote inaccordance with thetermshereof.
“Default Interest Rate”shallhavethemeaningset forth inSection2(a).“DilutiveIssuance” shallhavethemeaningset forth inSection5(b).“Dilutive Issuance Notice”shallhavethemeaningset forth inSection5(b).
“DWAC”meanstheDepositor Withdrawal at Custodian system atTheDepository TrustCompany.
“EventofDefault”shallhavethemeaningset forth inSection7(a).
“Fundamental Transaction” shallhavethemeaningset forth inSection5(e).
“MandatoryDefault Amount” meansthe sum of (a)150%of the outstandingprincipal amount ofthisNote,plus150%ofaccrued and unpaidinteresthereon, and(b) allother amounts,costs,expensesand liquidateddamages due inrespectof this Note.
“New York Courts”shallhavethemeaningset forth inSection8(e). “Note Register” shallmeanthe note register maintained by theCompany. “Noticeof Conversion” shallhavethemeaningset forth inSection4(a).
“Option Value” meansthevalueof aCommonStockEquivalentbasedon theBlackScholesOptionPricingmodel obtainedfrom the"OV"functionon Bloomberg determined as of(A)the TradingDayprior tothe public announcement of theissuanceof the applicableCommonStockEquivalent, if theissuanceofsuchCommonStockEquivalent ispublicly announced or(B)theTrading Dayimmediately following theissuanceof the applicableCommonStockEquivalent iftheissuanceofsuch Common StockEquivalent isnotpublicly announced, for pricingpurposes and reflecting(i) arisk-free interest ratecorresponding totheU.S. Treasuryrate for aperiod equal tothe remaining term of the applicableCommonStockEquivalent as of the applicable date of determination, (ii)anexpectedvolatilityequal tothegreaterof100% andthe100 dayvolatilityobtainedfrom theHVTfunctionon Bloomberg as of (A) theTrading Dayimmediately following the public announcement of the applicableCommonStock Equivalent iftheissuance of suchCommonStockEquivalent ispublicly announced or(B)the TradingDayimmediately following theissuanceof the applicableCommonStockEquivalent iftheissuance ofsuchCommonStockEquivalent isnotpublicly announced, (iii) the underlying price pershare used insuchcalculation shall be thehighestVWAPof theCommonStock duringtheperiodbeginning on theTrading Dayprior tothe execution of definitivedocumentation relating totheissuanceof the applicableCommonStockEquivalentand endingon(A)theTrading Dayimmediately following the publicannouncement ofsuch issuance, iftheissuanceofsuchCommonStockEquivalent ispubliclyannouncedor(B)theTrading Dayimmediately following theissuanceof the applicableCommonStockEquivalent iftheissuanceofsuchCommonStockEquivalent isnotpublicly announced, (iv) azero costof borrowand(v) a360 dayannualization factor.
“Original IssueDate” meansthe date of the firstissuanceof theNotes,regardless ofanytransfers ofany Note andregardless of thenumberof instrumentswhich maybe issued toevidence suchNotes.
“PaymentDate”shallhavethemeaningset forth inSection2(b).
“Permitted Indebtedness”means(a) Indebtedness outstanding as of theOriginalIssue Date,
(b) the indebtedness evidenced by theNotes, and(c)capitallease obligationsand purchasemoney indebtednessincurred inconnection with the acquisitionof machineryandequipment.
“Purchase Agreement”meansthe SecuritiesPurchaseAgreement,datedas ofJune 27,2017amongtheCompany andtheoriginal Holders,as amended,modifiedor supplemented from time to time inaccordance with itsterms.
“SecuritiesAct” meansthe SecuritiesActof1933,as amended,andthe rulesandregulations promulgated thereunder.
“Share Delivery Date”shallhavethemeaningset forth inSection 4(c)(ii).“Successor Entity” shallhavethemeaningset forth inSection5(e).
“Trading Day” means adayonwhichtheprincipal Trading Market isopenfor trading.
“Trading Market” means anyof the followingmarketsor exchanges onwhichtheCommonStock islisted orquotedfor trading on the date inquestion:theNYSE MKT,theNasdaq Capital Market,theNasdaq Global Market,theNasdaq Global Select Market,theNew York StockExchange, oranymarket of theOTC Markets, Inc.(oranysuccessors toanyof the foregoing).
“VWAP” means,forany date,the price determined by the first of the followingclauses thatapplies:(a) ifthe CommonStock isthen listed orquotedon aTrading Market,the dailyvolumeweightedaverageprice of the CommonStockforsuchdate (or thenearestprecedingdate)on theTradingMarket onwhichthe CommonStock isthen listed orquotedasreportedby Bloomberg L.P.(basedon aTradingDayfrom 9:30a.m. (New YorkCitytime) to4:02p.m. (New YorkCitytime)),(b) ifthe CommonStock isnotthen listed orquotedfor trading on the OTCQBor OTCQXand ifpricesfor the CommonStock arethenreportedby theOTCPink marketplace published byOTC Markets, Inc.(or asimilar organization oragencysucceeding to itsfunctionsofreporting prices),themost recentbid priceper shareof theCommon Stocksoreported,or (c) inallother cases,the fairmarket valueof ashareof CommonStock asdetermined by an independentappraiser selected ingoodfaith by theHoldersof amajority ininterestoftheNotesthen outstandingandreasonably acceptable totheCompany,thefees and expensesofwhichshall be paid by theCompany.
Section2.Interest;Payments.
(a) Interest.Interest shall accrue totheHolderon the aggregate unconvertedand thenoutstandingprincipal amountof thisNoteat the rate ofeight percent (8%) per annum,calculated on thebasis of a365-day year andshallaccruedaily commencing on theOriginalIssueDateuntilpayment infull of the outstandingprincipal(or conversion totheextentapplicable),togetherwith all accruedandunpaidinterest, liquidateddamages and other amounts which may become duehereunder,has beenmade. Following anEventofDefault,untilsuch EventofDefault has been cured,interest shallaccrueat thelesser of (i) the rate of24% per annum,or (ii) the maximumamountpermitted by law (the lesser of clause
(i) or (ii), the“Default Interest Rate”).In theeventthatsuch EventofDefault issubsequentlycured, theadjustmentreferred to inthe precedingsentenceshallcease tobeeffectiveas of thecalendarday immediately following the date ofsuch cure; providedthat the interest as calculatedand unpaidat theDefault Interest Rate duringthe continuance ofsuch EventofDefaultshallcontinue toapply tothe extent relating tothedaysafter the occurrence ofsuch EventofDefault through andincluding the date of suchcureofsuch Eventof Default.
(b) Payments.Interestpayments aredue and payableon theMaturity Date, except asotherwise set forth inthisNote.Ifany Payment Date isnot aBusiness Day,then the applicable payment shall bedueon thenextsucceedingBusiness Day. Each Monthly Paymentshall beequal toall accruedbut unpaidinterest.The Companyshallpayinterest totheHolder o nthe aggregate unconverted and then outstandingprincipal amountof thisNoteon theMaturity Date(the “PaymentDate”) except asotherwise set forth inthisNote.Ifany Payment Date isnot aBusiness Day,then the applicable payment shall bedueon thenextsucceedingBusiness Day. Each Monthly Paymentshall beequal toall accruedbut unpaid interest.
| (c) | PaymentinCash. Allpayments shall bemade incashonany PaymentDate. |
(d) PrepaymentandRedemption.Duringthe first sixmonthsthisNote is ineffect, theCompany may redeemthisNotebypaying totheHolderanamountasfollows:(i) ifthe redemption isprior tothe 30thdaythisNote is ineffect(including the 30thday),then for anamount equal to110% oftheunpaid principal amountof thisNote alongwithanyinterest thathas accrued duringthatperiod;(ii) ifthe redemption ison the31st daythisNote is ineffect,up toandincluding the 60thdaythisNote is ineffect,then for anamount equal to115%of theunpaid principal amountof thisNote alongwith anyaccruedinterest; (iii) ifthe redemption ison the61st daythisNote is ineffect,uptoandincluding the
120th daythisNote is ineffect,then for anamount equal to135%of theunpaid principal amountof thisNote alongwithany accruedinterest; (iv) ifthe redemption ison the121st daythisNote is ineffect,up toandincluding the180th daythisNote is ineffect,then for anamount equal to150%of the unpaidprincipal amountof thisNote alongwithany accruedinterest. ThisNote may notbe redeemed after the180th daythisNote is ineffect. Theredemptionmustbeclosed andpaid for within 3business daysof theCompany sendingthe redemptiondemandor the redemption will be invalidandtheCompany maynotredeemthisNote.In theeventtheHolder has delivered aNoticeof Conversion totheCompanyprior tothereceiptof aredemption notice from theCompany,theNoticeof Conversion shall prevail.
Section3.Registration of Transfersand Exchanges.
(a) DifferentDenominations. ThisNote isexchangeable for anequalaggregate principalamountofNotesofdifferentauthorized denominations (of no less than$1,000 inprincipal amount), asrequested by theHoldersurrendering thesame. No service chargewill bepayableforsuch registration oftransferor exchange.
(b) InvestorRepresentations. ThisNote has been issued subject tocertain investment representations of theoriginal Holderset forth inthePurchase Agreement and maybe transferred orexchanged only incompliance with thePurchase Agreement andapplicablefederal andstate securitieslaws andregulations.
(c) RelianceonNote Register.Prior toduepresentment fortransfer totheCompanyof thisNote,theCompany and any agentof theCompany maytreat thePerson inwhose namethisNote is dulyregistered on theNote Registeras theowner hereoffor thepurposeofreceiving paymentas hereinprovided andfor allotherpurposes,whetherornotthisNote isoverdue, and neithertheCompany noranysuch agentshall beaffectedby notice tothe contrary.
Section4.Conversion.
(a) Voluntary Conversion. AftertheOriginal Issue Dateuntil thisNote isno longeroutstanding, and providedthat that theprovisionsofRule 144 undertheSecurities Actsopermit,thisNoteshall beconvertible, inwholeor inpart, atany time, andfrom time totime,intosharesofCommon Stockat the option of theHolder. The Holdershalleffect conversionsbydelivering totheCompany aNoticeofConversion,the form ofwhich isattached heretoasAnnex A(each, a“Noticeof Conversion”),specifyingtherein theprincipal amountof thisNote tobeconverted andthe date onwhichsuchconversionshall beeffected (such date,the“Conversion Date”).If noConversion Date isspecified in aNoticeofConversion,theConversion Dateshall be the date thatsuch NoticeofConversion isdeemeddelivered hereunder. No ink-original NoticeofConversionshall berequired, norshallanymedallionguarantee(orothertype ofguaranteeornotarization)ofany NoticeofConversionform berequired.Toeffect conversions hereunder,theHoldershallnotberequired tophysically surrenderthisNote tothe Companyunlessthe entireprincipal amountof thisNote,plus allaccrued and unpaidinterestthereon,hasbeensoconverted. Conversions hereundershallhavetheeffectofloweringtheoutstandingprincipalamountof thisNote inanamount equal totheapplicable conversion. The Holder andthe Companyshallmaintain records showingtheprincipal amount(s) converted ineach conversion,the date of eachconversion, andtheConversionPrice ineffectat the time ofeach conversion. The Companymaydeliver anobjectiontoany NoticeofConversionwithinone Business Dayofdeliveryofsuch Notice of Conversion.In theeventofanydispute ordiscrepancy,therecordsof theHoldershall be controlling anddeterminative intheabsenceofmanifest error.The Holder, and any assigneebyacceptanceof thisNote, acknowledge and agree that,byreasonof theprovisionsof thisparagraph,followingconversionof aportionof thisNote,theunpaid and unconverted principal amountof thisNote maybe lessthantheamount statedon thefacehereof.
(b) ConversionPrice. The“ConversionPrice” ineffectonanyConversionDate means,as ofanyConversionDateorotherdate of determination, shall be65%of thelowesttrading price for the Company’s CommonStock duringthe tenTrading Daysimmediately preceding thedeliveryby theHolderof aNoticeof Conversion,provided however andnotwithstandinganything tothecontraryherein,duringanEventofDefaultthe Conversion Price in ineffectonanyConversionDate means,as of any ConversionDateorotherdate of determination, shall be55%of thelowesttrading price for theCompany’s CommonStock duringthe tenTrading Daysimmediately preceding thedeliveryby theHolderof aNoticeof Conversion.Theapplicablepricesshall be asreportedby Bloomberg L.P. Notwithstanding the foregoing, innoeventshall the Conversion Price be less then thepar valueof the CommonStock.
| (c) | Mechanics of Conversion orPrepayment. |
(i) ConversionShares Issuable UponConversion ofPrincipal Amount. Thenumber of ConversionSharesissuableupon aconversion hereunder shall be determined by thequotientobtained by dividing (x) the outstandingprincipal amountof thisNote tobe converted by (y) the Conversion Price ineffectat the time ofsuchconversion.
(ii) Deliveryof CertificateUponConversion.Notlater than three (3)TradingDays aftereachConversionDate(the“Share Delivery Date”),theCompanyshalldeliver,orcause tobedelivered, totheHolder any certificateor certificatesrequired tobedeliveredby theCompany under this Section4(c).
(iii) Failure toDeliverCertificates. If, inthecaseofany Noticeof Conversion, such certificateor certificatesarenot delivered toor asdirectedby the applicableHolderby theShareDeliveryDate,theHoldershall be entitled toelectby written notice totheCompanyatanytime on orbefore itsreceiptofsuch certificateor certificates, torescindsuchConversion, inwhich eventtheCompanyshallpromptlyreturn totheHolder any original Note delivered totheCompany andtheHoldershall promptly return totheCompanythe CommonStock certificatesissued tosuch Holder pursuant tothe rescinded Conversion Notice.
(iv) Partial LiquidatedDamages.If theCompanyfails forany reason todeliver to theHolder such certificateor certificatespursuant toSection4(c)(ii) by theShare Delivery Date, theCompanyshallpay totheHolder, incash,as liquidateddamages and notas apenalty,foreach $1,000 ofprincipal amount beingconverted,$10 per Trading Day(increasing to$20 per Trading Dayon the tenthTrading DayaftersuchConversionDate)foreach Trading Dayaftersuch Share Delivery Dateuntil such certificatesaredeliveredorHolder rescinds suchconversion.Nothing hereinshall limit aHolder’s right topursue actual damagesordeclareanEventofDefault pursuant toSection 7hereoffor the Company’s failure todeliverConversionSharesor, ifapplicable,cash,within theperiod specified herein andtheHoldershallhavethe right topursueallremedies available to ithereunder, atLawor inequity including,without limitation, adecreeof specific performanceand/or injunctiverelief.The exerciseofanysuch rights shallnot prohibittheHolderfromseeking toenforce damages pursuant toany other Sectionhereof orunderapplicableLaw.
(v) Compensation forBuy-InonFailure toTimely DeliverCertificates Upon Conversion. In addition toany otherrightsavailable totheHolder, iftheCompanyfails forany reason todeliver totheHolder such certificateor certificatesby theShare Delivery Date pursuant toSection 4(c)(ii),and ifaftersuch Share Delivery DatetheHolder isrequiredby itsbrokerage firm topurchase (inanopen markettransaction or otherwise), or theHolder’sbrokerage firm otherwise purchases,shares of CommonStock todeliver in satisfactionof asale by theHolderof the ConversionShares which theHolder wasentitled toreceive uponthe conversion relating tosuch Share Delivery Date(a “Buy-In”), then theCompanyshall(A) pay incash totheHolder(in addition toany other remedies available toor
electedby theHolder)theamount, ifany,bywhich(x) theHolder’stotalpurchaseprice (including any brokerage commissions) for the CommonStockso purchasedexceeds(y) theproductof (1) the aggregatenumberofsharesof CommonStockthat theHolder wasentitled toreceivefrom the conversion at issue multipliedby (2) theactualsale price atwhichthe sellordergiving rise tosuch purchase obligationwasexecuted(includinganybrokerage commissions)and (B)at the option of theHolder,either reissue (ifsurrendered) thisNote in aprincipal amount equaltotheprincipal amountof the attempted conversion (inwhich case suchconversion shall bedeemedrescinded) ordeliver totheHolderthenumberofshares of CommonStockthatwould have beenissued iftheCompany hadtimelycompliedwith itsdelivery requirementsunder Section4(c)(ii).For example,iftheHolderpurchases CommonStock having a totalpurchaseprice of$11,000 tocover aBuy-Inwithrespect toan attempted conversion of thisNote withrespect towhichtheactualsale price of the ConversionShares(includinganybrokerage commissions) giving rise tosuch purchase obligationwas atotal of$10,000 under clause (A)of the immediately precedingsentence,theCompanyshall berequired topaytheHolder $1,000. The Holdershall provide theCompanywritten notice indicatingtheamounts payable totheHolder inrespectof theBuy-Inandevidenceof theamountofsuchloss.Nothing hereinshall limit aHolder’sright topursue anyotherremedies available to ithereunder, atLawor inequity including,without limitation, adecreeof specificperformanceand/or injunctiverelief withrespect totheCompany’sfailure totimelydeliver certificatesrepresentingsharesof CommonStock uponconversion of thisNoteasrequired pursuant tothe terms hereof.
(vi) Reservation ofShares Issuable UponConversion.The Companycovenants that itwillreserve and keep available outof itsauthorizedand unissued sharesof CommonStockfor thepurposeof issuancesuponconversion of thisNote andthe issued with thisNote,free from preemptive rights orany other actualcontingentpurchaserights ofPersons otherthan theHolder (andthe otherholdersof theNotes), notless than300%of theRequired Minimum; and ifatanytime thenumber ofauthorizedbut unissued shares of CommonStockshall be insufficient toeffectthe conversion of this noteor shall be less than theRequired Minimum,theCompanyshall takesuchcorporate action asmay,intheopinionof itscounsel,be necessary toincrease itsauthorizedbut unissued sharesof CommonStock tosuch numberofsharesas shall be sufficient forsuch purpose. The Companycovenants that allshares of CommonStockthat shall be issuableuponconversion of thisNoteshall,uponissue, be duly authorized, validlyissued,fully paidandnonassessable.
(vii) FractionalShares. Nofractionalsharesor scrip representing fractional shares shall be issueduponthe conversion of thisNote. As toanyfraction of ashare whichtheHolderwould otherwise be entitled topurchase upon suchconversion, theCompanyshall at itselection,eitherpay acashadjustment inrespectofsuchfinal fraction inanamount equal tosuchfraction multipliedby theConversion Price orroundup tothenext wholeshare.
(viii) Transfer Taxes andExpenses.The issuanceof certificatesforsharesof theCommonStockon conversion of thisNoteshall bemade without charge totheHolder hereoffor any documentarystampor similartaxesthatmaybepayable inrespectof the issue ordeliveryof such certificates,providedthat, theCompanyshallnotberequired topay anytax thatmaybepayable inrespectofany transfer involved intheissuance and deliveryofany such certificateuponconversion in aname otherthan that of theHolderof thisNoteso convertedandthe Company shallnotberequired toissue ordeliver such certificatesunlessor until thePersonorPersonsrequesting theissuance thereofshallhavepaid totheCompanytheamountofsuchtax or shallhaveestablished tothe satisfactionof theCompanythatsuchtaxhas been paid. The CompanyshallpayallTransfer Agent fees requiredfor same-dayprocessing ofany Noticeof Conversionandallfees tothe DepositoryTrust Company(or another establishedclearingcorporation performing similar functions)requiredfor same-day electronic delivery of the Conversion Shares.
(d) Holder’sConversion Limitations.The Company shall not effect anyconversion of thisNote, and aHoldershallnot havethe right toconvert anyportion of thisNote, totheextent that aftergivingeffect tothe conversion set forth on the applicableNoticeof Conversion, theHolder (together withtheHolder’sAffiliates,and any Personsacting as agroup togetherwith theHolderoranyof the Holder’s Affiliates)wouldbeneficiallyown inexcessof the Beneficial Ownership Limitation (asdefinedbelow).For purposesof the foregoingsentence,thenumberofsharesof CommonStockbeneficiallyowned bytheHolder and itsAffiliates shallincludethenumberofsharesof CommonStockissuableuponconversion of thisNotewithrespect towhich suchdetermination isbeing made, butshallexclude thenumberofsharesof CommonStock whichare issuableupon(i) conversion of the remaining, unconvertedprincipal amountof thisNote beneficiallyownedby theHolderoranyof itsAffiliatesand(ii)exercise orconversion of the unexercised or unconverted portion ofany other securitiesof theCompany subject to a limitationon conversion orexerciseanalogous tothe limitationcontainedherein(including, without limitation,any other Notesor the Warrants) beneficiallyownedby theHolderoranyof itsAffiliates.Exceptas set forth inthe precedingsentence,forpurposesof thisSection 4(d),beneficial ownership shallbe calculated inaccordance withSection 13(d)of the ExchangeAct andthe rulesandregulations promulgated thereunder. To theextentthat the limitationcontained inthisSection 4(d) applies,the determination ofwhetherthisNote isconvertible (in relation toother securitiesownedby the HoldertogetherwithanyAffiliates)andofwhich principal amountof thisNote isconvertible shall be inthe sole discretionof theHolder, andthe submission of aNoticeof Conversion shall bedeemed tobe the Holder’s determination ofwhetherthisNote maybe converted (in relation toother securitiesownedby the HoldertogetherwithanyAffiliates)and which principal amountof thisNote isconvertible, ineach casesubject tothe Beneficial Ownership Limitation. Toensurecompliance with this restriction,theHolderwill bedeemed torepresent totheCompany eachtime itdelivers aNoticeof Conversion thatsuch Notice ofConversionhas notviolated the restrictionsset forth inthis paragraphandtheCompanyshallhave no obligation toverify orconfirmtheaccuracyofsuchdetermination. Inaddition, adetermination as toanygroupstatus as contemplatedaboveshall be determined inaccordance withSection 13(d)of the ExchangeAct andthe rulesandregulations promulgated thereunder.For purposesof thisSection 4(d), indetermining thenumberof outstandingsharesof CommonStock,theHolder mayrely on thenumber ofoutstandingsharesof CommonStockas stated inthemost recentof the following: (i) theCompany’s most recent periodicorannual reportfiled with theSEC,as thecase may be,(ii) amore recent publicannouncement by theCompany,or (iii) amore recentwritten notice by theCompanyor the Company’stransfer agentsetting forth thenumberofsharesof CommonStockoutstanding.Uponthe written or oralrequestof aHolder,theCompanyshall withintwo Trading Days confirmorallyand inwriting to theHolderthenumberofsharesof CommonStockthen outstanding. Inany case,thenumberof outstandingsharesof CommonStockshall be determined after givingeffect tothe conversion orexerciseof securitiesof theCompany,including thisNote,by theHolderor itsAffiliates since the date as ofwhichsuchnumberof outstandingsharesof CommonStock was reported. The“Beneficial Ownership Limitation” shall be4.99%of thenumberofsharesof the CommonStockoutstanding immediately after giving effect totheissuanceofsharesof CommonStockissuableuponconversion of thisNoteheld by theHolder.TheHolder, upon notless than 61days’prior notice totheCompany, may increasethe Beneficial Ownership Limitation provisions of thisSection 4(d)solely withrespect totheHolder’s Note, providedthat theBeneficial Ownership Limitation innoevent exceeds 9.99%of thenumber of sharesof CommonStock outstanding immediately after givingeffect totheissuanceofsharesof CommonStock uponconversion of thisNoteheld by theHolder andthe provisions of thisSection 4(d)shallcontinue toapply. Anysuchincreaseordecreasewillnotbeeffectiveuntil the61st dayaftersuchnotice isdelivered totheCompany. The Holder mayalsodecreasethe Beneficial Ownership Limitation provisions of thisSection 4(d) solelywithrespect totheHolder’s Noteatany time, which decrease shallbe effectively immediately upondeliveryof notice totheCompany. TheBeneficial Ownership Limitation provisions of this paragraph shall be construedandimplemented in amannerotherwise than instrict conformity with thetermsof thisSection 4(d) tocorrectthis paragraph (oranyportionhereof) which maybedefectiveor inconsistent withtheintendedBeneficial Ownership Limitation containedhereinor tomake changesor supplements
necessary ordesirable toproperlygiveeffect tosuch limitation.The limitationscontained in thisparagraph shallapply to asuccessorholderof this Note.
Section5.Certain Adjustments.
(a) Stock Dividends and StockSplits. If theCompany,atanytimewhilethisNoteisoutstanding:(i)pays astockdividendorotherwise makes adistribution or distributionspayable inshares ofCommonStockonsharesofCommonStockoranyCommonStock Equivalents (which,for avoidance ofdoubt,shallnot include any sharesofCommonStockissued by theCompanyupon conversionof, orpaymentof intereston,theNotesorpursuant toanyof theother Transaction Documents),(ii) subdividesoutstanding sharesofCommonStockinto alarger numberofshares,(iii)combines (includingbyway of areversestock split)outstanding sharesofCommonStockinto asmaller numberofsharesor (iv) issues, intheeventof areclassification ofsharesof theCommonStock, any sharesofcapitalstock of theCompany,then theConversionPrice shall be multiplied by afraction ofwhichthenumeratorshall be thenumberofsharesofCommonStock (excluding any treasury sharesof theCompany)outstandingimmediately before such event, andofwhichthedenominatorshall be thenumberofsharesofCommon Stock outstanding immediatelyaftersuch event. Any adjustment made pursuant tothisSectionshallbecome effective immediatelyafter therecorddate for thedeterminationofshareholdersentitled toreceive such dividendor distributionandshallbecome effective immediatelyafter theeffectivedate inthecaseof asubdivision, combinationor re-classification.
(b) Subsequent EquitySales.If, atany time,for so long as theNoteorany amountsaccruedand payablethereunderremainoutstanding, theCompanyoranySubsidiary, as applicable, sells or grantsanyoption topurchaseor sells orgrants anyright toreprice,or otherwisedisposesof or issues, any CommonStockor CommonStockEquivalents entitlingany Person toacquire sharesof CommonStock at aneffectivepriceper sharethat islowerthan the Conversion Price then ineffect (such lower price, the“BaseConversionPrice” and each such issuance a“DilutiveIssuance”), then the Conversion Price shallbe immediatelyreduced toequaltheBaseConversion Price.
If theholderofCommonStockorCommonStockEquivalents outstanding on theOriginal IssueDateor issued thereafter shall atany time, whetherby operation ofpurchaseprice adjustments, reset provisions, floating conversion,exerciseor exchangepricesor otherwise, ordue towarrants, options orrightsper share whichare issued inconnection withsuch issuance, receiveor be entitled toreceiveshares ofCommonStockat aneffectivepriceper sharethat islowerthan the Conversion Price then ineffect,such issuanceshall bedeemed tohave occurredfor less than the Conversion Price onsuchdateandsuchissuanceshall bedeemed tobe aDilutive Issuance.
If afteranyDilutiveIssuanceofCommonStockEquivalents, the priceper shareforwhichshares ofCommonStock maybe issuable thereafter isamendedoradjusted, and suchprice as soamended shallbe less than the Conversion Price ineffectat the time ofsuch amendmentor adjustment, then the Conversion Price shall beadjusted upon each such issuanceoramendmentasprovided inthis Section5(b).
Incase anyCommonStockEquivalent isissued inconnection with the issue or sale of other securitiesof theCompany, togethercomprisingoneintegrated transaction, (x) theCommonStock Equivalents will bedeemed tohave beenissued for theOption ValueofsuchCommonStockEquivalentsand(y) theother securitiesissued or sold insuchintegrated transaction shall bedeemed tohavebeen issued or sold for the difference of (I) the aggregate considerationreceivedby theCompanyless any consideration paid orpayableby theCompany pursuant tothetermsofsuch other securitiesof theCompany,less (II) theOption Value.Ifany sharesofCommonStockorCommonStockEquivalents areissued or sold ordeemed tohave beenissued or sold forcash,theamountofsuchconsideration received by theCompanywill bedeemed tobe thenet amount receivedby theCompany therefor.Ifany shares of
CommonStockorCommonStock Equivalentsare issued or sold for aconsideration otherthancash,theamountofsuch consideration receivedby theCompanywill be the fairvalueofsuchconsideration,except where such considerationconsists of publiclytradedsecurities, inwhich casetheamountofconsideration receivedby theCompanywill be theVWAPofsuchpublictradedsecurities on the dateof receipt.Ifany sharesofCommonStockorCommonStock Equivalentsare issued totheownersof thenon-survivingentity inconnectionwithany merger inwhichtheCompany isthesurvivingentity, theamountofconsideration thereforwill bedeemed tobe the fairvalueofsuchportion of thenetassets andbusinessof thenon-survivingentity as isattributabletosuch sharesofCommonStockorCommonStockEquivalents,as thecase maybe.
If theCompany entersinto aVariable RateTransaction despite the prohibitionset forth in thePurchaseAgreement, theCompanyshall bedeemed tohaveissuedCommonStockorCommonStock Equivalents at thelowestpossible conversion price atwhich such securitiesmaybe convertedorexercisedunderthetermsofsuch Variable RateTransaction.
The Companyshall notify theHolder inwriting,no later than theTrading Dayfollowing theissuanceofany CommonStockor CommonStockEquivalentssubject tothisSection 5(b), indicatingtherein the applicableissuance price,or applicablereset price,exchangeprice,conversion priceandother pricingterms (such notice,the“Dilutive Issuance Notice”). For purposesof clarification,whetherornottheCompany provides aDilutiveIssuance Notice pursuant tothisSection 5(b), uponthe occurrence ofanyDilutiveIssuance,theHolder isentitled toreceive anumberof ConversionShares based upon theBaseConversion Price on or after the date ofsuchDilutiveIssuance,regardless ofwhetherthe Holder accuratelyrefers totheBaseConversion Price intheNoticeof Conversion.
Theprovisions of thisSection 5(b)shallapply eachtime aDilutiveIssuance occursafter theOriginalIssueDatefor so long as theNoteorany amounts accrued and payablethereunder remain outstanding,but anyadjustment of the Conversion Pricepursuant tothisSection 5(b)shall bedownwardonly.
Notwithstandinganything inthisSection 5(b),no adjustment will bemade underthisSection5(b) inrespectof anExemptIssuance.
(c) SubsequentRightsOfferings. In addition toanyadjustmentspursuant toSection5(a)above, ifatanytime theCompany grants,issues or sellsanyCommonStock,CommonStockEquivalents or rights topurchase stock, warrants, securitiesorother propertypro rata totherecord holdersof any class ofsharesofCommonStock(the “PurchaseRights”),then theHolderwill be entitled toacquire,uponthetermsapplicable tosuch Purchase Rights,the aggregatePurchase Rights whichtheHoldercouldhave acquired iftheHolder hadheld thenumberofsharesofCommonStockacquirableuponcomplete conversion of thisNote (without regard toany limitationson conversionhereof,including without limitation,the Beneficial Ownership Limitation) immediatelybeforethe date onwhich arecord istaken for thegrant, issuanceor sale ofsuch Purchase Rights,or, ifnosuch record istaken,the date as of which therecord holdersofsharesofCommonStockare tobe determined for thegrant,issue or sale of suchPurchase Rights(provided,however, totheextentthat theHolder’sright to participate inanysuchPurchase Right wouldresult intheHolderexceeding the Beneficial Ownership Limitation, then theHoldershallnotbe entitled to participate insuch Purchase Right tosuch extent(or inthe beneficial ownership ofany sharesofCommonStockas aresult ofsuch Distribution tosuchextent)).
(d) ProRata Distributions. During suchtime as thisNote isoutstanding, iftheCompanyshalldeclareormake any dividendorotherdistribution of itsassets or rights orwarrants toacquire itsassets, orsubscribefor orpurchase anysecurityotherthan CommonStock, toholdersofsharesof CommonStock,bywayof return of capital orotherwise (including, withoutlimitation,anydistribution ofcash,stock orothersecurities,propertyoroptionsbywayof adividend,spin off, reclassification,
corporate rearrangement,schemeof arrangement orothersimilar transaction) (a “Distribution”), at any time after theissuanceof thisNote, then, ineach such case,theHoldershall be entitled to participate insuch Distribution tothesame extentthat theHolder would haveparticipated therein iftheHolderhad held thenumberofsharesof CommonStockacquirableupon completeconversion of thisNote(withoutregard toanylimitationsonexercise hereof,includingwithout limitation,the Beneficial Ownership Limitation) immediatelybeforethe date ofwhich arecord istakenforsuchDistribution, or, ifno suchrecord istaken,the date as ofwhichtherecord holdersofsharesof CommonStockare tobe determined for the participation insuch Distribution(provided,however, totheextentthat theHolder'sright to participate inany such Distributionwouldresult intheHolderexceeding the Beneficial Ownership Limitation withrespecttotheCompanyorany otherpublicly-traded corporationsubject toSection13(d) of the ExchangeAct,then theHoldershallnotbe entitled to participate insuch Distribution tosuchextent (or inthe beneficial ownership ofany sharesof CommonStockas aresult ofsuch Distribution tosuch extent)).)andthe portion ofsuch Distributionshall be held inabeyancefor thebenefitof theHolder untilsuch time, ifever,as itsright theretowould notresult intheHolderexceeding the Beneficial Ownership Limitation withrespect totheCompanyorany otherpublicly-traded corporationsubject toSection13(d) of the Exchange Act).).
(e) Fundamental Transaction.If, atanytimewhilethisNote isoutstanding,(i) theCompany,directly or indirectly, inoneormorerelatedtransactions effects any mergerorconsolidationof the Companywith or intoanother Person,(ii) the Company,directly or indirectly,effects anysale, lease,license, assignment, transfer, conveyanceorotherdisposition of all or substantially all of itsassets inone or aseries of relatedtransactions,(iii)any, director indirect,purchase offer, tender offeror exchangeoffer (whetherby the Companyoranother Person) iscompleted pursuant towhich holdersof CommonStockarepermitted tosell,tenderorexchangetheirsharesforother securities, cashorproperty andhasbeen acceptedby theholdersof50%ormoreof theoutstanding CommonStock,(iv) theCompany,directly or indirectly, inoneormorerelatedtransactions effects any reclassification, reorganization or recapitalizationof the CommonStockorany compulsory share exchange pursuant towhichtheCommon Stock iseffectively convertedinto orexchangedforothersecurities,cashorproperty,(v) theCompany,directly or indirectly, inoneormorerelatedtransactions consummates astock orsharepurchaseagreementorother business combination (including, withoutlimitation, areorganization,recapitalization,spin-offorschemeofarrangement)withanother Person whereby such other Person acquires morethan50%of theoutstanding sharesof CommonStock (not including any sharesof CommonStockheld by theother Personorother Persons makingor party to, orassociatedor affiliated with theother Personsmaking or party to,suchstock orshare purchase agreementorother business combination) (each a“Fundamental Transaction”), then, upon any subsequent conversionof thisNote,theHoldershallhavethe right toreceive,foreach Conversion Sharethatwould have beenissuableupon such conversionimmediately prior totheoccurrenceofsuch Fundamental Transaction (without regard toanylimitation on theconversionof thisNote),thenumberofsharesof CommonStockof thesuccessoror acquiringcorporationor of the Company, if it isthesurviving corporation, and any additional consideration(the“Alternate Consideration”) receivableas aresult ofsuch Fundamental Transactionby aholderof thenumberofsharesof CommonStockforwhichthisNote isconvertible immediatelyprior tosuchFundamental Transaction (without regard toanylimitation on theconversionof thisNote). Forpurposes ofany such conversion,thedeterminationof theConversionPrice shall beappropriately adjusted toapply tosuch Alternate Consideration basedon theamountofAlternate Considerationissuable inrespectofone
(1)shareofCommonStock insuchFundamental Transaction,andtheCompanyshall apportion theConversion PriceamongtheAlternateConsideration in areasonablemanner reflectingthe relative value ofany differentcomponents of theAlternateConsideration. IfholdersofCommonStockaregivenanychoiceas tothe securities,cashorproperty tobereceived in aFundamental Transaction, then the Holder shall begiventhesame choiceas totheAlternateConsideration itreceives upon anyconversion of thisNotefollowingsuchFundamental Transaction. Notwithstandinganything tothecontrary, intheevent of aFundamental Transaction that is(1) an allcashtransaction, (2) a“Rule 13e-3transaction” asdefined in
Rule 13e-3 underthe ExchangeAct,or (3) aFundamental Transaction involving apersonor entitynot tradedon aTrading Market,theCompanyoranySuccessor Entity (asdefined below)shall, at theHolder’s option,exercisable concurrently with the consummation of the Fundamental Transaction,purchasethisNotefrom theHolderbypaying totheHoldertheproductof (a) thenumberof ConversionSharesissuableuponfull conversion of thisNote (without regard toany limitationon conversion of thisNote) and(b) the positive differencebetweenthecash per sharepaid insuchFundamental Transactionminusthe then ineffectConversionPrice. The Companyshallcause anysuccessor entity in aFundamental Transaction inwhichtheCompany isnotthesurvivor(the “Successor Entity”) toassume inwriting all of the obligations of theCompany underthisNote andtheotherTransaction Documents inaccordance with the provisions of thisSection 5(e) pursuant towritten agreements informandsubstance reasonably satisfactory totheHolder and approvedby theHolder (withoutunreasonabledelay)prior tosuchFundamental Transactionandshall, at the option of theholderof thisNote, deliver totheHolder inexchange for thisNote asecurity of the Successor Entity evidenced by awritten instrument substantiallysimilar informandsubstance tothisNote which isconvertible for acorrespondingnumberofshares ofcapitalstock ofsuchSuccessor Entity (or itsparententity) equivalent tothesharesofCommonStock acquirableandreceivableuponconversion of thisNote (without regard toany limitationson theconversion of thisNote)prior tosuchFundamental Transaction,andwith aconversion pricewhich appliesthe Conversion Price hereunder tosuch sharesofcapitalstock(buttaking intoaccountthe relativevalueof thesharesofCommonStock pursuant tosuchFundamental Transactionandthevalueof suchsharesofcapital stock, such numberofsharesofcapitalstockand suchconversion pricebeingfor thepurposeof protecting the economicvalueof thisNoteimmediately prior tothe consummation of such Fundamental Transaction),and which isreasonably satisfactory informandsubstance tothe Holder.Uponthe occurrence ofany suchFundamental Transaction, the SuccessorEntityshallsucceedto,and be substitutedfor (so that fromandafter the date ofsuchFundamental Transaction, the provisions of thisNote andtheotherTransaction Documentsreferring tothe“Company”shallreferinstead to theSuccessor Entity),and may exercise everyrightand powerof theCompany andshallassumeall of theobligations of theCompany underthisNote andtheotherTransaction Documents with thesame effect as ifsuchSuccessor Entityhad been namedas theCompany herein.Notwithstandinganything in thisSection 5(e),anExempt Issuanceshallnotbedeemed aFundamental Transaction.
(f) Calculations.AllcalculationsunderthisSection 5shallbemade tothenearest centor thenearest 1/100thof ashare,as thecase may be. For purposesof thisSection5, thenumberofshares ofCommonStock deemed tobe issuedandoutstanding as of agivendate shall be the sum of thenumber ofsharesofCommonStock(excludingany treasury sharesof theCompany)issuedandoutstanding.
(i) Adjustment toConversionPrice. Wheneverthe Conversion Price isadjustedpursuant toanyprovision of thisSection5, theCompanyshallpromptly deliver toeach Holder a noticesetting forth the Conversion Price aftersuchadjustmentandsetting forth abrief statement of the factsrequiring suchadjustment.
(ii) Notice toAllowConversion byHolder.If(A)theCompany shall declare adividend(orany other distribution inwhatever form)on the CommonStock, (B)theCompany shalldeclare aspecialnonrecurringcash dividendon or aredemption of the CommonStock, (C)theCompanyshallauthorizethegranting toallholdersof the CommonStockof rights orwarrants tosubscribe for orpurchase any sharesofcapitalstock ofanyclass or ofanyrights,(D)theapprovalofanyshareholdersoftheCompanyshall berequired inconnection withany reclassificationof the CommonStock,any consolidation ormerger towhichtheCompany is aparty, anysale ortransferof all or substantiallyall ofthe assets of theCompany,oranycompulsoryshareexchangewherebythe CommonStock isconverted intoother securities,cashorpropertyor (E) theCompanyshallauthorizethe voluntary or involuntary dissolution, liquidationorwindingup of the affairs of theCompany, then, ineach case,theCompany
shallcausetobe filed ateachoffice oragencymaintained for thepurposeof conversion of thisNote,and shallcause tobedelivered totheHolderat itslastaddressas itshallappear upontheNote Register, atleast tencalendar daysprior tothe applicablerecordoreffectivedate hereinafter specified, a noticestating (x) the date onwhich arecord is tobetakenfor thepurposeofsuch dividend, distribution,redemption, rights orwarrants,or if arecord isnot tobetaken,the date as ofwhichthe holders of the CommonStockofrecord tobe entitled tosuch dividend, distributions,redemption, rights orwarrants are tobe determined or (y) the date onwhich suchreclassification, consolidation,merger,sale,transfer orshareexchange isexpected tobecome effectiveorclose, andthe date as ofwhich it isexpected thatholdersof the CommonStockofrecordshall be entitled toexchange theirsharesof the CommonStock for securities,cashorother propertydeliverableupon suchreclassification, consolidation,merger, sale,transferorshareexchange,providedthat the failure todeliver suchnotice orany defecttherein or in thedelivery thereofshallnot affectthe validity of the corporate actionrequired tobespecified insuchnotice. To theextentthatanynoticeprovidedhereunder constitutes,orcontains, material,non-public information regarding theCompanyoranyof the Subsidiaries (as determined ingoodfaith by theCompany), theCompanyor itssuccessor shall simultaneously filesuchnotice with theSEC pursuant to aCurrentReport onForm 8-K. The Holdershallremainentitled toconvertthisNote duringthe20-day period commencingon the date ofsuchnoticethroughtheeffectivedate of theevent triggeringsuchnoticeexceptas may otherwise be expressly set forth herein.
Section6.NegativeCovenants.Aslong asanyportion of thisNote remainsoutstanding,unless theholdersof amajority inprincipal amountof the then outstandingNotesshallhaveotherwisegivenprior writtenconsent,theCompanyshall not,andshallnot permit anyof the Subsidiaries to, directly or indirectly:
(a) otherthan Permitted Indebtedness,enterinto,create, incur, assume,guarantee orsuffer toexistanyIndebtedness for borrowedmoneyofany kind,including,but notlimited to, aguarantee, on orwithrespecttoanyof itspropertyor assetsnow ownedorhereafter acquiredoranyinterest therein or anyincomeor profits therefrom;
(b) amend itscharter documents, including, withoutlimitation, itscertificate of incorporationand bylaws, inany mannerthatmaterially and adversely affects anyrights of the Holder;
(C)enter into any transactionwith any Affiliate of the Companywhich wouldbe required tobedisclosed inanypublic filing with theSECassuming that theCompany issubject tothe Securities Act or the ExchangeAct, unless suchtransaction ismadeon an arm’s-length basisandexpresslyapproved by amajorityof the disinteresteddirectorsof theCompany (even ifless than aquorumotherwise required forboardapproval);or
(d)enterintoanyagreement withrespect toanyof the foregoing.Section7.EventsofDefault.
(a) “EventofDefault” means, wherever used herein, anyof the followingevents(whatever thereasonforsuch event and whether such eventshall be voluntary or involuntary oreffected byoperation ofLaworpursuant toanyjudgment,decreeororderofany court,orany order,rule orregulation ofanyadministrative or governmental body):
(i) any default inthepaymentof(A)theprincipal amountofany Note or
(B)interest, latefees, liquidateddamages and other amounts owing to aHolderonany Note,asandwhen thesameshallbecome due and payable (whetheron aConversionDateor theMaturity Dateor byacceleration or otherwise)which default,solely inthecaseof an interestpaymentorother defaultunderclause (B) above, isnot curedwithin threeTradingDays;
(ii) theCompanyshall fail toobserveorperform any other covenantor agreement contained intheNotes (otherthan abreachby theCompanyof itsobligations todeliver shares of CommonStock totheHolder uponconversion,which breach isaddressed inclause(x)below)or any TransactionDocument whichfailure isnot cured, ifpossible tocure,within the earlier tooccurof(A) 3Trading Daysafter notice ofsuchfailuresentby theHolderor byany other Holder totheCompanyand
(B) 5Trading Daysafter theCompany has become awareofsuch failure;
(iii) If after forth-five(45) daysfrom the datehereof whiletheHolder ownsany Registrable Securities, the Registration Statement isnot effective underthe SecuritieAct registering theRegistrable Securities;
(iv) ifninety(90) daysfrom the datehereof, whiletheHolder owns anyRegistrable Securities, the Registration Statement isnot effective underthe SecuritiesAct registeringthe RegistrableSecurities;
(v) anyrepresentation orwarranty made inthisNote, any otherTransaction Document,anywritten statementpursuant heretoor thereto orany other report, financialstatement or certificatemadeordelivered totheHolderorany other Holder pursuant heretoortheretoshall be untrue orincorrect inany material respectas of the datewhen madeordeemedmade;
(vi) theCompanyoranySignificant Subsidiary (assuchterm isdefined inRule 1-02(w)of RegulationS-X)shall besubject to aBankruptcy Event;
(vii) theCompanyoranySubsidiary shalldefaultonanyof itsobligationsunderany, mortgage,creditagreement orotherfacility, indenture agreement,factoringagreement or other instrumentunder whichtheremaybeissued,or bywhichtheremaybesecuredor evidenced, any indebtedness for borrowedmoney,including debentures or promissorynotesormoney due underany long term leasing orfactoringarrangement that (a)involvesan obligationgreaterthan$5,000,whethersuchindebtednessnowexists or shallhereafterbecreated, and(b) results insuchindebtedness becoming orbeing declared due and payableprior tothe date onwhich itwouldotherwisebecome due andpayableand such default isnot curedwithin threeTradingDays;
(viii) theCommonStockshallnotbe eligible for listing or quotation for trading on itsTrading Marketfor aperiod longerthan 10TradingDays;
(ixi) theCompanyshallhaveconsummated aChangeofControlTransaction or/Fundamental TransactionwithouttheLead Investors consent without paying infull allamountsowedundertheNoteat or prior tosuchconsummation;
(x) afinal judgment for thepaymentofmoneyaggregating inexcessof$50,000 isrendered againsttheCompany and/or anyof itsSubsidiariesand whichjudgment isnot, within 45 days after the entrythereof, bonded,discharged orstayed pending appeal,or isnotdischarged within 60 days after the expiration ofsuchstay; provided,however, anyjudgment that iscoveredby insurance or anindemnity from acredit-worthy party willnotbeincluded incalculating theamountof the judgment solong as theCompany providestheHolder awritten statementfrom such insureror indemnity provider(whichwritten statement shall be reasonably satisfactory totheHolder) totheeffectthatsuchjudgment iscoveredby insurance or an indemnityandtheCompanyorsuchSubsidiary (as thecase may be) willreceivetheproceedsofsuchinsurance or indemnity within 30daysof theissuanceofsuchjudgment.
(xi) theCompanyshallprovideatanytime notice totheHolder,including byway ofpublic announcement, of theCompany’sintention tonot honor requestsfor conversions ofany Notes inaccordance with theterms hereofor theCompany does not honor arequestfor conversion ofany Notes as requiredby the Notes
| (xii) | theCompanyshall be inbreachofany material contractor agreement. |
(b) RemediesUpon EventofDefault.Ifany EventofDefault occurs,the outstandingprincipal amountof thisNote,plusaccrued but unpaidinterest, liquidateddamages and otheramountsowing inrespect thereof throughthe date of acceleration, shallbecome,at theHolder’selection, immediatelydue and payable incashat the MandatoryDefault Amount. Uponthepayment infull of theMandatoryDefault Amount,theHoldershallpromptlysurrender thisNote toor asdirectedby theCompany.In connection withsuchacceleration describedherein,theHolder need not provide, and theCompany hereby waives, anypresentment,demand, protestorothernotice ofany kind, andthe Holdermayimmediatelyand withoutexpiration ofany grace period enforce any andall of itsrightsandremedies hereunderandallother remedies available to itunderapplicableLaw. Suchaccelerationmaybe rescindedand annulledbyHolderatanytime prior topaymenthereunderandtheHoldershallhaveall rights as aholderof theNoteuntilsuch time, ifany,as theHolder receivesfullpayment pursuant tothis Section7(b). No such rescissionor annulment shallaffect anysubsequentEventofDefaultorimpair any rightconsequent thereon.
(c) Interest Rate Upon EventofDefault. Commencingon the occurrence ofany Event ofDefault anduntilsuch EventofDefault iscured,thisNoteshallaccrueinterest at an interest rateequal totheDefault InterestRate.
Section8.Miscellaneous.
(a) NoRightsas StockholderUntilConversion. ThisNote does notentitle theHolder toany voting rights, dividends orotherrights as astockholder of theCompanyprior tothe conversion hereofotherthan as explicitlyset forth inSection 4.
(b) Notices. All notices, offers,acceptanceand any otheractsunderthisAgreement(except payment) shall be inwriting, andshall be sufficientlygiven ifdelivered tothe addressees inperson, by Federal Expressor similarreceipted next business day delivery,as follows:
If totheCompany:Max SoundCorporation.
8837Villa La JollaDrive, Unit 12109,La Jolla,California92039
If toHolder:
Bellridge CapitalLP.
515E.Las Olas Boulevard,Suite120AFortLauderdale,Florida 33301,
or tosuch other addressasanyofthem,by notice totheother maydesignate from time totime.
Timeshall becountedto, orfrom,as thecase may be,the date of delivery.
(c) AbsoluteObligation.Exceptas expresslyprovided herein,no provision of thisNoteshall alter orimpairthe obligationof theCompany, which isabsolute andunconditional, topaythe principal of, liquidateddamages and accruedinterestandlatefees,as applicable, on thisNoteat thetime,place,andrate,and inthe coin orcurrency, hereinprescribed. ThisNote is adirect debt obligationof theCompany.ThisNote rankspari passuwith allother Notes noworhereafterissuedunderthe Purchase Agreement.
(d) Lostor MutilatedNote.If thisNote shallbe mutilated, lost, stolen or destroyed, theCompanyshallexecute and deliver, inexchangeandsubstitutionforand uponcancellation of amutilatedNote,or inlieu of or in substitutionfor alost, stolen or destroyedNote, anew Notefor the principalamountof thisNoteso mutilated, lost, stolen or destroyed,butonlyupon receiptofevidenceofsuch loss,theft or destructionofsuch Note, andof the ownershiphereof,reasonably satisfactory totheCompany. The applicantfor anew Note under suchcircumstances shall alsopay anyreasonable third-party costs(including customary indemnity) associated with theissuanceof thenewNote.
(e) Exclusive Jurisdiction;GoverningLaw.Allquestions concerning the construction, validity, enforcementand interpretationof thisNoteshall begovernedbyandconstruedand enforced inaccordance with theinternal lawsof the State ofNew York, without regard tothe principles ofconflict oflaws thereof. Eachpartyagreesthat alllegalproceedings concerning the interpretation, enforcement anddefenseof the transactions contemplated byanyof the Transaction Documents(whether brought against apartyheretoor itsrespective Affiliates,directors,officers, shareholders, employees oragents)shall onlybecommenced inthe stateand federal courtssitting inNew York, New York(the“New YorkCourts”).Eachpartyhereto herebyirrevocablysubmits tothe exclusive jurisdictionof theNew York Courtsfor theadjudication ofanydispute hereunder or inconnectionherewithor withanytransaction contemplatedherebyor discussedherein(including withrespect tothe enforcement ofanyof the Transaction Documents),and herebyirrevocablywaives, and agrees not toassert inanysuit, action or proceeding, any claim that it isnotpersonallysubject tothe jurisdictionofsuch New York Courts,orsuch NewYorkCourtsareimproperor inconvenientvenueforsuchproceeding.Eachpartyherebyirrevocably waivespersonal serviceofprocess and consents toprocess being served inany suchsuit, action or proceedingby mailing acopy thereofvia registered or certifiedmailor overnightdelivery(withevidenceofdelivery) tosuchparty at theaddress ineffectfornotices to itunderthisNote and agreesthatsuch service shall constitutegood andsufficientserviceofprocess andnoticethereof. Nothingcontainedhereinshall bedeemed tolimit inany way anyright toserve process inany other mannerpermitted by applicableLaw. Eachpartyhereto herebyirrevocablywaives, tothe fullestextentpermitted by applicableLaw, anyand all right totrial by jury inany legalproceeding arisingoutof or relating tothisNoteor the transactions contemplated hereby.
(f) Waiver. Any waiverby theCompanyor theHolderof abreachofanyprovision of thisNoteshallnot operateas or be construed tobe awaiverofany other breachofsuchprovision or of anybreachofany otherprovision of thisNote. Thefailure of theCompanyor theHolder toinsistupon strictadherence toanyterm of thisNoteononeormoreoccasions shallnotbe considered awaiveror deprive that party of the right thereafter toinsistuponstrict adherence tothat term orany otherterm of this Note onany other occasion. Any waiverby theCompanyor theHolder mustbe inwriting.
(g) Severability. Ifanyprovision of thisNote isinvalid, illegal or unenforceable, the balance of thisNoteshallremain ineffect,as long as theessential terms andconditions of thisNoteforeach partyremainvalid,binding, andenforceable. If itshall befoundthatanyinterest orother amountdeemed interestduehereunder violates the applicableLawgoverningusury,the applicable rate of interest due hereunder shall automatically belowered toequalthe maximum rate of interest permitted under applicableLaw.
(h) Remedies, Characterizations,OtherObligations,Breaches andInjunctiveRelief.Theremedies provided inthisNoteshall be cumulativeand inaddition toallotherremediesavailableunder thisNote and anyof theotherTransaction Documents atLawor inequity (including adecreeof specific performanceand/or other injunctiverelief),and nothing hereinshall limit theHolder’sright topursueactual andconsequentialdamagesforanyfailure by theCompany tocomplywith thetermsof this Note.Amountsset forth orprovidedforhereinwithrespect topayments, conversionandthe like(and thecomputationthereof)shall be theamounts tobereceivedby theHolder andshall not,exceptas expresslyprovided herein,besubject toany other obligationof theCompany(or the performancethereof).The
Companyacknowledges that abreachby itof itsobligations hereunder willcauseirreparableharm to theHolder andthat theremedyatLawforany such breach wouldbe inadequate.The Companythereforeagreesthat, intheeventofany such breachor threatenedbreach,theHoldershall be entitled, in addition toallother availableremedies, toan injunction restrainingany such breachorany suchthreatened breach,withoutthenecessityofshowingeconomic lossand without any bondorothersecuritybeingrequired.The Companyshallprovideall informationanddocumentation totheHolderthat isreasonably requested by theHolder toenabletheHolder toconfirmtheCompany’scompliance with theterms andconditions of this Note.
(i) Next Business Day. Whenever any paymentorother obligationhereundershallbedue on aday otherthan aBusiness Day, such paymentshall bemadeon thenextsucceedingBusinessDay.
(Signature PagesFollow)
INWITNESSWHEREOF,theCompany has causedthisNote tobe dulyexecutedby a dulyauthorizedofficeras of the date firstaboveindicated.
MAX SOUND CORPORATION.
By:
Name:JohnBlaisure Title: CEO
ANNEX A
NOTICEOFCONVERSION
Theundersignedherebyelects toconvert principal underthe 8% ConvertibleNote dueApril 18,2018issued byMax SoundCorporation, aDelaware corporation (the “Company”), intoshares of commonstock (the“Common Stock”),of theCompanyaccording tothe conditionshereof,as of thedate writtenbelow.Ifsharesof CommonStockare tobe issued inthenameof apersonother than the undersigned, the undersigned willpayalltransfer taxes payablewithrespecttheretoand isdeliveringherewith such certificatesand opinionsas reasonably requested by theCompany inaccordance therewith.Nofee will becharged totheholderforanyconversion,exceptfor suchtransfer taxes, ifany.
Bythedeliveryof thisNoticeof Conversion the undersigned representsand warrants to theCompanythat itsownership of the CommonStock does not exceedtheamounts specified under Section 4of thisNote,as determined inaccordance withSection 13(d)of the Exchange Act.
Theundersignedagrees tocomplywith the prospectusdeliveryrequirementsunderthe applicable securitieslaws inconnection withany transferof theaforesaid sharesof CommonStock.
Conversioncalculations:
Date toEffectConversion:
PrincipalAmountofNote tobe Converted:PaymentofInterest inCommonStockyes no
Ifyes,$ofInterestAccrued onAccount ofConversion at Issue.
NumberofsharesofCommonStock tobe issued:
Signature:Name:
DWACInstructions:
BrokerNo:
AccountNo:
Schedule 1
CONVERSION SCHEDULE
The8% ConvertibleNote dueon April18, 2019 intheoriginal principal amountof$ areissued byMax SoundCorporation., aDelaware corporation. This ConversionSchedulereflects conversionsmade under Section 4of theabovereferenced Note
Dated:
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