Exhibit 10.56

 

MEMORANDUM

 

TO: Magna Group, LLC     FROM: Star Financial Corporation     DATE: February 4,
2014     RE: Disbursement of Funds

 

Pursuant to that certain Assignment Agreement between the parties listed above
dated February 4. 2014, a disbursement of funds will take place in the amount
and manner described below:

 

Please disburse to:   Amount to disburse: $37,000 Form of distribution Wire Name
Star Financial Corporation Address   Bank Name: CITIBANK Bank Address 700 N.
Milwaukee Ave Vernon Hills IL 60061 Bank Phone # [***] ABA Routing # [***]
Account # [***]

 

$700 to be Withheld for Legal and Administrative Fees

 

 

      TOTAL: $37,700                                 By: /s/ Fay Passley  
Dated: February 4, 2014

Star Financial Corporation  

 

Name:   Fay Passley

Title:    President 

 

 

 

 

STATEMENT OF NON-AFFILIATION

 

1, Star Financial Corporation, am not an officer, director, control person, or
beneficial owner of more than 9.9% of any class of security of the Issuer and I
am not and have not been during the preceding three months an affiliate of the
Company as that term is defined by Rule 144 of the Securities Act of 1933.

 

All information furnished herein is true, accurate and complete. In the event of
a change of any information contained herein, or in the event any information
shall come into my possession which would indicate that the information
contained herein is not accurate or complete, I shall immediately inform you of
such change or information in writing.

 

 

Signed: /s/ Fay Passley       Star Financial Corporation             Date:
2-18-2014    

 

 

 

 

ASSIGNMENT AGREEMENT

 

THIS ASSIGNMENT AGREEMENT (the “Agreement”) is made effective as of the 4th day
of February, 2014, by and among Star Financial Corporation (the “Assignor”);
Magna Group, LLC (the “Assignee”) and EPAZZ, Inc. (the “Company”).

 

WHEREAS, Assignee wish to assume, all of the Assignors’ right, title, and
interest in and to that Promissory Note, dated as of July 31, 2013 made by the
Company in the original principal amount of $32,000 in favor of Assignor (the
“Note”) ; and

 

WHEREAS, the Assignor desires to assign to the Assignee all of the Assignors’
right, title, and interest in and to the Note, based on the terms and conditions
set out herein.

 

WHEREAS, after the funding of this Agreement the Assignee and the Company will
enter into a restated convertible promissory note attached as Exhibit A to this
Agreement, which the Assignor will not be a party to and will have no
involvement in.

 

NOW THEREFORE, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged by
each of the parties hereto, the parties hereto agree as follows:

 

1.Assignment. Subject to and in accordance with the terms and conditions set
forth in this Agreement, the Assignor hereby grants, sells, assigns, and conveys
to the Assignee, without recourse, all of the Assignor’s right, title and
interest in and to the Note. Within two (2) business days of receipt of the
consideration (as set forth below), Assignor shall mail to the Company, at the
address provided to it by the Company the original Note. Upon receipt of the
original Note, the Company shall issue new notes to the Assignee

 

2.Consideration. In consideration for the assignment of the Note, Assignee shall
pay to the Assignor within approximately 24 hours from receipt of the first
certificate of the Company, from the first notice of conversion to the Company
and as further defined in Sections 14 and 15 hereunder, in lawful money of the
United States of America, to the account provided by the Assignor in a
Memorandum to Magna Group, LLC. $500 will be withheld from the Assignor and will
be designated for legal fees associated with this transaction.

 

3.Representations of Assignor. Assignor hereby represents and covenants to
Assignee that:

 

  a. Assignor has all requisite authority to execute and deliver this Agreement
and any other document contemplated by this Agreement and to perform its
obligations hereunder and to consummate the transactions contemplated hereby;

 

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b.The outstanding principal amount of the Note, as of February 18, 2014 is
$32,000 and the accrued and unpaid interest is $5,700.

 

c.Assignor’s interest in and to the Note are free and clear of all liens,
encumbrances, obligations or defects which are of record prior to the date of
this Agreement.

 

d.Assignor is an "accredited investor" within the meaning of Regulation D, Rule
501(a), promulgated by the Securities and Exchange Commission under the
Securities Act.

 

e.Neither Assignor nor any of its officers and directors are now, or have been
in the last 90-days, officers or directors of the Company, or beneficial holders
of 10% or more of its stock

 

  4. Representations of Assignee. The Assignee hereby represents and covenant,
individually, to the Company that:

 

a.Assignee has all requisite power and authority to execute and deliver this
Agreement and any other document contemplated by this Agreement to be signed by
the Assignee and to perform its obligations hereunder and to consummate the
transactions contemplated hereby;

 

b.Assignee understand that the shares to be issued upon conversion of the Note
have not been, and may not be, registered under the Securities Act of 1933, as
amended (the “Securities Act”) by reason of a specific exemption from the
registration provisions of the Securities Act, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of Assignee’s representations as expressed herein or otherwise made
pursuant hereto;

 

c.Assignee has substantial experience in evaluating and investing in securities
of companies similar to the Company and acknowledges that it can protect its own
interests. Assignee has such knowledge and experience in financial and business
matters so it is capable of evaluating the merits and risks of its investment in
the Company. Assignee is an “accredited investor” within the meaning of
Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission
under the Securities Act;

 

d.Assignee has had an opportunity to receive all information related to the
Company requested by them and to ask questions of and receive answers from the
Company regarding the Company, and its business. Assignee has reviewed the
Company’s periodic reports on file with Securities and Exchange Act filings;

 

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e.Assignee understands that there is a limited trading market for the shares
issued upon conversion of the Note and that an active market may not develop for
the shares.

 

f.Assignee represents and warrants that it has read the terms of the Note and
agrees to such terms.

 

5.Entire Agreement. This Agreement constitutes the entire agreement between the
parties in respect of the assignments contemplated hereby and there are no
warranties, representations, terms, conditions, or collateral agreements
expressed or implied, statutory or otherwise, other than expressly set forth in
this Agreement. This Agreement expressly supersedes and replaces any and all
prior understandings or agreements between the parties with respect to the
subject matter of this Agreement.

 

6.All Further Acts. Each of the parties hereto will do any and all such acts and
will execute any and all such documents as may reasonably be necessary from time
to time to give full force and effect to the provisions and intent of this
Agreement. The Assignor further agrees that it will, at any time and from time
to time after the date hereof, upon the Assignee’s request, execute, acknowledge
and deliver or cause to be executed and delivered, all further documents or
instruments necessary to effect the transactions contemplated in this Agreement.

 

7.Choice of Law. This Agreement shall be governed by, and construed with, the
laws of the State of New York, without giving effect to the conflict of law
provisions thereof.

 

8.Notices. Notices to Assignee under the Note, shall be to the address set forth
above.

 

9.Headings. The headings and captions contained in this Agreement are for
convenience of reference only and will not in any way affect the meaning or
interpretation of this Agreement.

 

10.Survival. Each party is entitled to rely on the representations and
warranties of the other party and all such representations and warranties will
be effective regardless of any investigation that the party has undertaken of
failed to undertake. The representations and warranties will survive the
effective date of this Agreement and continue in full force and effect until six
(6) months after the effective date of this Agreement.

 

11.No Assignment. No Party may assign any right, benefit or interest in this
Agreement without the written consent of the other party, which consent may not
be unreasonably withheld. This Agreement will inure to the benefit of, and be
binding upon, the Assignors and the Assignee and their respective successors and
assigns.

 

12.Amendment. This Agreement may not be amended except by an instrument in
writing signed by each of the parties.

 

13.Counterparts and Electronic Means. This Agreement may be executed in several
counterparts, each of which will be deemed to be an original and all of which
will together constitute one and the same instrument. Delivery of an executed
copy of this Agreement by electronic facsimile transmission or other means of
electronic communication capable of producing a printed copy will be deemed to
be execution and delivery of this Agreement as of the day and year first written
above.

 

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14.Conditions. The Assignor acknowledges the Assignee's participation, in
respect to this Agreement, is on a conditions permitting basis. In the event
that the transaction's risk profile, market pricing or implied volatility
substantially changes, due diligence concerns, or any other conditions material
to the successful closing of the transaction change, the Assignee reserves the
right to terminate the Agreement at any time before delivering the cash
consideration, as described hereof, to the Assignor.

 

15.Deposit and Clearance. If the Assignee is unable to deposit and clear the
shares of the Company for any reason, the Assignee may return any shares for
cancellation to the transfer agent and (a) cancel the transaction and not make
payments to the Assignor or (b) demand the return of any payments advanced by
the Assignee to the Assignor.

 

IN WITNESS WHEREOF the parties hereto have executed this Agreement as of the day
and year first above written.

 

 

Assignor:

 

Star Financial Corporation

 

 

/s/ Fay Passley              

Name: Fay Passley

Title: President

 

 

 

Assignee:

 

Magna Group LLC

 

 

/s/ Joshua Sason             

Joshua Sason, CEO

 

 

 

Company:

 

EPAZZ, Inc.

 

 

 /s/ Shaun Passley             

Shaun Passley, CEO, CFO, President 

 

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ISLAND STOCK TRANSFER

 

February 19, 2014

 

VIA ELECTRONIC MAIL

 

Magna Group, LLC

5 Hanover Square

New York, NY 10004

 

Re:            Share Structure of EPAZZ, Inc.

 

To Whom It May Concern:

 

The purpose of this letter is to confirm the share structure of EPAZZ, Inc. (the
“Company”). By execution below, I hereby verify that the information provided is
current and accurate as of the date of this document and that at any time while
the Note entered into as of the date hereof remains outstanding, I will provide
the Company’s current share structure to Magna Group, LLC upon request.

 

 

Shares of EPAZZ, Inc. authorized:
                                                                        

 

 

Shares of EPAZZ, Inc. issued and outstanding:
                                              

 

 

Furthermore, prior to finalizing this issuance, upon being provided a conversion
notice and opinion letter, I agree to provide Magna Group, LLC (via email) with:

 

i)A copy of the certificate(s) to be issued pursuant to the Agreement(s) as of
the date hereof (if physical shares are to be issued in lieu of DWAC);

 

ii)The FedEx Priority Overnight tracking number (or a copy of the packing slip
if available) for any physical certificate(s) to be issued

 

 

Very truly yours,

Island Stock Transfer

 

 

 

                                                  

Name:
Title:

 

 

 

Acknowledged and Agreed

EPAZZ, Inc.

 

 

 

 /s/ Shaun Passley             

Shaun Passley

CEO, CFO, President 

 

 

 

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ISLAND STOCK TRANSFER

February 19, 2014

 

VIA ELECTRONIC MAIL

 

Magna Group, LLC

5 Hanover Square

New York, NY 10004

 

Re:                 Share Structure of EPAZZ, Inc.

 

To Whom It May Concern:

 

The purpose of this letter is to confirm the share structure of EPAZZ, Inc. (the
“Company”). By execution below, I hereby verify that the information provided is
current and accurate as of the date of this document and that at any time while
the Note entered into as of the date hereof remains outstanding, I will provide
the Company’s current share structure to Magna Group, LLC upon request.

 

 

Shares of EPAZZ, Inc. authorized:
                                                                        

 

 

Shares of EPAZZ, Inc. issued and outstanding:
                                              

 

 

Furthermore, prior to finalizing this issuance, upon being provided a conversion
notice and opinion letter, I agree to provide Magna Group, LLC (via email) with:

 

i)A copy of the certificate(s) to be issued pursuant to the Agreement(s) as of
the date hereof (if physical shares are to be issued in lieu of DWAC);

 

ii)The FedEx Priority Overnight tracking number (or a copy of the packing slip
if available) for any physical certificate(s) to be issued

 

 

 

Very truly yours,

Island Stock Transfer

 

 

  

                                                  

Name:
Title:

 

 

 

Acknowledged and Agreed

EPAZZ, Inc.

 

 

 

                                                    

Shaun Passley

CEO, CFO, President 

 

 

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EPAZZ, INC.

 

February 19, 2014

 

Island Stock Transfer

15500 Roosevelt Boulevard Suite 301

Clearwater, FL 33760

 

Ladies and Gentlemen:

 

EPAZZ, Inc., a IL corporation (the "Company") and Magna Group, LLC (the
"Investor") have entered into a Securities Purchase Agreement dated as of
February 19, 2014 (the "Agreement") providing for the issuance of the 12%
Convertible Promissory Note in the principal amount of $37,700 (the "Note").

 

A copy of the Note is attached hereto. You should familiarize yourself with your
issuance and delivery obligations, as Transfer Agent, contained therein. The
shares to be issued are to be registered in the names of the registered holder
of the securities submitted for conversion or exercise or its designee.

 

You are hereby irrevocably authorized and instructed to reserve a sufficient
number of shares of common stock (“Common Stock”) of the Company (initially,
377,000,000 shares) for issuance upon full conversion of the Note in accordance
with the terms thereof. The amount of Common Stock so reserved may be increased,
from time to time, by written instructions of the Company and the Investor.

 

The ability to convert the Note in a timely manner is a material obligation of
the Company pursuant to the Note. Your firm is hereby irrevocably authorized and
instructed to issue shares of Common Stock of the Company (without any
restrictive legend) to the Investor without any further action or confirmation
by the Company: (A) upon your receipt from the Investor of: (i) a notice of
conversion ("Conversion Notice") executed by the Investor; and (ii) an opinion
of counsel of the Investor, in form, substance and scope customary for opinions
of counsel in comparable transactions (and satisfactory to the transfer agent),
to the effect that the shares of Common Stock of the Company issued to the
Investor pursuant to the Conversion Notice are not "restricted securities" as
defined in Rule 144 and should be issued to the Investor without any restrictive
legend; and (B) the number of shares to be issued is less than 9.99% of the
total issued common stock of the Company. If the number of shares issued to the
Investor is greater than 4.99% of the total issued common stock of the company,
the transfer agent must notify the Investor immediately.

 

The Company hereby requests that your firm act immediately, without delay and
without the need for any action or confirmation by the Company with respect to
the issuance of Common Stock pursuant to any Conversion Notices received from
the Investor. The Company also requires that as long as this convertible note is
still outstanding to the Investor, that the transfer agent must disclose the
shares authorized and outstanding to the Investor as requested.

 

The Company shall indemnify you and your officers, directors, principals,
partners, agents and representatives, and hold each of them harmless from and
against any and all loss, liability, damage, claim or expense (including the
reasonable fees and disbursements of its attorneys) incurred by or asserted
against you or any of them arising out of or in connection with the instructions
set forth herein, the performance of your duties hereunder and otherwise in
respect hereof, including the costs and expenses of defending yourself or
themselves against any claim or liability hereunder, except that the Company
shall not be liable hereunder as to matters in respect of which it is determined
that you have acted with gross negligence or in bad faith. You shall have no
liability to the Company in respect to any action taken or any failure to act in
respect of this if such action was taken or omitted to be taken in good faith,
and you shall be entitled to rely in this regard on the advice of counsel.

 

The Board of Directors of the Company has approved the foregoing (irrevocable
instructions) and does hereby extend the Company’s irrevocable agreement to
indemnify your firm for all loss, liability or expense in carrying out the
authority and direction herein contained on the terms herein set forth.

 

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The Company agrees that in the event that the Transfer Agent resigns as the
Company’s transfer agent, the Company shall engage a suitable replacement
transfer agent that will agree to serve as transfer agent for the Company and be
bound by the terms and conditions of these Irrevocable Instructions within five
(5) business days. The Company also agrees that in the event that the Transfer
Agent resigns from their position and the there is a new designated Transfer
Agent for the Company, Magna Group, LLC will be informed of such changes within
five (5) days of the designation.

 

The Investor is intended to be and are third party beneficiaries hereof, and no
amendment or modification to the instructions set forth herein may be made
without the consent of the Investor.

 

 

Very truly yours,

EPAZZ, Inc.

 

 

  

                                                  

Shaun Passley
CEO, CFO, President 

 

 

 

Acknowledged and Agreed

 

 

 

Island Stock Transfer

 

 

 

 

By:                                                     

Name:

Title:

 

 

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Rule 144 Representation

 

EPAZZ, Inc. (the “Company”) hereby represents that (a) the Company is not, and
has never been, a “shell company” as described in Rule 144(i)(1)(i) of the
Securities Act of 1933, as amended (the “Securities Act”), or, alternatively,
(b) the Company is a former shell company as described in Rule 144(i)(1)(i),
(ii) and (i) ceased to be a shell company as described in Rule 144(i)(1)(i);
(ii) is subject to the reporting requirements of section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”); (iii) has
filed all reports and other materials required to be filed by Section 13 or
15(d) of the Exchange Act, as applicable, during the preceding 12 months (or for
such shorter period that the issuer was required to file such reports and
materials), other than Form 8-K reports; and (iv) one year has elapsed from the
date that the Company filed current “Form 10 information” with the Commission
reflecting its status as an entity that is no longer an “shell company” as
defined in Rule 144(i)(1)(i).

 

All information furnished herein is true, accurate and complete. In the event of
a change of any information contained herein, or in the event any information
shall come into my possession which would indicate that the information
contained herein is not accurate or complete, I shall immediately inform you of
such change or information in writing.

 

 

/s/ Shaun Passley                 

EPAZZ, Inc.

By: Shaun Passley

Title: CEO

February 19, 2014:

 

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CORPORATE RESOLUTION OF THE BOARD OF DIRECTORS OF

EPAZZ, Inc.

 

 

We, the undersigned, do hereby certify that at a meeting of the Board of
Directors of EPAZZ, Inc., a IL corporation organized under the laws of the State
of IL (the “Corporation”), duly held on February 19, 2014 at        205 W.
Wacker 1320        which said meeting no less than two directors were present
and voting throughout, the following resolution, upon motions made, seconded and
carried, was duly adopted and is now in full force and effect:

 

WHEREAS, the Board of Directors of the Corporation deem it in the best interests
of the Corporation to enter into the Assignment and Modification Agreement dated
February 19, 2014 (the “Agreement”), in connection with the issuance of an 12%
convertible note of the Corporation, in the aggregate principal amount of
$37,700 (the “Note”), convertible into shares of common stock, par value $0.001
per share, of the Company (the “Common Stock”), upon the terms and subject to
the limitations and conditions set forth in such Note, along with an irrevocable
letter agreement with Island Stock Transfer, the Corporation’s transfer agent,
with respect to the reserve of shares of common stock of the Corporation to be
issued upon any conversion of the Note; the issuance of such shares of common
stock in connection with a conversion of the Note; and the indemnification of
Island Stock Transfer for all loss, liability, or expense in carrying out the
authority and direction contained in the irrevocable letter agreement (the
“Letter Agreement”);

 

NOW, THEREFORE, BE IT:

 

RESOLVED, that the Corporation is hereby authorized to enter into the Agreement,
the Note and the Letter Agreement which provides in pertinent part: (i) reserve
shares of common stock of the Corporation to be issued upon any conversion of
the Note; (ii) issue such shares of common stock in connection with a conversion
of the Note (issuance upon receipt of a notice of conversion of the holder of
the Note) without any further action or confirmation by the Corporation; and the
Corporation indemnifies Island Stock Transfer for all loss, liability, or
expense in carrying out the authority and direction contained in the Letter
Agreement:

 

RESOLVED, that any executive officer of the Corporation be, and hereby is,
authorized, empowered and directed, from time to time, to take such additional
action and to execute, certify and deliver to the transfer agent of the
Corporation, as any appropriate or proper to implement the provisions of the
foregoing resolutions:

 

The undersigned, do hereby certify that we are members of the Board of Directors
of the Corporation; that the attached is a true and correct copy of resolutions
duly adopted and ratified at a meeting of the Board of Directors of the
Corporation duly convened and held in accordance with its by-laws and the laws
of the State of IL, as transcribed by us from the minutes; and that the same
have not in any way been modified, repealed or rescinded and are in full force
and effect.

 

IN WITNESS WHEREOF, We have hereunto set our hands as President/CEO and Members
of the Board of Directors of the Corporation.

 

 

Dated: February 19, 2014

/s/ Shaun Passley,                                            

Shaun Passley,

CEO, CFO, President/Member of the Board

 

 

Signature: /s/ Shaun Passley,                      

Member of the Board

 

Print Name: Shaun Passley                           

 

 

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EPAZZ, Inc.

 

$37,700

 

TWELVE PERCENT (12%) CONVERTIBLE NOTE
DATED FEBRUARY 19, 2014

 

THIS NOTE (the “Note”) is a duly authorized Convertible Note of EPAZZ, Inc.,
a(n) IL corporation (the “Company”).

 

FOR VALUE RECEIVED, the Company promises to pay Magna Group, LLC (the “Holder”),
the principal sum of $37,700 (the “Principal Amount”) or such lesser principal
amount following the conversion or conversions of this Note in accordance with
Paragraph 2 (the “Outstanding Principal Amount”) on February 17, 2015 (the
“Maturity Date”), and to pay interest on the Outstanding Principal Amount
(“Interest”) in a lump sum on the Maturity Date, at the rate of twelve percent
(12%) per Annum (the “Rate”) from the date of issuance.

 

Accrual of Interest shall commence on the date of this Note and continue until
the Company repays or provides for repayment in full the Outstanding Principal
Amount and all accrued but unpaid Interest. Accrued and unpaid Interest shall
bear Interest at the Rate until paid, compounded monthly. The Outstanding
Principal Amount of this Note is payable on the Maturity Date in such coin or
currency of the United States as at the time of payment is legal tender for
payment of public and private debts, at the address last appearing on the Note
Register of the Company as designated in writing by the Holder from time to
time. The Company may prepay principal and interest on this Note at any time
before the Maturity Date.

 

The Company will pay the Outstanding Principal Amount of this Note on the
Maturity Date, free of any withholding or deduction of any kind (subject to the
provision of paragraph 2 below), to the Holder as of the Maturity Date and
addressed to the Holder at the address appearing on the Note Register.

 

This Note is subject to the following additional provisions:

 

1. All payments on account of the Outstanding Principal Amount of this Note and
all other amounts payable under this Note (whether made by the Company or any
other person) to or for the account of the Holder hereunder shall be made free
and clear of and without reduction by reason of any present and future income,
stamp, registration and other taxes, levies, duties, cost, and charges
whatsoever imposed, assessed, levied or collected by the United States or any
political subdivision or taxing authority thereof or therein, together with
interest thereon and penalties with respect thereto, if any, on or in respect of
this Note (such taxes, levies, duties, costs and charges being herein
collectively called “Taxes”).

 

2. The Holder of this Note is entitled, at its option, at any time after the
issuance of this Note, to convert all or any lesser portion of the Outstanding
Principal Amount and accrued but unpaid Interest into Common Stock at a
conversion price (the “Conversion Price”) for each share of Common Stock equal
to a price which is a 50% discount from the lowest trading price in the 5 days
prior to the day that the Holder requests conversion, unless otherwise modified
by mutual agreement between the Parties (the “Conversion Price”) (The Common
stock into which the Note is converted shall be referred to in this agreement as
“Conversion Shares”). If the Issuer’s Common stock is chilled for deposit at DTC
and/or becomes chilled at any point while this Agreement remains outstanding, an
additional 8% discount will be attributed to the Conversion Price defined
hereof. The Issuer will not be obligated to issue fractional Conversion Shares.
The Holder may convert this Note into Common Stock by surrendering the Note to
the Company, with the form of conversion notice attached to the Note as Exhibit
B, executed by the Holder of the Note evidencing such Holder’s intention to
convert the Note. Additionally, in no event shall the Conversion Price be less
than $0.00004. If the Borrower is unable to issue any shares under this
provision due to the fact that there is an insufficient number of authorized and
unissued shares available, the Holder promises not to force the Borrower to
issue these shares or trigger an Event of Default, provided that Borrower takes
immediate steps required to get the appropriate level of approval from
shareholders or the board of directors, where applicable to raise the number of
authorized shares to satisfy the Notice of Conversion.

 

The Company will not issue fractional shares or scrip representing fractions of
shares of Common Stock on conversion, but the Company will round the number of
shares of Common Stock issuable up to the nearest whole share. The date on which
a Notice of Conversion is given shall be deemed to be the date on which the
Holder notifies the Company of its intention to so convert by delivery, by
facsimile transmission or otherwise, of a copy of the Notice of Conversion.
Notice of Conversion may be sent by email to the Company, attn: Mr. Shaun
Passley, CEO, CFO, President. The Holder will deliver this Note, together with
original executed copy of the Notice of Conversion, to the Company within three
(3) business days following the Conversion Date. At the Maturity Date, the
Company will pay any unconverted Outstanding Principal Amount and accrued
Interest thereon, at the option of the Company, in either (a) cash or (b) Common
Stock valued at a price equal to the Conversion Price determined as if the Note
was converted in accordance with its terms into Common Stock on the Maturity
Date.

 

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3. No provision of this Note shall alter or impair the obligation of the
Company, which is absolute and unconditional, to the payment of the Outstanding
Principal Amount of this Note at the Maturity Date, and in the coin or currency
herein prescribed. This Note and all other Notes now or hereafter issued on
similar terms are direct obligations of the Company. In the event of any
liquidation, reorganization, winding up or dissolution, repayment of this Note
shall not be subordinate in any respect to any other indebtedness of the Company
outstanding as of the date of this Note or hereafter incurred by the Company.

 

Such non-subordination shall extend without limiting the generality of the
foregoing, to all indebtedness of the Company to banks, financial institutions,
other secured lenders, equipment lessors and equipment finance companies, but
shall exclude trade debts. Any warrants, options or other securities convertible
into stock of the Company issued before the date hereof shall rank pari passu
with the Note in all respects

 

4. If at any time or from time to time after the date of this Note, the Common
Stock issuable upon the conversion of the Note is changed into the same or
different numbers of shares of any class or classes of stock, whether by
recapitalization or otherwise, then in each such event the Holder shall have the
right thereafter to convert the Note into the kind of security receivable in
such recapitalization, reclassification or other change by holders of Common
Stock, all subject to further adjustment as provided herein. In such event, the
formulae set forth herein for conversion and redemption shall be equitably
adjusted to reflect such change in number of shares or, if shares of a new class
of stock are issued, to reflect the market price of the class or classes of
stock issued in connection with the above described transaction.

 

5. Events of Default.

 

  5.1. A default shall be deemed to have occurred upon any one of the following
events:

 

  5.1.1. Withdrawal from registration of the Issuer under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), either voluntary or
involuntary.         5.1.2. Issuer filing for bankruptcy protection under the
federal bankruptcy laws, the calling of a meeting of creditors, or any act of
insolvency under any state law regarding insolvency, without written
notification to the Investor within five business days of such filing, meeting
or action.         5.1.3. The Borrower fails to issue shares of Common Stock to
the Holder (or announces or threatens in writing that it will not honor its
obligation to do so) upon exercise by the Holder of the conversion rights of the
Holder in accordance with the terms of this Note, fails to transfer or cause its
transfer agent to transfer (issue) (electronically or in certificated form) any
certificate for shares of Common Stock issued to the Holder upon conversion of
or otherwise pursuant to this Note as and when required by this Note, the
Borrower directs its transfer agent not to transfer or delays, impairs, and/or
hinders its transfer agent in transferring or issuing (electronically or in
certificated form) any certificate for shares of Common Stock to be issued to
the Holder upon conversion of or otherwise pursuant to this Note as and when
required by this Note, or fails to remove (or directs its transfer agent not to
remove or impairs, delays, and/or hinders its transfer agent from removing) any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate for any shares of Common Stock issued to the Holder
upon conversion of or otherwise pursuant to this Note as and when required by
this Note (or makes any written announcement, statement or threat that it does
not intend to honor the obligations described in this paragraph) and any such
failure shall continue uncured (or any written announcement, statement or threat
not to honor its obligations shall not be rescinded in writing) for three (3)
business days after the Holder shall have delivered a Notice of Conversion.

 

 

12

 

 

  5.1.4. Failure to pay the principal and unpaid but accrued interest on the
Note when due.         5.1.5. Any dissolution, liquidation, or winding up of
Borrower or any substantial portion of its business.         5.1.6. Any
cessation of operations by Borrower or Borrower admits it is otherwise generally
unable to pay its debts as such debts become due, provided, however, that any
disclosure of the Borrower’s ability to continue as a “going concern” shall not
be an admission that the Borrower cannot pay its debts as they become due.      
  5.1.7. The failure by Borrower to maintain any material intellectual property
rights, personal, real property or other assets which are necessary to conduct
its business (whether now or in the future).         5.1.8. The Borrower
effectuates a reverse split of its Common Stock without twenty (20) days prior
written notice to the Holder.         5.1.9

In the event that the Borrower proposes to replace its transfer agent, the
Borrower fails to provide, prior to the effective date of such replacement,
fully executed Irrevocable Transfer Agent Instructions in a form as initially
delivered pursuant to the Purchase Agreement (including but not limited to the
provision to irrevocable reserve shares of Common Stock in the Reserved Amount)
signed by the successor transfer agent to Holder and the Borrower.

        5.1.10 The failure by Borrower to pay any and all Post-Closing Expenses
as defined in section 15.         5.1.11 From and after the initial trading,
listing or quotation of the Common Stock on a Principal Market, an event
resulting in the Common Stock no longer being traded, listed or quoted on a
Principal Market; failure to comply with the requirements for continued
quotation on a Principal Market; or notification from a Principal Market that
the Borrower is not in compliance with the conditions for such continued
quotation and such non-compliance continues for seven (7) trading days following
such notification.         5.1.12 If the Company does not submit their quarterly
or annual report (10-Q or 10-K or the equivalent), and therefore, the Company
files a late notification (NT 10-Q or NT 10-K or the equivalent), and then the
Company does not file the appropriate quarterly or annual report within fifteen
(15) business days from the specific late notification.         5.1.13 Omitted
Intentionally.

 

13

 

 

  5.2. Default remedies. Upon the occurrence and during the continuation of any
Event of Default specified in Section 5.1. (solely with respect to failure to
pay the principal hereof or interest thereon when due at the Maturity Date), the
Note shall become immediately due and payable and the Borrower shall pay to the
Holder, in full satisfaction of its obligations hereunder, an amount equal to
the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE
CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 5.1., THE NOTE SHALL
BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN
FULL SATISFACTION OF ITS OBLIGTAIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE
DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence
and during the continuation of any Event of Default specified in Sections 5.1.
(solely with respect to failure to pay the principal hereof or interest thereon
when due on this Note, 5.1.1, 5.1.2, 5.1.5, 5.1.6, 5.1.7, 5.1.8, 5.1.9, 5.1.10,
5.1.11, 5.1.12, 5.1.13 exercisable through the delivery of written notice to the
Borrower by such Holders (the “Default Notice”), and upon the occurrence of an
Event of Default specified in the remaining sections of Section 5.1. (other than
failure to pay the principal hereof or interest thereon at the Maturity Date
specified in Section 5.1. hereof), the Note shall become immediately due and
payable and the Borrower shall pay to the Holder, in full satisfaction of its
obligations hereunder, an amount equal to the greater of (i) 150% times the sum
of (w) the then outstanding principal amount of this Note plus (x) accrued and
unpaid interest on the unpaid principal amount of this Note to the date of
payment (the “Mandatory Prepayment Date”) plus (y) Default Interest, if any, on
the amounts referred to in clauses (w) and/or (x) (the then outstanding
principal amount of this Note to the date of payment plus the amounts referred
to in clauses (x) and (y) shall collectively be known as the “Default Sum”) or
(ii) the “parity value” of the Default Sum to be prepaid, where parity value
means (a) the highest number of shares of Common Stock issuable upon conversion
of or otherwise pursuant to such Default Sum, treating the Trading Day
immediately preceding the Mandatory Prepayment Date as the “Conversion Date” for
purposes of determining the lowest applicable Conversion Price, unless the
Default Event arises as a result of such breach in respect of a specific
Conversion Date in which case such Conversion Date shall be the Conversion Date,
multiplied by (b) the highest Closing Price for the Common Stock during the
period beginning on the date of first occurrence of the Event of Default and
ending one day prior to the Mandatory Prepayment Date (the “Default Amount”) and
all other amounts payable hereunder shall immediately become due and payable,
all without demand, presentment or notice, all of which hereby are expressly
waived, together with all costs, including, without limitation, legal fees and
expenses, of collection, and the Holder shall be entitled to exercise all other
rights and remedies available at low or in equity.           If the Borrower
fails to pay the Default Amount within five (5) business days of written notice
that such amount is due and payable, then the Holder shall have the right at any
time, so long as the Borrower remains in default (and so long and to the extent
that there are sufficient authorized shares), to require the Borrower, upon
written notice, to immediately issue, in lieu of the Default Amount, the number
of shares of Common Stock of the Borrower equal to the Default Amount divided by
the Conversion Price then in effect.

 

6. Prepayment. At any time that the Note remains outstanding, upon three
business days’ written notice (the
“Prepayment Notice”) to the Holder, the Company may pay 150% of the entire
Outstanding Principal Amount of the Note plus any accrued but unpaid Interest.
If the Company gives written notice of prepayment, the Holder continues to have
the right to convert principal and interest on the Note into Conversion Shares
until three business days elapses from the Prepayment Notice.

 

7. Anti-Dilution. If, at any time the Note is outstanding, the Issuer issues
Common Stock, or grants options or warrants, at a price per share that is less
than the Conversion Price on the date of such issuance or grant, the Conversion
Price will be adjusted to such lower price for the remainder of the term of the
Note.

 

8. The Company covenants that until all amounts due under this Note are paid in
full, by conversion or otherwise, unless waived by the Holder or subsequent
Holder in writing, the Company shall:

 

give prompt written notice to the Holder of any Event of Default or of any other
matter which has resulted in, or could reasonably be expected to result in a
materially adverse change in its financial condition or operations;

 

give prompt notice to the Holder of any claim, action or proceeding which, in
the event of any unfavorable outcome, would or could reasonably be expected to
have a Material Adverse Effect (as defined below) on the financial condition of
the Company;

 

at all times reserve and keep available out of its authorized but unissued
Common Stock, for the purpose of effecting the conversion of this Note into
Common Stock, such number of its duly authorized shares of Common Stock as shall
from time to time be sufficient to effect the conversion of the Outstanding
Principal Amount of this Note into Common Stock.

 

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“Material Adverse Effect” means (i) any condition, occurrence, state of facts or
event having, or insofar as reasonably can be foreseen would likely have, any
material adverse effect on the legality, validity or enforceability of the
Transaction Documents or the transactions contemplated thereby, (ii) any
condition, occurrence, state of facts or event having, or insofar as reasonably
can be foreseen would likely have, any effect on the business, operations,
properties or financial condition of the Company that is material and adverse to
the Company and its Subsidiaries, taken as a whole, and/or (iii) any condition,
occurrence, state of facts or event that would, or insofar as reasonably can be
foreseen would likely, prohibit or otherwise materially interfere with or delay
the ability of the Company to perform any of its obligations under any of the
Transaction Documents to which it is a party.

 

9. Upon receipt by the Company of evidence from the Holder reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Note,

 

(i) in the case of loss, theft or destruction, upon provision of indemnity
reasonably satisfactory to it and/or its transfer agent, or

 

(ii) in the case of mutilation, upon surrender and cancellation of this Note,
then the Company at its expense will execute and deliver to the Holder a new
Note, dated the date of the lost, stolen, destroyed or mutilated Note, and
evidencing the outstanding and unpaid principal amount of the lost, stolen,
destroyed or mutilated Note.

 

10. If any term in this Note is found by a court of competent jurisdiction to be
unenforceable, then the entire Note shall be rescinded, the consideration
proffered by the Holder for the remaining Debt acquired by the Holder not
converted by the Holder in accordance with this Note shall be returned in its
entirety and any Conversion Shares in the possession or control of the Investor
shall be returned to the Issuer.

 

11. The Note and the Agreement between the Company and the Holder (including all
Exhibits thereto) constitute the full and entire understanding and agreement
between the Company and the Holder with respect to the subject hereof. Neither
this Note nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and the Holder.

 

12. This Note shall be governed by and construed in accordance with the internal
laws of the State of New York.

 

13. Legal Opinion. The Issuer’s counsel has provided an opinion regarding the
applicable exemption from registration under the Securities Act for the issuance
of the Conversion Shares pursuant to the terms and conditions of this Agreement
and the Note, which provides that upon conversion at any time following the date
hereof, the shares received as a result of the conversion shall be issued
unrestricted in accordance with the appropriate exemption. If the Issuer
declines to provide, or requests that Investor counsel prepare an opinion, the
Issuer agrees to bear the cost of the letter.

 

14. Conditions. The Issuer acknowledges the Investor’s participation in respect
to this Agreement is on a conditions permitting basis. In the event that the
transaction risk profile substantially changes, market pricing or implied
volatility substantially change, due diligence raises concerns or any other
conditions material to the successful closing of the transaction change, the
Investor reserves the right to terminate the Agreement at any time before
delivering to the Non Affiliate Debtholder the cash consideration as described
hereof.

 

15. Post-Closing Expenses. The Issuer will bear any and all miscellaneous
expenses that may arise as a result of this Agreement post-closing. These
expenses include, but are not limited to, the cost of legal opinion production,
transfer agent fees, equity issuance fees, etc. The failure to pay any and all
Post-Closing Expenses will be deemed a default as described in Section 5.1.10
herein.

 

16. Miscellaneous

 

  16.1. Counterparts. This Agreement may be executed in any number of
counterparts by original, facsimile or email signature. All executed
counterparts shall constitute one Agreement not withstanding that all
signatories are not signatories to the original or the same counterpart.
Facsimile and scanned signatures are considered original signatures.        
16.2. Severability. This Agreement is not severable. If any term in this
Agreement is found by a court of competent jurisdiction to be unenforceable,
then the entire Agreement shall be rescinded, the consideration proffered by the
Investor for the remaining Debt acquired by Investor not converted by the
Investor in accordance with this Agreement shall be returned in its entirety and
any Conversion Shares in the possession or control of the Investor shall be
returned to the Issuer.

 

15

 

 

  16.3.

Legal Fees. Except as provided in Section 15 of this agreement, each Party will
bear its own legal expenses in the execution of this Agreement. If the Issuer
defaults and the Investor is required to expend funds for legal fees and
expenses, such costs will be reimbursed to the Investor, solely by the Issuer.

        16.4 Trading Activities. Neither the Holder nor their affiliates has an
open short position in the common stock of the Company and the Holder agree that
they shall not, and that they will cause their affiliates not to, engage in any
short sales of or hedging transactions with respect to the common stock of the
Company.         16.5. Modification. This Agreement and the Note may only be
modified in a writing signed by all Parties.

 

 

IN WITNESS WHEREOF, the Company has caused this instrument to be duly executed
by an officer thereunto duly authorized, as of the date first written above.

 

EPAZZ, Inc.

 

 

 

By: /s/ Shaun Passley                                 

Shaun Passley, CEO, CFO, President

 

 

16

 

 

Exhibit B.

 

NOTICE OF CONVERSION

 

The undersigned hereby elects to convert $_______________ of the principal
amount of the Note (defined below) into Shares of Common Stock of EPAZZ, Inc.,
a(n) IL Corporation (the “Borrower”) according to the conditions of the
Convertible Note of the Borrower dated as of February 19, 2014 (the “Note”). No
fee will be charged to the Holder or Holder’s Custodian for any conversion,
except for transfer taxes, if any.

 

Box Checked as to applicable instructions:

 

  [ ] The Borrower shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system (“DWAC
Transfer”).           Name of DTC Prime Broker:
                                                 Account Number:
                                               [ ]

The undersigned hereby requests that the Borrower issue a certificate or
certificates for the number of shares of Common Stock set forth below (which
numbers are based on the Holder’s calculation attached hereto) in the name(s)
specified immediately below:

          Magna Group, LLC     EIN #: 27-2162659

 

 

Date of Conversion:               Conversion Price:               Shares to Be
Delivered:               Remaining Principal Balance Due After This Conversion:
              Signature               Print Name:   Joshua Sason  

 

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PROMISSORY NOTE

 

US $32,000 July 31, 2013

 

FOR VALUE RECEIVED, the undersigned, Epazz, Inc.., an Illinois corporation,
("Maker") hereby promises to pay to the order of Star Financial Corporation
("Payee"), the principal sum of thirty-two thousand dollars ($32,000), in lawful
money in United States of America, which shall be legal tender, bearing interest
and payable as provided herein. This Promissory Note (this “Note” or “Promissory
Note”) has an effective date of July 31, 2013. This Note is to reflect a loan
being made to the Maker. Payee will forever forgive and discharge any difference
between the outstanding balance of the fees owed to Payee by Maker as of the
effective date of this Note and the principal amount of this Note upon repayment
of this Note in its entirety.

 

1.Interest on the unpaid balance of this Note shall bear interest at the rate of
fifteen percent (15%) per
annum, which interest shall accrue from the effective date until the Maturity
Date (as defined below), unless prepaid prior to such Maturity Date. All
past-due principal and interest (which failure to pay such amounts after a
fifteen (15) day cure period, shall be defined herein as an “Event of Default”)
shall bear interest at the rate of twenty percent (20%) per annum until paid in
full (the “Default Interest Rate”), with it being understood that Maker shall
have an additional fifteen day cure periods during the term of the Note before
an Event of Default occurs. Upon an Event of Default, Payee may declare the
entire amount of this Note due and payable and shall be able to take whatever
action available to it in law or equity to enforce its rights to collect an
additional $2,500 as liquidated damages in addition to the amounts owed pursuant
to this Note. Interest will be computed on the basis of a 360-day year.

 

2.The principal amount of this Note shall be due and payable on January 15, 2014
(the “Maturity Date”).

 

3.Loan Origination fee shall be $5,000 and 3,000,000 shares of Epazz Common A,
as deducted from principal proceeds of this note (Net proceeds of $27,000).

 

4.This Note may be prepaid in whole or in part, at any time and from time to
time, without premium or penalty.

 

5.If any payment of principal or interest on this Note shall become due on a
Saturday, Sunday or any other day on which national banks are not open for
business, such payment shall be made on the next succeeding business day.

 

6.This Note shall be binding upon and inure to the benefit of the Payee named
herein and Payee’s respective successors and assigns. Each holder of this Note,
by accepting the same, agrees to and shall be bound by all of the provisions of
this Note. Payee may assign this Note or any of its rights, interests or
obligations to this Note without the prior written approval of Maker.

 

7.No provision of this Note shall alter or impair the obligation of Maker to pay
the principal of and interest on this Note at the times, places and rates, and
in the coin or currency, herein prescribed.

 

8.The Maker will do or cause to be done all things reasonably necessary to
preserve and keep in full force and effect its corporate existence, rights and
franchises and comply with all laws applicable to the Maker, except where the
failure to comply could not reasonably be expected to have a material adverse
effect on the Maker. Failure to comply with this provision shall constitute an
Event of Default.

 

9.Notwithstanding anything to the contrary in this Note or any other agreement
entered into in connection herewith, whether now existing or hereafter arising
and whether written or oral, it is agreed that the aggregate of all interest and
any other charges constituting interest, or adjudicated as constituting
interest, and contracted for, chargeable or receivable under this Note or
otherwise in connection with this loan transaction, shall under no circumstances
exceed the Maximum Rate.

 

18

 

 

10.In the event the maturity of this Note is accelerated by reason of an Event
of Default under this Note, any other agreement entered into in connection
herewith or therewith, or by voluntary prepayment by Maker or otherwise, then
earned interest may never include more than the Maximum Rate allowable by law,
computed from the dates of each advance of the loan proceeds outstanding until
payment. If from any circumstance any holder of this Note shall ever receive
interest or any other charges constituting interest, or adjudicated as
constituting interest, the amount, if any, which would exceed the Maximum Rate
shall be applied to the reduction of the principal amount owing on this Note,
and not to the payment of interest; or if such excessive interest exceeds the
unpaid balance of principal hereof, the amount of such excessive interest that
exceeds the unpaid balance of principal hereof shall be refunded to Maker. In
determining whether or not the interest paid or payable exceeds the Maximum
Rate, to the extent permitted by applicable law (i) any nonprincipal payment
shall be characterized as an expense, fee or premium rather than as interest;
and (ii) all interest at any time contracted for, charged, received or preserved
in connection herewith shall be amortized, prorated, allocated and spread in
equal parts during the period of the full stated term of this Note. The term
"Maximum Rate" shall mean the maximum rate of interest allowed by applicable
federal or state law.

 

11.Except as provided herein, Maker and any sureties, guarantors and endorsers
of this Note jointly and severally waive demand, presentment, notice of
nonpayment or dishonor, notice of intent to accelerate, notice of acceleration,
diligence in collecting, grace, notice and protest, and consent to all
extensions without notice for any period or periods of time and partial
payments, before or after maturity, without prejudice to the holder. The holder
shall similarly have the right to deal in any way, at any time, with one or more
of the foregoing parties without notice to any other party, and to grant any
such party any extensions of time for payment of any of said indebtedness, or to
grant any other indulgences or forbearance whatsoever, without notice to any
other party and without in any way affecting the personal liability of any party
hereunder. If any efforts are made to collect or enforce this Note or any
installment due hereunder, the undersigned agrees to pay all collection costs
and fees, including reasonable attorney's fees.

 

12.A copy of this Promissory Note signed by one party and faxed to another party
shall be deemed to have been executed and delivered by the signing party as
though an original. A photocopy of this Promissory Note shall be effective as an
original for all purposes.

 

13.This Note shall be construed and enforced under and in accordance with the
laws of the State of Illinois, without regard to choice-of-law rules of any
jurisdiction.

 

IN WITNESS WHEREOF, Maker has duly executed this Note as of the day and year
first written above.

 

Epazz, INC.

 

 

/s/ Shaun Passley                                           

Shaun Passley

Chief Executive Officer

 

 

 

 

Portions of this exhibit, indicated by the mark “[***],” have been redacted
pursuant to a confidential treatment request. An unredacted version of this
exhibit has been filed separately with the Securities and Exchange Commission.

 

19