Exhibit 10.31

 

THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT”)

 

IRONCLAD ENCRYPTION CORPORATION

12% CONVERTIBLE PROMISSORY NOTE

DUE MARCH 28, 2019

BACK END NOTE

 

Effective Date March 28, 2019US $86,250.00  

 

Due March 28, 2020

 

THIS NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT
BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION PROVIDED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER (THE "1933 ACT”)

 

FOR VALUE RECEIVED Ironclad Encryption Corporation  (the “Company”) promises to
pay to the order of GW Holdings Group, LLC, and its authorized successors and
permitted assigns ("Holder"), the aggregate principal face amount of Eighty-Six
Thousand Two Hundred Fifty Dollars exactly (U.S. $86,250.00) on March 28, 2020
("Maturity Date"). The Company will pay interest on the principal amount
outstanding at the rate of 12% per annum, which will commence on March 28, 2019.
The Company acknowledges that this Note was issued with a $7,500.00 original
issue discount (“OID”) such that the issuance price was $78,750.00. The interest
will be paid to the Holder in whose name this Note is registered on the records
of the Company regarding registration and transfers of this Note. The principal
of, and interest on, this Note are payable at 137 Montague Street, Suite 291,
Brooklyn, NY 11201, initially, and if changed, last appearing on the records of
the Company as designated in writing by the Holder hereof from time to time. The
Company will pay each interest payment and the outstanding principal due upon
this Note before or on the Maturity Date, less any amounts required by law to be
deducted or withheld, to the Holder of this Note by check or wire transfer
addressed to such Holder at the last address appearing on the records of the
Company. The forwarding of such check or wire transfer shall constitute a
payment of outstanding principal hereunder and shall satisfy and discharge the
liability for principal on this Note to the extent of the sum represented by

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such check or wire transfer.  Interest shall be payable in Common Stock (as
defined below) pursuant to paragraph 4(b) herein.

 

This Note is subject to the following additional provisions: 

 

1.This Note is exchangeable for an equal aggregate principal amount of Notes of
different authorized denominations, as requested by the Holder surrendering the
same.  No service charge will be made for such registration or transfer or
exchange, except that Holder shall pay any tax or other governmental charges
payable in connection therewith. 

 

2.Under all applicable laws, the Company shall be entitled to withhold any
amounts from all payments it is entitled to. 

 

3.This Note may only be transferred or exchanged in compliance with the
Securities Act of 1933, as amended ("Act") and any applicable state securities
laws.  All attempts to transfer to a non-qualifying party shall be treated by
the Company as void.  Prior to due presentment for transfer of this Note, the
Company and any agent of the Company may treat the person in whose name this
Note is duly registered on the Company's records as the owner hereof for all
other purposes, whether or not this Note be overdue, and neither the Company nor
any such agent shall be affected or bound by notice to the contrary.  Any Holder
of this Note electing to exercise the right of conversion set forth in Section
4(a) hereof, in addition to the requirements set forth in Section 4(a), and any
prospective transferee of this Note, also is required to give the Company
written confirmation that this Note is being converted ("Notice of Conversion")
in the form annexed hereto as Exhibit A. The date of receipt (including receipt
by telecopy) of such Notice of Conversion shall be the Conversion Date.  

 

4.(a)       The Holder of this Note is entitled, at its option, to convert all
or any amount of the principal face amount of this Note then outstanding into
shares of the Company's common stock (the "Common Stock") at a price
("Conversion Price") for each share of Common Stock equal to 35% discount of the
lowest trading price of the Common Stock as reported on the National Quotations
Bureau OTC Markets exchange which the Company’s shares are traded or any
exchange upon which the Common Stock may be traded in the future ("Exchange"),
for the fifteen prior trading days including the day upon which a Notice of
Conversion is received by the Company or its transfer agent (provided such
Notice of Conversion is delivered by fax or other electronic method of
communication to the Company or its transfer agent after 4 P.M. Eastern Standard
or Daylight Savings Time if the Holder wishes to include the same day closing
price). The Notice of Conversion may be rescinded if the shares have not been
delivered within 3 business days.  The Company shall deliver the shares of
Common Stock to the Holder within 3 business days of receipt by the Company of
the Notice of Conversion.  Accrued but unpaid interest shall be subject to
conversion. The number of issuable shares will be rounded to the nearest whole
share, and no fractional shares or scrip representing fractions of shares will
be issued on conversion. To the extent the Conversion Price of the Company’s
Common Stock closes below the par  

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value per share, the Company will take all steps necessary to solicit the
consent of the stockholders to reduce the par value to the lowest value possible
under law. The Company agrees to honor all conversions submitted until the par
is decreased.  In the event the Company experiences a DTC “Chill” on its shares,
the conversion price discount shall be increased to 50% while that “Chill” is in
effect.  Notwithstanding anything to the contrary contained in the Note (except
as set forth below in this Section), the Note shall not be convertible by
Investor, and Company shall not effect any conversion of the Note or otherwise
issue any shares of Common Stock to the extent (but only to the extent) that
Investor together with any of its affiliates would beneficially own in excess of
9.99% (the “Maximum Percentage”) of the Common Stock outstanding.  To the extent
the foregoing limitation applies, the determination of whether a Note shall be
convertible (vis-à-vis other convertible, exercisable or exchangeable securities
owned by Investor or any of its affiliates) and of which such securities shall
be convertible, exercisable or exchangeable (as among all such securities owned
by Investor and its affiliates) shall, subject to such Maximum Percentage
limitation, be determined on the basis of the first submission to Company for
conversion, exercise or exchange (as the case may be).  No prior inability to
convert a Note, or to issue shares of Common Stock, pursuant to this Section
shall have any effect on the applicability of the provisions of this Section
with respect to any subsequent determination of convertibility. For purposes of
this Section, beneficial ownership and all determinations and calculations
(including, without limitation, with respect to calculations of percentage
ownership) shall be determined in accordance with Section 13(e) of the 1934 Act
(as defined below) and the rules and regulations promulgated thereunder.  The
provisions of this Section shall be implemented in a manner otherwise than in
strict conformity with the terms of this Section to correct this Section (or any
portion hereof) which may be defective or inconsistent with the intended Maximum
Percentage beneficial ownership limitation herein contained or to make changes
or supplements necessary or desirable to properly give effect to such Maximum
Percentage limitation. The limitations contained in this Section shall apply to
a successor holder of this Note and shall be unconditional, irrevocable and
non-waivable.  For any reason at any time, upon the written or oral request of
Investor, Company shall within two (2) business days confirm in writing to
Investor the number of shares of Common Stock then outstanding, including by
virtue of any prior conversion or exercise of convertible or exercisable
securities into Common Stock, including, without limitation, pursuant to this
Note.

(b)Interest on any unpaid principal balance of this Note shall be paid at the
rate of 12% per annum. In the event of a conversion hereunder, interest shall be
paid, by the Company, in Common Stock ("Interest Shares").  Holder may send in a
Notice of Conversion to the Company for Interest Shares based on the formula
provided in Section 4(a) above. The dollar amount converted into Interest Shares
shall be all or a portion of the accrued interest calculated on the unpaid
principal balance of this Note to the date of such notice.    

 

(c)This Note cannot be prepaid.  

 

(d) Upon (i) a transfer of all or substantially all of the assets of the  

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Company to any person in a single transaction or series of related transactions,
(ii) a reclassification, capital reorganization or other change or exchange of
outstanding shares of the Common Stock, other than a forward or reverse stock
split or stock dividend, or (iii) any consolidation or merger of the Company
with or into another person or entity in which the Company is not the surviving
entity (other than a merger which is effected solely to change the jurisdiction
of incorporation of the Company and results in a reclassification, conversion or
exchange of outstanding shares of Common Stock solely into shares of Common
Stock) (each of items (i), (ii) and (iii) being referred to as a "Sale Event"),
then, in each case, the Company shall, upon request of the Holder, redeem this
Note in cash for 150% of the principal amount, plus accrued but unpaid interest
through the date of redemption, or at the election of the Holder, such Holder
may convert the unpaid principal amount of this Note (together with the amount
of accrued but unpaid interest) into shares of Common Stock immediately prior to
such Sale Event at the Conversion Price.

 

(e)  In case of any Sale Event (not to include a sale of all or substantially
all of the Company’s assets) in connection with which this Note is not redeemed
or converted, the Company shall cause effective provision to be made so that the
Holder of this Note shall have the right thereafter, by converting this Note, to
purchase or convert this Note into the kind and number of shares of stock or
other securities or property (including cash) receivable upon such
reclassification, capital reorganization or other change, consolidation or
merger by a holder of the number of shares of Common Stock that could have been
purchased upon exercise of the Note and at the same Conversion Price, as defined
in this Note, immediately prior to such Sale Event. The foregoing provisions
shall similarly apply to successive Sale Events. If the consideration received
by the holders of Common Stock is other than cash, the value shall be as
determined by the Board of Directors of the Company or successor person or
entity acting in good faith. 

 

5.No provision of this Note shall alter or impair the obligation of the Company,
which is absolute and unconditional, to pay the principal of, and interest on,
this Note at the time, place, and rate, and in the form, herein prescribed. 

 

6.The Company hereby expressly waives demand and presentment for payment, notice
of non-payment, protest, notice of protest, notice of dishonor, notice of
acceleration or intent to accelerate, and diligence in taking any action to
collect amounts called for hereunder and shall be directly and primarily liable
for the payment of all sums owing and to be owing hereto. 

 

7.The Company agrees to pay all costs and expenses, including reasonable
attorneys' fees and expenses, which may be incurred by the Holder in collecting
any amount due under this Note. 

 

8.While this Note is outstanding and to the extent the Company grants any other
party more favorable investment terms (whether via interest rate, original issue
 

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discount, conversion discount, look-back period or any other term), the terms of
the Note shall automatically adjust to match those more favorable terms.

 

9.If one or more of the following described "Events of Default" shall occur: 

 

(a)The Company shall default in the payment of principal or interest on this
Note or any other note issued to the Holder by the Company; or 

 

(b)Any of the representations or warranties made by the Company herein or in any
certificate or financial or other written statements heretofore or hereafter
furnished by or on behalf of the Company in connection with the execution and
delivery of this Note, or the Securities Purchase Agreement under which this
note was issued shall be false or misleading in any material espect; or 

 

(c)The Company shall fail to perform or observe, in any material respect, any
covenant, term, provision, condition, agreement or obligation of the Company
under this Note or any other note issued to the Holder; or 

 

(d)The Company shall (1) make an assignment for the benefit of creditors or
commence proceedings for its dissolution; (2) apply for or consent to the
appointment of a trustee, liquidator or receiver for its or for a substantial
part of its property or business; (3) file a petition for relief, consent to the
filing of such petition or have filed against it an involuntary petition for
bankruptcy relief, all under federal or state laws as applicable; or 

 

(e)A trustee, liquidator or receiver shall be appointed for the Company or for a
substantial part of its property or business without its consent and shall not
be discharged or stayed within sixty (60) days after such appointment; or 

 

(f)Any governmental agency or any court of competent jurisdiction at the
instance of any governmental agency shall assume custody or control of the whole
or any substantial portion of the properties or assets of the Company; or 

 

(g)One or more money judgments, writs or warrants of attachment, or similar
process, in excess of One Hundred Thousand dollars ($100,000.00) in the
aggregate, shall be entered or filed against the Company or any of its
properties or other assets and shall remain unpaid, unvacated, unbonded or
unstayed for a period of fifteen (15) days or in any event later than five (5)
days prior to the date of any proposed sale thereunder; or 

 

(h)The Company shall have defaulted on or breached any term of any other note of
similar debt instrument into which the Company has entered and failed to cure
such default within the appropriate grace period; or 

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(i)The Company shall have its Common Stock delisted from an exchange (including
the OTCB exchange) or, if the Common Stock trades on an exchange, then trading
in the Common Stock shall be suspended for more than 10 consecutive days;  

 

(j)If a majority of the members of the Board of Directors of the Company on the
date hereof are no longer serving as members of the Board;  

 

(k)The Company shall not deliver to the Holder the Common Stock pursuant to
paragraph 4(a) herein without restrictive legend within 3 business days of its
receipt of a Notice of Conversion;  

 

(l) The Company shall not replenish the reserve set forth in Section 13, within
3 business days of the request of the Holder; or 

 

(m)The Company shall not be “current” in its filings with the Securities and
Exchange Commission; or 

 

(n)    The Company shall lose the “bid” price for its stock in a market
(including the OTC marketplace or other exchange); 

 

(o)The Company is in arrears for more than 30 days with its Transfer Agent, the
conversion discount shall be increased by an additional ten percent (10%). 

(p)Following any Event of Default, the Conversion Price discount shall be
permanently increased by additional five percent (5%).  

 

(q) The Company’s Common Stock has a closing bid price of less than $0.003 per
share for at least 5 consecutive trading days. 

 

(r) The aggregate dollar trading volume of the Company’s Common Stock is less
than forty thousand dollars ($40,000.00) in any 5 consecutive trading days (if
triggered, the discount will remain the same).  

 

Then, or at any time thereafter, unless cured within 5 days (except for 9(q) and
9(r) which are incurable defaults, the sole remedy of which is to allow the
Holder to cancel both this Note and the Holder Issued Note), and in each and
every such case, unless such Event of Default shall have been waived in writing
by the Holder (which waiver shall not be deemed to be a waiver of any subsequent
default) at the option of the Holder and in the Holder's sole discretion, the
Holder may consider this Note immediately due and payable, without presentment,
demand, protest or (further) notice of any kind (other than notice of
acceleration), all of which are hereby expressly waived, anything herein or in
any note or other instruments contained to the contrary notwithstanding, and the
Holder may immediately, and without expiration of any period of grace, enforce
any and all of the Holder's rights and remedies provided herein or any other
rights or remedies afforded by law. Upon an Event of Default, interest shall
accrue at a default interest rate of 24% per

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annum or, if such rate is usurious or not permitted by current law, then at the
highest rate of interest permitted by law.  In the event of a breach of Section
9(k) the penalty shall be $250 per day the shares are not issued beginning on
the 4th day after the conversion notice was delivered to the Company.  This
penalty shall increase to $500 per day beginning on the 10th day.  The penalty
for a breach of Section 9(n) shall be an increase of the outstanding principal
amounts by 20%.  In case of a breach of Section 9(i), (k), (l) or (m) the
outstanding principal due under this Note shall increase by 50%. If this Note is
not paid at maturity, the outstanding principal due under this Note shall
increase by 10%. If the Holder shall commence an action or proceeding to enforce
any provisions of this Note, including, without limitation, engaging an
attorney, then if the Holder prevails in such action, the Holder shall be
reimbursed by the Company for its attorneys’ fees and other costs and expenses
incurred in the investigation, preparation and prosecution of such action or
proceeding.

 

 

10.In case any provision of this Note is held by a court of competent
jurisdiction to be excessive in scope or otherwise invalid or unenforceable,
such provision shall be adjusted rather than voided, if possible, so that it is
enforceable to the maximum extent possible, and the validity and enforceability
of the remaining provisions of this Note will not in any way be affected or
impaired thereby. 

 

11.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.The Company represents that it is not a “shell” issuer and has never been a
“shell” issuer or that if it previously has been a “shell” issuer that at least
12 months have passed since the Company has reported Form 10 type information
indicating it is no longer a “shell” issuer.  Further. The Company will instruct
its counsel to either (i) write a 144- 3(a)(9) opinion to allow for salability
of the conversion shares or (ii) accept such opinion from Holder’s counsel
provided that it is consistent with applicable law. 

 

13.Prior to cash funding, the Company shall reserve a 3x multiple shares of
Common Stock for conversions under this Note (the “Share Reserve”). The investor
shall have the right to periodically request that the number of Reserved Shares
be increased so that the number of Reserved Shares at least equals 300% of the
number of shares of Company common stock issuable upon conversion of the Note.
The Company shall pay all costs associated with issuing and delivering the
shares. If such amounts are to be paid by the Holder, it may deduct such amounts
from the Conversion Price. The Company will instruct its transfer agent to
provide the outstanding share information to the Holder in connection with its
conversions. At all times, the reserve shall be maintained with the Transfer
Agent at three times the amount of shares required if the Note would be fully
converted.  

 

14.The Company will give the Holder direct notice of any corporate  

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actions, including but not limited to name changes, stock splits,
recapitalizations etc.  This notice shall be given to the Holder as soon as
possible under law.  

 

15.This Note shall be governed by and construed in accordance with the laws of
New York applicable to contracts made and wholly to be performed within the
State of New York and shall be binding upon the successors and assigns of each
party hereto. The Holder and the Company hereby mutually waive trial by jury and
consent to exclusive jurisdiction and venue in the courts of the State of New
York.  This Agreement may be executed in counterparts, and the facsimile
transmission of an executed counterpart to this Agreement shall be effective as
an original. 

 

 

IN WITNESS WHEREOF, the Company has caused this Note to be duly executed by an
officer thereunto duly authorized.

 

 

Dated: March 28, 2019

 

   

   

IRONCLAD ENCRYPTION CORPORATION 

          

By: __________________________________ 

 

 

  Title: _________________________________

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EXHIBIT A

 

 

NOTICE OF CONVERSION

 

(To be Executed by the Registered Holder in order to Convert the Note)

 

The undersigned hereby irrevocably elects to convert $___________ of the above
Note into _________ Shares of Common Stock of Ironclad Encryption
Corporation(“Shares”) according to the conditions set forth in such Note, as of
the date written below. 

 

If Shares are to be issued in the name of a person other than the undersigned,
the undersigned will pay all transfer and other taxes and charges payable with
respect thereto. 

 

Date of Conversion:__________________________________________ 

Applicable Conversion Price:__________________________________________ 

Signature:__________________________________________ 

[Print Name of Holder and Title of Signer]

Address:__________________________________________ 

__________________________________________ 

 

SSN or EIN:__________________________________________ 

Shares are to be registered in the following
name:__________________________________________ 

 

Name:__________________________________________ 

Address:__________________________________________ 

Tel:__________________________________________ 

Fax:__________________________________________ 

SSN or EIN:__________________________________________ 

 

Shares are to be sent or delivered to the following account:

 

Account Name:__________________________________________ 

Address:__________________________________________